Inside Austin’s housing boom and bust: Texan city was the poster child for America’s thriving Sunbelt during the pandemic – but as average prices tumble $150K, experts warn properties are now 35% OVERVALUED

The sunny climate, expansive state parks and relative affordability attracted an influx of buyers during the pandemic.

But after two years of rapid price growth, it appears that Austin’s housing bubble is finally about to burst.

Homes in the Texas city typically sell for $525,750, having fallen nearly $150,000 from their peak in May 2022, according to figures from Redfin.

It marks an astonishing turnaround in demand for Austin, which was seen as the epitome of the Sunbelt real estate boom during the pandemic. The region proved especially popular with well-paid tech workers, who were no longer chained to their offices in San Francisco due to the lockdown.

But a sudden slowdown in employment and population growth – preceded by a period of overbuilding – has caused both prices and rents to fall.

Austin’s sunny climate, expansive state parks and relative affordability attracted an influx of buyers during the pandemic

Zillow data shows that the average rent in Austin is now $2,112 lower than a high of $2,395 in June 2023.

The problem is so widespread that research firm Moody’s Analytics estimates that homes in Austin are 35 percent overvalued.

To calculate how ‘overvalued’ a market is, experts look at the long-term relationship between house prices and the factors driving demand. The question includes average incomes, family composition and the costs of building real estate.

Moody’s Analytics economist Matthew Walsh told DailyMail.com: ‘Austin experienced a sharp increase in net migration during the pandemic.

‘At that time, housing was very affordable and many people moved from the really expensive areas on the coast. They moved with a lot of money and drove up prices.

‘But such a rapid price increase is unsustainable. Prices could still fall.”

Between March 2020 and May 2022, the average sales price of a home in Austin increased from $420,000 to $669,000.

But rising mortgage rates – driven up by the Federal Reserve’s aggressive tightening cycle – have since poured cold water on the real estate market as a whole.

According to government-backed lender Freddie Mac, the average interest rate on a 30-year fixed-rate home loan is now 6.74 percent.

This is almost double the level in March 2022, when they hovered at 3.76 percent.

It means that a buyer who buys a $400,000 home today will have to pay about $700 more per month on their mortgage than they would have bought two years ago. This analysis assumes a 5 percent down payment.

Between March 2020 and May 2022, the average sales price of a home in Austin increased from $420,000 to $669,000

Research firm Moody’s Analytics estimates that homes in Austin are 35 percent overvalued. Pictured: A home in Austin, Texas, for sale for $639,000 on Zillow

Zillow data shows that the average rent in Austin is now $2,112 lower than a high of $2,395 in June 2023. Pictured: A home in Austin, Texas, for sale for $525,000

Rising interest rates have created a ‘lock-in effect’, with buyers unwilling to give up their cheap offers.

As a result, the US real estate market is virtually frozen. According to the Mortgage Bankers Association, applications for the purchase of a home were 11 percent lower in the first week of March than in the same period a year ago.

Austin is among the hardest hit areas in part because prices there rose so unsustainably quickly in the first place.

Americans flocked to America’s Sunbelt during the pandemic, as a widespread shift to working from home unleashed workers from major cities like New York and San Francisco.

Back then, properties were priced so that low-end buyers rushed to purchase them. And Austin’s picturesque landscapes also provided incarcerated workers with much-needed equipment from their homes.

However, new research shows that the Sunbelt no longer offers the same savings to those moving from big cities as it once did.

Recent analysis by Smart Asset found that someone who moved from New York City to Austin in 2019 would have saved $154,564. Last year, those savings dropped to $116,195, about $38,000 less.

Walsh said, “At its peak, the Austin housing market was more than 60 percent overvalued.

“Overall, many homes have been built across Texas in recent years at a time when demand is stagnant due to affordability.”

A recent report from Texas Realtors shows that home sales in the Lone Star State are down 11 percent through 2023. The findings showed that Austin-Round Rock saw the largest price drop of any other metropolitan area in the state, following a 10.4 percent decline.