Austin real estate economist says market normalizing, but affordability still distant

AUSTIN (KXAN) — As 2023 closes, the Austin Board of Realtors offered it thoughts on the next year in the city's housing market. ABoR Economist Clare Losey spoke with KXAN about her review of 2023 and predictions for 2024.

2023 in review

The last year in the Austin Metro was a continuation of local trends that began in 2020, Losey said — rapid growth and evolution, along with an "unsustainable" growth in home prices.

"Over the past year and a half or so now, as mortgage rates have inched higher, that initial wave of demand for homeownership during the COVID-19 pandemic has trickled off. We've seen that the housing market, especially here in Austin, has normalized to a certain extent and reached a more sustainable level of home sales activity as well as price growth," Losey said.

However, affordability is still an issue for the city and nationally, with Losey calling the supply of such housing "constrained."

"We know that for any given homebuyer in the Austin MSA, they generally need to make an income of $90,000 to $100,000 to even be able to enter the market for homeownership," Losey said. "Finding a supply of affordable inventory at price levels that are conducive to that income is another story."

What does 2024 hold?

As for whether the sustainable trend will persist into 2024, it will depend on interest rates set by the Federal Reserve.

"Housing is the most interest rate sensitive sector in the broader economy," Losey said. "We likely achieved peak mortgage rates towards the end of October, and mortgage rates should gradually continue to fall into the high 6%, maybe even mid 6% range, and as such may boost demand for homeownership to a certain extent, but I would generally anticipate that we aren't going to see any significant swings in the housing market over the next year."

Losey's prediction is one of stability and a healthier market. A key metric for ABoR is in how many months of demand can be met with the current supply of homes on the market.

"[In] 2023, we've generally hovered between about three and four months of inventory in any given month. Typically in Austin we would expect anywhere from about five to 5.5 months to be considered a healthy market." Losey said. "I definitely see us hovering around healthier comparative levels of inventory in the Austin market.

However, this metric doesn't differentiate between affordable and non-affordable housing. In the Austin Metro, only 10-15% of homes on the market are considered affordable (under $300,000).

"When we're talking about policy initiatives that aim to increase or to facilitate new housing supply, implementation is going to take several years to site a new home. Right now we're looking at generally between 18 and 24 months," Losey said. "Any sort of housing policy initiative is going to take a while to trickle down into the market for new home supply."