Understanding Today’s Home Market. By Ben Neighbors, PresidentNeighbors Construction Inc. One of the big news items in 2007 was the rapidly changing home market and purported mortgage crisis. How should this news influence the plans and decisions for families who are buying a first home or families in the process of selling and buying/building? The answer, while multifaceted, is really straightforward and varies across the nation depending on the particular home market. This discussion is focused primarily on the Huntsville market, but addresses the national housing and mortgage topics of today in terms of the significance to Huntsville. As an engineer by training, my first response is generally tell me what you think, and then show me the data that supports your conclusion. As a Builder and after working with people over many years, I understand the short term needs of a families monthly budget as well as the long term benifits of home ownership. On the mortgage news of the day, it has been reported that the sky is falling. Wow, as of November 29, 2007, a 30 year conventional fixed rate mortgage was 5.75 percent. On January 12, 2008, the rate was at 5.54%. At one point in January, the rate was as low as 5.0%. In plain English, it does not get any better! I am not aware of any period where both materials and interest rates are near historic lows at the same time. Prospective home buyers and sellers should be very excited about the implications of these interest rates. I can remember when someone I knew borrowed on a home at 13.5%. That is the other end of the extreme. So what that means is $350,000 loan at 5.75% is $2042.50. Compare that with 4008.94 at 13.5%. The new media reports of falling home prices is an interesting concept. Show me the data! The real question should be falling over what period of time? 1 day? 1 month? 1 quarter? Year? 5 years?
It is true that in some markets home prices have declined in the past quarter and or past year. Why? In the vast majority of cases the answer is over escalation of the price in prior periods. An evaluation by the Office of Federal housing Enterprise Oversight looked at data of same house sales to determine the rate of price change. The data is based on more than 30 million Freddie Mac and Fannie Mae mortgages of the same property.
There are a few cases, very few, where an individual city is economically collapsing and this is being reflected in the housing prices as people find work elsewhere and leave the area. A good example of this is the Lansing–East Lansing metropolitan area. Auto production is evaporating to other locations both foreign and domestic and the housing market is in severe decline.
Supporting data:
City
3 mo.
1 year
5 year
Lansing-East Lansing, MI
-2.95
-1.95
12.27
But the data shows many markets over escalated residential home prices in previous years and are now adjusting.
City
3 mo.
1 year
5 year
Madera, CA
-3.67
-4.73
103.39
Las Vegas-Paradise, NV
-1.03
-2.51
88.33
Los Angeles-Long Beach-Glendale, CA
-0.53
-0.07
107.86
Miami-Miami Beach-Kendall, FL
-0.78
3.45
114.98
So how does Huntsville compare? This is the Huntsville data:
City
3 month
1 year
5 year
Huntsville, AL
0.56
6.58
30.97
The data shows Huntsville’s housing prices have escalated just slightly above the inflation rate and about even with the cost of construction. The five year data shows the 30.97 percent increase equates to 5.5% per year. The economic outlook for the Huntsville Madison County area is favorable, both near and far term. The national slow down in construction improves the outlook for the Huntsville market. This is because the demands for building materials, which are national and global commodities, have been declining and material prices are softening. The conclusion is that the Huntsville market appears to be healthy, not overinflated, and has many indications for continued steady growth with prices rising at or near the inflation rate. Material costs are lowering and interest rates are better than exceptional. Now is one of the best times that we have seen for investing in a new home. Read More: http://benneighbors.com/kellerwilliams/housingmarketaug08.html
Ben Neighbors, Custom Home Builder in Huntsville Alabama