Austin, TX, has become one of the fastest-growing real estate markets over the last several years. That tide has changed somewhat, but that may be temporary. Can the Austin real estate market rebound and is the current situation a window of opportunity for real estate investors?
Tech Boomed, Construction Followed
Austin has become one of the hottest spots for technology. Billionaire Larry Ellison moved his company Oracle (NYSE: ORCL) to the area in 2020. Tesla (Nasdaq: TSLA) established its Gigafactory in the area in 2021 and has been expanding its footprint ever since.
Apple (Nasdaq: AAPL) is developing a $1 billion campus in the area. The project will have 870,000 square feet of space spread across three buildings and should be completed in 2025. When the 133-acre development was announced in 2019, it was said to hold as many as 15,000 employees. Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL), Amazon (Nasdaq: AMZN) and Meta (Nasdaq: META) have also established offices in the area. Austin has over 979,000 residents and has grown by 1% over the past three years.
The development of the “Silicon Valley of the South” caused a large uptick in office construction. However, tech layoffs hit the city hard. Meta decided to sublease its space at the new Sixth & Guadalupe Tower before it even moved in and it decided to vacate its lease in the Domain development, allowing IBM to move in as the new tenant.
The cooling demand for office space raised Austin’s vacancy rate to 22.9% as of July. This level of vacancy led city officials to consider residential conversion earlier in the year.
Austin's residential market is also oversupplied, at least temporarily. In the trailing twelve months ending in June 2024, 15,569 units were completed in Austin. The city ranked second in Moody’s list of oversupplied markets. Average rents are down around 9% over the past year. While this sounds negative, it may be a reset of an overinflated market.
What Does It All Mean For Austin Real Estate?
The Austin residential real estate market hit a peak in terms of sales prices in 2022 when the median price soared over $600,000. August 2024 Redfin data puts the median sales price at $545,700, down just 0.45% year over year. The bigger story is the drop in sales. Sales are down 18.9% year over year. The median days on the market have increased by 14 days to 67 days. That means homes sit on the market longer, but sellers may be less willing to compromise on price. “The market is sluggish, but it's not worsening,” says Eric Bramlett of Bramlett Residential Real Estate.
The new home market in Austin may also be struggling. Major builder KB Homes is cutting prices in cities it feels may be overvalued, including Austin. According to a study from Parcl Labs, the single-family home supply in Austin has risen by 6.87% since 2019, and Parcl found that the Austin market may face more price reductions.
The state of technology will determine whether the Austin market truly turns around. Like San Francisco and Silicon Valley, Austin has become very tied to high-paying tech jobs. Overall, tech lost around 60,000 jobs in 2024, and some of those jobs were in the Austin area.
Bramlett said he and his team are carefully tracking the state of tech jobs. “That's the piece of the puzzle that we need for a full recovery,” he added.
When oversupply in multifamily or commercial real estate impacts a market, it tends to settle out over time. Developers with projects that were in progress when the boom slowed had no choice but to complete the buildings and hope for the best. Austin was the top multifamily permitter during the pandemic but has dropped to the number two slot. Developers pulling permits now may be betting on growth over the next several years.
A price drop and a rise in supply are bad news for sellers who bought in near the market's peak. However, this could create a window of opportunity for investors in a market currently in a lull. The long-term prospects for the Austin market remain steady. The unemployment rate is below the national average. Austin is no longer the fastest-growing city in the United States but still sees positive inflows. Investors entering the market now may not see the appreciation that investors who got in five years ago enjoyed, but if prices fall and then rebound, it could represent a solid move.
You Can Profit From Real Estate Without Being A Landlord
Real estate is a great way to diversify your portfolio and earn high returns, but it can also be a big hassle. Luckily, there are other ways to tap into the power of real estate without worrying about a single property.
The Arrived Homes investment platform has created an Income Fund, which provides access to a pool of short-term loans backed by residential real estate with a target of 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Looking for fractional real estate investment opportunities? The Benzinga Real Estate Screener features the latest offerings.