The Ralph Bivins Project – Podcast Guest Sam Scott

HOUSTON – (Realty News Report) – RALPH BIVINS: This is Ralph Bivins with the Ralph Bivins Project. We’re here today with Sam Scott. Sam is a veteran of the real estate industry. He is director of CommGate, the commercial division of the Houston Association of Realtors. They have a lot of data and a lot of listings. A lot of professionals in the industry use this service. He’s got his finger on the pulse of a lot of things and has been there for quite a while. HAR was the first major association to put their listings online in the 1990s. Sam was part of that. Also, I want to announce that on Sept. 11 from 3 to 6 p.m., CommGate will sponsor an economic outlook with an address by Jeff Havsy, a well-known economist from Moody’s Analytics. Put that on your calendar. It will be enlightening and interesting. Welcome, Sam.

SAM SCOTT: Ralph, thank you for having me on.

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RALPH BIVINS: I guess everyone is wondering about the economy. What do you think the state of affairs is in our regional economy?

SAM SCOTT: Well, interest rates continue to put downward pressure on pricing and demand. When money is more expensive, it makes everything more expensive. We see that in decreased volume of transactions. For the brokerage community, it has put the squeeze on commission income. 2024 continues to underperform 2023 in many respects and 2023 was a big letdown after 2022.

Interest rates became a factor in the last half of ’22 and everybody has been holding their breath, hoping that interest rates will come down, that the whole promised rate cut will happen. It reminds me of back in the 80s when “stay alive for ‘85” was the motto and we didn’t know then how much worse things would get before they got better. I don’t see anything like that on the horizon, but I do think that at some point we will get some of the interest rate relief that we’ve been looking for and volume will pick up.

But in the meantime, you have the financing cycle for commercial property – to the extent that people are in debt. If you have a five-year mortgage with a balloon and you have to refinance the thing, right now, if you try to refinance it, chances are it will be at a higher interest rate and the lender might ask you to bring a little money to the closing to help the loan-to-value ratio. This is not a fun prospect when you are looking at a cash-in refi on properties that, in many cases, are not profitable. After the refinancing, they’ll be even less profitable. So, you’re getting some distressed sales. Some of these notes are non-recourse, so the lenders are facing the prospect of either doing a friendly extension or taking the property back on themselves and operating it. So that’s kind of the general vibe we are getting out there.

Certainly, there are bright spots. Industrial is still performing extremely well. Suburban land sales continue apace. The new home sector is really picking up the slack.

RALPH BIVINS: The home builders can buy down the rates. They are attuned to what it takes to make things happen.

SAM SCOTT: Well, new home construction is filling a larger percentage of the residential transaction market demand. A lot of people are locked into their houses if they have a 3 or 3 ½ percent mortgage on their property. Even if you wanted to move or buy another house, today, you’re looking at 7 ½ to 8 percent on a 30-year mortgage. This has many people looking at shorter terms, balloon notes, adjustable-rate mortgages (ARMs) and other things to get the rates down.

But you’re right, the new home builders have been offering rate buydowns at least for the first couple of years where interest rates will be lower, and everyone is hoping that at some time in the future they can refi at a lower interest rate.

RALPH BIVINS: Builders think the sweet spot is like 5.9 percent. They learned consumers will respond if they start out about 5 percent and get to about 5.9 percent. They also know how to cut some prices, maybe make the house a little bit smaller and trim some other expenses on construction. They are well practiced at that.

SAM SCOTT: Certainly, smaller homes, narrower lots, which seems to be a trend. The other big trend is build-to-rent residences. There’s a lot of new construction with communities being built from scratch with dozens of homes being put on the ground – and not being offered for sale, but for rent. Typically, these are offered on a pretty skinny lot without much of a setback. You’ll find these down off 288 in Brazoria County and off Highway 6 in Missouri City. That seems to be the key to affordability right now – keeping rents down.

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Biography of Sam Scott

Sam Scott is the director of Commercial Gateway for the Houston Association of Realtors. Scott manages the delivery of the commercial information exchange, CommGate, which focuses on commercial properties in Texas. He is responsible for coordinating data access policies and the procurement of information for use with the MLS. Prior to joining HAR, Scott was the executive vice president of Landata, the real estate information subsidiary of Stewart Title. He holds an economics degree from Rice University. CommGate listings are distributed nationally through the Moody’s Analytics CRE Network.

CommGate’s Economic Outlook and Social Event will be Sept. 11 3:00 pm to 6:00 pm. Speaker: Economist Jeff Havsy of Moody’s Analytics. Information and Registration: click here.

THE RALPH BIVINS PROJECT PODCAST

LISTEN: THE RALPH BIVINS PROJECT with Sam Scott of CommGate

LISTEN: THE RALPH BIVINS PROJECT with John S. Moody, Jr. of Moody Law Group

LISTEN: THE RALPH BIVINS PROJECT with Scott Martin of Granite Properties

LISTEN: THE RALPH BIVINS PROJECT with Robert Clay of Clay Development

LISTEN: THE RALPH BIVINS PROJECT with Alma Zavala of CommGate

LISTEN: The RALPH BIVINS PROJECT with Adam Lair of Partners Capital

LISTEN: The RALPH BIVINS PROJECT with Jake Donaldson of Method Architecture

LISTEN: The RALPH BIVINS PROJECT podcast with Bill Baldwin of BLVD Realty

LISTEN: The RALPH BIVINS PROJECT podcast with Johnny Cruz of RAMSA

LISTEN: The RALPH BIVINS PROJECT podcast with John Breeding of Uptown Houston

Listen: THE RALPH BIVINS PROJECT podcast with Dean Strombom of Gensler