Real Estate Investors and Home Buyers should take some factors into consideration when making plans for purchasing properties next year.
I have not written a piece for real estate investors in a while, so producing a Housing Forecast for next year is a good re-entry topic. I have been reading a few articles about what may be happening in the coming year, and I am not sure that some people have all of their facts right. My determination will be based upon what I am hearing in the news, my business experience, and my own investments. You should take this information as a guide to project your own forecast (not as an ultimate authority).
Housing Downturns- most writers seem to forget that housing markets take longer to make a recovery. Houston was in an odd position in comparison to most of the country; we already had a housing downturn before the national housing crisis of 2007. This means that our homes were reasonably priced. At this time, we have suffered a small decrease in average/median prices due to foreclosures. In this regard, Houston is a great real estate market.
Foreclosures- we may not be suffering from the number of foreclosures that other parts of the country have experienced, but this has been a problem effecting our neighborhoods. I inspected a home in one neighborhood where most homes for sale were foreclosures. If investing in foreclosures, I would not go into an area with more than 25% of the available houses being foreclosures. Over 15% foreclosures, I would not thinking of flipping the home, renting would be the plan here. We do not know how many more homes will be going into foreclosure. The general consensus is there will be more foreclosures coming onto the market next year. This may drive home prices lower. If prices do not go lower, we can expect them to stay level with the current market. Good news for home buyers. For investors, this is an indicator that it may be better to rent.
Economic Conditions– we are out of the recession, barely. Consumer confidence is the key figure to look at first. It is not positive. Again, Houston has fared better. That is positive for investors, because it means that buyers may be there. National news does cause concern with local buyers though. Disturbing news on this front are the reports that more job losses will hit our region. Until the recovery is stronger, and job losses end, consumer confidence cannot rise. I am going to be optimistic and hope for a strong economic performance at the end of Spring 2010. I base my opinion on statements made by various economists.
Real Estate Stocks-I like looking at my REITs (real estate investment trusts)to see what sectors in the real estate industry are doing well. The only REIT that I own that is doing alright is the medical real estate sector. Commercial real estate does not appear to good otherwise. For builders, I only look at stocks for firms in my region. Getting better is the prognosis. Building starts (new homes that are starting to be built) has gone up. Builders are trying to meet the demand that was created by the tax credit. With the extension of this credit, builders will see a good amount of new home sales. This is good news for home buyers, but not for investors. Builders are going out of their way to attract those buyers, which makes it harder for investors to move their properties.
The $8000 Tax Credit- if you have not heard (why were you not listening to the news, is it the fact that public radio has a fund drive going on now?), the tax credit has been renewed. From December 1,2009 to April 30,2010, you will receive a tax credit of $8000 or 10% of the home’s sale price if you sign the contract between those dates. Every buyer that I dealt with was aware of this credit, and it played into their purchase decision. This is good news for buyers and investors. For investors, this means that this credit will drive buyers into the market. I found that my business increased when the credit was coming to an end. I believe this pattern will hold for the next round of the credit. Most of the dates covered by this extension are the slower period for real estate sales in normal cycles. The credit will be ending at the time when buyers normally return to the market. Investors should be prepared to have their homes on the market before Spring comes.
Mortgages– lenders appear to be doing well, but this is not due to the fact that they are offering more loans. Buyers need to be aware of what they need to do to qualify for a loan. This could be bad news for many buyers, because they may not qualify. In turn, this is bad news for investors who are planning to sell homes; good for investors who want to rent. It will be after 2010 before lenders become more confident offering funds to borrowers.
My final take: 2010 can be a good year for the wise investor or buyer. The wild cards will be the number of foreclosures coming onto the market, and when will the recovery be strong enough to restore consumer confidence. I feel that we cannot say the real estate market in Houston is “normal” till 2011. Normal being homes prices rising steadily, consumers feeling good about making large purchases, foreclosure inventory going down, and mortgages being easier to obtain for a larger segment of the population.