With a record number of residential properties on the market across the country, we (a colleague and I) were debating strategies for locating future home sales markets. Basically, where should we guide and recommend home purchases to our clients. He took the stance that the overall economy drove home sales, I stated that economic growth, or future economic growth should be the focus for current home sales.
Before we get into the argument and debate, let’s be clear what the differences are: 1) economy is the structure or conditions of economic life in an area or period; 2) economic is based on the production, distribution, and consumption of goods and services. Therefore, future economic growth is based upon expected production of goods and services; in this case, projected residential and commercial development or desired areas.
Back to the argument: he said that we need to guide clients home purchases based upon the current home market; I responded that home purchases should be structured as an investment vehicle, so we should guide clients to purchase in areas of planned development or established areas with projected limited supply.
A little more background, we practice our profession in the suburbs of a thriving metropolis in the Dallas/Fort Worth area. In an expansive market like this, different areas go through growth spurts, development phases, and reconstruction. In effect, you can follow the economy/economic growth and keep your base of operation in one place.
I can understand his point. He was trying to explain that during a down market, buy-buy-buy as home prices are deflated, like now; during an up market, rent-rent-rent as home prices and rents are inflated; and as the market begins to drop again, sell-sell-sell.
I couldn’t agree more, but I insisted we need to put his practices to work in economic driven locations. For example, the suburb of Frisco and Mansfield, TX started out as small farming communities. They eventually grew into small towns with a few mom-and-pop stores. The past 7 years, each town went from a single High School to 4-High Schools and 3 more High School projected over the next 5 years, for each town. These cozy little towns, with it’s neighborhood stores, now have all the basic Super Stores: Tom Thumb, Kroger, Super Walmart & Neighborhood Walmart, Loews, Home Depot, Best Buy, etc… and a chain of national restaurants. Those that bought 10-15 years ago have seen their property values (and taxes) skyrocket.
My point is, projected growth is a key economic driver to warrant a home purchase plan. Economic driven purchase plans should consider the economy to maximize future capital gains. We stared at each other, until one of us said, “Okay then, now what do we do about it?”
It was time to put our conclusions to work. We contacted a couple of Master Planners from national commercial construction companies. They generally told us that contractually they couldn’t reveal the future site location being considered for Super Strip Centers, Walmarts, etc… but as we revealed our debate and approach, a few did give us a clue as to future developments. We immediately drove to those local areas and took pictures and notes of the residential areas, both existing homes and vacant lands. Then we pulled the zoning maps and plans from those cities, and any rezoning considerations and requests. We overlaid our maps and sketched out our projected premium residential housing areas that we felt will become highly desirable in the next 3-5 years. We discussed our hand sketched maps with the city planners until we felt we had a map of the projected economic development.
These are the areas we will recommend to our clients and investors. In 3-5 years, someone remind me to update this blog and compare property values of now and then.
How do you determine where to place a client? Does the client dictate their location, or do you provide well thought, planned locations based upon sound economics. Sadly, many people are driven to MLS locations regardless of the economy or economics of the area.
Here is a recommendation for Real Estate Brokers: keep a diary of home values by geographical areas, and chart the values of those areas based upon your success in home sales. Then compare this chart to a comprehensive home value chart (ie. Zillow). Does your line fall above or below the average home sales line. If it is above, kudos to you and your clients. If it falls below, shame on you, you don’t do your homework.
Do you want repeat clients and investors coming to you for their Real Estate needs? Maintain a chart and stay on top. Your clients will feel confident in your recommendations and guidance in finding the right home for them.