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Starter Homes Set To Boost First Time Real Estate Sales

Terry Story, real estate

With Terry Story, 26-year Veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL

Luxury home sales have slowed down lately, so the gap in sales has been filled somewhat by lower priced new housing. For example, D.R. Horton in Florida, Texas, and the Carolinas is designing and building homes which are affordable for the younger first-time home buyer, a group that has in the past found new housing to be beyond their means. These homes range from a basic no-frills model to more up-scale, but still affordable levels.

The scale of homes is also seeing an increase, from an average of 2660 square feet, not too long ago, to 2720, according to the National Association of Builders. In addition, the average price of a new home today is $350,000, an increase of $100,000 since 2009, which is pretty remarkable.

Another current trend to note is the emphasis on playrooms as opposed to big yards, this being the obvious influence of millennials who are starting and raising families.

As for rising mortgage rates, Terry says, it will happen, but no one knows exactly when.

Not to be over-looked as affecting our current housing market is the fact that local communities, in order to not lose federal funds, must comply with affirmative action rules set by the U.S. Department of Housing and Urban Development, which can alter where affordable housing can be built.

Real estate agents are also concerned with the impact of erosion on beachfront property, especially here in Florida where so many houses and condos are seeing the water coming closer and closer. This issue, Terry emphasizes, is of great concern.

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.

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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 26-year veteran with Caldwell Banker located in Boca Raton. Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: We’re always talking about new home sales, selling of old homes, obviously older homes. And the baby boomers are always thinking about homes in the way that you kind of move up in homes, but one builder thinks that homes should be cheaper. What’s that all about?

Terry Story: Yeah. D.R Horton, (they’re one of the largest national home builders) they’ve launched a program where they’re going after the entry level. It’s called their Express. They’re offering homes from like $120,000 to $150,000. They’re going after that first-time home buyer, and they’ve been doing this in Florida, Texas, and in the Carolina areas; and they’re reporting that it’s very profitable to them. What they’re seeing is, there’s a slowing down in their luxury market with the homes.

In this particular case, that will be their Emerald models of homes but they’re going after that first-time home buyer. They think that’s where it’s at right now, and others will follow. That’s actually kind of good news, because first time home buyers never seem to get a break on getting the newer homes.

Steve Pomeranz: Well, D.R Horton has 3 brands. Their low-end homes are called Express, the mid-range D.R. Horton and the high-end homes are Emerald. It says here that the Express begins by offering no options, no frills. Does that come with a dishwasher?

Terry Story: Right, it’s kind of like buying a..it’s kind of like a standard car where you have to roll up the windows.

Steve Pomeranz: Oh, okay.

Terry Story: No bells and whistles.

Steve Pomeranz: I gotcha. I just wonder what constitutes a bell and whistle.

Terry Story: Maybe they give you a front door, a kitchen sink. I know, what else do you need? A microwave.

Steve Pomeranz: Oh, that’s nice. I hope so. Maybe a couple of toilets—I don’t know. Along with this, there’s word as well that home sizes are starting to expand again.

Terry Story: Yeah, you know what, we were talking about the McMansions and how they were making the homes smaller to be more efficient, more costly, and people were more concerned about that. Now it seems that they’re actually growing the houses again. On average, they went from 2660 square feet to 2720, so about 60 square feet larger, according to the National Association of Builders. That’s kind of interesting.

Steve Pomeranz: You know, it’s like the move from compact cars when the economy is bad, oil prices are high, to SUV’s. Now a lot of people are buying the bigger cars. It’s kind of a similar thing, I think.

Terry Story: Yeah, and do you realize the average new home sales is about $350,000? That’s up $100,000 since 2009. To me, that seems like a lot of a big increase.

Steve Pomeranz: Well, prices were pretty depressed back then.

Terry Story: Yeah.

Steve Pomeranz: Also big yards are out and playrooms are in. Won’t these kid’s ever go outside?

Terry Story: I know. Well, I guess apparently what they’re seeing, especially with the millennial buyers, they want everyone to have their own private space, and actually what they’re doing, which makes a lot of sense. We go into so many houses, Steve, and everybody’s got these formal dining rooms, and you eat in your formal dining room maybe two or three times a year.

Steve Pomeranz: Yeah.

Terry Story: They’re converting them to play areas, and they’re finding that the millennials, in particular, they still want a yard, but they don’t need an acre of land. They’ll compromise on a smaller yard, so that they have more area for each family member in the house.

Steve Pomeranz: What are some of the big real estate trends we’re seeing right now? I mean, what is on the realtor’s radar screen so to speak?

Terry Story: Sure. Well, the first issue is rising mortgage rates, and we’re expecting that to happen, gosh, how many years have we been saying that?

Steve Pomeranz: Yeah, and it’s definitely not happening.

Terry Story: We’re still waiting, expecting it to happen, and it will happen.

Steve Pomeranz: With the stock market being soft and that money rushing into 10-year treasuries, which is kind of the Bellwether against which mortgages are based. That’s down to 1.8% or so, the 10-year treasury. So mortgage rates have got to be inching down, not up.

Terry Story: Right, right.

Steve Pomeranz: What are the other trends that we’re seeing now in real estate?

Terry Story: The next one is called The Fair Housing Act and Affordability Crisis, which I was not familiar with, but apparently the U.S Department of Housing and Urban Development now requires local communities to affirmatively further equal housing opportunities. Communities are now at risk of losing Federal housing funds if they don’t comply. Basically what we’re looking at is this can alter where affordable housing is built and where households in need of such housing may move to within communities. That’s going to have an impact on the total market across the United States, and then, of course, we have in California, in particular, the drought impact. California, of course, is facing historic droughts, and that impact will be felt throughout the United States. For example, irrigation has become more problematic and costly. That affects food prices; it just goes down from the cost of almonds to artichokes to pistachios, raisins—all of that.

Steve Pomeranz: I guess the bigger, the bigger issue is whether this is some kind of permanent climate change,or this is just kind of a temporary manifestation of El Nino or something like that, nobody …

Terry Story: Right, and, unfortunately, we’re not going to know. Time will tell.

Steve Pomeranz: Right.

Terry Story: These are the…I’d say the things 2016…that real estate agents are talking about.

Steve Pomeranz: Now in Florida, you know, what is the talk about beachfront property and the erosion there?

Terry Story: How close to the ocean can you be before your house will fall into the ocean?

Steve Pomeranz: That’s a better way of putting the question, I would say, yeah.

Terry Story: Is it 100 yards? Is it a mile?

Steve Pomeranz: I mean really, is there talk? I mean there’s so many of these large condominium buildings right on the water there, and, you know, obviously there’s homes that are directly on the ocean, but is that a big issue at this point?

Terry Story: I mean you certainly hear about it, and there is concern. I know down in Miami, they’re spending millions and millions of dollars in infrastructure to try to … I mean you go down to Miami Beach, for example, and you can be driving on water from the ocean. It’s deteriorating your cars, the homes. There’s definitely issues. There’s articles that I’ve read that says, you know, “Parts of these areas aren’t going to exist in as little as 10 years,” and I’ve seen as 50 years.

Steve Pomeranz: Well, that’s what I’m asking. I see those same articles, and I wonder whether that’s actually starting to happen now, but your anecdotal story there kind of suggests perhaps, yes.

Terry Story: Time will tell. I mean you think of poor Venice, you know in Italy.

Steve Pomeranz: Well, they flood every year anyway.

Terry Story: Right, are we going to be like Venice?

Steve Pomeranz: Yeah.

Terry Story: I don’t know.

Steve Pomeranz: I don’t know.

Terry Story: I’ll leave it to the scientists.

Steve Pomeranz: Yeah.

Terry Story: I’ll just keep selling them.

Steve Pomeranz: Finally, except for the Chambers of Commerce and marketers, we may be the Venice of the United States, but not for the better reasons. Okay, my guest as always is Terry Story. Terry is with Caldwell Banker, located in Boca Raton, and she can be found at Terrystory.com. Thanks Terry.

Terry Story: Thanks for having me, Steve.