Austin’s real estate market is at a pivotal moment. Rising construction costs, increasing inventory, and market stabilization are creating a unique window of opportunity for buyers. While the city experienced a modest dip in appreciation this year—down 5% (as mentioned in our last quarterly market update), the market has reached its bottom. Combined with rising construction costs and inventory levels starting to stabilize, prices are poised to rise again in 2025 and beyond. Buyers who act strategically now will benefit hugely.
Rising Construction Costs and Their Impact on the Market
Construction costs across the U.S. have been steadily rising, and Austin is no exception. According to recent data, construction expenses have increased by 12% year-over-year, driven by higher prices for materials like lumber, concrete, and steel, as well as ongoing labor shortages. In Austin, these pressures are amplified by the city’s rapid growth, high demand, and limited availability of developable land.
- Impact on New Construction: Builders are grappling with significant cost increases, forcing them to either delay projects or pass those costs onto buyers. The result? Higher price tags for new homes, particularly in the mid-to-luxury range looking ahead. They haven’t been able to do this due to market conditions but they can only do this for so long before they have to pass the cost to Buyers and as the market stabilizes, 2025 is the year they will start passing them on.
- Impact on Remodels: Renovation and remodel costs are climbing just as quickly. Homeowners planning upgrades won’t have much more time before contractors also pass on these additional costs. Combined with pricing pressure new construction homes will experience and interest rates dropping, the resale market will start pricing up.
Insight: Rising construction costs don’t just affect builders; they ripple through the entire housing market. By 2025, buyers will likely see these costs fully reflected in both new builds and resale properties.
Effect on New Builds and Remodels
New Homes:
Austin’s builders are doing their best to manage rising costs, but they won’t be able to absorb these increases indefinitely. By next year, most new builds will reflect higher material and labor expenses. Buyers who wait until 2025 may find themselves priced out of the market, especially as demand rebounds.
Remodels:
Renovation costs have risen sharply due to the same factors affecting new construction. For homeowners considering remodeling projects, the message is clear: act now or face significantly higher expenses in the future. This trend is also putting pressure on resale homes, as buyers increasingly prioritize properties that don’t require major updates.
Why Act Now:
Current inventory levels provide buyers with more options than they’ve had in years. With 19.2% more homes on the market compared to last year, buyers can take advantage of increased competition among sellers. However, this window of opportunity is expected to close as rates decrease and demand accelerates. Elections being over has already led to a marked increase in ‘pendings’ in the last 30 days throughout the Austin market in all price bands.
Why Market Stabilization Means Now is the Time to Buy
The Austin market has shown encouraging signs of stabilization, with prices dipping by only 5% in 2024. While some cities across the U.S. have seen sharper declines, Austin’s relatively mild adjustment in 2024 compared to 2023 strongly signal it’s at the bottom. This offers buyers a rare chance to enter the market before costs start climbing again.
- Builder Inventory:
Builders are focused on clearing their existing inventory, often offering incentives like price reductions or closing cost contributions. However, these deals won’t last. As builders adjust to higher construction costs, prices for new builds will inevitably rise. - Inventory Trends:
Active listings in Austin reached 11,974 properties in August 2024, the highest level in over a decade. This increase in inventory has created a buyer-friendly market, but again we’re at the bottom. As mortgage rates stabilize or decline, demand will outpace supply and supply levels will dip to 6 months or below in all price bands, driving prices higher. - Impact of Interest Rates:
As mortgage rates are expected to decrease in 2025, more buyers will re-enter the market, further tightening inventory. This is particularly relevant for Austin, where a growing population and tech-driven economy are fueling sustained demand.
2025 Outlook: No Choice But to Rise
Looking ahead, several factors point to rising home prices in Austin by 2025. Buyers who act now can avoid being priced out of the market.
- Construction Costs and Labor Shortages:
The cost of building a new home is increasing rapidly, and labor shortages are exacerbating the issue. Builders are prioritizing projects they can sell profitably, which means fewer new homes will come to market. This restricted supply will push prices higher. - Inventory Pressures:
While inventory is currently up, this trend won’t last. Builders are slowing new starts, focusing instead on clearing existing inventory. As this supply is absorbed, the cost of new builds will reflect rising construction expenses, leading to higher prices across the board. - Pressure on the Resale Market:
Rising renovation costs are discouraging homeowners from upgrading older properties, making move-in-ready homes even more desirable. This shift is increasing competition in the resale market, driving up prices for high-quality listings. - Hitting the Bottom:
The 5% appreciation loss Austin experienced this year is a clear signal that the market has bottomed out. Compared to the double-digit declines seen in other cities, Austin’s resilience highlights its strong fundamentals. As demand grows and supply tightens, prices are poised to rebound.
Key Takeaway: The combination of rising construction costs, shrinking inventory, and stabilizing interest rates creates an environment where prices have “no choice but to rise.” Buyers who wait risk paying significantly more in 2025.
Additional Insights for Austin’s Market
Builder Trends: With few new starts planned, builders will only construct homes they are confident will sell, limiting supply further. This conservative approach ensures that costs will rise as demand increases.
Remodeling Costs: Rising expenses for materials and labor are impacting both new builds and renovations, placing upward pressure on prices for move-in-ready homes.
Historical Resilience: Austin’s 5% price drop pales in comparison to larger declines in other major U.S. cities, reflecting the city’s strong economic base and ongoing appeal to buyers.
Austin’s real estate market is at a rare crossroads. Rising construction costs, stabilizing prices, and increased inventory create a perfect storm for buyers ready to act. As rates decrease and demand accelerates, prices will inevitably climb. For those looking to invest in one of the country’s most dynamic housing markets, the time to buy in Austin is now. Whether you’re seeking a new build or a resale property, acting today can help you secure your place before the market heats up again.