Texas Real Estate Market Trends for 2023 – Real Estate Real Fast EP11
In this episode of Real Estate Real Fast, Aaron Jistel discussed the market trends of 2022 and 2023. Sales were down 25% in Austin, Texas compared to 2021, and values are likely to continue decreasing in 2023.
Price drops are becoming more normal, and we can expect home values to decrease by 10-15% on average across major markets.
AirBnB prices will likely drop and vacancies will increase. Builders will continue to target first-time home buyers with incentives.
Home sellers should focus on their local market and pull out all the stops when listing a house.
Listen to the full episode to learn more about factors impacting the real estate market in 2022, forecasting trends for 2023 real estate market, strategies for investing in the current real estate market, and more.
- 2022 Market Trends: Decrease in sales, values, and new listings in Austin, TX; median home value up 9.9% in Dallas year over year; closed sales down 30.4% in Houston year over year; closed sales down 33%, price up 4% in San Antonio year over year.
- Price Drops: Prices have been falling in the market, with close to 50% of homes undergoing price drops.
- Foreclosures: Foreclosures are likely to increase if unemployment continues to increase.
- New Construction: Slowing down due to an increase in inventory and a declining market; builders targeting first-time home buyers.
- AirBnB: Prices will likely drop and vacancies will increase; Dallas City Plan Commission may define short-term rentals as lodging, making them illegal in residential neighborhoods.
- iBuyers: Collapse of iBuyers presents an opportunity for local investors.
- Fed Rates: Likely to stay consistent for foreseeable future until inflation is under control; mortgage rates may fall in Q2 of 2023 if home values have dropped by 10-15%.
- Listing Agents: Be careful when selecting listing agents who only charge 1% commission.
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[0:03:13] Austin Real Estate Market Sees Sharp Decline in Sales and Prices in 2022
In Austin, Texas, sales were down 25% in 2022 compared to 2021. Sales specifically were down 55% in December. The median sales price declined by 2% year over year. Values will likely continue to decline in 2023.
“Sales for December specifically were brutal. They were down 55% year over year. That’s a staggeringly high number.”
[0:04:16] Austin, Dallas, Houston and San Antonio Home Market Statistics for December 2022
December 2022 saw a decrease in new listings (down 17%) and pending sales (down 40%) in Austin, Texas, while active listings were up by 225%. In Dallas, the median home value was up 9.9%, active listings were up 118%, days on market increased to 44 days, and closed sales were down 30%. In Houston, closed sales were down 30.4%, the average sales price increased 5.8%, and months of inventory jumped to 2.4 compared to 1 month the prior year. In San Antonio, closed sales were down 33%, the average price was up 4%, the median was up 2%, and new construction listings were down 1%.
“We’re seeing more new construction listings than we are resale and total active listings are up 75% for the resale market and up 126% for new construction.”
[0:09:17] Price Drops Becoming the Norm in Real Estate Market
Prices have been falling in the market and it is becoming more normal to do a price drop on your listings. We are seeing price drops across all MLSs and close to 50% of homes are doing price drops in order to sell. Low interest rates have caused people to hang onto their current home for longer, which has contributed to the decrease in inventory.
“It is now becoming the norm to drop your price. We’re getting to the point where close to 50% of homes are doing price drops in order to sell.”
[0:13:28] Home Values to Decline in 2023, Especially in Austin and Other Major Markets
We can expect home values to decrease in 2023, with a range of 10-15% on average across major markets in Texas. This is due to the spike in prices observed in 2021, and will vary depending on location and other factors. Foreclosures are also likely to increase as unemployment rises, so investors should keep an eye out for adjustable rate mortgages (ARMs) that may be winding up on the auction block.
“Real estate is hyper local. You’re going to see percentages that are statewide or metro wide. But your area, your market is going to be what really dictates what happens with your home value.”
[0:19:31] Builders Offer Incentives to Move Inventory in Slump Market
New construction in 2023 is slowing down due to an increase in inventory and a declining market. Builders are offering incentives to buyers, such as design center credits and closing costs, to help move their inventory. They are also lowering their price points and targeting first-time home buyers. We can expect to see more people renting due to affordability issues for first-time home buyers. The city of Austin needs to figure out affordable housing solutions to help the younger generation become homeowners.
“In a declining market where inventory is climbing, builders are having to shift gears and make some changes to their business and industry wide changes.”
[0:26:02] AirBnB Prices Expected to Decrease Due to Recession and Increased Management Stress
Airbnb prices will likely drop and vacancies will increase as people become more conscious of their disposable income during the recession. AirBnB investors are likely to bail out from the market due to the uncertainty of the future and the stress of managing the properties. Those who specialize in AirBnB investing will weather the storm and have the opportunity to pick up more properties, while those who are new to it may find it too much to handle.
“I think the uncertainty of the future, the stress of management, I think it’s going to be a lot for some people to handle. I think you’re going to have the pros that have a big portfolio of AirBnBs and they know exactly how to do it and they’re specializing in it and they’re really good at it. I think they’ll be fine. I think they’ll weather the storm and they’ll come out the other side and they’ll probably find some amazing opportunities to pick up more of those properties during this and be opportunistic.”
[0:27:27] Dallas City Plan Commission Votes to Regulate Short-Term Rentals as Lodging
The Dallas City Plan Commission recently voted to recommend that short-term rentals be defined as lodging which would make them illegal in residential neighborhoods. If this goes through, many people will be forced to sell their AirBnB properties or turn them into long-term rentals, though the profitability may not work in the long run. Those in the AirBnB space and the Dallas area should keep an eye on this developing situation.
“If Dallas does define homes rented on platforms like Airbnb and VRBO as lodging, they would then be illegal in neighborhoods that are zoned for single family and multifamily use.”
[0:29:05] Local Investors Can Take Advantage of iBuyer Calamity in 2023 and Beyond
The collapse of iBuyers such as Open Door, Offerpad, and Zillow offers creates a vacuum of real estate that is not going to be filled. This presents an opportunity for local investors who understand the unit economics of a deal and can give home sellers an alternative to the overpayment strategies used by iBuyers.
“My takeaways from the iBuyer calamity that’s going on right now is it’s further proof that real estate investing is just hyper local. Investors should look at this as a massive opportunity.”
[0:32:39] Mortgage Rates Expected to Fall in Q2 2023
The Fed has kept rates consistent recently and we expect them to stay there for the foreseeable future until inflation is under control. Although the Fed acted too late in raising rates, this could lead to mortgage rates falling in Q2 of 2023 if home values have dropped by 10-15%. 2021 should not be seen as the baseline for the market, as it was an outlier year, and instead 2018, 2019, and 2020 should be used for comparison.
“Jerome Powell he’s going to keep it there until he knows inflation is under control. So he was very clear if you listened to him on any of those Fed meetings, his narrative was always really clear. He said, ‘things are going to be painful longer than everybody expects.’”
[0:37:08] Planning for Real Estate in 2023
In 2023, expect the real estate market to start coming back and for transaction volumes to remain lower than in previous years. Home sellers should focus on their hyperlocal market and look at active, pending, and closed deals to get an accurate estimate of the property’s value. When listing a house, sellers should pull out all the stops to make the house as attractive as possible, be patient, and consider using Listing Spark to save money on commissions that can then be used to make a more aggressive price adjustment.
“Be hyper local. And the best way to do that is looking at those kind of comps. What’s the lens you should be looking at cost to. So looking at active, pending and closed deals because every house is going to sell. So you look at close because that’s going to be the end all, be all for what the value is.”
[0:41:41] Will the Real Estate Market Boom Again in Q2?
It’s possible that there could be a boom in the market again in Q2, but it’s more likely that we’ll just start to see movement back towards a normal trajectory. Home values may fall this year, but if the Fed stops raising rates and starts lowering them, buyers will be encouraged to get off the sidelines and start buying again, which could lead to potential appreciation later this year.
“I don’t know if I would quite call it a boom, but I think we’re just going to see movement back towards a normal trajectory. I think we’ll start to see curbing that decline in home values in Q2 and I think we could start to see appreciation happening again later this year.”
[0:43:27] Is Working with a Listing Agent Who Only Charges 1% Commission a Good Idea?
It is important to be careful when selecting a listing agent who only charges 1% commission, as they may have lower levels of experience and not be able to offer you the best strategy for getting your home sold. Look for an experienced team that can handle negotiations and has a track record of successful sales.
“I would rather go that route and have a team that handled over 1400-1500 sellers last year than going with somebody that is really struggling to get their business off the ground.”
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