We are in interesting times. Texas metros have had hot real estate markets for the past five years. For the last few months, we have had questions at both end of the selling spectrum. On the one hand, we are still seeing a sellers’ market in terms of inventory and demand. On the other hand, we are seeing homes at certain price points taking longer to sell and some values softening. What’s going on?
First let’s examine the dynamics of the national, regional, and local real estate markets to answer those questions. Again I look at this not as a seller, buyer, or broker. I’m a developer and a real estate and equity analyst with forty years of watching the Texas market.
Presently there are eight metro areas with a population of over a million nationally that have fully recovered from the recession. “Fully recovered” means they are at or above pre-recession GDP, employment, and real estate values. Four of them are in Texas – Austin, San Antonio, DFW, and Houston. Only 2% of our nations counties have fully recovered. Those cities carry a lot of economic weight, but can’t carry the nation by themselves.
Dallas / Ft. Worth, San Antonio, Houston, and Austin continue to be sellers’ markets based on the lack of inventory and high demand in all real estate channels. What constitutes a sellers’ market? Analysts consider six months of supply as equilibrium. Above that it is a buyers’ market, below a sellers’ market. A buyers’ market is where the buyer trends show sold values being 7-10% less than asking price and other concessions are common. Historically in a sellers’ market the seller is able to sell within 2% of their list price, often with multiple bids. The Texas region has not been in a buyers’ market for nearly five years in our major metros.
The only city that has seen sales slowing is Houston. Low oil prices have caused employment growth to slow. Houston is not as robust as it has been for the last five years, but sales continue to remain relatively strong. At 3.4 months of inventory, it is still solidly a sellers’ market. Demand for commercial real estate has slowed as companies are pulling back on expansion plans. The good news is that there is not the speculative commercial space that we have seen in previous years.
So, if you live in one of the Texas metros, what type of market are you in? These number are from the Texas A&M Real Estate Center.
Attached are our breakdowns of the Austin and DFW residential markets by zip code. Local real estate data is very important, because even though these metros are broadly sellers’ markets, specific areas have more inventory and are hinging closer to buyers’ markets. You have heard this for years – all real estate is local. Neighborhood values can be dramatically different and it is important for sellers to sit down with a real estate professional to price their inventory correctly.
If priced correctly, homes in all price points in Texas metros should sell within 60 days. However be aware of each local neighborhood, because a few areas of each metro are taking 3 to 4 times longer to sell than the norm in that area. Homes under $1 million if priced correctly should sell within these parameters.
Those sellers that argue with this logic need to step away and look at it from the buyers’ perspective. Let’s look at the logic of setting the proper value against an inflated value when placing your home on the market. A great example is the value of the dollar; if I take a dollar and walk back to where we have our cubicles and ask $.90 for it, there is a chance I may have multiple offers up to the true value. The point of this is that buyers are not going to overpay in this market in general and will not take the time to look at a home that is out of line with fundamentals. Would you?
Demand for shelter, whether for sale or rent is still strong throughout all our metros. Jobs are still being created. There is not enough shelter for everyone moving here. As long as Texas and our metro have strong job creation there will be demand for Texas homes.
Home sales in general were slower last month. In Austin, this last month ABOR reported residential values rising, but the number of sales slowed just a little. Rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Yet the naysayers want to say the ‘overvalued bubble’ has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. It is not a softer real estate market.
Some metrics in housing (higher price points in certain neighborhoods) may be showing signs of a slowdown temporarily, but one thing that is evident is housing demand continues to strengthen. Values, inventory, and other analytics need to be reviewed if selling your home in a timely manner is important. Check with your real estate professional to see what values and inventory are doing in your specific neighborhood.
Total home sales nationally increased to nearly 6 million annualized in June. This was the fastest pace of sales since before the financial crisis and is a clear sign that the housing market is gradually normalizing. Granted, people may not have the income to keep pace with growth of home prices nationally or locally. And credit restrictions are either too tight or too loose, depending on which assumptions you start with. But demand is strong, particularly in Texas and that’s a critical component of the whole supply, demand, and price thing that often gets put on the backburner.
What we are seeing is a readjustment of the market in some neighborhoods. With the potential of rates increasing this year, the ability to buy as much house as you can today will disappear. A one percent rise in rates is a 12% loss in buying power. All buyers want the best possible buy and all sellers want the most profit they can get. The happy medium is to look at the analytics and buy or sell at the right value.