Houston Oil Prices
Anyone who's lived in Houston for an extended period of time knows how oil prices impact our economy and our mood. And for those of us who lived here through the 80's, we remember it being brutal if not for ourselves then for our parents. So for good reason, anytime there is a dip in oil prices, Houstonians take notice.
I heard someone say on the radio today that Houston's economy was expected to de-escalate but that we weren't expected to go into a recession. So my interpretation, as it applies to Real Estate, is that it might just take a little longer to sell your home as the inventory could be expected to increase a bit. We are now between 3 - 4 months of inventory which is still very hot. Even a 6 month inventory is healthy.
One symptom of a de-escalating economy may be a reduction in bidding wars on homes. You might not hear as many stories from friends and families where they recount the outrageously high offers they received on their homes. In addition, you will probably see more homes sell close to list price. If inventory picks up, you'll probably see more price reductions.
New home builds could be affected, it just depends. A lot of these high end million dollar homes are purchased by executives who receive merit bonuses from their companies. When there are less bonuses, there are less high end million dollar sales. So it is possible that there will be less million dollar homes being built which could actually open the door for refurbished homes. Where someone may not be willing to spend $1.2 million for a new home, they might be more inclined to purchase a refurbished home for $700k in the same neighborhood. It's something to watch, at least.
Dodd-Frank Factor
The other factor that concerns me just a bit is what I call the Dodd-Frank factor. The Dodd-Frank Act was passed as a response to the financial crisis that occurred in 2008. The laws within this act have been gradually going into affect and there is one law that has most recently been enacted that has already begun to impact home sales; the appraisal process.
What this means to you as a home seller is that one more person is involved in determining what price you can get for your property. Being the owner of the property, you are the first person to have a opinion with regard to what someone should pay for your home. Your Realtor will then have their opinion. It used to be that the buyer's opinion mattered the most but really it has become the bank's opinion that matters most. Up until now, the appraiser was the final opinion. But, as of January of this year, the underwriter has been mandated to use a a tool that can empower the underwriter to negate the appraisal.
The purpose of this particular act is to help the underwriter reduce risk on the loan. The data they have access to could very well challenge the appraisal they receive and force the appraiser to go back to the drawing board and help find a comparable that will ensure a reduced risk scenario. My concern here is that we are going to see appraisers becoming far more conservative in their appraisal reports simply because they do not have the time to go back and redo an appraisal.
The professionals in this industry will easily adjust to these Dodd-Frank changes. The real challenge I think this is going to present is with regard to helping home sellers understand why they may not be able to get as much for their home as they initially believed. A challenge we face everyday when working with home sellers is helping them understand what price points are the best for their properties. Oftentimes if the Realtor and home seller are not seeing eye to eye, the Realtor is either considered incompetent or not realistic. It's a natural reaction as the home sellers greatest concern is leaving money on the table.
In sum, I'm curious to see how these two events impacts our summer sales and am cautiously optimistic that my buyers will have more choices coming into the moving season while my sellers will continue to enjoy a steady stream of interested buyers. Balance, I believe, is the word I'm looking for.
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