Reflections on the Housing Market

As I’m cleaning up the mess in the kitchen that my husband’s left for me after one of his cooking endeavors, I’m wondering why he isn’t more careful while preparing meals. I’m very grateful that he has taken over much of the cooking chores over the last few years and I truly enjoy his tasty meals, but he just isn’t focused on minimizing the aftermath. Then it dawns on me that since we have an agreement that I will clean up after he cooks, he simply has no incentive to be less messy. And that brings my thoughts to our protracted recovery from the housing collapse of several years ago. Homebuyer friendly government policies combined with a mortgage lending process that increasingly disconnected loan underwriting from loan risk, many mortgage loans were approved in a manner like my husband cooks. Loan originators and underwriters did a very good job at getting loans approved but became more and more removed from the consequences of those loans defaulting since the financial risks were offloaded to someone else.
But what’s done is done. Our government has taken actions to tighten up the mortgage lending process and to increase regulation in the financial markets. Attempts have been made to ensure that appraisals are more objectively prepared and credit hurdles have been raised. While these new regulations may prevent a future housing crisis, only time will tell what the impact will be on future growth in the housing market. At the same time our government has also tried, with limited success, to ease the housing market’s transition to these new standards by providing distressed homeowners assistance in keeping their homes, 1st time buyers’ tax credits on the purchase of a home, and long time existing homeowners tax credits in buying a different home.
All of this has come at a significant cost. Bailouts of financial institutions and subsidizing the housing industry through tax credits have been very costly and have increased our national debt. At the same time, loss of confidence in our economic future has eroded the wealth of our fellow citizens as interest on savings is at an all time low and the stock market has yet to come close to regaining lost ground.
As I review my own business over the last couple of years, I’m reminded how the above events have affected the nature of my work. For example, more of my buyers have been investors in rental properties, and I’ve had an increase in clients either trying to lease out their properties or looking for properties to lease. I suppose it is only logical that massive foreclosures combined with tightened lending practices would result in a number of owner occupied properties turning into lessee occupied properties.
Analysis of historic HAR MLS statistical data for Montgomery County tells me that my experience is echoed throughout our market. As I look over the statistics, I notice that 4 years ago, about 1 in 5 closed real estate transactions on single family residences and condos was a lease contract while 4 in 5 were sales contracts. Most currently, about 1 in 3 closed transactions are leases. The significant change is due to lease transactions increasing almost 20% and sale transactions decreasing over 25%.
Of course, everyone wonders when the real estate market will recover, if ever. Unfortunately no one knows, as there are just too many moving parts. But we do know that in Montgomery County, we have a fairly good economic environment and a great quality of life, so I remain cautiously optimistic. Meanwhile, if anyone can think of a way to make my husband a tidier chef, please let me know. Perhaps more regulation?

Temporary Leases Can Help Sync Up a Real Estate Transaction

If only buying a home could be as seamless as buying a car. A car buyer can walk into a dealership, trade-in an old car for a new car and never be concerned about being without transportation at any point during the process. The home buying process, however, has a few more moving parts. And syncing up a buyer’s move-in date with a seller’s move-out date can be one of the more challenging aspects of the process.

It is not unusual for a home buyer to be required to move out of their existing home before the transaction on their new home is finalized. This situation should be avoided if at all possible by extending a lease on a rent home, or delaying a closing on an existing home. But what happens if a buyer has a firm move-out date and their new home simply can’t close on time? One alternative would be for the buyer to place most of their belongings in storage and then rent temporary housing until their new home closes. Of course that adds to the costs of moving and can be inconvenient, to say the least. A more desirable alternative, if available, would be for the buyer to negotiate a short-term lease with the home seller to bridge the gap. That would eliminate the need to store belongings, and enables the buyers to promptly move into the home they are planning to move into anyway.

The Texas Real Estate Commission offers a contract form for these situations that is titled a Buyer’s Temporary Residential Lease. This contract addresses rent, pets, utilities, maintenance and deposits much like any other residential lease. This alternative can be a win-win for the buyer and seller. However, this typically will work only when the seller’s home is already vacant. And even then, some sellers’ are not willing to use this tool because of concern that the buyer loses incentive to keep pushing for a timely closing of their loan and resolution of any other issues related to the closing. The sellers may also be concerned that something could happen to prevent the buyer from closing at all or that they may change their mind about buying the home. Then the sellers may be faced with going through the eviction process and then get the property ready to sell again. But when the sellers are comfortable with the buyers, a Buyer’s Temporary Residential Lease is something that may be considered.

Another situation that occurs from time to time is when the seller does not wish to move until after their home closes. For example, a seller may be nervous about a buyer’s ability to close, and prefers not to take the risk involved with moving out of their home before the transaction is finalized. They simply want to have a done deal, and then vacate after all the risk is removed. Again, the Texas Real Estate Commission has a contract form for this situation. It is titled a Seller’s Temporary Residential Lease. Its substance is very much the same as the Buyer’s Temporary Residential Lease. This arrangement is very friendly to the seller, but the buyer may be less enthusiastic due to a concern about the property’s condition when they finally get the keys. Just prior to a home’s closing, there is usually a walk-through by the buyer to determine that the property is in the agreed upon condition. With a seller’s temporary lease in place, the buyer is doing their walk-through before the property is vacated. And obviously, a visual inspection is less effective when the house still contains furniture, wall decorations and rugs.

In most cases, experienced Realtors can avoid the need for temporary leases through their efforts in coordinating the buying and selling process. But on those occasions when the buyer’s and seller’s timing just can’t be synced up, Realtors have these tools to ensure the process keeps moving forward. At the end of the day, the real estate buying and selling process can have the appearance of being seamless, as long as experienced Realtors are in the sewing room.

If you are thinking about buying or selling a home, give me a call. I have the experience and knowledge to get the job done to your satisfaction.