Austin Housing Forecast: Home Prices Could Hold Up in 2020, Despite COVID-19

Austin skyline photo

Highlights from this real estate report:

  • The housing market outlook for Austin is favorable, under the circumstances.
  • Home prices in this metro area could hold up through 2020 and into 2021.
  • Population growth, limited supply, and economic strength are key factors.
  • Housing supply is particularly tight at the lower end of the price spectrum.

Recent forecasts for the Austin, Texas housing market suggests that home prices will rise more slowly through the rest of 2020. That’s to be expected, given the coronavirus (COVID-19) pandemic and resulting economic turmoil.

But based on current conditions in the area, Austin’s real estate market could fare better than most cities across the country.

Housing Forecast for Austin Better Than Many Cities

At the end of May, the economic and housing research team at Zillow predicted that home prices in Austin, Texas would flatten over the coming months.

By their estimation, the median home value in Austin rose by 5.4% over the past year or so. Looking forward, they predict that home values will level off or even dip slightly.

We agree that house values in the Austin area will rise more slowly through the remainder of 2020. But this housing market might actually weather the storm, without suffering any major decline in home values. There is plenty of historical evidence to support this prediction, as shown below.

The chart below shows the house price index for the Austin-Round Rock-Georgetown metro area, over the past few decades. It’s based on data provided by the U.S. Federal Housing Finance Agency. The gray vertical bars represent previous economic recessions. The widest gray bar on the right is the Great Recession of 2009.

Austin-area home price chart
Chart: Austin metro area home-price index. Click to enlarge.

One thing that will jump out at you right away is that home prices in Austin have either risen or leveled off during previous recessions. But they never really plummeted, as they’ve done in other major metro areas.

We are currently experiencing another economic downturn, brought on by the coronavirus pandemic. But that doesn’t necessarily mean the Austin housing market will suffer home-price declines later in 2020.

An Imbalance Between Supply and Demand

In fact, current supply-and-demand factors will continue to put upward pressure on home values across the Austin metro area. This is an area of Texas that has seen tremendous population growth in recent years. And that growth comes at a time when housing inventory is still limited.

This imbalance between supply and demand could shield the Austin real estate market from future price deterioration in 2020 and 2021. It will also help the local housing market recover more quickly than a lot of cities, once the economy starts to stabilize again.

Divya Aathresh, general manager of Better Real Estate, recently told Forbes:

“Texas overall seems to have come back to pre-Covid levels, both on the buy side and the listing side. The strongest performing cities have been Houston and Austin.”

Population Growth a Key Factor in the Austin Area

Our forecast for the Austin real estate market suggests that the Texas capital could fare better than many other U.S. cities over the coming months. And population growth has a lot to do with that outlook.

According to the latest figures provided by the U.S. Census Bureau, Austin’s population rose by 22% from 2010 to 2019. The city of Round Rock, just to the north, experienced population growth of 33% during that same nine-year period. The population of San Marcos, Texas (located to the south of Austin) grew by a whopping 43.5% during that same timeframe.

To put those numbers into perspective, the U.S. population as a whole grew by 6.3% from 2010 to 2019. So Austin’s growth was more than triple the national average over those nine years. Round Rock and San Marcos, meanwhile, grew five to six times faster than the national average.

Significant population growth tends to put upward pressure on home prices. It brings more buyers into the housing market, thereby increasing demand on both the purchase and rental side.

This is something we have seen in the Austin area over the past decade, and it’s partly why the Texas city is getting more favorable housing forecasts than a lot of other cities right now.

Limited Supply Stiffens Competition Among Buyers

The Austin real estate market has suffered from a supply shortage for the past few years. Housing inventory remains very low, and that continues to put upward pressure on home prices.

Inventory is especially tight at the lower end of the pricing spectrum, where first-time buyers tend to shop. The reason for this is simply because there’s a larger pool of buyers at the lower end of the price spectrum, and therefore more competition. Additionally, real estate investors tend to focus on moderately priced homes.

We’ve also seen cases where sellers are pulling their homes off the market due to health-related concerns stemming from the coronavirus.

Housing demand in the Austin area remains steady due to the significant population growth we talked about earlier. All of these factors combined have created a lopsided supply-and-demand scenario.

Even though the broader economy in Austin is struggling a bit, the housing market might actually weather the storm. In fact, the local real estate market could help pull the region’s economy out of the doldrums, once the public-health crisis begins to wane.

The Dark Cloud of Unemployment

If anything can spoil the outlook for the Austin real estate market, it’s unemployment. Like nearly every city across the country, the Texas capital has seen jobless claims rise over the past couple of months. This is mostly due to economic disruptions caused by the COVID-19 health crisis.

According to the Texas Workforce Commission, the unemployment rate in Austin was at a low 2.7% at the start of 2020. As of April 2020, it had risen to 12.2%. But the local economy was in great shape going into this crisis, so it will likely bounce back faster than some U.S. cities.

Austin also has a heavy tech-industry footprint, and many of those jobs can be performed remotely. This is another factor that could help the city navigate the current crisis.

The bottom line: Austin’s housing market forecast for the rest of 2020 is brighter than most U.S. cities. This is due to strong demand and limited inventory, combined with a robust local economy. This real estate market will suffer less, and rebound faster, than a lot of other comparably sized metros.

Disclaimer: This article includes forecasts, predictions, and a general outlook for the Austin real estate market through 2020. Such forward-looking statements are the equivalent of an educated guess and should be treated as such. MetroDepth makes no claims or assertions regarding future economic or housing conditions.