In this issue:
- July sales and lease data release by HAR
- Tax implications for real estate investors
- Some positives in a world of negatives
Hello my fellow property investors. I hope all have been staying safe since my last note. I want to thank those of you that have sent feedback over the last few months! Definitely helpful to know your thoughts on the craziness we’re all still going through and what topics are of interest. Being a former banker, I love data, but I try to mix in a good amount of non-data topics as well, so keep the feedback coming! Like usual though, I’ll start with some data 🙂
July HAR Release – https://www.har.com/content/newsroom?pid=1732
Another good month across Houston! You might remember that home sales declined significantly in March, April, and May, and then June showed a strong rebound. July showed an even stronger rebound, with even the luxury market (homes at $750,000 and up) outperforming last year by over 40%! Pent up/delayed demand is the strongest driver, but it’s impressive nonetheless that with this strong July, the Houston area now has sold more homes year to date than at this point in 2019. Only 2.7% ahead of 2019, but 2019 was also a record year.
Leasing remained consistent, with average rental price for single family homes and townhomes/condos essentially flat year over year. Activity was slightly up year over year in both categories as well.
Charlie’s summary thoughts – the market has remained impressively robust. Pricing has not decreased, it’s actually increased slightly for both sales and leases. Lack of supply continues to outweigh what was a decrease in demand, but now is essentially flat demand year over year. Those great buying opportunities aren’t quite here yet.
Tax Implications for Real Estate Investors
Every year, Dr. Jim Gaines, Chief Economist at the Texas A&M Real Estate Center, gives an economic update presentation to HAR members. Typically it’s live, but this year of course was over Zoom (complete with technical hiccups that I’m sure we’re all getting used to).
Dr. Gaines is a great speaker and always comes with fantastic information. I’ll give tidbits in future updates as well, but one thing that stuck out to me most is his very informed opinion that tax revenues will have to go up. It doesn’t matter which party is in office come November, tax revenues will have to increase, likely for the next decade or more. Why? COVID-19 of course, but more specifically because the US is already at the highest debt to GDP ratio we have seen since right after World War II. That’s even before our government figures out the next round of stimulus, which will fall somewhere between the astronomical sum of $1 trillion – $3 trillion. These kinds of numbers are completely unsustainable, and it will take time to get back to any type of normal ratios.
What form the increased tax revenues come in is very much up for debate. If you didn’t see from one of our recent LinkedIn posts, 1031 exchanges are back on the chopping block (https://lnkd.in/eTejYbY). This would only be for wealthier households, but something to watch. Real estate investment is currently a great tax haven, and selfishly I hope it continues to be. Upcoming changes in tax laws will be very important as you decide to invest more or less in real estate.
Some Positives in a World of Negatives
Did anybody see that unemployment fell this week? The US had less than 1 million new jobless claims in a week for the first time since mid-March. July showed a net jobs gain of 1.8 million, bringing total unemployment down to 10.2%. COVID-19 related hospitalizations are about half of what they were in the Houston area a month ago!
None of these numbers taken individually are good. We still have way too many people looking for work, struggling financially, and catching this virus. However, we finally have positive trends. We’re nowhere close to out of this, but it’s a lot better hearing that “hospitalizations are down” versus “we’re running out of ventilators.” Hoping these trends continue, and that you all stay healthy as well.