Tandy On Real Estate

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Smaller Homes are on the Rise

The average square footage of homes has been on the rise for a decade. We are seeing a shift in this as builders begin to cater more to the first-time homebuyer market. The U.S. Census Bureau reports show that the average new home size is now decreasing. According to Rob Chrisman, the average square footage has decreased slightly due the rise in first-time homebuyers and empty nesters and the rise in townhome and condo popularity.

Lew Sichelman of The Housing Scene describes this new trend in “The Shrinking House”. The average size of all completed single-family dwellings in 2018 was 2,588 square feet. But that figure is on a downward trajectory. In 2017, the average size was 2,631 square feet. Lew reports that builders are still building monster houses too. Last year, three out of every ten new houses were at least 3,000 square feet, and of those, 10 percent were at least 4,000 square feet, according to the U.S. Census Bureau.

This decrease in the average home size, as is all real estate, seems to be cyclical the National Association of Homes Builders (NAHB) Chief Economist Robert Dietz explains. “Typical new-home sizes fall prior to and during a recession, as homebuyers tighten budgets, and then rise as high-end buyers … return to the market in relatively greater proportions.”

For ten years we have reduced our construction of single-family and multifamily homes, but our population growth continues. The Nation’s Homebuilding Forecast panel at the National Association of Real Estate Editors Conference, explained that “this has been a crazy experiment. Builders are just now getting back into full swing years after the financial crisis.” There are intense constraints, including labor shortages, rigorous regulations, and more expensive building materials, placed on the builder market. With these pressures, builders are trying to navigate the waters to build what will sell profitably. The National Association of Home Builders (NAHB) believes their members will be adding more entry-level homes to their inventory, and potentially cutting square footage to reduce costs, which is indicative of the most recent reports.

Millennials are getting priced out of the market, yet prefer amenity-rich homes

There is a big demand for housing, a low supply of inventory, and the end result is artificially increased home prices due to the scarcity. This demand is causing starter-home buyers and lower-income families to be priced out of the market. The solution is to build more, build smaller, and build cheaper with fewer amenities. This is not exactly what the millennial buyer prefers over other generations as they continue to seek out more lifestyle features like whirlpool tubs and specialty rooms (exercise, media and game rooms).

I grew up in a three-bedroom, one-bath home with formica countertops, shag carpeting and wood paneling. No granite counters, tile floors, twelve-foot ceilings, or storage. And, I did not feel I missed out. We may need to bring this type of home product back or a reimagined version of it to create affordable homes for the first-time home buyer. A starter is just that, a start.

Certainly, the housing market will continue the trend to build smaller. The evidence is already pointing to this happening. We will also need to utilize land more efficiently opting for more multifamily development which we here in Austin, TX are certainly seeing.

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SOURCES:

Mortgage News Daily – http://www.mortgagenewsdaily.com/channels/pipelinepress/08132019-mortgage-rates.aspx

RobChrisman.com – https://www.robchrisman.com/aug-13-ops-cap-mkts-ae-lo-jobs-broker-dpa-products-aug-events-mortgage-rates-slow-to-drop-why/

UExpress – https://www.uexpress.com/housing-scene/2019/8/9/the-slowly-shrinking-house

The National Association of Home Builders – https://www.nahb.org/

The National Associations of Home Builders – http://eyeonhousing.org/2019/08/homebuyer-preferences-millennials-vs-other-generations/

Worldometers – https://www.worldometers.info/world-population/

Central Texas Suburbs on the Rise: Round Rock & Cedar Park

With the decreased home stock inventory and median single-family home price in Austin rising to $400,500 in August – up 2.7% compared with the same time last year — you might be wondering where to find an affordable place to live in the Central Texas area. It turns out two of the most affordable spots in Texas are right in our own backyard. In statistical comparison, Williamson county presented a median price for a single-family home remaining at $295,000, the same as August 2018. With these jaw dropping numerical differences, communities in Williamson County are due for a closer dig into their details.

Cedar Park, Texas
In a new article published by MarketWatch, Cedar Park was ranked No. 3 among “The Best Affordable Places to Live in Texas.” The criteria focused on areas with a strong job market and the types of amenities offered. Below are some of the highlights showing why Cedar Park is leading the way as superb suburb.

  • A solid economy and growing number of employers including Fallbrook Technologies and Firefly Space Systems, and high-tech companies like National Oilwell VarcoDana.
  • A healthier and safer than average community as shown in the 2019 County Health Rankings. Cedar Park’s home of Williamson County comes in as the third-healthiest in the state for the last ten consecutive years. Also of note, Williamson County boasts a No. 3 ranking in Texas counties for a  ratio of 1,581 residents per doctor, more access to places for exercise, has fewer teen births and are more likely to have health insurance than state averages.
  • Data from the same article reports that county residents are less likely to be a victim of a violent crime and are more likely to be college-educated.
  • Cedar Park entertains! The area is home of the H-E-B Center, a state-of-the-art sports and entertainment venue that parades an impressive roster of performers each month and is home to the American Hockey League’s Texas Stars and minor league basketball’s Austin Spurs.
  • Great Accessibility to nearby Austin. Cedar Park is located 17 miles from downtown Austin with easy access via the MetroRail commuter train.

Read more details about this community in TNT’s Cedar Park City guide.

Round Rock, Texas
The Austin-Round Rock area continues to be one of the nation’s fastest-growing regions. The area was recently ranked No. 4 among “Americas Fastest Growing Cities” in 2019 by 24/7 Wall Street for seeing a population growth of more than 25% from 2010 to 2018. Below are some of the reasons for why Round Rock is rolling forward as a top Texas community.

  • Currently rated No. 5 among the “Best Suburbs to Buy a House in Austin by Niche. The study took into account key factors like a location’s housing market, including home values, taxes, crime rates, and quality of local schools, in an attempt to measure the quality and stability of an area’s real estate market.
  • A thriving economy and work atmosphere. The unemployment rate in the area is 3% and the median household income is nearly $70,000. The communities largest employers include the famous Dell Technologies and healthcare giants like SetonSt. David’s, and Baylor Scott & White.
  • Overall good quality of life. Lifestyle Blog Apartment Therapy recently included Round Rock among the “Coolest Suburbs in America 2019.” The area is home to an array of cultural activities, a sense of community, and a charming historic main street. The community also hosts plenty of pallet pleasing restaurants including newcomers like Fuego Latino Gastropub or Salt Traders Coastal Cooking and old favorites like Round Rock Donuts.
  • It’s the self-proclaimed “Sports Capital of Texas.” City officials have spent decades advancing athletic endeavors by building sports facilities, fostering athletic programs, developing miles of nature trails and thousands of acres of public parkland. The city’s Triple-A team, the Round Rock Express, is celebrating its 20th season; and a new multipurpose complex has hosted national tournaments for rugby, lacrosse, ultimate Frisbee, and even Quidditch.
  • Great accessibility to nearby Austin. Round Rock is located an easy 17 miles from downtown Austin. Only a hop, skip, and an Uber away!

Read more details about this community in TNT’s Round Rock City guide.

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The U.S. Labor Shortage, Explained

Did you know that more Americans are quitting their jobs than ever? Here is a snapshot of the U.S. labor shortage featured on Vox.com:

  • For a record 16 straight months, the number of open jobs has been higher than the number of people looking for work.
  • The US economy had 7.4 million job openings in June, but only 6 million people were looking for work, according to data released by the US Department of Labor.
  • Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM (science, technology, engineering, and math) fields. 
  • Employers are having a harder time filling blue-collar positions than professional positions that require a college education.
  • The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. 
  • In April, 3.5 million workers quit their jobs — the highest number ever recorded in a single month.

Here is the full story.

The U.S. Labor Shortage, Explained
Featured in Vox.com
By Alexia Fernández Campbell August 12,2019

The US economy doesn’t have enough workers.

For a record 16 straight months, the number of open jobs has been higher than the number of people looking for work. The US economy had 7.4 million job openings in June, but only 6 million people were looking for work, according to data released by the US Department of Labor.

This is not normal. Ever since Labor began tracking job turnover two decades ago, there have always been more people looking for work than jobs available. That changed for the first time in January 2018. Just look at the chart below.

Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM (science, technology, engineering, and math) fields. Nearly every industry now has a labor shortage, but here’s the twist: Employers are having a harder time filling blue-collar positions than professional positions that require a college education.

The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. The shift is happening because more and more Americans are going to college and taking professional jobs, while working-class baby boomers are retiring en masse.

This means that for once, low-skilled workers have the most leverage in the current labor market.

One way to measure that leverage is to see how many workers are quitting their jobs. When more people are quitting than getting fired, that’s a sign of a healthy labor market. It means people are finding better-paying jobs, or feel confident that they will. And, sure enough, a record number of workers are quitting.

In April, 3.5 million workers quit their jobs — the highest number ever recorded in a single month (check out the red line in the graph below). Meanwhile, layoffs and firings remain at record-low levels.

Who are the workers quitting at the highest rates? Restaurant and food catering workers, followed by those in the hotel and tourism industry. Both industries rely on a large number of low-paid workers. The fact that so many are quitting suggests that workers are fed up with crappy jobs.

It “indicates that workers are feeling more confident in their jobs prospects to quit in search of better opportunities,” writes economist Elise Gould of the Economic Policy Institute.

While a labor shortage seems like something for President Donald Trump to brag about, there is one troubling sign: The total number of job openings is decreasing. That means economic growth could continue to slow. That’s bad news for the president.

But in the meantime, there’s no better time for working-class Americans to demand better wages, benefits, schedules, and work conditions. It also means immigration reform is more urgent than ever. In order to fill all the open jobs and keep the economy growing, Congress will need to allow more low-skilled immigrants to work — legally.

Employers need to raise wages by a lot

The numbers are pretty clear about what comes next. If 7.4 million jobs are open and only 6 million people are looking for work, then employers need to find a lot more workers. They need to encourage more Americans to join the workforce.

Right now there are about 1.5 million people who are considered “marginally attached” to the US labor force and who are not counted as job seekers. They are people who would like to work but don’t need to, or can’t work because of other responsibilities. Their most common reasons for not working are because they’re enrolled in school or taking care of family members, according to the Labor Department.

Economists agree that employers need to do more to entice workers to join the labor market. They need to sweeten the deal.

“Companies looking to attract enough blue-collar workers will have to continue increasing wages and, as a result, possibly experience diminished profits,” wrote Gad Levanon, chief economist for North America at the Conference Board, a global economic research organization that has studied the recent US labor shortage.

Slow income growth has been the most persistent problem affecting the US economy in its recovery from the Great Recession. Wages have barely kept up with the cost of living, even as the unemployment rate dropped and the economy expanded.

With such a tight labor market and rising productivity, workers should expect much bigger pay raises than they’re getting.

Private sector workers (excluding farmworkers) got a measly 8-cent average hourly raise in July, adding up to an average pay of $27.98 an hour. Workers’ wages only grew about 1.6 percent in the past year, after adjusting for inflation.

While that’s faster than wages have been growing since the recession started in 2007, it’s still a pathetic amount compared to the sky-high payouts corporate CEOs are getting.

But raising wages will only do so much to ease the labor shortage. Businesses will need to hire more foreign workers too.

The US economy needs more low-skilled immigrants

The new labor market data shows a lot of unfilled jobs that require college degrees — about 1 million in the professional business service sector. But there are even more open jobs that don’t require that much education.

These are the kinds of jobs that low-skilled immigrants, often from Latin America, have long helped fill. But Trump’s restrictions on immigration threaten to make the labor shortage worse. Since taking office, his administration has tried to scale back nearly every avenue of legal immigration, ignoring the high demand for unskilled immigrant workers, even though he employs undocumented workers at his own golf clubs.

Trump’s most recent immigration proposal would revamp the current legal immigration system, which currently prioritizes immigrants with family ties to the US. The new green card system would instead favor immigrants with high levels of education, English-language fluency, and professional skills. Most of the green cards would go to immigrants under a point system that ranks applicants based on certain criteria, such as professional skills, education level, age, and English fluency. So Trump would like to make it even harder for unskilled immigrants to come to the US.

In 2017, the Wall Street Journal’s editorial board warned Trump that his restrictions on immigration could hurt the economy.

“If President Trump wants employers to produce and build more in America, the US will need to improve education and skills in manufacturing and IT. But the economy will also need more foreign workers, and better guest worker programs to bring them in legally,” the publication said in March 2017.

Darrell West, a Brookings expert on technology and public policy, pointed out in 2013 that the US economy would suffer if Congress didn’t overhaul the immigration system:

America’s immigration system is not designed for today’s economy, and remains largely unchanged since 1965. In fact, of the approximately one million green cards given out by the US in 2011, around 139,000 (or 13 percent) were given out for economic reasons, a number far too small to meet the needs of the world’s largest economy.

Providing more work visas for skilled and unskilled immigrants seems like an obvious solution to ease the labor shortage. But it’s also the solution Trump seems least inclined to take.

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SOURCES:

Vox.com – https://www.vox.com/2019/8/12/20801941/us-labor-shortage-workers-quit

BLS.gov – https://www.bls.gov/news.release/jolts.nr0.htm

The Conference Board – https://www.conference-board.org/press/pressdetail.cfm?pressid=7622

Pew Research – http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

NPR – https://www.npr.org/2018/10/26/660489729/will-headwinds-appear-in-u-s-economic-growth-benchmark

Vox.com – https://www.vox.com/policy-and-politics/2018/8/16/17693198/ceo-pay-gap-income-inequality

The Wall Street Journal – https://www.wsj.com/articles/americas-growing-labor-shortage-1490829265?mg=prod/accounts-wsj

Governance Studies at Brookings – https://www.brookings.edu/wp-content/uploads/2016/06/West_Paradox-of-Worker-Shortages.pdf

The Impact of Investors on Single-Family Homes

Last year the number of home sales bought by investors was at a two-decade high. Interestingly, this growth was not from large institutional investors according to CoreLogic, but by small investors getting into the real estate investment game purchasing starter homes.

We are in a new era of investors being a bigger player in the US housing market. As we enter 121st month of an expansion, it’s reasonable to project we may be nearing the end before we have some type of economic correction. Normally investors begin to pull back their activity but instead, we see they are buying 1 in 5 starter homes.

Here is an investor snapshot provided by CoreLogic:

  • By the end of 2018, the investment rate in the U.S. housing market reached 11.3% – the highest rate since CoreLogic started tracking these data in 1999. 
  • Smaller investors are responsible for increasing investor homebuying activity. This is in sharp contrast to the rise in large institutional investors in the years following the recession. These so-called “mom-and-pop” investors grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018.
  • Large investors – those who purchased more than 101 homes – nearly doubled their activity between 2000 and 2013 but have pulled back since the foreclosure crisis and now sit at 15.8% of purchases. 
  • Real estate investment heads east. Investor homebuying rates vary sharply across the country, with the highest rates east of the Mississippi River and the lowest rates to its west. Each of the top 10 metros with the highest investor purchase rates is in the eastern half of the country, with Detroit, Philadelphia and Memphis, Tennessee leading the pack at 27%, 23.3%, and 19.7%, respectively. Just two of the top 10 are western markets, with Des Moines, Iowa and Oklahoma City, Oklahoma at 18.7% and 17.2%, respectively.
  • The five markets with the least amount of investor activity are all west of the Rockies, including Ventura, California, Boise, Idaho, Oakland, California, San Jose, California and Sacramento, California at 4.8%, 4.8%, 5.1%, 5.2% and 5.3%, respectively.
  • Not surprisingly, Investors are attracted to high-rent markets.
  • Markets that witnessed an increase in the share of active investors also experienced a similar increase in how fast homes were selling. Does this mean investors snapped up supply that would have otherwise been bought by owner-occupiers? Maybe, but the evidence isn’t conclusive because there’s a possible chicken-or-egg relationship between the two. While an uptick in investors into a market perhaps increases competition and lowers supply relative to demand, the opposite is also possible: markets with tightening supply could draw investors as they perceive markets with a dwindling supply to be safer bets than those with more plentiful supply.

As investors continue to purchase more properties, home prices increase. In May, the median price of existing homes was $277,700, up 4.8% from a year earlier, the National Associations of Realtors reported. For single-family homes, the median price was $280,200, up 4.6%.

NPR recently reported, “The pool of smaller, affordable starter houses is low. And increasingly, first-time homebuyers are competing with investors who are buying up these homes. Investors tend to buy cheap homes with the goal of renovating them and putting them back on the market at a higher price, or renting them out.”

At the National Association of Real Estate Editors Conference in Austin, TX, Ralph McLaughlin of CoreLogic explained that Investors are targeting the starter homes. CoreLogic cannot determine from the analysis they did if Investors are in fact displacing first-time homebuyers as many news outlets are reporting. Investors may be taking the homes that the first-time homebuyer wouldn’t actually buy. They may require too much work. The only time there would be competition with first-time homebuyers would be on a turnkey home, and for those that are buying and holding the home. If they are putting a property in circulation for rental, that is still putting a home in the supply and increasing the supply, which is a good thing for the housing market. Detroit and Philadelphia, Baltimore and Memphis have seen the biggest increase in real estate investment.

Do you see your home as an investment?

For most of my career, I have said that a home purchase is the largest investment you will make in your life, and here in Texas, for the most part this remains true as we have a relatively stable market with continuing, reasonable home value increases. MoneyUnder30.com gives us 7 reasons we should consider our homes as their primary function, shelter, versus an investment. Here are their reasons why a home is not an investment:

  1. It’s not an investment just because it appreciates. A true investment requires more than the prospect of an increase in value.
  2. A house has a more primary purpose – shelter. With a true investment you can generally control the timing of your sell, but with a home as an investment you have many factors to consider and often have no control over your timing of buying and selling. Life happens.
  3. A house cannot be an investment if you never plan to sell it. The most effective and efficient way is to sell the house after it has experienced a significant amount of price appreciation. However, selling a house is highly disruptive because it means you have to move. More significantly, when you do sell, you will most likely have to use the equity from the sale to purchase the next house. After all, you will be moving from one residence to another. This means that in a real way, home equity is trapped equity.
  4. Thinking of your house as an investment can lead to equity stripping. Many borrow money out their homes in the form of HELOCS, taking equity out of their home/investment.  This is a great tool for leveraging your equity, but as many saw in the housing decline, when home values are flat or decline, homeowners will no longer have equity in their homes. Placing them in a negative position.
  5. The carrying costs of a house are too high for it to be an investment.
  6. Your house won’t generate cash flow, unless it is a rental or multi-family.
  7. Appreciation is the magic ingredient, but it’s not guaranteed.

With the rise and fall of future home valuations, when the homes values increase people see their homes as investments, but as we remember from the past housing crisis, those areas that saw significant home value declines, the homeowners saw their home as more of a liability than an investment.

No matter, how you see your home, as a wonderful home to raise your family or as an investment, or if you see yourself as a potential real estate investor, it is important to understand the market and the economics of the house, and to approach home ownership from a place of understanding. To receive more posts like this from Tandy on Real Estate updates direct to your inbox, please subscribe.

SOURCES:

CoreLogic – https://www.corelogic.com/blog/2019/06/special-report-investor-home-buying.aspx

NPR – https://www.npr.org/2019/06/21/734357279/1st-time-homebuyers-are-getting-squeezed-out-by-investors

National Association of Realtors – https://www.nar.realtor/newsroom/existing-home-sales-ascend-2-5-in-may

The Week – https://theweek.com/articles/848222/making-house-investment-social-poison

CNBC – https://www.cnbc.com/video/2019/06/24/are-investors-pricing-out-first-time-home-buyers.html

Wall Street Journal – https://www.wsj.com/articles/investors-are-buying-more-of-the-u-s-housing-market-than-ever-before-11561023120

MoneyUnder30.com – https://www.moneyunder30.com/why-your-house-is-not-an-investment

The Impact of Energy on Texas

Texas leads the nation in energy production. Across every part of the great state of Texas there is energy potential and production. With the second-largest population and the second-largest economy in the nation after California, second only to Alaska in land area, Texas is not playing second in the energy sector.

According to The Perryman Report, “The energy sector has long been a major component of the Texas economy, generating substantial economic activity and opportunities. For more than a century, the state’s vast reserves of oil and natural gas have contributed to business activity and job creation. Production has risen sharply in recent years, and with improved recovery on each well, the cyclical nature of oil and natural gas exploration and production has diminished. In addition, US exports of crude oil and liquefied natural gas (LNG) are rising. In fact, the growth in production in the Permian Basin is creating a global transformation of petroleum market.”

Texas production has risen dramatically in recent years, up about 500% since 2010. These increases began after decades of falling production and talk of “peak oil”, Perryman reported. The increased production levels have led to a reduction in the need for imports. The Houston Chronicle recently reported, “That surge in production has helped drive oil imports to the U.S. Gulf Coast to the lowest level in more than three decades, according to a report from the Energy Department. In March, imports to the Gulf Coast averaged 1.8 million barrels a day, a more than 70 percent decline since 2007.”

Texas Has More than Oil Potential

According to the U.S. Energy Information Administration, “The state provides more than one-fifth of U.S. domestically produced energy. Crude oil and natural gas fields are present across much of the state, and coal is found in bands that cut across the eastern Texas coastal plain and in other areas in the north-central and southwestern parts of the state. Texas also has abundant renewable energy resources and is first in the nation in wind generated electricity. With a significant number of sunny days across vast distances, Texas is also among the leading states in solar energy potential. Geothermal resources suitable for power generation are present in East Texas, and uranium, the fuel for nuclear reactors, has been found in South Texas.”

Texas’ Energy Stats Highlights

  • Texas leads the nation in crude oil reserves and production. The state has two-fifths of the U.S. crude oil proved reserves and produces more than 40% of the nation’s crude oil, more than any other state and exceeding that of all the federal offshore producing areas
  • One-fourth of the nation’s proved natural gas reserves and about three-tenths of the 100 largest natural gas fields are located, in whole or in part, in Texas. The state leads the nation in natural gas production, accounting for nearly one-fourth of U.S. gross withdrawals in 2017
  • Texas produces more electricity than any other state, generating almost twice as much as Florida, the second-highest electricity-producing state. 
  • Renewable energy sources, primarily wind, contribute more than one-sixth of the net electricity generated in Texas. The state provided almost one-fifth of the total U.S. utility-scale electricity generation from all nonhydroelectric renewable sources in 2018, more than any other state.

The Nation’s Standing

The U.S continues to bolster its position as a global leader in oil production and reserves. According to ETF Trends, the U.S. is producing the most crude oil in the world, and we now have the largest reserves. “In its latest annual report of world recoverable oil resources, Rystad Energy finds that the United States currently holds 293 billion barrels of recoverable oil resources,” reports OilPrice.com. “This is 20 billion barrels more than Saudi Arabia and almost 100 billion barrels more than Russia.”

The Houston Chronicle reported, “U.S. oil production likely hit a record of 12.5 million barrels per day in May — about 200,000 barrels per day above Energy Department estimates — and should grow to 13.4 million barrels a day by the end of this year, according to the Norwegian energy research firm Rystad Energy. By the end of next year, U.S. oil production should hit 14.3 million barrels a day.”

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SOURCES:

The Perryman Report

Federal Reserve Bank of Dallas – https://www.dallasfed.org/-/media/Documents/research/energy/energycharts.pdf?la=en

U.S. Energy Information Administration – https://www.eia.gov/state/analysis.php?sid=TX

Houston Chronicle – https://www.houstonchronicle.com/business/energy/article/As-Texas-oil-production-surges-crude-imports-13952600.php

ETF Trends – https://www.etftrends.com/alternatives-channel/guess-what-country-has-the-worlds-largest-oil-reserves/

Federal Reserve Bank of Dallas – https://www.dallasfed.org/research/energy/indicators/2019/en1906.aspx

OilPrice.com – https://oilprice.com/Energy/Energy-General/The-US-Cements-Its-Position-As-World-Leader-In-Oil-Reserves.html

Now Is The Time To Buy In Austin

The time to buy a home in Austin is right now. With low interest rates and potentially climbing home prices, there is a limited window of opportunity in our hometown to capture a great deal, whether you are buying or refinancing.

Low rates

Interest rates will NEVER be lower than they are now. The 3.5% historically low interest rates we have been experiencing were artificially created by the Fed’s quantitative easing, and this has been terminated. According to Freddie Mac, they expect to see the 30-year fixed-rate mortgage to continue its downward trend, averaging 4.3% in 2019, before increasing to 4.5% in 2020.

With this, we are projecting a steadily growing housing market. Freddie Mac reports, “After increasing throughout April, mortgage rates declined at the start of May. The combined positive impact of low mortgage rates, a strong labor market, low unemployment, and modest wage growth supports our forecast for a steadily growing housing market in 2019.”

Lower rates should give a boost to the housing market, as seen with an upswing in both existing and new home sales. 

Rising demand

Austin typically has a high home demand, but we will be seeing an even bigger increase in housing demand as tech companies continue to increase their hiring over the next three years. With Austin’s unemployment rate at an all-time low of 2.3%, job postings continuing at their historic high and the many announcements of relocations and expansions including Apple’s 15,000 employee expansion and Google’s 5,000 employee expansion, demand for housing and therefore the home prices will continue to increase over the long term. 

According to AustinHomeSearch.com, “Central Texas REALTORS® remained busy after strong first-quarter sales, with the number of April home sales skyrocketing almost 15% in the Austin-Round Rock Metropolitan Statistical Area (MSA) over the same period last year. However, because the median sales price increased by a much narrower margin, results signal market prices stabilizing, according to the Austin Board of REALTORS® April 2019 Central Texas Housing Market Report. In April, the median home price in the five-county Austin-Round Rock MSA increased 1.6% to $320,000. Home sales increased year over year by 14.9% to 3,035 sales; sales dollar volume increased 14.1% to $1,207,238,711. During the same period, new listings decreased 1.8% to 4,018 new listings, while active listings increased 1% to 6,217 active listings. Pending sales jumped 14.3% to 3,588 pending sales. Housing inventory in April remained unchanged at 2.4 months of inventory.”

If you are sitting on the fence, now is the time to make the move.

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SOURCES:

Freddie Mac – http://www.freddiemac.com/pmms/

Freddie Mac – http://www.freddiemac.com/research/forecast/20190515_steady_growth.page?

Austin Chamber of Commerce – https://www.austinchamber.com/economic-development/business-climate/relocation-expansions

AustinHomeSearch.com – https://www.austinhomesearch.com/pages/austin-market-update

Finally, More Millennials Are Buying Homes

According to Housingwire Millennials are finally buying homes. Ben Lane reported, “Back in September, after existing home sales fell to a three-year low, it appeared that many younger would-be buyers were turning to renting instead of buying. But things look much different just a few months later.”

The increase is being driven by younger buyers under the age of 44, and yes, that includes the older portion of Millennials. Homeownership among buyers age 35 and under rose from 36% to 36.5% in the last year, while homeownership for those from age 35-44 rose from 58.9% to 61.1% in the same time frame. According to CoreLogic’s Ralph McLaughlin, young households, which represent the largest pool of potential homebuyers in the United States, are starting to enter the homeownership game.

Millennials may have been slow to start, but that seems to be changing. Historically, Millennials have been reported to:

  • Have delayed marriage having kids, but that is finally happening.
  • Wanted to enjoy more experiences than traditional activities of buying a home – but that’s changing.
  • Been happy/content living at home, but they are finally getting tired of that or getting kicked out.
  • Have had student debt challenges, but are finally making enough to be able to handle a home debt. 

By the end of 2018, Millennials represented 45% of all new mortgages, compared to 36% for Generation X, and 17% for Baby Boomers, Realtor.com reported to Housingwire. Millennials have now surpassed older generations in the total dollar amount of mortgages, and represent the largest dollar volume by age group. Javier Vivas of Realtor.com says Millennials are getting older, and have better jobs and deeper pockets, allowing them to get into home ownership. They are, however, focused on home affordability, and shocker, are not always picking the large metros as many may think. Instead, they are looking for strong job markets and lower cost options in more non-traditional areas, i.e. Buffalo, NY. In addition, Millennials consistently made lower down payments than other generations since 2015, which is not surprising as a first-time homebuyer.

More Positive News

In Q1 2019, the U.S. Census Bureau reports a flattening in homeownership at 64.2% year over year, breaking an eight quarter streak of gains. CoreLogic attributes this flattening to an uptick in renters, although owner household growth continues to outpace renters. Ralph McLaughlin of CoreLogic brings us a very positive trend change to watch in his April 25th article:

  • The first quarter of 2019 was the sixth consecutive quarter that owner-occupied households grew by more than a million, at nearly 1.1 million new owner households.  
  • The number of new renter households jumped by close to half a million. This is a significant change in trend, as renter households previously fell six out of seven quarters.
  • Total household growth remains remain strong, topping 1 percent for six straight quarters, and continues the most significant streak of household growth in more than 12 years.

McLaughlin reports that data shows increasing evidence that not only are young homebuyers indeed pursuing the American dream of homeownership, but solid household growth overall should continue to support healthy demand over the next two decades. An estimated 46 million new households under the age of 30 will push up demand for both owner and renter-occupied homes over the next two decades. Despite recent headwinds and signs of a market cooldown, these demographic fundamentals should lead to a healthy housing demand through at least 2040.

This is great news for the housing market.

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SOURCES:

Housingwire – https://www.housingwire.com/articles/48317-homeownership-rate-rises-to-four-year-high-as-millennials-are-finally-buying-homes 

CoreLogic – https://www.corelogic.com/blog/2019/04/homeownership-rate-flat-but-household-growth-booming.aspx

Pew Research – https://www.pewresearch.org/fact-tank/2017/05/05/its-becoming-more-common-for-young-adults-to-live-at-home-and-for-longer-stretches/

Housingwire – https://www.housingwire.com/articles/48259-millennials-have-officially-entered-the-housing-market

Realtor.com – https://www.realtor.com/homemade/fact-or-fiction-millennials-are-the-rent-generation/

U.S. Census – https://www.census.gov/housing/hvs/index.html

Spring Buying Season Is Here

Spring is here. Finally, after a long, cloudy and wet winter we have had a couple sunny days, the bluebonnets are starting to boom, allergies are on high alert, and the Spring buying season is starting. To help you prepare, here is a snapshot of the housing market forecast.

Freddie Mac recently reported, “Mortgage interest rates have been steadily declining since the start of 2019. These lower mortgage interest rates combined with a strong labor market should attract prospective homebuyers this spring and could help the housing sector regain its momentum later in the year.” This is great news as we approach our typical Homebuying Season.

Mortgage interest rates continue to decline

According to Primary Mortgage Market Weekly Survey mortgage rates have steadily declined after reaching a high of 4.94 percent in November of 2018. As of late-March, the 30-year fixed mortgage rate was 4.28 percent, its lowest level since February 2018.

Home sales to slowly regain momentum

Existing home sales nationally fell by 7 percent, to 5.32 million homes, in November compared with November 2017, according to the National Assoc­iation of Realtors. Lawrence Yun, chief economist for the National Association of Realtors, expects sales to be flat in 2019. This spring will be the best measure of whether the housing market is returning from very tight to normal, Yun says.

Freddie Mac reports, “existing home sales slumped to start the year, likely in part due to exceptionally cold weather in January and the temporary effects of the government shutdown. With mortgage rates down significantly from last fall, we expect to see existing home sales bounce back and trend higher for the rest of the year. However, our forecast indicates that total home sales (new and existing) will remain down at 5.94 million in 2019 since home sales are starting the year at such a slow rate, before increasing to 6.14 million in 2020.”

However, home sales for the Austin MSA increased 1.5 percent for 2018 vs 2017. Median home price increased 3.7 percent to $305,900. 

Housing starts
Freddie Mac reports, “Housing starts averaged 1.25 million in 2018. Due to the recent increases in building permits, we anticipate that total housing starts will gradually increase over the next two years with most of the growth coming from single-family housing starts. We forecast that total housing starts will increase to 1.27 million units in 2019 and to 1.33 million units in 2020.”

According to Moody’s Analytics, “homebuilders have been underbuilding for more than a decade. Builders have been hindered by labor shortages, community opposition to high-density projects and growing costs of land, labor and materials. Plus, they’ve been building at the mid-to-high end of the market, not at the entry level. But it’s not all bad news. Builders are offering in­centives to buyers, and they’re slowly starting to build smaller, lower-price homes that are more affordable.”

Locally, Austin single family building permits increased 4.6 percent in 2018 over the previous year. 

Home equity

CoreLogic Homeowner Equity Insights 4th Quarter Report continues to see a rise in home equity. “U.S. homeowners with mortgages (roughly 63 percent of all properties*) have seen their equity increase by a total of nearly $678.4 billion since the fourth quarter 2017, an increase of 8.1 percent, year over year.”

A look at home prices

Home prices started to soften in mid-2018. Kiplinger’s Personal Finance recently reported, “Prices will continue rising, but more slowly, as the housing market regains some balance between buyers and sellers.”

Freddie Mac similarly reports, “After accelerating in recent years, home price growth in the United States has continued to moderate. In line with recent trends, we have lowered our home price growth forecasts to annual increases of 3.5 percent and 2.5 percent in 2019 and 2020, respectively.”

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SOURCES:

Freddie Mac – http://www.freddiemac.com/research/forecast/20190322_economic_growth.page?

Freddie Mac – http://www.freddiemac.com/pmms/

National Association of Realtors – https://www.nar.realtor/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/housing-activity/#!/activity/MSA/Austin-Round_Rock

Moody’s Analytics – https://www.moodysanalytics.com/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/building-permits/#!/msa/Austin-Round_Rock%2C_TX 

CoreLogic – https://www.corelogic.com/insights-download/homeowner-equity-report.aspx

Homeownership mortgage source: 2016 American Community Survey – https://www.census.gov/acs/www/data/data-tables-and-tools/data-profiles/2016/

MReport – https://themreport.com/daily-dose/03-25-2019/important-drivers-home-sales

Kiplinger – https://www.kiplinger.com/article/real-estate/T010-C000-S002-where-home-prices-are-headed-2019.html

The Student Loan Bubble and Path Forward for Graduates

America’s total household debt increased by $193 billion (1.5%) to $13.15 trillion in the fourth quarter of 2017 according to the Federal Reserve. Student loan debt ranks as the second largest household debt falling behind mortgage, and in front of auto loans, credit cards and home equity loans.

Household Debt and Credit Developments as of Q4 2017

*Change from Q3 2017 to Q4 2017

**Change from Q4 2016 to Q4 2017

A closer look at student loan debt.

44.5 million student loan borrowers in the U.S. owe a total of $1.5 trillion as of March 2018 according to the Federal Reserve. And, the average college graduate with a bachelor’s degree left school with $28,446 in student debt in 2016 according to Institute of College Access & Success. In 2018, the Federal Reserve Bank of New York, reports 37.5% of Americans with student loan debt are under the age of 30. Compared to 62.5% of Americans with student loan debt are 30 years old or older.

CNBC recently reported “average debt at graduation is currently around $30,000, up from $10,000 in the early 1990s. The country’s outstanding student loan balance is projected to swell to $2 trillion by 2022, and experts say a large portion of it is unlikely to ever be repaid; nearly a quarter of student loan borrowers are currently in a state of delinquency or default.”

Although outstanding student loan balances have increased, student loan delinquency flows declined slightly but remain at a high level, according to the Federal Reserve. NerdWallet reports the following status on student loan repayments, painting a grim picture for some borrowers.

  • 3.3 million federal loan borrowers have loans in deferment.
  • 2.6 million federal loan borrowers have loans in forbearance.
  • 4.7 million federal loan borrowers have loans in default.

Will the student loan bubble burst?

Robert Farrington with Forbes explains how the student loan bubble will not burst, but instead will cause a slow market stagnation that we will see over time. “Student loans are a collateral on earnings, as long as there is earning potential, the ability to have the loans quickly “pop” via any financial mechanism is rare. Yes, bankruptcy for student loan debt is possible, but once again – rare… The net effect of this student loan crisis won’t be a bubble popping – it will be slow drag on the economy.” Discretionary income that would traditionally go to consumer goods and household spending stimulated by homeownership will instead be going to student debt repayment because there simply is not a discretionary income. This could cause a decline for some industries.

How student loans effects home ownership.

Student debt significantly cuts into future homeowners’ budgets and for many, making it difficult to buy a home. According to the Federal Reserve for every 10 percent in student loan debt a person holds, their chance of home ownership drops 1 to 2 percentage points during their first five years after school. According to the National Association of REALTORS more than 80 percent of non-homeowner younger millennials (born between 1990-1998) cite student loan debt as delaying a home purchase, compared to 86% of older millennials (born between 1980-1989).

What does this mean for graduates today?

NerdWallet recently analyzed the most recent numbers and issues concerning graduates, and conducted a survey by The Harris Poll in May 2018. In analyzing the data, Brianna McGurran, NerdWallet Student Loans Expert, believes the outlook for graduates is not gloom and doom stating, “New grads are in the best position of all: They have the chance to save smart from the beginning.”

Here is what they found for the Class of 2018 Money Outlook:

  • Percentage of recent graduates with student debt: 45%
  • Percentage of recent graduates with student debt who believe they’ll be able to pay it off in 10 years: 39%
  • Age at which graduates of the Class of 2018 can expect to retire: 72
  • Age at which the Class of 2018 can expect to purchase their first home with a 20% down payment: 36

As with any loan, whether for a student loan or a home, approach it as an educated consumer, here are some tips for paying off student loans for future graduates.

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SOURCE:
https://research.stlouisfed.org/publications/page1-econ/2018/10/01/get-an-education-even-if-it-means-borrowing
https://www.nerdwallet.com/blog/loans/student-loans/student-loan-debt/
https://www.newyorkfed.org/microeconomics/databank.html
https://studentaid.ed.gov/sa/about/data-center/student/portfolio
https://www.nerdwallet.com/blog/2018-new-grad-money-outlook/
https://www.cnbc.com/2018/09/21/the-student-loan-bubble.html
https://www.federalreserve.gov/econresdata/feds/2016/files/2016010pap.pdf
https://www.federalreserve.gov/econresdata/feds/2016/files/2016010pap.pdf
https://www.forbes.com/sites/robertfarrington/2018/12/12/student-loan-bubble-wont-burst/#3f9bf00f6768
https://www.newyorkfed.org/newsevents/news/research/2018/rp180213
https://www.forbes.com/sites/robertfarrington/2018/11/27/student-loans-and-bankruptcy/#41ee1633f45d
https://thecollegeinvestor.com/9664/student-loan-bubble-looks-like/
https://www.bankrate.com/loans/student-loans/repay-college-loans-fast/

Austin No. 1 City Gaining Company Migrations from California

Austin continues to grow from California residents and business relocations. A recent study by Joseph Vranich of Spectrum Location Solutions revealed more than 13,000 companies have left California for friendlier locations, with Austin being the No. 1 city to gain the California migrations. The study also ranked Texas as No. 1 in the Top 10 states gaining the most from California business relocations, a distinction Texas has held for the past decade.

“During the study period, $76.7 billion in capital funds were diverted out of California along with 275,000 jobs – and companies acquired at least 133 million sq. ft. elsewhere – all of which are greatly understated because such information often went unreported,” according to the study.

The Austin Business Journal summarized that “Departures are understandable when year after year CEOs nationwide surveyed by Chief Executive Magazine have declared California the worst state in which to do business,” said Vranich, a corporate relocation expert who jokes that he loves California’s weather, but not its business climate. Until recently, Spectrum and Vranich were based in Irvine, Calif. Texas, on the other hand, consistently ranks as one of the best states to do business in.”

The top 10 states starting in the order of those that gained the most from California business relocations were:

  1. Texas, which has held the first-place distinction for at least a decade
  2. Nevada
  3. Arizona
  4. Colorado
  5. Oregon
  6. Washington
  7. North Carolina
  8. Florida
  9. Georgia
  10. Virginia

The top 10 cities gaining company migrations from California were:

  1. Austin
  2. Reno, Nev.
  3. Las Vegas
  4. Phoenix
  5. Seattle
  6. Dallas
  7. Portland, Ore.
  8. Denver
  9. San Antonio
  10. Scottsdale, Ariz.


The report’s ranking is based only on cities, not metro areas. Fort Worth, Houston, Pittsburgh, Atlanta, Indianapolis and Nashville also ranked among the top twenty.

Vranich further details the Texas metro market migrations in the Austin Relocation Guide. Metropolitan areas benefiting from California divestment events show Austin-Round Rock-San Marcos in the top spot, followed by No. 2 Dallas-Fort Worth-Arlington, and No. 10 San Antonio, which was tied with Salt Lake City. Of the Top 15 destination metropolitan communities benefiting from out-of-California Austin tops the list, followed by No. 6 Dallas, No. 8 San Antonio, No. 11 Houston, No. 13 Irving and Plano (tied) and No. 14 Fort Worth.”

The new 2018 Migration Trends study by residential real estate brokerage site Redfin shows California is the top source of people from other metro areas shopping for homes in Austin. KVUE reported that in the Austin area, the biggest generator of inflow (more people seeking to move to area than leave it) was from San Francisco, unsurprising considering both cities are hubs for the technology sector. In Dallas, the L.A. area produced the most potential newcomers.

With the California migrations, it begs the question, how is Austin doing today?

The Austin Chamber of Commerce recently reported:

  • Austin added 36,800 net new jobs, growth of 3.5%, in the 12 months ending in December, making Austin the fourth fastest growing major metro.
  • In Austin, the industry adding the most jobs and growing the fastest is wholesale trade which grew by 6,900 jobs or 12.8% over the last 12 months. Also growing at faster-than-average rates are construction and natural resources (8.1% or 5,000 jobs) and other services (4.4% or 2,000 jobs).
  • Austin’s seasonally adjusted unemployment rate is 2.9%, up from 2.8% in November. Unemployment has been at or below 3.0% for the last 16 months.
  • For new home construction Austin ranked number 1 in the nation in per capita building permits through midyear 2018 with a projected increase over 2017.
  • Home prices are rising with a median home price increase of approx. 4% in 2018.
  • Incomes are rising with total personal income in the Austin metro growing by 6.4% in 2017, the 5th fastest growth rate among major metros.

We continue to see growth in Austin, and we welcome California transplants to make Austin their home.

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Resources:

Austin Business Journal – https://www.bizjournals.com/austin/news/2018/12/13/1-800-companies-left-california-in-a-year-with.html 

The Kumar Law Firm – https://thekumarlawfirm.com/lawyer/2018/12/31/Business-Law/California-Businesses-Flock-to-Texas_bl36525.htm

KVUE – https://www.kvue.com/article/news/local/california-homebuyers-continue-coasting-into-austins-real-estate-market/269-608008889 

PRWeb – https://www.prweb.com/releases/record_number_of_companies_departing_california_study_urges_more_to_leave/prweb15977005.htm

Redfin – https://www.redfin.com/blog/2018/10/q3-2018-migration-report.html

Culture Map – http://austin.culturemap.com/news/real-estate/10-25-18-homebuyer-interest-in-austin-california-san-franscisco-redfin/

Austin Chamber of Commerce – https://www.austinchamber.com/blog/01-22-2019-job-growth-unemployment

Austin Chamber of Commerce – https://www.austinchamber.com/economic-development/business-climate/economic-perspective

Austin Relocation Guide – http://www.austinrelocationguide.com/Austin-Wins-Big-as-Companies-Leave-California/

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