Will Austin, Texas Home Prices Drop in 2022, or Keep Climbing?

Will home prices in Austin, Texas drop or go down in 2022?

That’s a question on the minds of a lot of people right now. Given the meteoric rise in home values over the past 12 to 18 months, it’s only natural to wonder if the Austin real estate market is due for a downturn.

Here’s the short version: While no one can predict future real estate trends with complete certainty, it seems highly unlikely that home prices in Austin, Texas will drop or go down in 2022.

On the contrary, all of the conditions are in place for sustained growth over the coming months. A seriously imbalanced supply-and-demand situation within the Austin housing market should continue to put upward pressure on home prices through 2021 and into 2022.

Austin Home Prices (Probably) Will Not Drop in 2022

It’s no secret that Austin, Texas is currently one of the hottest housing markets in the country. This is the result of several overlapping factors, most of which have to do with supply and demand.

For starters, the Austin-Round Rock metropolitan area has seen explosive population growth over the past few years. This trend actually accelerated during the coronavirus pandemic. Suddenly, a lot of people were leaving more crowded and more expensive cities for destinations like Austin, Texas.

While all of this population growth was happening, housing market inventory continued to plummet. In 2021, Austin has suffered from one of the lowest levels of housing supply of any major city in the U.S.

This unusual supply-and-demand situation has greatly increased competition within the local housing market. It’s also the number-one reason why Austin home prices probably will not drop or go down in 2022. It’s hard to imagine a scenario where house values in the area would suddenly level off or experience a downturn.

The more likely scenario is that home prices in Austin will keep rising in 2022, but possibly at a slower pace than what we’ve seen over the past year.

Eventually, the Austin real estate market will reach a kind of “tipping point” where price growth begins to slow down. This frequently happens in fast-rising housing markets, as more and more buyers get “priced out” of the real estate scene. Over time, rapidly rising home values shrink the pool of qualified buyers. This leads to a reduction in demand and slower price growth going forward.

This is a pattern we’ve seen in many of the nation’s hot real estate markets, from San Francisco to Seattle. While the timing aspect is uncertain, it seems likely that Austin will follow the same pattern to some extent.

Getting back to the question at hand: Will home prices in Austin drop or go down in 2022? Currently, all signs point to “no.” The most likely scenario, based on current housing market conditions in the area, is a continuation of price growth. We don’t know how much Austin home values will rise in 2022. But they could continue to climb by double digits year-over-year.

One of the Fastest-Rising Housing Markets in the U.S.

In July 2021, Realtor.com published a housing market report with data for 50 of the nation’s largest markets. According to that report, the Austin metro area experienced the highest level of home price growth from June 2020 to June 2021. This was based on year-over-year changes in list prices, specifically.

During that 12-month timeframe, the median list price in Austin, Texas rose by more than 34%. That put it ahead of the other 49 housing markets contain within the Realtor.com report.

To quote that report:

“Among the nation’s 50 largest markets, Austin, Texas continued its 2021 streak of taking the top spot by price growth, up 34.3% year-over-year. Riverside, Calif., and Tampa also saw some of the biggest price gains over last year, with each rising by 19.6%.”

Given those statistics, you can see why it’s unlikely that Austin home prices would drop in 2022. It would take a lot to make that happen (like a complete meltdown of the local economy).

Supply and Demand Imbalance Will Carry Into 2022

As stated earlier, a stark imbalance between housing market supply and demand is the top reason why Austin home prices likely will not go down in 2022. Like many cities across the country, the Austin metro area real estate market is currently experiencing a major shortage of supply. There aren’t nearly enough homes on the market to satisfy the demand from buyers.

The Austin-Round Rock metro area had about a 1.2-month supply of homes for sale in June 2021. That is miles below what’s considered to be a “balanced” real estate market. It is this ongoing supply shortage, combined with steady demand from home buyers, that has turned it into a red-hot seller’s market.

So, will home prices in Austin, Texas start dropping in 2022? Based on current conditions, that is a highly unlikely scenario. That doesn’t mean it’s impossible. It just means it would take a lot to reverse the current trend of rapidly rising home prices in Austin.

This real estate market could start to cool down in 2022. In fact, we’re seeing some early signs of that already, in the form of declining sales. But the lopsided supply and demand situation will probably keep Austin home prices rising well into 2022 — and possibly beyond.

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