2013 Real Estate Market Starting Out with a Bang

2013 has been a busy year so far for real estate in Montgomery County.  Too determine how busy, I decided to dive into the MLS database to see how the residential market for single family homes has been performing.  I was not surprised to see that sales through mid-March in Montgomery County were up over 15% compared to the same 75 day period last year.  Additionally, the median price per square foot rose about 10% and homes sold about a month faster compared to last year.

Most folks believe that the new Exxon campus in north Harris County has had a large impact on the local market.  In digging a little deeper into the year to year comparison, I can see that most of the increase in sales is in the areas nearest the Harris County line.  In fact, of the 151 increase in home sales year to year, 117 occurred in the southwest part of the county.  This is also where the homes are selling the fastest, with home sellers securing a buyer an average of only 45 days after listing their home.  This is about a month faster when compared to last year.  In the last year, the data indicates that southwest Montgomery County has gone from a good sellers’ market to a strong sellers’ market.   

I was recently told by a client relocating from Exxon’s Virginia office that they have been advised to look for homes in The Woodlands,  Spring or Tomball area.  So it’s not surprising that The Woodlands is taking the lead in Montgomery County’s increased demand for housing.  But like my client relocating from Virginia, there are a number of families that prefer the charm of many of the older neighborhoods and the more tranquil areas found in the northern part of the county.  And what some are discovering is that the commuting time to some of these more northern neighborhoods is actually less than the time it takes to get to some of the neighborhoods situated deep into The Woodlands.

In checking into some of the stats for a few Conroe neighborhoods located close to I-45, I found out that 4 of the 5 homes sold in Rivershire so far this year were on the market less than 2 weeks.  Last year during the same time period, 2 of the 3 homes sold in Rivershire were on the market 6 months and more.   Granted, there were only a few homes sold during both time periods, but the rapid pace they sold this year could be an indication that the increased demand in housing is spreading north.  I noticed that River Plantation and Stewart’s Forest also showed substantial improvement.  So there is reason for optimism for home sellers throughout Montgomery County.

There are obviously still lots of concerns about the overall housing market and about the overall national economy in general.  But there are some systemic changes in Montgomery County that seem, at least to this humble Realtor, to have some staying power.  Time will tell, but for anyone that is considering buying a home in this area, you might not want to wait too long.  Increased demand typically increases prices, especially in the short term before new construction catches up with the demand. 

Home Inspections

I heard a story about the wife of a junior high school principal who bought her husband a tie for Christmas.  She selected one with a subdued pattern with colors that complemented his favorite suit.  She didn’t notice until after she started wrapping it that the pattern consisted of numerous silhouettes of shapely women.  Fortunately, it was noticed before the tie was worn to school, as I can just imagine all the young boys acting up in class hoping to get sent to the principal’s office!

I think most of us have purchased an item or two that turned out to be a little different than what we expected.  And often it is because we missed an important detail.  When it comes to real estate, there are so many details that it is next to impossible for the average homebuyer to examine and understand each and every one.  That is why home inspections are so important.  Missing an important detail on a home purchase can be a costly mistake.

Home inspectors are licensed by the Texas Real Estate Commission (TREC) and have completed education and training in home inspections.  A typical home inspection covers a home’s structure, electrical system, heating and air conditioning system, plumbing system, appliances, as well as certain other improvements in place such as lawn irrigation.  The minimum level inspection as defined by TREC is a “limited visual survey and basic operation of the systems and components of a building using normal controls and does not require the use of specialized tools or procedures”.  TREC further states that “the purpose of the inspection is to provide the client with information regarding the general condition of the residence at the time of inspection”. 

Of course, some inspections offer services above and beyond what is required by TREC.  But that additional level of service might come with a higher service fee.  Regardless, licensed inspectors methodically examine the exterior and interior of the home and almost always find some issues that the buyer should take into consideration.   Sometimes a report might recommend hiring a specialist, such as a licensed HVAC technician, to do a more detailed analysis on an area of specific concern.

A Realtor should always recommend to their client that they purchase an option period for a specific time period to “kick the tires”.   During the option period, a client can back out of the contract at any time for any reason.  It is during the option period that the home inspection is done as well as other due diligence such as a termite inspection.  Most times, the home inspection report does not reveal issues that cause a buyer to exercise their option to terminate.  Typically there is one of three outcomes; the seller agrees to address all requested items on the inspection, the buyer agrees to accept the property as is, or most commonly, the seller agrees to make some, but not all, requested repairs.

When I purchased my first home several decades ago, the inspection report consisted of three items scribbled on a half sheet of notebook paper.  Those days are long gone.  Nowadays, inspectors are licensed and required to issue an inspection report that provides assurance to a buyer that a trained professional has inspected the home according to state mandated procedures.  Of course there are no guarantees, but a home inspection is one of the most important tools to help prevent buyer’s remorse. 

The junior high school principal’s wife had an easy solution to her problem.  She just took the tie back and exchanged it.  But overlooking an important detail in a home can have much more foreboding consequences.  So be sure to always have an inspection done before purchasing a home.

Montgomery County Real Estate Sales on Track for Best Year Since 2007

Without a doubt, it’s been a good year so far in our local real estate market.  I don’t even have to look at the Houston Association of Realtors’ press releases and statistical reports.  I’ve heard plenty of positive remarks from my fellow realtors that match up with what I’ve observed in my own business.  But Montgomery County is a large market with hundreds and hundreds of Realtors.  So let’s take a look at some statistical information to get a more comprehensive view of the market as it now stands in 2012.

In reviewing the most recent info, the best news is that single family sales in Montgomery County have increased 16% this year compared to the same time period in 2011.  That reflects a substantial growth in the market.  The increase in demand has also resulted in homes selling more quickly, with the average time on the market decreasing 14%.  We haven’t had a corresponding increase in prices though, with the average price increasing only ½%.  We may be on the brink of some uplift in prices though since active listings have declined 17% versus this same time last year.  The bottom line is that Montgomery County, as a whole, is currently in a seller’s market.

But as most folks know, Montgomery County is comprised of 4 rather distinct markets; the Northwest, Northeast, Southwest, and the Southeast.   Each area has its own market characteristics and have all performed well.  Some encouraging news is that the Northwest, dominated by the many Lake Conroe communities, had the highest year to year percentage increase in sales and sales prices.  But with a significant backlog of homes for sale, it is still considered a buyer’s market.  The Northeast also did well and without as many listings is in a slight seller’s market.  The overall strongest performer as usual is the Southwest which remains a strong seller’s market.

Another way to look at the market is year to year changes by type of sale.  I like to look at three broad categories of single family sales; resales, new construction and distressed properties.  Sales of previously owned homes, or resales, make up 71% of the total single family housing market.  These sales have increased 22% over last year and are selling 15% faster.  But prices have remained relatively flat.  New construction comprises about 15% of the total market.  These sales have increased 8%, are selling 2% faster, but prices have declined about 5%.  The price decline is partially due to the average size home being slightly smaller, but the average price per square foot is also less.  Finally, distressed properties, i.e. foreclosures and short sales, make up the remaining 14% of the market.  This market has remained relatively unchanged in the number of sales and the average sales price.  But they are selling 23% faster which may be an indication that lenders have finally figured how to dispose of their distressed assets more quickly.

As I write this article, 2012 YTD sales have already surpassed total year sales for each of the 4 preceding years.  One would have to go to the last pre-housing collapse year of 2007 to find more robust sales than 2012.  I’m not one to be bold enough to predict the future of our local real estate market as there are simply too many uncontrollable variables involved.  But the results so far this year make me one optimistic Realtor. 

A Memorable Real Estate Experience

It’s not unusual for us Realtors to get emotionally connected to our clients as we pass through their lives for a while.  After all, we’re usually brought in to help them navigate through a major life decision.  But every once in a while, a buying or selling experience stands out for some reason or other.  I had one of those earlier this year that I would like to share.

As I met my client for the first time at her recently acquired home, I noticed that the landscaping was quite overgrown.  The ligustrums hung over the front walkway making it difficult to fully appreciate the attractive Victorian architecture.  As we entered the home, there was an eerie stillness.  A heavy coat of dust had accumulated on every surface.  A large calendar on the wall hadn’t been turned in seven months.  Houseplants had long ago given up hope for a splash of water.   And random pictures of vacations and get-togethers from many years past were spread out on the large coffee table in the living room.  Most of them appeared to have been taken in the 60’s and 70’s and portrayed young folks being happy.  A more recent photo was of a cheerful man standing on the newly poured slab of this very house.  The photos were spread out in a manner that enabled someone to linger over the photos and reminisce about a time in which so much time lay ahead.  Alongside these happy memories was a hospice log detailing the last weeks of someone with very little time left.  

I was called by the new owner of this home to help her sell it.  She had just recently inherited the home from her brother and wanted to put it on the market.  That is one of the more challenging tasks for a Realtor.  Often we’re brought into to help someone transition through a difficult time.  The death of a close relative, divorce, financial hardship or poor health can sometimes force someone to sell a home.   In addition to one’s real estate expertise, these times call for an extra dose of compassion, patience and friendship. 

The one thing in common that most home sellers have in these circumstances is a desire for another family to enjoy the home as they or their loved one once did.  Especially for someone who has lived in the home for a long time.  A new family bringing energy and excitement into the home can be comforting to the seller.  And it can help relieve some of the heartache and help bring some closure to a difficult time.

Initially, my client was completely overwhelmed with the prospect of selling her brother’s home.  It had fallen into a state of disrepair and she felt that she lived too far away to deal with the numerous issues involved with the property.  At first, she was inclined to sell the property as-is, which would likely have required a heavy discount.   Sensing her anxiety, I offered to assist her through the process of fixing up the home.  After helping her get bids from some reputable contractors and being her “boots on the ground” in reviewing their work, my client was able to fix up the house and sell it for a fair price to a family that fell in love with the home.

There were numerous emotional moments during this process that made this one of my more memorable real estate experiences.  Along the way, I began to feel as if I had known my client’s brother and was working for him as much as I was for his sister.  As we left the closing table, my client was very relieved and satisfied with the outcome.  I think her brother would have been pleased as well.

Importance of HOA's in Purchasing Decisions

Several weeks ago, I spent a couple of days out of state in wonderful community. It had wide tree-lined avenues flanked by pristinely restored century old residences. There were sidewalks alongside each street on which we strolled each evening with a complete sense of safety. The surroundings were quiet, wildlife was in abundance, and everyone we encountered during our stay was friendly, polite and respectful.

OK, it was a highly secured military base, but nevertheless, we had a great couple of days visiting our newest grandson in this peaceful environment. Our kids had just sold their home and were temporarily living on base while in the process of being transferred to another facility. They secured us a room on base in a restored historic residence built in 1908 identified on the historical marker as “Bachelor Officer’s Quarters”.

I suppose you could view a military base as the ultimate gated community. With armed guards, guard dogs, and other security measures, access is highly controlled. And residents inside are greatly incentivized to follow base rules so everyone is on their best behavior. But while it is a nice place to visit, I suspect the many rules wear on folks after a while. That’s probably why many military personnel choose to live off base.

I dare say that not many of us would choose to live in a neighborhood with that level of control over our lives either. But there are local neighborhoods with some of the same features. There are neighborhoods with manned 24/7 security, private security patrols, and deed restrictions on what can be built, how it is built, how each property is maintained. Other restrictions are often included to protect property values and foster good neighbor relationships.

According to the Texas Realtors Association, 4.8 million Texans live in neighborhoods with HOAs. When looking for a home, chances are pretty good you will be looking at a property subject to deed restrictions and governance by a homeowner association. When buying a home, close attention should be given to any deed restrictions that apply to a property. All deed restrictions are legally recorded and are available for inspection by prospective buyers. Any restriction that a buyer can’t live with should be a deal killer. Conversely, buyers should investigate to see if restrictions that are important to them are in place and are being enforced. If enforcement is lax, inconsistent or non-existent, it should be taken into consideration before a contract is finalized. Getting information about the level of enforcement is not easy as its perception can vary from person to person. But speaking with several neighbors could possibly provide sufficient insights into how much importance the HOA puts on the subdivisions’ deed restrictions.

HOAs have on occasion been on the wrong side of public opinion due to controversial actions imposed on their residents. To address some of these concerns, the Texas Legislature passed several bills during the last session designed to better balance the interest of property owners and HOAs. Many of the provisions in the new statutes relate to increased HOA transparency, but other provisions prohibit an HOA from having outright bans on certain items like rain harvesting devices or national and state flags.

A home is a valuable asset and an HOA exists primarily to protect the value of homes within its boundaries. A little due diligence on existing deed restrictions and on the enforcement philosophy of an HOA could be valuable to buyers as they make a purchasing decision. These items could have an impact both on the buyers’ future quality of life as well as the value of the purchased home when it comes time to sell.

Beginner’s Guide to Real Estate Investing

Real estate investing has attracted a lot of interest in recent years. Low returns on CD’s and T-bills have caused some investors to take a hard look at real estate for
higher returns. But real estate investing is not for the faint of heart. It requires more upfront research and more ongoing attention as an owner compared to many other investments. But the rewards can be significant if handled correctly.

One of the principles that applies with real estate investing, as well as all investing, is to be just as concerned with the return of your money as the return on your money. In other words, should you need to sell the investment at some point in the future, you want to get your money out of it in a reasonable period of time. This requires some serious due diligence up front to get a home at the right price
in a stable neighborhood. It also requires a disciplined maintenance program after the purchase to keep it in a marketable condition.

After finding a property with potential, one of the first steps is to calculate an estimated return on investment so you can compare it to other investment opportunities. The upfront investment should include all purchase costs, closing costs, and initial fix-up expenses. The return should include rent income netted against all expenses including real estate taxes, insurance, interest and maintenance. When the result is compared to the returns on other investment
opportunities, the differences must then be evaluated based on the investor’s
perception of the risk associated with each. Consulting a financial advisor would be recommended for the first-time real estate investor.

Once you’ve acquired a property, more due diligence is required to get a tenant who can demonstrate a responsible history in timely payment of their bills, in taking care of homes, and with sufficient income to pay the rent. This requires a credit report, references from past landlords, and payroll records. Patience is needed at his point, as there might be a tendency to get a tenant quickly in order to get some income flowing. But it usually pays off in the long run to be patient until the right tenant comes along.

After the tenant moves in, the investor now becomes a landlord. Many investors want to avoid this part so they hire an investment management company to deal with the
tenants. But that can be expensive and will lower the overall return on the investment. If the investor manages the property alone, having financial discipline will serve the landlord well. A separate bank account should be used to segregate income and expenses from the property. An amount should be reserved for yearly taxes, HOA fees and insurance premiums. And an amount should be set aside from each rent payment for ongoing and unexpected maintenance requirements. Writing out large checks is much less stressful if those expenditures are planned for and money is set aside.

A final bit of advice for landlords is to have reasonable expectations of tenants. There needs to be balance between protecting your investment and allowing the tenants to enjoy the home. Achieving that balance can enhance your overall return as tenants are more likely to stay longer and take more pride in taking care of the home. This will also increase the odds that the investor will maximize value on the property when it comes time to sell.

An experienced Realtor can help a real estate investor find the right property and can help with the search for tenants. Real estate investing is not for everyone, but for some, it can be a rewarding experience in more ways than one.

State of the Local Real Estate Market

Anyone paying attention to national politics these days is hearing a lot of discussion about the nation’s housing market. There’s a lot of finger pointing and a lot of solutions flying around amongst folks running for, or trying to stay in office. Fortunately, Montgomery County hasn’t had plummeting housing prices like many other parts of the country since the crisis began around 5 years ago. But then again, we never had the high run up in prices they enjoyed prior to that time. Prices around these parts have been relatively stable throughout the last five years. The main impact around here was a significant drop in real estate activity.

Looking back, 2006 was by most measures the peak year of the last housing cycle. The total number of all closed transactions reported in MLS that year, including single family residences, condos, lots, and rentals, was very robust. Transactions declined steadily after that, and bottomed out in 2009 with 24% fewer transactions than in ‘06. Since then, transactions have modestly increased but are still down 16% from ’06 levels. The last two years have been encouraging and with continuing low interest rates and a fairly good local economy, there’s reason to be hopeful that these numbers will continue to improve.

But Montgomery County has a diverse real estate market and while the county as a whole has an optimistic outlook, certain segments have not fared as well. For example, while total transactions are down 16% since ‘06, single family residential and condo sales are down by 28%. Rental transactions mostly make up for the difference with an astounding 64% increase since 2006. Unfortunately, this reflects the human toll of the housing crisis as the American dream of home ownership has slipped away from so many families as they lost their homes and subsequently moved to rental properties. It also reflects how much more difficult it is these days for prospective buyers to get home loans due to tightened credit standards.

Another segment that has not fared well is the sale of residential lots which are still down by 47% from ‘06. This is an indicator of the level of new construction by local builders. It is not so much an indicator of the level of new construction by large builders as much of their new construction is in planned communities where lot sales are sold directly by the developer and not through MLS.

The above discussion all relates to Montgomery County as a whole. But as we all know, various areas of the county have been affected differently and have had a different rate of recovery. The county wide recovery in single family residential sales, for example, is mostly being driven by increases in the southern part of the county. And the area with the highest growth rate is the southeastern part of the county which has actually grown to a level that exceeds 2006.
These statistics also tell the story of how the real estate business has changed for the typical realtor. The smaller number of transactions has caused some realtors to leave the industry to pursue other employment with a more reliable income stream. And many of us who remain now spend more time assisting landlords and prospective tenants than we did five years ago. While that line of business may not be as lucrative due to its lack of complexity, it is just as rewarding as it still involves finding homes for families to enjoy.

While these numbers are interesting, what does it tell us about the future? Unfortunately, past history isn’t always a reliable predictor of the future. There are simply too many uncontrollable variables for this humble Realtor to make a sound prediction. But it does give reason to be hopeful. Like most local residents, it’s easy to understand the attraction of Montgomery County to newcomers because of its geographic qualities, proximity to major employment areas, and recreational attractions. Those characteristics make our county an attractive draw to many demographic groups, from young families starting out to retirees entering a new phase of life.

So let’s raise a glass to hope and continued recovery.