Despite not yet reaching pandemic levels of affordability, Austin's real estate market has slowed down slightly as its number of home sales decreases. Other major cities across America are experiencing similar trends.
Despite this slowdown in the number of homes sold, the average home price has remained relatively stable since the beginning of 2022, indicating that there is still plenty of room for buyers to bid up prices even if they aren't buying at the rate they were before COVID-19 hit.
As a result, the Austin real estate market is still favoring buyers, but the signs of slowing down cannot be overlooked. Therefore, they should be considered when making future market analyses and forecasts for the city.
Will this market moderation impact Austin's commercial real market as a whole?
Austin's Q2 2022 Housing Market Performance
Compared to Q1 2022's 7% rise, house prices rose by about 2% in Texas in Q2 2022.
- Tier 1 houses sold at an average rate of 7.5% above their listed prices and stayed on the market for six (6) business days.
- Tier 2 sold for approximately 3 percent above its listed price and remained on the market for an average of 45 days.
- Tier 3 homes sold at an average price of about 3% lower than their listed prices and stayed on the MLS for about 110 calendar months on average.
Year-over-year, the total number of residential home sales declined by about 20%, but the number of new homes sold increased by about 10%. However, there was an increase in the supply of available homes, which rose to 2.1.
New listing volume increased by about 20 percent in Q2 2022 to approximately 6,100.
Austin's Economy and Job Market
By Q1 2022, Austin's economic activity had grown by about 75,000 new positions as large technology companies like Google and Oracle moved their headquarters to Austin.
Relocation activity for corporate offices was lower than anticipated in Q2 20202. However, there were no signs of slowing down regarding job creation.
Unemployment rates in Austin currently sit at about 2.8%, and the median household incomes in Austin are about $80,000 per year.
Austin's Commercial Real Estate Market Trend
Like its housing sector, Austin's economy has been burning through commercial real estate at an alarming rate for years, with multifamily, offices, and retail properties soaring in value every year.
- Multifamily rents increased by 10 percent from last year, reaching an average monthly rent of $1,700.
- Office rents increased by about 4.5 percent annually, reaching $42 per square foot last quarter.
- Average industrial rents increased to about $1.02/sq ft in Q2 2022, an annual rise from last year's average of about $0.92/sq ft.
- Retail Rents, on average, increased to about $23.00 per square foot in Q2 2022, up from Q1's average of about $21 per Sq Ft.
Austin's commercial real estate market is projected to slow alongside its housing markets through the remainder of 2022 and 2023. Still, its performance, especially in its industrial sectors, will continue to be significantly positive.
How Will Austin's Housing Market Affect Its Commercial Market?
What does all of this mean for investors? How can they use these insights to their advantage?
Corporate Relocations Affecting Demand
One reason there has been an increase in corporate relocations to Austin is the city's growing reputation as a tech hub.
As previously discussed, Austin's housing market will remain tight throughout 2022 because of the large number of people moving into the city from outside Texas. Most notably, as companies continue to relocate to Austin, they will require more office space, driving up rents.
As for office space, there will be an increase in office space demands and rents until 2022 and 2023, when most property owners will remain optimistic despite activity slowing down over recent months.
The Double-Edged Sword of Rising Interest Rates
As the Federal Reserve continues its aggressive approach to fighting inflation, fewer people will borrow money for mortgages during the remainder of 2022 and most of next year. This will especially be true in the housing sector, where mortgage rates are currently averaging about 5.5%.
Because of this, the speculation is that potential buyers may again turn to rent, pushing up apartment prices and continuing to moderate the Austin single-family real estate sector.
As multifamily occupancy rates rise, so too do multifamily vacancies, which leads to fewer available apartments for potential renters.
If corporate housing allowances decline due to rising inflation, tight market conditions, and shrinking margins, employee relocation issues will be exacerbated by job cuts.
This could be a more significant issue for the employment sector in Texas than previously thought, so that it may affect housing prices even further.
Takeaways for Investors
Arguably, Austin's housing and commercial property markets are both counter to, and in lock-‐steep with, each other depending on the particular subsegments and local communities you choose.
By digging deeper into submarkets, you'll better understand the specific markets you want to compare when analyzing the Austin housing vs. commercial real estate markets.
Research thoroughly, be diligent, and happy hunting.
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