When Will the Red-Hot Austin Housing Market Cool Off?

With no crystal ball at hand, it's tough to figure out when the market will cool. Still, there are factors that traditionally cause a slowdown.

While we can't say precisely when the red-hot Austin housing market will cool off, we can outline factors that will lead to less intense competition for homes and a stabilization of home prices.

Uptick in inventory

We'll get this one out of the way first because, frankly, it's unlikely to happen any time soon. One of the reasons Austin real estate is appreciating so quickly is due to an extreme shortage in inventory.

Active listings are down by 71% year over year, according to the Austin Board of Realtors. With so few homes to choose from, buyers are entering bidding wars to be the one to land the contract.

While it's easy to believe that Austin homeowners would be excited to sell their properties at a high price, it may not make enough sense to lure current Austinites into the market. After all, unless they plan to leave town, they would have to find another high-priced property to buy or rent.

Builders -- who have faced a myriad of problems, including supply and labor shortages -- are unable to construct the number of new units it would take to ease the inventory problem.

Although it is impossible to predict when either of these situations will change, prices are likely to soften when there is an influx of new inventory available.

More time on the market

Houses are being snatched up in days, sometimes hours. When you notice homes lingering on the market for weeks, that may be a good sign. It means that home buyers have options that can signal a micro-softening of the inventory issue -- even if it's only in specific neighborhoods.

Hike in the interest rate

Due to the pandemic, the Federal Reserve lowered its prime rate to near zero. The prime rate is not the interest rate you pay for a loan, but the rate at which banks borrow money from each other. In turn, it's the foundation upon which they determine the rate they charge you as a customer.

Let's say your mortgage lender borrows money from another financial institution at 1.5%. Naturally, they'll need to charge you more than 1.5% interest to make a profit. Still, if they're borrowing money at 1.5%, the interest rate you pay is still likely to be low.

When the Federal Reserve increases their prime rate and banks are forced to charge each other more to borrow money, that increase gets passed on to the customer. And as interest rates increase, the number of people jumping into the housing market tends to decrease.

Big, unexpected event

Say a war breaks out, another pandemic hits, or a series of hurricanes decimates a large section of the country. Such an event is likely to impact the housing market dramatically. As consumers worry about the immediate future, they are less likely to take out a mortgage or make a significant life change.

While no one hopes for a big, dramatic event, the arrival (or rumor) of one may usher in a sudden downturn in the housing market.

If you're waiting for your opportunity to get into the Austin market but aren't sure if the time is right, know that you're not alone. Whether or not it's a good time to buy a home is one of the most significant financial decisions you are likely to make and requires careful contemplation and planning. As you decide, the best thing you can do is make sure your credit score is strong, keep saving money, and take the time to determine how much you can afford to spend without stretching your budget.