Summer 2013 Real Estate Update

Where the Buyers at?

Hey man, where are all of the buyers you assured would be looking at my house? Where are the offers? What’s wrong with me/you/my house? These are the questions that keep a REALTOR® tossing between the bed sheets on muggy nights. The answers vary from: “patience, young grasshopper” to “remember when we discussed price and you suggested one thing, I suggested the other, and we went with yours? Well…” to the dreaded, “I wish I knew, but I don’t.” However one thing is certain. Real estate traffic in the past 4-6 weeks has slowed. Or is it sped up? I’m not sure how to pull that analogy through. It’s been light. How can this be? News headlines have proclaimed with certainty that the housing market is resilient once again, that month after month we are seeing increased numbers both in transaction volume, lower days on market, and lower inventory. And if all this is true…where are the buyers?

Well in order to answer that effectively, we must, as always, look at the market as a whole to see what is going on. Thanks to the wonderful people at GTAR, this is as simple as a click of a mouse.

Sales DataSo here we see the truth, and as we know, this will set us free. If you look in the first column (residential sales closed) you see that with the exception of February, sales have been up every month this year compared with last year. This is a good thing. You also see that inventory has been down every month, which is another sign of a healthy market. However you may notice the trend in 2012 that shows that from July to August sales dropped off from 200 to 171. This trend shows up almost every year. Call it ‘back to school blues’. This year, to date (8/22/13), there are 112 closed transactions for the month of August, so unless there is a mad flurry of activity in the last 7 business days of the month, August is going to show a significant decrease in sales volume, both from the previous month and as compared to August of 2012. Inventory, as of 8/22/13 is holding steady at 1,244 but with fewer homes coming OFF the market, expect that number to creep up as we head into fall. What does all of this mean, you may ask?

Maybe nothing, maybe something. We may see that the numbers improve, as per past years, in September and October before finally settling down over the holidays. Or (and this is what I suspect) we are dealing with a year in which the first six months of the year marked what I believe will go down as the absolute best time in history to obtain a loan,  where interest rates were at their very rock bottom, and many buyers wisely took advantage of that. As interest rates have been creeping up steadily since mid-June, it would seem that we may be looking at a front-heavy year in terms of transactions. The good news is that the numbers for the first half of the year were great. How good? Even if the sales volume for the last 5 months of the year are 25% lower than last year (which would be significant) the year will still come in with a healthy total of 1881 sales, which would be second highest in the past five years and just below 2012 numbers. The bad news is that sellers who are on the market now may see significantly lower activity for the balance of the year, due to the fact that those who were going to make a purchase in 2013 may have already done so. All this, of course, is speculation, but it stands to reason. The upshot is that whatever happens, 2013 will go down as an ‘up’ year, it just may not be AS good as the first half of it suggested, and this is mainly due to interest rates.

So what does this mean for all those sellers that are wondering where all the buyers went? Maybe nothing. It’s still speculative, and likely that the last quarter will show a significant rebound of activity and the inventory will be absorbed. However areas that are contributing to higher inventory and longer absorption rates (currently 75701, 75702, 75704, 75707, 75709) will be dealing with less of a seller’s market than those with lower inventory and shorter absorption rates (75703, 75762, 75791). So for those areas in particular, staying on the razor’s edge of premium value is paramount. Also, price point matters. The average and median sales price have increased by 1.94% and 1.62% respectively from last year, a modest amount, especially considering the heightened cost of borrowing money. Unfortunately many sellers falsely equate higher sales and price appreciation, which causes them to press for higher price, when they should really be doing the opposite. Even though inventory is respectable for a seller’s market, generally the tipping point for price appreciation occurs when the absorption rate gets below 6 months. Right now Smith County is hovering at 6.68, so there you have it.

All in all, buyers who bought in the first half of the year can go ahead and pat themselves on the back, because they took advantage of the most favorable mortgage lending climates I think we’ll ever see again. Buyers who didn’t may be hoping and wishing for a repeat, which I doubt we’ll see. And buyers whose lives, and therefore purchase decisions, are not centered around the financial markets will continue to find favorable conditions in most areas in Smith County, with decent inventory to choose from, fair pricing, and still very low interest rates. Sellers who have not gotten their result by mid-to-late November will probably do well to hang up their spurs for the holidays and wait for more favorable conditions to come around in ’14, but those caught up in the late summer doldrums need not despair yet.

As always it is my pleasure to keep you informed of what YOUR real estate market is doing, and I always welcome your feedback, questions, referrals and the opportunity to serve you. Stay cool!

Nathan ForemanReal Edge Real Estate
(903) 526-9652
Foremanna1@gmail.com

Leave a comment

Filed under Uncategorized

Spring 2013 Real Estate Update

Spring 2013 Update:

Spring has sprung, April showers bring May flowers. How do you like the Rangers chances this year? It has been a “wet” start to the year hasn’t it? Ok then, enough small talk let’s cut to the chase.

Tyler’s real estate market has continued to stabilize and improve over the past three months. Inventory remains significantly lower (+/- 25%) than it was at this time last year, which is stimulating heightened demand in our marketplace. As far as interest rates go, we have seen a small increase in rates as recently as last week. However, it would seem that these small increases are due to larger forces at play, mainly the surging stock market, so in a way it’s still good news for the economy overall. However, there are several things that bear watching, and I will now attempt to outline those for you and illuminate how they may affect you and/or your market in the coming months.

Continued from Newsletter:

1. We have entered into a true seller’s market in most areas. Case in point: Last year I listed a nice property in the Tanglewood subdivision (southeast loop 323 near Clarkston Elementary) for $127,500. Over the course of 180 days we had literally dozens of showings but no offers, as it seemed every prospective buyer liked the house enough to look, but not enough to buy. The exasperated sellers (can you imagine showing your home 2-3 times a week every week, with two children under the age of three, without an offer!) took their home off the market, and wisely made some cosmetic updates to freshen the look up. Fast forward to today. We re-listed at a marginally reduced price ($125,500) with the updates they made, and it sold in less than a week with multiple offers for over the asking price. What a difference a few months can make! This seems to be happening more and more often, which is a reflection of the lower inventory and greater demand, and there have been more than a few buyers frustrated that they’ve lost out in bidding wars on homes that, even six months ago, may have been theirs for the taking.

However, statistically, the median sales price for the first months has actually decreased from what it was at this time last year ($154,850 > $150,500). This means that even in a seller’s market buyers are still taking advantage of excellent pricing, they just have to be quick to the draw. Eventually, I believe we’ll see the market correct itself in the form of price appreciation, but for now buyers looking to capitalize on great prices can do so, but must be prepared to face the reality that ‘sticker price’ may very well be a good value, and that they’ll likely have heightened competition, especially in the >$200,000 price point.

2. The rental market has softened somewhat. Remember how I said that if too many investors jumped into the mix we might see this happen? Well, we’re seeing it. Properties that were leased out within a matter of hours are now sitting for weeks, more and more signs are cropping up, and rental rates are softening because of that. Also, lending guidelines have continued to loosen, allowing for greater leniency for marginal credit-risk borrowers. While this does not mean that real estate investment is no longer a good idea (I still believe it is) it does mean that investors/landlords with tight profit margins may see some red months until the market corrects itself and rental rates firm up. This may happen sooner than later because…

3. The world of financing is changing. FHA financing is popular among first time home buyers due to smaller down payment requirements (minimum 3.5%) and lower credit/income thresholds. However, starting this spring the monthly premiums for these loans will increase, and starting in June mortgage insurance will be required for the life of the loan, whereas previously it was only required until the loan to value ratio on the loan was less than 80%. This increase may not be felt immediately, as it is somewhat of a ‘back-end’ charge, but coupled with the increase in rates, we are seeing money not quite as cheap as it once was. Still, it’s pretty cheap. This, as always, bears watching, as nothing can shift the dynamics of a market as quickly as financing.

4. Lastly, the new construction market continues to stagnate in most price points. The majority of new construction in our area is in high-end developments such as Oak Hollow and the Crossing, which are both doing exceedingly well. However, in many cases these do not reflect economic trends, as the clientele for these homes are more immune to the ups and downs in the economy. The dearth in new construction for first-time and move-up buyers remains interesting, as we are seeing demand for the product increase faster than the product comes available. If I were a betting man, I’d take Louisville in the finals. But the fact of the matter is that at some point, the dam will burst and we will see new construction take off in a big way. The only question is who will seize the opportunity.

These are the facts people. I don’t create them. I just relay them to you, my loyal customers, clients, and colleagues. And, as always, it is my pleasure to do so. However, keep in mind that these little pearls of wisdom I lay out before you are just enough knowledge to get yourself into, as the bard says, “a whole heap ‘o trouble”, so be sure that before you engage in your next real estate transaction you consult your local professional for dedicated service and excellent results.

Until then, enjoy the flowers, the warm weather and the abundant sunshine. Over ‘n out.

Nathan Foreman

REALTOR®

Real Edge Real Estate

903-526-9652

foremanna1@gmail.com

Leave a comment

Filed under Uncategorized

Fall 2012 Real Estate Update

Like sand in the hourglass, so go the

And as another dawn breaks, the trees smattered with rich golden hues

Real Estate is a like a box of

GRRRRR

I’m having trouble with this one. The fact is, the market is performing exceptionally well across the board. Sales, median and average price are all up. Interest rates and days on the market are down, lower than they were a year ago at this point. Inventory is consistent, and foreclosure activity is minimal. So what’s to say? Everyone knows good news doesn’t sell. Tell you what, here’s the chart, courtesy of Greater Tyler Association of Realtors. Feel free to peruse to your heart’s content. When you’re done, meet me below for some takeaway.

Continued from Newsletter

Takeaway #1

The resilient market indicates some pent up demand from the past few years pushing through into some actual transactions. Typically speaking, an election year sees a reining up, as many are wary to invest with uncertainty looming. With the upcoming presidential election being considered one of the more significant of our time, you would expect more of the same. However, the opposite has been the case. Clearly 2012 saw some letting of the purse strings in all price points, and even though I’m not a political analyst I can tell you without a doubt that at least some of this happened not despite the upcoming election, but because of it. Because let’s face it, perception often trumps reality and many people I have talked to feel that, for whatever reason, the time to do something is now. That has affected our market, and it will be interesting to see how that continues after the 6th.

Takeaway #2

Real estate investment is accessible to almost everyone, and many are taking advantage of it. Right now I’m working with no less than a dozen investor clients, and I would venture to say that many of my esteemed colleagues would say the same. This is due to interest rates staying low, and the rental market staying strong. Word has gotten around that with 20% down you can get a property purchased, leased, and flowing with cash almost immediately, and who doesn’t want that? However, a significant influx of rental properties does not bode well for continued overall appreciation of value. In other words, in the rental market, you definitely can have too much of a good thing. Also, many first time investors are realizing that buying a rental property is all well and good; managing it is a horse of a different color. Leasing to the right tenants, taking care of repairs, turning over the property, managing security deposits, evictions, insurance claims, etc. etc. is more than many investors bargained for. Management companies (like Real Edge Real Estate!) will do it, but that cuts into the bottom line and unless you factor that cost in, what good is a rental property that doesn’t make you any money? I predict that we will see many of these rental properties come back on the market in the next 3-5 years when some of these well-meaning investors have had enough. Some, unfortunately, will sell for less than they did this time around and it may spur some foreclosure activity as well. Savvy investors are countering this by being very selective in the neighborhoods they buy, especially in regards to owner occupant ratios, and making sure they are choosy on what is a deal.

Takeaway #3

The above two talking points are, in my opinion, the reasons that 2012 has been such an exceptional year. However, the underlying reasons for those involve factors like: affordability, confidence in local economy, quality of living. Those are the lynchpins of our market and until they change, don’t look for little upticks in interest rates, election results, or flooded rental markets to turn Tyler’s real estate market on its head. The bottom line is that there are many reasons people look to buy or sell real estate, almost all of them are unique in their own regard, and that is one of the greatest aspects of my job because it changes every day, with every client I have the privilege to serve. It is a continued challenge to take each situation on a case-by-case basis rather than paint with broad strokes. As always, it is my honor to serve you and the referrals you send my way, and I thank you for allowing me to continue doing so in our community. Thanks, God bless, and go vote!

1 Comment

Filed under Uncategorized

Summertime Blues

No doubt you’ve seen news clips by the experts stating positive trends in our market over recent months, and by and large that is the case. Interest rates continue to be low (30year fixed rate with credit score over 680 at 3.875%, sometimes lower). Closed volume, transactions, average price are all up (chart). Days on market, housing inventory, and market absorption rates are all down. Demand is robust, the economy is stable, and how about this weather! So what exactly, you may be asking, is giving this Realtor® the blues?

Nothing! But even in these veritable salad days, when sellers can once again feel confident that if their house is staged and priced correctly it will sell, and buyers are still taking advantage of historically low interest rates, there are issues that, in order to be prepared for entering, coping with, and successfully exiting the market, you need to know. So market stability aside, here are two things that will edify your ongoing real estate sanctification.

1. The loan process is a minefield. Greater regulation, an over-correction from the gun-slinging, free-wheeling “Countrywide Cowboy” days, more oversight with appraisals, and inconsistent underwriting guidelines has created a turbulent climate in the lending industry. More red tape, multiple decision makers (some whom you are not ‘allowed’ to speak directly with), multiple requests for additional documentation at the last hour, and the fear of the unknown last-minute ‘snag’ all mark the process. While more often than not the deal still closes, the aggravation caused by last minute panics, forced delays, re-scheduling movers, utilities, etc., can leave a sour taste in everyone’s mouth when it’s all said and done. Unfortunately, this scenario resonates with many recent buyers and sellers across the board.

Understanding ahead of time that this has become the rule, not the exception, can help manage expectations and alleviate frustration when delays inevitably occur, but in order to eliminate it all together it has become increasingly important to work with a lender who has more control over the file from start to finish (i.e. in-house underwriting, preferred appraiser networks to select from, and most of all a comprehensive understanding of the process). Asking these types of questions and ‘shopping your loan’ at the outset may seem unnecessary, especially when attractive rates seem to be dangling from almost every vine, but is well worth it in the end.

2. Investment strategies are changing. We live in a finite world with finite resources. For over a year I’ve been bullish on the potentially lucrative investment opportunities in the residential market, and it appears I was not the only one singing that song. The result is that inventory is lower in that market, the competition is fierce, and the ‘deals’ are not as plentiful. In addition, many foreclosure properties representing incredible value are being exclusively offered to owner occupants for the initial 30 days through government run initiatives such as HUD. More often than not, these sell before investors ever have a chance to bid on them.

However, the motives that have compelled real estate investment for the past 18 months (low interest rates, ever-strengthening rental market, and desire to invest in more tangible/less volatile assets) are as compelling as ever. It will be interesting to see how the market responds to this. My personal opinion, which I divulge as rarely as possible, is that in Tyler the Downtown Business Arts and Culture district is ripe with opportunity, along with its surrounding areas. The new zoning allows for greater latitude in adaptive re-use, the existing residential structures are well-built and architecturally significant, and the downtown area continues to see growth in arts, culture, business, and vibrancy. The untested nature of it definitely pushes the risk/reward equation out of many traditional investors’ comfort zone but, as they say, fortune favors the bold.

And so there you have it, another update! On a personal note, I feel incredibly privileged to have the opportunity to serve this community, and to have met and worked with the people I have come to know through it, and I truly appreciate you. Thanks for keeping me in mind when your real-estate needs arise, thanks for sharing me with your friends and family, and enjoy the rest of your summer. God bless.

Leave a comment

Filed under Uncategorized

Market Madness!

Spring 2012 Tyler Real Estate Update

My attorneys advised against using the above title due to the NCAA’s stringent copyright policy, but then I remembered I do not have any attorneys. In fact, the reason I have titled it such, aside from the obvious ploy to piggyback on a wildly successful marketing campaign, is that the first few months of 2012 have been…wait for it…madness! Every day I talk to buyers, sellers, investors, renters, landlords and armchair real estate junkies about the same thing, and by far the question I am asked most often is, “how’s the market?”

Instead of responding the way I am coached, (“The market is great! But that doesn’t mean I’m not too busy to help you, kind sir or madam, with your real estate related endeavors!”), I am going to spend the rest of this blog telling you what every single person interested in Tyler’s residential real estate market needs to know for Spring of 2012!

continued

This is still a buyer’s market. Two main reasons for this: 1. Interest rates. Like a limbo stick at a yoga studio, rates keep dropping lower and lower. How low can they go? Not much more and they may be starting to tick up a little. For the time being, well-qualified borrowers can be approved at rates that are about as close to free money as you’ll get this side of Greece. Ask my friend Kelvin Woodfin at Tyler Lending Group and he’ll tell you the same thing: we’ve never seen anything like it. 2. The ‘shadow inventory’ (homes that banks have foreclosed on that have not yet hit the market) is beginning to see the light of day. This is due to the Fed lifting moratoriums that have restricted banks from processing foreclosures for the past few years. These foreclosure properties have hit the market fast and furious, and even though they are not a huge part of the market yet, they represent a disproportionate amount of sales. Currently they represent 3.5% of the active inventory, but over 11% of the sold transactions in 2012. So the buyer’s market continues into 2012, however some seller’s can take heart because…

This is becoming a seller’s market, and already has in some respects. How could it be both? Consider this: At this time last year the active inventory of homes for sale in Smith County was right at 1,500. As of March 22, 2012 the inventory is 1,054, almost 1/3 fewer homes on the market. Also, median and average price are up from 2011, and sold transactions. Don’t blame me for the duality, blame economics.

So what we really have is…market madness! And it makes it incredibly difficult to accurately answer the question, “how’s the market”. Sellers who have languished on the market for months are seeing multiple offers in a matter of days in some cases, and are being priced out of the market by foreclosures in others. Buyers accustomed to being in the driver’s seat are suddenly competing with other more motivated buyers on one side of town, and are getting killer deals on the other. All of this is changing daily, and to different degrees depending on location, price point and a half dozen other factors.

What does it all mean? In a nutshell, it means that now more than ever it’s important that you have an expert on your side; someone who understands the trends and knows the unique features of what makes up your marketplace; someone with a gentle demeanor, a confident voice, you need a Realtor®! In the meantime here are three cogent points you can take to the bank even if you’re beginning to wonder if your trusty Realtor® has been licking the paint off walls of homes constructed prior to 1978.

1. Foreclosures can be great buys…sometimes. Why do they sell so quickly? It’s not the condition. It can be the price, but due to more oversight, better workflow, and pressure from the Fed to keep the market as a whole intact, banks are pricing their properties more in line with the traditional market. In addition, they are always sold in ‘as-is’ condition, and often the cost involved to rehab these properties bumps them right back up to retail. In my opinion the reason they sell so fast is psychological. People hear foreclosure, think, ‘deal’ and are often disappointed. The ones that truly represent good value sell quickly, often with multiple offers, and go to investors who can use an all-cash offer as their personal trump card (to all cash-laden investors I can work with that!). But for John and Jane First-Time-Homebuyer or investors who still need financing it can be a very frustrating process.

2. Quality is selling, and for top dollar. Not only is the inventory down from a year ago, but many of the remaining homes tend to have a ‘picked over’ feel to them. When new property hits the market, you can bet there are buyers out there taking notice. This is occurring in almost all locations and well into the $300,000+ price range, something we haven’t seen for the past several years. Sellers who are hesitant to list because they are concerned with competing resale needn’t be. Buyers still want quality, and if you have it (unique features, pristine condition, nice lot, good location) you’ll stand out amongst the pretenders. I recently sold a very nice home for $15,000 over what it was listed for a year ago at this time. The buyers knew this (and more importantly knew what else they had to choose from) and were willing to pay for it. On the other hand, houses that do not stand out must be priced aggressively in order to sell; it’s not a full blown seller’s market yet. If all else fails you can usually rent it out without much trouble, which leads to number three…

3. The renting vs. buying debate is on the forefront like never before, and the dynamics are changing. You may have read articles from ‘experts’ about the cost of owning a home, the delusion of the American Dream, and the logical inference that renting is the new standard. While it’s true that renting is increasing and is predicted to further increase in the coming years, this argument makes a lot of sense…for landlords! In reality, the leasing/buying paradigm shift begs the question: to whom will all these new tenants be making out their rent checks? In other words, if homeownership goes up, homeownership goes up; if renting goes up, smart investor’s portfolios go up. Either way, it seems like owning a hard commodity like real estate makes fiscal sense.

That’s all I’ve got for now. I’ll try to send more frequent and less comprehensive (read: windbag) updates in the future, but if you don’t hear from me until July it’s because I’m busy slanging homes. Thank you, as always, for your business, referrals and support. Until next time…

Nathan Foreman

Real Edge Real Estate

903-526-9652

Leave a comment

Filed under Uncategorized

End of Summer 2011 Update

To all my faithful readers out there who I choose to believe exist, I want to first and foremost acknowledge the missing summer installment of my quarterly newsletter. I had written a summer update but at the last minute decided against sending it out. I will refrain from ever re-printing it in its entirety, but I’ve included a small excerpt:

“Today marks the 65th day of 100+ degree temps and the 80th day since we’ve seen rain. Forecast shows three more days of 100+ temps and then a 30% chance of rain. They keep pushing it back, the rain forecast. It is always three days away but it never comes! You want a forecast? Here it is. It’s going to be hot, it’s going to be dry, and it’s going to last you the rest of your life.”

I hope you’ll understand my last minute reluctance, and agree it was probably better for all of us. For those who have never received this newsletter before, never mind all of that. I write a quarterly newsletter to keep you updated on real estate, and this year it is on more of a trimester schedule and that’s that.

That said, it seems appropriate as Fall is upon us to look back on what happened this summer, thank God for rain and cooler temps, and forge on. The truth of the matter is that there is not much to report. We had a steady summer in which both July and August recorded higher sales than the previous year, and both marked high points for 2011. This is good news in general, made all the better in that there were no government incentives spurring it on. It was almost as if, and I know this is radical stuff, but it was almost as if when the market was left to govern itself, people capitalized on historically low interest rates and semi-depressed market conditions to buy, which in turn reduced inventory and heightened demand, creating a slowly but steadily appreciating market. Remarkable! We are not out of the woods yet, and interest rates can stay this low only for so long; but for anyone paying attention, this summer is a good indication of the long-term health and sustainability of the Tyler/Smith County real estate market.

We must endeavor to temper the good news with the bad, and not every sub-section of the Tyler market gets such high marks. The higher end (350k+) is still lagging behind with a twenty-one month inventory and the 75709 zip code (think Cascades) has an active inventory even higher than that. It may still be years before we see a full recovery in these sub-markets, if ever. However, $350,000 and below has a healthy seven month inventory. Below $200,000, which is really the heart of our market place, has a five month inventory. These are very encouraging numbers, and any time the inventory dips below six months you can expect appreciation.

So what does this mean for today’s buyer and seller? Well as always, it depends on which sub-market that you are in. But as a general rule, if you are selling in the ‘heart’ of our marketplace, you can feel confident that you are not going to be swallowed up in a sea of active inventory, and if you price and stage your house right the first time, chances are you will end up getting very close to that. Of the last ten homes I’ve represented the buyer or seller on in this price point, all but two sold within 3% of the list price. Consequently, buyers are learning (sometimes the hard way) that they have a few less chips at the table and therefore are usually more apt to put their best foot forward when making an offer. Again, all good things.

If you are over $350,000 and need to sell, you must be aggressive with price. I have a feeling, and the first few weeks of September are indicating that we will see some action in the $350-550k range in the latter portion of the year. But you must remember that you are competing against a much larger field and you have to be outstanding in some regard to sell. If it’s not condition or location, it must be price.

What I call the specialty markets, whether it is new construction, investment properties, or lakefront homes have their own set of good and bad. The increase in buying activity has certainly slowed the rental market somewhat, but it has been white hot for the past year so it’s barely noticeable. Volatility in other investment options coupled with a healthy return on real estate investment equals many investors capitalizing, some acquiring more properties and some new to the game getting their feet wet. Many brokerages (Real Edge Real Estate at the forefront call for info!) are offering property management as an additional service to their clients as it makes owning an investment property so much more palatable. New construction still has a pulse, but as building costs have not decreased, whereas market values in many price points have, builders are having a hard time staying competitive with re-sale. Until they can be, they won’t be doing much. And finally, lakefront properties are met with the challenge that there are no longer any lakes; mudfront property just doesn’t carry the same appeal.

That’s my update folks. It’s been real. Unless the ice age cometh, hopefully you’ll hear from me soon.

Nathan Foreman

Real Edge Real Estate

903-526-9652

foremanna1@gmail.com

Leave a comment

Filed under Uncategorized

Who’s Market is it Anyway?

If I had to sum up the first 90 days of 2011 with one word my choice would be, “Sputtering”. Some homes sell quickly, with a mad rush of activity and multiple offers. Some sit for months with nary a looker. Every realtor I network with tells me they are primed for a good year, but the most important numbers (active inventory, months of supply, number of sales) show this year to be on level with, and in some cases worse than, the two preceding years.  

Take all that, and then when you consider that experts have predicted since it all fell apart that 2011 will be “The Year of Recovery“, and you’ve probably heard national stories and figures that have proven just about everything from a recession to a revival to a revolution, it’s more than a little confusing.  

So which is it? Healthy or flailing? Recovering or sliding? Or, the question I am most often asked, buyer’s or seller’s market? I can’t speak to the national numbers, but when you focus on Smith county the answer clearly is…

Both!

 Ok that’s a dirty trick and I know it, but before you ride me out on a rail let’s look at the numbers because they don’t lie. First, in relation to the fabled “Year of Recovery” the question remains. Will it be? Take a look at where we stand in relation to the two previous years. Again, all these numbers are for Smith County. Outer lying counties in East Texas are more or less in line with these numbers.

 

Year Active Inventory through March 2011 Closed Sales Volume through March Average Sales Price
2009 1352 339 $162,241
2010 1457 354 $159,102
2011 1456 338 $156,289

 

Although the consistency of these numbers is valuable in a sense, there are no real signs of a recovery here. In fact the only number that has seen a significant change is that of average sales price, which has declined. A 3.6% slide ain’t bad, especially compared with national averages, but it is not indicative of a recovery.

 

So what’s with all the confusion? Pretty straightforward it would seem, right? Wrong and I’ll prove it! Let’s dig a little deeper to see what might be throwing people for a loop. Here are some numbers breaking housing inventory down by price point:

 

  Active Inventory through March Sold in 2011 % Active inventory % closed sales Months Inventory
$150,000- 487 208 33% 61.5% 6
$150,000 – $250,000 439 83 30% 24.5% 16
$250,000+ 530 47 36% 14% 35

 So, Watson, what we have here is what Charles Dickens might call, “A Dr. Jekyll and Mr. Hyde Market” (although I doubt it). If you’re like me, and all these numbers are starting to make your head feel crazier than a Butler Bulldog going in for a layup, let me bottom line it for you.

 The first quarter of the “Year of Recovery” is confusing people because we have two different markets, one of them performing admirably and one lagging behind. A six month inventory, as is found in the lower end market, is considered to be a seller’s market by any standard. A thirty-five month inventory, on the other hand, is a buyer’s market if you could call it that, it’s barely a market at all. A thirty-five month inventory means that it will take just under three years for every home on the market today to be absorbed. It means that, statistically speaking, a home priced above $250,000 has about a one in ten chance of selling. And with that glut of inventory, this is a market that likely will not be strong again for some time yet. However, that does not mean that our market as a whole is failing. As proven above, the price point which encompasses the majority of the housing product in Tyler is performing just fine. This is actually very good news indeed, and speaks to a number of other positive indicators in the economy as a whole, employment, middle class strength, first time home buyers, etc.

 So, for you sellers, buyers, and contemplators, here’s the takeaway. In the below $150,000 range, sellers that price their homes competitively and stage appropriately have a good reason to expect quick results; buyers in this market should be aware that homes will sell more quickly and prices may be firmer than they might expect. In the mid-range price point ($150,000-$250,000) homes that are in above-average condition are in good locations and, again, are priced aggressively will still sell, but it will likely take longer and there may be some price negotiations necessary once an offer is received. It is imperative that sellers at this price point are aware of their competition to avoid chasing the market down. Buyers in this price point have good options and this the section of the market I expect will improve most in coming months (keep an eye on my next newsletter to find out!).

 And on the upper end, the fact that so many homes are sitting tells me two things: 1. Whether its fear of over-leveraging, lack of confidence in the long-term health of the economy, desire to downsize and simplify, or the psychological effects of supply and demand, this product is not the fan favorite right. Will it change? Probably. But it may be a while. 2. In many cases, the prices that have been set for these homes are simply unrealistic when compared to the market as a whole. If you are a seller in this price point who really needs to sell, it is absolutely crucial that you are the best priced amongst the competition, have outstanding condition, and still you should expect to wait months for the right buyer to come through. If you are not in a ‘must sell’ situation, my advice would be to hang it up and wait for a brighter day. If you are buying in this price point, there is a ton to choose from; some may be overpriced so do your homework and don’t be afraid to put some gas in your realtor’s tank, he’ll appreciate it, because you’re going to be seeing a lot of properties!

 Lastly, and briefly, look for new construction to become a significant part of the picture in the next six-eight months. Lots are abundant and cheap, and although building costs have not coincided with re-sale in terms of cost depreciation, look for savvy buyers to head this direction soon, especially if we don’t see some significant price softening in the upper-end of the market place. Builders are taking notice and more than one have started on spec homes again, something that has been all but non-existent the past few years. Keep an eye, as always, on interest rates and inflation, which have climbed a bit but by and large are steady, and enjoy the weather while it lasts.
Until next time,

Nathan Foreman

Leave a comment

Filed under Uncategorized