May was a unique month for the Houston market. Storms and power outages reigned havoc on the city. With these events probably causing delays on closing, the month of May had strong activity. Consumer demand was still up and record-breaking prices were set.
Sales declined 1.5% in May 2024 with 8,538 units sold compared to the 8,664 units sold in May of 2023. Months of inventory also climbed from 2.7 months to 4 months which is where we were at August 2019. What does this mean? 4 months is close if not dead on to a balanced market. Jet Lending does not share the same national perspective that 6-months is a balanced market. At 6-months, we feel that is more of a buyers market. When the market is balanced, a good negotiator and communicator can start to capitalize on their distressed purchases.
The rise in available listings can be seen as Houstons adaptability in the market in relation to the buyers interest showing sustained demand.
Here is some direct info from the HAR Report:
Days on Market, or the actual time it took to sell a home, decreased from 49 to 45 days. Months of inventory increased to a 4.0-months supply compared to 2.7 months last May. The current national supply stands at 3.5 months, as reported by NAR.
Broken out by housing segment, May sales performed as follows:
$1 - $99,999: decreased 6.7 percent
$100,000 - $149,999: decreased 10.2 percent
$150,000 - $249,999: decreased 1.2 percent
$250,000 - $499,999: decreased 2.1 percent
$500,000 - $999,999: increased 6.8 percent
$1M and above: increased 9.6 percent
What does this mean? You are seeing an increase in sales in the 500K-1MM+ properties with more available actives. We see the decreasing sales in the other price ranges but you have to consider that there may have been less available housing to compare. One variable we always have to consider is interest rate. Not only is prime still at 8.5% but more importantly is the past rates. About 80% of all national mortgages in the country is below 5% and 60% of those are below 4%. Those still effectively take those properties off the market until we see a shift in rates. Most economist believe once the rates go to 5.5%, the lower rate homes have a high probability of coming back on the market. Until then, these properties a basically not going to be for sale. Home owners do not want to trade their 3.25% rates for 7% rates on a property.
As an investor, should you share this philosophy? My opinion is no. As an investor, you should still be buying heavily right now. In my opinion, once the rates drop, you will see a surge in actives that will be gobbled up faster than you saw in covid. This is going to cause probably a fast increase in value to home prices. When this happens, in my opinion, its going to make Covid look silly. My suggestion with the above data is that you buy properties prior to the increase in value with higher rate. Do the math on a $500,000 property at 7% and a $600,000 at 5.5%. A purchase price at $500,000 puts your conventional buyer at a loan amount of $400,000. That P&I is $2,661 a month. You buy it for $600K with a loan amount of $480,000 at 5.5% you are paying $2,725 a month. Your buyer is actually saving money buying the property for less with a higher rate on equal comparison. Now that buyer can refi when the rates drop with a lower principal balance. The same thing goes for the land lords as well.
The average price rose 6.1% to $456,769 and the median price increased 3.6% to $345,000 in the month of may. This is all still with increased rates, inflation, and all the other fun stuff we have been dealing with for the past few years. Houston remains a resilient healthy market.
Remember, there is not ever a time in investment real estate to buy or sell. You pivot within the market you are in and minimize you speculation risk with the data that is presented to you. Every market is profitable if you just watch the numbers and buy according to the market you are in while showing respect to the trend of the market projected. Buy it right, stay liquid, and stay in business.