What Happens to Austin Real Estate in a Downturn?

Eric, Jul 27, 2022

A lot has changed in Austin real estate over the past few months. It’s now very clear that the pandemic boom is over and it’s a real possibility that we’re heading into a downturn. While lots of buyers welcome the additional inventory and the breathing room this provides, these changes have understandably made many sellers (and many buyers) nervous about the market. This begs the question, “What happens to Austin real estate in a downturn?”

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The last downturn in Austin real estate started in 2008 with the Great Recession. It’s important to remember just how deep and long this recession was. The recession lasted almost 18 months and it took the Austin market almost 4 years to recover. This is much longer than most recessions and most real estate downturns.

That said, how was Austin real estate affected in 2008?

When buyer demand declines (which is the direct cause of a slowdown) the most obvious effect is a reduction in sales. The total number of sales declined by ~20% from 2007 to 2008 and bottomed out in 2010 with a ~29% decline. (Again, bear in mind that this downturn was loooong.) The declining sales directly contributed to an increase in Months of Inventory. Pre-recession, the Average MOI was 3.8 (a balanced or slight seller’s market) and it pushed north of 6 Months of Inventory in 2009 and 2010, which is firmly a buyer’s market.

All of this additional inventory and decline in sales caused a big price drop, right? Actually, no.

It’s hard to believe that the Average Sold Price didn’t move very much. Avg Sold Price bottomed in 2009 at only ~$10k below the 2007 peak (a -3.8% decline.) Prices were back to their pre-recession levels by 2010 and strongly appreciated again by 2012. Why is this?

It’s important to remember that real estate is primarily a need, not an investment. When home sellers can’t get what they think is a fair price, many simply don’t sell. The number of withdrawn listings increased by roughly 40% during the downturn and new listings decreased by 10-20% (depending on the year.) A massive decline in new builds contributed to the persistent decline in new construction.

I remember prices getting hammered. What gives?
These are high level-level, 10,000-foot view numbers. The Average Sold Price didn’t decline much on an annual basis / macro level. At a micro level, there were some sellers who did really well (usually accidentally) and some buyers who didn’t do that well (also usually accidental.)

If we cherry-pick the best month in 2007 against the worst month in 2009, we see an -11.35% decline. This is more in line with how people usually think and remember these events. People really hate missing out and will kick themselves for not having predicted the future. Most sellers will remember the most extreme month they could have sold against the current reality. (Statistically, this isn’t that bad, but it’s still not much fun.)

Will all sub-markets & sellers behave the same?
Sub-markets will all react differently. Builders have zero utility for homes they’re delivering, so they won’t sit on inventory. They’ll systematically reduce prices and offer incentives until they’ve sold everything. They will continue to deliver existing inventory for 12 months after they decide to slow down. The luxury market is usually affected more deeply because luxury buyers are affected by the stock market and mortgage rates. These buyers will generally behave more conservatively.

Will this downturn be identical to 2008?
Almost certainly not. The 2008 downturn was caused by bad real estate lending, which took years to work out and which directly affected the real estate market. This downturn is caused by inflation, which is causing rates to rise. The time it will take to solve inflation will be different than it took to solve the toxic lending problem (and it will hopefully be faster.) Whenever interest rates stabilize and buyers consider them “the new normal”, we can expect the market to pick back up.

It’s important to remember just how lucky we are to be in Austin, TX. In the midst of relatively consistent bad national economic news, we see fantastic growth for our local economy. During the great recession, Austin was “last in, first out” and we do expect that to be the same in this downturn.

As always, real estate is hyperlocal, so everyone’s situation will be unique. If we can help you with strategize yours, please don’t hesitate to reach out.

About the Author

Eric Bramlett is the broker and owner of Bramlett Residential, a mid-sized brokerage in Austin, Texas. Eric is a 19 year veteran in the Austin real estate market and specializes in building systems and technology. Bramlett agents pride themselves on their exceptionally high standards for client service and both industry and market competency. Eric lives in central Austin with his wife and son. In his spare time, he enjoys cycling, climbing, and traveling to be in the mountains.

Last updated: 08/23/2022

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Elizabeth Michael was awesome to work with! As a first time home buyer, she was able to explain the process clearly and professionally, from our first meeting, all the way through closing.

She was very communicative and we never felt we were left in the dark. She fought for us when we needed her to fight for us, and her advice was invaluable. She absolutely excels at navigating the Austin real estate market.

She was also able to recommend a great lender, insurance agent, etc., which made it feel like we had a whole team working for us. I’d recommend working with Elizabeth to everyone I know.

We worked with Julie Stoakley to purchase a home since moving back from Florida. We were impressed with her knowledge of the incentives and mortgage strategies. We never felt lost in communication on where we stood in the buying process. We purchased a home with an incentive and with her knowledge we were able to obtain clarity and an understanding for it. She also helped us in negotiating repairs from the inspection process and were able to get a brand new roof! I would definitely recommend Julie to my friends and family!

Crystal Hirst understands market conditions and how to position. She does her research well and helped us price our house to “SELL”. Indeed it sold much faster than our expectation, while multiple other units in the area, and in fact on the “same street”, still remain unsold. Ultimately Crystal brought us multiple interested buyers and we achieved higher than asking because of this multi-party interest that Crystal generated. We enjoyed our experience, her professionalism and excellent communication. We highly recommend Chrystal Hirst as your realtor.

Crystal Hirst understands market conditions and how to position. She does her research well and helped us price our house to “SELL”. Indeed it sold much faster than our expectation, while multiple other units in the area, and in fact on the “same street”, still remain unsold. Ultimately Crystal brought us multiple interested buyers and we achieved higher than asking because of this multi-party interest that Crystal generated. We enjoyed our experience, her professionalism and excellent communication. We highly recommend Chrystal Hirst as your realtor.

I have been thoroughly pleased with my experience with Bramlett Residential and my realtor Tyson Hombroek. Tyson provided outstanding service in helping me with the sale of my house. He is very professional and on top of the market. We stayed in constant communication and he was helpful in answering all my questions I had. This was a great experience. I highly recommend them.

Kasey Gilliam was very professional and communicated through the whole home buying and searching process. highly recommend working with her. She has great expertise in Austin and lead very helpful with all of our home buying questions and concerns!

Vicki Duran from Bramlett was extremally informative and made the whole sales process effortless. I used her to not only purchase my home 4 years ago but also for the sale of the same home. Communication is key for me and Vicki was available at any time to answer questions and to keep us looped in during negotiations and or pending offers. Her attention to detail really stans out and had her clients best interest in mind at all time.

I highly recommend Vicki to anyone looking to purchase a home or sell their home, having used her for both I know you will be glad you did.

Elizabeth is AMAZING!!! She went above and beyond to secure me an absolutely beautiful home. HIGHLY recommended.

Elizabeth is amazing at her job. She found my roommates and me a great house and made the whole process very easy 10/10

Elizabeth was great and easy to work with and helped me a find a tenant quickly. She was prompt in communication and I would highly recommend her to everyone finding a new tenant

Elizabeth has helped me find a home not once, but twice! She’s incredibly responsive and communicative- Both times I’ve worked with her, she has prioritized what I’m looking for, been super realistic and honest, and is always my advocate. I’m so grateful for her hard work!

Elizabeth was extremely helpful in our process of buying our first home. She was extremely responsive, friendly and made the home buying process extremely simple and easy. Thanks again Elizabeth you’re the best!

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