Market Update Jan 16, 2023: Inventory Increases, Renting vs Buying & Best Listing Practices

Mike Mills (00:00:08) - Howdy. Howdy y'all.

Mike Mills (00:00:09) - You frosty freezing fair housing fans out there. Welcome to another exciting, hopefully episode of the Texas Real Estate and Finance Podcast. I'm your host, Mike Mills, a mortgage banker right here in the heart of the Dallas-Fort Worth Metroplex. And this is your real estate market update for the week of January the 16th. Now, for a new listeners out there, just a quick heads up. We release two episodes every week. Every Tuesday. You can count on our market update, just like today. And every Friday we bring you interviews with experts in various aspects of the real estate business. My day job revolves around helping clients secure their home loans as effortless as possible, while ensuring our referral partners thrive with our top notch service and industry leading marketing platform. However, this podcast is my side gig dedicated to keeping you in the loop about the world of real estate and equipping you with the tools and knowledge to become the go to resource for all things housing and real estate in the eyes of your buyers and your sellers.

Mike Mills (00:01:00) - I'm just here to share the knowledge that I've gathered from others, and serve as a valuable resource to assist you in growing your business, whether it be by helping your clients or sharing insights right here on the podcast. Now, today's episode is chock full of nuggets from all over the Texas housing market. First, I'm going to give you some quick hit current news from in and around the world of real estate. Then we're going to dive into the forever debate of what makes more sense renting versus buying a home. I've crunched the numbers and will arm you with the facts that you can share with your clients, who need a little extra nudge to get off the fence. Buying is almost always better, we know that, but I'll give you the data to back it up. And if you stick around to the end, we'll focus on a topic that's vital for all real estate agents. Best practices for listing a home. Whether you're a seasoned agent or just starting out in the industry, you're going to take something new away from this discussion.

Mike Mills (00:01:45) - We're going to cover the top seven strategies, from curb appeal to marketing strategies to help deliver the best results for your clients. But before we dive in, I want to take a moment to ask for your support. If you find value in hearing me ramble on each week about real estate, please do an old bald man a favor like subscribe and for extra credit, share this episode with your network. Your support is what keeps us going and helps us grow, and we're fast on our way to a thousand downloads a month, and every new listener we get gets us one step closer to that next level. And you guys are all the ones that make it happen. So every little bit helps, especially when it comes to that mysterious algorithm we're all trying to figure out to push this to the top of the charts. So like, subscribe and share. I really appreciate it. Now, before we dive into real estate, please forgive me for just a moment to cry about the loss of mine and America's team, the Dallas Cowboys, last night.

Mike Mills (00:02:28) - I really can't say that I'm shocked about what happened. I pretty much knew within the first 15 minutes of watching that game that it was not going to go our way, but damn, I don't know because of the situation being the number two seed at home and possible Super Bowl contenders and losing just like we did. Regardless of what the final score said, I think that that was one of the worst losses in Cowboys playoff history. Look, this game was mostly on the defense who had been underperforming the last few weeks. At the end of the season already, especially against the run. And they looked lost and out. Coached by a no name green Bay offense except for Matt LaFleur, who is a fantastic play caller. But here's the deal the NFL is a quarterback driven league, and as much as I love Dak Prescott, the man and the human being and the face of the franchise, I don't know that I'm in love with him as a quarterback who's going to lead us in times of adversity and figure out ways to snatch a win out of the hands of defeat because he wasn't good last night, either, regardless of what the numbers may say in the end, because most of those came at garbage time when green Bay had the game well in hand, which was pretty much over half a game.

Mike Mills (00:03:26) - And I think McCarthy is most likely gone from this. And we'll end up next year with either Bill Belichick or Jim Harbaugh. You know, we'll see what time will tell. And Jim Harbaugh from Michigan from anybody who doesn't know who that is. But we're still going to have Dak. He isn't going anywhere. He's got a big contract. And frankly it's not like Pat Mahomes is just grown on trees out there that we can go snatch up. But my problem is, is that he's just shown me too many times in big moments that he cannot get the job done. And it makes me sad, as a fan, to know that nothing in the regular season matters, because every time we get in the playoffs, the result is exactly the same. We haven't been to an NFC championship in over 20 years, so I'm going to go ahead and continue to wear my white and blue. But today, I am grateful that the Texas Rangers exist and that my inevitable disappointment is finally over. At least now I have a few extra hours on the weekend to work on the podcast.

Mike Mills (00:04:10) - Now the football season is over, at least for me. Go, Rangers! All right, let's move on to real estate. So let's start with housing inventory. So it's that time of year when you can start to expect to see some changes and upticks, which is good. The good news is that our housing inventory has shown some growth, which is typical for this time of the year. So for the week of January 5th through January 12th, we saw an increase of from 499,000 homes to 505,000 homes in active listing. And to put that in perspective a little bit, last year, during the same week, the inventory rose from 471,000 to 473,000. So that was only a 2000 home up uptick. But here's where it gets a little interesting. The lowest point for inventory in 2022 was 240,000 homes. But in 2023, it reached its peak at a whopping 569,000 homes. So when the market was a little depressed at that point, listings had risen quite a bit. But. A lot of those listings included new builds that weren't fully complete.

Mike Mills (00:05:02) - But just for context, back in 2015, active listings for this week were a staggering 931,000. So we're not even close to that number. And that was during a pretty balanced housing market between buyers and sellers, which is why we still say we're very much in a seller's market. Now, the good news for buyers is housing inventory did grow. But the bad news is, is that the number of price cuts fell, which is also expected at this time of year. So far, we've only seen 32% of homes have price cuts in the first couple of weeks of 2024, compared to 36% in 2023. At the same time. And in 2022, we only saw 21% of homes cut their price for the first few weeks of the year. So although it's still better than it was in 2022, the trend is headed in the wrong direction, at least for buyers. Because remember, when rates go down, prices go up. So earlier this week, Kevin Sears was named the new president of the National Association of Realtors.

Mike Mills (00:05:49) - Sears became Na's third president in just over four months on Monday, following Tracy Casper's resignation after being blackmailed, Kevin brings a wealth of experience, having held various local and national positions with Nar, and the consensus is pretty overwhelmingly positive about this choice. However, I must admit that is not a job that I would personally want. And speaking of an R, they've also requested a new trial similar to some of the corporate brokerage recent Sister Burnette lawsuit. You see, Nar claims that the plaintiff's case had several legal defects and that Na's participation rule does not restrain trade. Also in the briefing request, Nar denied conspiring with any of the other defendants in the case. This continues to be a complex legal situation that could have profound implications on our business, and it's still very much in the air as to how it's all going to play out. But we'll be keeping a close eye on it and we'll let you know of any additional updates in the case. Also last week, the Bitcoin Spot ETF was finally approved by the SEC, and although they allowed the new trading instrument to be approved, they very much stopped short of endorsing Bitcoin as a safe investment vehicle.

Mike Mills (00:06:47) - And while Bitcoin spiked up during the week leading up to the expected approval, trading as high as $49,000 at one point its highest level of the year. Over the weekend, it fell back down to some of the lowest trading levels of the month, around 42,000, and it's showing signs of possibly continuing to fall. Look, I'm personally a big believer in Bitcoin, Ethereum and crypto in the long term, but this year may have more drops in store. But only time is going to tell. On the global inflation front, oil prices have seen a lot of turbulence surging back up to $75 a barrel this week. The spike follows the recent US and UK strikes in Yemen against the Houthis, who've been causing disruptions in one of the world's most critical trade routes in the Red sea. What's concerning about the situation is that the strikes that have been put on by the Houthis are suspected to be backed by Iran, adding even more turmoil to an already incredibly volatile region of the globe. And with the Ukraine Russia conflict seemingly in our country's rearview mirror, it appears we have another international crisis to deal with.

Mike Mills (00:07:39) - And by the way, this is never a good sign for rising costs and inflation, especially as it relates to energy prices. So keep an eye out at the pump. And finally, on the US inflation front, a topic weighing on everyone's mind and bank account these days, the CPI inflation report came in hotter than market expectations last week, jump into 3.4% in December. Both core CPI and headline CPI came in hotter than than expectations, and this is the first time since February of 2023 that both readings were higher than expected. And for the first time since September of 2023, CPI inflation is back on the rise. See, inflation is coming down overall, but affordability is still getting worse than many segments of the market. If you look over the last 12 months, car insurance inflation is up 20%, transportation is up 10%, car repair is up 7%, rent is up 6.5%. We'll get to that later. Homeowners inflation, which is just like the cost of owning your home essentially, whether it be repairs or things that you have to do around the house is up 6%, hospital services is up 5.5%, and food away from home is up 5.5%.

Mike Mills (00:08:36) - Restaurants, groceries, etc. and because of all this, markets are now heavily predicting the possibility of rate cuts as early as March. And what's crazy is that the overall markets are now pricing in not just 1 or 2 rate cuts, as the fed stated they planned on doing, but a whopping 6 in 2024, which is double what the fed is telling us they plan on doing. So there don't appear to be any rate cuts on the horizon at the Fed's next meeting, which happens at the end of this month in January. But the upcoming meeting is going to be crucial based on what the fed is saying, on what's going to happen for the following meeting that's going to happen in March. Interest rates, good or bad, is what drives our economy and everyone is starting to feel the pinch. So we're going to see what the fed hasn't planned to ease some of this pain for everyday American citizens. Good news though Zillow issues an upward revision in their home price forecast for 2024, Zillow expects US home prices to rise 3.5% between December of 2023 and December of 2020 for its previous 12 month outlook was that it was going to stay flat.

Mike Mills (00:09:26) - So prices are continuing to rise and the best time to buy is still yesterday. Bad news, though, is that the National Bureau of Economic Research reported that 14% of the 2.7 trillion commercial real estate loan market and 44% of office loans, currently carry outstanding loan balances higher than property values and are at risk of immediate default. So commercial real estate is still really feeling the squeeze, and right now there is no relief in sight. We have to keep an eye on that one. But what isn't tight and supply these days are apartments. The number of apartments available on the market is expected to highest level. Ever since 1974. This year this was reported by RealPage, who, by the way, is the company that owns the largest property management software platform in the country, whose customers include small investors and the big boys of Wall Street. And if you go back about ten episodes on one of my market updates, I didn't entire segment about how real page is trying to fix rent prices across the country right now.

Mike Mills (00:10:20) - And recently, the Wall Street Journal published an article called The Rise of Forever Renters, highlighting the idea that more and more people, because of affordability, are choosing to rent and never buy. They cite cost, mobility and lifestyle as reasons why they claim it's chic to rent. It is a little ironic that the newspaper representing the wealthiest sector of our country is telling you renting is good and cool now because all the kids are doing it. Which brings me to my main topic of today's podcast. What's cheaper? Or for that matter, a better decision these days in a historically unaffordable housing market, renting or buying. So on the surface, renting is less expensive right now. There's no doubt about it, because there are more rental units available and the cost is coming down due to oversupply. But as with all things in the market, this will be short lived. As a matter of fact, corporate owners of these apartments and multifamily properties often elect to leave a property vacant for a period of time rather than taking less renting, because in the long game, it's a better move to hold the rent higher and leave other properties vacant.

Mike Mills (00:11:14) - And when you have enough capital to weather the storm like the big boys do in most cases, in the long run they're going to end up in a better spot because rents overall will continue to go up. But when you look at more than just the monthly expense of the rent payment versus the mortgage payment, the difference is pretty stark. So let's take this scenario. You buy a house for $350,000, which is currently the median home price in Texas, and I did it at about 7% interest rate, just to be fair. But rates are lower than that right now, and it's expected to continue even lower as the year progresses. So I did it as a conventional loan, with 5% down about 2.3% in the tax rate and around $250 a month in homeowner's insurance, which, crazy enough, is maybe a little bit cheap. So the most real situation I could give you. So in that scenario for your mortgage, your payment would be about $3,300 a month. Now, rent on that same property in this area is going for about $2,800 a month on a new contract.

Mike Mills (00:11:59) - So as it stands right now, it's $500 more a month to buy than rent. Now we're going to look at this over a nine year scale, because right now that's about the average life of a mortgage. The the forecasted home appreciation right now for 2024 is about 2% per year going forward. And by the way, this assumes that rates stay high and we don't have another surge in buying. Because if rates fall, then appreciation is going to tick back up even more. In fact, we saw over 50% appreciation in most markets over just the last five years. So this isn't even close to that now at 2% appreciation over nine years, your home would be worth about $405,000 after the nine year period. So that's $55,000 you get in wealth creation just for living in and owning your home. Now, if you pay $500 less in rent every month and do the math over the over that same nine years, that's about $54,000 more you're paying in a mortgage than you are in rent over that same period of time.

Mike Mills (00:12:49) - So we just about break even, right? Hold on a second. That's assuming that your rent never goes up. And unfortunately, like I said earlier, rent has been going up at about 6% per year on average for the last several years. So in nine years that rent is likely to be somewhere around $4,500 a month at its current pace. But your mortgage is still going to be right around $3,400 a month, with slight increases for taxes and insurance. Possibly, but not if you know a guy and I do. So shoot me a message and I'll tell you how to keep your taxes and your insurance a little bit lower than you might expect. Now, again, this is assuming that rates that you never refinanced your loan below 7% too. So in that case, your actual cost to rent would be about $15,000 more over that same nine year period, because your rent increases and your mortgage stays static for the most part. And if you refinanced your loan to save 5% in a year or so, when rates drop, then you would see almost a $60,000 benefit in buying versus renting just for the payment.

Mike Mills (00:13:44) - But let's just stay with what we know and not what we don't. So as it is, you're about $15,000 to the positive in renting versus buying compared to the payment alone over nine years. Plus you're picking up $55,000 in equity. So over nine years being conservative, the buyer is getting about $70,000 in the win column for owning versus renting. And all this during the least affordable time in history to own a home. And oh, by the way, that figure doesn't include tax deduction benefits or any additional market growth in appreciation or refinancing of rates. So not only does the math make obvious sense, but I also really think that you'd be hard pressed to find many people who've ever owned a home for any significant amount of time, but that still would be happy to go back to being forever renters. So regardless of what the corporate owned media might be telling you based on those numbers, it still is a no brainer to own instead of rent, because the math don't lie. And oh by the way, the people buying all the properties right now, they want you to rent.

Mike Mills (00:14:37) - It's a better business model for the likes of Real Page and Wall Street and those who already own everything already. And as Klaus Schwab of the World Economic Forum told us last year, you will own nothing and you will like it. So congratulations! Your life is a subscription model that taps into your bank account on a monthly basis, and mind your habits and data online to control you without you even knowing. They don't want you to have personal wealth and grow your nest egg. They want your monthly payments, and renting is just the next and biggest step to that goal. All right, now that you are armed with the data to help you show your buyers why buying is still the best option. Let's try to help those sellers because it takes two to tango. So when you're entrusted with someone's property, whether they're repeat clients or first time sellers, they all want the same thing the most money for their home in the shortest amount of time, with the least amount of hassle and stress. So how can you deliver on all those expectations? Well, here are seven easy ways to make your listing sell as soon as possible, at least according to Housing Wire number one curb appeal and Foyer look buyers make their initial judgments based on these two areas.

Mike Mills (00:15:35) - Ensure that your landscaping is on point and consider giving the front door a welcoming touch in the foyer. Aim for a bright, spacious feel by decluttering and creating an inviting atmosphere. Look, my wife bought every single home we've owned in the last 20 years. The moment we pulled in the driveway for the first time, she knew it was the one, and she also didn't buy all the others for the exact same reason. Number two furniture and floor plan. Remove any excess furniture to ensure a logical floor plan that's easy to navigate. See, buyers should be able to envision themselves in the space, and when you have too much furniture that can make it really, really difficult, let them imagine what they could do with the space, but they have to see the whole space to be able to do that. Number three pets and odors have a plan for the pets because not everybody loves them, regardless of what my wife may tell you. And also allergies for people, stepping into your home can be a real concern if you have cat dander, dogs, anything of that nature.

Mike Mills (00:16:25) - So eliminate any unpleasant odors because they can be a real deal breaker. Nobody wants to walk into your house and smell your German Shepherd. You can invest in an air ionizer to refresh the space between showings, and Febreeze is everybody's friend, so keep a ton of it handy in your car, because you never know when a nasty smell is going to come up. Number four pre inspection and repairs. If you're a regular listener of the podcast you know that we talk about this one quite a bit in many different areas of home ownership. Get the home inspected ahead of time and address any issues that could hinder the deal later on. Because if a buyer gets that 30 page report, that's the inspection that we all know is coming and they're not used to seeing something like that. It could be a real deal breaker for stuff that could be very minor. This includes stuff like Hvac, plumbing, electrical, and especially the roof. Because if you offer a copy of an inspection report that you already paid for and the receipts for the recent repairs, that might even still be on there, you can instill the confidence in the potential buyers that you're an open book and very transparent to what's happening in the house.

Mike Mills (00:17:19) - Number five is also something we discussed on the podcast recently, which is professional photos and descriptive listings. You want to create an amazing home brochure and website with great photography and descriptions for the house. And please, please hire a professional. They are well worth the cost in today's market. The listing description should be compelling and descriptive, not just generic terms like an open, airy floor plan. You can use tools like ChatGPT especially to help you generate these if you don't consider yourself to be a mark Twain knockoff. Number six know the competition. Preview the competition before listing your property. Make sure your pricing is competitive and consider what incentives are are being offered by other listings in the area. You want to be the first one in the neighborhood to get shown to the buyers looking. And if your pricing is right and you incentivize in the description, this is going to go a long way to make sure that that happens. Finally, number seven repairs and overall presentation of the home. Take care of all the scuffs and smudges and minor repairs you can that are very low cost.

Mike Mills (00:18:11) - A fresh coat of paint can do wonders, and that Mister Clean Magic Eraser can be your best friend for a quick stain and smudge fix inside the home, check out your exterior, including the backyard and the porches, and repair anything that may come up during the inspection to make the outdoor areas more and more inviting. Don't forget that curb appeal was number one on the list. In the exterior is your first impression, so you gotta make it a great one. All right, there you have it, folks. That's your real estate market update for the week. I trust you gathered some valuable additions to your real estate toolkit, and I look forward to having you back with us next Tuesday for more insights and updates. But before we part ways, mark your calendars for this Thursday when we go live, or join me again here on Friday for a special treat. Our guests going to be Aaron Van Trojan, the founder and CEO of Geneva Financial. He's bringing his big old brain to share with us right here on the podcast.

Mike Mills (00:18:57) - Now, Geneva Financial was not only voted the sixth best mortgage company to work for in the country last year, but has also consistently ranked in the top ten for a remarkable ten years running. And that's precisely why I joined the team. Aaron's going to delve into his insights for the 2024 housing market, provide invaluable advice for realtors to prepare for the year ahead, and reveal the keys to success, which propelled Geneva Financial to the forefront of the industry while maintaining an unwavering commitment to exceptional service. You are not going to want to miss this one. Until then, be good humans, keep on grinding and we'll see you next week.