Have we hit the bottom? Is this the lowest the rates will go? I have just hung up the phone with my 11th previous customer who wants to know if they should refinance their home loan or should they wait until the rates go lower. Do you have a crystal ball, I ask? How would you know whether or not there will be a better time other than now to refinance your loan? We never know that we have hit the bottom of the market, the lowest rate, etc. until the rates start going back up and housing prices begin to increase. By that time, we do know what the bottom was, and we can clearly see that we missed it by . . . waiting. Everyone should decide what is best for them, say, when the rates go down to x, I will refinance, or when I find a home that has these amenities at x amount of dollars, I will buy. This is the best you can do, and don’t worry about the rest. But yes, yes, yes, to all of my previous clients, readers of this blog and hopefully future clients, the rates have gone down again to historic lows, and yes, this is an excellent market to refinance your loan or to buy a home
Monthly Archives: March 2009
I’m sure most of you squealed, my Realtor!!! But you are absolutely wrong. Your realtor should guide you, negotiate for you, and has a fiduciary responsibility to you, but they definitely are not there to “teach” you real estate. Just as your doctor does not teach you medicine, nor your lawyer teach you law, Realtors are there to solve your current problem, steer you in the right direction, and give you expert advice. I can recall at the beginning of my real estate consulting career working with several investors who would totally shock me during our first meeting. They would say, Kristi, I have saved 10k, it has taken me 2 years to save this money and I am ready to become a real estate investor. I’m like, GREAT!!!! What books have you read? What seminars and workshops have you attended, and what’s your plan? After a look of perplexity, I would get the response of, “None Kristi, I’ve seen a couple of shows on TV, talked to my barber, and they all say it’s easy”. I would leave the meeting with my own stunned look. So, I started going to investor meetings prepared with books that were specifically about real estate investing for a novice investor. That didn’t work!!! No one had the time to read a whole book!!! My last attempt to get the consumer to educate themselves even a little, was to go to meetings with specific chapters, not whole books, for the them to read. This again, did not work. I have come to realize that in several forms on investing and even while making a large purchase/investment, you will have the investor who wants to be in the game, but wishes for someone else to do all of the dribbling and passing for them. This usually makes for a great Ponzi situation. To avoid at least some of the mistakes, heartache, and loss of money, please call your consultant and ask them for a book list, educational workshops you can attend, or even if they have a blog, such at this one, where they freely give away the most valuable commodity of all . . . information.
Why is the Texas economy generally in a better position to support continual growth in real estate value than other regions of the U.S.?
Data from the Real Estate Center at Texas A&M University (www.recenter .tam.edu) and other sources support the belief that the Texas residential real estate market is affected differently than other U.S. regions by the subprime mortgage crisis.
The buoyancy and diversity of the Texas economy softens the potential for the hard fall that many other real estate markets have experienced. Texas has had a more gradual real estate price expansion versus the steep escalation in California, Nevada, Florida and other states.
Mark Dotzour, chief economist with the Real Estate Center at Texas A&M University, commented at a recent Houston Economic Forum gathering that credit markets are in “considerable disarray” with the value of questionable mortgages still declining. He also noted that the U.S. economy, with weaknesses largely centered around the auto industry, is being outperformed by the Texas economy.
“Despite the national slowdown, Texas is still strong,” said James Gaines, research economist with the Real Estate Center at Texas A&M, in a press release in June. “There’s no reason prices shouldn’t continue to rise despite the increase in foreclosures and the slowdown in transactions, construction and new home starts.” At that time, California and New York reported home price appreciation at 3 percent, while Nevada price increases virtually disappeared at just 0.6 percent. Florida home price appreciation held steady at the 4.3 percent national average, while home prices increased 6.9 percent in Texas.
Continued population migration to Texas from other states is driving up land values at a double-digit rate. Population density tends to be higher in these regions, and people relocating to Texas are accustomed to smaller living spaces. Texas builders are now producing upscale “vertical” residences in cities and the suburbs to match buyers’ preferences for zero lot line homes, patio homes or townhomes that deliver low maintenance and “lock and leave” convenience.
Nancy Suarez, a broker with Prudential Gary Greene Realtors, reports active Houston home sales in the $200,000 to $500,000 range. She explains that buyers of these homes are well-qualified, tend to be business executives or professionals, have an immediate need for a private residence and are ready to close a deal. She also attributed this positive trend to the strong, diversified Houston economy.
While profiling first time home buyers’ especially young buyers, I am asked, “Kristi, I should start off with a townhome since this is my first house, right?” This is definitely a misconception, that when buying your first home, it will be cheaper or easier to purchase a townhome. In Houston, townhomes can cost the same or even more than single-family properties. Townhomes are great for the buyer who doesn’t want or who cannot handle much maintenance, as the yards are usually smaller or non-existent, and sometimes, there is less home to maintain. This does not necessarily equate to a lower price. Downtown Houston and several other neighborhoods, are filled with townhomes from 100k to almost 1 million dollars. Also, keep in mind that with most townhomes, there is a monthly maintenance fee for the upkeep of the grounds, and other fees including water, security, cable, etc. This is an additional fee that you must pay along with your monthly mortgage payment, insurance, and taxes. Sometimes, this additional fee raises the costs of a townhome much higher than the cost of a single-family property of the same square footage and with like amenities. When choosing whether to buy a townhome or single-family property for your first buy, things to consider are your lifestyle, how much work you can do yourself, and the maintenance fee. I also suggest you take a look at both types of properties to determine which is best for you.
Describing the Bayou City — which ranked sixth in the nation for real estate investment prospects — as a “hot-growth market,” the Emerging Trends in Real Estate 2009 report says the city will continue to stay that way as long as oil prices remain high.
Market strengths include the Johnson Space Center, the Texas Medical Center, the Port of Houston and trade with Mexico, the report says.
“The population keeps expanding due to the high-octane job engine and reasonable cost of living (land is cheap and so is housing),” the report says. “Home prices never escalated dramatically, so values hold better in the mortgage crunch.
“Remarkably for this construction-crazed market, office vacancies drop close to 10 percent — surveys signal a good buy opportunity, but apartments soften — still too much new construction.
“Traffic congestion and a lack of mass transit inevitably will constrain sprawling growth. More cars and high oil prices signal mostly good times, helping overcome the effects of Hurricane Ike,” the report says.
Seattle took the top spot in terms of investment prospects followed by San Francisco; Washington, D.C.; New York City and Los Angeles.
According to the report, real estate investors and professionals believe financial and real estate markets in the United States will hit bottom in 2009 and continue to slump for much of 2010.
The annual industry outlook includes responses from more than 600 real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.
The report projects 15 percent to 20 percent losses in real estate values next year from the mid-2007 peak on a national level.
In general, respondents say financial institutions will continue to be pressured into moving bad loans off balance sheets, using auctions to speed up the process.
“The industry is facing multiple disconnects,” said Stephen Blank, senior resident fellow for real estate finance at Washington, D.C.-based Urban Land Institute. “Many property owners are drowning in debt, lenders are not lending, and for many industry professionals, property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”
According to the report, moderate-income apartments in core urban markets near mass transit offer the best investment opportunities, a consistent trend from the previous year. Distribution/warehouse facilities were the next best investment, according to the experts.
Downtown office space is expected to outperform suburban markets, according to the report, and retail development is generally near the bottom but still has farther to fall. The housing industry faces more foreclosures and no rebound in values for 2009, according to the report.
Savvy investors will be able to cash in on the inevitable recovery, according to experts.
“Money will be made on riding markets back to recovery and releasing properties, not on financing structures,” according to the report.
Prospective home buyers are asking if “now” is the time to buy a house in Houston?
The residential real estate adviser’s answer: “Absolutely!”
It may be questioned how such a recommendation can be made not knowing when the Houston housing market will “hit bottom.”
However, for the individual who can qualify and afford to buy a home in the Houston area and plans on living in it for a couple of years, now is the time to buy.
Claims about problems in the Houston housing market have been greatly exaggerated. For nearly a year there have been media reports that the housing market is the worst since the mid-1980s, that there are rising foreclosures, about how credit has tightened, how adjustable rate mortgages are resetting, which will cause foreclosures to persist and how there are record inventories of new homes on the market. While much of this is true in many markets, most of this has not, nor should it to any large degree, adversely affect Houston.
According to Metrostudy’s housing research, Houston has averaged about 1,000 foreclosures a month for the past year, and this has remained fairly steady. These 12,000+/- annual foreclosures are a drop in the bucket, given that there are slightly more than 2 million homes in the greater Houston area.
Houston home buyers are also not immune to the tightening of the credit markets. Tighter credit markets are a good thing in that it is a return to more “normal” lending practices. A return to sound lending practices is better for the overall health of Houston’s real estate market.
The other concerns mentioned are not occurring and thus should not negatively affect the Houston housing market.
Houston has the great fortune of being somewhat insulated from many of the national housing maladies. Although Houston is tied more closely than ever to the national economy, it is still one of the world’s leading energy centers, driven by the oil and gas industry. With oil priced above $75 and occasionally approaching $100 per barrel, jobs will continue to grow at a rate greater than in the rest of the nation. In 2007 the Houston economy created approximately 70,000 jobs. This is a decrease from the 100,000-plus jobs created in 2006, but it still puts Houston in the top two or three for job creation in the nation.
Economic forecasters project the Houston economy to add between 50,000 and 60,000 jobs in both 2008 and 2009. These new jobs bring new home buyers to the Houston market.
Unlike many other cities, Houston does not have an oversupply of new homes on the market. Metrostudy, with offices in 28 major cities, currently shows roughly a 2.5-month supply of new homes on the market versus a 2.2-month supply of new homes on the market for the same time in 2006. Both numbers are below “equilibrium” for the Houston area.
Another important statistic shows new home sales for the past 12 months have be greater (45,000) than new home starts for the same time frame (41,250). In other words, the Houston new home housing market is not “overbuilt,” nor does it appear headed in that direction.
This suggests better news for Houston in the future because the national and local home builders have anticipated a slowdown and have cut back on the number of “spec” homes. Fewer spec homes greatly decreases the chance of overbuilding.
Housing affordability in Houston is great, far below the revised national figures. The latest local and national housing figures as supplied by the Houston Association of Realtors show the median home price for the nation is $220,200. The median home price is that point in which half the homes sold for more and the other half sold for less. Houston’s most recent median home price was $153,630, considerably below the national median price.
In fact, Metrostudy has tracked the Houston median home price and their data shows home prices have increased on average 5.5 percent over the past 10 years, and in 2007 the average median home price in Houston increased about 5.7 percent. It has been very well chronicled that the rapid price increases, which sometimes approached 25 percent +/- on an annual basis from 2002 to 2005 for many cities, fueled investor activity in purchasing new homes. Houston’s lower appreciation does not attract this investor activity and is a major piece of a stable housing market, which greatly decreases the odds of a major price correction.
Another reason for buying a home now is what has been referred to as the “affordability factor.” A comparison of the cost of renting versus the cost of buying a home in several major cities shows that Houston has an excellent affordability rating when the cost of renting versus owning a home as well as the future employment growth are taken into consideration.
Houston’s “affordability index” is one of the best in the nation, and the housing market is considered one of the “most secure.” Data suggests that, under such a scenario, with all things being equal, it is better to buy a home than to rent one.
All of this data needs to be taken into context, because every neighborhood in Houston needs to be researched thoroughly.
Contrary to what may have been reported in some of the media, the Houston housing market is affordable and, in general, is not over-valued. Houston homes have not experienced the high appreciation rate of other markets, and with outstanding job growth, Houston is not experiencing the housing slump of other cities.
So when a prospective buyer asks, “Is now the right time to buy a house in Houston?” his adviser can answer with facts to back up the claim — “Absolutely!”
Kirk Laguarta is senior land adviser with the Land Advisors Organization
Harris and other surrounding counties do have programs to help first time homebuyers get into a home. But there are restrictions and eligibility requirements for each program. Most of these grants require you to take a first-time homebuyer 8 hour course, usually given on a Saturday and obtain a certificate of competition after the class. After receiving your certificate, you should interview with approved lenders for the grant program. You should work with a company you feel comfortable with and a company that has completed several of these types of transactions. After you choose the lender you want to work with, you will need to gather all required documents including bank statements, w-2’s, pay check stubs, etc. You and your realtor can now search for your home with a max price of $120,000. The home you decide on has to be within the Harris county service area, and there are also strict income/family size requirements. Go to http://www.csd.hctx.net/dapsteps.aspx for more information, to find approved lenders, HUD approved education classes, and income requirements.