Who Should Be Buying a Home in Texas Right Now?

(0:03) All right, welcome back to the Beyond the Rate podcast. (0:05) Charlie and Will here going beyond the rate (0:07) to analyze news and market forces (0:10) that affect real estate and mortgage. (0:13) We, obviously next week is a big week.(0:16) Midterm elections, a lot of fallout from there. (0:18) We’ll get into more of how that shakes out next week. (0:23) This week, it’s been very, I guess you could say flat, (0:27) which is great.(0:28) We’ve had, you know, good little positive news (0:33) on the mortgage front. (0:35) Rates come down a little bit (0:36) and now they feel like they’re holding. (0:40) Federal Reserve met very, very neutral yesterday, (0:46) or not yesterday, right, Wednesday.(0:50) Holding the funds rate, still fighting inflation, (0:54) but all the data points look good. (0:55) So we’re not really surprised with any of that, right? (0:59) Yeah. (1:01) Yeah, the 10-year treasury is down under five (1:04) and it’s holding under five, so.(1:06) Yeah, yeah, that’s good. (1:08) It was up to 5.3 at one point just a couple weeks ago. (1:12) Yeah.(1:12) So that’s good for us, for our home buyers. (1:16) And the good thing is like, (1:17) maybe it feels like we did hit that peak of this cycle. (1:21) Let’s hope for that.(1:22) Mm-hmm. (1:24) Feeling like we are in a consistent positive mode, right? (1:33) We’re obviously not back where we wanna be, (1:35) but it is still very much a buyer’s market, (1:40) just about everybody, everywhere, sorry. (1:42) But especially pretty much here in all over Texas, (1:47) we are in very much a buyer’s market.(1:49) So, Will, you brought up a great point a couple of days ago. (1:56) This segment is, who should be buying right now, right? (2:01) Yeah, I think when I’ve had a couple of conversations (2:07) recently, just with some friends, (2:09) and they make comments like, (2:12) oh, what a terrible time to buy right now. (2:15) And that kind of, you know, it kind of struck me like, (2:19) wow, a lot of people probably are assuming (2:22) it’s a bad time to buy, (2:25) because they’re not looking at all this data (2:27) that we look at all the time.(2:28) They’re not seeing that weekly mortgage applications (2:31) are under 190,000, which is insanely low. (2:37) Means nobody’s out there buying houses, right? (2:40) So you have your pick, (2:42) and you can offer whatever you wanna offer, basically. (2:45) So, yeah, who should be buying right now? (2:50) So, give us the first one that you got.(2:52) First, the low hanging fruit, obviously, (2:56) is first-time homebuyers, right? (2:58) Like you, first-time homebuyer, (3:02) it’s, I’m sorry that you weren’t old enough, basically, (3:05) to purchase in 2020, but they have, (3:08) there’s no preconceived notions (3:10) of that market back then, right? (3:12) And the good thing about now, compared to that market, (3:14) you can actually get a good deal (3:16) on the acquisition of a home. (3:18) So, but yeah, first-time homebuyer, (3:20) don’t worry about where the rates are right now. (3:22) Focus on the house, you can get the house that you want.(3:26) You don’t have to overbid for the house, (3:28) like you did, had to do back then. (3:30) And we still build it out (3:33) based on what you want your budget to be, right? (3:35) And so we focus on that price range (3:38) of I want my monthly payment to be X amount, (3:41) and we reverse engineer to find you a price range (3:44) that you feel comfortable in, right? (3:46) And then if you can, (3:47) let’s say you’re pre-approved up to 300K, (3:51) but you can get a house discounted off (3:54) and get it at 280 or something, then great. (3:57) That’s like the opportunity that you need to look for (3:59) as a first-time buyer.(4:01) So, yeah. (4:04) What else, Will? (4:04) What’s another? (4:07) I think one that’s being overlooked right now (4:11) is the move-up buyer. (4:12) So, let’s take- (4:16) Do what? (4:17) What kind of move-up buyer? (4:20) The one moving from one home (4:22) into a bigger and better home.(4:25) Right. (4:26) They’re moving up. (4:27) Very good.(4:28) Okay, no, you’re right. (4:29) You’re right. (4:29) There’s a variety of move-up buyers.(4:32) Okay? (4:32) So, people that, (4:34) maybe they bought five, six, seven years ago, (4:36) so they got a great interest rate, (4:39) but they bought their starter home (4:40) or their first or second, third home, whatever it is. (4:44) Maybe they’re making more money now. (4:46) Maybe they got married, so now it’s a dual income.(4:51) There are a variety of reasons why you might be ready. (4:56) Maybe you got a kid or two now, so you need more space. (5:00) So, although your monthly payment, (5:03) let’s just say it’s $1,800 a month (5:07) because you bought in 2020 and whatever, (5:10) and your new payment’s gonna be twice that, (5:13) well, you’ve got a couple options.(5:15) You can maybe rent out the current house, (5:18) make a few hundred bucks on it. (5:19) All right, right. (5:20) Let’s say you can rent it for $2,400, make 600 bucks, (5:24) and you set aside some for maintenance and repairs, (5:27) but you’re still making three, $400 extra profit (5:30) on two properties now, (5:31) or now you’re getting your second property, (5:32) so that kind of balances out the higher interest rate (5:35) on the second property.(5:39) There’s a couple different ways that you can go about it, (5:41) but yeah, the move-up buyers. (5:44) Move-up buyers who have increased their income (5:53) since the previous purchase, like you said, right? (5:56) Maybe you got married, (5:56) so now it’s a two-income household, if you will. (6:02) And or, like you said, it’s just we’re bursting at the seams (6:06) because maybe there’s now a kid or two (6:09) that have joined the family, if you will, (6:12) and now we’re bursting at the seams.(6:15) I think that that’s a really good point (6:19) to refer back to our episode where we talked about (6:25) what it would take for rates to get to 5%. (6:29) Yeah, that’s a good point. (6:31) Because if you are in the position to move up, (6:34) because what we’re not talking about here (6:36) is people who currently have a house (6:37) that they’re very happy with, (6:40) that bought in 2020 or something, (6:42) and they have a 3% rate, (6:43) and they’re perfectly happy in their house, right? (6:47) Maybe they would, if the rates were still low, (6:49) they would move up, (6:50) but they’re perfectly happy in the house right now.(6:53) Those are not the ones we’re talking about. (6:54) We’re talking about the ones that, (6:57) yeah, I’m ready for another house, (6:59) we have more income, we have kids, we need more room. (7:04) This is where it’s important to be realistic with, (7:08) we’re currently in a more normal interest rate environment, (7:12) whereas 2020 and 2021 was a very, very abnormal (7:16) interest rate environment.(7:18) And if you really look at the factors that it would take (7:22) for rates to get down that low again, (7:24) it is very, very, very unlikely. (7:26) Yeah. (7:29) Plus, it’s not really a good thing (7:31) to have a global pandemic.(7:33) Yeah, good call. (7:35) Because that’s the reason why the rates were at so low. (7:38) That’s the reason, right, right.(7:40) But all the factors that it would take for rates (7:42) to even get down to 5% are still attainable, (7:48) but there’s a lot of work to be done. (7:50) So the last thing that you wanna do is wait the two, (7:53) three, four, or five years that it might take to get there. (7:58) Studies have shown that those who purchase now, (8:03) when they are ready, willing, and able, (8:05) are come out better in the long run (8:07) than people that wait two years.(8:10) Yeah. (8:11) Yeah, so that’s a good point, the move-up buyer. (8:15) I also say, this one kind of curtails off (8:20) of that a little bit.(8:20) I would say, and I love these kind of buyers, (8:23) or these kind of clients, really, (8:25) that the market-savvy clients, the buyers, (8:28) the people that are in tune. (8:30) When I am talking to a client for the first time (8:33) and they bring up the 10-year treasury yield, (8:36) I’m like, oh man, now you just opened up (8:40) the entire, the can of worms is open (8:43) and we are getting into it, you know? (8:44) So it’s, I would say that- (8:48) The buyers that recognize the opportunity. (8:51) Correct.(8:52) If they can recognize the opportunity, (8:54) then they wanna take advantage. (8:55) You’re right, that’s a good one, the savvy buyer. (9:00) They understand how the markets are moving.(9:03) They understand what the rate environment is, 100%, (9:06) but they see the deal they can get on the house, (9:11) like trying to get 5% to 10% discount on the house (9:14) on the acquisition of it. (9:16) And then I’m not saying, I’ve never said this, (9:21) I’ve never advised a client to maybe the house date the rate (9:24) because that was a completely awful strategy, (9:29) but the market-savvy buyer can purchase a house right now (9:33) with a comfortable payment, (9:35) the payment that they’re okay with. (9:38) And as we watch the market, (9:39) we realistically put a trigger on (9:43) if rates get down to this amount, (9:45) that is when we pull the trigger on a refi.(9:47) Yeah, but they’re not dependent on it. (9:51) Nope, nope. (9:52) They’re working that in to their acquisition cost (9:57) or acquisition price, basically.(10:00) Right. (10:00) Those are the types of buyers that use acquisition (10:04) and those types of words. (10:06) Yeah, exactly.(10:08) Yeah, yeah, yeah. (10:09) So- (10:09) I like that one. (10:11) Yeah, I love it when, yeah.(10:14) Those are the conversations that end up being like, (10:16) oh shoot, it’s been an hour that we’ve been talking about. (10:19) And it’s like, so by the way, let’s start the application. (10:26) But yeah, yeah.(10:27) So those are the ones that you really should, (10:29) if you can see all the angles and make a good plan, (10:32) then we want to go with that one. (10:35) Okay, dude, you mentioned one a second ago (10:37) that I forgot about completely. (10:40) That is a tremendous opportunity.(10:42) Well, let’s- (10:44) So the second home slash vacation home opportunity, (10:49) I mean, since we go down to Galveston all the time, (10:53) we pass by all these great neighborhoods (10:54) and a lot of people think low of Galveston, (10:57) but the people that are actually open (11:03) and want or willing about second homes, vacation homes, (11:09) I mean, this is an opportunity (11:11) because a lot of vacation spots, (11:14) a lot of those homes are basically businesses for people. (11:20) And if they can’t make money doing it as a business, (11:24) as a short-term rental, (11:25) you know, they’ve got to sell them. (11:28) So there are a lot more houses for sale.(11:31) Yeah. (11:31) Excuse me, in those neighborhoods, (11:33) in those areas than typical. (11:36) And I mean, I’ve gotten a couple of contracts, (11:39) I’ve done a couple of deals down in Galveston (11:41) and those were market savvy buyers (11:44) who went and looked at a bunch of houses (11:46) and decided on four or five (11:48) and then started making offers.(11:50) Right. (11:51) And so they’re recognizing the opportunity (11:53) and taking advantage. (11:54) So I think it’s a great opportunity.(11:58) If somebody wants a beach house or a bay house (12:02) down on the Texas coast, (12:04) it is an absolutely perfect time to go make some offers. (12:09) Right. (12:10) So, yeah.(12:11) I’ve noticed that too. (12:13) And again, like in this market, like you’ve said before, (12:19) any listings that are, (12:21) any houses that are listed right now, (12:23) those people have to sell. (12:25) Yeah.(12:26) And I would imagine that if you’re selling it, (12:30) I mean, shoot, even if it’s a new build (12:33) and it’s a builder that owns the lot (12:34) and has built the house, (12:36) I mean, those guys, (12:37) they may not be financially strapped (12:41) and have to sell right away, (12:42) but they don’t want that on their books, you know? (12:45) No, and a lot of those builders down on the coast too, (12:49) those aren’t high volume builders. (12:52) They’re not building a hundred homes a year (12:55) or maybe a hundred max, (12:58) but probably closer to 20 or 30, you know? (13:02) And so one home sitting for six months, (13:04) that ruins a lot of their cashflow. (13:06) So they, it’s a great opportunity.(13:08) I mean- (13:09) A hundred percent. (13:10) So you’re closer to, you know, (13:14) what the hill country and those types of vacations (13:17) slash second homes. (13:18) Right.(13:19) Right. (13:20) But I would think that the hill country type homes, (13:25) if you’re interested in obtaining a property, (13:30) you know, right? (13:30) And for the investment part of it, (13:32) maybe it could be a second home, (13:33) but also the investment part of it. (13:35) There’s a lot of hill country type homes (13:39) that perform well on Airbnb and whatnot.(13:44) Because it’s just like, (13:45) you just want to get out of town, right? (13:47) Yeah. (13:48) You want to come out in the country, (13:48) but I’m only an hour and a half. (13:50) It’s only an hour and a half drive or two hour drive.(13:52) You know, it’s something simple. (13:55) And you could probably find some (13:58) for relatively cheap as well, you know? (14:00) So those are all really great ideas (14:04) for who should be buying right now, (14:06) but Will, I have a problem. (14:11) What’s that problem? (14:12) Let’s say that I’m a move up buyer, (14:15) like you described, (14:18) but I have to sell my house first also.(14:21) And you said it’s a buyer’s market. (14:24) And now I have to be a seller also. (14:26) So what do I do there? (14:28) Yeah, that’s a great point.(14:31) So let’s just throw out a number. (14:34) Let’s say the house you’re selling is $300,000, right? (14:39) So you’ve got to take, let’s assume a 10% haircut. (14:43) So you only get 270 for that house (14:46) when you’d really prefer, you know, (14:49) obviously to get full value.(14:51) What you feel is full value, (14:52) but you got to take a 10% haircut. (14:54) The good thing is you’re moving up. (14:57) You’re going to get, hopefully, (14:59) on your five or $600,000 house that you’re moving up to, (15:03) you get that equal kind of 10% discount.(15:05) So it’s a net positive, you know, in value that you get. (15:11) You could also try running out your departing residence too, (15:15) and maybe push that, (15:18) push selling the house off a year or two or three. (15:22) And maybe you can capture a better, you know, (15:27) price for that in the future.(15:28) But the step up, you know, it’s a net positive (15:32) if you’re moving up. (15:33) It should be a net positive, yeah. (15:34) Even though you take a haircut on one, (15:37) you get the haircut on the next one, right? (15:38) Yeah, exactly.(15:39) Okay, that’s fair. (15:43) All right, so Charlie, (15:45) how about buyers who might be thinking (15:49) kind of along the same lines as what we’ve been saying (15:52) is that we might see some more stability (15:55) in the rates kind of easing down after the election. (15:59) So what do you say for buyers (16:01) who want to wait until that time? (16:06) I would say that it’s a understandable assumption (16:15) that you might want to wait for that time period.(16:19) I think that the first thing that I always say (16:23) is it’s easier to time the market (16:25) when you already own the house. (16:29) Because one thing that history has shown, (16:33) and we have the data now to show it, (16:35) is that every time rates get down to close to 6%, (16:41) mortgage applications spike. (16:44) And right now, and we’ve seen mortgage applications (16:46) go up into the upper 300,000s (16:48) to 400,000 applications per week.(16:51) Every time over the last three years (16:54) that rates have gotten close to 6%, (16:57) the average 30-year fixed rate. (16:59) Right now, this is the buying opportunity (17:02) that we’re talking about. (17:03) Right now, last week, (17:05) it was 188,000 applications last week.(17:09) So very, very low, extremely low. (17:13) And one of the lowest we’ve seen recently, (17:17) we saw 161,000 applications in fall of 2023 (17:21) when mortgage rates got to 7.7. (17:24) So the data is there to show us (17:27) that you acquire your property like you’re saying, (17:32) acquire it for that five to 10% discount, right? (17:35) For a good price that you can acquire the property for. (17:40) And then, instead of jumping into the market (17:43) when everybody else jumps into the market, (17:45) as you see here on this chart, (17:47) and if you’re listening, the chart is showing (17:48) that there will be double the number of active buyers (17:53) in the market if you wait for rates to come down to 6%.(17:56) Yep, yeah, that’s a good point. (17:59) So that is your competition (18:01) where now you gotta pay list price for the house. (18:04) Maybe there’s not seller concessions, right? (18:07) Yeah, no, you’re right.(18:10) And if the seller’s paying $8,000 towards closing cost. (18:16) Yeah, so that’s double, like you were saying. (18:18) So like the first thing is, (18:20) if this closing costs are $8,000 (18:22) and the seller’s now gonna pay for them (18:24) because there’s very few buyers in the market, (18:26) that’s $8,000 less out of your pocket.(18:29) Now, what are you saying about price? (18:31) What’s your argument with the price? (18:32) What I was gonna say is the price to refinance (18:36) is significantly less than the… (18:43) Acquisition. (18:44) Yeah, than what you can currently get (18:47) in seller concessions right now in terms of closing costs. (18:50) So if it’s $8,000, yeah, refinancing, (18:55) especially since we do a nice deal (18:57) for our clients who refinance, (19:00) it’s pretty much zero out of their pocket.(19:03) It is zero out of their pocket. (19:06) So the cost to refi is significantly lower (19:09) than what the potential lost opportunity would be (19:15) if you wait till rates get down to six. (19:17) Right, right.(19:18) And this is where the client (19:20) who’s asking this question right now, (19:22) we go through this data (19:24) and we turn you into a market savvy buyer. (19:27) Yeah. (19:27) Right? (19:28) Yep.(19:28) You may not be savvy in how the market works right now, (19:31) but if we look at all the data and make a plan, (19:35) then you do become market savvy. (19:37) And then we think, okay, (19:39) our reasonable floor is 6% for the rate. (19:41) Maybe if it’s really rallying (19:42) and we can get a little bit lower, fantastic.(19:44) But we make a plan to pull the trigger on that refi (19:48) when we hit our goal. (19:49) And now you realize your savings. (19:51) And then on top of that, (19:55) you building off of your point, (19:58) let’s say you got a house for 5% or 10% discount (20:02) when you purchased it, (20:03) but now the market is rallying (20:04) and you do a refinance.(20:06) And now the appraised value of your home (20:08) is still at the original list price, (20:13) but you got it for under the list price. (20:15) Or maybe it’s a little higher now (20:17) because the market is rallying. (20:19) Maybe now you put 5% down on your home, (20:22) but now you have 10 or 15.(20:24) Yeah. (20:24) Yeah, initially you put 5% down on your home, (20:26) but now you have 10% equity in the property. (20:28) Yeah.(20:28) On the refi. (20:29) So that’s better terms on your refi. (20:31) We’re closer to have more mortgage insurance go away.(20:34) And you’ve acquired your property for a lower price (20:37) because every $10,000 less that you borrow (20:40) is $60 less on the monthly payment. (20:43) So by understanding these market forces, (20:47) we can make a good plan, (20:50) but know that you are comfortable (20:54) at a 7% rate right now with that monthly payment, right? (20:58) So you’re ready, willing and able (20:59) at this current market price. (21:01) And we’re gonna take advantage of the benefits later.