Market Update Jan 23, 2024: Mortgage Rate Update, Institutional Investors & Margaritaville!

Mike Mills (00:00:08) - Hello out there. To all you home selling survivors. This is the Texas Real Estate and Finance Podcast market update for the week of January the 23rd. I'm your host, Mike Mills, a mortgage banker located right smack dab in the middle of the Dallas-Fort worth metroplex. And my team and I are, of course, here to help you and your clients with any of your home mortgage needs. So give me a call or shoot me a message if you have a problem that needs solving. But right now, we're diving into all the news this week in and around the world of real estate, 2024 is looking like we're off to a great start. Based on my conversation with agent partners and other lenders in the area, interest seems to really be picking up. The holidays are over, rates have started to decline, and the spring buying season is just around the corner. So buyers and sellers have started calling up the realtor that is the most top of mind, and having conversation on what it's going to take to buy or sell this year.

Mike Mills (00:00:53) - So your phone should be ringing a little more, especially if you've been marketing your butt off over the holidays. Now, just a quick reminder about our format to any new listeners out there. Each week I publish two episodes of the show. The first episode of the week is our market update, where I dive into recent headlines and stories impacting your business. Then on Thursday, we do a live episode that I publish every Friday on your favorite podcast platform with an expert in an area of real estate that you can listen to and apply to your business. My goal is to provide you with topics and discussions that can help you grow as an agent or real estate professional, and help you become your clients. Go to expert on all things real estate, so be sure to subscribe and tune in each week so you don't miss an episode. Now what are we talking about today? Well, Fannie Mae just revised its interest rate forecast for the year, so we'll see if that is good or bad for the market expectations.

Mike Mills (00:01:40) - As we go into 2024, we're going to dive into stats released last week about the ages of homebuyers. These days. You gotta know who's buying so you know who to gear your marketing efforts towards. I'll tell you about a $100 million resort and the development around it, so you can jump on the bandwagon a little early. And finally, I'll give you some insights into a group buying up more and more homes these days and what it could mean for the future of home prices for your buyers and sellers. Now let's start with every realtor and lenders favorite topic interest rates. So Fannie Mae revised their previous forecast from 2024 down last week. The government sponsored enterprise is projecting that rates will drop below 6% by the end of 2024, which will in turn boost refi volume and help thaw the existing home sales market. Quote, inflation's decline and the resulting fed pivot to signaling future rate cuts led us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023, and that gradual improvement is now underway.

Mike Mills (00:02:31) - We expect mortgage rates to dip below 6% by the year end of 2024, and for home builders to continue to add new supply, both of which should aid affordability. This is this is from Doug Duncan, Fannie Mae Senior Vice President and chief economist. They expect the annualized pace of existing homes to move up to 4.5 million units by the end of the fourth quarter of 2024, and that's up from 3.8 million in quarter four of 2023. But overall, Fannie Mae expects that the slowly normalizing existing homes market, as well as additional housing supply from the construction of new homes, will help keep further home price growth in check in 2024, because home prices are now expected to rise 3.2% over the coming year, compared to the 7.1% in 2023. So the hope here is that with more new homes coming to the market and sellers willing to look at moving now with rates coming off their 8% highs, the expectation is that the market's going to rebound slightly this year from the dismal 2023 that we had in sales. Now you just need to make sure that you're out there in your community being seen.

Mike Mills (00:03:30) - So when the time comes for that buyer or seller to make a move, you're the first person that they think of. So if you planned out your marketing strategy for the year yet because you want to be the agent who has a plan and is executing it each week, so you can take advantage of the market as it begins to shift. This is going to be crucial in 2024. Now, if your business has been down the last couple of months, I'm not sure if that's good or bad news, but you are not alone. So something called the Consumer Federation of America. I don't know where they come up with these names, but it sounds real American. They published a study recently showing that a significant number of agents in the US sell at most five homes in a year. Now, this study, it relies on examinations of agent sales from five major recent real estate firms in four geographic areas. Out of a sample of 2000 agents, 100 were selected randomly for each firm in the area. Now, this study's findings are far below the 12 sales per year for the median agent suggested by the National Association of Realtors annual member survey, which the study attributes to a sample bias for the survey.

Mike Mills (00:04:28) - See, they say successful in full time agents are more likely to respond to the survey than unsuccessful or part time agents. The study also concluded that the top 20% of agents are generally responsible for 80 to 90% of transactions. That's a lot. But the moral of the story, I guess, is don't beat yourself up if you're doing if you're not doing one transaction a month, because reality is is most agents aren't. Now, that doesn't mean that you should be satisfied with your performance, unless that makes you happy. After all, success in life isn't always about money. It's about generating enough income. Sometimes that can support the kind of life that you want to live. And just because you aren't on the leaderboard at the office doesn't mean that you. Aren't successful. But for those of you that are closing to 12 to 15 transactions a year where you're killing it, so keep up the great work. Now, with all the numbers rolling in to close out 2023, another trend that might be concerning for the younger generation of homebuyers, and possibly the future generations of homebuyers, is the fact that the first time homebuyers age are getting older and older on average.

Mike Mills (00:05:19) - In fact, since 1980, the median age of a first time homebuyer has increased from 29 years old to 35 years old. And for repeat homebuyers, it's even worse. See, the median age of a repeat homebuyer in 1980 was 36 years old. Today, the median age of a repeat homebuyer is 58 years old. In other words, first time homebuyers today are the same age that homeowners in the 1980s were buying or moving on to their second house. So why is this? Well, for one, household and family formations are now starting a little bit later in life. You know, some claim that Gen Z has more of a renter than owner mentality. But but I say it may seem that way, but only because it's crazy expensive to buy in many parts of the country right now. And most people don't care too terribly much about buying a house until they have people to take care for, otherwise known as a family. So if the family formations are later, then it would make sense for renting to be more prevalent in the next generation of millennials and Gen Z.

Mike Mills (00:06:11) - And also overall wealth is continuing to shift considerably into older and older demographics. Right now. For those under 40, wealth creation is basically remained stagnant for the last 20 years, while those over 50 have seen a substantial growth in their overall share of the money over the last 20 years. Inventory also continues to be an issue that affects affordability, and the boomers of the world right now prefer to continue living in their big homes and aging in place, rather than selling off and downsizing. I've personally experienced this in my neighborhood alone. My son goes to a junior high in Mansfield, Texas, and we share. We're pretty locked in on our boundaries and our our communities and country club community. What we've seen over the years, because my daughter was enrolled in there, she's a high school or she's a sophomore now, but when she was a seventh grader, the population overall of the school was much greater. But as we've seen just in four years, the amount of students enrolled in the school has shrunk because our community is is a country club community.

Mike Mills (00:07:02) - I don't live on the country club, but around the school it is and we're seeing more and more older families, or I should say older couples or older individuals stay in their home and not sell them. So we don't have an influx of new families coming into the area or into the neighborhood that replenish, you know, the elementary schools and the junior highs and the high schools. So as older people stay in their homes and don't move into either retirement communities or downsize, you're seeing this hold a lot of the market in place and still also affecting the affordability of homes. And unfortunately, it seems to be trending in the wrong direction for the next generation of homeowners. And I often wonder if my kids will be able to buy before they are 40 years old, especially if I'm not there or able to help them out. I hope and plan to be, but anyone that doesn't have parents able to help them might be renters forever. Not because they think it's cool or chic, but because they don't have any other choice.

Mike Mills (00:07:50) - And to prove my point about the inventory, the National Association of Realtors stated that in 2023, only about 4 million existing homes not new builds, but existing homes were sold in 2023, and that's the lowest level of existing home sales since 1995. Lisa Sturdevant, the chief economist at Brite MLS, said that slow home sales in 2023 were accompanied by higher mortgage rates, with the average rate on a 30 year fixed rate mortgage hitting a 23 year high in early November. But we can't blame high mortgage rates for the deficit in transactions this year. In reality, the demand for housing and homeownership in particular has remained high despite higher rates, she said. Prospective homebuyers have been shut out of the market by a lack of inventory. If there had been more listings on the market in 2023, we would have had a lot more home sales and as a consequence of this tight inventory situation, the median sales price for an existing home rose up to a record high of 389,820 23. In December, the median sales price was 382 600.

Mike Mills (00:08:51) - That's up 4.5% compared to a year ago, NAS chief economist said the latest month sales look to be the bottom before inevitably turning higher in the new year. He also said that mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear in the market in upcoming months. So as we're headed into 2024, there are 1 million existing home units on the market right now, representing a 3.2 month supply at its current sales pace. Now, compared to a month ago, housing inventory was down 11.5% at the end of December, but it was up 4.2% from the prior year. So it seems to be getting better, but not really fast, at a fast enough pace to ease the rising home prices. Now, new home sales have done really well, but only buoyed by significant incentives. But also with high prices, new homes can can seem like a nice option in a limited cash situation, but in most cases you're paying about 20% or more higher for that home compared to an existing home at the same square footage in a similar area.

Mike Mills (00:09:45) - The bottom line is we just need more houses and lower rates are having the market hope it'll allow for people to feel okay about selling their home, um, either down or upsizing in order to create more market turnover. But we're just going to have to wait and see what 2024 has in store for us now in goodness. Maybe the boomer generation might be enticed to sell their home and move here into North Texas, because it just announced that Margaritaville is coming to Lake Texoma. So the $100 million resort will anchor the $6 billion development of the Preston Harbor community on the shores of Lake Texoma. So plans for the Parrot Head town include creating a master plan development of the Preston Harbor area that would eventually have 7500 homes, including single family and active adult and apartments. The $100 million Margaritaville Resort, as well as retail, restaurants and an upscale Marina. So big dollars for Big Jimmy and his fans. Now another master planned development on Lake Texoma is unfolding, is unfolding about 35 miles north of Preston Harbor on the Oklahoma side of the lake, hard Rock international is teaming up with the Oklahoma City developer Pointe Vista Holding to build a hard Rock hotel and residence as part of a 2700 acre Point Vista master plan development.

Mike Mills (00:10:53) - Now, they expect a recently announced hard Rock Hotel at Lake Texoma to further enhance the area, but construction on the project is not scheduled to begin until March, with the hotel opening somewhere in mid 2026. And while the point this the development in Oklahoma includes casinos, they said that there are no immediate plans to advocate for gambling at the Margaritaville Lake Texoma project. But big hotels, Mavs selling and buying land tickets to a casino mogul, Cowboys partnering up with casino people. So I'm just saying casino magnets are buying land all over in Texas. No casinos yet, though. Hey, if you asked me, it's still just a matter of time. Gambling is coming to Texas, whether you like it or not, and I. My bet is is it's coming pretty soon. Way I look at it is you follow the money, and the money says you will be playing blackjack, sipping a skinny margarita by the end of 2025. At least that's my guess. Maybe 2026 if the hotel's not slated to open until then.

Mike Mills (00:11:46) - But we shall see now, in any situation these days, if you want to see where things are headed, the path is often very, very clear. You just have to follow the money. And from what I see when it comes to the future of home ownership, regardless of what the corporate media says about younger people preferring to rent and home ownership not being a priority of future generations, I can tell you who it is a priority for Blackstone, CoStar and other large Wall Street firms. I previously reported in one of my market updates that the percentage of homes owned by large institutional investors right now only make up about 3% on average in the current market. But right now here in Texas, it's actually closer to 20%. And it's growing. And not just here, it's growing everywhere. Last week, Blackstone acquired 40,000 homes as part of the purchase of Tricon Residential for $3.5 billion. Now, Tricon primarily provides single family rental, housing and rental developments in the United States and Canada, and there are many analysts predicting right now that institutions could control up to 40% of all rental properties by 2030.

Mike Mills (00:12:46) - Now, that doesn't mean all properties, just the properties that are rentals. Big corporations want renters, and they have the money and the influence over local and state governments to make it easier and easier for them to do this here in McKinney, Texas construction's already begun on a 300 unit, single family rental only community called Painted Tree. How lovely a painted tree that you can rent. In fact, last year builders started over 5200 single family rental communities in Dallas Fort Worth, not houses communities, according to the Dallas based Analyst Residential Strategy. These rental homes made up more than 10% of North Texas's single family home starts last year. In fact, DFW is the country's second fastest growing market for single family rental homes across the country, according to a new report by North Mark. More than 8000 new rental homes are in the development pipeline currently. And by the way, many of the existing communities where these things are being built are not happy about this. There were many who protested the approval of Painted Tree in McKinney back in 2021, but it passed with little obstruction from the city council or any of the local government.

Mike Mills (00:13:48) - You see, community members and homeowners do not have the same big pockets or donors as the developers of these master planned rental community. Congress attempted to pass a bill recently about institutional investors buying up too many residential properties and requiring them to sell a good portion of these homes if it was passed. And while this made for really good headlines for certain congressmen and senators trying to get reelected this year, thus far it's gone absolutely nowhere. But that's very similar to all types of bills that have been introduced to Congress over the years. For example, the ones that have been prohibiting members from Congress from actively trading stocks in industries that they're very likely to have insider knowledge on because they serve on certain committees. They got brought up, they got published in the headlines, they got debated in Congress, and then they just quietly went away. Just like this institutional home buyer bill will soon as well. Look, overall, this isn't something that's like a massive problem. There are a lot of homes and a lot of communities all over the country where these types of things don't happen, and big institutional investors don't own anything.

Mike Mills (00:14:44) - But more and more, they are gobbling up homes and companies that own a lot of homes because in their mind, renting is the way of the future. You see, right now you rent your music, you rent your movies, you rent your phone, basically. And more and more Americans these days are renting. Senior cars with leases, so why would they want to leave the largest expense many of us have in our daily lives out the place we live? You see the World Economic Forum and everyone's favorite super villain, Klaus Schwab. You don't know who he is. Look him up. Has already told us we won't own anything and we will be happy about it. I'm not telling you this to be a fear monger, or to tell you that your business is going to be gone in ten years. I am telling you this so that you'll tell your sellers to sell to the young couple and not the investor. I'm telling you this to tell your buyers to get a home while they can, because inventory is not getting better and big money players are helping drive up these costs.

Mike Mills (00:15:33) - I'm telling you this. So as an industry, we will continue to push back against the big money interests that want to take away the one path that the average American has to true financial freedom, which is homeownership. Our job is to educate and fight for our right and our kids rights to own a home one day. And look, they may not take away that right with laws and regulations, but they are slowly taking it away by simply pricing us out of the market and making renting seem like the cool way to live. Well guys, that's all for today. I hope you don't think I was too much of a Debbie Downer on that, but I'm just really passionate about this because I think, and I feel that people's path to wealth in this country has always been and started with homeownership. And the more we let big conglomerates in, big money and, you know, people hidden behind LLCs and corporate entities take away those homes and not build enough for that that are affordable for Americans, the more likely it is that we're going to see this dream slip away.

Mike Mills (00:16:27) - It's not going to happen today. It's not going to happen in five years. But if it stays on its current trajectory, it will happen. It's like the frog in the boiling water. We're slowly just allowing this to occur and eventually we have to do something about it. I appreciate everybody that stuck around to the end today. Um, you know, please share this with your friends and family. Share it with people in your network. In fact, coming up on Thursday, I've got a guest. If you're a real estate agent that you're going to need to hear. His name is Norman Kinsey. He runs a company called Lift-off Agent and their marketing strategies, and what they've done for agents all over the country to help grow and build their business is more than impressive. He's got a ton of strategies on how you can take your 2024 market and lift it to the next level, so you won't want to miss that one. Tune in on Thursday live and if you miss it, it'll be published on Friday on Apple and Spotify.

Mike Mills (00:17:16) - Hope everybody keeps selling out their be great humans. Keep grinding and we'll see you next week. Bye.