What’s Happening in the Housing Market – Q2 2022 Market Update

Q2 2022 ended with Austin being a top 5 market nationwide in terms of strength and low inventory but definitely seeing tempering due to equities markets pulling back, interest rates rising from 3.5% to 5.5% and inflation.  At The Morshed Group, starting in Q4 of last year, we were letting clients know 2022 would be the year things finally cooled. We shared that instead of 20% appreciation annually, we would end up with 7-10% appreciation (historically still a very strong appreciation rate) in 2022….and it seems we are on track for that with the majority of it having already happened in Q1.  

However, we also don’t believe a major pullback will happen in Austin due to inventory still being quite inverted, being the top job market in US per WSJ, new construction still lagging behind demand, and major economic developments still very much in the works.  We’ve been saying that 15-20% appreciation rates in pandemic years simply aren’t sustainable…we are finally seeing that come to fruition but many are concerned we’re in a big market shift. We do not believe that to be the case versus a shift to normalized growth.

Values in Q2 moved up 2% and supply ended at 2 mths.  The number of multiple offers banded down to average of 3-5 and terms loosened on homes that weren’t the latest “wow model home” seen on real estate shows. In parallel, multiple offers moved to more “reasonable” terms – 5-7% or so over list (unless at the entry level and $1.5M+ price bands).  Buyers activity slowed for the first time in years.  Again, it’s no time to panic…the market is normalizing into a still solid market here in our opinion.  

• Tier-1 homes (priced right, no major flaws and wow factor) sold on average in 5-7 days with multiple offers and average of 5-10% over list price and 3-5 offers compared to Q1 at 10-15% over list and 7-10 offers
• Tier-2 properties (mostly a Tier-1 but with one flaw such as needing cosmetic updates) averaged 45 days on the market and 2-4%% over list in multiple offers compared to 30 days on market and 10% over list in Q1
• Tier-3 (major issues or work) sat on the market 90-120 days and sold 8-15% below list price compared to 60-90 days and 5-10% in Q1

Currently:
With the equities markets in questions and inflation, as well as rates moving upwards, buyers are taking time to see how things play out causing a gating effect in the market in spite of low supply at 2 months.

The end of Q2 is ending quieter than Q1: The market rose 7% or so in Q1. In Q2, we have seen 2% and supply has moved up from .5 months (3k homes) to 2 months (6000 homes). For context, a 6-month supply (enough inventory to meet the current rate of demand 6 months out) is an equilibrium market.  At a 6 month supply, the Austin market would have 18k homes available, so at 2 months and 6,000 homes we are still very undersupplied.

• $0-$500k We are at 1.5 months supply, up from .5 months in Q1 
• $500k-$1M We’re at a 2 month supply, up from 1 month in Q1
• $1m-$2m We’re at 4 mth supply, up from 1 month in Q1 
• $2m+ – We are edging up to 4 months from 3 month in in Q1

For Sellers:

As we’ve been mentioning since Q3 of 2021, we were at the peak.  Being past the peak now, pricing correctly is important as Buyers are a) gating moving forward quickly given the economic tailwinds and hits to everyone’s pocketbooks and b) adjusting to a big bump in rates.  Buyers simply aren’t going to pay you above what your home is worth now and if you’re clearly overpriced to pandemic market pricing, you need to drop your price.  To sell in the first few weeks, you have to get ahead of the market by pricing right otherwise you’ll chase the market down as it recalibrates.  Don’t expect multiple offers moving forward in weekend 1.  Still after the buyer emotionality around stock market, rates and inflation settle you’ll do well and be able to sell.

For Buyers:

The intensity of terms favoring sellers, and being way above list has finally come to a stop.  However don’t wait as inventory will remain below equilibrium even past Q2 which means you’re not getting steals vs negotiating some or not being in as many multiple offers.  Rates will inch up further also which means the cost is still very real to you even if prices are no longer aggressively moving up. It’s a good time to buy in the next year, you’ll have a bit more choice and pliability and given Austin’s dynamic, we think Buyers have about 6 mths before the market strengthens again while rates also rise. 

Significant factors in the market:

The significant factors leading to the current market environment: 

• Tempering Job Growth  – 2021 saw an astounding 80k jobs added. 2022 after a hot start has seen companies hiring freezing or slowing down pace of hiring.  Jobs are #1 impactor on our market.  We still end up at a healthy 40k jobs likely even after potential layoffs but this doesn have an impact on demand/supply. 
• In-migration –Finally slowing down from 70k in 2020, to 60k in 2021 and likely 55k in 2022. Slower but still strong growth.
• Interest Rates – On $1m home rates moving from 4% to 6% means $2k more a month on payment.  Enough said!
• Stock Market and Inflation – Tied together these two are definitely slowing Buyer desire and ability to move fast or creating pause

Looking Ahead:

We see Q3 ending flat settling and into a new norm of lightly favoring Sellers.  Job growth while robust again this year, settles closer to 40k jobs. Supply chain issues will continue to improve slightly and in-migration numbers will likely cool (while still being nation-leading ). All this points to supply edging up to 4 mths or about 13k homes on the market vs 1500 homes at .5 mth supply at beginning of this year.  However, that is still undersupplied compared to the 6 mth equilibrium point of 18k homes.

Core sectors up to $6M will temper a lot though the wow homes will still sell. Within city limits (city limits but not suburbs) it’ll still remaining pretty active with up to $2M. In the suburbs, up to $1M will remain healthy, yet premiums over list will level off to lower percentages than closer-in.  We expect multiple offers to happen only on Tier 1 properties but premiums above list price will drop to 3-5%.