Here’s Why Austin, TX Home Prices Will Likely Drop in 2023

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With inventory rising and buyers pulling back, it seems likely that home prices in the Austin, Texas area will drop further in 2023.

Austin, Texas was one of the hottest real estate markets of 2021 with record-breaking price growth and fierce competition among buyers. But now, this housing market is one of the fastest cooling markets in the country. And that has a lot of homeowners and potential home buyers wondering the same thing:

Will Austin home prices drop in 2023?

At this point, it seems likely that home prices in and around Austin, Texas will decline in 2023. In fact, that’s a fairly safe prediction, because we’re already seeing some month-to-month price drops in this metro.

Will Home Prices in Austin, Texas Go Down in 2023?

During the second half of 2020, the Austin, Texas metro area received an influx of home buyers from all across the country. The COVID pandemic had a lot to do with that. As a result, real estate inventory plummeted to record-low levels, while home prices skyrocketed.

This trend continued through most of 2021, but slowed considerably during the first part of 2022.

Now, as we approach the end of the year, Austin is one of the fastest cooling real estate markets in the country. Significant changes are taking place, on both the supply and demand side of the equation. These changes have caused home prices in Austin to go down over the past few months.

We analyzed pricing data provided by Zillow as well as the Texas Real Estate Research Center (part of Texas A&M university). And while their numbers varied, the overall trend was the same from both sources. Home prices in the Austin-Round Rock area peaked in May of 2022 and dropped steadily in the months following.

This downward trend could continue into 2023 as well.

Some housing analysts and economists believe that the Austin real estate market is currently overvalued. For example, a May 2022 report from housing analysts at Florida Atlantic University stated:

Four U.S. housing markets are overvalued by more than 60 percent, while 11 others are overvalued by more than 50 percent, according to the latest study from researchers at Florida Atlantic University and Florida International University … No. 2 Austin, Texas is quickly gaining ground, with buyers paying 67.70 percent more than they should.

Their findings might be debatable, but one thing is not. Home prices across the Austin metro area rose at an unprecedented pace over the past two years, and they now show signs of weakness.

Inventory Growth a Contributing Factor

Rising inventory levels have contributed to the cooling trend mentioned above. The number of homes for sale across the Austin metro area increased significantly over the past year or so. This growth trend could continue into 2023 as well, causing a more sustained drop in home prices.

According to a November 2022 report from Realtor.com, the Austin metro area had the second-largest increase in active real estate listings. The total number of active listings rose by around 136% in October, compared to a year earlier. Out of the nation’s 50 largest metro areas, Austin and Phoenix led the way in terms of inventory growth.

To quote the November 2022 Realtor.com report:

Compared to October 2020, active inventory was higher in 32 of the 50 biggest markets, led by western (+33.9%) and southern metros (+7.2%): Phoenix (+132.0%), Austin, Texas (+120.8%), Riverside, Calif. (+67.2%), Memphis, Tenn.(+59.7%) and Nashville (+55.7%).

At the end of last, the Austin metro area had a meager one-month supply of homes for sale. But by September, that metric had increased to a four-month supply. So buyers have a lot more options to choose from today, compared to a year ago.

Supply growth could continue to put downward pressure on Austin-area home prices well into 2023. As more and more homes come onto the market, sellers typically respond by cutting their asking prices. This in turn can lower home values across the board.

But there’s a demand side to all of this as well. So let’s shift gears and talk about what home buyers are doing in the Austin real estate market, and how it could affect prices in 2023.

Higher Prices, Mortgage Rates Have Crushed Demand

Housing costs in the Austin area increased substantially over the last two years. As a result, this metro area is less affordable for buyers than it used to be. This has caused a decline in buyer demand, particularly at the lower and middle part of the pricing spectrum.

Chart: Median home value for Austin, Texas | Source: Zillow, November 2022

Mortgage rates have also contributed to the ongoing cooldown within the real estate market. At the start of this year, the average rate for a 30-year fixed mortgage loan was hovering around 3%. As of last week, that average had increased to approximately 7%.

To put it differently: mortgage rates have more than doubled over the past 11 months.

Higher home prices and mortgage rates, combined with broader concerns about the economy as a whole, have greatly reduced buyer demand. So we have major changes occurring on the both supply and demand side, and they could cause Austin home prices to drop further in 2023.

There’s Some Good News for Buyers in 2023

The current real estate scene in Austin (and in many other cities across the country) had created a kind of catch-22 for home buyers.

  • On one hand, buyers have a lot more homes to choose from today. This is especially true in Austin, where inventory levels are climbing steadily. Additionally, home buyers will probably encounter a lot less competition in 2023. The market is moving more slowly, homes are taking longer to sell, and there are fewer buyers competing for them.
  • On the other hand, there’s a very real concern that home prices in Austin will continue to go down in 2023, as they have over the past few months. This concern could make some buyers more reluctant to enter the market. After all, no one wants to buy a house only to see the value drop over the next six to twelve months.

It’s not a foregone conclusion that Austin home values will continue to decline in 2023. But it does seem highly likely.

Additionally, concerns of future price erosion could create a kind of domino effect within the real estate market. If buyers pull back and adopt a “wait-and-see” approach, inventory will continue to pile up. When that happens, more and more sellers will slash their prices, leading to a general decline in home values across the Austin area. This could continue for some time, until the market reaches a point of equilibrium.

Disclaimer: This article includes forward-looking views and opinions regarding the real estate market. They are the equivalent of an educated guess and should be treated as such. The publishers of this website make no assertions regarding future home prices or other housing-related conditions.

About the author: Brandon Cornett is a real estate market analyst, blogger, and creator of the Home Buying Institute. He also provides blogging services for mortgage and real estate professionals across the U.S.