Fredericksburg Texas

Hold on to your wallets people.  The election, taxes, “the bailout”, interest rates, “the credit crisis”, blah, blah, blah.  It all adds to the disturbing trend in real estate towards higher prices (resulting from higher costs).  Just as prices should be falling,  circumstances seem to be conspiring to prevent just that. This is interestingly opposite of that whole supply and demand thing we’ve all learned about.

The increased cost to borrow and the (rightfully) more stringent underwriting standards have reduced the pool of potential buyers yet sellers have not keyed in on this fact.  Ever optimistic, sellers continue to hold out for last years prices offered to fewer buyers using more expensive money and get upset with their agents because their properties don’t sell.

Seller’s of non-homestead assets are almost certainly facing a higher capital gains rate in the next administration.  What are they waiting for?

This resistance to what should be a natural downward movement on prices (costs) is being further exacerbated by whoever it is that send down the International Residential (Building) Code from on high. Did you know that homes built after 1/1/11 will be required to have fire sprinkler systems?  This new government mandate (largely un-reported I might add) will add an estimated average of $1.61/s.f. of cost to a new home.

Believe me, my years of commercial property management experience (sprinklers are common, and necessary, in commercial structures) shows me that pressurized water pipes installed in ceilings will eventually leak.  Note too that commercial ceilings most often consist of lay-in tiles that provide easy access to MEP systems.  Conventional homes, of course, use sheetrock ceilings that are as inaccessible as they are expensive and time-consuming to repair.

While not mandated for existing homes or remodeling projects, the “safety” argument holds little sway with me.  I suppose a small saving grace could be slightly reduced insurance premiums.  This is clearly another instance of big brother knowing what’s best and shoving it down our throats.  When will we say “enough is enough”?

Fredericksburg, TX real estate is expensive enough as it is yet I still hold out hope that sanity will rule the day and the market will do what markets are supposed to do…adjust and correct. The unabashed capitalist, free-market guy that I am can only pray that big brother (in all its shapes and forms) decides to just stay out of our way.

I’ve been repeatedly asked what it is that real estate agents do when the market is “in the toilet” as it appears to have been/is/will be.  My first response is that things are not as bad here in Fredericksburg as they may first appear.  I tell people not to listen too much to the media and the talk about the “nation real estate market” as there is no such beast.  All real estate markets are local.

While the “credit crisis” may have placed a damper on those buyers with “credit problems” there is no lack of credit for appropriately qualified buyers (e.g. buyers that have a demonstrable ability to pay back the loan).  Those buyers prescient enough to maintain good credit and a store of cash for higher down-payments are also wise enough to wait until the sellers that have to seller (vs. sellers who merely would like to sell) drop their prices to a point that these buyers will interpret to be “the bottom”.  If and when that happens, activity will increase.

My message in this to sellers is that if your truly want to sell (or need to sell) there are plenty of buyers out there…at the right price.  The sooner you get to that price the better off you’ll likely be.

Back to the original question of what we do with our time.  Many agents will opt for vacations or completing that home “honey-do” list or simply sit around and wait for the phone to ring.  Others will cold call and prospect for business and still others may quit the business altogether.

I won’ tell you what I do because then all my competition will do it too.  Suffice to say that I’m not sitting on my hands.  My overall goal is to position myself and the services I provide to stand further and further ahead of what others may be doing.  I’ll be creating opportunities rather than waiting from them to present themselves.

There will be no whining or complaining about the Dow, Lehmann Brothers, the strength of the dollar or the “bailout”, none of that is within my ability to control (though it should be!).  No standing around complaining about the inevitable tax increases and no standing around with my hand out asking Uncle Sam for help.

Improving myself and the services I provide my clients is what will carry me out of the “slump” and afford some nice, juicy returns for savvy buyers looking at opportunities in Fredericksburg TX Real Estate.

What does all the recent financial turmoil mean to Fredericksburg Texas real estate?  The short answer is, I can only guess but it’s not likely to be pretty.

Federal bailouts, AIG, Lehman Brothers, Merrill Lynch, WAMU, etc., etc.  They stalwarts of our financial industry seem to be dropping like flies.  With this trouble (perhaps, in part, because of it) comes a serious lack of credit available to finance the purchase of real estate.  While it was the abundance of “easy credit” that got us in to this mess, it will likely be the nearly complete lack of credit that makes it all worse.

Buyers with good credit and lots of cash for a down-payment will be fine.  But then, that was never the issue was it? We thought that Congress/the feds were all making our lives better by loosening the purse strings and letting the mortgages flow.  No doc loans, no money down, no income verification and all that. Who thought it was a good idea to lend billions of dollars to folks who could never pay it back?

We as real estate agents played along, only too happy for that quick and easy sale. To borrow, paraphrase and de-politicize a favorite recent line, “the chickens have come home to roost.”  Now what?

My crystal ball tells me prices will continue to drop.  Great news for buyers, not so much for sellers.  Financing for us regular folks will cease to exist for the next several months.  The rich will get richer as the Feds begin to auction off the bad loans of the various institutions to hedge funds who will happily pay for 30%-50% on the dollar.  The Feds will then sell off foreclosed assets for less than that.  See, I remember the late 80’s.  I worked for the FDIC and was a part of disposing of hundreds of millions of dollars worth of real estate for tens of millions of dollars.  This is very “déjà-vu”.

If you happen to be liquid right now, the coming months will be a bonanza of opportunities to load up on “distressed” assets and bank them for the inevitable turn-around. Things will get better, they always do.  New fortunes will be made.

You are witnessing perhaps the greatest “cycle” our industry will see for another generation.  This mess will make the 80’s look like a day in the park in many areas of the county.

Will this decimate the Hill Country and Fredericksburg the way it will (has), say California, Michigan, Flordia, etc.?  No, it won’t.  I take some solace in that we Texans may have learned a little from the 80’s.  While we enjoyed some nice appreciation, we didn’t go nuts.   That will be our saving grace.  Relatively speaking, we didn’t climb too high so we won’t have far to fall.

Are we in the Hill Country/Fredericksburg at the bottom yet?  I don’t think so but it will all depend on how the availability of credit is restored as a part of the latest bailout scheme.  As I’ve said before, we’ll be fine.  It may be slow for a bit but I have seen few sign of “forced selling” and that bodes well for all of us.

Two pieces of contradictory advice (and remember, it’s worth what you’re paying for it):  Seller’s, lower your prices a bit but don’t panic, hold on a little longer.  Liquid buyers, look to more distressed markets for your long-term wealth building plays (yes, I can help you with that) and buy in Fredericksburg with the knowledge that your money will be pretty safe in the long run.  The rest of us, watch and learn.  My boldest prediction is that we will see this all happen again within the next 15-20 years….

While the negotiations between TimelessLuxury Homes and the City of Fredericksburg to provide “affordable housing” viathe Barons Crossing proposed PUD reached an impasse last Friday, everyoneinvolved in this process should be congratulated on their hard work. The silverlining is that there are some very smart, very dedicated people trying to clearthe regulatory burdens that stand between the problem and its resolution.

It remains clear that much needsto be addressed within the regulatory environment for the private sector tohave a clear understanding of the rules under which they are challenged tobring a needed product to the market. While eagerly awaiting the recommendations of the affordable housingsubcommittee task force, it is clear from listening to the discussions, thoughtprocesses, etc. I have been privy to that while many options remain to beexplored, the right questions are in fact being asked.

Anyone with an interest in thisimportant community discussion should be aware that there is only so much“government” can/should do to help. Short of going into the business of providing a “government product” (notan attractive solution at present) it will take a level of commitment andparticipation from everyone involved in the development process to solve theproblem.

Upon receiving clarity andcommitment to a new set of “rules for the game” (subd. requirements,incentives, waivers, etc.) land owners, developers, realtors, bankers,attorneys, title companies, surveyors, land planners, engineers, architects,road builders, material providers, homebuilders, appraisers, etc. must begin tothink beyond the traditional development models to create scenarios that areconducive to placing a product on the ground in Fredericksburg Texas that istruly affordable both in the present and in the future. Its being done all overthe country, we can do it too.

Further echoing the messages fromprevious posts, the real estate market in Fredericksburg, Texas continues toface downward pressure as rising interest affect both the availability ofcredit and the ability of many borrowers (buyers) to access it.  With tighter, more expensive money asthe rule, buying power is reduced and prices (by necessity) must continue tofall.

All is not doom and gloomhowever.  The good news is that thereappears to be plenty of buyers still searching for their Fredericksburg Texasdream property so sellers should not panic.  Sellers should, however, be aware of factors affecting theiraudience (interest rates, increased competition, etc.) and set (or re-set)their expectations accordingly.

Clearly the real estate market inour community is experiencing an “adjustment” but this is simply a sign thatmarket factors are at work balancing the supply and demand and that all isworking as it should.

Mortgage Rates Near a Year High

ByRUTH SIMON and JAMES R. HAGERTY

July 23, 2008; Wall Street Journal Page C14

Home-mortgagerates are nearing their highest levels in a year, adding to pressures on thealready weak housing market.

Rateson conforming 30-year fixed-rate mortgages rose by nearly 0.40 percentage pointin the past week to an average of 6.71%, according to HSH Associates in PomptonPlains, N.J. Rates on jumbo loans, which are too big to be eligible for purchaseby Fannie Mae or Freddie Mac, currently average 7.84%.

Thehigher rates are making it more difficult for borrowers to refinance andputting another crimp on weak home sales. “It’s a tough market and ratesgoing up isn’t helping it,” said Steve Walsh, a mortgage broker inScottsdale, Ariz.

Mortgagerates typically move in line with rates on 10-year Treasurys. Treasury rateshave risen, but so has the spread between rates on 30-year mortgages and10-year Treasurys, said Nicholas Strand, a mortgage strategist at BarclaysCapital.

Banksset their interest rates on mortgages based on demand for those loans frominvestors, including Fannie Mae and Freddie Mac. When demand is weaker, theymust offer investors a higher interest rate.

WalterSchmidt, a senior vice president at FTN Financial Capital Markets in Chicago,said the latest increase largely reflects fears that Fannie Mae and Freddie Macwouldn’t be able to buy as many mortgages in the months ahead as they haverecently. The two companies are the biggest buyers of mortgages and relatedsecurities. Both are facing heavy losses on defaults, and investors believethey probably will have to raise large amounts of capital to cope with thoselosses.

Freddieadded to jitters last week by saying it might sell some mortgage securities toreduce capital needs. And some smaller Asian banks have been selling mortgagesecurities, said Arthur Frank, a director at Deutsche Bank Securities in NewYork.

What’s the difference between a“deal” and a “steal” for buyers in the world of Fredericksburg Texas realestate?  A “deal” can loosely bedefined as contract negotiated for between 10%-15% off of the asking price(assuming of course the asking price was reasonable to begin with, but that’sanother story). A “steal” can be defined as something you won’t find in thismarket (at least not yet anyway).

As mentioned in earlier posts, weare a discretionary market to a very large degree (e.g. buyers don’t have tobuy here and most sellers are not being “forced” to sell) and while theevidence is clear that the real estate market has softened in Fredericksburg,TX, it is also clear we are not in panic mode.

Buyers, if you’re looking for a“steal”, try Miami, Las Vegas or Detroit. If you’re looking for a “deal”, now is the time to be aggressivelylooking at the wealth of offerings in the market.  You are best off doing so with an experienced professionalrepresenting your interests. Remember that the listing agent works for the seller, not you. Whileagents who are members of the Gillespie County MLS all have access to the sameinformation, it’s what an agent does with that information (combined with yourneeds) that makes all the difference in the “deal” you end up with.

Sellers please know that thebuyers in the current Fredericksburg real estate market are “deal hunters” andwill gravitate to what they perceive as the best bargain under their particularcircumstances.  Does this mean youhave to give you property away?  Ofcourse not, it simply means you have to price your property “right” from thebeginning and be flexible in your expectations and potential negotiations.  There appear to be plenty of buyers outthere but remember that there is also much more for them to choose from thatusual.

Buyer’s should consider makingtheir offers sooner rather than later as interest rates are sure to increase.  Sellers should consider putting theirbest price forward as soon as possible as interest rates are sure to rise andthe economy shows few signs of recovering anytime soon.  You heard it here first!

Peering into my crystal ball fortrends affecting (for better or worse) the Fredericksburg Texas real estatemarket I see:

1.    1.  Mortgageinterest rates will rise.  Bumpingalong near historic lows for the last several quarters, these rates are undertremendous pressure to increase as they are the single largest factor affectingthe current weakness in the value of the U.S. dollar.  The weak dollar is reflected most prominently in the recordprice we are now paying for oil (and hence, gasoline), food and other consumerstaples.

2.     2.  Itis only a renewed strength in the U.S. dollar (created, in part by risinginterest rates) that will ease our pain at the pump (in the sort term) but lookfor the price of oil to remain well over $100/bbl and gas to remain above $3.00/gal.for the foreseeable future.  Theever-increasing global demand will not be abating.  The silver-lining in this is that folks will travel but staycloser to home which has traditionally benefitted the community ofFredericksburg TX with our proximity to Austin, San Antonio, Dallas andHouston.

3.     3.  Painat the pump will continue to translate into decreased US demand for oil/gas,increasing pressure on politicians to produce more “supply” and more downwardpressure on consumer spending.

4.     4.  The“credit markets” will recover from the sub-prime fiasco but lenders will beever-more cautious about extending credit to all but the most well-qualifiedborrowers.  This, in turn, willcontribute to a continued “softening” overall of real estate markets whereprices in most areas will not return to their pre-2007 levels for some time.

5.    5.   Thevalue of and demand for rural real estate will recover quickly be the lead thesector in sales volume and appreciation (especially land with surface waterand/or capable of producing a consumer crop).  Provided existing tax rules (valuation methods, exemptions,capital gains, etc.) remain relatively constant, there is no place else toinvest sizeable funds with very little risk, very low carrying costs andhistorically favorable returns.

6.    6.   Evermore savvy real estate buyers/investors/sellers will rely more and more on theinternet to research purchases/comparable sales, etc. and appreciate thatmarket knowledge, experience and outside-the-box thinking will increasingly befound outside the doors of the more traditional “branded” models of brokerageservice providers.

7.    7.   Asthe internet continues to be the “great equalizer” in the real estate industry,consumers will realize that bigger is not necessarily better and that industryknowledge and market experience will trump “branded name recognition” everytime.

8.    8.   Fractionalreal estate offerings and purchases will emerge as the single most importantinnovation in property ownership in the last 25 years.  Popular in high-end resort-orientedcommunities for years, this “new” form of ownership will open a door to luxuryownership that simply has not been available before now.  The ability to own a deeded,mortgage-able, depreciable and inheritable share of high-end property (one thatwill likely appreciate and can be bought or sold as easily as a single familyresidence) will unlock billions in baby-boomer wealth that has heretofore beenunable (or unwilling) to pursue the second home of their dreams at a fractionof the traditional price.

Remember, you heard it here first!

Disclaimer:  This analysis applies only to “singlefamily residences” sold within the city limits of Fredericksburg, Texas fromthe period of Jan. 1, 2007 through June 30, 2007 vs. Jan. 1, 2008 through June30, 2008 utilizing figures reported through the Gillespie County Board ofRealtors multiple listing service.

If you had maintained any hopethat the national trends concerning the strengths/weaknesses of the real estateindustry have somehow bypassed the Fredericksburg, Texas real estate market,you may be interested in the following:

Overall (per the disclaimerabove), the total number of listings available through June of 2008 has increased by 82%, the average time onmarket for any particular property has increasedby approximately 9%, total sales volume ($$) has increased by 1.7%, the average sold price has also increased by 1.7% and the median soldprice has increased by 10.2%.

A similar phenomenon (more on themarket, longer to sell, but higher average prices) has recently been reportedby Austin area realtors.  Thesimple explanation to these seemingly incongruent statistics lies in thenebulous, but all-important, “market timing”.

Simply put, while the problemsaffecting much of the country have not yet slammed Fredericksburg TX realestate, we are beginning to feel the effects of damage created by the sub-primebanking fiasco and the impact this has had on broader credit markets.

The above statistics can be usedboth to report what has happened (ytd vs. same period last year) but they canalso be used to forecast likely trends for the remainder of the year.  The fact that we have (on average) 82%more in inventory is simply staggering. Couple that with lingering creditissues, projections of increases to mortgage rates, stagnant wage growth, theincreasing cost of consumer staples, the weak dollar, record oil prices and apresidential election and all signs seem to point to a market that willcontinue to “soften” via increasing times-on-market and a significantlydeclining list price to sales price ratio.

Great news for buyers, not somuch for sellers. This is a rather classic and routine cycle we are in themidst of and one that (hopefully) will pass in rather short order. A review ofpast economic “downturns” and real estate cycles show them to be happening withmore frequency but with less severity and for shorter periods.

Some free advice:  if you don’t have to sell right now…don’t.  If you’re in the market to buy, “now”is as opportune a time as you’re likely to find in Fredericksburg, TX.  Remember, Experience Matters!