This is a question one of my clients asked yesterday: Chris has a desire to move into a larger home and feels some hesitation because of all the bad predictions about the housing market he sees in the news. He sited these news stories in his email:
July 28 (Bloomberg) -- U.S. stocks fell and the Dow Jones Industrial Average lost more than 200 points for the second time in three days after the International Monetary Fund said there is no end in sight to the housing slump.U.S. stocks dropped last week, resuming a two-month slump, after existing home sales fell more than economists forecast and bond investor Bill Gross predicted $1 trillion of losses for banks and brokerages
Fannie, Freddie Fannie Mae lost 11 percent to $10.31, while Freddie Mac retreated 6.7 percent to $7.72. The two mortgage-finance companies may see their equity wiped out if the U.S. Treasury uses new authority to take over the government sponsored companies.
This is how I answered his question about my optimism:
Good morning Chris,
The data I use to determine the state of the local housing market is intensely local - not national. The best source is the data gathered from the MLS. Very little real estate changes hands outside this data source and it is, to me, the only way to determine the current market in the local housing economy.
Neither of us can predict the future. But one thing I have observed about the local market (Houston in general and The Woodlands specifically) is that it rarely follows the national market. When California and Florida were seeing 20%+ increases in value per year, this area rocked along at a rate closer to 4-7% per year. With the east and west coast inflationary pricing, many people saw the value of their home more than double in less than 5 years. The fact that they have seen a 25-35% decrease in the last few years, in effect, pulls them into a similar "increase" in value to what we have in this market when you look at the picture from a 10 year prospective.
Studies have been done to determine what causes home prices to do what they did in certain pockets of the economy. Of course, some of the locales have had plants close and/or unemployment rates rise. I'm sure you have no doubt that employment opportunities are excellent here. The second, and more prevalent, reason why prices rose so dramatically is the restrictions and controls to growth in those areas. Builders will tell you that it takes several months longer to get a subdivision ready for homes in certain cities in California, Florida and a few other states. Those costs are prohibitive and costly - both in time and in the developers money. When the supply of homes does not meet the demand of buyers, the price rises quickly. When the number of building lots are greater than the number of new home buyers, the price can fall just as quickly.
Couple all these factors with questionable lending practices (which vary from state to state) and you have a very uneven picture of the housing economy. When you look at averages, you are seeing a distorted picture of what is real and actual in our local economy.
Chris, I would like to use this email conversation in my blog. Do I have your permission? Of course, I will leave off your identity and email address. I will simply site the sources of information that you provided as part of my blog post.
BTW: the predictions about lenders - Fannie, Freddie, banks and mortgage companies - actually supports my encouragement to make your move sooner, rather than later.
If you agree with the state of housing prices locally, you cannot expect a big drop in housing values. If that is established, you need to rush into something now rather than waiting till the lenders raise their rates to make up for the losses they have incurred during the past few years. I believe the rate increase has already begun and will pick up speed sometime in the near future.
But my "crystal ball" has always had a great deal of fogginess!!!
These are cold hard facts about the market in The Woodlands Real Estate:
Homes sold in last 6 months - price range $300-400,000 with a pool: 65 properties have sold in an average of 54 days. Of those, 18 went under contract in less than 10 days, 33 in less than 30 days and 11 in less than 60 days - leaving less than one third of the homes on the market for more than 2 months. Folks (and that includes you Chris) - That is NOT a bad real estate market!!!
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