AUSTIN, Texas — As Austin's median home price hit $640,000 in April, a Texas data analytics firm is predicting Austin's housing bubble will pop in three years.
What goes up must come down, and hopefully, that saying applies to Austin's soaring home prices.
"Austin is arguably in the largest housing bubble in America based on the fundamental data," said Reventure Consulting CEO Nicholas Gerli.
Gerli said when Austin's housing market bubble pops, the city could see the country's largest decline in home prices.
He said historically, it takes about five years for a market to crash, but he predicts a 30% to 40% decline in home prices in Austin over the next three years.
"I know a lot of people are going to say 30% to 40% decline is impossible, but two years ago, you would have said there's no way Austin could appreciate by 70% in two years," Gerli.
He looked at four things to determine if Austin is in a housing bubble and when it could pop:
1. The local housing price-to-wage ratio
"The cost of buying a home has gone up nine times faster than the income people are earning, and that's one of the telltale signs of a bubble," said Gerli.
2. The rent-to-buy ratio
"It costs almost two times as much to buy a house with mortgage and tax payments than it does to rent an apartment," said Gerli. "So that means people would be more incentivized to rent into the future home building."
3. The economic risk, with migration to Austin slowing down and the potential for a technology downturn impacting tech companies.
"A huge influx of people from the Bay Area, from L.A., from New York, different parts of America that for a temporary piece of time pushed that price up and pushed that mortgage payment because they could afford it," said Gerli. "On Redfin, Austin's inbound searches have plummeted over the last two quarters. It's actually last place in Texas now."
Gerli said with so many tech companies in Austin, the city is at risk of a potential technology downturn.
"It's no secret that at the start of the year, tech stocks have been performing poorly," said Gerli. "We're starting to see layoffs even in Austin. A big startup called Workrise laid off some people in March. Electronic Arts just laid off people in Austin."
4. Housing inventory
Gerli said it is still extremely low, but that is changing quickly. He said homes are being built twice as quickly as they were three years ago and more homeowners are selling. According to Redfin, the number of listings this month is up 15% compared to this time last year.
"It's really the people who bought in the last one to two years who have the most to be concerned about in terms of all of a sudden the value of their property is less than they bought it for," said Gerli.
He said investors may be most affected by a drop in prices. According to the property data firm CoreLogic, investors bought about one-third of all single-family houses sold in the Austin metro area last year.
"They're buying at evaluations that don't make sense," said Gerli. "So, I think, you know, a lot of them will get burned."
On top of all of those factors, interest rates continue to rise as home appraisals in Travis County increased by 56% in 2022, according to Travis County.
Gerli said if Austin follows what's happening in other tech-heavy cities, then we could see a small price change this year.
"It looks like in places like Seattle and the Bay Area – in a month, we might have seen a 5% to 10% write-down already in just one month, which for the housing market historically is insane. Normally, home prices don't go down that fast," he said.
Austinites craving affordability will just have to wait and see if and when the market turns.
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