EL PASO, Texas (KTSM) – Escaping the skyrocketing costs of either buying a house or renting an apartment has been virtually impossible, especially in the state of Texas where residents have seen double digit increases in both over the last year.
Experts say the rising costs are happening for many different reasons, and they don’t expect those costs to come down anytime soon, if at all.
Al Lord, the Founder & CEO of Lexerd Capital Management, a real estate firm that has managed over $1 Billion in assets since its founding, said it’s all about supply and demand,
“What has happened is demand has driven pricing higher and a lack of supply has driven housing prices higher. So it’s both housing prices and rental rates that will continue to move higher and that starts off with Economics 101. Supply and demand, but you’ve also had other issues. Obviously Covid has had an impact and the supply chain issues have had an impact.”Al Lord, the Founder & CEO of Lexerd Capital Management
Lord said that as Covid and the subsequent shutdowns hit all the construction stopped, impacting supply, which translates to a halt in new home and apartment construction.
According to real estate data the price of a home in cities like Austin and Dallas spiked more than 30% over the last year which sets the median price at nearly $500,000 in those cities. Statewide prices jumped about 20%, including in El Paso.
Ben Williams, broker and Owner of Exit Realty in El Paso said he expects the prices to keep rising,
According to the experts who spoke with KTSM 9 News Anchor Christina Aguayo, there are many factors that contribute to the low supply and high demand situation,
“There are so many things logistically as to why homes are not being built as fast. Covid had a lot to do with that as well the labor that we normally have has been minimized at this time, especially in El Paso,” Williams said, “When Covid first happened, initially people just pulled their houses off the market for fear of Covid. Then it kind of went out of control there for a little bit in my opinion and we started having incredible bidding wars that were unprecedented and unseen, at least in my 8 years of doing it, and caused prices to go up.”
In addition, the supply chain crisis significantly added to the low inventory of houses and apartments,
“The supply chain has impacted prices and availability of appliances and all the commodities that go into building a house like lumber, copper and PVC. So building has taken longer. Also appliances are taking longer. So if you don’t have a fridge or oven to install, you can’t rent it. So as the supply chain took longer and longer to produce appliances and materials for houses and apartments, it really drove up the rental rates [leading to] the lack of supply. So you had fewer availability of rentals and increased demandAl Lord, Founder & CEO of Lexerd Capital Management
As for the demand side of it, our experts point to a few different factors including immigration, political policy and domestic migration,
“We are seeing a lot of people coming from California and Colorado and from different locations because they are able to sell their homes up there and come down here and buy cash. I’ve seen more cash deals in the last two years than I’ve ever seen,” Williams said, adding that one of the reasons for the domestic migration is cost of living,
“The higher price point in California. They’re selling, they’re cashing out and coming back and getting more house for less in El Paso. If you look at the house you can buy in Texas versus the house you can buy in California for the same price point, there is no comparison. So they’re cashing out maybe getting $200,00 – $300,00 on the cash out in California or some other place and coming down here…..buying cash and getting more house and a better house and all this other stuff that comes with that.”Ben Williams, Broker and Founder Exit Realty
Lord also believes that other factors play a part in domestic migration,
“Taxes are certainly driving migration and better weather. Some of these Covid policies are driving immigration [as well] and its very clear through Census data and the House of Representatives that some states lose some delegates and some gain. Texas has been a beneficiary of the migration that has happened and will continue to happen here.”Al Lord, Founder & CEO of Lexerd Capital Managemen
Lord also pointed to immigration as a factor in the rapid population growth in Texas, and as another factor in the rising demand,
According to Alejandro Mayorkas, the Secretary of Homeland Security, about 500,000 – of the more than 1.7 million migrants that were apprehended at the Southern Border in Fiscal Year 2021 – were released into the interior of the country during that time frame. So far in the first two months of FY 2022, according to Customs and Border Protection data, more than 340,000 migrants have been apprehended at the U.S. – Mexico border.
Another issue to keep in mind, according to Lord, is inflation, which has jumped to a 40 year high of 6.8%. Which means prices on everything from food to gas and housing are going to be higher.
“Inflation is going to have a huge impact here, not only on housing prices but certainly on rental rates. Rental rates are a laggard in terms of the economy, so the housing run up has happened right away. As soon as a house goes on the market it’s getting bit up. Those prices have risen about 20-25% across the country last year. Rental rates take longer to work though the system. So 1/12 of the apartments come up for renewal every year. So the rents that were in place a year ago, as they start to come up for renewals, those rental rates are going to start to get higher because you have more demand than you have supply and that is being exacerbated in this Covid era.”
According to a new study from Zumper rent prices jumped nearly 12% on average in 2021 for a one-bedroom, with the average cost being more than $1,600. As for the average rent of a two bedroom apartment, that average jumped to 13.6%.
However, there may be ways to take advantage of the current situation, or maybe just not get too left behind,
“It’s tough, It’s certainly tough. If you’re looking to buy a home right now, then I would buy it now as opposed to waiting because I think prices are going to be higher a year from now,” Lord said,
“There’s no two ways around that so if your finding rental increases that are too high, the only answer is to downsize, change neighborhoods and try to find a better deal. But it’s going to be tough because there is a shortage of houses, there is a shortage of apartments and that is not ending any time soon.”
Lord said that if you are looking to buy a house, mortgage rates are at near historical lows and are expected to rise. So he says, if you want to borrow money borrow as much as you can for as long of term as you can. He also said that if you want to refinance now is the time. According to Lord, the Federal Reserve is expected to raise rates three times in 2022, and three more times in 2023.
However, if you are going to purchase a house, Williams suggests you get professional help,
“Do your due diligence. Get a professional to help you. A lot of people are doing ‘for sale buy owner’ and they are still not getting as much as they would if they had an agent. There’s a theory out there that they would get more money, but they really won’t at the end of the day. I think it would be wise to get a professional and I think it would be wise to get someone that does this for a living and can give you the knowledge you need to make the vital decisions you need to make.”