With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL
Unaffordability Rising In Hot Markets, Going Down In Others
In today’s interview with Terry Story, we talk about rising affordability problems in certain local housing markets, reasons why the market is not generating more sales turnover, and understanding deed restrictions before buying a home.
Affordability comes down to the ratio of home prices to wages, and the stats have been heading in the wrong direction—towards unaffordability—in roughly 25% of national markets. Wage growth isn’t keeping pace with rising home prices, and the result is that would-be buyers, especially on the lower end, are being priced out. Offsetting this trend to some degree is an uptick in wages in 50% of markets. This silver lining is mitigated by the fact that the wage growth is occurring in places that aren’t seeing a lot of interest from people looking to relocate: Wayne County in Michigan, Trumbull County, parts of Ohio, Wisconsin, Georgia, and New York state, for example. The deteriorating affordability problem, meanwhile, is affecting more sought after locales like California, Hawaii, Manhattan, and Brooklyn. The number of people who are willing to bail on Maui or San Francisco or NYC to start over in Clayton County, Georgia is very finite, if not negligible. Expect these discrepancies between increasingly unaffordable markets and cheaper ones with gradually improving economics to persist and widen for the foreseeable future.
Sellers Wait For Housing Inventory To Improve Before Selling
Rising unaffordability suggests a high-priced market, one which Terry describes as “very healthy.” She explains that if more people are sitting on the sidelines afraid of being priced out, worried about rising prices and interest rates, or afraid of paying too much, prices will eventually come down. Steve believes that functioning free markets self-correct as supply and demand forces change and prices go up and down. That said, he points out that home sellers are not stepping up to the plate to close deals and move on to another home themselves. The main reason for this, Terry believes, is that sellers are not finding places that they want to move into because inventories are so low. This is impacting pricier, sought after markets the most and is exacerbating inventory problems because many sellers want to continue living in their current locale. Steve notes that this means that instead of “reducing the noose” of an expensive mortgage by moving into a smaller, cheaper home or condo, sellers are forced to consider “buying up” to stay within the area they know and love. This has created something of a vicious circle in which high demand and low inventories are driving up home prices and sellers are holding back from accepting offers.
Deed Restrictions Can Be An Unwelcome Surprise
Steve shifts the conversation to a topic from Terry’s Real Estate Survival Guide: deed restrictions and the problems they can pose to unsuspecting home buyers. Some neighborhoods enforce a list of deed restrictions that can create serious problems for buyers who are unaware of these rules and regulations. If you’re a buyer, have language added to your contract that requires disclosure of these restrictions during the inspection process. Terry says that in addition to rules about the height of your home, the style of its roof, or additions or renovations to your property, the most likely issue to come up are vehicle restrictions: no pickup trucks, for example, or no work vans with commercial lettering on the side are both very common. These deed restrictions can be costly, so it’s imperative to find out what you might be dealing with before you finish inspections. In some states, the seller has no obligation to disclose these deed restrictions, so it’s incumbent on you to demand that your realtor insists that your seller provides them.
Dislcosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Round Up. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 28-year veteran with Coldwell Banker located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: So, home prices have been rising, we know that. I don’t think wages necessarily are keeping up with it. How’s housing affordability these days?
Terry Story: Well, they have this index that’s out there and, basically, the index is not favorable. The affordability index is dropping. So, basically what they’re saying is the prices of housing are growing faster than the people’s wages, in essence, is what’s occurring.
Steve Pomeranz: So, what are some of the numbers here? How much of the market, what percentage of the market is starting to become unaffordable?
Terry Story: You’re looking about 25% of the US markets are becoming less affordable than usual. And then there’s certain cities are better than others, the silver lining in all of this—if you really think about this—is that in order to have this happen, you’ve got stronger wages growing is the silver lining in this report, which is outpacing home price growth in more than half of the markets for the first time since the first quarter of 2012.
Steve Pomeranz: All right, so wages are starting to pick up a little bit and that’s going to help. And we did see a pickup in the cost of mortgages, but I think that rate has come down a little bit, so that might be helping as well. What are some of the counties, or some of the areas in the country that are least affordable?
Terry Story: Well, the biggest areas are Brooklyn, Manhattan, and Hawaii.
Steve Pomeranz: No surprise there.
Terry Story: Right, absolutely no surprise. California, you’ve got New York, California, Hawaii. And then, of course, if you live in these places and you can’t afford it, the good news is there’s places that are affordable.
So you can leave your beautiful home in Maui and move to Clayton County, Georgia. [LAUGH]
Steve Pomeranz: [LAUGH] Okay.
Terry Story: For example.
Steve Pomeranz: Well, it’s in the Atlanta metro area, we’ve got nothing against it.
Terry Story: Yeah, no, nothing, it’s not quite Maui, but-
Steve Pomeranz: [LAUGH] That’s true.
Terry Story: Wayne County, Michigan; Trumbull County, Ohio.
So lots of places in Georgia; Michigan; Ohio; Milwaukee, Wisconsin.
Steve Pomeranz: New York state.
Terry Story: New York state.
Steve Pomeranz: So, you can move out of Manhattan.
Terry Story: Yeah, just go out into the burbs.
Steve Pomeranz: [LAUGH]
Terry Story: So there are options.
Steve Pomeranz: Okay. So yeah, 1 out of every 4 counties in the country are becoming less affordable, and that’s a sign of a pretty high-priced market, right?
Terry Story: It is, it means especially from where we’ve been, and not all areas are back to where we were in 2006. But, certainly, we are looking at a very healthy real estate market. And everything is supply and demand, Steve. Interest rates, people get all worried about the prices of houses going way up.
Well, when that happens then people can’t afford them. And then the interest rates drop. So, when the interest rates drop, they work…
Steve Pomeranz: Like hand in hand, the economies, when they’re working at their best, are self-correcting.
Terry Story: Right.
Steve Pomeranz: So, if things become unaffordable, then housing gets softens, and then prices come down. And the market kind of reflects it. It doesn’t happen immediately, but it does happen over time. That’s kind of the beauty of free enterprise, is that market self-correct. But now the issue is with prices so high people on average still are not selling. Sellers are not at the marketplace.
Terry Story: Right, and the sellers are not at the marketplace because the sellers are looking at their home, they look out what’s available if they wanna move and they’re like, wow, there’s no inventory. Do I really wanna sell my house? So, we’ve got ourselves caught in this vicious cycle where we really anticipated that we would have more in inventory, especially for the spring season, but it hasn’t happened yet.
And that’s primarily because the sellers are out there looking to see what they can get for their money, and they’re discouraged. They don’t see a lot of opportunity because of the low levels of inventory. So, we need sellers to sell, and we need buyers, we need inventory. So, sellers have to sell and make that move.
Steve Pomeranz: And then the fact is the where are they going? If they’re selling at a nice-
Terry Story: Georgia.
Steve Pomeranz: [LAUGH] Well, this is it. This is really it. I mean, if you’re gonna be selling and you wanna stay in your marketplace, you’re gonna be buying up, as well.
So there’s gotta be another reason for you to move, whether you’re maybe buying down to reduce the noose, how they used to say, or you’re buying up because your family is expanding. There’s gotta be a reason, but nevertheless, there is just not enough reasons, I guess, to bring the sellers out, and I guess they are not all going to move to Bibb County, Georgia.
Terry Story: That’s right. [LAUGH]
Steve Pomeranz: Well, I guess we figured that one out. I want to talk about your Real Estate Survival Guide because this, we were discussing earlier off the air, you know, watch out for deed restrictions because that can really mess you up. You’ve got some experiences with that, as well. Tell us about that.
Terry Story: Absolutely, so many people buy single-family homes, this is the best example. Buy a single-family home, you don’t think about what kind of rules and regulations there may be in the neighborhood. If you’re buying a home, absolutely put into a contract some kind of language that says seller has to provide the deed restrictions or rules and regulations during the inspection period so you have an opportunity to review them.
Here are the nasty surprises that happen all the time, Steve. Buyer owns a pickup truck, never told his realtor he had a pickup truck. No one ever seemed to ask him about a pickup truck. He didn’t know the rules. Goes to close on his property, guess what? Pickup truck’s not allowed and now we have a big problem.
That’s a real typical one that we see quite often, vehicle restrictions. If you’re someone who’s buying a home that plans to change the home, you really need to know what kind of height restrictions there may be in the neighborhood, are you allowed, do you have to get approval from the association.
We have a neighborhood here in my market place where all the roofs have to be white, they all have to be uniform. So somebody may not think about it. They may say,” hey, I want one of these new s-tile clay-colored roofs.” Well, guess what? That’s not gonna, that’s not gonna fly.
And it can be costly by not knowing what those deed restrictions are prior to moving in.
Steve Pomeranz: Yeah, I mean what if you own a business where you have a van that has commercial lettering on the side or- Ugh, another big mistake.
Terry Story: Well, I’ll give you a personal example.
We had, my husband, and we had to buy white magnets to put them over the label, the signage on one of his vehicles.
Steve Pomeranz: I see, in other words with nothing on it, just the magnet, so you cover up the writing.
Terry Story: Right, to hide the company logos that were on his vehicle.
So these are things that are important to know about prior to getting into a neighborhood.
Steve Pomeranz: Yeah, so watch out for deed restrictions. And you have a, there’s a three-day decision period right, so-
Terry Story: Well, no there isn’t, that’s only in condos, and that’s why it’s so important.
I know in our contracts in Florida, in the market that we’re in, there’s nothing that says the seller has to provide the deed restrictions. So, it’s really, as a consumer, as a buyer, you need to ask your realtor to put in some kind of language so that you get hold of those documents, so you can review them for yourself.
Steve Pomeranz: Got it. My guest, as always, is Terry Story a 28-year veteran with Caldwell Banker located in Boca Raton, Florida. And she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.