While 2023 is more than halfway over, now is a good time to take stock of the trends that have held through the year—not just among businesses (read some of RISMedia’s Q2 earnings call coverage here), but in locations, too. Location is everything in real estate, of course.
We wrote about the statewide Texas market last year, which in recent years has been a booming, in-demand market owing to both national fundamentals and a prosperous local economy (Texas REALTORS® are prone to advertising the lack of a state income tax). However, forecasts have suggested that the boom may be nearing its end, with the prosperous Austin market singled-out for decline. Data from Redfin shows that Austin metro area home prices peaked in May 2022 ($551,273) and, by June 2023, fell to $483,000.
Some of this stems from national concerns—Texas real estate is no more immune to the effects of high interest rates than the rest of the country. Indeed, since low interest rates contributed to the most recent Texas boom, a raise naturally deflated that.
However, some contend that Texas isn’t in a downturn, per se, but rather, a normalization from a high.
“I think it’s really just how you build your business,” says Elizabeth Riley—a REALTOR® with LUXE Property Group, brokered by eXp Realty—whose business is all referral based. “Has it slowed down a bit? Yes. Are we seeing more days on market? Yes. Are we seeing the properties sit longer if they’re not priced well and showing well and everything done that we want done? But things are still moving. It’s just taking a little bit longer.”
Indeed, Redfin’s data likewise shows that current Austin prices are higher than the last pre-pandemic recording in February 2020 ($400,000). Rather than a bubble bursting, Texas houses simply aren’t selling quite as fast as hotcakes anymore.
Erin Cestero, president – San Antonio division at JBGoodwin, REALTORS®, who leads agents in Austin and San Antonio, is in the “normalization” camp. “We (in Texas) saw a major adjustment in June 2022, and we’re still working through that,” she says. “It was compounded because it happened at the same time of year that our market naturally slows down, so it’s caused a lot of panic.”
Cestero describes Austin as a historically more competitive market than San Antonio, but notes that both saw noticeable price increases during the “COVID months,” compared to previous levels of “controlled growth” in pre-pandemic years. Cestero pinpoints the exact peak of her local market as February 2022.
“I know that sounds very specific. That’s normally a slower market, (but) February, March, April…everybody that’s heard that interest rates are going to start jumping, so every buyer flooded the market. Every seller was worried that interest rates dropping would drop value, so we saw a flood of homes go on the market, so it was in that time where we had both a ton of buyers and a ton of sellers. Then instantly we went into a tough shift where sellers couldn’t get what they wanted because now they had 50 homes for sale in their neighborhood, and buyers felt like they had the power. Very quickly buyers had unrealistic expectations for how much sellers should negotiate with them.”
High demand can drag down supply, so it’s not surprising that new construction is still up in Texas. The Texas Real Estate Research Center at Texas A&M University found a steady increase in demand for new construction; there were 11,240 housing starts statewide in June 2023. This is consistent with national trends showing new construction increasing and the Wall Street Journal’s reporting of a commercial construction boom in Fort Worth.
Texas is not a buyer’s market yet, but the advantage isn’t as slanted toward sellers. Cestero says that this has necessitated a mindset shift for sellers and listing agents—sharpening the skills in selling a house, since now they need more than just a listing to close a sale.
“We have to readjust the expectations of our sellers, but our agents are retraining themselves on salesmanship. (During the selling high), we didn’t have time to order flyers and do all the fancy marketing. The moment a house hit the market, we were negotiating contracts from that moment in both San Antonio and Austin. It was so competitive that our challenge there was maneuvering multiple offer situations, so our buyer’s agents had to get really good at what they were doing really quickly,” says Cestero.
“Now the flip side of that, buyer’s agents have it a little bit easier. There’s more inventory to show their buyers have more options. However, from the listing side, we’ve got to fight the misconception that sellers think their homes have appreciated drastically, even if they just bought them a couple years ago, and show our value in keeping a home on the market 80 days when they might only get three or four showings in the first couple of weeks,” she adds.
Will interest rates and new construction turn Texas into a buyer’s market? Riley isn’t so sure.
“I don’t think (Texas) is going to be a buyer’s market anytime soon. It’s really nobody’s market right now. It’s not a seller’s market. It’s not great for sellers. It’s definitely not great for buyers. We closed on one today that had an interest rate over 9%.”
The lesson for buyers, sellers and pundits alike in Texas real estate is about putting your expectations into context.
