Home prices have taken a roller ride in the last three years. Low-interest rates helped drive home prices higher in the first part of this period. Mortgage rates dropped as low as 3%. People began to move from expensive coastal cities inland, in some cases because they could work from home. COVID-19 was one of the largest engines of migration in US history.
The migration was from large and expensive coastal cities, including New York, San Francisco, and Los Angeles. Population metro relocations included Boise, Salt Lake City, and some Texas metro areas. Austin was one of the most popular cities of all. Home prices rose sharply there, and now, according to Goldman Sachs, they will drop 19%. Houses are overpriced, and owners must drop them to get sales. And developers overbuilt on the theory the population would continue to expand. (These are America’s fastest growing cities.)
Austin has suddenly become one of the most expensive housing markets in the world, with median home prices near $700,000 against a national median price of just under $400,000. Migration accounts for part of this. The other reason is that Austin has more than its share of tech jobs, which usually pay well.
Austin’s overbuilding has also overwhelmed infrastructure. This is true with roads and the water and sewage systems that serve the city.
As interest rates move about 6%, Austin’s real estate will become even more expensive. A home with a monthly payment of $3,000 a little over a year ago could be $5,000 today.
Few people believe that home prices will implode and foreclosures will rise as they did during The Great Recession. During that time, hundreds of thousands of subprime mortgages tended to be default risks. Austin almost certainly has very few of these.
Austin’s home price challenge is much simpler. Over-pricing and over-building will drag home prices down. (Click here for other cities where homes prices are dropping.)
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