Is this the right time…to buy an Albuquerque home?
(Transcript Snippet): “Tego: Can we talk about this whole, is it a good time to buy question? Cause it’s it’s you know, obviously it’s, it’s a tough question to answer because we don’t know, you know, nobody knows the experts don’t know what is going to happen with the overall economy of this country. And I know there’s a lot of opinions out there, right? You can jump on YouTube and you can get as many opinions or get on Twitter and get as many opinions as you want about the overall economy. And, you know, consensus, when you, when you listen to the experts, I do my air quotes, experts, you know, the economists and other people that are, you know, the pundents on the economy, everybody, you know, is saying there’s, doesn’t appear to be anything. You know, this is going to slow this down right now. Now, now in of course you, you know, you just look at the stock market, which is always the, the kind of the leading indicators. It’s a leading indicator of what the economy, at least how people feel about the overall economy. Right? And so, you know, right now everybody feels good about it. Now, now inflation is the big topic these days, right? Inflation is, is very
Tracy:
It’s very inflationary,
Tego:
Good answer. And I’m glad you laughed with me. Yeah, no, I know. I, and, and, you know, to be honest with you, I’m just going to give my opinion on this. If inflation is going to get, jump up, which it appears it is, or we’re in the middle of it right now, we don’t have the data yet, but you know, inflation is going to run up hard assets. Aren’t what you want. Right.
Tracy:
Which is real estate a hard-ass correct. Right. Because you’ve already locked in the value of it. Correct. And your money won’t buy as much with an inflation. Okay.
Tego:
To replace that asset is going to cost a lot more than it did today in the future. Right. And so to highlight that, I’ve got that story that I put on. Where’d I put that, I put that on Facebook about the cost of lumber, right. That’s been a big conversation in our industry and, and actually it’s kind of funny. It’s kind of been all over the place. Lumber’s kind of like this whole Canary in the coal mine thing about, you know, what’s going on with, with housing, but you know, you talk to home builders. It’s not just like, no it’s
Tracy:
Windows in stores. It’s light fixtures, it’s facets. It sinks, it’s bathtubs, it’s it’s everything. But lumber is a big pack part of the cost of construction.
Tego:
Right. And so the, the, the data I had, or the chart I had, which was, was fascinating. It said, okay, if you let me pull it up here, okay. If you took $50,000 worth of lumber in 2015, you could built 14.7 new single family homes. Of course, these are modest homes and they’re talking lumber, not trusses. We’re just talking lumber just to clarify. Cause that number
Tracy:
Confused me. Cause I was thinking of more than just the loan.
Tego:
Well, I asked a couple local builders to confirm that. Yeah. Anyway, and they did so anyway, but okay, so, so 2015, 14.7 homes by 2020, it was a 10.5 homes. $50,000 worth of lumber Could build 10.5 Homes. And May of this year, $50,000 in lumber can only build 2.1 homes just to give you an idea how much that’s changed. So since
Tracy:
2015, it’s gone from 50,000 being able to do for 14.7, four homes to 21 may of 21. What
Tego:
Was the thing that Tim Tim McNaney with Twilight homes, he, he made a comment. He said that they used to pay for a sheet of OSB, which is like plywood, right? Chipboard. A lot of people call it was $8. Now they’re paying $50 for that. Same how long ago? Well, yeah, I mean, again, it’s probably a few years ago. So, so the, the point is there’s inflation, you know, in everything obviously, you know, energy and all that, but in the housing world, there’s doesn’t look like prices are gonna, at least to build, are going to come down.
Tracy:
Right? Yeah. So it leads us to, should you be a home buyer right now? It’s a frustrating time to be a buyer. We know that it’s a frustrating time to be representing buyers. It’s a hard time to be a seller right now, even because when your house goes on the market, you better hope that you can go stay in a hotel for three days because you’re going to have a lot of showings. And if you have dogs and kids,
Tego:
Okay. And you’re going to have multiple offers to sort through and try to figure out which one’s the best ones. And luckily we
Tracy:
Put on our team, we have a nice spreadsheet. We put them together and it’s very easy to see the differences. But so let’s say you are a buyer. Should you be a home buyer right now? Getting back to the voicemail, we got, somebody felt it wasn’t wise of us to encourage people to be home buyers right now they should be sellers. So why would someone want to lock in on a home right now?
Tego:
So-So that call, but I’d been working at all ready because I was very curious. I didn’t have a lot of data. And so I did a deep dive on what a rental prices are doing in the Albuquerque market. What, you know, I know we, we deal in single family sales. That’s what we do at the Venturi Realty group with Keller Williams Realty. But we we, you know, Tracy, you and I are, are, are landlords property owners. We, we, you know, we kind of work that single family home, rental niche, you know, that’s, that’s our deal. And so I’m just curious, you know, what’s going on with rents and there’s been a lot of frenzy and frenetic pace in that world as well as the sale world. So when a new, especially single-family rental house comes on the market, there is a lot of interest for them, like bidding
Tracy:
Wars to get the rental house. And people are doing the same thing as when they’re buying in, they’re offering over what the asking rent is. They’re sweetening the pot right
Tego:
Out there to a group of realtors. I was like, okay, well, you know, what are you seeing for price appreciation for rent? And as far as we can tell it’s anywhere from eight to 15% annualized in, in rent, which, which actually is pretty close to what home price appreciation has been in Albuquerque as well. So it’s, you know, it’s in that range right. Somewhere 10, you know, something. So the, the thing is, I mean, this is what I said to somebody it’s like, okay, well it’s a bad time to buy. Okay, well we’re, what are you going to do? Are you going to live at home? Are you going to live with a friend? You know, you got to live somewhere, right? Yeah. I mean, there’s a nice tent city downtown, but that’s sorry, I shouldn’t have gone there, but you know what I’m saying? It’s like, you gotta live somewhere. Right. So either you’re paying it doesn’t matter what the price is for the purchase. You’re going to pay somebody. They’re going to pay your landlord and paid on their mortgage or you’re going to pay down your own.
Tracy:
Right. Right. And so that brings us to the rent versus buy calculation. Can you buy a house realistically in Albuquerque and pay equal to, or less than what you would pay to rent a home right now?
Tego:
So I’ve run the scenario a bunch of different ways. And what I do is I say, okay, if I, if this house let’s for example, $250,000 house, you know, and not that there’s a lot of them out there, but they’re coming there, they’re coming on and they’re going off immediately. It’s so quickly, but it’s a $250,000 house with a, and you compare that to, if you were to rent that house, it’s probably going to rent for around 1500 a month. Let’s say that’s conservative. Yeah. Yeah. Obviously, maybe more you know, but then you’ve got utilities and you might have renter’s insurance. And so I ran a bunch of different scenarios trying to be really conservative about it. And, and, and it goes back to what we’ve always said, Tracy, it doesn’t, it it’s like in every single market, no matter what it was always, if you’re going to be in the home for at least two years, it makes sense to be a buyer versus a renter. It’s still it’s that it’s that 18 month break even point. If you’re going to be only in a, in a place for a year, renting is probably
Tracy:
That’s right. With the low interest rates that we have right now, that probably will last for the next year. So I’m still like trying to answer the question, why would somebody want to buy, right. So let’s say we’re at the top of the market on homes, and you want to be a buyer with interest rates still in the low threes for most people right now with decent credit. If the interest rates go up in a year or two, and the home price goes down by $10,000, their monthly payment is still going to be less than if they bought two years from now with a 1% interest.
Tego:
Just, yeah, just to remind people of that calculation, a 1% change in interest rate equals a 10% change in the home price from, from a payment standpoint.
Tracy:
So in addition to that, there’s a net gain from buying a home there’s tax benefits. There’s the satisfaction of making it your own. You know, we have someone on our team who was interim and with kids that was renting and last year was, you know, bought their house again or bought a house in. Cause they had been a homeowner rented for a while, bought their house last year. And it was funny to not lose. Great to hear recently them just saying, it’s so awesome to be owners again, because the house is ours. We’re making it our own. The kids are making their memories here. We’re painting it, the colors we want, we just did the yard. We did this amazing grilling area outside and all the satisfaction of making the house they’re their own. But, but logically there, there also is a net gain financially from being a homeowner.
Tego:
Yeah. I’m all about the financial part of it, right. In the numbers. It’s like the numbers have to make sense to me. And, and to me it just, you know, if you do the math, it just makes sense. Right. And, and you know, again, I’m doing, you know, some pretty conservative, you know, th the thing is, let me, let me give you something here. I’ve been looking at all these different forecasts and I’ve seen forecasts anywhere from six to 8%, to 10%, to 15% price appreciation expected for the next year going forward. Right. And, and right now I don’t see anything changing that there’s nothing out there that could make that change. You know, even
Tracy:
COVID, didn’t make it change, coded, stopped everything. Right.