Where is This Market Headed? A Double Whammy of Demand.

Don’t we all wish we knew exactly… but with experience we have knowledge to come up with some good predictions. Things are getting pretty crazy. To put it mildly.

In December we saw inventory drop to a staggeringly low 0.9 months. I predict January’s numbers will be even lower when they are released in a couple weeks. What does this mean? It means if no one listed another home for sale from today forward and the number of buyers remained the same, in less than a month we would have zero homes available. ZERO. This is heavily defined as a seller’s market. The point when it becomes a buyer’s market is 6 months. That’s a distant dream for buyers today.

So what does this mean for the coming months right as peak buying/selling season starts to ramp up? It means get ready to pay over list price for homes. I am already seeing this today. Homes in the $200k price range (which is pretty much now the entry point for a decent house) are seeing 30-60 showings in a weekend and it’s not uncommon to get 10-15 offers by the end of the two day showing spree. This is fueled by demand in our market not only from people moving here, but investors as well.

We know people are moving here. We know that the speed of this has ramped up. That’s going to hit the market just on its own. But what most of the general public doesn’t see is the investment buyers. We are starting to see more and more investment dollars coming to north Texas. A lot of this is from 1031 exchange buyers. Now without getting in to too much detail, a 1031 exchange is a tax deferral method afforded by… you guessed it… and IRS section numbered 1031. When you buy a real estate investment and then sell it, you usually have to pay a capital gains tax. Unless you go the 1031 exchange route. Meaning you flip your money and profit into another real estate investment and put off having to pay the good old tax man any money on your profits. But one trick is the timing. You have 45 days to identify and 180 days to close on a property to take advantage of the 1031 exchange tax benefits.

How does this matter and what does that have to do with rising prices? Frankly, a lot. Today people are ripping money away from California and other previously popular states to reallocate it to Texas. Is it hype? Sure. The number of national news stories have massively ramped up about businesses moving to Texas. How low the taxes are. And how affordable the housing is (at least was). But when you are an investor staring down a capital gains tax of 20%, overpaying for a home by 10% doesn’t sound too bad. You still come out ahead by 10%.

So how does this kill the chances of average buyers? Well most of the 1031 exchanges are rush deals because of the timing mentioned above. And they are cash deals. So as a seller, it’s a win-win. You get a premium price and a nearly certain close with a cash buyer. And the offers of those using FHA or other financing are frequently left out in the cold. Not a good situation as an ‘average’ buyer. It may seem that yet again the big dollar investors are going to win out.

But all is not lost. At Broker Direct, I have my methods to help you secure the home you want. Strategy is needed from the offer to the closing, and I have the experience to help guide buyers through this process. Contact me today for a discussion and we’ll get a game plan together to find the home of your dreams.