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Dec 7 2018 51021 1
Dated: December 8 2018
The Real estate market is a cyclical industry that is constantly changing. Yes, we are seeing a shift, but it doesn’t mean the sky is falling. It simply means that real estate is entering the next phase in the cycle. That said, not much about the last 5 years in the North Texas market has been what most would call “normal,” which makes what’s to come in the next few years anyone’s guess. GroupWatson Real Estate Team at Keller Williams Realty DPR is constantly watching the numbers for trends and changes. Here is what we know right now.
Inventory shortages are easing. For 5 years now, there have been more people shopping for homes than there were homes for sale. As news of record profits spread, and home builders have caught up to demand, more and more homes have become available to purchase. As their options increase, home buyers are once again afforded the luxury of options. When inventory was tight, buyers had to take what they could get, meaning they’d often compromise on size, finishes, even ideal locations. Now that they don’t feel pressured to jump at the first house that they deem livable, they’re taking their time to choose the best fit or even waiting until the “right” one comes on the market. As the leases they didn’t really want to renew come up for expiration again, buyers who dropped out of the market before may be out shopping once again.
Affordability is dropping. Economics 101 taught us that supply and demand inversely effect pricing. The low supply of homes for sale created wild competition, bidding wars, and caused prices to rise fast. In fact, they rose much faster than incomes. As you’d expect, at some point home buyers simply cannot afford to pay those higher prices, and have grown tired of the frenzy, so they drop out of the market.
Tax law changes are a factor. The new 2018 tax laws now limit how much mortgage interest and property taxes each individual or married couple can deduct on their taxes. While the standard deduction increased as well, it may not be enough to offset the limits for many home owners, and doesn’t help small business owners, independent contractors, or anyone else that needs to itemize deductions. Previously, home owners could write off the full amount for each. Now the deductions are limited to $5,000 for individuals or those that are married, filing separately, and $10,000 for married couples. These numbers might sound high, but property taxes on a $200,000 home will exceed $5,000. Most homes in North Texas will appraise higher than that. When deductions are lowered, tax bills go up and have an impact on the household’s overall annual income. This change may be enough for some households to decide to sell their home when they might have decided to stay. Add to that the ri9sing home values also increase county tax assessments, whether the owner has been in the home 1 year or 20.
The Millennials are struggling. First time home buyers are critical to a healthy real estate market, typically making up about a 3rd of all home buyers. As the current generation of young adults complete college, begin careers, and start families, they may be more motivated to buy homes. However, many first-time home buyers are faced with homes in rougher areas than they’re comfortable living in, excessive commute times, or needing more extensive work than they are able to afford as prices higher and higher. We’re not even talking about convenience or preferences anymore. Affordable homes may be 40 miles or more from the major cities in DFW, making commutes an hour and a half each way or longer. That’s a lot, and for parents, this not only limits family time but can create hurdles with child care hours, too. Add high student loan debt and rising rent costs, this generation is having a hard time saving for down payments and closing costs.
Interest rates are on their way up. The Fed has been warning us for years that the historically low interest rates we’ve all enjoyed would increase. For a while, it almost felt like they were crying wolf because rates remained low. However, this year they have started to climb. Higher rates mean that mortgages will cost more, and buyers will get less bang for their buck. For every 1% increase in the rate, buying power decreases by about $10,000. So, for a home buyer looking at a loan for a $250,000 starter home, a rate increase of 1% means they can now afford a $240,000. But that same home is likely to up in price during the same time period, now costing $260,000, so it’s a touch catch-22 scenario.
All of the factors listed above are contributing to the changes we are seeing in the local market. As inventory levels rise, sellers may find themselves lowering prices and making concessions to win buyers over a neighboring listing. Creative marketing, market preparation (cleaning, staging, repairs, etc.), and experienced agents with strong negotiating skills will become more and more important for sellers who want to protect the equity the prior years have boosted.
Now for the numbers. Compared to this time last year, we currently have about 3,000 more homes available for sale, and at the same time, closed contracts are down by about 1,700 sales. In November last year. Only 625 more homes were listed for sale than sold in November 2017, while in 2018 there was a difference of 2,915. Average and media market times haven’t changed too much, but the percentage of list price to sold price has decreased by close to 1%. Average sales prices are still up by about $10,000 for the entire North Texas area, though. Just from October to November, we saw a 14% increase in housing supply and a closed sales decrease of almost 20%. Does this mean the sky is falling? Not quite. But it does signal a more normal, balanced market that we haven’t seen in North Texas in over a decade. And that is welcome news to many!
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Christy grew up in West Texas and is a graduate of Texas Tech University with a bachelor’s degree in Family Studies. She and her family have been residents of The Colony, TX for 3 years and are very....
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