In October, 3,250 homes were sold in the Austin area, according to the Austin Board of Realtors. But how many went to first-time buyers, and how many were second, third or fourth homes?
If recent years are any indication, about one in 10 homes is being snapped up for investment purposes — which is on par with the national average. That may comfort locals struggling to buy homes in a market tight on inventory and housing experts who fear deep pockets elsewhere will whack the housing market further out of balance.
While up-to-date lending data is hard to come by, a market snapshot of 2020 — provided by LendingPatterns using the Home Mortgage Disclosure Act — shows that 19,784 mortgage applications for second or investment homes were pushed in the Austin area, about 8% of all mortgage applications. That was up by about 51% from 2019, when 13,118 applications were filed, but the percentage of first-time homebuyers versus pure investors has remained steady during the past couple of years.
This application data includes information on buyers’ intended use for the property. This subset captures buyers looking for second homes and investment properties, which could include people looking for a change of scenery, people looking to rent the space out full-time or people looking to occasionally list the property through short term rental sites like Vrbo or AirBnb.
Experts said this is part of a nationwide pattern inspired by the pandemic. Across the United States, people who have seen their equity skyrocket in their primary homes are buying second homes, though not always for the same reasons.
Affected by government policy, market conditions
According to data from Redfin Corp., nationwide demand for second homes — not including investment properties — in October was 70% higher than it was at the beginning of 2020. Demand for second homes spiked considerably beginning in April 2020, hitting a record high in January of this year, when demand was up 91% year over year. After that, demand began to lessen — while staying well above pre-pandemic levels — but has been rising again since August, the data shows.
This is based on Redfin’s Second Home Demand Index, created using mortgage-rate lock data. According to Redfin, this demand pattern — a sharp increase, followed by a dip, with demand ultimately picking back up — could be attributed to federal policy.
The report explains that, in March, the U.S. Treasury Department and Federal Housing Finance Agency put a cap on the number of second home and investment property loans available to national mortgage loan company Fannie Mae, ultimately lifting the restriction in September.
Redfin Chief Economist Daryl Fairweather said the second-home market has been affected by the pandemic in similar ways to the larger housing market. For the past two years, it’s been governed by the forces of limited supply — particularly in the Austin metro where the Austin Board of Realtors reports there was only one month of housing stock available as of October — and a surge in demand.
“It really speaks to how the market has changed during the pandemic, because of all the pandemic trends like people wanting more space, people not being able to travel abroad and people being able to work remotely,” Fairweather said.
Buyer rationale
But the motivations for buying a second home were as varied as the homes themselves.
Many homebuyers chose to upgrade their space during the pandemic, remodeling their own homes or looking to buy larger homes with more outdoor space. For those with large enough budgets, second homes provided an opportunity for a change of scenery during the most intense periods of lockdown.
Fairweather also said it’s possible some of the demand could be a function of the competitiveness of the housing market. Historic appreciation rates — in the Austin area, the median housing price has risen 48% since January 2020 — meant residents could cash out and make a hefty profit on their homes. However, they would then run the risk of selling their home and having nowhere to go, as the supply of homes on the market remains woefully low.
Fairweather said she sold her own home during the pandemic, but it was logistically easier to buy her next home while still living in her first.
“I wasn’t really willing to stay in a short-term rental for too long or stay with friends and family because there was a pandemic going on,” Fairweather said. She said the data they analyzed might capture second homes that people intend to sell right away.
For many, additional homes are a money-making opportunity in Austin’s rapidly appreciating housing market.
Bridget Ramey, an agent with Kuper Sotheby’s International Realty, said that over the past 15 months, she’s sold $105 million in homes to people who already own at least one other home.
She’s worked with many clients who have primary residences out of state and use second homes in Austin as short-term rental properties. Some of them are intrigued by Austin’s tax rates and quality of life but aren’t ready to relocate permanently.
“I think that people are trying Texas on for size,” Ramey said.
She said she had a client about six months ago who bought a $7 million home, sight unseen, on Lake Travis. The client was buying early — he knew he couldn’t move in for another two years or so, but he was afraid he’d be priced out if he waited.
Cord Shiflet, Realtor with Moreland Properties, said he’s worked with many clients who buy second homes just 15 minutes from their current home. Some of them plan to rent the home out full-time, while others plan to use services like Airbnb.
“I’ve had several clients who — because interest rates have just been so low, and our real estate market has been so good — want to invest in our local market,” Shiflet said. “So they will go out and apply for a second home loan and go buy a little investment house somewhere within 30 minutes of Austin.”
As for more traditional buyers, Shiflet said long-popular areas have remained so: downtown condos for University of Texas game weekends, Lake Travis and Lake Austin. But some second-home destinations are newer to the scene.
“Horseshoe Bay has become the shiny new penny,” Shiflet said.
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