Some might have had to re-read the title of this article to make sure their eyes weren’t playing tricks on them. The latest MLS statistics are out and they show a two percent drop in sales for February 2011 when compared to the same month last year. While a drop in sales is usually not greeted with open arms, let’s examine why this is excellent news for the Houston market.
First, in February 2010 we were still feeling some artificial inflation of the market due to the federal first-time home buyer tax credit. While this incentive fueled a sharp rise in sales, it took a lot of potential buyers out of the market that were planning on purchasing later in the year. When this credit expired last year, the market instantly experienced a sharp drop in sales.
The second major factor affecting the market is the much tighter lending guidelines that have been applied during the last 12 months. With everything from Fannie Mae overlays, rising interest rates, minimum credit score changes and the upcoming loan officer compensation rules that will change on April 1, buyers have felt shrinking purchasing power.
The third contributing factor is the total number of foreclosure sales. In February 2011, there was a 16 percent drop in the total number of foreclosures sales. As we all know, distressed properties normally sell at a significantly lower than market price which has a negative effect on values and appraisals.
When you look at these three contributing factors, it clearly shows that the market in Houston is returning to stability and our total number of sales is now the result of normal buyer demand as opposed to being artificially inflated by the tax credit. When you mix in the tighter lending guidelines, this also implies that while it limits the purchasing power overall, the Houston market remains resilient and is headed in a positive direction.
Along with these market metrics, there are more reasons to be extremely optimistic for 2011. Our year-to-date sales have increased two percent and our average price has also risen four percent to $205,495. In addition, Builder Online ranked Houston No. 7 in Healthiest Housing Markets for 2011. They estimate that in Houston building permits will rise 30 percent this year along with employment growth of 2.66 percent.
While it is sometimes hard to interpret statistics, forecasts and reports, it is often a good idea to talk to those on the front line of the real estate market and get their opinion. When speaking with several builders and REALTORS®, it is apparent that the market is getting better as sales office traffic, phone calls, sales and other positive market factors have improved over the last 30 days.
When you look at all these factors, it paints a very accurate and optimistic outlook for 2011. As builders and REALTORS®, it is time to be positive and prepare for a successful year.
Paul Silverman, MIRM, GREEN, ABR, CGP, CSP, CMP, SRES, AHWD, ePro is a Broker Associate at Heritage Texas Properties. Paul is past Board Member of the Sales and Marketing Council as well as the Houston Association of REALTORS® MLS Advisory Committee. He can be reached at firstname.lastname@example.org.