It’s been a while since my last real estate newsletter and I apologize. The truth is, we’ve been a little busy since the start of the year. After an unusually quiet last quarter (compared to the preceding 24 months), things have finally started to kick into high gear again in Central Texas.
Since January, Austin has made a number of headlines in the national news scene.
- Austin ranks among top 10 U.S. labor markets
- Largest post recession boom in US
- Austin ranks number one tech city over San Francisco
So the good news is that we have, and will likely continue to have, one of the healthiest economies in the country. The bad news is that the dream of owning real estate is getting further out of reach for many new residents. Affordability is one of the biggest problems we’re seeing right now in Austin and more than half the homes in Austin are too expensive for a significant portion of the workforce.
I want to talk about what I see happening over the next 12 months, because I think its really important for both home sellers and buyers. I recently attended an economic forecast breakfast given by Ted Jones, Ph.D., chief economist for Stewart Title. He painted a very good economic picture for the national economy and Austin in general. He believes we’re about to see one the largest retail booms our nation has ever seen. One thing that struck me in his speech was that he expects 30 year interest rates will rise to somewhere between 5.6 and 6% within the next 12 months. I don’t think people realize what this will do to a mortgage payment when interest rates on a 30 year note are even 1 point higher. Because of our great demand, job market and unemployment rate, our housing market will continue to do well, but the more expensive the home, the harder it is going to be to sell. To put it in perspective, a $600,000 home where the loan amount is $500,000 and the interest rate is 4% (round about what it is right now) will cost a consumer about $3,800 a month with taxes and insurance built in. At one point higher, that goes up to $4,000. At 5.6%, you’re at about $4,300 a month! So if Ted Jones is right (on the low side, mind you) then a $500,000 loan amount is going to cost a consumer an extra $6,000 a year. That amount is also going to push down the dollar amount that can be financed for a lot of people.
Knowing this information, what are our take-aways? If you’re a buyer, this could be the last chance to get these historic low rates (and we mean it this time!). If you’re a seller and your home is worth more than $500,000, the higher your property value is, the harder it will be to sell. Ted Jones says that the higher price point market will suffer the most. If you’re an investor, get off the fence. Higher interest means less cash flow!
Sellers, we’re in Austin and I don’t think anyone expects to see property values to go down anytime soon. But if you own a home thats worth $800,000 or more and you’re watching the news next year and you see “median home price in Austin up 10%”, just know that this 10% does not apply to you. It will be much less.
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