Wednesday, July 26, 2023 / by Kathryn Jones
Relief IS Coming...
Well, our "region" according to them includes everything from New Mexico to Louisiana. Now, I don't know about you, but I've never run into any gators in Santa Fe, and I've not had amazing authentic Mexican food in New Orleans. Seems to me that to be trustworthy...the Farmer's Almanac should be a bit more "hyper local...." You know, like Real Estate is.
It's been a buyer's market in recent months. But relief is coming...even if it doesn't look like rain just yet.
Property Tax Relief
In July, the Texas legislature reached an agreement to give Texans the largest property tax cut in history. That is certainly welcome news. Details are not fully understood quite yet, but there's an increase in your homestead exemption AND new rules for investment properties that will give them an annual cap on increases (which previously existed only on properties with a homestead exemption).
Whereas the HEAT may be oppressive, it's nice to see politicians do something to make taxes not be oppressive. I had a discussion with the County Treasurer (who also happens to be a friend) when this news broke. My takeaway was basically...."You'll save money." We gotta love paying less "rent" to the government for property we already own. Seriously though...check it out.
Real Estate Market
I think in the months ahead, you'll also see buyers stop sitting on the sidelines, and there's some real data to provide logic as to why we may go from "slow" to "fast paced" market pretty quickly.
You've heard me say that when the market finds a bottom, it can bounce quickly. We gained 46% in average price per sqft in Georgetown between January 2021 and June 2022 when the inflation news hit. Then we gave back at least 17% in the following 9 months. Buyers became cautious. We are starting to see the average price per foot stabilize.
You already know my thoughts on interest rates from previous communications, so I'll refer you back to our blog for that. Instead, let's look at Millennials.
Millennial Housing Needs
Check out this chart. You'll see that household spending hits a peak at mid life. But you know who is approaching that peak? Millennials!
Just look at the birth rates in this chart below. You'll see that Gen X was a low point in birth rate, but the Millennial generation represents a LOT more people....all of whom will need a home. Purely from the Millennials aging into a time of life when they no longer want to rent.... this should have a very positive impact on demand. And the Austin metro area is very popular with this age bracket, not to mention our economics outlook locally is easily believed to be EXCELLENT.
So....relief is coming in terms of demand increasing. It's just a matter of time.
As far as prices are concerned, the chart below shows the trend line for home prices dating back to 1990. We were below the trend for sometime and then abruptly above it. Stability is increasing as sellers modify their pricing to match affordability ratios caused by higher interest rates. It seems we are returning to the trend line and the distance is not that far of a retreat. This is a good thing.
If you're worried about a crash, all indicators point to this being an ill-founded fear. A huge percentage of America owns their home free and clear, and many others have at least a 50% equity stake in their property....in other words, we should NOT be seeing a huge wave of foreclosures like 2008.
And lastly....lenders are preparing for a massive wave of refinancing in the next 9-12 months. Think about that...the mortgage industry prepping for a wave of refi's. Think they know something about interest rates?
In short, we believe the relief will come BEFORE the uncertainty abates. This (to me) creates an opportunity for buyers.... Make your move now when sellers will negotiate to sell and get on with life....otherwise, you're going to find yourself eventually in competition with every other buyer that waited until the signs were unmistakable and prices shot up with demand kicking in.
I'm going to say something FREAKISH HERE. Read closely.
I'm sure you have someone in your life that says "I remember when interest rates were 18%. We still bought houses!" And you know what? Time proved those folks had the last laugh. Why?
In the 1970's those houses cost $50-60k, and the people who bought them may have had to pay exorbitant interest rates, but when rates went down, they could refi...and they did....but when they did, their house was worth more. In some cases, a LOT more.
When I was a kid in 5th grade (around 1980), we moved from the Tarrytown section of Austin to Houston. I remember my parents saying "Boy we sure did well, selling that house at just over $100,000." You know what? That house is on the tax rolls today at $1,888, 844. Imagine if you had locked in your purchase price at $100k.... this may be an extreme example, but the principle applies.... by purchasing...you LOCK IN your acquisition price. Then when you get a chance to refinance, you improve your monthly payment without having to care about what others are paying, because you already own your home!
This is real life in Real Estate. It's a long game. Kick the HGTV habit and throw away the "Get Rich Quick Using Someone Else's Money" books and gimmicks. Solid decision making added to time is a formula for winning. That's why it's called the American Dream.
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