While picking wild blackberries, I often reflect on the likelihood that early settlers most certainly did the same . . . and of course centuries of native people before them. Not only do those thoughts somehow create some unexplainable bond with those who came before me, I am also reminded of the immense history of the land . . . all land, for that matter. We truly are just passing through and are just momentary stewards of the land in a tiny spec of time.

     When I was boy, I always wondered where is the Indian Country? they often referred to in cowboy movies.  Certainly, it was not Snyder, Texas where I grew up . . . or so I thought. Since most of the westerns were filmed in Utah, it is no wonder I was confused. The movie sets did not remotely resemble West Texas where I lived.  It was many years before I came to realize that I had grown up in the heart of Camanche country – between their winter home of Palo Duro Canyon and their summer campsite of the Big Spring (now known as Big Spring, Texas). So, I ask, have you given much thought to the history of your area?

     Local Texas history has always fascinated me.  We have so many modern-day links to the past that we are unaware of.  One of my friends is a Hornsby, of Hornsby Bend on the Colorado River east of Austin.  He farmed the original family homestead and will someday be laid to rest in the famous Hornsby Cemetery. The Hornsbys, a fearless clan by reputation, settled much further west than any of the rest of the original Austin Colony. Their stories, and there are many, are fully intertwined with the early creation of Austin, Texas.

     Another interesting piece of history is now recognized by a TXDoT sign, although some locals have known about it for years.  For William B Travis’s ultimate sacrifice at the Alamo, his two sons were awarded a league of land (4,428.4 acres) that lies south of our modern day Ranch Road 150 and east of Driftwood. An adjoining neighbor told me many years ago that while his own portion of the creek had many large cypress trees, the Travis tract did not.  As history has noted, Travis left his family in dire financial straits. According to the neighbor, Travis’ sons had to sell off the cypress trees for lumber to settle family debts.

     Closer to home, for me anyway, is the history of Gotier’s Trace. Perhaps you have seen the Bastrop County Road that bears this name, or the Texas Historical Marker at the entrance to Bastrop State Park. With no way to venture into the wild frontier that was granted to Stephen F. Austin for his colony, Austin hired James Gotier to blaze a trail from San Felipe (now Seale) to a small Mexican military outpost on the Colorado River . . . now known to us as Bastrop. Gotier cut a trail adequate for colonists on horseback, and perhaps eventually ox carts, to travel to the new settlement.  Along the Trace, Gotier built what is believed to have been the first “house” in Bastrop County.  His initial homestead, undoubtedly a very humble log cabin, was located somewhere within a few hundred yards of our ranch, north of present-day Smithville. Our place would have almost certainly been considered part of that first homestead. In fact, it is possible that the first Trace crossed our place. Whether Austin was to pay Gotier in currency or in land will never be known. Gotier and much of his family were killed in the Rabb Creek Massacre south of Giddings. They met their end at “Gotier’s Camp” that was on what was a second, later “Gotier Trace” that was further north and veered closer to modern day Giddings. (As often happened in the early frontier days, three different spellings of Gotier’s name exist.) The Indian attack was just a few months after Davy Crockett and his volunteers passed through and convinced James’ son-in-law to join them at the Alamo . . . and, well, we know how that turned out. While I had been trying to learn more about the history of our place, I had the incredibly good fortune to meet and spend a day with James Gotier’s great, great, great grandson, Perry. An earnest student of his family’s history, Perry graciously shared a great deal of information and introduced me to other descendants of settlers in our little area known as Pin Oak.

       Perhaps you have a similar tie with days gone by? If so, I would love to hear about it.  Also, I would encourage you to write the stories down. These little pieces of history fade into the mist of time unless someone takes the time to commit them to paper. Again, we are just passing through.  We will be someone else’s stories someday.

The last week or so has been one of my favorite times of the year – dewberry time! I am all about dewberry cobbler, dewberries on breakfast cereal, and best of all, dewberries on Bluebell Homemade Vanilla!

     Finally, it is still not too late to get out and find some sweet dewberries! Enjoy!

For quite some time, I have been reading about the “wealth effect.” Perhaps you have read about it, as well.  Simply put, when homeowners’ home values jump as much as they have the last several years, the owners get a questionable, inflated sense of greater wealth.  With this feeling that they are more affluent, they tend to spend more on other things. Of course in most cases, the gain in net worth is just a gain on paper.  No financial boost is realized unless the property is sold. In fact, the reality is that a huge gain in property values may result in a slight loss of cash flow . . . not an improvement. Reason being  . . . taxes. If the tax value of a home jumps substantially, the market value eventually is reflected in an increase in property taxes .  Thus, a slight decline in disposable income, not a gain.

This poses the question: Will Americans cut back on spending because of the exact opposite reasoning when values decline? I feel certain they will, and the FED is counting on it.  Back in 1976, I held open house almost every weekend in Shady Hollow, Lost Creek, or Tanglewood Forest .  I could actually see a drop in real estate traffic on days following major losses in the Dow Jones Index.  Slipping home values seems likely to trigger much the same emotion.

All of this brings a West Texas term to mind: “real estate poor” . . . or “land poor.”  Back home, many families were extremely wealthy on paper with thousands of acres of ranch land, but still had trouble making ends meet. Those of us who grew up in the farm and ranch environment call that land poor.  Which leads me to another favorite saying back home: For every successful rancher . . . there is a wife who teaches school in town.

To get back to the wealth effect, I think economists would be quick to agree that the wealth effect, coming out of Covid, exacerbated the inflation we were experiencing.  If dipping real estate values, cause homeowners to reverse their free-wheeling spending habits, one would expect that the Federal Reserve’s interest rate hikes should begin to work soon.

Jeff Stewart, CCIM

Stanberry REALTORS / jstewart@stanberry.com

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice

Clearly, the biggest opportunity in this slow down is for cash buyers. The next best opportunity for buyers in general to finally have a chance to find the perfect house and not have fight twenty offers and bid-up prices. During the craziness of 2021, I had a nice listing in Southwest Austin.  The ultimate buyers offered $10,000 option, $100,000 earnest money, and more than $100,000 over asking. As I write this, an MLS search now finds 12 houses for sale in Shady Hollow. So, I pose this question: Would you rather have a house that is a perfect fit at a reasonable price but 7% interest, or a nice (but not perfect) house that cost a buyer premium of $100,000 at 3 ½%?

Along that line: Circle C Ranch has 16 homes for sale, Great Hills 11, River Place 16, and Milwood 44! Buyers finally have choices again!

Now to finish my story. My friend commented that our buddy was smarter because he waited until rates came down before he built his house.  Our buddy, a real estate lawyer, disagreed, and his reasoning is worth considering.  “No.” He replied.  “You were the smart one.  You built when rates were high and house prices were depressed.  I built when rates were low and house prices were high.  You can refinance when rates drop, but I cannot buy my house any cheaper.”

I often think about the famous Warren Buffet quote that wise investors should be “fearful when others are greedy, and greedy when others are fearful.” Maybe not greedy exactly, but opportunistic

The indicators are subtle: Balloons swaying from mailboxes on a steamy Sunday afternoon, bandit signs in the neighborhood right-of-way, and a small, but growing, cluster of real estate signs at the subdivision entrance. All would be perfectly normal except that all of those things were a rare sight during the hottest part of the housing boom of the last year. Our housing market has finally begun to soften as the Federal Reserve (FED) has increased mortgage rates in attempt to rein in inflation.

While most Americans are painfully aware of the rising inflation and have heard about the FED’s decision to hike interest rates, many are not aware of exactly what that means for homebuyers . . . and consequently the resulting effects on sellers. Let’s look at an example.

The MLS reports the median sales price for the Austin – Round Rock area was a whopping $550,000.  Until the last few months mortgage rates had held relatively steady around 3.5%. So if a buyer for a $550,000 home puts down $110,000 (20%) at 3.5%, their monthly principle and interest payment (PI) would be $1,975.  However, rates at the time of this writing are bouncing around 5.75%. If we bump the rates up in our example to 5.75%, we have a PI of $2,568 . . . an increase of $593. Most homebuyers are not in a financial position to absorb such an increase. Assuming our median buyer still has $110,000 for a down payment, they would now be looking at a $450,000 home in order to maintain their housing budget.  As a result, one article I read estimated that the rate increases have eliminated the bottom 15% of prospective homebuyers . . . and the FED has signaled that at least two more rate hikes are expected by the end of the year.

The FED’s stated goal is to slow the economy and lower inflation without pushing us into recession. It is too soon to know how successful those efforts will be, but there is no doubt that it has begun to slow our residential market. To be sure, it is still a sellers’ market.  We still have less than two months of housing inventory, but inventory is growing significantly, and we have seen numerous “price improvements” (the new lingo for price cuts). This has happened so quickly that it may take a few months to be able to understand if this is a small correction or something more serious.

The good news is the job market remains extremely strong.  This month several national news outlets reported that on average two jobs exist for every job seeker.  I would think that employment numbers in Austin will continue to lead the nation.

As always, I like to point out the opportunities.  In this case, interest rates are finally high enough that I think it makes sense for some sellers to consider providing owner financing. For many years now, interest rates were so low that it made little sense to provide seller financing. Now, with the stock market in a major correction and rising interest rates, owner financing should have some appeal to certain sellers. Sellers may want to consider several factors.

First, most owners selling any non-homestead property are probably facing some substantial capital gains taxes. These taxes can be deferred by an IRS 1031 like-kind exchange for other property.  Also, they can be completely avoided by dying. None of my clients have voluntarily chosen that last option, however. One other strategy to lessen the tax load is owner financing. The IRS collects the tax as the seller receives the proceeds, hence why many sellers have historically preferred installment sales. I like to say that it enables sellers to earn interest on their AND the IRS’s money.  At this moment, I would expect that interest rates for owner financing might be 7% or more. Additionally, the seller is intimately familiar with the property and should feel comfortable with having it as collateral . . .especially with a significant down payment. Again, this is not for everyone, but it is a growing opportunity that we have not seen in years.

As always, I am here to help you or those you care about. Please do not hesitate to call.

Last month set a record for the hottest June in recorded history. It sets the stage for a similar summer as we had in the drought of 2011. This means homeowners need to be proactive in safeguarding their foundations. This is especially true for owners with properties east of I-35 in the black clay.

Slab foundations are engineered with beams, rebar and post tension cables to perform under great stress, but in the final analysis, they are still ground supported.  While engineered slabs seldom fail, they certainly can settle enough to bind doors and cause unsightly cracks in brick and drywall.  The key to preventing this is to maintain consistent moisture in the soil supporting the exterior beams of the foundation. As a former general contractor and officer of a builder warranty company, I have seen scores of houses with all degrees of settling. Many of the problems could have been largely avoided with some simple maintenance.

First, the area most prone to settling is generally where the foundation gets direct afternoon sunlight, usually on the southwest area of the home.  If the soil has become so dry that it has pulled away from the slab by a half inch or more, this is a concern. If the gap is significantly wider, air is likely reaching the soil under the perimeter beam.  As the air dries out the ground supporting the slab, settling is likely to occur.  This is especially true in areas with expansive, clay soil.

The preventative solution is fairly simple.  In extremely dry periods, such as now, place a high-quality soaker hose parallel to the slab, approximately 20-24 inches away from the concrete.  The key is to have the hose barely emit drops of water.  It is imperative not to make the soil a muddy mess.  The goal is to SLOWLY add moisture to the soil.  Do not saturate it.  This may take several days or a week. Absolutely do not put water directly into any gap next to the slab.  Water saturated soil becomes liquid-like and provides no support. This will only worsen the situation.

After a few days of adding moisture, it is not surprising to see cracks in brick or drywall close shrink and doors begin to swing freely again. It just requires awareness and a tiny bit of effort.

A few months ago, I watched a panel of economists and stock experts give their various opinions on what we might see the Federal Reserve do about interest rates considering our current inflation.  One expert was adamant that the rates would remain low for one basic reason.  Higher rates would also drive up what the U.S. government must pay to finance its deficit spending. I had heard this argument before, and it does have some validity . . . however, inflation now demands action from the Fed.  How high will rates go?  The word in the news is to expect at least two, possibly three more rate increases by the end of this year. Thirty-year mortgages were at 5.25% last time I checked.

REALTOR.com reports that in May the median listing home price for Austin / Round Rock was $627,000. That is up 25% from the previous May.  The April median sales price was $550,000, but those were mostly listed in late February or March.  With prices like these and climbing interest rates, first-time homebuyers barely have a chance.  In fact, I feel certain that many of the homeowners in our area would be unable to afford their current home if they were to be in the market today.  Great news for sellers, but a painful reality for buyers.

As expected, the property tax appraisals have been mailed out and the reaction has been intense – and interesting.  More than in any time I can remember, people have been excited to see how their properties have appreciated and what they are now roughly worth. On the other hand, they are in total shock at the prospect of the amount of taxes they may be forced to pay.  So far, most of the appraisals I have seen are arguably close to market value or below.  The actual tax rates will be set in late September or early October and the tax statements will go out at that time.  At that point, I predict a fair number of properties will hit the market due to the extra expense of the soaring taxes.  I am working on two such listings right. It makes total sense for these sellers. Unused properties are currently bringing record prices . . . and record property taxes.  It may be the perfect time to cash-out.

As always, I am available to help you with any real estate needs or questions you might have.  I look forward to hearing from you.

CAPITAL GAINS TAX ON HOMESTEADS

During an income tax revision in 2003, the IRS published a change to the tax code for homeowners. Known as the Section 121 Exclusion, it outlines the rules in which homeowners can limit the capital gains tax on the sale of their primary residence.

Section 121 excludes taxes on the first $250,000 of capital gains for individuals and $500,000 for married couples filing jointly when selling their home . . . with a critical limitation.  In the immediate five years prior to the sale of the residence, the sellers must have occupied the home an aggregate of at least two years.  They must also provide documentation of capital improvements when establishing the tax basis, much like rent property. Last year, I had several clients who had gains well above the exclusion.

I bring this to your attention because very few homeowners keep adequate records of their capital improvements on their homes. Most homeowners never dream that they will live anywhere long enough to have a $500,000 capital gain on the sale of their residence, but in this market it can happen. It is critical to keep good records to prove capital improvements or risk paying too much to the IRS.

THE SEARCH FOR AFFORDABILITY

Affordability. We need to find some solutions to the housing affordability problem if we want our children and their children to remain in Austin. The Texas A & M Real Estate Research Center’s chart shown here illustrates Austin’s growing affordability problem compared to other major Texas cities.

At the time of this writing, I searched the MLS for single family homes (not condos or manufactured) with an Austin mailing address, and in the the price range of $10,000-$375,000. I found 14 homes actively for sale. Only 7 of those homes were inside the city limits and only one looked like a house I would want to see clients buy.

The Research Center is constantly monitoring the affordability problem.  In the recent edition of their Tierra Grande Magazine (provided to all agents), they made cost projections for potential increases in interest rates and property taxes.  While interest rate hikes are pretty obvious, their property tax projection should alarm every Texas homeowner.

The current median priced home for the Austin / Round Rock area is just under $476,700.  For this purpose, we are going to round up and use $500,000 for our example. The Research Center chose to assume annual property taxes would stay at a 3% average tax rate, which places the tax burden on our example at $15,000 the first year. They also estimated that

values could increase an average of 10% per year.  Using these assumptions, the Research Center projects that in five years the taxes would climb to $24,158, $38,906 in ten years, and if all assumptions held true, taxes would be a crushing $62,659 in fifteen years!   This appears unsustainable to me.

It is important to note that the 2017 Tax Cuts and Jobs Act placed a $10,000 cap (for married couples) on the itemized deduction for state and local taxes, including property taxes.  In light of the rapidly growing tax burden in our earlier scenario, this was a significant tax increase  . . . that also affects the cost of homeownership.

Still on affordability, an interesting construction possibility that still has much to prove is the 3-D printed wall system.  The January 2022 edition of the Texas Coop Power magazine has an informative article about the 3-D construction process.  It has examples of recently built homes in East Austin and Army barracks at Camp Swift.  One home was featured in SxSW, as well.

The 3-D builder, ICON, is an Austin based company.  According to the article, their first  project was a welcome center and six tiny houses at Community First! Village. ICON and Lennar Homes have announced they plan to build 100 homes in the Austin area using the “printing” process. No word on where yet, but Lennar did say the homes would be similarly priced to those built with traditional construction. While not more affordable than conventional houses at this point, the goal is to be able to substantially increase supply. Ideally, a significant increase in inventory would eventually aid the affordability factor. For more information, go to ICONbuild.com.

Another alternative construction process is taking place in my neighborhood. A house was recently leveled, but instead of a new traditional slab, the builder used piers of galvanized steel which were screwed into the ground.  You can imagine the surprise of the neighbors when a gigantic crane appeared and began to assemble manufactured home components that were built at a local mobile home plant.  The structure was largely assembled in two days.

The builder told me that he chose this method because the inspections were mostly done in the factory and not by City inspectors. Also, he believes he can complete the home in a fraction of the time a site-built home would require due to city inspections and shortages of materials and labor. I will keep you posted on the ultimate sales price and well this manufactured home is received in the marketplace.

For the past six months or so, I have struggled with how to help prospective buyers decide what to offer.  This is new territory for me. With decades of experience as a landlord, homebuilder, developer, and real estate broker, I feel qualified to answer most any questions about a property . . . until recently. More now than probably ever before, my buyers are asking a question that I am unsure how to answer.  The question?  “How much over asking should I offer?” The problem is that I have no way of knowing what the winning bid will be when sales prices often far exceed other comparable sales.

So what is paying too much in an extremely competitive market? I am not sure, but I have heard of numerous cases of buyers’ remorse lately.  Where is that intangible line between the satisfaction of a winning bidding war and a sense that one paid too much?  It is a line that varies with each individual buyer.

In short, I have been struggling with the whole concept of representing a buyer who decides to offer $100,000 over asking.  Obviously, many other agents have no such reluctance – in fact I have dealt with several who regularly urge their clients to make such offers in order to win the sale.  Since March, I have had at least eight to ten offers on my listings that exceeded $100,000 over the asking price.

Justin Bariso has written an excellent common-sense article published by INC.com that I believe will help my buyer clients with this very real dilemma.  Justin refers to it as the “Golden Question.” He suggests that the golden question will help anyone make better decisions with fewer regrets.  It is simply one question that is really the same question in five different contexts. It is so simple and so obvious, yet it pertains to every individual making a difficult decision.

Justin offers this simple “decision tree,” if you will.  When my next client is struggling with a stressful decision, I plan to urge them to contemplate Justin’s simple questions:

How will I feel about this in:

• a day?
• a week?
• a month?
• a year?
• five years?

So simple, but so logical . . . especially when dealing with the largest purchase most people will ever make.  If we are honest with ourselves, the answers to the questions can guide us to minimize our emotions and make better decisions with fewer regrets.

When preparing an income proforma for a commercial property, CCIMs are taught to make educated predictions about the future . . . inflation, market demand, interest rates, etc.  We do so, knowing full well that the future will certainly be a little different than we have imagined it, but acknowledging that we are making the most common-sense, long-term decision possible based the best information we have in the present.  The concept of asking the golden question is very much the same and I think it has the potential to give buyers a little more confidence in their decision-making.

Jeff Stewart, CCIM

Broker Associate / Stanberry REALTORS

jstewart@stanberry.com

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice