Local Real Estate Market Conditions

The condition of the real estate market has received much publicity over the last year. As an integral part of the overall economy, real estate experts eagerly await the latest sales and listings information to gauge the market’s vital signs. Locally, the Houston Association of Realtors (HAR) issues a press release each month detailing the condition of the Houston area real estate market. They quote a myriad of statistics, including number of property sales, average sales prices, total listings, and months inventory. In general, the latest press release indicates that the median price of single family homes in the Houston area declined by 4.4% over the past year. Excluding foreclosures, prices remain flat.

One of the more interesting, but least understood market statistics is “months inventory”. It is interesting because it reflects a key economic principle, i.e. supply and demand. The months inventory statistic (MI) indicates how many months it will take for all current listings to be sold at the current rate of sales. For example, if there are 100 homes on the market and homes have been selling at a rate of 20 homes per month, there is an MI of 5. If the ratio of listings to sales increases, the MI goes up and prices tend to decline. If the ratio decreases, the MI declines and prices tend to increase. Whenever this metric falls below 9, it is considered an active or seller’s market. In a seller’s market, a buyer is more likely to be competing with other buyers and may not be successful in negotiating price concessions. An MI of 10 is considered a slow or a buyer’s market due to an increased number of homes for sale relative to the number of buyers in the market. In a buyer’s market, a buyer may have an advantage in price negotiations. An MI between 9 and 10 is presumed to be market equilibrium.

In the March, 2009 press release, HAR published an overall MI of 6.1 for single family homes in the greater Houston area, slightly down from 6.3 one year ago. In reviewing the details, the data indicates that both sales and listings are down about 19%. So while the market has slowed in the Houston area, the ratio of listing to sales is relatively unchanged. This is consistent with the finding that prices, excluding foreclosures, remain flat.

The monthly HAR press release can be helpful to home buyers and sellers in determining the strength of the market as it ultimately can have an effect on the price of a property. But since real estate markets are differentiated by types of properties, price points and location, you have to take a peek at the data behind the press release to understand the market conditions on a specific type of property, price range and location.

When slicing the Houston area by property type, the MI for single family homes was 6.1 (seller’s market), for townhouse/condo homes was 8.5 (almost market equilibrium), and for high-rises was 14.5 (buyer’s market). A more significant variation of results also occurs when slicing the market by price point. Focusing on just Montgomery County, the MI for single family homes under $100K was 3.9 (strong seller’s market) and those over $1MM was 27.7 (extremely strong buyer’s market).

Market conditions also vary significantly by location. While the entire Houston area market had a single family home stat of 6.2, Montgomery County had a slightly higher MI of 7.3. Montgomery County’s MI can be further broken down in several ways. HAR segments Montgomery County into 4 general MLS market areas; NW, NE, SW, and SE. These MLS areas had MI’s of 10.5, 6.3, 6.3, and 8.3, respectively. Data for Montgomery County can also be parsed by zip code. A sampling of MI’s by local zip code includes 10.5 in 77304 (Conroe), 11.6 in 77356 (Montgomery), 11.3 in 77365 (Porter), and 3.8 in 77381 (The Woodlands).

As you can see, market conditions in an area are all over the board. To maximize the value of a real estate transaction, it is in your best interest to get a handle on market conditions relevant to your specific property. You may be at a disadvantage if you don’t understand the market but the party you are negotiating with does.

All the numbers quoted above are released by HAR on a regular basis and are readily available. However, it is possible that none of those statistics are relevant to a specific situation. But a data savvy realtor can drill down into the statistics and determine comparable sales prices and the supply / demand condition for a specific area, price and type of property. A realtor can also make appropriate price adjustments based on the specific amenities unique to a property and neighborhood to determine a fair market value.

Pricing a home properly is a skill acquired by experienced agents who are knowledgeable about a specific market and stay in tune with market conditions. When the market conditions and the unique characteristics of a home are properly incorporated into the price, the parties involved are best equipped to negotiate a fair and equitable transaction.

If you have been delaying a decision about buying or selling a home, don’t base your decision on general information that may or may not be applicable to you. Contact an experienced, local agent and ask for information specific for your situation.

For all your real estate needs, Claudia Hohlt can be reached at 936-537-1656 or emailed at Claudia@ClaudiaHohlt.com.