The Stress Test of $50-$60 a Barrel Oil and Will This Time be Different

With experience, calmness persists in the Lone Star State

            As the country looks on to see if Houston can withstand the stress test of lower oil prices, many of us are unperturbed. We’ve been to this rodeo before. As one oil executive put it, “I don’t need to go to Las Vegas. I’m in the oil business. I live in Las Vegas every single day.” As for me (and I’m dating myself), I’ve been in real estate for over 28 years and remember well those crazy 80’s years. I’ve been through two recessions and two bubbles and made it out alive and intact.

But let’s back up a minute and look at this situation realistically. This isn’t another 80’s bust. The housing market back then had a financial foundation thinner than tissue paper. We had non-recourse loans, so if things didn’t work out, we could simply give back the property. Real estate was used as a tax shelter. Deals could be a losing combination of both. You held your breath and hoped for the best. It was like keeping your high school kid home from school for a month and crossing your fingers that everything was going to be okay.

Getting back to the present, when the numbers come in, sales for both November and December are going to be lower, we know that. But it’s not because of lower oil prices. It’s for a couple of reasons:

• 60% of all buyers in the Houston market (I did a very unscientific survey) are from out of state. These folks don’t move or look at homes during the holidays. They come in the spring. 

People from all over are beginning to understand that the economy has changed permanently. The ups and downs of the national economy is “the new normal.”  In Texas, it’s always been the norm!

In 2007 and 2008, it was the stock market that incurred massive injuries, yet Houston experienced only a sniffle. We’ve been through much worse than $50-$60 oil. We know that what goes up does come down, and vice versa.  Panic isn’t something Houston does—and it doesn’t need to. It’s sitting pretty as an economically stable place to live:

·      We’re still an in-migration state. People are moving into Texas, not leaving. Seven of the fifteen fastest growing cities are located in Texas.

·      #1 in job creation. Texas leads the nation in the creation of jobs; 40% since 2009. (If it slows down, we’ll still be happy. It would give us time to fix our roads.)

·      Minimal building. When oil prices go down, lenders get a little uneasy. Spec building comes to almost a complete halt. But on the bright side, this stabilizes the supply and demand sides of housing. Apartment building slows down. Yippee!

·      In Texas, your home will never be your ATM machine; there are no equity lines of credit. Easy money always ends up being bad money. Because Texans are not able to access our home equity with an ATM card, it is a bit more complicated than that.  It is a harder process so foreclosures stay down and our real estate market stays relatively stable.

·      People nest when there is change.  When you go to work and things aren’t so happy-go-lucky, you tend to stay put with your housing. So inventory will stay down.

·      Most people in the oil business saw this coming. And they’ve been talking about it for six months, so no big surprise or shock. They have remained calm.

            So take a deep breath and relax. We have traveled this road before and we know where it leads.

Memorial is selling!!!

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Why are homes selling in Memorial (homes that are priced on the market, that is) while things in Tanglewood are moving a bit more slowly? Well, when out-of-town families and oil executives move to Houston, they don't have the option of immediately placing their kids in private school. Therefore, Memorial is the neighborhood they choose, for its great schools and great neighborhoods. In some sense, this is good, because the market is always strong in Memorial. And it's not bad for Tanglewood either! Tanglewood has dozens of homes available right now, and they're available for a great price. Sure, this neighborhood isn't zoned to as strong a school district as Memorial, but if this isn't important for you, the market is worth checking out.

No Bad Houses, Only Bad Prices

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The real estate industry’s classic motto is “Location, location, location,” but I’ve been working in Houston’s high-end market for almost three decades and I think it’s time that homeowners are made aware that the old motto is a fossil. It’s best kept in some dusty real estate Hall of Fame, a relic from a time when a stellar location meant that you could ask for anything when selling your home.

In today’s market, overpricing your home is the number one mistake that sellers make. Setting the price above what the market dictates—no matter how great the location or property—tells buyers that you are yet another seller buying into the myth of real estate alchemy. You cannot turn lead into gold. You cannot hope to beat the realities of the market. What you need to do is be proactive and work with the existing market.

In the thousands of transactions I’ve handled in real estate, three concepts have always emerged as critical. Using them is the secret of my success and the reason why countless other realtors and customers have called me over the years to ask, “How did you get that listing to sell?” The three concepts (I call them the ThreeTions) are simple and vital for anyone looking to understand how real estate works.

#1: Competition. A lot of home sellers try to inflate their home’s price, thinking they need to set the bar high before they negotiate. Or they have a real estate agent who wants the listing so badly that she’ll tell them whatever they want to hear. But in doing this, home sellers place themselves at a severe competitive disadvantage.

It’s like a football game: you simply must know the competition. How many homes in your price range are on the market? If there are several homes in your neighborhood waiting to sell, then you must price your home aggressively—read: more cheaply than you might have liked—in order to get the buyers. If there are fewer, then you can shoot for a price that’s right on the market.

Don’t forget the simple economics of supply and demand. In particular, please don’t get blinded emotionally by what you feel your home is worth. In today’s value-driven market, you have to know the competition to compete.

#2: Attrition. So now that you know how many homes in your price range are available, find out how many of those homes are selling per month. This will give you what is called the absorption rate or rate of attrition. With this you can get a clear picture of what to expect as far as the time it will likely take to sell your home. It’s no guessing game; it’s a business calculation.

#3 Condition: How does your home’s condition compare to other homes on the market? Be realistic. What condition is the landscaping? How about the exterior paint? In what condition is the carpet, flooring, appliances, roof or interior paint?

In a buyer’s market—and today’s market is certainly a buyer’s market—updated homes sell faster than those that need updating. “Updated” means that your house has been redone in the past 5-6 years and is now comparable to recent construction. In uncertain times like these, people are holding on to their cash and thinking about the future. The need of further improvements seems much slimmer if the home is updated.

Evaluate your home like a picky buyer would and have realistic expectations. You should also be ready to improve your home’s condition in order to realize a successful sale.

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What I want to pass onto Houston consumers is this: if you price it right, they will come. But in today’s market, with the Internet enabling people to search real estate at the click of a mouse, you’ve got to price your home correctly and do it fast. Trust me, if you try to inflate, you’ll just end up lowering your price and end up with a “stale” home. Consider your holding costs, remember my three tips, and you’ll understand why pricing your home to the market is the key to a quick and (relatively) painless transaction.

PS-Three Tions has been trademarked. If you are a realtor and would like to use it, Please email me for permission. I am happy to share it.

Hopes for 2011

What am I hoping for in the 2011 real estate market? Read on!

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I'm hoping that big banks will hire and actually train people to man their loan department. When you have a closing on the 30th of the month, they don't get to choose which month that will be in!! I sometimes wonder if they are all comatose. They need to get a few realtors in there to explain how they can make all these processes run more smoothly.

I'm hoping that when I say I am a realtor, people will not assume I was fired as a used car salesman and decided to take up real estate instead. If you're doing it right and working hard, this is a hard business!

I'm hoping that lending requirements will change only one time per year. No more weekly changes. Nobody seems to know what part of the government puts in the changes, and sometimes I think they are being made up by some group that wants to see what happens if you send out a bogus emails! Like the email from Nigeria with $1,000,000 in the bank! Could it be the same group?

I'm hoping that appraisers will actually turn down appraisals when they're not familiar with the area. When I had to give the appraiser from Sealy (nothing against Sealy) directions to Hunters Creek, well, I knew I was in trouble!!

Tanglewood: Free Tuition?

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Memorial and Tanglewood are similar neighborhoods, but right now Tanglewood has a record number of homes on the market and Memorial has low inventory. This is because out-of-towners (not having the private school option) move to Memorial rather than Tanglewood.

Something to think about-Tanglewood has some great values right now.  You can pay a lot of private school tuition with what you'd save by living in Tanglewood and there are plenty of good private schools! 

Buyers need to take a hard look at this. As soon as a few of these homes sell, the market will start moving.