Housing Woes

Austin declared the most overvalued housing market in America, but is it a bubble?

Forbes named Austin the most overvalued housing market in the United States.

Kumar Appaiah/Flickr

We know how much Austinites need to make in order to rent a nice apartment in the city, but how do we fare when it comes to buying a home? According to Forbes, Austin has the most overvalued housing market in the U.S. this year.

The five most overvalued housing markets were determined by Fitch, who weighed home price trends against economic fundamentals of each market (income growth, unemployment rates, population growth, mortgage rates, rental prices, buyer demand and inventory levels). In overvalued markets, home prices grew faster than the local economy.

Austin takes the dubious title with a housing market that is overvalued by 19 percent. Between February 2011 and the end of 2014, Austin's gross metro product grew by 24 percent. However, local home prices grew a whopping 34 percent. The median home price in March 2015, says Forbes, was $250,000.

Houston follows close behind Austin as the second most overvalued market in America: 18 percent. Its home prices grew by an astounding 43 percent during the time period.

So are we in a bubble? "The issue isn't that [Austin and Houston] prices are in a bubble, it's just that prices grew faster than fundamentals," Stefan Hilts, of Fitch Rating's U.S. RMBS group, says. Hilts doesn't expect housing prices to drastically drop, like they would in a bubble scenario. Instead, "price growth is likely to stagnate as the roaring economy slows," Forbes explains.

Earlier this year, Austin was named Forbes' best real estate market to invest in, and Forbes isn't retracting that statement. "Nobody is saying that Austin or Houston would be a bad place to buy these days," notes Forbes. "They just might have been a better place to buy a couple of years back."

Rounding out the five most overvalued housing markets are Phoenix, Arizona (No. 3); Riverside, California (No. 4); and Miami, Florida (No. 5). Detroit is the most undervalued housing market in America.

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Homebuyers can afford to be picky as Austin housing inventory rises

Photo by Avinash Kumar on Unsplash

Housing economist Clare Losey said the most significant factor affecting home sales in Austin is high mortgage rates.

The latest real estate report from Unlock MLS and the Austin Board of Realtors (ABoR) has revealed housing inventory is still on a steady rise in the Austin-Round Rock-San Marcos MSA, creating more choices for potential homebuyers as they navigate a high interest rate market.

Residential home sales dipped by a mere 1.5 percent year-over-year from October 2023, amounting to 2,248 closed sales in the Austin-Round Rock-San Marcos MSA. Median prices have also dropped to $430,000, or 3.2 percent less than this time last year. More than 3,300 new home listings were added on the market — a 7.4 percent increase from 2023 — bringing the total number of active home listings to 11,599.

According to Unlock MLS and ABoR housing economist Clare Losey, Ph.D., October's mortgage rates stood at 6.4 percent and are showing no signs of a significant drop in the near future. Even heading into 2025, Losey says potential homebuyers who are biding their time in the hopes of seeing rates plummet "may be in for a long wait."

"In the meantime, sellers must recognize that bringing buyers to the table requires a more aggressive pricing approach," Losey said. "Even in a more balanced market, buyers with limited purchasing power are struggling to meet current price expectations."

As for the overall health of the Central Texas housing market, 2024 Unlock MLS and ABoR president Kent Redding labeled recent news reports that called Austin "ground zero" for a downturn as an "extreme over-exaggeration."

"Austin led the state and nation in record-breaking home price growth and sales activity during the pandemic," Redding said. "For three years, near-zero housing inventory, numerous offers above list price and a rapid-paced market raised home prices and left little negotiating power for buyers. During this record-setting growth, ABoR and Unlock MLS consistently emphasized the unsustainability of the rapid growth, and now, our market is working to balance those extremes."

Central Texas housing trends in October 2024

In Travis County, 979 homes were sold last month — a slight 2.5 percent increase from last year. Median prices remained flat year-over-year at $510,000. Active home listings continued growing to 5,702 homes, which is 9.4 percent more year-over-year.

In Williamson County, 807 homes were sold in October, with median prices steadily dropping to $420,000. There were 1,028 new home listings on the market, showing a 4.5 percent increase from October 2023, bringing the total number of active home listings to 3,369.

Residential home sales dropped by nearly eight percent in Hays County in October, totaling 315 sales. Median prices also fell 5.5 percent year-over-year to $359,000. Active listings rose 6.6 percent year-over-year to 1,740 homes with the addition of 534 new listings on the market.

Meanwhile, 114 homes were sold in Bastrop County last month, which is 4.4 percent more than this time last year. Median prices dropped by a single percentage point year-over-year to $355,000. There were 654 active listings on the market in October, and 152 new home listings, representing a 1.3 percent slip in new inventory when compared to last year.

Only 33 homes were sold in Caldwell County in October to reflect a near 14 percent decline year-over-year from October 2023. Median prices fell to $262,990, which was a 13.5 percent decrease from last year. There were 136 active homes on the market last month, and 40 new homes added on the market.

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