With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
Luxury Housing Market in 2017
The luxury housing market turned a corner in the past year or so, shaking off the long-term hangover of the Great Recession, and it appears to be set on a course of continued strength in 2017. Terry Story joins Steve to talk about the hows and whys of luxury real estate’s growth and prospects, among other topics.
Terry starts off by mentioning Freddie Mac and Fannie Mae’s recent easing of jumbo loan limits from $417K to $424K. Now potential buyers have a little more wiggle room when it comes to applying for a “conforming” jumbo mortgage. The importance of this move, Terry adds, is less about how many new agency mortgages might be underwritten— thanks to this increase in maximum home price—and more about the confidence it shows in an improving housing market. Instead of tightening credit and loan criteria the way they’ve generally done since the 2008 mortgage bust, the agencies are now easing up to accommodate more buyers and more properties.
Realistically, these changes are not moving housing markets and prices that much, though they will have a larger impact in particular locations. To understand what’s driving the demand for luxury properties, a much bigger factor is international investments. This story has become familiar for some time now—at least in certain markets like our own in South Florida—foreign buyers, especially from Latin America and China, are bringing enough cash to gobble luxury homes up front with no mortgage. What’s perhaps new now is that international buyers are looking at a broader swath of US cities, and they’re not just looking for “trophy properties”, but fairly priced homes with long-term growth potential that can offer both stability and a solid return on investment.
International Investors in US Luxury Housing
The US remains one of, if not, the most attractive market for many buyers thanks to at least a couple of main reasons. The fact that the dollar has been appreciating against other currencies means that US assets are getting more expensive for people whose wealth is held in a non-dollar currency. This, of course, lights a bigger fire under foreign investor’s feet. They feel a new urgency to get in as soon as possible and lock in the benefits of a dollar-denominated asset. The other factor is the relative instability and modest economic prognoses in Europe right now. There’s a lot of uncertainty in the air after the Brexit vote, and impending elections in several important European countries this year are contributing to investor nervousness. Despite these various forces driving foreign investment in US luxury homes, Terry expects prices to come down a bit in the ultra-high-end market simply because, at some point, too many would-be buyers are priced out.
Low Supply of Buildable Lots Leads to High Prices
Changing gears, Steve asks Terry about abandoned or half-finished properties that didn’t survive the big meltdown of 2008 that are now being bought up and redeveloped in large numbers. Terry believes this has to do with the drastically low number of buildable lots that are on the market, a supply problem that has jacked prices of lots up to historic highs nationwide. Buying, building, or renovating and flipping distressed or unfinished properties is obviously not a new phenomenon, even after the most recent housing bust, but it still has legs in some local markets. Even gated communities and subdivisions with abandoned lots and empty houses have seen this kind of activity.
Fair Housing Bans All Forms of Discrimination
For their final topic of today’s interview, Steve refers to a letter sent to the author of a real estate advice column of a local newspaper seeking advice about a fair housing violation. The scenario was that a broker in Florida received a demand letter from the Fair Housing Center of Texas in reference to a rental property the broker had listed which stipulated “no kids allowed”. The broker talked to the local listing agent and found out that the property owner—a good friend of the agent—had a pool which was not protected by a child-proof fence. He reasoned that he could take care of a potential liability by restricting renters to those without children. Terry explained that this was an open and shut case according to her understanding of federal fair housing regulations, which guard against all manner of discriminatory practices, including this one. She relates that she recently had a very similar case with one of her clients. The landlord did not want to rent the property to anyone with children because they didn’t want to build a child-proof fence around the pool. Terry’s read is that the law is very clear that this is illegal both from the advertising or listing language point of view. Moreover, she believes, the landlord has a responsibility to make their properties safe for children, and a child-proof pool fence is a rather inexpensive investment to make in furtherance of that goal
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 28-year veteran with Coldwell Banker located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me Steve.
Steve Pomeranz: Tell us about real estate today.
Terry Story: Today?
Steve Pomeranz: Today.
Terry Story: The real estate luxury market, it’s going to be flourishing for 2017. They’re basically very optimistic about this sector, the reason being …for one reason, new mortgages. A lot of mortgages, the government-owned mortgages that are owned by Fannie Mae and Freddie Mac; they will be providing backing for larger mortgages than they have in the past, so that’s good news. It used to be 417, they bumped it up to 424—not a big difference.
Steve Pomeranz: So, a conventional mortgage would have been 417 or less. A jumbo mortgage, which would be under kind of different order cheap hydrocodone criteria, would be over 417. Now that number is 424. It doesn’t seem like that big.
Terry Story: It doesn’t seem like much, but it’s also, if you think about it, the way that they’re projecting things. They see things more optimistically, so it’s not so much about the number that they raised it to, but their thinking along those lines.
Steve Pomeranz: Yeah. The economy is improving so they’re raising their standards a little bit or lowering their standards, I guess you can say, allowing people to borrow a little bit more money. What about foreign buyers? Do they have any influence on luxury real estate this year?
Terry Story: Absolutely. The internationals…they still want US luxury property and they’re expanding their horizons. They’re seeking out many different American areas, not only the luxury but the high-end properties in a lot of the metropolitan regions across the nation, so that’s all good. They’re looking for safe investments like any other homeowner would. They’re looking for long-term growth opportunities, affordable pricing, and getting their best return, so that’s all good.
Steve Pomeranz: I guess America is still considered the safe haven. With all of the political disruption let’s say going on in Europe, with the eurozone, questions about Brexit and other countries maybe leaving the euro zone and the destabilization that might bring attracts people to safe havens like the US. However, I will say that the dollar has really appreciated against currencies lie the euro, so it’s more expensive for these foreigners to buy properties over here.
Terry Story: That’s right. I think there’s a push right now because of that. They see their opportunity as the dollar rises, the opportunities are going to be more costly, so there is a little bit of a bump there. The ultra-luxury market, that’s actually going to be more affordable. What do I mean? It’s going to have a constant and steady growth, which is good, but we’re not going to see it just continue to grow because it’s just expensive. We’re going to see that market, maybe the prices come down a little bit.
Steve Pomeranz: You’re talking about the ultra-high?
Terry Story: Yeah, the ultra.
Steve Pomeranz: Yeah, we’re talking about $20,000,000 and $40,000,000 for an apartment in New York or something like that?
Terry Story: Actually, in the first part of this year in New York there were a lot of high-end properties that sold just in the first week, so that’s all good news.
Steve Pomeranz: Okay. All right. Another turn of the worm, so to speak, or coming out of this long recession that we seem to have been in since the great recession, is that a lot of these once abandoned projects that everybody saw on the side of the road as they were going by that went into bankruptcy after 2008 and so on, those are now starting to come back as well.
Terry Story: Yeah, that’s right. There’s such a low supply of lots available that are buildable, and the builders are going into these abandoned properties and, basically, what they’re doing is they’re buying them up and they’re revamping them. They’ll put in a different name so it doesn’t have the stigma of what it once was. That’s due just because there’s a low level of available lots. The median lot right now is at 45,000, which is actually at a record high. Again, I’m talking about across the country.
Steve Pomeranz: Yeah, yeah, yeah. Well, there was information about this subdivision known as Cameron Springs which was plagued with abandoned lots left behind in the 2000s. It was picked up by an investment firm. They bought the 101 remaining lots for 375,000. They spent $550,000 to finish the lots, to upgrade them. They put a pool in and a clubhouse, and then they sold it to D.R. Horton for $6,000,000.
Terry Story: I know.
Steve Pomeranz: Yeah, good deal.
Terry Story: I wish I had that foresight. Then they changed the name from Brightwood to Brightwood on the Lakes.
Steve Pomeranz: Yeah, wait a minute. Brightwood, established 2007, like yuck, to Brightwood on the Lake, established 2016, so they put some lipstick on it and renamed it.
Terry Story: Exactly. I wonder if they had mold issues like we have here?
Steve Pomeranz: All right, let’s talk about some other issues here. Let’s talk about some of my favorite stuff, which are questions that listeners and writers, people who write into local newspapers, ask of experts. Here’s one about a fair housing violation entitled “How Can That Be?” Here it is.
“Recently a broker in Florida received demand letter in the mail from a Fair Housing Center in Texas. The letter included a copy of one of the broker’s rental listings that included no kids in the public remarks. When the broker talked to the listing agent, she explained that the owner is a close friend and that the home’s pool does not have a child safety fence and it’s unsafe for children to live there. The broker, the agent, and the homeowner in this scenario are in violation of US Fair Housing Laws. What’s going on there?”
Terry Story: You know, Steve, that’s fine, because I had this same exact scenario happen to me two weeks ago. I put a property up for sale. There is a pool. They don’t have a child fence, and the landlord said to me, “I don’t want children in the property.” I told her … I said, “That’s against federal housing laws. We can’t discriminate against any race, creed, religion, national origin, handicap, familiar status, et cetera.”
She is an agent in New York, and she’s claiming that up there they’re allowed to, but maybe just in condos. I don’t know anything about that. As far as I know, you just cannot discriminate, no matter what. I understand their intention. It was to make sure that there could be no drownings. They didn’t want the liability, but if you have a swimming pool and you’re a landlord, it’s really your responsibility to make sure that you provide protection around the pool. Put up the child fence, it’s not that much money. It would be well worth it, but you absolutely cannot make statements like no kids. You can’t discriminate, and that’s the bottom line.
Steve Pomeranz: Yeah, but I think the other problem here was that they actually put it in writing in the margin of the agreement.
Terry Story: That’s right, and put it out there and advertised.
Steve Pomeranz: Exactly. Exactly.
Terry Story: That’s a serious no-no.
Steve Pomeranz: Yeah, I know. Right. My guest, as always, is Terry Story, a 28-year veteran with Coldwell Banker located in sunny Boca Raton, Florida. She can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.