One of our buyers closed last month with a 3.87% interest rate. We saw many sub-4% loans the past several months, though rates have now climbed back above 4.6%.
Let’s imagine hypothetical first time buyers with a toddler who closed this year with an interest rate below 4%. Fast forward 5 years to 2015 and imagine they now have a 6 year old and a 3 year old. The career is going well, income is up, savings account is healthy, cars and student loans are paid off, the economy is good and the house is starting to feel a bit small.
This is the profile of a typical move-up buyer in Austin. Move-up buyers play an important role in the real estate market by providing resale housing stock for first timers to buy and, simultaneously, providing demand for the mid and upper range homes in Austin. We need this “move-up churn”. It’s good for the real estate market and Austin’s economy.
But now let’s also imagine that in 5 years from now that the best interest rate available on a new mortgage is an unfathomable 6.75%. Don’t think it will go that “high”? That’s not ever a “high” interest rate! And yes, it will get that high again – eventually. How hard will it be for a move-up buyer to let go of that 3.75% loan on the current home? Very hard, I’m going to bet.
I think the psychological urge to hold onto that loan is going to be very strong. And I think it will factor into the move-up decision more than we may currently realize.
As a Realtor, I’m in the loop and a part of the massive “call to action” machine that goes into motion anytime local, state or national governments appear to be heading toward regulations or changes in the law deemed harmful to the real estate industry and its consumers. The latest call to action is regarding the recent debt commission recommendation to scrap the mortgage interest deduction enjoyed by those home owners who itemize tax deductions.
The National Association of Realtors is coming out strongly against any change in the mortgage interest deduction (MID). Since I’m not a mindless Realtor drone, I do have opinions that differ from my industry on a number of subjects. On this one I have more questions. First, let’s see what NAR has to say:
“As the leading advocate for housing and home ownership issues, NAR firmly believes that the mortgage interest deduction (MID) is vital to the stability of the American housing market and economy.
The MID must not be targeted for change. NAR is actively engaged on behalf of the nation’s 75 million home owners and 1.1 million Realtors® to ensure that the current deduction is not modified as was recommended in the Deficit Reduction Commission report released today.”
You can read the entire position statement here. I’m disppointed that it contains no actual data, statistics or substantive supporting argument, but instead just general statements saying, basically, this would be a bad idea. Come on NAR. Where’s the beef? In exactly what specific way would the elimination of this tax deduction jeopardize the “stability of the American housing market and economy.”? I mean, that’s a pretty big assertion.
OK, I understand the basic NAR position and mission of trying to keep things in place that are good for home owners. But I am also vaguely aware of the fact that not many people itemize their deductions on a Schedule A in the first place. Most take the standard deduction, making the MID a mute moot point on their particular tax returns. And many people pay no mortgage interest (1/3 of homes are free and clear) or don’t pay enough to deduct. So they are unaffected also. Who does that leave to absorb to feared repercussions?
How many home owners, or prospective home owners would, upon elimination of the MID, throw their hands up in disgust and scream (think George Costanza’s parents…) “That’s it! I’m selling my home and renting for the rest of my life! They’re not going to get away with this“?
Or, “Honey, let’s cancel the home search. If we can’t deduct the mortgage interest, it just doesn’t make sense to give up the pleasures of renting, and moving from home to home every couple of years”?
I dare say I don’t think many, if any, home owners or prospective home owners would forgo all the benefits of home ownership based solely on an ongoing income tax policy. So, who in fact might be affected by the elimination of the mortgage tax deduction and would it in fact ruin the real estate market, home values and the U.S. economy?
I previewed some real estate listings today that I wouldn’t own for free. These were condos in SE Austin priced in the $30Ks range. I’ve seen these listings online and I know the area, but curiosity finally got the best of me so I went and had a look to see just how bad a listing has to be to be priced in the $30Ks.
I don’t like condos in the first place. Yes, condos have their place in the spectrum of real estate product, but I don’t like owning or managing units with shared walls. I’m especially averse to not having control over water leaks from above or the sides. If a tenant calls and reports a leak coming from the ceiling in a single family home, I make 1 phone call to my roofer or HVAC guy, depending on the type of leak, and the problem is solved.
With a condo leak, I have to deal with the HOA and/or find out who owns the unit above and hope they make the proper and permanent fix to the problem. I don’t like that scenario because my action choices don’t have defined outcomes. I have to rely on someone else to cooperate in a competent way. There are also the issues and disputes with neighbors over parking and noise, neither of which come about with houses.
Nonetheless, how bad could it be that I would say “no thanks” even if (hypothetically) someone offered one of these condo units to me for a purchase price of zero? One word. Exposure. Exposure to risk. I don’t like certain types of risk.
We have a listing that is a good candidate for a Group Home, and we’re marketing it as such. This has earned the ire of some of the individuals living in the University Hills neighborhood in NE Austin. Let’s have a look at an emailed received from one of the concerned neighbors:
Do NOT advertise the property for sale at 3403 Loyola Lane as a “group home” in your listing. You are contributing to a major problem that exists currently in Austin and more specifically our neighborhood. Do you advertise other properties in your listings as potential “group homes?” No you don’t—I went and looked at your Crossland Team website. Your website says that you’ve been “Serving Austin since 1993,” I’m sorry, but what you’re doing isn’t serving Austin—it’s serving yourself. My assumption is that you have no idea what actually goes on in these group homes, you’re simply trying to make a quick buck. I’m betting that you wouldn’t list a property on your street as a potential “group home” would you?
It’s appalling that you would consider putting that under this listing—it shows that your concerns aren’t about making the University Hills neighborhood a better place. Your name was posted in an email circulated through our neighborhood listserv as the agent on this listing. I kindly request you revise the description for the property and remove that portion of the listing. What you are doing is devaluing the properties in the University Neighborhood and that is not good business for someone in the real estate industry. Especially someone that may hope for repeat customers in the area.
And my reply:
Thank you for expressing your concerns about our listing at 3403 Loyola. You obviously care about your neighborhood and fear that a group home would have a negative impact on your community.
This particular property is unique in that it has 6 bedrooms, 3 full baths and 3 living areas, plus a screened rear porch and an enclosed garage. It’s so large in fact that it doesn’t draw interest from the type of buyers who typically seek smaller homes in the University Hills neighborhood, and who have no use for a 6 bdrm, 3 bath home. Also, the home’s proximity directly next to an apartment complex and on a busy street near a busy intersection makes it less appealing to the typical buyer.
Sales volume continues to drop year over year in Austin while prices continue to rise. Let’s have a look at the chart below.
|Austin Real Estate Sales Monthly Update – Oct 2010|
|Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Sep 2010||Oct 2010||Oct 2009||Yr % Change|
|Avg $ SQFT||$113.12||$116.53||$114.18||2.05%|
|Not Sold %||58.63%||59.98%||42.14%||42.34%|
The number of homes sold dropped 36% from Oct a year ago, but remember, a year ago in Oct we all thought the government tax credit for new buyers was going to end in Nov 2009, so we had artificially increased demand for the fall/winter selling season. Nonetheless, it’s a 36% drop, which is huge. We’re going to see similar year over year drops in the March-Jun stats in 2011 too. In fact, it will be more than two years from now before I can run stats that don’t include the caveat “remember a year ago the government was meddling in the real estate market, or we were in the tax credit hangover, and thus …”
Let’s talk about the color coded right column. This is the first time ever that the spreadsheet I pasted into a blog article maintained the color coding that I have programmed in. Essentially, green indicates a metric that moved in a positive direction, and red is a metric moving in the negative direction. We could have a long debate about whether and why higher prices are “good”, because for buyers maybe lower prices are better. But for the economy in general, jobs and growth, the real estate market needs to be appreciating and growing, so for the purposes of my stats, “good” means it’s good for the owners and sellers of real estate because values are rising.
Don’t give too much credence to the high upward swings in the green rows. Those are distortions. The typical 4 bedroom 2,000 sqft 10 year old home in Austin is not worth 11% more than it was a year ago. We’re simply seeing more expensive properties sell while last year it was the lower priced homes driving the market because of the tax credit.
Let’s have a look at the year to date stats.
I’ve been showing and previewing lots of homes in central Austin neighborhoods lately, and taking note of some of the horrendously dumb things people do to their house. Often, these are do-it-yourself remodel projects or (apparently) paid projects that fall into one of 2 main categories.
Category 1: What in the world were you thinking?
Category 2: Cart before the horse and/or, blind designer?
In the first category, I saw an added bath with a tub and a commode. Anything missing from that list? Yep, a sink. Someone added a half bath to the house that has a tub, commode and NO SINK! There is no space to add one either.
Still in the “what were you thinking?” category, someone cut out a door directly from a bedroom into the kitchen. This took me and my buyer a while to figure out because we first walked into the kitchen and noted that there was a bedroom door located in an odd place. It just didn’t seem like the right placement. Upon entering the room, a second door to that room led to a hallway. Standing in the hallway, all the rooms seemed like normal hallway rooms and we surmised that, for some reason, someone just wanted a quicker way from that particular bedroom into the kitchen. Luckily, as weird as that was, it would be an easy fix to restore the flow of the home back to the original layout by returning the wall to a wall in both the kitchen and bedroom.
Finally, in the first category, the add-on with the 6′ 8″ ceiling. I know it was 6′ 8″ because the standard-sized door frame allowed the door about a half inch of clearance. I’d need to check with City of Austin code, but I’m petty sure the minimum ceiling height for residential dwelling space is 7″2″, so that room addition is totally out of code and would have to officially be considered a closet or “storage”. This one’s a head scratcher because someone would have had to cut the 2×4 wall studs down to the shorter size on purpose when constructing the add-on. I checked the exterior and there was no roof-line issue that would have forced the shorter ceiling height. Someone just built it that way as a short add-on. That entire room is worthless from a price-per-square-foot price standpoint. Not only that, if I was doing a market analysis for a buyer, I’d subtract out the demolition costs of that add-on and/or a rebuild/fix. But for most buyers, why bother. Just move on to the next house.
On to Category 2: Cart before the horse and/or, blind designer?