Affordability in Austin-Area Real Estate Improves with Lower Mortgage Rates and Median Home Prices

The Austin-area real estate market has seen a significant improvement in affordability, driven by a notable decrease in mortgage rates and median home prices. This report analyzes the key factors contributing to this improvement and provides a historical context to better understand current trends.

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Mortgage Rates Decline

As of August 2024, the average mortgage rates quoted by Fannie Mae have dropped to 6.6%. Local lenders are offering even more competitive rates, around 6.375%, for well-qualified buyers. This is a considerable reduction from the peak mortgage rate of 7.65% observed in October of the previous year. The decline in mortgage rates plays a crucial role in reducing the overall cost of home financing, making it easier for buyers to secure loans with lower monthly payments. For those interested in exploring these lower rates, we recommend reaching out to Robert Merrell, our preferred loan lender, who can answer any loan questions and help you get prequalified. 

Median Home Prices Drop

Simultaneously, the median sold price for homes in the Austin area has decreased to $440,000, down from $550,000 in May 2022. This 20% reduction in home prices further enhances affordability, making it easier for buyers to enter the market. The combination of lower mortgage rates and reduced home prices has led to a more favorable financial environment for homebuyers.

Impact on Monthly Payments and Income Percentage

The combination of lower mortgage rates and decreased home prices has resulted in a substantial drop in the monthly Principal, Interest, Taxes, and Insurance (PITI) payments. With a 20% down payment, the PITI for a median-priced home is now $3,322. This is a significant decrease from the high of $3,767 recorded in May 2022.
Moreover, the percentage of median household income required to cover the PITI has also improved dramatically. In May 2022, 47.2% of the median household income was needed to cover these costs. As of August 2024, this percentage has decreased to 38.2%, representing a substantial improvement in affordability for the average household.

Historical Mortgage Rates and Prices

To contextualize the current trends, it's important to examine historical data on mortgage rates and home prices. For instance, in the early 2000s, mortgage rates were significantly higher, averaging around 8%. Over the years, rates have fluctuated, reaching a low of 2.69% in 2020 before rising again. The recent decrease to 6.6% still represents a relatively favorable rate compared to historical highs. Similarly, median home prices have seen a steady increase over the past two decades, with significant jumps in recent years. The price hike was particularly pronounced in 2021 and 2022, with median prices peaking at $550,000 in May 2022. The current median price of $440,000 reflects a return to more manageable levels for buyers.

Final Thoughts 

The improvement in affordability in the Austin-area real estate market is a result of the dual factors of declining mortgage rates and reduced median home prices. This positive trend has lowered the financial burden on homebuyers, making it easier for them to enter the market. The historical context provided by the data highlights the cyclical nature of the real estate market and the importance of monitoring these key indicators to understand market dynamics. As mortgage rates and home prices continue to fluctuate, it will be essential for buyers and industry professionals to stay informed about these trends to make well-informed decisions.