Specifically, the real estate market has been experiencing some new highs and just a few indicators that the real estate market has been shifting. I decided to take a new approach to interpreting the data. I am including the Austin Board of Realtors entire Press Release here. I will be adding my thoughts and commentary in BOLD Italic…
I hear it constantly... "I can't afford to buy a house.", "I have to save for 2 years until I'm ready to buy.", "The prices are going up so much in Austin, I just have to keep renting.". These statements may be true or they may not be. You won't know until you talk to a lender.
As you know, the first step in the home buying process is to hire an exceptional real estate agent. You need a great team to help you though this process, and your agent is the Team Captain. Read more about the "Top Ten Interview Questions You Should Ask a Real Estate Agent" for guidance on what to ask when you are interviewing an agent.
Great, now that you have hired an amazing BIRDHOME agent, the next step is to talk to a lender. What is the one thing you want to find out in this meeting...how much house can I afford, right??!
First, let's prep. You will need a few documents to begin the loan process. If you are a salaried or hourly earning employee you will need:
- 2 Years of your most recent Tax Returns & W2's
- Your last 2 pay stubs
- Most recent past 2 months of bank statements - all of them! Checking, Savings, IRA, 401K, Stocks
- Address for your residence the past 2 years
- Past 2 years employers name and address
- Photo ID
If you are a self-employed borrower, you will need:
- 2 Years of your most recent Personal and Business Tax Returns
- Any 1099 forms for the last 2 years (if applicable)
- Most recent past 2 months of bank statements - all of them, personal and business! Checking, Savings, IRA, 401K, Stocks
- Address for your residence the past 2 years
- Photo ID
Based on this information, the lender will be able to determine the sales price that you are qualified for. More importantly, when you are financing a home, what we are really talking about is the monthly payment not the actual sales price. So lets talk numbers!
Below are examples of 5% down, 10% down, and 20% down on a 30-year fixed rate and 15-year fixed rate loan. These are estimates based on the median home value in Austin as of February 2017 at $330,000. The interest rates* were the current rates as of March 2017. We also assumed $7,500 yearly tax payment and $1,200 for homeowners insurance for the year.
*Rates change daily. I would like to take a moment to call your attention to the fact that interest rates have risen sharply since October of 2016 and are on the rise. With every tiny increase in interest rates, you are losing buying power because your monthly payments will increase but your total sales price will not.
Here is a quick comparioson of these different loan options:
Before we move on the the nitty gritty of each of the loans, I wanted to take a minute to talk about Keller Mortgage, who provided the loan estimates below. Keller Mortgage provides a new type of loan with no lender fees and $1,000 credit to closing costs available exclusively to buyers using a Keller Williams agent or a buyer who is buying a home from a Keller Williams agent. Here's a little bit of information from their website:
A new model allows us to deliver a new type of loan. When we say No Fees*, we mean it. No lender fees! Additionally, we credit $1000 toward 3rd party closing costs. Just use a Keller Williams agent and finance with us. We offer fantastic rates and a loan that lets you keep more of your money for something more important to you. (*Min loan amount – $150,000. Buyer must qualify for loan.)
Our No lender fee loan + $1000 credit is exclusive to KW transactions. Buyers must be working with a KW agent or submitting an offer on a KW listing. By working with a Keller Williams Realtor, buyer can save thousands upfront and sellers make their home more attractive to the market. If you are not working with a KW Realtor but are submitting an offer on a KW listed property, you are also eligible for this special deal.
When I first heard about Keller Mortgage, I didn't believe it. It sounded too good to be true, so when we decided to buy a house recently, we decided to give it a try. All I can say is "wow"! They walk the walk and talk the talk.
Below are the initial fees worksheets provided by Keller Mortgage for you to dive in deep with all the details on closing costs, how much cash you need at closing and monthly payment breakdown.
Ready to get started?! Here is a list of our most trusted lenders:
One of the things we love most about aligning our business with Keller Williams is the access to the education that they provide. Gary Keller and Jay Papasan wrote an amazing, best selling book called The ONE Thing.
In this book, Gary Keller has identified that behind every successful person is their ONE Thing. No matter how success is measured, personal or professional, only the ability to dismiss distractions and concentrate on your ONE Thing stands between you and your goals. The ONE Thing is about getting extraordinary results in every situation.
Our ONE Thing is helping you reach your real estate goals. We'd love to share a copy of this book with you, so you can discover your ONE Thing!
What a wild ride this has been! If you missed our last blog post, we are walking the walk of the talk we talk and purchasing an investment property that we will move into, fix up and pay off in 3 years. Just as a reminder, here is the timeline of our "Building Wealth Through Real Estate" adventure:
Tuesday, March 7th - We made an offer to the seller.
Sunday, March 12th - We executed the contract for the purchase of the house.
Thursday, March 16th - We attend the inspection and I saw the house for the first time.
Tuesday, March 21st - Pictures and Videography are taken for our current home, getting ready to go on the market.
Wednesday, March 22nd - We go live in the MLS and plan to host an Open House on Thursday evening, Saturday and Sunday afternoons.
Friday, March 24th - A buyer made us an offer we couldn't refuse and we signed off! Under contract!
One of my big ahas from the Keller Williams conference we attended in February was "If you want to impress people, talk about your accomplishments. If you want to influence people, talk about your mistakes." - Matt Townsend, The Art of Adding Value
So, let's talk about the biggest mistake we made when we decided to sell our house: WE DIDN'T HIRE A REALTOR TO HELP US!
What do you mean? This is what you do and you're consistently ranked in the top 5% of real estate professionals in Austin.
True, but there is so much more to it than just the process, marketing, communication, paperwork, prep, staging, negotiation, etc. - selling a house is emotional.
Home is the second most emotional word in the english language. Can you guess what the first is? (Click here to send me your guess and the first 5 to answer correctly get a prize!) Buyers buy homes, sellers sell houses, so from the very beginning when we sit down with a client to discuss selling, we begin the transition from home to house through our language.
I have always said that our #1 job is to manage emotions despite expectation and have such an incredible appreciation for what we do as real estate professionals, because you can't put a price on helping with the emotional side of a transaction. As a Realtor, we absorb all of the emotion in a transaction on behalf of our client so that they can focus on their daily life and making plans for their upcoming move.
If you notice in the video tour of our house above, I mentioned "home" and "favorite" and "love" more times than I care to count. Naturally, we take pride in the place where we live, laugh, love, entertain and create memories. There is an art to packaging and marketing a house as a commodity in order to get the highest value for the seller.
Moving forward, our goal is to never sell another home, but if we do you can bet that we will be interviewing real estate agents to list our house. Read our blog post on the "Top Ten Interview Questions You Should Ask a Real Estate Agent" for guidance on what to ask when you are interviewing an agent.
P.S. I think I found my first gray hair
When Patrick and I got married our net worth was negative over a hundred thousand dollars. Student loan debt, credit cards, unpaid taxes and million tiny poor decisions contributed to that. Fast forward to now, and we have powered our way almost back to zero debt, a positive number in our net worth with 2 fully paid off cars, 2 investment properties and a beautiful home.
Now it's time to walk the walk of the talk we talk. When we got married, we made a promise to each other that we would never have a car payment. Sure enough, shortly after we got married, we needed a new car. So, what did we do? We literally bought a grandma car. It was our friend’s grandmother’s 2001 Cadillac Catera that she had been given upon graduation from law school. We paid her and her huband $3000 cash for the car (her husband requested that to be in $100s so he could "make it rain") and Patrick drove it for 18 months.
Fast forward to today. We started our own business a little over a year ago and have a beautiful, amazing daughter. Things sure do change when you have kids, right? We have decided to embark on our next family promise - never having a mortgage payment ever again. What the what?!?
Total financial freedom can mean many things to many different people. For us, it means to never have to make a business decision based on our personal finances. It means unlimited opportunities for the future and leverage.
When your why is big enough, the how will come. Ok, so how? We are going to start by selling our house. We have had the amazing opportunity to purchase another investment property way under market value and have set a goal to pay it off in 3 years. 36 months. We will take the proceeds from the sale and use part to pay off our last remaining debt, part for the down payment and a small amount for paint, flooring and a few small updates.
The first home we purchased was in 2012 for $160,000 (current market value today is $275,00). We kept that home as a rental and moved to our current home at the end of 2014 which we paid $340,000 and will be putting on the marker for $429,000. In 2015, we had the opportunity to purchase another investment property in our neighborhood for $300,000 (current market value today is $400,000). We did a 1031 exchange with an investment property we owned up north for that purchase. It was one of those "right place at the right time" while walking the dog late one night. As you can see, all of these properties are within less than 2 miles.
At this point we owned 3 properties, but our 2 investment properties are just breaking even. We're in it for the long term, but we started flirting with an uneasy feeling of not having enough saved when inevitably something would go wrong. Let's not also forget that we took the leap to start our own real estate company at the end of 2015.
Our original plan was to move back into our first investment property - the one we moved from in 2014. We owed the least on that house, so it would be the easiest to pay off. One catch, we have a unicorn of a tenant. For anyone who owns investment properties, you know that it's worth doing whatever it takes to keep them.
Since forming and maintaining relationships in our old neighborhood, we have had a "coming soon listing" across the street on Kandy for 4 months. The seller has been trying to get the house ready to go on the market in that time. So, last Tuesday (3/7) I called Patrick and said "Let's make him an offer". It's a win-win. He doesn't have the hassle of going on the market and we get to have another future investment property. He said "Are you sure? Don't you want to see it?" to which I replied "No, it will distract from the goal." So we signed the paper work on Sunday (3/12) and then did our inspection and my first walk through on Thursday (3/16). I will be sharing full financial details once we are closed.
Here is a peek inside the house:
We are so excited to share this journey to debt freedom. Our hope is to set an example of making a sacrifice in the short term for long term future gains. Want to know more? We are so excited to share our message that we want to send you a free gift of the resources we used on this journey - The Total Money Makeover by Dave Ramsey & The Millionaire Real Estate Investor by Gary Keller.
PS: We're going to paint the front door pink!
Everyone wants to know what will happen with our amazing real estate market in 2017.
Many are asking about the slowdown in growth and fewer job openings reported in recent months. In all honesty, is it really feasible for one city continue to grow by 4% per year?
Others have asked about the National trends happening right now. With a change in direction in Washington and a slowdown in some real estate markets around the country, can Austin real estate continue going up in value?
Finally, there are some in Austin that are just ready for a breather. They are ready for our market to take a break and at least feel like they can afford to live here again. I understand this sentiment more than any of the others. One, because we have started to feel the economic pinch. And two, because the pace at which we have to work to keep up with the real estate market is intense.
Supply and Demand
There is only one factor that I have learned to pay attention to in real estate and it is very simple. Supply and Demand dictate what will happen more than any other economic indicator.
When the supply of homes is down… prices will go up.
When the supply of homes is up… prices will soften or go down.
Other factors can manipulate the market in some ways. Interest rates have started to go up slightly. A year ago they were around 3.5% for a 30 year fixed rate loan. Now that same loan is between 4-4.5%.
Schools, walkability, area amenities can drive local niches to be more in demand than others. For example, in Austin the St. Elmo Public market with condos, shopping, hotel, restaurants and office space is set to change the 78745 zip code in a big way. Home prices have been going up steadily in the area in line with the rest of the housing market. Look for a large spike to happen in the next few years as the area becomes more desirable for millennials and boomers alike.
The nitty gritty of our real estate market
As an overall market, the Central Texas 5 county MSA has about 6,300 homes actively for sale on the market. In the last 3 months, about 2300 homes have been selling per month. This is a 2.74 month’s supply of homes. Meaning, if we sold every home on the market and no new homes came on the market, it would take a little less than 3 months to run out of inventory.
As a quick guide, a seller’s market has 3 months or less of housing inventory, a balanced real estate market has around 4 to 6 months supply of homes and a buyer’s market has 7 months or more of inventory.
What is interesting about these numbers and somewhat deceiving is what this “inventory of homes” actually consists of.
Here are a few fun facts to noodle over:
Only 36% of this inventory is in the city limits of Austin. Of which, the average asking price is $750,000 and the median asking price is $460,000.
12.7% of the housing inventory are condos or townhomes. Condos are a little more affordable with an average asking price of $321,000 and median asking price of $258,000
An astonishing 38% of this inventory is new construction. ⅔ of which is not being built in Austin. As per my usual spiel… new homes are selling for a premium over resale homes.
Here is a little more interesting fact:
18.5% of the current housing inventory actively for sale on the market is price below the median price sales of $290,000. Median, meaning in the middle, would indicate that either 31.5% of the current active housing is over-priced. And/Or, a large portion of the properties above the median sales price are not going to sell at all.
Lets look at something a little more indicative of where the market is heading:
11.2% of the the housing inventory has been on the market for less than 2 weeks.
26.5% of the housing inventory has been sitting on the market longer than 2 months… which is when I start to see houses get stale on the market. I.e. Fewer showings, less interest, etc.
This is all relative, because the average days on market is currently sitting at 55 days, while the median days on market is 29.
Do you think Price doesn’t matter?
The average asking price of homes that HAVE NOT SOLD is $629,000. The median asking price of homes that HAVE NOT SOLD is $400,000.
The average asking price of homes that have sold is $382,000 and average sales price is $370,000. The median asking price is $300,000 with a median sales price of $292,000.
Again, these numbers are all relative… I’m not saying that the homes not selling are wildly out of line with the market. I am saying that the asking price matters more than a lot of sellers want to admit.
Lastly, I wanted to include a price band breakdown of what the market currently looks like. This is very much in line with the last several years of Austin’s growth… prime for our market to continue to go up, especially for homes under a million dollars.
It’s amazing how so many people want to hear that the real estate market is slowing down in Austin. The typical assailant to our market is the disgruntled buyer. This is a very short term thought process. Yes, affordability is a very real problem here. However, if you want the market to slow down for personal reasons, it will also be a short term payoff. If the market continues to grow and expand and---appreciate, it would be in everyone’s best interest for the market to continue going up in value.
Yes, there are pockets of our market that are experiencing a bubble and/or have a high supply of homes. Mainly, the upper end of the market has begun to experience a slow down and I still tend to think East Austin is experiencing a bit of a bubble.
For example, on the upper end. There is currently an inventory of 8.2 months supply of homes. Compared to market average of 2.3 months supply of homes, this represents a more balanced market headed towards a buyer’s market.
East Austin still has inventory that favors the seller--2.76 months of housing supply and prices are climbing to new highs every month. I don’t see this slowing anytime soon, I just see it being the first area in Austin to experience a major pricing correction if the overall market slows down.
Nationally… the finance guys on Wall Street are feeling bullish. When they feel confident that the economy will continue to expand, so should you.
If we look at Austin, outside the context of the national economy we are still experienceing record low housing inventory… it has certainly increased at the top of the market with over 13 months supply of homes over $1.5M and up.
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