Real Estate Market Improving?

(Last Updated On: September 17, 2013)

By Sharon Smith Clark

Is the housing market really improving?  This question has been foremost in the minds of many metropolitan Houston homeowners and homebuyers.

According to Wayne A. Stroman, Houston Association of Realtors (HAR) chairman, “Demand for homes throughout Houston continues to outpace supply as we transition into the fall season. Home sales traditionally begin to taper off this time of year, so we are not worried about inventory declining to unhealthy levels. For those considering selling a home, current market conditions present excellent opportunities, and with interest rates falling to new record lows, this also remains an outstanding time to buy.”

In his statement, Chairman Stroman explains current demand and supply and predicts patterns affecting buyers and sellers.

So just what is demand and supply? By definition, demand in real estate is the amount of real estate people are willing and able to buy at a given price. Supply is the amount of real estate available in the market to be sold at a given price. Price is always an important factor.

The Price of Housing

Prices are set by market supply and demand. Home prices rise and fall based on changes in housing demand and supply. A strong increase in demand causes prices to increase; a strong increase in supply causes prices to fall.

For example, when months inventory were above the 6.5-month benchmark, the median price of Texas homes fell. The rising number of foreclosure properties sold at lower prices made worse the decline in median home price.

Supply of Housing

Home builders and homeowners interested in selling their homes supply the market.

Housing supply is produced using land, labor, and various inputs such as building materials.  The quantity of new supply is determined by the cost of these inputs, the price of the existing stock of houses, and the technology of production. Changes in the rate of new supply indicate a strong construction market. Recent permitting rates are also factors.

Demand for Housing

First-time buyers, those relocating and move-up buyers provide the demand.

The magnitude of a housing boom and bust, such as the ones the nation has experienced in past years, depends on how much demand exceeds supply. A housing bust results if supply vastly surpasses demand, and the severity of a bust depends on the level of excess supply.

Analysts also look at the marketplace and its economic condition, and compare current market activity with statistics from the previous year.

By comparing the number of sales and total sales volume, both on a year-to-year and on a year-to-date basis, this comparison helps analysts explain the market / market conditions and helps buyers and sellers understand the forecast trends in the marketplace and answer questions such as:

• Is the number of sales going up or down?

• Is the total sales volume going up or down?

• Is the marketplace ahead of or behind the pace of sales from the previous year?

According to the Houston Association of Realtors (HAR) October 16, 2012,

• Houston-area property sales have now held firmly to positive territory for 16 straight months, and September’s flurry of home buying caused a further drawdown of inventory and hike in prices.

• While monthly sales volume eased a bit compared to August, there was enough activity to lower available housing inventory to levels not seen since March 2002.

• Single-family home sales rose 8.7 percent compared to September 2011. Contracts closed on 5,014 homes in September, driving inventory down to 4.7 months. Only the low end of the housing market experienced a drop in sales.

Broken out by housing segment, September sales saw gains everywhere but the low end:

• $1 – $79,999: declined 6.0 percent

• $80,000 – $149,999: increased 3.9 %

• $150,000 – $249,999: increased 13.3 %

• $250,000 – $499,999: increased 16.5 %

• $500,000 – $1 million and above: increased 18.2 %

What are some important tips for buyers and sellers in the current market?

  1. Buyers and sellers must select a real estate professional to assure that their transaction is conducted properly.
  2. Be sure the broker or salesperson fully explains whom he or she will represent in the prospective transaction.
  3. Ask enough questions regarding the transaction to become satisfied that the broker or salesperson is knowledgeable.
  4. Consider using the Option Period found in all residential contract forms. For a nominal fee to the Seller, Buyers can negotiate a specified time during which the buyer can fully evaluate the condition of the property and perhaps renegotiate the initial offer based on inspections, needed repairs, or other considerations. This additional time can be what buyers and sellers need to ensure that both parties are satisfied at the end of the transaction.

Sharon Smith Clark is a native Houstonian. She is a realtor with Keller Williams Realty Pearland and specializes in residential sales for the Pearland, Missouri City, Sugarland, and Houston Metropolitan markets. Her motto is “Allow me to help you make your dream a reality.”