“This is the best time to buy a home!” That line is used by homebuilders and Realtors around the country on a daily basis. When interest rates are falling, we are told to buy while rates are low. When they are rising, they tell us to buy before the rates go up. There is always some impending event that makes today a good time to buy. The truth is, they are usually right. Even during a national recession, home values generally hold or rise. And, as one Realtor pointed out, “The value never hits zero.” If we only rely on national news for our information, we will believe that housing prices are either soaring or falling at any given time. The fact is, roughly five major markets in the country affect both sides of this news story. Today, those five markets that have benefited from rapid appreciation and record housing starts over the past three years are experiencing what economists call “an adjustment.” Some of these areas are as much as 80% below the prior year in housing starts and 30% off in home values. When these numbers are factored into the country as a whole, and reported on every day, it would lead one to believe that real estate is a risky proposition. Not me.
First, the national numbers do not represent Texas. Our state continues to be one of the fastest growing states in the country. Growth means that people are moving here and need a place to live. Home appreciation numbers are in the positive category in our major cities and in double digits in resort areas. The mortgage crisis has had more of an effect on the attitude of many Texans than on their pocketbooks. Several are in the wait and see mode due to everything they read and hear. Let’s peek behind the curtain and see what is going on while some “wait and see”. The largest competition for pre-owned homes comes from affordable new homes by production builders. These are typically national companies that build in most major markets. Today they have drastically reduced production due to standing inventory in other cities. While starts are slowing down, migration continues. People need a place to live and will have fewer choices. Apartment occupancy rates are rising along with rent prices.
The pre-owned home inventory will begin to shrink as builder’s new homes are sold and buyers choices are limited to the re-sale market. Some have predicted that by the summer of 2009 central Texas will experience a housing shortage due to tight lending rules and slow starts in 2008.
Here are some positive points that you won’t hear about on the news. First, with reduced construction starts, sub-contractors and suppliers are eager to find sales and work where ever they can. To the home builder ( and home buyer ), there has not been a better time to start a new home in the past several years. Labor and material prices have fallen and availability has increased. This translates into lower prices and faster production. For those contemplating a new construction project now is truly the time. Forecasters expect that by late summer or early fall the national builders will start production again. By the end of the year we could see scattered material shortages. With China preparing for the Olympics many vendors are shipping overseas. If we were starting homes today at last years pace, some of the predicted product shortages would be here already. Next, while it lasts builders with standing inventory are ready to make a deal. While I have made these deals in the past, they are rare in the central Texas market. The inventory homes today will be sold for considerably less than the ones they will be replaced with next year.
This brings us to selling. We rarely hear “This is the best time to sell.” To look at selling we need to speak to the buyers again. Conventional wisdom is to buy a home at the lowest possible price. From a cash flow perspective this is true in some cases. From an investment perspective, this is not always the case. If a seller is asking $300.000 for home, and after negotiation the buyer pays $ 250,000, the buyer now owns a $ 250,000 home. The closing price sets the value and it will be used over and over by appraisers to establish the value of other homes the area. Therefore, reducing the price of one home affects the value of others. To maintain value a buyer can negotiate for items to be included by the seller in the asking price.
The same is true for builder spec homes. Builders would rather include “buyer extras” than reduce the price. This is always the case if they plan to build other homes in the area and want to preserve future appraisals. In this situation, buyers can negotiate for upgrades in the asking price that would cost thousands later.
A final note on selling; the best homes always sell. If sales are down 20% in a given area sellers need to be sure that their home is in the top 80%! Buyers of preowned homes would like to see some of the new stuff. Update your house. Decide (with the help of a Realtor) if your home would make the top three list on an 8 showing day. People already dealing with a move are not going to want to fix, paint, mow or replace (carpeting) anything. Make your home is an “A”, or at least a strong “B”, but the “A’s” will sell first. Lastly, remember that the deal you give your buyer in this market you will most likely recover in your next purchase. Much of this advice applies to builders selling inventory ( spec ) homes. Since today’s buyers can be selective ( for awhile ) these new homes need to shine. Upgrade menu’s for prospective buyers could be the advantage needed on any given Sunday. Most of all, the homes should be accessible when buyers are looking. In my business I continually try to visit spec homes and can’t believe how many are locked tight on beautiful sunny days. Listing agents should staff these homes during the weekends until they are gone. Builders should do so if they handle marketing in house. These simple steps have been forgotten during our years of the “Sellers Market”. It is the marketplace of today that reminds us all who we work for.
While Texas lagged behind the east and west coasts in housing appreciation, it is also somewhat vaccinated from the national falling home values. Some Texas buyers are cautious and watching. When they see things start to turn around they will return to the marketplace and look for housing. By that time, the good deals will be gone and the builders will be busy. This really is the best time to buy a home.