While still nowhere near pre-pandemic affordability, the housing market in Austin, TX is cooling down as its quantity of home sales decline, a trend that other primary markets in the nation are reflecting.
Despite this slowdown in sales volume, the average home price in Austin is still about 12% higher than it was by the end of Q2 2021, a strong indication that demand is still outpacing supply despite inflation and the Federal Reserve’s aggressive approach to rising interest rates.
As a result, Austin’s housing market is still favoring sellers, but the signs of its slowdown can’t be ignored and should be taken into account with future market analyses and forecasts.
Will this market moderation affect Austin’s commercial real estate market as a result? Let’s take a look.
Austin’s Q2 2022 Housing Market Performance by the Numbers
Compared to Q1 2022’s 7% increase, home values increased by about 2% in Austin in Q2 2022.
- Tier 1 homes sold for an average of 7.5% over the listing price and stayed on the market for about 6 days on average.
- Tier 2 sold for about 3% over listing price and stayed on the market for about 45 days on average.
- Tier 3 homes sold about 3% below listing price and stayed on the market for about 110 days on average.
Total number of residential home sales fell year-over-year by about 20% in Austin; however, the number of new homes delivered to the market is on the rise, with housing inventory rising to 2.1 months of inventory.
New listings rose in Q2 2022 by about 20% to around 6,100.
Austin’s Economy and Job Market
In Q1 2022, Austin’s economy saw about 75,000 new jobs added as large tech companies like Google and Oracle relocated operations to Austin.
Q2 2022 saw about half that number in new jobs added to the economy as corporate relocations slowed down and companies enacted hiring freezes due to economic uncertainty.
The unemployment rate in Austin currently sits at about 2.90% and the median household income in Austin is about $80,000 annually.
Austin’s Commercial Real Estate Market So Far in 2022
Much like its housing market, Austin’s commercial real estate market has burned well into 2022, with multifamily, office, and retail spaces skyrocketing in value quarter-to-quarter.
- Average multifamily rents rose 10% year-over-year, landing at approximately $1,700 per month.
- Average office space rents rose about 4.50% year-over-year, landing at about $42 per square foot.
- Average industrial rents rose to about $1.02 per square foot in Q2 2022, a year-over-year increase from last year’s average of about $0.92 per square foot.
- Average NNN retail rents rose to about $23.00 per square foot in Q2 2022, up from Q1’s average of about $21 per square foot.
Austin’s commercial real estate market is expected to moderate alongside its housing market for the rest of 2022 and into 2023 due to slowing capital markets and rising interest rates; however, its performance, most especially in its industrial sector, will still remain significantly positive.
How Will Austin’s Housing Market Affect Its Commercial Market?
So how does all of this merge into one, singular picture? How can investors draw valuable insights from Austin’s housing and commercial real estate markets?
Corporate Relocations Affecting Demand
For one, the large influx of corporate relocations to Austin (such as those of Google, Tesla, and Oracle), will keep demand for housing and office space high.
As previously mentioned, demand for housing will still outpace Austin’s supply for the rest of 2022 largely due to these relocations, as more employees will need new places to live as their jobs move to Austin, most especially as larger employers continue to demand employees return to the office.
Similarly, office space demand and rents will rise through 2022 and 2023 as most landlords still retain bullish sentiment despite activity slowing down over the last couple of months. The office space market is more tenant-friendly than its been in recent quarters but is still expected to post positive growth.
The Double-Edged Sword of Rising Interest Rates
With the Fed’s recently announced aggressive approach to battling inflation, fewer borrowers will enter the market through the rest of 2022 and most of 2023. This will especially be the case in the housing market as mortgage rates average about 5.5%.
As a result, the speculation is that prospective homeowners may once again resort to renting, pushing up multifamily housing values and continuing to moderate Austin’s single-family housing market.
Rising multifamily occupancies lead to falling vacancy rates that lead to fewer multifamily availabilities, potentially squeezing prospective tenants out of the market.
And if corporate housing allowances shrink in light of rising inflation, bearish capital markets, and tighter margins, employee relocations will become an issue, most especially among tech companies as tech layoffs enter the picture.
This could present a larger problem for the employment sector in Austin, therefore directly affecting housing values as fewer people enter the market, sales volume declines, and most especially as employers continue to fight for in-person work schedules.
Takeaways for Investors
Ultimately, it may be argued that Austin’s housing market and its commercial real estate market are both counter to and in lock-step with each other depending on the specific sectors and local municipalities you select.
Digging deeper into submarket data will provide a more concise picture of the market analysis you’re looking for when comparing Austin’s housing market with its commercial market.
Do your research, stay diligent, and be happy investing.