With rising mortgage interest rates continuing to batter the Austin-area housing market, median home-sales prices — both in Central Texas and the city of Austin — saw their largest declines on record in 12 years, the Austin Board of Realtors said Thursday.

But six weeks into the new year, activity is picking up, board officials say. And there are signs that the uptick and other positive trends could bolster the housing market if job and population growth continue as anticipated, housing industry experts say.

Last month, however, home sales across Central Texas dropped off sharply. And prices for the homes that did sell dropped to their lowest levels since the board's record-keeping began in 2011.

What's the housing supply like?

Despite the price decreases, and year-over-year gains in the supply of homes, the five-county Austin-Round Rock metropolitan area, extending from Georgetown to San Marcos, still needs more housing, experts say. That means prices — which have still been rising, though at a slower pace — will keep going up, experts say.

"We don’t have enough housing inventory, for sale or for rent," said Mark Sprague, a longtime Austin-area housing market analyst with Independence Title. "Therefore values will continue to increase due to supply and demand. Housing starts are off over 50% this quarter from a year ago, as builders and lenders recover from the end of the year flurry."

January's inventory, while up year-over-year to 2.7 months, was flat compared with December, demonstrating that the market still lacks enough housing to meet demand, the board said. Experts consider a supply of six to 6½ months to be a balanced market between buyers and sellers, with neither having the upper hand.

More:Challenges loom for Austin-area housing market in 2023. Experts experts weigh in on outlook

What are January's numbers?

Across the Austin area, 1,634 homes changed hands last month, a 27.3% decline from a year-ago January, the board said. Half of those houses sold for more than $450,000 and half for less. That was a 6.3% decline in the median from the previous January — and the largest price drop since July 2011, the board said.

In July 2011, the median home-sales price fell 10.6% year-over-year, to $190,000 — the largest percentage drop since record-keeping began in 2011.

Within Austin's city limits, the board reported 439 closings last month, a 37.3% decline compared with the previous January. The median sold price in Austin was $525,000, down 4.6% from a year ago January and the largest percentage decrease on record, the board said.

What are the numbers for the metro area?

For calendar 2022, the median home-sales price in the Austin-Round Rock region set an annual record: $503,000. As interest rates ticked up, the market saw fewer homes selling, homes taking longer to sell and more sellers lowering their asking price.

In January, 2,248 homes had price decreases in the city of Austin, up almost 250% from 643 the previous January, the board's numbers show. In the Austin region as a whole, there were 7,078 price drops compared with 1,737 in January 2022, a 307% increase.

More:Why Austin's housing market is tilting back toward buyers in 2023

Although median sold prices declined last month in the city of Austin, Travis County and the Austin-Round Rock metro, surrounding Central Texas areas are seeing median prices rise as buyers move further out in search of more attainable housing, Ashley Jackson, president of the Austin Board of Realtors, said in a news release.

“Outlying areas like Caldwell and Hays counties are the most affordable pockets in Central Texas," Jackson said. "When we have a city like Austin challenged by affordability, the entry point in surrounding areas will slightly increase as people try and find neighborhoods they can afford."

Why do real estate agents see an 'uptick in activity'?

January's figures indicate that the Austin region "is continuing to find a post-pandemic normal," Jackson said.

"As we compare the market today to what was an abnormal market in the previous three years ... we need to look at month-to-month trends to have a true sense of what is going on in the region," Jackson said. "Without this context, the year-over-year data may not be as informative as the market continues to adjust.”

For instance, homes spent an average of 76 days on the market in January. While that's 47 more days than in January 2022, it's only three more days compared with December, Jackson said.

Real estate agentsreport seeing "an uptick in activity" from December to January, Jackson said, "and that is reflected in the month-to-month trends for new and pending listings."

Along with "a modest change in days on market," new listings jumped 63.4% to 2,988 in January compared with December, Jackson said.

"This demonstrates that sellers see opportunity in this market," Jackson said. "At the same time, buyers also were more active in January compared to December as pending listings ( sales in the pipeline to close) increased 32.4% to 2,581."

What's the outlook for 2023?

Six weeks into 2023, Sprague said, "the market is looking stronger than the previous six months, as the market dealt with rate shock for the first time in years."

"One positive difference presently — which wasn't available during (the coronavirus pandemic) due to massive disruption in the supply chain — is that new home inventories are ticking up," Sprague said. "Quite a few builders are providing great incentives for (unsold) homes including mortgage rate buydowns, price incentives, and ... upgrade options... Once they are through the homes sitting without buyers, these incentives will be gone. A 1% interest rate buy down results in a 12% increase in your buying power — something which pre-owned home sellers cannot compete with."

Along with builder incentives, Sprague said rising interest rates are spurring lenders to "get creative to keep payments down."

In a recent email, Charles Heimsath, an Austin-based housing market analyst, said the pace of both home sales and prices can be expected to slow this year, although the region's economic drivers point to a positive outlook overall for the housing market.

"We have already seen a decline in the pace of home sales and price increases," Heimsath said. "I believe this will continue through 2023 as interest rates will remain high throughout the year."

However, Heimsath added that "the economic fundamentals of continued job growth and in-migration will keep the market from dropping dramatically as there will continue to be more buyers than sellers."

Likewise, Eldon Rude, another housing industry analyst, said in a recent email that the health of the local economy will be "the most critical variable that will impact the market in 2023.

"Will job growth remain positive, or will the region see an increasing level of layoffs? With so much of the homebuying decision tied to consumer confidence, Austin’s economy remaining resilient in the coming months will be crucial to the health of the housing market," Rude said. "History shows that people will still buy homes in a high-interest-rate environment if they feel confident about their jobs and finances."

This article originally appeared on Austin American-Statesman: Home sales plunge; median prices fall in Central Texas housing market