Tuesday, October 10, 2006

Normal Market Produces Buyer Opportunity

by M. Anthony Carr

Buyers scurry, afraid of buying at the height of the market. So why aren't builders running scared? Because the underlying principles of a good market remain sound in the midst of the market fears. While nationally, the industry has cooled to "more sustainable levels," according to the National Association of Home Builders, "The Bureau of Labor Statistics reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005."

The group recently released a mid-year housing report on its real estate trends website, HousingEconomics.com. A cooling of the market this year will still result in the third highest level of housing starts in the last few years.

That's why you keep seeing building projects going up. Definitely, not as many houses are being constructed in 2006 as last year, but the NAHB report points to several positive market growth indicators in various regions across the country.

Job growth is continuing upward. Unemployment is dropping. Businesses continue to expand and economists across the country continue to estimate that the need for more housing will stretch beyond the current inventory surplus.

The National Association of Realtors still is holding to 2006 being another very strong year -- the third highest on record. NAHB members are still bull on the housing market. What we're seeing in '06, it seems, is a transition year. For buyers who have no choice but to buy because of social or lifestyle reasons (birth of new baby, marriage, retirement, in-laws moving in, new job, relocation, etc.) they will buy now and unwittingly pick up a great deal.

For buyers who are too skittish about the market, they will miss a financial boosting opportunity. In markets where it has normalized (D.C., Miami, Chicago, Phoenix) buyers who buy based on rock-hard solid economic evidence, will be excited in a few years that they bought a house low and now stand to earn a handsome profit a few years later.

Ask anyone in the D.C. area if they would have bought property in 1990 (the last time the market took a time out) and held it to today. They would grin.

At that time the average home price was about $179,000, prices were dropping and the job market was faltering. Today, housing prices are up over last year by 4 percent, employment is up nearly 64,000 jobs compared to a year ago and the job market is still chugging along in the D.C. area. Home sales have leveled off and rentals are skyrocketing. I smell opportunity.

We have 20 percent more jobs headed this way in the next four years over the last four years -- that would be 256,000 jobs. While other areas may not be as robust, they are still growing. If the new employees don't buy houses, they'll rent and that's causing pressure on rents as they begin growing nationally at a double-digit rate for some areas.

M/PF YieldStar, a real estate market intelligence firm, estimates that 2006 and 2007 will be boom years for rental markets and multi-family housing starts. Occupancy rates surpassed an average 95 percent mark in the 4th quarter of 2005 for the 57 metropolitan areas the group tracks.

The real item to watch for buyers is the interest rates. As buyers keep waiting for prices to "bottom out," their buying power evaporates with the ever growing interest rates. Just a year ago, a household with an income of $100,000 could afford a $450,000 price range. Today, that same income is now dropped to about $394,000 simply because of the interest rate power. Current rates stand around 6.8 percent nationally and experts are talking about hitting the 7 percent mark before the end of the year.

In addition, as the jobs keep growing, the rentals will disappear and pent up demand will nearly burst forth in another few months. Buyers -- pull out your checkbooks and get on board now while the market has leveled. There's a reason they call it a "buyers" market.
Why aren't the builders fearful? With the job growth, you have to live somewhere, and workers will live in either one of their new units to purchase or one of the new units to rent.

Published: July 28, 2006

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