The Housing Market is Not Going to Crash

With recent bank closures, high inflation and what most economists predict will be at least a mild recession coming, I’ve had many clients ask me about the chances Austin house prices will continue to drop or even ‘crash’. While I can only guess what might happen with the economy, the one thing that makes home prices unique compared to most purchases/investments is the huge influence interest rates have on prices. Most people buy houses based on the monthly payment they can afford rather than a specific price. The home price you can afford changes daily depending on what interest rates are doing.

For example, on a $400,000 mortgage loan, if the interest rate drops just 1%, from 6% to 5%, the monthly payment drops over 10%. Now that buyer can afford a $40,000 more expensive home for the same monthly payment! And since home buying is like an auction, if everyone bidding suddenly has 10% more to spend, prices will go higher.

Why is this so important? When the economy slows or banks have trouble, that helps ease inflation worries and mortgage rates drop. Back in March when Silicon Valley Bank shut down, mortgage rates dropped ½% just days after it closed. That bank ‘crisis’ effectively gave all home buyers in Austin using financing 5% more money to spend on a home. So, as long as there’s nothing inherently ‘broken’ with the home market (and these stats below confirm), while economic troubles could negatively affect home buying activity, it should be counterbalanced by decreasing interest rates, keeping prices from major declines or ‘crashes’.