Affordability: Pricing Peak vs. Today in the Hill Country
In light of the recent discussions during the July Federal Reserve meeting and the remarks made by Federal Reserve Chairman Jerome Powell on August 23, financial markets are anticipating a series of interest rate cuts totaling 100 basis points (bps) between the September meeting and the end of the year.
Key Takeaway: We anticipate that by the end of the year, affordability in the Austin and Hill Country real estate markets will likely stabilize. This will be driven by a combination of expected interest rate reductions and a significant drop in home values since 2022, particularly for buyers focused on their monthly payments.
While the average 30-year fixed mortgage rate at the end of 2024 is expected to be nearly double what it was at its lowest point in January 2021, a unique opportunity may emerge in the Austin and surrounding Hill Country markets as the year progresses.
Market Overview:
To provide context, let’s briefly review the evolution of the greater Austin real estate market from January 2021 to today. Starting in mid-2020, an influx of residents from states like California and New York fueled demand for homes in the Hill Country. This surge in demand, coupled with historically low interest rates, caused home prices to skyrocket—from a pre-pandemic average of $372,000 to over $675,000 by April 2022. This peak coincided with the Federal Reserve's initiation of interest rate hikes aimed at curbing inflation. As of August 2024, the average home price in Austin has fallen to $569,000, reflecting a 16% decrease from the April 2022 peak.
What This Means for Buyers, Sellers, and Real Estate Professionals:
In April 2022, the average 30-year fixed mortgage rate was 4.75%. With an average home value of $675,000 at that time, buyers faced an estimated monthly payment of $3,242. Assuming home values remain stable through the end of 2024 and the Federal Reserve implements a 100 bps rate cut, the target rate would drop from 5.5% to 4.5%. The last time the Fed’s target rate was 4.5% was in January 2023, when the average 30-year fixed mortgage rate was 6%. Given the current average home price of $569,000 and a 6% mortgage rate, a buyer could expect a monthly payment of $3,154 by year-end—a potential $88 monthly savings compared to April 2022.
Additionally, the average down payment on a $569,000 home would be $113,800, compared to $135,000 for a $675,000 home, giving buyers roughly $20,000 in extra cash at closing. This difference could be leveraged for renovations, increased purchasing power, or reducing the loan amount.
While the market may see changes between now and the end of the year, our analysis based on current data and projected conditions suggests a positive outlook for affordability in the Austin real estate market through the end of 2024. This is promising news for buyers who have been waiting on the sidelines due to low inventory and high interest rates.
