Is now the time to sell?

With the booming real estate market in Texas, many who own property are wondering if now is a good time to sell. In terms of inventory and sales pace, we are in a seller’s market, so the basic answer is “yes” – with a grain of salt. This is the best time in the last decade to sell if you own property in Texas. Residential sales are coming off record sales months in all four major Texas metros with continued demand for more housing inventory. Priced appropriately, most residential properties sell within 90 days. With current and projected job creation, the residential real estate market should continue to appreciate for the next few years.

Based on the current market, many believe now may be a perfect time to put your house or investment property on the market. Brokers are clamoring for inventory and builders are scrambling for land and lots. All metros are at their lowest level of inventory in years.

Texas rural markets are doing better also after a number of slow years. 2012 was one of the most active transaction years since 2008. The concerns of values dropping (which they did in 2008/09) seems to have gone away as more transactions happened in 2012. This in turn helped values state wide, with the central Texas area leading the state with a 6% increase in values sold over the previous year. To put things in perspective, realize that Texas leads the nation in number of farms and ranches, with 247,500 farms and ranches covering 130.4 million acres as well as the highest average value of farm and ranch real estate in any state.

Supply

Supply is going to increase over the next few years due to demand. As I said above, we are in a seller’s market – that is, there is less than six months of inventory available in most real estate channels. Builders and developers are currently scrambling to deliver new product in the construction pipeline to meet demand. So, before this new inventory hits the market, it would be a good time to sell.

Foreclosures are basically a non-factor in Texas. They represent less than 1.5% of the total market. Yes, in any market, including great ones, there are always some foreclosures, and foreclosures near your property can affect its value. That said, foreclosures have very little impact currently on Texas values. Nationally as well as regionally, many expect inventory to continue to rise as 3.2 million homeowners escape the inability to sell because of negative equity in the last 12 months and an additional 1.9 million are expected to enter positive equity in the next 12 months.

Within the next year, Austin, Houston, and San Antonio will see increased land, lots and housing inventory. A year ago, most equity was not interested in financing new real estate. This is no longer true with most Texas metros seeing a huge influx of interest in the metro markets. Selling now while demand is high and before supply increases may garner you your best price.

Appreciation has been good this year and should continue for at least another year based on demand and inventory. Values will continue to improve, but should slow as more competition comes on line in the coming next few years. And barring another financial catastrophe, the values created in the last few years will stick and improve as you hold your real estate longer. Remember, slow and steady appreciation wins the race. Your greedy side wants double digit appreciation, but I will tell you that that type of growth is unhealthy. The lack of that type of growth is what kept our regional markets healthy when the boom was in full swing. Remember appreciation of 30% or more in any asset, has historically proven to be a ‘bubble’, an economic term none of us want to see again.

Construction is back

Construction is stronger than it has been in years. The cranes on the horizon of Houston and Austin make it obvious that construction is coming back. On top of that, the ‘shale boom’ has put pressure on quality labor as wages have increased dramatically to compete. The cost to build is going to be more expensive in materials and labor, so values will continue to increase for a while.

The number of new developments in the pipeline has increased. One of the products of an improving market is new development, which has been missing in all Texas metros over the last five years. Needless to say we have seen a dramatic increase in the number of new developments being filed. Locally in Austin and San Antonio we saw a surge in land purchases just over two years ago. We are again seeing a renewed interest in land development purchases as builders look to fill their pipeline for 2016 and beyond.

Over the last several years, most homeowners selling their homes did not have to compete with new construction project around the block. As the market is recovering, more and more builders are jumping back in. Another phenomena of the current market, is the strong increase of in-fill urban developments and homes. Traditionally in Texas, new homes were built in the suburbs. The only new urban construction was typically remodel. However due to the needs of the market, Austin and Houston are seeing strong increase in urban building outside of the CBD condos. These new homes will again become competition as they are an attractive alternative for many purchasers. With this added competition, many residential sellers will need to look to modernize their homes as they come on the market, as to make them attractive against geographically close competition.

Interest rates are rising

With the healing of the national market (as well as the manipulations of the Federal Reserve), interest rates are rising. We have see rates jump more than a full point since the beginning of the year. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, and the National Association of Realtors are in unison projecting that rates will continue to climb. Whether you are moving up or moving down, your housing expense will be more a year from now if a mortgage is necessary to purchase your next home. Again remember with every 1 point of increase, the buyer loses 12% buying power. We knew this day was going to come when rates would increase. The good news, is that this is a sign of a healing economy. If rates go back down, we have a problem. For those of you that don’t follow rates, According to Freddie Mac’s Primary Mortgage Market Survey, interest rates for a 30-year mortgage have shot up to 4.57%, which again is more than a point since the first of the year.

An important question

If you are going to sell, where are you going to buy? A word to the wise, whether it is your own personal home or investment property, in the current market you need to have something ready to move to. All the factors from above are going to affect your buying possibilities and potential. Whether it is the need to find something in the same neighborhood or the tax need to reinvest, the current Texas real estate market is tight enough that it is hard to find a replacement. Many sellers come to the realization that it is a great time to sell, but buying in the same area brings challenges due to the strength of the market. Before you sell I would strongly advise that you have something lined up.

Look at why you are thinking about selling and decide whether it is worth waiting. Is the possibility of a few extra dollars more important than being with friends and family and staying where your kids have grown attached to? Laugh if you want to, but the older I get, the more I realize the importance of habits and being comfortable and familiar with my neighborhood.

You already know the answers to the questions we just asked. You have the power to take back control of your situation by putting your house on the market today. The time may have come for you and your family to move on. Whatever the decision is, realize that you are blessed to live in as strong a regional market. Also, realize that keeping your family happy is paramount. If you want to stay put, and that makes everyone happy, forget about the appreciation.

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