2018 Key Dynamics in our Local Real Estate Market
Changes in the Tax Code: The implications of these changes and all the ways this will affect real estate sales and purchases is not entirely clear. Our CPA and tax attorney affiliates are working toward a fuller understanding, and we at Stanberry are encouraging our clients to take steps to consult their financial and tax advisors to see how these changes might affect them individually. The reform package caps mortgage interest deductions for primary and secondary residences at $750,000 (down from $1 million today) while capping state and local tax deductions (SALT) at $10,000 (there’s no cap at present), according to language in the new law. We will be watching this closely, educating ourselves, and touching base with clients to encourage them to check into how this factors into their own unique situations.
Affordability will continue to be a challenge: Cost of land, development, and building materials are continuing to go up. Builders here are doing a pretty good job of offering “entry level” homes, but “drive ‘til you qualify” is the rule for proximity to Austin. An increase in mortgage rates adds to the challenge, and for resale homes, healthy appreciation has been a boon for sellers, but not for buyers. Our annual appreciation has increased an average of 5.9% per year for the last ten years. It’s good because it’s based on a healthy economic environment, but it means home prices have gone up an average of almost 60% in the last decade. It appears that this rate is slowing down; not decreasing, but flattening a bit.
Migration to our area: Tax reform is a big question mark, but for those disadvantaged, an income tax-free state may appear very attractive. We will continue to see immigration from states with a high cost of living, burdensome income tax rates and harsh weather in favor of states with a lower cost of living, no state income tax, and milder climates.
Redevelopment: With available land in prime areas at a premium or practically non-existent, look for developers and builders to continue to find more creative ways to redevelop the property with old and outdated living structures in favor of newer and more functional living and workspaces.
This helps open up an inventory of homes closer in to Austin but does not easily address the affordability challenge.
Natural disasters and the real estate market: Several things to watch here. Living through such incidents can make even the most seasoned of residents question their decision to continue to live in these areas — risk versus reward — so in Central Texas, we could see people from California or Texas coastal (hurricane prone) areas, or the weather extremes in the northeastern US. There will be lots of focus on disclosure of property damage, flooding, and risk. The cost and availability of insurance in Texas will be affected, and we don’t know how much yet.
Resale Renovation pressure: For many resale homes to compete with new or redeveloped homes, substantially renovating to sell may become the standard and not the exception, especially on higher-end properties. The bar has been raised, and real estate TV shows contribute to that, for resale homes to offer “model home like quality” on both the inside and outside. Buyers will be less willing to pay top dollar for homes that have not been kept up, that have lipstick-on-a-pig renovations or that have outdated floor plans — unless they are a bargain.
Micro markets: Our local market will continue to be defined by micro markets. Every street and subdivision is different. Even two neighborhoods with similar homes a few miles apart from each other may tell quite a different story when it comes to market activity and sales statistics.
To really understand the market dynamics, buyers and sellers need to focus on what’s transpired in their backyard and price accordingly, and it’s imperative to have a knowledgeable real estate professional to provide fine-tuned hyperlocal information.