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Houston Luxury Real Estate Articles and insights to the Houston area luxury home real estate market as observed by local luxury home expert Mark A. Fuller.

Real Estate Trends

Risks of home pricing declines in Texas considered low

Regardless of how it's worded, the question is the same. Real estate agents hear it all the time. So do researchers here at the Real Estate Center. This may be the biggest single question facing the US real estate industry. It certainly is one reason many homebuyers are waiting on the sideline.

There is no single answer. Answers vary from city to city, state to state, property to property and household to household.

Mark Dotzour, PhD, the Center's chief economist and director of research, provides some useful commentary on the big question.

"First, we have always said that as long as the inventory of unsold homes hovers around 6.5 months, that's a balanced market, and prices increase. We have subsequently observed that as inventory levels increase toward eight or nine months, prices still hold firm. Only when inventory levels get to 10 or 12 months do prices start to fall.

Mark Fuller is a leading real estate professional specializing in Luxury Homes In Houston Texas.

"Second, the reported median sales prices are not truly reflecting the actual value trends in the local market. As the percentage of 'distressed sales' increases, the reported median sales price falls.

"This doesn't mean that home prices are falling; it just means the quality of homes in the sample is falling."

"For example, if three homes sell in one month, and all three are 'typical' sellers at $170,000, then the median price is $170,000. If foreclosures increase in the next month and three homes sell (but two are foreclosed sales at $140,000 and $145,000 and one is typical at $170,000), then the median price falls to $145,000. The reported median price has fallen $25,000, but the 'typical' house is still selling for $170,000."

"Hence the reported median price decline reflects a change in the quality of two bad apples in the basket, not a true reflection on the price of the good apples."

"Third, the quality of distressed properties sold in the market is often very poor – worn or stained carpet, stripped copper wiring, and other defects. Hence, when a lot of distressed properties sell, it means that the overall quality of the basket of apples has deteriorated. It doesn't mean the good apples in the basket have declined, it just means that the basket still has some good apples, but also includes a growing proportion of lesser quality apples."

Whether real estate is improving or still deteriorating often depends on those same three factors that dictate which property to buy in the first place: location, location, location. In general, if you are buying in Texas, your home’s value is less likely to decline.

In 2010, Center economists explained why the Texas housing market fared far better than other states during the recent downturn. They also suggested why the state’s economy is expected to continue to do better than the rest of the nation.

"The risk of a home price decline in Texas is low," says Ali Anari, Ph.D., a Center research economist. "Texas' lower-than-national-average housing cost is one reason for the state's higher-than-national-average growth rate," says Anari. "When Texans are able to spend more on non-housing goods and services, the state's economy is strengthened and more people are attracted."

Mark Fuller is a leading real estate professional specializing in Luxury Homes In Houston Texas.

"These results illustrate one of the key reasons the Texas economy outperforms the United States in terms of job growth almost every year," says Dotzour. "The fact that Texans pay less of their income for housing means they have more to spend on other things that add to the overall quality of life. Texas offers a lower cost of living than many places in the United States."

"This allows Texas employers to be able to attract workers at a reasonable wage rate that allows them to compete successfully in the global economy."

"The larger the share of housing expenditures in the consumer's budget, the more home prices in their region have fallen since 2007," Anari says.
Anari points out that home-price changes affect expenditures and wealth. Lower housing costs allow consumers to spend more on other goods and services, leading to higher regional economic growth, increased growth rates, a larger labor force, and more demand for goods and services.

Would-be homebuyers have reason to be cautious. The Dallas Federal Reserve’s December 2010 EconomicLetter says there is no pain-free path to a healthy housing market. National home prices peaked in 2006 and have fallen 33 percent since. The authors say, "… home prices still must fall 23 percent if they are to revert to their long-term mean."

But they are speaking about the nation in general. Luckily, when you see that "Welcome to Texas" highway sign, you should feel more confident in any home purchase you make down the road.

Mark Fuller is a leading real estate professional specializing in Luxury Homes In Houston Texas.