Q1 2023 Market Update

The Morshed Group Q1 2023 Housing Market Report

What happened in Q1 of 2023

Q1 of 2023 played out on par to our forecast. Fear of the unknown, economic concerns and rate concerns were the mood in the market.   

The market depreciated 3-5% across Austin, nowhere near the doomsday predictions of 20% retraction per many “national RE experts” like Goldman Sachs. Considering 2022 ended flat after moving up 15% in value and subsequently losing 15%, this shows strong resiliency. Austin’s market is holding up extremely well.

Supply ended at 3 months, an environment that is technically undersupplied by 50%! For context, a 6-month supply (or about 18,000 homes available), is the actual equilibrium point between Buyer and Seller demand and the market should see  4-6% annual price appreciation at that number. At 3 months supply, there are only 9500 homes on the market and the market would normally see 7-9% appreciation annually. The 3 month supply number is a big reason why we have not seen a crash here as many national experts predicted, and why at The Morshed Group we have advised clients to ignore those headlines.

Buyers continued to gate buying out of fear, calibrating around higher interest rates, fear of what might happen to our local and national economy and fearful of mass layoff in tech sector locally. In spite of having been quite undersupplied in terms of housing inventory, Buyers simply didn’t move forward on homes leading to depreciation when normally we’d see strong appreciation at 3 months supply.   

Currently and where it’s going:

Buyer sentiment is moving to “the market doesn’t seem like it isn’t going to crash here.” Job losses have been quickly absorbed and the net losses have been lower than expected.  We’re also starting to see the early signs of Buyers accepting rates aren’t going to come down materially any time soon. Combined, activity is slowly but surely picking up across the market.  

We’re holding the line on our prediction at the beginning of this year: June or July this year will be the bottom of a soft landing for Austin’s real estate market. Buyers at large will realize the market REALLY isn’t crashing here and we expect things to get busier after Q3 forward as well as price drops and negotiability decreasing.  Prices will come down another 3% or so but likely that’s it. The market will be poised for appreciation heading into 2024.  

Jobs are the main engine for our real estate market. Austin saw 50k jobs gained in 2022.  For 2023 job losses have been quickly absorbed given the continued race for quality talent and the 6k jobs lost have been lower than expected. That # also represents ½% of ALL jobs in Austin.  Unemployment is a scant 3%. All these factors have led to our inventory holding firm at the 3 months number. Additionally, Austin is on track to add 45k jobs this year which is above average growth and #2 in job growth this year per Wall Street Journal.

Population growth for 2023 was expected to be around 60k people per the city demographer Lila Valencia, we’re close on that, tracking for 50k. All of those folks will need housing.

Anecdotally, Austin is ranked #2 in Most Preferred Market for Real Estate Investors in 2023 per CBRE.  So investors are going to stay active in this market also creating a baseline for the market not crashing.

For Sellers

Pricing and separation from the competition is paramount.  Homes priced so they stand out from the competition combined with all the upgrades today’s demanding Buyers seek are are still selling.  They’re moving in 2 weeks to 30 days. If you’re not both or only one of those, you will sit and have to price drop until the market sees you as a value play.

For Buyers

For Buyers, by the end of June or July the rest of Austin will figure out the market here isn’t crashing. Likely most of the job cuts will happen by then or Q3.  Buyers will also have financially and psychologically calibrated around higher interest rates, and rates will start inching down towards the end of year. So, buy now while others aren’t to pick up the best pricing.