With Terry Story, 30-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
Once again, 30-year Keller Williams veteran Terry Story offered thoughts on the real estate market.
Terry points to higher interest rates as the factor behind the decline in home sales during December 2018, adding that sales should look healthier in the coming months with interest rates coming back down. However, Terry added that December’s price increases marked the 82nd straight month of year-over-year increases. Steve noted that the slowdown in growth did not signal the degree that the slowdown would take or if it would lead into the negative.
Referencing the decrease in the 30-year conventional fixed-rate mortgage, from 4.64% in December from 4.87% in November, Terry said the percentage change altered the ability for many people to afford a house and that many buyers had begun maxing their loan to value ratios.
Are We In Another Bubble?
Citing a study by Florida Atlantic University, Steve noted that buyer demand was high even as the market was overheated, suggesting the market had not reached bubble conditions even as demand appeared to peak. The study rated the current real estate conditions as an index of 0.039, far below the almost one point given to the market conditions during the summer of 2006.
Steve and Terry discussed the trend of communities creating a neighborhood of single-family rental houses that share on-site amenities with management, similar to an apartment complex. Considering that comparison, Terry pondered whether the owner would try to convert the rentals to homes for sale in the same way an apartment might become a condominium.
What Cab You Do About Difficult Neighbors
Speaking of condos, Terry stated that an association had the ability to stop an owner’s plans for home renovations while a neighbor did not. If a neighbor one story above a condo wanted to replace carpet floors with laminate tiles, for example, an association could halt their plans while the annoyed neighbor living beneath them could not. When in doubt, consult the association; you never know what their rules will allow.
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 a Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 30-year veteran with Keller Williams, located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: So, after two consecutive months of increases, existing home sales, we’re not talking about prices, we’re talking about sales.
Terry Story: Yep.
Steve Pomeranz: Declined in the month of December. By the way, they weren’t the only thing that declined in the month of December. [LAUGH]
Terry Story: No, that’s right.
Steve Pomeranz: From what I understand, the stock market also declined. Maybe they were related.
Terry Story: [LAUGH]
Steve Pomeranz: What do you think?
Terry Story: Yeah, well, according to Lawrence Yun, he’s the National Association Realtor Chief Economist, he said it was due to the higher interest rates.
Steve Pomeranz: Oh.
Terry Story: So if you think about it, prior to December, the interest rates were higher.
Steve Pomeranz: Yeah, that’s true.
Terry Story: So by the time you close on the property which is anywhere from 45 to 60 days later, your sales, your closed transactions, are going to be less.
Steve Pomeranz: Right.
Terry Story: So I think that was really the driving force behind seeing that.
Steve Pomeranz: Yeah, because there’s this delay effect. Now interest rates have come down somewhat.
Terry Story: That’s correct.
Steve Pomeranz: So maybe based on this theory, there maybe-
Terry Story: October, November, September to October, they are higher I guess.
Steve Pomeranz: They’re higher and now they probably would create more sales,perhaps.
Terry Story: Right. And going forward we should see those numbers up higher again.
Steve Pomeranz: That’s right. Right.
Terry Story: Because the interest rates have come down.
Steve Pomeranz: So we’re talking about sales but the median existing-home price, for all housing types in December, was 253,600 up about 3% for the year.
Terry Story: Yep, and actually December’s price increase marks the 82nd straight month year-over-year increase.
Steve Pomeranz: All right, for real estate.
Terry Story: So yay.
Steve Pomeranz: Yay, that’s great.
Terry Story: Now interestingly enough, we’re still talking about increases.
Steve Pomeranz: Mm-hm.
Terry Story: But the rate of increase-
Steve Pomeranz: Yeah.
Terry Story: Is declining.
Steve Pomeranz: So that’s something-
Terry Story: It’s retracting.
Steve Pomeranz: Yeah, so you-
Terry Story: Not falling.
Steve Pomeranz: Right. Right, right, so a slower growth-
Terry Story: Slower growth.
Steve Pomeranz: In the rate of increase.
Terry Story: Correct.
Steve Pomeranz: Which is the signal of resistance to the growth path, right?
Terry Story: Right.
Steve Pomeranz: Of higher prices.
Terry Story: Right.
Steve Pomeranz: So it doesn’t say to what degree it’s going to continue to slow, and will it go to negative. But it is worthy to note that it is slowing.
Terry Story: Correct, correct.
Steve Pomeranz: Okay, well, makes kind of sense. All right, well, according to Freddie Mac, the average 30-year conventional fixed rate mortgage decreased to 4.64% in December from 4.87% in November. So that’s about a quarter of a point.
Terry Story: Right.
Steve Pomeranz: And that makes a big difference for a lot of people.
Terry Story: It does, just a quarter of a point amount. We had studied that. I don’t know, it was a thousand dollars, and it changed the trajectory of whether a person could buy a house or not.
Steve Pomeranz: Yeah, we also had percentages that said at four and a half, x number of people could afford a home. At four and three quarters, it knocked out a whole bunch of people.
Terry Story: Yeah, a crazy number, I don’t know, a million?
Steve Pomeranz: Yeah, yeah, yeah.
Terry Story: Big number.
Steve Pomeranz: So those numbers do matter because people are very focused in on what their monthly payment is and can they afford their monthly payment?
Terry Story: That’s right. And so many of the buyers today, Steve, I see are maxing their loan to value ratios. If the bank will lend them 38% of their gross monthly income, they’re pushing it. Or whatever that top number is, a lot of them are really pushing it all the way to the highest level.
Steve Pomeranz: Right. All right, well an FAU study, Florida Atlantic University which is in our neighborhood here, created a study that said that the market is overheated. But buyer demand is still high, and the point I think they’re making, one point anyway, is that we’re not really anywhere near bubble conditions. But demand has seemed to have peaked.
Terry Story: That’s right, it definitely has peaked. All the signs are there. We’re seeing the inventory levels rising, the demand is there, there’s no question about demand.
Steve Pomeranz: Right, but it’s supply-demand if there’s more supply than if it gets a little over-
Terry Story: The prices start to soften a little bit, and that’s what we’re seeing.
Steve Pomeranz: Right. Now, the professor who led this study has an index, and he’s really just trying to figure out where we are in the-
Terry Story: Big picture.
Steve Pomeranz: Spectrum.
Terry Story: Right, right.
Steve Pomeranz: So during the summer of 2006, his index had a score near one which is the highest possible score. Meaning, obviously, more bubble-like conditions. Today the score stands at 0.039.
Terry Story: Yeah.
Steve Pomeranz: That’s not 0.39, that’s 0.039.
Terry Story: That’s right, it’s very, very low.
Steve Pomeranz: So it’s low, okay, so everybody knows that.
Terry Story: Right.
Steve Pomeranz: Real state is not in the bubble.
Terry Story: Far from it.
Steve Pomeranz: Right.
Terry Story: No bubble, no bubble here.
Steve Pomeranz: [LAUGH] Okay. All right, also a new trend is this idea that investors, those who are backing these companies that are builders and so on, are starting to create by build-to-rent strategies. Tell us about that?
Terry Story: Yeah, so this build entire communities with single-family home rentals, so 150 to 250 homes in a small area. These communities would share amenities on-site with management, which would be similar to an apartment complex?
Steve Pomeranz: So people who want a home, and instead of-
Terry Story: Instead of being an apartment building, it’s a small, little neighborhood.
Steve Pomeranz: Right, right, and instead of going out and building a home, which has its own financial challenges and aspects to it, you’ve got a builder going, we’re going to build a home, but we’re not building it to sell, we’re building it to rent.
Terry Story: Right, and then-
Steve Pomeranz: It’s not a bad idea.
Terry Story: No, it’s not. And then eventually, when he feels the market is ripe, he’s going to turn around, and I’m guessing, sell them.
Steve Pomeranz: You think so?
Terry Story: Well, we’ve seen it done in condo conversions.
Steve Pomeranz: Well, what if I’m living there as a renter? [LAUGH]
Terry Story: Well, as the rentals expire, I mean we’ve seen apartment complexes go that way.
Steve Pomeranz: Yeah, that’s true. Yeah, that was at the top of the cycle though, remember that? Remember when rentals, they decided to turn everything into condos.
Terry Story: That’s right.
Steve Pomeranz: That was the absolute top of the cycle way back when-
Terry Story: 2005, 2006.
Steve Pomeranz: [LAUGH] Those poor people.
Terry Story: Oh what a year.
Steve Pomeranz: [LAUGH] Was that the year to remember, or the year to forget?
Terry Story: I think forget.
Steve Pomeranz: [LAUGH] So Terry, I have a question. I want to change the subject here. Because I saw this in the material you sent me. I thought it was really interesting. Here’s a question. This is from your Real Estate Survival Guide, condo question. Can a neighbor nix my flooring plans?
Terry Story: Ah-ha, not necessarily the neighbor, but the association can. So it really depends on what’s written in your documents.
Steve Pomeranz: So if someone lives above me and they have carpet, and I don’t hear their footsteps.
Terry Story: Pitter patter, pitter patter.
Steve Pomeranz: Yeah. [LAUGH] The high heels, or whatever.
Terry Story: Click, click, click.
Steve Pomeranz: [LAUGH] And they decide, hey, I want laminate floors or want some wooden floor. That person’s got to have-
Terry Story: Association approval.
Steve Pomeranz: Association’s going to say, yeah.
Terry Story: Right, so typically, if they require carpet, they’re probably going to require it to be replaced with carpet. But you really have to read to see what it says. Some documents, there is no alternative. But, generally, you might find that they’ve adopted new rules where you’re allowed a standard sound absorbent under laminate flooring.
Steve Pomeranz: Yeah. Yeah.
Terry Story: So really check with the association.
Steve Pomeranz: Check with the association. My guess is always, who always checks with her association, that didn’t make any sense, is Terry Story. Terry’s a 30-year veteran with Keller Williams, located in Boca Raton, Florida and can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve. [LAUGH]