We absolutely do not want to be a company that colonizes a public health crisis for marketing. That said, a lot of people are confused right now broadly and the markets are in some turmoil, with no specific end in sight. Regardless of the health conditions and the state of the Dow Jones Industrial Average, you will need a place to live -- so let's see if we can make some semblance of what's currently happening.
PS: if you come across this post, we don't obviously know your exact age, but many of us have lived through multiple fiscal reversals (tech bubble, 2008, etc.) and while this is different as it involves a health component, we are confident it will be managed properly. The time frame is still at question, but humans are adaptable. It's one of the things we do best.
Oh, and PPS: we wrote some of the below a few days ago (March 10-11, 2020). So some of the rate information might be changed depending on when you read this. Just a heads up to trust but verify.
First: we are not economic analysts
… but we have been around the housing block 12-15 times, including both renting and buying, and right now we help people with both. We understand the broader market, for sure.
Anyone with even a cursory desire to analyze the current market (mid-March 2020) can see a few different things happening right now: you’ve got the spread of coronavirus, you’ve got the Saudi Arabia vs. Russia situation pushing down oil prices, and you’ve got changes in the credit market. Back after Hurricane Andrew in 1992, Warren Buffett famously said “it’s only when the tide goes out that you know who is swimming naked.” Some people believe that wisdom applies to the first half of 2020 too.
The credit markets
The average rate on a 30-year fixed generally tracks the yield on a 10-year U.S. Treasury, but right now it’s not even keeping up. A Vice President at Cross Country Mortgage told CNBC yesterday: “We are like Home Depot during a hurricane.” (I have a friend in Denver trying to buy and his mortgage person took four full business days to respond to a simple email, before apologizing profusely.) Mortgage rates are about 3.11% right now, which is the lowest in about 10-12 years. They’re falling slower than the 10-year U.S. Treasury, but they’re still very low.
First question: is this a recession?
We don’t really know. The term being used a lot is “correction.” Some believe we are about to hit a “short and sharp” global recession, largely tied to issues with the global supply chain. Others believe a recession will be averted and liquidity will be preserved. We honestly don’t have enough inputs right now. It looks panic-y, but we don’t know 100% of the picture.
Now, what about DFW rents right now?
They are going up. This is based on a study from Harvard’s Joint Center for Housing Studies, which was in turn summarized in D Magazine. Look at these five buckets:
$600 and under:
2008: 170,000 units
DFW has actually lost more units under $800 than any metro outside New York City. We’ve written about some of the challenges of affordable housing before. According to that D Magazine article, a DFW multifamily hard construction costs is about $171; the national average is $206, and NYC/San Francisco are up in the $270 range. So it’s still relatively cheap to build here, compared to national averages, but most of these new units coming online -- as the buckets above suggest -- are higher price points. We gained almost 200,000 units of $1,400 or above in a decade-long span. That said, the late-2019 average unit price was lower than that -- $1,160.
Let's quickly bring debt and having a job into this
This is from the Morning Brew newsletter just on Friday morning, March 13:
Last year, the IMF warned a crisis half as severe as the 2008 recession could put 40% of corporate debt at risk. If the pandemic makes it harder for companies to make interest payments, they might need to lean on cost-cutting measures like layoffs or pulling investments.
There are certain industries that will be more susceptible to layoffs -- travel, for example. Event-facing roles (trade show prep, etc.) may be as well. But, frankly, even though we discuss entrepreneurship a lot right now ("the hustle"), most people are still employed by bigger companies. The 1995 Fortune 500 companies employed a total of 20 million people. The 2015 Fortune 500 employ a total of 27 million people. In 20 years, then, we’ve added 7 million people to the rosters of our biggest companies. It's slightly higher than 27M now.
Corporations have very specific debt positions, and if the virus and markets impact their ability to manage those, unfortunately one of the first lines of defense will be layoffs. If you currently lack a full-time job or income source, it's going to be much easier to rent (not easy, but easier) than to buy. It's a consideration.
So should you buy instead of rent right now?
That’s a personal decision. If you have “real estate guys” and lenders, they are probably texting you like crazy right now. But only you can decide whether the time is right to make a home purchase. We can help talk you through that decision, but we can’t make it for you or anything. A home purchase involves a lot more upfront -- at least 3% down, typically, plus other costs you might not even be cognizant of right now -- than a rental does. If you’re ready to buy, the market is on your side right this second. It doesn’t mean you’re ready and it doesn’t mean the market will be on your side in a month, but right now, the rates seem good.
Holler at us with any questions about this landscape -- and if you’re just looking to rent for another year or so and see how things evolve, we got you covered there too.