|First-time homebuyers and the bank of mom and dad||First-time homebuyers and the bank of mom and dad||Clare Losey||Losey||2021-11-17T06:00:00Z||Housing|
First-time homebuyers generally lack the money to make large down payments on a home. According to the Survey of Consumer Finances, the median net worth of renters measured $6,300 in 2019. Meanwhile, U.S. Census Bureau data indicate that nearly half of all renters in the U.S. were younger than 30; an additional quarter were 30-44 years old.
Lower wealth among first-time homebuyers lends itself to two trends:
First-time homebuyers make up a higher proportion of borrowers with federally backed mortgages (i.e., FHA and VA loans), which require lower down payments than conventional mortgages. The decline in the supply of lower-priced homes indicates the demand for federally backed mortgages will likely increase among first-time buyers.
First-time buyers may rely on down payment assistance from governmental entities, eligible family members, and other sources to help with the down payment. The decline in the supply of lower-priced homes and expectations for sustained higher home price appreciation in the near-term indicate first-time homebuyers will increasingly rely on down payment assistance to attain homeownership.
In 2010, just over 30 percent of borrowers with FHA purchase mortgages used down-payment assistance. By 2020, that figure jumped to approximately 40 percent, of which cash gifts from eligible family members comprised the highest proportion (nearly 60 percent of total down payment assistance).
Meanwhile, the National Association of Realtors reported in 2020 that 24 percent of Millennial homeowners received down payment assistance from a parent or relative when purchasing a home.
What’s contributing to the uptick in down-payment assistance? Strong demand for homeownership and a declining supply of lower-priced homes, to begin with. Other factors include:
relatively stagnant income and wages,
student loan debt, and
medical and health care costs, all of which diminish the ability of households to save.
|Three housing market signals worth watching||Three housing market signals worth watching||Clare Losey||Losey||2021-10-29T05:00:00Z||Housing|
|Housing markets give off clues signifying where they may be headed, so real estate professionals need to pay attention to them, particularly during periods of persistent fluctuation, transition, or uncertainty. Here are three indicators that are especially worth watching over the coming months.|
High Home Price Appreciation
It’s hardly a secret that home prices have increased significantly since the end of the Great Recession. From July 2009 to February 2020, home price appreciation averaged 3.1 percent nationwide, as reflected by the S&P/Case-Shiller U.S. National Home Price Index. As the COVID-19 pandemic progressed, appreciation swiftly accelerated, reaching double-digit territory in late 2020. In August 2021, it measured a whopping 19.9 percent. While such growth in home prices is unsustainable over the long-run, it poses a number of concerns about housing affordability.
For potential homebuyers, higher home prices without accompanying growth in income and wages diminish home-purchasing potential. This is especially true for low-income and first-time buyers, who are less likely to qualify for mortgage financing for higher-priced homes.
Furthermore, high home price appreciation generally translates into a subsequent increase in appraised values. This means that existing homeowners can expect to spend more on the additional costs of homeownership, including property taxes and insurance.
Inflation & Supply-Side Constraints
Inflation erodes homebuying potential in two ways: by lowering the buyer’s purchasing power and raising the costs of construction materials, such as lumber, which ultimately raises home prices.
While economists expect inflation to abate over the near-term (likely sometime in mid- to late-2022), supply-side constraints will remain a concern. The housing industry continues to face a number of challenges in siting new homes, including a lack of developable land, regulations and zoning, and increases in the costs of construction materials and labor.
These challenges limit the number of new homes that can be added each year, thereby limiting the overall inventory of homes on the market.
Potential for Higher Mortgage Interest Rates
After the Great Recession ended in July 2009, mortgage interest rates largely fluctuated between 3 and 5 percent. In the wake of the COVID-19 pandemic, they recorded all-time lows, dipping below 3 percent. Rates have since risen slightly, measuring, according to Freddie Mac, 3.09 percent the week of Oct. 21. Lower mortgage interest rates mean lower borrowing costs for homebuyers, which reduces the monthly mortgage payment. This means buyers spend less for the same-priced home.
However, as the Federal Reserve takes measures to reduce inflation, including reducing monthly bond purchases, most economists anticipate an accompanying rise in mortgage interest rates. The National Association of Realtors predicts rates will reach 3.5 percent by mid-2022. This means the mortgage payment for a home priced at $200,000 will increase from $674.57 at an interest rate of 3 percent to $718.47 at an interest rate of 3.5 percent (assuming a 30-year, fixed-rate mortgage with an 80 percent loan-to-value ratio). While such a slight increase will primarily diminish the ability of the marginal buyer (as opposed to the average buyer) to purchase a home, households may perceive the decrease in affordability to be larger than it actually is, potentially dampening overall demand.
|Thinking of getting a real estate license? Consider these realities||Thinking of getting a real estate license? Consider these realities||Mike McEwen||McEwen, Mike||2021-06-01T05:00:00Z||Housing|
Guest blogger Mike McEwen is a broker with Cherokee Real Estate Company in Jacksonville, Texas. He has been in the profession 32 years.
If you are confident that you possess enough of the traits necessary to take a run at selling real estate, consider these realities of the business.
The income that most licensees earn in rural areas is supplemental to other existing income. Many licensees are retired or have another job and work their real estate activities around it. Only licensees who dedicate 100 percent of their efforts to the trade and who possess the skills discussed here will make a "living" at real estate sales.
The path to a steady and greater income in the real estate business can be a long and slow one. It can take months or even years.
Without a college degree already under your belt, the course requirements for a real estate license can be overwhelming.
The minimum skills necessary to pass the real estate exam do not come remotely close to preparing you for the first day on the job, and it will take years obtain a competent grasp of the ins and outs of the profession.
If you are contemplating getting a license, take the time to interview several real estate brokers. You will want to make sure that you can expect to have a compatible relationship.
An honest and ethical mentor is a must.
There will be occasions that are extremely gratifying both financially and psychologically.
In a small town you will quickly develop a reputation—good or bad.
You will have frequent disappointments and some occasional great moments. Concentrate on those great moments.
|TRERC, Realtor.com, and Zillow: Why don't the numbers add up?||TRERC, Realtor.com, and Zillow: Why don't the numbers add up?||Bryan Pope||Pope||2021-05-13T05:00:00Z||Housing||From time to time, astute users of our housing data have asked us why our data are out of sync—sometimes significantly—with numbers being reported by other major data sources. One such question came to us this week, in fact:|
"I am curious why your data show only 43,507 Texas listings while Zillow and Realtor.com have 79,344 and 146,265 for Texas, respectively. I realize some listings remain on these sites for several weeks after they are sold for marketing reasons, but that's still a substantial difference. And most Realtor.com listings come from the MLS, or so I am told."
Gerald Klassen, research data scientist here at the Texas Real Estate Research Center, shed some light on the topic.
"Our count of 43,507 is the number of active status listings open as of the last day of the month," he said. "We count only single-family detached, condo, and townhouse listings. We use this figure to calculate months inventory, which tells you how long it would take for the market to clear if no new listings came into the market."
Zillow and Realtor.com, meanwhile, provide a count of listings as of the point in time a person is searching their website. Before month's end, many of the homes will be sold and a few will be taken off market. New listings are continually added, mostly at the beginning of a month.
"I just filtered by property type on Realtor.com, and there are currently 98,599 single-family, condo, and townhouse listings in Texas," Klassen said. "If you hide the pending/contingent listings, that figure drops to 39,452 in active status. That's not far from what we're showing as active listings on our website. What is amazing about this count is that more than half of the listings on Realtor.com are in pending or contingent status. What we have witnessed in this pandemic housing boom is that the average home’s time on the market has fallen while the average time to close has increased. People are finding it hard to get the services required to close their home sale/purchase."
The difference between the Center’s active listing count and that of Zillow or Realtor.com can be accounted for by time of search, property type of the listing, and listing status.
"It is amazing to think that we can have record home sales and so few active listings," Klassen said. "Off-market listings in many areas are down 50 to 70 percent compared with last year. That means that pretty much everything that comes into the market exits via sale."
|Five questions new CRE brokers should ask themselves||Five questions new CRE brokers should ask themselves||Jim Breitenfeld||Breitenfeld, Jim||2021-05-05T05:00:00Z||Office|
Guest blogger Jim Breitenfeld is president of Sidecar Commercial Real Estate LLC in Frisco, Texas.
A career in commercial real estate (CRE) brokerage can be incredibly rewarding, but not always. This potential attracts many young, ambitious professionals to the industry, but before long reality sets in. Realizing lucrative financial rewards takes time, and, even then, success is not guaranteed. Up to 80 percent of new CRE brokers leave their firm or the brokerage profession entirely within their first two years.
Looking back on my own first years in the industry, I owe my perseverance to two things: strategy and focus. Here are five questions with commentary to maximize your odds of success as a new CRE broker and help you maintain those two essential elements.
1) Am I at the right firm with the right people?
This includes both the firm you choose to work with and potential mentors. Does your firm have a supportive culture and training to foster your development? Have you found a mentor who will invest the time to identify your strengths and weaknesses and help you grow professionally? A mentor who not only teaches you but compensates you fairly for your efforts (commission splits) can be invaluable when getting started.
2) How strong is my prospecting?
Prospecting is more than a useful skill. Commit to it as your primary source for business development. Develop a variety of tactics and cadences. You can focus by geography, product type, or client type (tenant, landlord, investor, etc.). Just stay consistent and targeted.
3) Is my project pipeline sufficient?
Even if you are currently on track to meet your target income for the next 12 months, your pipeline may not be sufficient. It actually needs to be three to five times larger to account for unknowns (for example, projects falling through, deals being canceled or lost, or timelines being delayed). Don't risk missing your target because of something beyond your control.
4) Who can I help, and who can help me?
Both parts of that question are equally important. Go farther together! As a team, you will accelerate your learning and market penetration and have a broader combined schedule/calendar and skill sets to offer your clients. You will also hedge pipeline and income risk by participating in a larger basket of projects. Just make sure that you negotiate fair splits of both the work and the compensation.
5) Am I building a network?
You must go where your target clients are. That could be trade or industry associations, local chambers of commerce, or nonprofit organizations where potential clients serve. Get to know both your target clients’ communities and your own.
Bonus: How will this client help me reach my goals?
This extra question comes with a warning: Choose your clients wisely.
The highest probability transactions come from committed clients (i.e. those who will sign exclusive representation agreements) with time-sensitive needs. Beware of "zombie clients" with open-ended desires. They are often extremely comfortable burning your time and gas without committing to you as their exclusive agent. Even if they do commit, they will not make timely decisions or they will constantly move the goalposts.
In short, stay focused and be strategic. You are setting the course for the rest of your career. Make sure you are navigating a road that leads to long-term success.
|Same song, second verse: ‘Is there a housing market price bubble?’||Same song, second verse: ‘Is there a housing market price bubble?’||Luis Torres||Torres||2021-04-15T05:00:00Z||Housing|
As home prices accelerate at an elevated rate, the old question is being asked once again: “Is there a price bubble in the housing market?"
Some interesting signals based on future expectations by market participants are appearing. Google reported last week that the search "When is the housing market going to crash?" had spiked 2,450 percent in the past month. Another question, "How much over asking price should I offer on a home 2021?" jumped 350 percent in that same week.
So far, 2006-07 housing bubble characteristics are not prevalent. Those are:
- loose lending standards,
- lax oversight, and
- exuberant speculation (investment motive).
The problem with bubbles is that they cannot be identified with any certainty or confidence. If they could be, they would never form in the first place.
Using the Case-Shiller (2003) methodology, the Federal Housing Finance Agency (FHFA) house price index is estimated based on housing market fundamentals (income per capita, population change, housing starts, employment change, unemployment, mortgage interest rates). It's then compared with the reported FHFA price index applied to Texas and the major MSAs (Austin, Dallas-Fort Worth, Houston, and San Antonio). This methodology was one of the first to point out the formation of a housing bubble in the U.S. housing market.
If actual prices are higher/lower than the estimated price, then prices are growing at a higher/lower rate than what is explained by fundamentals, indicating possible issues in the housing market. In the long run, overvalued/undervalued home prices should revert toward fundamentals, eliminating any differences between them.
The results show the difference between actual and estimated prices (based on fundamentals) continues and, in some cases like Texas and Austin, increased after the pandemic.
Texas. Difference between actual and estimated prices continued to increase and accelerated during the pandemic, indicating a possible misalignment.
United States. Difference increased at the end of 2020 and probably will continue at the start of 2021. However, fundamentals are still relatively aligned.
Austin. Difference continued to increase and accelerated during the pandemic, indicating a possible misalignment.
Dallas-Fort Worth. Difference continued to increase and accelerate during the pandemic, indicating a possible misalignment.
Houston. Difference continued to decrease, moving more in tandem with fundamentals.
San Antonio. Difference increased at the end of 2020, indicating a possible misalignment.
The expectations going forward and rising mortgage rates in 2021 combined with recent rapid price growth will slow demand and, consequently, price growth to more sustainable levels.
Identifying home price misalignments between actual and balanced prices is not easy. Determining with certainty the formation of housing bubbles is even more difficult.
There is no sure way of knowing what prices “should be," even when considering supply and demand determinants, since they change over time.
The Texas Real Estate Research Center continues to monitor the data and will issue updates as necessary.
Note: Seasonally adjusted. Included WTI oil price and found consistent results with and without oil prices.
Source: Federal Housing Finance Agency and Texas Real Estate Research Center at Texas A&M University
|How far is it to the nearest H-E-B?||How far is it to the nearest H-E-B?||Charles Gilliland||Gilliland||2021-04-12T05:00:00Z||Land|
In second quarter 2020, deals for Texas rural land began to dry up. Broker telephones quit ringing. However, the third quarter brought a dramatic change. The pace picked up even more in the fourth quarter.
The buyers' stampede to Texas rural land was underway.
Preliminary reports for first quarter 2021 show the Texas rural land market is getting even hotter. There are regions currently reporting activity up 70 to 80 percent from last year.
The reasons are many: the pandemic, urban unrest, and investors flocking to hard assets, such as land.
The transition from city to country requires adjustment, both by the newcomers and the current residents. City dwellers moving to the country bring new demands for infrastructure. When people move to unfamiliar environs, pressure and friction often result.
One rural land broker said the question he hears most often from city buyers is, “How far is it to the nearest H-E-B?" The market is attracting a new breed of buyer, one accustomed to city conveniences.
Problem is, they are looking for amenities that just aren't there — yet.
Read Texas Land Market Latest Developments here.
|Can Opendoor cash in on Texas?||Can Opendoor cash in on Texas?||Roberson||2020-09-29T05:00:00Z||Housing|
A blank-check company led by billionaire Chamath Palihapitiya has inked a deal to merge with Opendoor, one of the largest iBuyer players in the market. The deal issued a huge vote of confidence—as well as much-needed cash—in the company despite the current economic turmoil. Palihapitiya already has high hopes for Opendoor in the near future. “Before the end of 2021, they'll be back in a really solid place to where they were and growing again," he told the Financial Times last week.
Before the COVID-19 crisis, Texas was in the crosshairs for major growth among iBuyers, with many increasing their statewide portfolios in 2019. Now with cash in hand, Opendoor seems almost ready to repeat last year's activity. But what homes will the company buy?
According to their website, Opendoor typically invests in residential homes valued between $100,000 and $500,000, depending on the market. There's a scarcity of homes in those price cohorts within the four big Texas metros. In Dallas-Fort Worth-Arlington, where Opendoor has its largest Texas presence, there's currently a one-month inventory of homes in the upper $100,000s and lower $200,000s. Most other price cohorts have less than two months of inventory.
At this point, it's uncertain how long inventories will remain. Homeowners are simply not putting their homes on the market at the rate they did in prior years. The obvious reason is the pandemic, which influenced sellers to pull their homes off the market in the first place largely for health and safety concerns.
After the initial COVID-19 shock, mortgage rates bottomed out, making staying put and refinancing a more attractive option than moving. Since refinancing isn't free, it often takes several years to recoup closing costs from the monthly savings gained.
Refinancing increases the time homeowners commit to their homes, a trend that has already been on the rise over the past decade and is not expected to change anytime soon. This phenomenon can reduce housing turnover.
Texas isn't the only market in Opendoor's sights, and iBuyer concerns about inventory haven't been ignored. At the same time, these threats aren't unique to Texas. Assuming that Opendoor can acquire homes in the current environment, the increased competition for homes in their price range will likely continue to push prices up. Higher buy-in prices come at the expense of future profits, something iBuyers have already been struggling with. Given the current state of Texas housing, it's hard to envision an optimistic outlook for iBuyers anytime soon.
For more on this, read my latest article, “You Sell, iBuy: Are Instant-Purchase Services Making a Comeback?" This topic was also featured on a recent Real Estate Red Zone podcast.