Last Updated on August 11, 2024 by Admin
The year 2020 was anything but normal. Most economies around the world experienced a dip. To counter this, the federal government slashed interest rates in order to shore up the U.S. economy and stabilize the financial market. With record-low mortgage interest rates set at about 2% to 3%, an exceptionally hot housing market popped up across major cities in the U.S.
Austin was a boomtown, setting a trend for other cities, including Nashville and Phoenix. For the next 3 years between 2020 and 2022, Austin became a popular seller’s market as it experienced an influx of tech companies. The corporate relocations caused home prices in Austin to skyrocket by up to 60%, the most among large metro areas in the US.
Companies, particularly tech-related firms, were scrambling for commercial office space in the city. Austin became a sudden sensation as firms like Oracle Corp., Tesla Inc. and a host of other giants moved their headquarters or a significant part of their operations to Austin, Texas to leverage the low taxes and beautiful sunny weather.
A shift from seller’s market to ‘no one’s market’
It’s barely 4 years after the pandemic and the situation is reversing. Things are changing fast for Austin, as what was once a booming housing market is now cooling. Interest rates have reset from 2% back to about 6% to 8%, thus making mortgage payments increase. Consequently, demand for houses has decreased, which has lowered the prices of houses significantly.
With the bursting of the housing bubble, fewer companies are also moving to Austin. From a record 64 companies that moved their operations to Austin in 2022, Bloomberg has reported that only 11 have made the shift this year.
In fact, major tech companies have moved in the opposite direction, with many more scaling back operations in the area. Increased tech layoffs have become the order of the day in the city. For instance, Tesla alone is looking to lay off up to 2,688 workers in Austin as part of its plan to reduce its global workforce by 10%.
Elon Musk’s Tesla is among the notable tech companies that moved out of Austin after the pandemic housing boom. In 2023 the company announced that it would move its headquarters to California from Austin, 2 years after it had set shop in the city.
After Tesla’s exit from Austin, Oracle also followed suit by moving its headquarters to Nashville, Tennessee in 2024, after 4 years of operation in the city. As of the time of exit from Austin, Oracle boasted 4,200 employees, and though not stated, it is believed a significant number of these employees would migrate with the company to Nashville.
Companies like Meta and Google had earlier fled Austin in 2022. They abandoned plans to occupy office spaces they had acquired even after paying rent. The story was the same for TikTok who had announced they would sublease six floors of office space they had acquired in downtown Austin.
As a result of the move, Austin is left with an oversupply of empty units, homes selling at a loss, unoccupied office spaces, and even some landlords are forced to give rent-free offers to have their buildings occupied. Texans are looking outside the traditional realtor process and are selling Austin homes for cash quickly and privately through services such as Sell Soon Homes. The situation is simply dire for most landlords and are looking to recoup their money swiftly.
Why the exodus from Austin?
Steve Triolet, a senior vice president at Partners Real Estate points out that Austin has become unattractive to companies looking to relocate due to its high cost of living. As home prices increased so did the cost of living, making the city expensive to live in. Towns around Austin (such as Pflugerville) are becoming expensive as well.
According to Mattew Walsh, an economist at Moody’s, the real estate market in Austin was highly overvalued. Walsh goes on to explain that overvaluation made home prices escalate to unsustainable levels that do not match incomes thus increasing the cost of living further.
Besides the increased cost of living, other factors have contributed to tech companies moving their operations out of the city. Political differences, a lack of government support for start-ups, and high costs have been top of the list.
Cooling of Housing Market in Austin
The once hot Austin housing market is now characterized by the biggest drop in home prices and rents in the whole country after a boom. The Freddie Mac House Price Index reported a drop of 11% in home prices, which is the biggest decline of any US city since 2022.
Similarly, data estimates from Apartment List show a high decline in rents of about 7% in the past year, which exceeds every other city in the country. Worse, some landlords even offer weekly free rent to entice tenants to fill empty units as reported by the Wall Street Journal.
For people who were looking to take advantage of the booming housing market but got trapped in the slow population growth and property cool-down, is it the right time to hold on or sell?
Well, Austin housing cooling is indeed a tough reality for sellers. If you’re going to sell now, you’ll need to work with a slightly lower selling price, which means making a loss. For buyers, it’s not any different as the high interest rates mean you’ll have to pay extra due to higher mortgage payments. So it’s neither a good time to buy nor sell and only time will tell the right move, depending on how other factors that affect the decision to buy or sell will eventually pan out!
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