Regularly I hear about the need for fewer chain stores and restaurants and having more mom & pop local shops. People will call or email asking, “why don’t we have …….”
Our cities are starving for great PLACES!
Sure we have wonderful housing. We have our major grocery stores and restaurants. But we’re all craving that 3rd place in our lives outside of the home or office. We want that place to meet with friends on a weekend to listen to live music or play games. We crave a safe place to just walk around and people watch. We desire iconic places to just sit and relax and enjoy being outside. We want to walk into a store where we know the shop owner and they know us. We’d prefer to eat at a unique local place where the owners’ kids go to school with ours than another chain restaurant. And it’d be great if we could get to those places without needing to get in our car, but just walk up the road.
Here’s the reality. Developers, banks, and builders of today do not build things that typically make great places for our communities. They do not build buildings where a mom & pop store can afford the rent. They do not design places conducive to gathering people together. They certainly are not focused on iconic architecture or passive public spaces. They don’t care what type of vehicular traffic their project makes on the adjacent infrastructure. They are focused on building projects that sell quickly, maximize the monthly building rent, and can be sold and traded as an investment vehicle.
They care about the financial benefits of real estate they own. They do not truly care about how their building or project can be a benefit to the community. They aren’t thinking of how they can integrate into the fabric of the existing neighborhood or create enhanced value for everyone else nearby. They certainly aren’t thinking about how a small local business can open up shop and survive the first few challenging years of owning a new business. They’d prefer a chain or corporate tenant that has the financial backing for a 10+ year lease.
And on paper, all of that makes sense. If you’re taking the financial risk to build a building as an investment, you’re going to make all of the practical choices you need in order to maximize that investment and give you the best and highest possible rate of return for your money.
But that is in contradiction to what you and I, the people that live in these communities, desire. We want those great neighborhoods. We want those great and iconic places. We want a variety of housing types and options for our neighborhoods. We want places within walking distance of our homes. So why don’t we just build them ourselves? We care more about our communities than any major chain or national developer ever will. We know what our cities need more than anyone else does. We know the types of dessert shops, restaurants, diners, music venues, boutiques, homes, and office places that could thrive in our town because we know the people in our town. So maybe we should be the ones that are taking on the building and development in our own neighborhoods and opening the businesses we know will succeed. Maybe in the process we can be the ones that make great places and also see the financial benefits rather than leaving it up to the chain stores and national developers. We should be the ones to build something great.
Example of a Cottage Court with shared open space.
She looked up at me with tears almost filling her eyes and simply asked, “but what about people like me?
I was speaking at an event for young leaders in our community sharing about some of the great work we’ve been doing to bring new employment opportunities, lowering property taxes, bringing in new entertainment venues, improving infrastructure, and providing a variety of housing options across the community.
During the Q&A portion, this young woman in her mid-20’s, single, college educated, employed as an advanced academics teacher in our school district, she wanted to know what efforts or options may someday exist for people like her to actually own real estate within close proximity to where she works and does all of her shopping.
Her question was essentially a statement saying, “I’m good enough to work in this community. I’m good enough to educate the minds of children in this community. I’m certainly good enough to spend sales tax dollars in this community. But I’m not good enough to actually live in this community.” And while teachers across the country are notoriously underpaid for the work they do and the educational attainment levels we expect of them, the starting salaries for teachers in our local school district are significantly higher than every adjacent school district. In fact, this young woman’s salary as a 1st year teacher in our school district of $63,000 is 16% higher than the $54,080 median salary for all Americans between the age of 25-34 according to the most recent Census data.
But she still lives at home with her parents.
Because in my community, the lowest priced home that sold in 2023 was a 2 bedroom/1 bathroom mobile home in need of serious updates and repairs cost $150,000. The lowest priced site built home was a 2 bedroom/2 bathroom home that’s 60 years old with no flooring or appliances and sold for $175,000. The down payment and closing cost requirements, if qualifying for special first time homebuyer programs available, are roughly $8,000-$10,000. The monthly 30 year mortgage payment (including taxes, insurance, and PMI) for such a home is around $1,800/month.
The Federal Department of Housing and Urban Development uses the 30% Rule as a guide to assess home affordability – stating that “a household should spend no more than 30% of its income on housing costs.” With a $63,000 annual income and gross monthly income of $5,250 for this young woman, HUD says her maximum housing costs should be $1,575/month. If she were able to buy the absolute of least expensive homes in our community in 2023, putting the bare minimum cash down, and not make any repairs or updates to the home and just live there in as-is condition, her monthly housing costs would be 34% of her income and by definition qualify as “housing burdened.” Of course this doesn’t consider the inevitable replacement costs of mechanical systems within the home in the future.
To continue the story a little further, $5,250/month is her gross monthly income. There’s still the required pension contributions, federal income taxes (which are higher because she doesn’t have a mortgage interest or property tax deduction), and dental, vision, and health insurance contributions. Her net monthly paycheck is $3,455. She carries no credit card debt and drives a paid off 6 year old vehicle. She does have outstanding student loans that went back into repayment last Fall when the Covid-19 relief payment pause ended. Those payments are $385/month, which is about $125/month less than the national average among her peers.
Were she to buy the absolute least expensive home in our community, after mortgage and student loan payments, she would have roughly $1,270/month for food, clothing, fuel for her car, vehicle maintenance, electricity, water, internet, cell phone, and any entertainment. That doesn’t leave much room to save for when her car inevitably needs replaced or when the water heater or air conditioner break and need repairs. That doesn’t leave room to payoff student loans more aggressively or to invest over and above her pension contributions and doesn’t even consider that she’s a person of faith wanting to tithe 10% of her income to her local church.
So this professional educated teacher working hard within our community earning an above average income for her age and earning more than her peers in surrounding school districts….. still lives at home with her parents.
What about rental options so she could have her own space and sense of independence and start out life on her own as a young adult? Of the 450 leased homes in the North Texas MLS system from 2023, the median home rented in our City was a 4 bed/2 bath home at 1,920 square feet renting for $2,395/month. In fact, out of the 450 home leases signed in 2023, only 15 of those homes were under the $1,575/month range that Housing and Urban Development would recommend to be in line with the 30% rule. 8 of those 15 were actually inside of 1 privately owned apartment building.
What about an apartment? A quick search online shows that the lowest priced apartment in my city is a 1 bed/1 bath for $1,190/month.
We found a winner! For this young professional that works in our community to also live on her own in our community, her available option for her own independence, her own space, and to start life as an adult is in one of the few 1 bedroom apartments that exist in the city. Which is certainly okay and how the vast majority of us also all started out as adults. At this price, she is not rent burdened by HUD standards, but after rent, utilities, student loan payments, and general life necessities it will take her 3-5 years of saving to come up with the bare minimum of down payment options in order to purchase the cheapest of homes nearby – assuming home prices don’t appreciate any more than they already have during that time period. She will most likely be in her 30’s before homeownership will even be a consideration for her. And on her professional teaching salary, even when she reaches that level she’ll likely be considered by HUD as “housing burdened” in her monthly housing expenses.
So she has chosen, for now, to live at home and help her parents pay for food and utilities while she aggressively pays off student loans and builds a savings account for a down payment – and (in her words) “find some rich guy that makes more money than me and can actually afford a house.”
You may think to yourself, particularly if you don’t live in Texas, why not live farther away outside of the city where housing costs are less and commute to work? We are the farther away! This is a suburban community on the Southern edge of the Dallas-Fort Worth Metroplex. In order for the housing price/rent price story to get substantially better and within this young woman’s – and frankly every middle income and low income worker within the whole area – range, you must get more than 30 miles away in any direction. There is no viable public transportation here that connects communities with one another and certainly not out into the suburbs and suburban sprawl communities. You trade housing affordability for 20,000 additional wear and tear miles on a vehicle each year, 2-3 hours a day in a car stuck in traffic, and $3.50/gallon gas that ultimately costs you more than it would paying for rent to live closer to work.
It is no secret. We have a housing crisis. An entire generation is being left behind, unable to enter thriving adulthood and independence. And scarier yet, is an entire majority income demographic in America is beginning to be shut out from being able to live in a place of their own, whether they rent or own. Our teachers, nurses, police officers, firefighters – all of the people we call “Heroes” (particularly if they’re under 30 years old or didn’t already own real estate prior to the last 5-10 years) they are being wholly shut out of communities. But it’s not just them. Restaurant workers, custodial staff, school bus drivers, retail employees including mid and upper level managers, and virtually everyone that earns less than $100,000 in household income are rapidly becoming housing burdened with limited options. If you don’t already own real estate – your future looks scary and overwhelming. And that’s why this young woman looked at me with tears in her eyes. She recognizes the reality she’s faced with.
If you are good enough to work in this community, you are good enough to live here too. That shouldn’t be some earth shattering commentary. The majority of decent humans likely believe that sentiment.
But as you’ve seen, the one viable housing option available today to people like this young teacher that contributes greatly to our community – is a 1 bedroom/1 bathroom apartment that takes up about 23% of her gross monthly income. And, I’m certain that it’s the same in your city as it is in mine, the online forums and public discussions overwhelming express their disproval of any apartment building construction. Community discussions tend to vehemently oppose any residential zoning that is not single family zoning – and even then they don’t want too many of those new homes because of the potential impacts to traffic on the streets and or the checkout line at the grocery store.
To the young woman I met this week and everyone like her, there are solutions and there is hope! And leaders across the nation are beginning to wake up to these possibilities.
Cities – both mine here in Texas and yours in your own community – must unlock the entire book of housing options and let developers, builders, and property owners get to work to drastically increase the supply of those housing options in our communities. Today, in the vast majority of American cities, your options for where you live are either a detached single family home or a large apartment complex. Not everyone wants or needs a single family detached home. Certainly not everyone needs a large lot and large square footage single family detached home. But low maintenance cottage courts with common spaces are a low cost housing option that hasn’t been built anywhere in decades. Manor homes, that look like 1 home but are actually 4 housing units, give an alternate rental option for young adults besides large apartment complexes. Townhomes and Row-homes give ownership opportunities at a significantly lower cost for those seeking low maintenance housing. Accessory Dwelling Units allow young adults to have their independence while giving the property owner a potential new way to make some extra money. ADU’s also allow an older generation to retain their independence while selling their single family home to a new generation of homeowners. Duplexes allow families to own the property where they live while renting out the attached housing unit at an affordable rate and helping to pay down the mortgage. Converting existing underutilized commercial centers into condo units unlocks an entire new housing option and reclaims vacant property. Allowing a coffee shop owner to live in a studio apartment above their shop, or an insurance agent to live in the same place as their office is another option that seldom exists in 2024. We don’t just have to have single family detached homes or massive apartment complexes for homes. There are a large variety of housing options. And if we can unlock them in our communities, these young adults and mid-income workers will finally have a pathway to homes that don’t make them housing burdened and they can move out of their parents home and into thriving productive adulthood.
Because if they’re good enough to work here… if they’re good enough to educate our kids… if they’re good enough to serve in our hospitals… if they’re good enough to spend their sales tax dollars here…. then they are certainly good enough to live here too.
It’s unlikely you live under a rock, so you probably know that we’re in a hot real estate market. Well, maybe because of the real estate market and current home prices you are actually living under a rock! Home values increased around 17% in 2021 and we are expecting similar market appreciation in 2022.
While it has left many home buyers frustrated and increasingly disappointed, this is not the time to be giving up on the real estate market. Whether you’re a first time buyer just looking to get into your first home, an upgrade buyer looking for somewhere to settle down for the next few decades, or you’re ready for a lifestyle change completely, the market is providing you with some really amazing opportunities if you’re patient enough to jump in.
Here’s just a few reasons you should buy a new home in this market:
Fixed monthly budget:
If you don’t currently own a home, you’re most likely renting. Rental rates nationwide increased over 15% in 2021 and are on track to exceed that in 2022. Landlords, especially in the Texas market, are raising rents to offset increasing tax and insurance bills, but also to be competitive with the increased home pricing, labor, and repair bills. It is safe to assume that if you have $1,500/month rent today in 2022, that your rent will be $1,725/month in 2023, and $1,985/month in 2024. Unless your income rises at a similar pace, your housing costs in future years will continue to take up more and more of your available income. This limits your ability for discretionary spending as well as the potential to save and invest for the future.
Purchasing a home in today’s market locks in your monthly housing expense in your monthly budget permanently. If you know your income will rise in the coming years, locking in your long term monthly housing expenses today gives you greater ability for discretionary spending, saving, and investing into the future.
But what if you already own a home? Why should now be the time you jump into the market and buy that “forever home?”
Home Value Appreciation:
There are a dozen different items we could point to that are fueling this home value appreciation we’ve seen over the past few years, and especially the past 24 months. The “why” behind what’s happening isn’t nearly as important as the fact that it is happening and is going to continue at least for a few more years into the future. Real estate in Texas has a historical appreciation rate of 3% annually over the long term, even when factoring in market collapses like the 2009 housing crisis. Over the past 5 years or so we’re averaging 7% appreciation and over the past 2 years we are well over 12% appreciation.
So your $300,000 house today will likely sell for $335,000-$345,000 12 months from now. But that also means a $500,000 house today will likely sell for $560,000-$575,000 12 months from now. That’s what we saw happen in 2020 and we saw it again happen in 2021. If you’re not in the home you want to see your family in the long term, it is only getting more expensive the longer you wait. You can lock in your long term monthly housing costs at today’s rates and values and still have the benefit of long term home value appreciation.
Interest Rate Changes:
We had a really weird season right after Covid broke out in March 2020 where 30 year mortgage rates plummeted below 3% for the first time. While we’re not in those days anymore, mortgage rates are still at historic lows in the 4%-4.5% range as of this writing. With inflationary concerns impacting the markets today, it is anticipated to see interest rates climb throughout 2022 and be in the 5%-5.5% range by this time next year.
What’s that mean for you? On a $450,000 loan that’s a long term difference of $267/month for 30 years. It’s a $96,000 cost of interest difference between buying a home now and waiting as interest rates rise, in addition to whatever the cost of the home actually appreciates.
Equity Opportunities:
If you own a home today, it is likely you have substantial equity in your home. While it is impossible to time the “top of the market” this is a great time to sell your home to cash out that equity and put it to work in other areas of your financial life. You likely don’t need all of that equity to be put into your new home. You can instead use some of it for the down payment on your next home, and use the rest to pay off consumer debts, boost your emergency account, and look for other investment opportunities to grow your wealth even further.
Some of our clients this past year have used their equity to purchase their dream forever home, become debt free, and use the rest as the down payment on rental property where they can earn more cash flow each month and enjoy the financial benefits of owning multiple real estate properties. There are a ton of equity and wealth building opportunities this market has provided.
Next Steps:
These of course are just a few of the basic reasons you should buy a home in this market. Your unique circumstance may include some other reasons too. If you’re considering a move in 2022, you should reach out to your Realtor to discuss what options are available to you and develop a strategy to make it happen.
We have several options for home buyers and home sellers to make the process convenient and the moving process seamless. We can help juggle the intricacies of selling your home in order to buy another home, find the perfect next place, and even arrange interim housing if necessary. Learn more about our team and how we can help you here.
When home inventory is limited like it is right now across the country it can become frustrating for everyone. Homebuyers obviously struggle to find a home they’d like to purchase and struggle even more against competing offers to actually be able to purchase a home. But even home sellers face some frustrating challenges.
What if your family has outgrown your “starter home” and it’s time to buy a new place with some more space? And you can’t compete because all of your equity is tied up into your current home and there are dozens of other buyers in your same market with the same challenges competing for the one or two homes that have come on the market? That of course leaves your starter home unlisted on the market and unavailable for the next owner. It’s a compounding issue that’s difficult to resolve.
The solution often is purchasing a new construction home.
New construction homes can provide homebuyers with more flexibility, certainty, and favorability than trying to compete in the open real estate market for already existing homes. The great news is that in a market like this current one, home builders are building homes as fast as they can. We have a ton of new construction home options and more on the way.
But purchasing a new construction home does come with some challenges and you need real estate professionals representing you and your interests in the transaction. Why?
Representation:
For starters, as nice as your new construction salesperson is going to be to you, they represent the builder and the builder only. They’re not going to volunteer information that is not required. They’re not going to help you navigate upgrade options, contract terms, incentive programs, or anything that is not beneficial to the builder. They aren’t going to care too much if they’re delayed or off schedule. They aren’t going to advise you about what a typical contract looks like or voluntarily make terms favorable to you. They do not represent you. You are on your own. If you know homes and real estate and purchase transactions and do them often, that may be fine. If not, you need an agent on your team.
Home builders include in their pricing the cost of real estate commissions. You don’t get a better price by purchasing a new construction home without using a Realtor. Home builders typically enjoy having a real estate professional involved in the transaction because it helps them coordinate the transaction, make the process more smooth, gives them someone to communicate with that speaks a common language, and is understanding of the construction process. Builders like for you to have representation and that’s why they pay a real estate brokerage fee.
Relationships:
Home builders have taken the time to strategically form relationships with lenders, title companies, and attorneys that will all pay affiliate fees, kickbacks, and marketing agreements. In some cases the home builder even owns the title company or the mortgage company. Your agent not only has relationships with multiple lenders, title companies, and attorneys, but they also know the programs and customary charges associated with those services. They can make sure you’re getting the best deals available from these ancillary services and that you are being served well. In addition, your real estate professional will have relationships with other home builders and know of all the new construction opportunities that are available to you, not just what that one home builder may have available.
Floor plan, lot, design selections, and cost savings:
In addition to their fiduciary duties in representation your Realtor can advise you of options available to you when choosing your floor plan, lot, and design features. When you meet with a builders representative, they have the options available to them and them only. Your Realtor may know of another neighborhood directly adjacent that better meets your needs with lot sizes or home types that more match what you’re looking for. Your real estate agent may be able to advise on future resale value and desirability of your choices throughout the build process to make sure you are making wise decisions and investments.
Your agent can also advise on areas where you can install an upgraded option or have better design selections by going outside of the homebuilders standard choices. They’ll help you from overbuilding/overdesigning and also help you focus your upgrade dollars in the areas that will make the biggest impact on your future home.
Contract to close:
If you’re unfamiliar with real estate contracts and terms, this is where having an agent on your team really helps. The builder’s salesperson isn’t going to be looking out for your best interests when it comes to contract dates and deadlines. Making sure you meet the contingencies and deadlines in your contract is your agent’s job. Coordinating with the lender and title company to make sure you get to the closing table on time with all of the needed documents is a key part of your agent’s job. And ensuring you know about all of the options available to you from lenders to title policies to surveys and more are all part of an agent’s fiduciary duties to you.
Construction Process and checkpoints:
A great real estate agent will be checking in on your project jobsite regularly and providing you with updates. They’ll attend your pre-construction meeting with detailed notes to make sure everything that you have requested for your new home is on the builders radar. They’ll walk the home weekly to make sure your wishes are actually being installed in the house and raising red flags along the way as things get missed. Having an agent on your team during the construction process ensures you have an advocate that does the fighting for you so that you can stand on the side and know your interests are being addressed. When you have concerns, they’ll communicate directly with the builder on your behalf and make sure that all of your concerns are taken care of along the way. And if they think something is being done incorrectly, they’ll get professionals involved early in the process. The vast majority of the time, construction goes on without many issues. But in the rare instance that construction doesn’t go as planned or there are issues, having an agent on your team is an invaluable part of the process to make sure your best interests are protected, that your money is protected, and ultimately that you get the home you want at the end.
Closing, follow up, and warranty:
Having an agent make sure you get keys, move in, and that everything is as you expected is putting someone in your corner to represent you. As things settle and you get moved into your new home, there will come times for warranty requests and repairs that need addressed. An agent can help you navigate warranty claims and know what you should request.
Ultimately, the builder is an expert at building homes and has a team of professionals, attorneys, architects, engineers, sales people, title companies, and lenders that are all on their team and representing them and their best interests. The home builders are willing to pay your real estate agents commission on new construction. You need a Realtor on your team protecting you and making sure that your new home construction experience goes smoothly and reaches the finish line the way you intend.
