Austin homes used to sell in a week. Now sales take months, if they happen at all.

With higher mortgage interest rates, fewer people can afford to buy.

By Audrey McGlinchy, KUTNovember 10, 2023 9:00 am, ,

From KUT:

When Lindsay Mader put her house up for sale earlier this year, she braced herself. For the past two years, the combination of plummeting mortgage interest rates and an influx of remote workers to Austin meant for-sale homes were in high demand. The result was a frenzy. Dozens of people bid to buy the same home, some of them offering $100,000 over the asking price.

Then, everything changed. Mortgage interest rates nearly tripled in a year. Buying a home became much more expensive and interested buyers dried up.

“We knew that the market was nowhere what it used to be,” Mader said. “But I don’t think we were adequately prepared.”

In May, Mader and her husband listed their North Austin home for $650,000. Then, they waited.

“The weeks just kept passing by and we were like, ‘What is going on?’” Mader, who works in communications for a local nonprofit, said. A handful of people came to tour the four-bedroom house near the Q2 Stadium, but no one wanted to buy it. The weeks turned into months.

So Mader and her realtor did something virtually unheard of in Austin real estate until recently: they lowered the price. Then they lowered it again. “It seemed with each time that we lowered it, we just weren’t getting that much attention, and that was really scary,” Mader said.

In late September Mader and her husband finally got an offer. It was $100,000 below the original asking price. Worried they wouldn’t get another shot, Mader and her husband decided to sell.

Austin’s housing market looks entirely different than it did two years ago. Gone are the days of dozens of offers, bids over asking price and waiving inspections. With higher mortgage interest rates, fewer people can afford to buy, and current homeowners are loath to sell, giving up their low interest rates and the promise of a high sales price.

As a result, homes are taking months to sell, and that’s if they sell at all.

What goes up must come down

For nearly two years, it felt like Austin’s housing market had no ceiling.

“It’s almost like everybody drank 10 shots of espresso because we were going so fast,” said Socar Chatmon-Thomas, a realtor and broker in the Austin area.

Starting at the end of 2020, in cities and towns across the country, there was a run on housing. Some people had been able to save money during the pandemic, their savings bolstered by government stimulus cash. As mortgage interest rates plummeted to historic lows, more people could afford to buy a house.

At the same time, Austin’s population surged, growing by 5% between 2020 and 2022. Tens of thousands of people, now freed from the reins of having to commute to an office, moved here from across the country to work remotely. Homebuyers flooded the market. Add to that a nationwide shortage of housing, and it felt like buying a home had become a feverish nightmare.

“Offers were coming in so quickly. Buyers had to make split-second decisions,” Chatmon-Thomas said. “You have 15 minutes to decide whether or not you want this house because there’s a line around the corner of people who are probably going to make an offer.”

Home prices soared. In 2021, the median sales price of a home in the Austin area rose 31%, according to data from the Texas A&M Real Estate Research Center. In a year, Austin went from being a city where you could buy a two-bedroom home in a central part of town for $350,000 to one where you’d be hard-pressed to find a house with a yard for less than half a million dollars.

But real estate experts at the time agreed these enormous price jumps couldn’t last for long. Soon, Austin would run out of people with enough wealth to buy such expensive homes.

“Austin is a market that grew too fast for its own good,” Ali Wolf, a senior economist at real estate research firm Zonda, told KUT.

A couple of months into 2022, mortgage interest rates began rising from historic lows. Even a 1% increase in mortgage interest rates can mean a substantive increase in a buyer’s monthly mortgage payment, cutting off people from the possibility of homeownership.

Couple these new rates with an incredible rise in prices, and the surge of interested buyers dried up. In response, home prices have dropped. Over the past year, the median sales price of a home in Austin has fallen 8%. And while home prices in cities like Philadelphia and Milwaukee are up after an initial drop, prices in Austin continue to fall. Researchers at Zillow found that out of the largest 50 U.S. metros, prices in Austin fell the most in September.

Wolf says this sustained drop is in part because prices rose so quickly. Far fewer buyers can afford this new market. According to estimates from Zillow, someone would need to earn a little over $150,000 a year to afford a median-priced home in Austin. That’s well above the typical worker’s salary.

“Austin has faced a more extreme housing affordability crunch [than other cities],” Wolf said. “Even though the [numbers] say that Austin’s housing market should be a lot stronger than it is, buyers have a limit.”

Even with Austin’s falling home prices, experts are reluctant to use the word ‘crash’; this isn’t that. Most describe it as a leveling off.

“Everybody forgets the average appreciation for housing per year is between 5 to 8%. That’s it,” Chatmon-Thomas said. “Buying a condo for $250,000 and being able to sell it the next year for $375,000. That’s not normal. [Our] market is just resetting from the wild, wild, crazy days of 2020 and 2021.”

But while realtors like Chatmon-Thomas describe this as a return to “normal,” it feels like whiplash to many. For about a decade, Austin has been what’s called a ‘seller’s market’, a housing market where sellers had power over buyers. Someone selling their home could expect to set a high price and receive bids in a couple of weeks.

Now, realtors say, they have to sit down with sellers and let them know things have changed. That they likely won’t get the same price their neighbor got in 2021 or early 2022. Plus, they’re now entering a market where a new mortgage comes with a much higher rate. Nearly 92% of homeowners have mortgage rates lower than current rates, according to a Redfin report released this summer.

That hasn’t stopped Mariessa Nelsen and her husband, who put their home in North Austin up for sale in September. After living in Austin for more than a decade, they decided to move with their two kids to Charlottesville, Va., where they would be closer to family and could afford a bigger backyard.

“We can have more chickens,” Nelsen said, pointing to the small coop the family has in their Austin backyard. “And maybe get a goat.”

Mariessa Nelson makes lunch in her kitchen on Oct. 23, 2023. She recently got an offer on her house in North Austin.
Renee Dominguez / KUT

But the family needed the money from selling their three-bedroom Austin home before they could buy a house in Virginia. They listed their house for $549,000. At first, a couple people came to tour the house, Nelson said. Someone said they planned to make an offer, but it never materialized. Then, silence.

We didn’t hear anything,” said Nelsen, who works as a program manager for a tech company. “No showings for about three weeks, now going on a month.”

She started to stress, worried they would have to push back their move and maybe even lose out on the house they had put a contingent offer on in Charlottesville. So Nelsen and her realtor decided to do what has become common in Austin: lower the listing price. They dropped it $10,000.

They had another open house in early October and several people trickled through. But still, nothing. Then finally, two weeks into the month, they got an offer. It was $14,000 under their new listing price, but the buyer agreed to come up a bit. They are scheduled to finalize the documents by the end of the month.

Nelsen said she is so relieved.

Home prices have dropped, but buying is more expensive

While home prices in Austin have dropped, they haven’t fallen enough to offset the cost of higher mortgage rates, which makes buying a house more expensive.

“The cost of borrowing the money to pay for a more expensive home has gone up,” said Daniel Oney, research director at the Texas Real Estate Research Center.

Imagine someone who bought a house for $550,000 in early 2022. Assume they got an interest rate of 3%, which was typical at the time. If they paid a 10% downpayment, that means their monthly mortgage rate, not including property taxes and insurance, would be about $2,500 a month.

Now say this person bought the same house today. The price is lower, now $525,000. But mortgage rates are more than double what they were. Assuming the same percentage downpayment and leaving out property taxes and insurance, this buyer’s new monthly mortgage payment would amount to nearly $3,900 a month. That’s a $1,400 increase.

This is a reality Chinenye Enenmoh has had to stomach. She moved to Austin from Madison, Wis., last year in search of warmer weather. After renting an apartment on East 11th Street for several months, Enenmoh decided to look into buying a house. She said she was glad she waited.

“I was watching [the 2021-2022 market] unfold, and I knew I did not want to participate in that,” Enemoh, who works at a company that uses artificial intelligence in healthcare, said. “I didn’t think that I really wanted to buy a home in such a competitive market where I’d be putting in an offer tens of thousands of dollars over the listing price.”

Chinenye Ememnoh, a first-time homebuyer, sits in the living room of her new home on Oct. 23, 2023.
Nastassja Collak / KUT

In a less crazed market, she could take her time. She ended up finding a three-bedroom house she liked in North Austin, about a 10-minute drive from the suburb of Pflugerville. The house was listed at $535,000 but sold for about $10,000 less.

“My interest rates are high, and I still have pause,” Enenmoh said. She said she hopes interest rates go down, and she can refinance in the next couple of years.

While Enenmoh said she is happy she bought, the added expense of a high mortgage rate compared to decades past has made her rethink the promise of homeownership sold to so many. In the U.S., homeownership is often the only way families can build wealth, buying homes that rise in value over time, netting them hundreds of thousands of dollars they may not have had access to otherwise.

“I think when people say that buying a home is the American dream, it really isn’t,” Enenmoh said. “I’m glad I purchased a home because I wanted more space. But it also is a costly investment. And I don’t think buying a home is the right move for everyone, especially with interest rates so high.”

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