Mark G. Dotzour wrote an article in the July 2011 Tierra Grande Magazine that discusses the constant changes in the housing market and what indicators Realtors should look for to increase and decrease sales. Since he writes for a Realtor Magazine, I wanted to share this information with consumers. He states that most of the year the housing flow is “normal.” For Realtors, transaction volume ebbs and flows just like consumer demand for homes changes month to month.
Below are some indicators that can predict where the housing market is headed according to Dotzour:
- graduates from college and whether they can get a job;
- marriage;
- having children and needing a bigger home or a
different school district; - get promoted and move to another city or another
neighborhood; - lose a job and no longer able to afford
their house; - get divorced and have to sell the house or move
into a smaller one; - buy a second home near adult children;
- need to move into a smaller, one-story house
with less maintenance; - reach a point at which they can no longer care
for themselves and need to move to an assisted-living facility; - move to the United States from other countries
to improve their quality of life; or - move from other countries and buy homes here to
protect their wealth and secure their safety.
The expansive Midwest flooding that made headlines for weeks this spring is a reminder that every now and then nature plays havoc with
rivers. Similarly, certain events and circumstances can cause housing transaction volume to rise significantly. For example, increases may occur when:
- home prices increase fast enough that the
investment motive spurs purchases; - prices increase even faster and speculators buy
homes to flip them; - prices increase consistently, so people prefer
to buy now rather than pay a higher price later; - mortgage rates drop enough that many people can
afford to buy a bigger house or move to a nicer neighborhood without a
significant increase in their house payments; - the government offers tax incentives to
homebuyers; or - houses are affordable to a broad segment of all
households and mortgage underwriting standards are lowered to include a broader
range of credit risk.
Extreme weather patterns that spawn floods do not last forever. When they end, rivers return to their normal level within the banks.
At the other end of the weather spectrum is drought, which lowers the river’s water volume.
Transaction volume ebbs, too, when circumstances such as the following occur:
- people are worried about losing their jobs so
they postpone buying decisions; - people are worried that home prices will fall,
and they might lose their equity; - house prices rise so fast that they become
unaffordable; - lenders tighten mortgage underwriting standards,
and by doing so remove potential buyers from the market; - appraisals come in well below the contract price agreed to by a
seller and a buyer; - cost of homeownership increases (taxes,
utilities and insurance); - lack of liquidity in the market makes it harder
to sell homes; -
employers reduce corporate transfers to save
money; or - random scares, such as radon gas or black mold,
make media headlines.
As the second half of 2011 begins, buyers all over the country are still skittish because of all the negative housing headlines. But there is evidence that Texas’ residential
housing market is beginning the gradual, lengthy process of moving back to normal.
Real estate operates in a local market. What happens in Las Vegas does not really matter to a homebuyer in Abilene. Each
local market has its own story and its own dynamics.
Dr. Dotzour is a chief economist with the Real Estate Center at Texas A&M University. Although the article was written for a Realtor audience, I thought the information was great for consumers, too!
