If you are young and have recently become a homeowner, we need to talk.
In addition to the usual list of concerns, you now have a new worry. Home prices can actually decline.
Yes, this means you. The value of your house can decline.
In fact, data from the Texas Real Estate Research Center at Texas A&M tells us that home prices likely peaked in May. And they have been falling since then in every major Texas city.
If you bought your house in the last few years, this is new. You’ve known only the joy of homeownership. Maybe even the ecstasy of homeownership.
If you stretched to buy a home at four times your annual income, there’s a pretty good chance that your home has made as much money while you were sleeping in it as you did while working. If your home value rose 25% in any 12-month period — and many did — the appreciation was as much as your salary!
Other than marrying well or winning the lottery, minting money doesn’t get much easier.
But the other side of homeownership isn’t so grand.
With mortgage interest rates now at nearly 7%, we’re at an ugly standoff in housing. Fewer buyers qualify. Many owners will find themselves locked in. Trust me, with mortgage rates at 7%, your pre-2022-rate mortgage will soon be a treasured asset.
But take heart. Be brave. Do nothing. This, too, shall pass.
Time will go by. Much will be said. But if you hang in, make your payments, clean your gutters and enjoy your outdoor grill and walk-in-closet, owning your house will be a good investment once again.
I say this confidently from two sources: personal experience and statistics.
In the early 1960s, I bought my first home, a four-story townhouse in the South End of Boston, then a rough area. I sold it in 1966 to ride a better horse, a townhouse in upscale Brookline. At the time, mortgage bankers were concerned that life as we now know it might be ending. Why? Mortgage rates had hit a stunning 6%.
Home prices struggled for a few years, but life continued. Indeed, a few years ago I wrote a column about how I had purchased the entire South End townhouse for the same amount as the price of the Sub-Zero refrigerator in one of the newly created $1 million condos on the fourth floor of the South End townhouse.
On the other side of the country, one of my younger brothers, eager to own a home in Los Angeles in the early 1990s, played a game of catch-a-falling-knife. He bought a home in a falling market. He was upside down for more than three years. But the house, or the land under it, is now worth about five times what he paid for it.
While it’s possible to lose money in residential real estate, odds are your results will range from OK to splendid if you’re a homebody long enough.
The statistics for Texas bear this out.
In the big Texas oil bust of the 1980s, Dallas home prices peaked in 1986 and bottomed in 1989. They didn’t recover to their previous highs until 1997 — 11 years later. It was the same for San Antonio, but it happened from 1984 to 1995.
Houston, the first city to be crushed by the oil bust, peaked in 1983 and bottomed in 1987. Full recovery had to wait longer — 1997. That’s 14 years.
Austin, like Dallas, peaked in 1986. It didn’t bottom until 1991 but was fully recovered by 1994. “Only” eight years.
That bust was far worse than the recent housing “bubble.” It took nearly 10 years to go from peak, to low, to full recovery nationally. But Texas fared far better. It took a bit under six years in Dallas and about 3.5 years in Houston and San Antonio. Austin took 4.5 years. And since reaching full recovery, home values in all four cities have more than doubled.
If history repeats itself, the decline in Texas won’t be as bad as it will be for the cities of the East and West Coast. It won’t be as long, either.
Let’s hope so.
Is this too pie-in-the-sky?
Maybe. As the investment boilerplate says, “Past results may not be indicative of future performance.” I have a concern, for instance, that I call “Peak Texas” — trends that could undo the Texas growth miracle. They can all be debated, pooh-poohed or dismissed, but they worry me. Here’s my list of hobgoblins:
The great Texas migration could end. We’ve benefited enormously by net immigration from other states. It has kept our labor force growing and stocked it with needed knowledge capital. It boosted housing prices, too.
The quality of Texas public education may fall. If it does, we won’t be able to meet the employment needs of Texas. With the rise in Texas housing costs, fewer people can afford to be teachers. Class sizes may grow, and education quality may decline. Equally bad, we now have non-academic committees dictating history and banning library books. While the public universities of Texas are great, our K-12 students may be increasingly unprepared.
The Texas energy grid could falter again. While state government insists that it’s “all better” after the freeze of 2021, public confidence is low. Skeptics should check the wait time to have a home generator installed. The last thing we need is for Texas to become the Puerto Rico of the Lower 48.
Pro-business conservatism in state government gets pushed aside. The shift in state government from pro-business economic conservatism to religion-dominated conservatism may reduce in-migration of both workers and businesses. The Texas Legislature can talk about being pro-business all it wants, but a government — state or national — that rules by religion isn’t pro-business or pro-freedom.