In 2013, D-FW prices jumped by almost 12 percent. At the end of March, fewer than 19,500 houses were listed for sale with real estate agents in North Texas — a 12 percent drop in number of homes for sale from a year earlier. There’s only a 2.6-month supply of pre-owned houses on the market. One of the things we are hearing in the market is buyers are pushing back a little bit on pricing — it’s an affordability issue. This spring we are not seeing as strong a pricing power we should see appreciation this year well above our longer trend, but not as strong as last year. In other words, if you are thinking about selling now is a great time.
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Sales of pre-owned homes in North Texas fell slightly in the first quarter — the first such decline in three years. Pre-owned home sales were down 2 percent in the first three months of the year, a turnabout from the 16 percent rise in 2013 single-family home purchases that were handled through real estate agents’ multiple listing service.
Real estate agents sold 7,116 homes in March – down 4 percent from year-earlier totals, according to data released Tuesday by the Real Estate Center at Texas A&M University and North Texas Real Estate Information Systems. The Dallas-Fort Worth home market may have hit a ceiling after two years of sharply increasing sales and prices.
Real estate analysts credit the leveling in activity to a shortage of houses on the market and slightly higher mortgage rates, which have made financing a home purchase more expensive. “With the inventory being so low, demand may not have really fallen that much — we just can’t satisfy the demand,” said Dr. James Gaines, economist with the Real Estate Center at Texas A&M. “We’ll be very lucky to get a 5 or 10 percent increase in sales this year over last year.” And that will not happen at all unless the supply of houses on the market improves, he said.
At the end of March, fewer than 19,500 houses were listed for sale with real estate agents in North Texas — a 12 percent drop from a year earlier. There’s only a 2.6-month supply of pre-owned houses on the market.
Gaines said investors have cut back on their purchases of properties, in part because of the shortage of houses for sale. That’s also reduced the volume of transactions. And tougher mortgage lending standards are making it harder for first-time and moderate-income buyers. “There were some minor weather issues in the first quarter, too,” he said.
Gaines said that in 2013, the D-FW area had the second-highest volume of home sales ever. “This year if we can get enough inventory we’ll do better than that.” The shortage of houses continues to drive up prices.
Median home sales prices in North Texas rose 9 percent in the first quarter and were up 8 percent in March from March 2013. In 2013, D-FW prices jumped by almost 12 percent. “The long-term average rate of increase is only about 4.5 percent,” said Gaines. “2014 is going to be another year of double-digit price increases.”
But sharp gains in residential prices over the last two years could become a drag on sales, analysts worry.
“One of the things we are hearing in the market is buyers are pushing back a little bit on pricing — it’s an affordability issue,” said David Brown with housing analyst Metrostudy Inc. “If you are not making more money, you can’t pay more money. “This spring we are not seeing as strong a pricing power,” he said. “We will see appreciation this year well above our longer trend, but not as strong as last year.” Brown said that the Dallas housing market has mostly recovered from the recession. “Activity levels are back to where they were in 2008, but they are still below where they were at the peak of the market in 2006,” he said. “The demand from buyers is strong.
“But buyers are going out there and the product is not available or priced significantly higher than it has been.”
“One thing seems certain: we aren’t likely to see average 30-year fixed mortgage rates return to the historic lows experienced in 2012.”
There are those that hope that 30-year mortgage interest rates will head back under 4%. Obviously, for any prospective home purchaser that would be great news. However, there is probably a greater chance that interest rates will return to the greater than 6% rate of the last decade before they would return to theless than 3.5% rate of 2012.
Freddie Mac, in one of four original posts on their new blog, explained that current rates are still extremely low compared to historic averages:
“The all-time record low – since Freddie Mac began tracking mortgage rates in 1971 – was 3.31% in November 2012. Conversely, the all-time record high occurred in October of 1981, hitting 18.63%. That’s more than four times higher than today’s average 30-year fixed rate of 4.32% as of March 20…rates hovering around 4.5% may be high relative to last year, but something to celebrate compared to almost any year since 1971.”
If you are thinking of buying a home, waiting for a dramatic decrease in mortgage rates might not make sense.
Here is one simple chart that explains why we think buying a home makes more sense than renting one.
With shrinking inventories, many home buyers are finding only competitive offers will win them the house they want. A recent article by Kiplinger’s Personal Finance highlighted several ways that home buyers can make more competitive “irresistible” offers.
1. Be preapproved: About three or four months before home buyers even shop for a home, they should review their credit reports to make sure they’re accurate and take short-term steps to improve their credit score, says Michael Corbett, author of Before You Buy! Corbett says buyers then should get a bank’s preapproval. While that won’t guarantee they’ll get the loan, it shows sellers that a lender has verified the buyer’s income and credit score to determine that she can afford payments on a mortgage for a certain amount.
2. Don’t lowball: Buyers may only get one chance to get the home they want in a competitive market. They may not get a second try to sweeten the deal later, so a lowball offer the first time around could cause them to lose out. Buyers should use sales prices of comparable properties in the neighborhood to submit their best offer the first time around.
3. Consider an escalator clause: These purchase contract clauses are becoming more popular again. This is when the buyer agrees to increase their offer if there’s a higher bid from another buyer.
4. Add earnest money: The extra deposit can show sellers how serious the buyer is. Some buyers may even double the amount that the seller requests to show their commitment in purchasing the home.
5. Keep contingencies to a minimum: Sellers prefer no contingencies, but buyers want to protect their interests too. “Offset a financing contingency with preapproval and a strong earnest money deposit,” Kiplinger’s Personal Finance reports. “If you have enough cash, temper an appraisal contingency by assuring sellers that if the appraisal comes in lower than the purchase price, you’ll pay the difference or split it with them (up to a certain amount).”
6. Write a letter: Personal love letters about the home addressed to the sellers are winning over some hearts lately. The letters tell the seller about the buyer (e.g. “We’re relocating from …”) and what drew the buyer to the home (e.g. “We especially love …”).
Source: “Making an irresistible home offer,” Kiplinger’s Personal Finance (May 31, 2013)
Developers are building a 1,700-acre residential community north of McKinney that will eventually provide housing for more than 4,200 North Texas families. The Trinity Falls development is west of U.S. Highway 75 and north of U.S. Highway 380 near the Collin County town of Weston.
Austin-based Castle Hill Partners is developing the huge new housing community on land it purchased in 2012.
The first phase of the project will include building sites for 238 homes that will start in price at more than $200,000. There will also be a 3-acre recreation center, clubhouse and the first section of the new Trinity Falls Park.
The first home sites are finished and homes will be available later this year.
More than 300 acres of parks and green space are planned in the development.
“We have already gotten a lot of interest from homebuilders,” said Leisha Ehlert, investment manager for Castle Hill Partners. “We are trying to capture a housing price point that is not there in the market.
“This community is close to the area’s workforce and provides a lot of amenities.”
Ehlert said Castle Hill has a 15-year development agreement with the city of McKinney to complete the project. But the community could be done sooner depending on market conditions.
David Brown, who heads the Dallas office of housing analyst Metrostudy Inc., said Trinity Falls should find high demand from builders and homebuyers.
“South of there the land and lot costs have gotten so high it’s difficult to build any houses under $300,000,” Brown said. “Where do you go if you have a buyer who wants something starting between $200,000 and $250,000?
“I expect sales here to go pretty quickly,” he said. “I know they are already working on the next phase of home lots.”
Castle Hill Partners acquired the property for Trinity Falls after the previous owners lost the deal during the recession.
The private real estate investment firm has purchased more than 25,000 acres of commercial and residential land.
“We have land in the Houston area, too,” Ehlert said. “Right now we are focused on this project in McKinney.”
Last month, the Federal Reserve, in a unanimous vote, decided to further decrease its bond purchasing. The bond purchases were the government’s stimulus package created to keep long term mortgage interest rates artificially low in order to help drive the housing market. Most experts believe that tapering will cause interest rates to increase as we move through the year.
Interest rates have remained relatively stable since the onset of the tapering in December. This is probably because the first round of increases had already been ‘priced into’ the equation last summer when rates skyrocketed by over a full percentage point just on the speculation that tapering would take place later in 2013.
However, as we move forward, most analysts believe rates will start to rise culminating in a rate close to a full percentage point higher than current rates by this time next year. For example, Freddie Mac, Fannie Mae, The Mortgage Bankers’ Association and the National Association of Realtors have all recently projected rates to be between 5-5.4% at this time next year.
If you are a first time buyer or a move-up buyer, the cost of the mortgage on your new home will probably increase as we move through the year. If the timing makes sense, buying sooner rather than later may save you a substantial amount of money over the long term in lower mortgage payments.
Some industry gurus are questioning whether the housing momentum we saw early in 2013 began to dissipate later in the year. The more dramatic have claimed the housing sector is still on shaky ground. Others have blamed the slowdown in sales on a lack of consumer confidence or rising interest rates.
The National Association of Realtors (NAR) just released their 2013 4th Quarter Housing Report. The report revealed that home sales numbers barely outperformed (an .08% increase) those in the 4th quarter of 2012.
We believe the leveling in home sales is directly attributable to a lack of salable listing inventory; specifically in the West.
Three of the four regions in the NAR report had an increase in sales: Northeast (+7.1%), Midwest (+2%) and South Regions (+3.6%). A big fall-off in sales occurred in the Western Region. The dramatic fall-off in the West (-8.1%) can be directly linked to a shortage of inventory in their hottest markets.
If the decrease in sales was caused by an eroding of consumer confidence and/or rising interest rates, we believe each region would have seen similar decreases.
It is projected that if the Fed continues to cut back on bond purchases that long term mortgage rates would start to climb. Many experts felt that Janet Yellen, who replaced Ben Bernanke as Fed Chair, was going to be less inclined to continue tapering bond purchases at the level established.
“In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.”
What does that mean to a prospective purchaser? Currently, Freddie Mac’s 30 year rate is at 4.28%. Here are the projected interest rates for this time next year: