There is still room for growth of supply and home value appreciation in Southwest Austin, but as housing inventory creeps upward, experts predict prices will begin to stabilize.

Austin Board of Realtors market data for single-family homes in Southwest Austin over the past five years indicates that inventory is increasing slightly in some areas and dramatically in others. ZIP codes where homes fall into a higher price range, such as 78735 and 78737, are seeing inventory figures almost double from December 2015 to October 2016, demonstrating that supply is driving down demand, and buyers are becoming more cautious.

“The market is softening a bit,” said Burt Dement, a Broker Associate for Realty Austin’s Southwest Austin office. “Buyers are resisting the increased prices, so homes are sitting a little bit longer and inventory is building up.”

However, in ZIP codes where Southwest Austin home prices fall into the low or average range, such as 78745 and 78748, inventory is increasing at a slower pace, indicating that demand for attainable housing is outpacing supply.

“In the entry-level price point, there is still a huge demand and low inventory,” Dement said. “That stuff goes really fast.”

Because of increased demand, sellers are trying to cash in on a desirable market, Dement said. So far, sales in Southwest Austin have been steady. But as inventory increases, buyers are realizing they have more options—causing sellers to rethink their price points.

“There have been really strong sales, but now all of the sudden you have more supply, which drives demand down a little bit,” Dement said. “Now that we have the supply, buyers have a lot more options and can negotiate a little bit more.”

Dement said the dip in demand may also be seasonal and could pick back up in the spring, a historically strong buying season.

Because of its proximity to downtown and heightened retail infrastructure, Southwest Austin is an attractive location for buyers searching for a happy medium, Dement said. Its residents can easily access all that Austin has to offer, he said, but at a price that is much more palatable than neighborhoods in the heart of the city.   

“As a micro-market of the entire MLS [Multiple Listing Service] area, Southwest Austin is still one of the strongest areas [in sales],” Dement said. “You have great schools, a great location in relation to downtown and a lower supply in inventory than you see in other housing markets in Austin. It’s very stable.”

The desirability factor

According to the most recent Texas Quarterly Housing Report released Nov. 1, the median price for a single-family home in the Austin-Round Rock metropolitan statistical area, or MSA, is continuing its upward trend. In Southwest Austin in particular, the median price has steadily increased year over year since 2011, according to ABoR data. A historical lack of housing inventory in the region, coupled with the area’s desirability factor, has resulted in a strong seller’s market.

Even though new inventory is up in most ZIP codes, the ability to expand southward in Southwest Austin is thwarted by the Barton Creek recharge zone of the Edwards Aquifer—land protected from development by several conservation entities, as well as the city of Austin, according to Eldon Rude, principal of 360° Real Estate Analytics.

“For that reason, there are significant limits to supply in Southwest Austin that don’t exist in other parts of the Austin region,” Rude said. “That makes it more difficult to buy, entitle and develop land.”

Unless the city’s land development code is relaxed in some capacity, housing supply in Southwest Austin might always be low compared to other areas within the city’s jurisdiction. According to ABoR President Aaron Farmer, this will inevitably impede affordability.

“The name of the game is prices go up more rapidly when you don’t have inventory, and inventory is the key to affordability,” Farmer said.

The ‘flight to affordability’

Because finding a single-family home in Southwest Austin in the $250,000-$300,000 price range is becoming increasingly rare, many buyers are looking to move to outlying areas, such as Buda and Kyle—a phenomenon Farmer describes as the “flight to affordability.”

“Buyers come look in Southwest Austin and remember when houses were $250,000 and realize that they are now $350,000-$400,000, so they keep driving south to see what they can afford,” he said. “So we do have a flight to affordability, which is a lot of the reason why Kyle and Buda have gone way up in price and favor.”

ABoR data shows that, like Austin, the median price for single-family homes in Buda and Kyle is also increasing, albeit at a slower rate. From December 2015-October 2016, the median price for single-family homes increased by 4.1 percent in Buda and 10.6 percent in Kyle.

According to Dement, retail growth along I-35 has made it easier to live in outlying areas; however, many buyers are still wary of the commute into Central Austin.

“Half of people are willing to move out and get more house for their money, but a lot of those people don’t commute in,” he said. “The commuters are getting more and more resistant because traffic has gotten so much worse.”

What’s in store

The future of the Southwest Austin housing market comes down to simple economics. If housing supply continues to edge upward, prices will level out. But because inventory in the region can only go so far, prices will most likely continue to increase, Dement said.

“Prices won’t go down as much in Southwest Austin, especially in the $450,000 and under range,” he said. “You’ll see a lower rate of appreciation, but prices will still slowly go up.”

According to Rude, as long as the trend of steady job growth in Austin continues, demand for housing in Southwest Austin will remain strong.   

“The level and intensity of demand in the area, like the rest of the region, will be primarily tied to the health of the local economy,” Rude said.