Saturday, January 26, 2008
We have been inundated over the last few months with stories of how the housing market is imploding. Almost daily, there is another article or news bite on home prices falling and how they will continue to fall for the foreseeable future. We hear the cries of record foreclosures, with a landslide of new foreclosures sure to come as soon as all the sub-prime adjustable loans come due. Much of what is being said is true. On a national level home prices are down. There are plenty of foreclosures with more to come. We may see the national price picture continue to erode over the next year. What these articles do not point out however, is that real estate is a local market. It is driven by local conditions and the local economy. With that point in mind we will look at the Plano (and surrounding areas) market. 2007 was a year of change for housing in Plano and the surrounding areas. 2005 and 2006 had seen record sales in the area and homes were moving at a fairly rapid pace. If a home went on the market, was in average condition, and was priced close to market value, it would get sold in a reasonably short time. While many areas of Florida, Arizona, Nevada, the east and west coast were enjoying double digit appreciation on home values, our market lagged behind at a general rate of about 4% per year. Many areas of the country were seeing theoretical gains of 25-30% per year. I say theoretical since the gain is only realized if you sold your property and actually put the money in your pocket. As we see now, these gains were unsustainable. Housing affordability was quickly becoming out of alignment with the rest of the economy. It was simply a matter of time until we had a correction to bring it back in line. Our area did not see the double digit appreciation figures of some areas. The local economy has remained quite strong. A diversified workforce and generally healthy local economy have kept our area at the top of the charts for job growth. In 2007 the rate of job growth in the state of Texas was almost double that of the country as a whole. True, unemployment has crept up to 4.5%, but that lags behind the national average of 5.0%. Because of this our housing demand in the area has remained fairly steady. The sub-prime situation will take some time to sort out, but again our area will be less affected than some parts of the nation. What we do know is that lenders are now more cautious in making new loans. The days of being able to qualify for 100% financing without verification of income are probably gone. So what is going on in our area? First I will give you the facts. Then I will try to give you a market opinion on where we will head for the rest of 2008. For the year, North Texas MLS sales were down about 8% from 2006 levels. In the Plano area, sales were down 11%. Average Price for a home in the Plano area was up about 4% to $276,669. The average price for all of North Texas was also up about 4% to $201,568. Pending sales also reflected an 8% decline for North Texas and 11% decline for the Plano area. The time it took to sell a home was up in both cases. North Texans took an average of 74 days to sell their homes. Plano sellers took and average of 55 days. These numbers represent a 6% and 8% increase respectively. These are certainly not the doom and gloom numbers that we have seen in the national and local news. The fact is that our market is faring much better than the country as a whole. However, I am concerned about the recent monthly numbers. In the last few months we have seen sales fall at a much steeper pace than indicated above. I believe that part of this was precipitated by the sub-prime crisis and the news that surrounded it, I also believe that we are the victims of our own press. The sensationalistic headlines have bombarded the average home buyer with a "sky is falling" attitude. It has taken a few months for us to see that this is not indicative of the local market. I do think that the market numbers need to be watched closely to see if we will see a new trend to much lower prices or will we see things balance out. Listings currently available in the area are about where they were last year. This means that we do not have an influx of inventory. Prices have been able to rise in the face of a more challenging market. This indicates that buyers are finding value at these levels. So where will we go from here? We are likely to see some softness in the market in the first quarter of 2008. This will be more prevalent in some price points more than others. We will delve into that subject at a later date. I believe builders in the area have curtailed new development plans, and have sold off excess inventories to the point that they will not put undue downward pressure on the market. I believe that we will see a resurgence of activity in the second to third quarter of this year. I do not think that we will see 2008 approach the levels of '05 and '06, but I do think we can be in line with 2007 numbers and maybe finish a little stronger. Is this a buyer's market? If you are a buyer it is a great time to purchase a new home. There is certainly excellent value in the marketplace at this time. Buyers may be able to capture a great deal if the timing is just right. Interest rates are extremely low, and that lowers the true cost of home ownership. If you are a seller it is not a time to run for cover. We are finding that homes in good condition and priced appropriately are selling in this market. We do see buyers being more discriminating in their purchase. This means that the homes on the market must be in good condition and priced properly. With the correct condition, pricing, and marketing, a seller may expect to get their home sold in a reasonable amount of time. Our market seems to be fairly balanced at this point between buyers and sellers. The numbers would support this view and our opinion is that while this balance may ebb and flow from month to month, we will see this balance continue throughout the year.