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A Note From Russ On Today's Inflation, Interests Rates, Home Prices & More

Thursday, January 13, 2022   /   by Kathryn Jones

A Note From Russ On Today's Inflation, Interests Rates, Home Prices & More

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Today’s headline is a kickstart if you are thinking about real estate.  Why?


Well if you were not around for the 1970’s and 80’s, you may not be familiar with the fact that federal policy to slow inflation impacts interest rates.  For the last 25-30 years we have seen declining rates and I think we have taken it for granted. 


When I bought a home in 1999, I danced a happy dance to lock my interest rate in at 7.75%…with a credit score of 800.  Today that would be a loan shark/hard money rate. 


In my 20 year career, I have been hesitant to play “chicken little” with interest rates and bark to the world “the sky is about to fall.”  I’ve never wanted to be “that guy.”  So why am I saying this now?


Because the analysts, the talking heads, and people who deal with this sort of thing are talking like it’s unavoidable, and pondering how much rates will go up. In short, I don’t see a way they cannot go up.


Should you wait to buy then?  Will prices come down? Will there be foreclosures? 


In the Austin metro area, the analysts and smart people (not realtors, but economics oriented types) that I listen to say we do NOT have a swelling bubble. The ingredients just are not there locally. 


What may be true for Ohio or Wisconsin or Oregon or Florida is not necessarily relevant to central Texas.  Real estate is not just “local,” it’s HYPER local.  In 2021, the Parmer Lane corridor values exploded.  But that didn’t impact Thrall (east of Taylor…) Now Samsung is dropping $15 BILLION into Taylor, and Thrall will never look the same. 


In short, for the time being:




It would take something economically catastrophic to trigger that in Austin.  “But it happened in 2007-2012” you say…


I remember well. 


Demand fell off the charts, but locally…people didn’t HAVE to sell like they did in other parts of the country.  So we were NOT overrun with people dumping houses.  Inventory in Austin was plentiful and we had a buyers market with about 7-8 months supply pretty routinely from where I sat.  A neutral market is 6 months supply.  Today, many microcosms of the area have LESS THAN 1 MONTH supply. 


In the years leading up to the Great Recession, people in California were refinancing their homes 2 and 3 times a year.  You could do a “cash out” refi then at 105% of your appraised value there.  This became a house of cards waiting for a windstorm.  People were increasing their debt load, under dubious loan qualification criteria, and using their homes like an ATM machine.  I had loan officers there tell me the money was being spent on depreciating assets like new cars or even worse- vacations.  Things that they would NEVER get that money back from.  Some people saw the 20% annual appreciation and bought as many houses as they could and decided they were shrewd investors.  This was a house of sand. Made of cardboard. On a beach. Waiting for the inevitable hurricane. 


Why did Texas not blow up like other places? 


For one thing, Texas law says you can never do a cash out refinance for more than 80% of your appraised value.  We MUST protect this policy so we never give in to temptation to make our house an ATM machine.  That was the biggest thing.  Our economic “house” was not built on sand. Our laws protected us from our temptations, and human nature.  Sure some folks lost money, but if you have ever seen the movie “The Big Short,” you’ll understand that in places like Florida, ENTIRE SUBDIVISIONS went up for sale (as individual resale listings).  People in other states were so far underwater, there was no real hope. So they walked away. 


By contrast, the Austin American Statesman published an article in late 2011 saying “your house is probably worth about the same amount as it was in 2007.”  Yes, we were stagnant, but not impacted like the rest of the country.


In addition, one local analyst has said to us a LOT in recent years that of the 8 metropolitan areas “in economic recovery,” FOUR WERE IN TEXAS.  (Austin, DFW, Houston, San Antonio).


Why Texas?  Ask Elon Musk. 


In short, we have a highly educated labor force, lower cost of living (for individuals AND business), and a more business friendly regulatory environment. 


Tesla, Oracle, Samsung, Apple, US Army Futures Command, USTA…the list goes on.  These are all entities investing BILLIONS in our area.  This makes Texas, and specifically Austin more insulated from another recessionary event.  I believe our values may stall due to exterior economic forces at some point, but we will be safer (in terms of the value of real estate equity) than other parts of the US. 


In nearly 25 years of sales, I have seen one truth that applies to decision making: 


Confusion Prevents Commitment. 


I’m trying to remove confusion for you with simple concepts, local economic facts, and my honest thoughts. 


Homes will NOT come down in price for the foreseeable future. 


A spike in interest rates is coming.  The analyst I listen to the most says this may stall decision making for 60-90 days…as reality sets in and buyers realize they won’t come back down and that it will not trigger foreclosures.  Then buyers will shrug their shoulders and buy.


If you’re a buyer:  higher interest rates will mean your monthly payment equates to a lower purchase price capability


If you’re a seller: Higher interest rates mean there’ll be a period of adjustment where buyers have to adjust their expectations. In other words, they may have been shopping in the $700’s and now realize they have to buy in the $600’s.  This likely will slow some appreciation momentum.  Wouldn’t you like to catch buyers before this happens? Especially if they have a sense of urgency before interest rates climb?

My point is this: I have had to overcome my fear of looking and being perceived as “salesy” before speaking out.  Yes I am in the game to make sales.  But I also bought an investment property last fall. 


I believe the things I am telling you.  And my money is where my mouth is.

You can find out more information about the Real Estate Market, 2022 and Beyond from Mark Sprague, State Director of Information Capital. Head here to learn more.


At the Russ Phillips Team, I have always told my agents to come from this paradigm: “Don’t get people into something we can’t get them out of…”


We want you to make smart decisions.


We want to be your trusted advisor, not sales people. 


Conversations are free.  We cannot give blanket advice to individual situations. 

How can we help you today?
Russ Phillips
The Russ Phillips Team

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