With the news of higher interest rates, the market slowing, price reductions and overall public sentiment about home buying, buyers are asking themselves is now a good time to buy a home in Austin? If you’ve been following our Austin real estate price reports, you’ll see we analyze the market every month and make a recommendation whether it’s time to buy or time to sell. For the past several months we’ve said it’s time to buy. If you look back through our reports, which go back to 2012, you’ll see we don’t often make that recommendation. Why is now a good time to buy a home in Austin?
The Number One Reason to Wait to Buy a Home in Austin
First let’s address the elephant in the room and the only thing impeding home buyers right now – interest rates. Though still lower than they have been historically (my Dad tells me about the 14% and 19% interest rates they had when they bought a house in the early 1980s and honestly I can’t even imagine), they are higher than they’ve been in the last 15 years. The biggest reason to wait to buy a home is if it is not within reach financially. Interest rates, rising homeowner’s insurance and property taxes have shifted monthly payments. You want to really get a handle on what your payment looks like and ensure you have enough left over to have a life outside your home. A good mortgage professional can give you an idea of what you can afford with what you can budget monthly. Once you have that number, head over to our Austin home search tool and put in your price and size parameters and see what you can buy. If you see houses that you’d want to look at, it makes sense to explore home buying. If nothing in your budget is appealing, then maybe it’s best to hold off.
US Historic 30 Year Fixed Interest Rates
To give you an idea of where we are now versus where we have been historically, here is a graph of 30 year fixed mortgage interest rates from 1971 to today. This graph was put together by St. Louis Fed.
Remember – Mortgages Can be Refinanced to Lower Your Payment if Rates Go Down
It’s not something you can count on because no one knows when/if they will go down, but you can refinance your mortgage loan at any time as long as you don’t have a prepayment penalty or any terms in your mortgage commitment that forbid it. That’s one thing you will need to confirm with your mortgage professional when you purchase this home to be sure you’ll have the ability to be able to refinance and lower your interest rate (and therefore payment) should rates go down.
Be Careful with Interest Rate Buy Downs – They Usually Aren’t for the Life of the Loan
One thing you want to really understand if you negotiate an interest rate buy down is how long will the rate stay down? It’s typically not for the life of the loan, so you’ll want to understand when your rate will increase and what effect that will have on your payment. Though you might be able to refinance before the rate resets, if rates aren’t lower than they are today, you’re going to have an even higher monthly mortgage payment. Know all the terms before you find a house, so you aren’t surprised with an increase in your payment.
Reasons to Buy a Home in Austin Now
Now that we have gotten the disclaimers out of the way, we’ll get on to what you’ve been waiting for. Why is now a good time to buy a home in Austin? It really can’t be summed up with one or two reasons. In order to give you a full explanation, we made a list of our top reasons why now is a good time to buy a home in Austin. We’ve supported it with numerical data and data from our combined 60+ years of representing home buyers in all types of markets.
Median Price is Down
In our recent October 2023 Austin real estate price report, we reported that median price is down 0.83% in year over year numbers. Though that seems like nothing, remember we were seeing a 10-20% increase in median price (when compared to the same month the previous year) for a solid few years. Prices were consistently going up, and fast. Now they’ve leveled out. And, when you compare median list price, which is 7.6% higher than it was last year, you really see that sellers are accepting much less as a percentage of their list prices than they were 18 months ago. They’re offering seller paid closing costs, credits for repairs and taking less than list price. Buyers are able to get in with less upfront cash and even are often able to buy down the interest rate to lower their monthly payment.
Buyers Have More Time to Make a Decision
You may ask why this is important for a buyer, but if you were buying a house in Austin in the last 5-7 years where you stood in line to see it and had multiple hours in 12 hours, you know time to make a decision is key to a much more thought through home purchase. In October 2023, time to sell was up 42% in year over year numbers with a median time to sell of 47 days. This doesn’t mean you should wait a few weeks before you see a house in person that you’d be interested in, but it does mean you don’t have to put your life on hold waiting for something new to be listed so you can jump in the car and run and see it within the first hour. This frenzy we saw went on for too long and it made buyers crazy. Today, it’s a much more business-like approach. Buyers can really give it some thought to see if this house is going to work for them long term versus that split second decision they had to make in years past.
Buyers Have More Choices
Inventory was up 22.6% in year over year numbers, with over 4 months of inventory on the market. This means if we have no new listings (which won’t happen), it will take over 4 months to sell off the inventory we have with the number of buyers in the market. At the peak of the market, we sometimes had 0.3 months of inventory, which resulted in the frenzy of home buyers constantly refreshing their emails for a new listing. There simply weren’t enough houses to meet buyer demand. Fast forward to now and we have plenty of inventory for the buyers in the market. Buyers can compare a few houses and determine which one works for them without having to make it work.
Sellers are Offering Closing Costs and Repair Credits
Can’t pay all your closing costs on top of your down payment? Don’t want to spend your own money on needed repairs? Want to buy down the interest rate to lower your monthly payment? You can often find a seller who is willing to give you money to do any/all of those if you buy their house. Which means, much less money out of pocket and a lower monthly payment paid for by the seller.
Appraisal Waivers are Gone
To get a house, buyers used to offer to make up so much of the difference between an appraisal and contract price. So, if a house appraised for $450k and the contract was for $500k, buyers would come up with their down payment, closing costs AND the $50k difference between the appraised value and contract price. Appraisals don’t come in until about a week or two before closing, so buyers would sit on pins and needles wondering how much of their savings they’d have to liquidate to close the deal. Thankfully, we aren’t seeing those any more. In fact, now buyers are typically paying less than what the house appraises for, which makes them feel like they have instant equity.
Free Leasebacks for the Seller are Gone
Another thing we were seeing a lot of were free leasebacks. A buyer would not only come to the table with all their closing costs (and possibly some of the sellers), the appraisal shortage money and their down payment AND let the seller stay in the house FOR FREE for 1-6 months. Meanwhile, the buyer starts paying their monthly mortgage payment 30-45 days after closing and doesn’t have the ability to live there until the seller’s free leaseback term expires. Now we are back to a paid leaseback. If the buyer and seller agree that the seller will get to stay in the house for a term after closing, they are typically paying a security deposit and a daily rent – all upfront – for the privilege. Most often that number covers, or even exceeds, the buyer’s daily holding costs and is negotiated with the contract so before anyone is obligated, all parties know the terms.
Option and Earnest Money are More Reasonable
Option money is the money you pay the seller for the right to cancel during the first several days of the contract period. This allows you time to do inspections and make up your mind whether or not you really want to buy the house. The seller keeps that money if you don’t close, no matter the reason. Typically option money was a few hundred dollars before the market exploded, which seemed fair. At the peak, we were seeing some buyers offer thousands of dollars as option money to entice the seller to pick them. Which was all good and well if they closed as that money goes towards the buyer’s down payment. However, if they found something that needed repair and the seller was unwilling to fix it or offer any compensation, the buyer had the choice of canceling and forfeiting those thousands of dollars or going through with the purchase and spending many more thousands of dollars on the repair.
Earnest money was another way buyers would entice sellers. It was a little safer as earnest money is refundable to a buyer if they cancel for one of the several reasons they have the legal right to cancel the contract. But, it was money that could be tied up should buyer and seller have a disagreement and not close the transaction, even if a buyer had the legal right to cancel. Now we’re back to anywhere from $500 – 1% of the purchase price.
Competition is Down
It used to be when you made an offer on a home, you were one of many. Now, you’re typically the only one with an active offer, so a seller is less able to put you against another person and use two offers to drive up price and terms. Without a club to hold against a buyer, it’s forcing sellers to be more realistic and give a little more. Buyers are better able to get some terms accepted that are really important to them. Is now a good time to buy a home in Austin? If you want to avoid all of these market conditions that we will no doubt see again if interest rates come down, I would argue yes.
Paying Cash? Winter 2023 is Going to Present Some Deals Especially with Builders
With a year of a slowing market under our belts, sellers are well aware this isn’t the 2021 peak. They’re seeing price reductions, longer time on market and hearing from their friends and colleagues how different the market is. Combine that new realization with a seasonal shift of fewer sales in November and December as buyers begin to focus on the holidays and end of year activities, and we are going to see some deals as we get to the end of the year. Sellers who list in November and December are generally motivated and in a time crunch. They can’t wait for the market to pick up in spring. They want to get their homes sold now and move on with their life. Buyers who can be decisive and close quickly can usually negotiate much better terms than they could in spring when buyer activity picks up. If you have cash, look for opportunities from builders who are driven by their year end numbers. We often see them discounting completed homes to meet end of year sales quotas. They won’t offer the same deals for a January 2nd closing, so be sure you can get the house closed before 12/31 to ensure the lowest price.
Financing Your Home? You Won’t Lose Out But You’ll Need to Start Earlier
Though cash might give you an edge if it’s December 10th and you need to close by December 31st to get a good deal, you can get that same deal if you start a little earlier in the year and give the lender enough time to process the paperwork. Really the only time cash is going to get you any better deal is when the seller, usually the builder, is looking to close by a certain date and they’re willing to accept less money to do so. Lenders typically need at least 15-18 days to process paperwork, sometimes longer. Cash can close in a week or less. Traditional sellers might not want to close during the holidays and would be fine with a January closing. They just can’t wait until spring to move. All that being said, use market forces to your favor. Whether you’re paying cash or financing a home, opportunities are out there.
Is Now a Good Time to Buy a Home in Austin? If Yes, Our Team of Buyer Specialists Can Help
With a combined 60+ years of experience in all types of markets, our team of buyer specialists can help make home buying a reality. We know how to negotiate the best deals for buyers, help them really understand what they’re buying, how hard it will be to sell this house when it comes time and where they can find the right home. If you’re looking for an agent who will be your advocate and not just try to sell you a house as fast as possible, we might be a good fit. Check out our Austin Home Buyers section to learn more about who we are and how we work. Then, call us at (512) 827-8323, email us at info@11OaksRealty.com or fill out our Buyer Survey to schedule a no obligation consultation.