Market Update – April Newsletter

This is my April newsletter I e-mail out to my clients. If you would like to receive it monthly enter your e-mail address here.

The media continues to talk about the real estate market “stabilizing”. The reality is until our economy starts to add jobs, real estate sales will be stagnant. Unemployment in Houston decreased from 8.8% to 8.5% in February but that is still well above the 2009 rate of 6.7%. Every market is different. There are areas in Houston that values have actually increased in the past three years and others that have been heavily affected by the recession. The Houston economy for the most part is still driven by the energy sector and the price of oil. Once energy companies start hiring as energy prices increase there should be an increased demand and sales should return to more normal levels or beyond. Energy prices won’t increase until there is more demand which will only happen when the global economy recovers.

I am frequently asked “what will be the impact of the tax credit expiring?” People buy homes because of life events (births, deaths, new jobs, divorces, etc) not because of tax credits and for move up buyers $6500 is not enough to motivate them to move because their costs to buy and sell far exceed the credit. Receiving a tax credit has motivated those who qualify, mainly first time home buyers to act before the April 30th deadline. Once the credit expires I believe there will be a slight short term drop in demand for homes under $150,000 that are typically purchased by first time home buyers.

My biggest concern for the rest of the year is sharp increases in interest rates. Many economists believe rates will increase to 6.5. – 7% by December. While historically that is a very good interest rate it is something that current home owners and buyers are not use to. While 2% increase doesn’t sound like much but that would increase a buyers payment by $192 a month on a 30 year conventional $150,000 note. The total cost of the loan would increase by $52,430. As of today loan rates for non government backed loans (commercial and jumbo loans) are around 7% because investors are expecting higher rates of return with real estate loans. Today the rates for conventional government backed loans (FHA) are 5%. With large deficits looming many economist believe the bond investors will require greater return on US bonds which will raise mortgage rates for consumers. Obviously if the end of the year rolls around with little to no job increase and 7% interest rates the real estate market will be in a tough spot. Only time will tell.

Below information about the National real estate market and Houston real estate market.
Nationally
Unemployment – March 9.7% Unemployment

* Pending home sales have increased across the board with an 8% increase in the South Region.
* Existing-home sales, slipped 0.6 percent nationally to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January, but are 7.0 percent higher than the 4.69 million-unit pace in February 2009.
* Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.
* The national median existing-home price for all housing types was $165,100 in February, which is 1.8 percent below February 2009.
* Distressed homes, generally sold at discount, accounted for 35 percent of sales last month.
* First-time buyers purchased 42 percent of homes in February, up from 40 percent in January.
* Investors accounted for 19 percent of transactions in February, compared with 17 percent in January; the remaining sales were to repeat buyers.
* Regionally, existing-home sales in the the South, slipped 1.1 percent to an annual pace of 1.85 million in February but are 6.9 percent above a year ago. The median price in the South was $139,600, down 4.2 percent from February 2009.

Houston

Unemployment – February 8.5% Unemployment

* February sales of all single-family homes in Houston totaled 3,251, down 5.8 percent from February 2009. This is the Houston market’s third consecutive monthly decline in sales.
* Sales of single-family homes priced between $250,000 and $500,000 rose 15.8 percent in February while sales of luxury homes—those priced from $500,000 to the millions—climbed 14.9 percent.
* Sales of homes in the below-$80,000 segment fell 27.5 percent
* Sanes of Homes priced between $80,000 and $150,000 were unchanged.
* The months inventory of single-family homes for February grew to 6.3 months compared to 5.9 months one year earlier.
* At $147,000, the median sales price for single-family homes rose for the tenth consecutive month, up 6.5 percent from February 2009.
* The average price of single-family homes in February was $203,271, an increase of 12.3 percent from one year earlier. That represents the fifth straight monthly jump in the average price.
* In February 2010, existing home sales totaled 2,681, a 5.1 percent drop from February 2009.

Mortgage Industry

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage dipped to 4.99 percent in February from 5.03 percent in January; the rate was 5.13 percent in February 2009. Single-family home sales declined 1.4 percent to a seasonally adjusted annual rate of 4.37 million in February from a pace of 4.43 million in January, but are 4.3 percent higher than the 4.19 million level a year ago.