SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: November 2007: YTD sales volume on target to beat 2005; Median price up 1.7%

Residential Market Condition Summary

• November sales declined 10.2% — while 2007 sales are ending weaker than 2005, 2007’s strong sales start put us ahead of 2005 on a year-to-date basis — making 2007 the second best year on record.
• November sales were weakest among houses priced between $80,000 and $200,000, declining over 14% for the month — sales for homes above $500,000 were even with last year.
• Houston’s single family median house price grew 1.7% in year-to-year comparison with November 2006 — buyers expecting low-priced deals are finding resilient prices in many segments despite media accounts of bargain prices and sluggish sales.
• Houston’s $150,000 median house price is 27.1 percent less than the national median price, which reached $205,700 in October, according to statistics released by the National Association of Realtors® — data demonstrating Houston’s comparable affordability to other US cities.
• Pending sales — listings under contract expected to close within 30 days — declined 5.7% indicating further sales declines for December when compared to 2006. The Active-pending ratio stands at 12:1 — 12 active listings for each pending sale.
• Aided by slower growth in homes listed for sale, inventory remained at 6.1 month’s supply — Houston inventory remains far below a national average of over 10 month’s supply.
• Nationally, single-family home starts dropped 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991. It was the eighth straight monthly drop in single-family starts as reported by Reuters.
• Houston-area employers added 58,800 jobs between November 2006 and November 2007, a 2.4 percent gain, according to data released Friday by the Texas Workforce Commission as reported by the Houston Chronicle.
• While November’s national employment report reflected additional job growth, December’s report indicates softening of the job market and with an up tick in the unemployment rate.
• Texas gained more people than any other state according to the Census Bureau — Its 2006-2007 increase of almost 500,000 was ahead of runner-up California, which added slightly more than 300,000.

What do local rental rates say about Houston’s market values?

During the last 3 years, Houston’s housing market broke all previous sales volume records. Despite record volumes, Houston’s housing market remains among the most affordable big cities with a median price fluctuating between $140,000 and $160,000. Houston’s modest price appreciation didn’t attract many speculators, keeping local prices at sustainable and affordable levels. During that same 3 year period, annual rents have been relatively flat.

Examining the relationship between local house prices and annual rents provides additional evidence that the Houston housing market is not overvalued when compared to other markets — that’s not to say that certain economic events wouldn’t cause a drop in prices, but it does provide another measure to compare local conditions to the national housing market.

A recent Wall Street Journal article cites a study examining the relationship between house prices and rental rates. Used as a measure to gauge home values, the study indicates that current home prices are overvalued in relation to annual rents and prices would have to drop considerably over the next few years to restore home prices to sustainable levels.

The study tracks rents and home prices back to 1960 and found annual rents fluctuated at around 5% to 5.25% of home prices until 1995. At the end of that year, the average monthly rent was about $553 (or about $6,600 a year) and the average home price was about $134,000.

But starting in 1996, home prices started to grow much more rapidly than rents. By the end of 2006, they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818. That drove the annual rent/price ratio down to 3.48%.

That means the rent/price ratio is about a third below its long-term average. To return to normal would require some combination of falling prices and rising rents. The paper suggests house prices would need to fall about 3% a year, if rents grew in line with their 4% average annual growth this decade.

http://online.wsj.com/article/SB119931831334463571.htm

Limiting our examination to Houston single family housing, the attached chart illustrates the relationship between price and rents — during the last 3 years of peak sales volumes, the rent-to-price ratio fluctuated around 9% or 10%. Two things are notable: (1) Houston’s rent-to-price ratio is above the national average indicating that local properties provide a greater return on investment and (2) despite record sales during the last three years, Houston’s single family median price was in line with annual rents and are not overvalued.

November 1997 – 2007

Houston’s real estate market has experienced tremendous growth during the past 10 years. Sales volume for November 2007 was 5,772 — a 95.5% increase from November 1997 and just 10.2% below the November 2006 peak of 6,373. Year-to-date sales for 2007 are on pace to surpass 2005 — Houston’s second best sales year.

Since 1997, each year surpassed the previous year’s sales with the exception of 2002 and 2007. Despite November’s 10.2% sales decline, November 2007 is still among the best sales months for the past 10 years. Looking back, it’s becoming clear that the sales volumes for 2006 were unsustainable and the year’s records are looking more like an anomaly —- record sales boosted by easy credit creating false housing demand.

Houston Median Single Family Home Price

Houston’s median price for November 2007 was $150,000 — posting a 1.7% increase over last year. Despite slower sales in recent months, the overall median house price for Houston-area single family homes is holding steady in year-to-year comparisons, posting modest price declines in only two of the last 18 months.

Houston’s $150,000 median house price is 27.1 percent less than the national median price, which reached $205,700 in October, according to statistics released by the National Association of Realtors® — data demonstrating Houston’s comparable affordability to other US cities.

Charting median single family prices for the previous 18 months reveals the seasonal variations and year-to-year growth. Year-to-year comparisons are made to reduce seasonal variations, reflecting actual value changes.

Houston Inventory

Houston’s 6.1 month inventory remains far below the national average now approaching an 11 month supply. Despite consecutive year-over-year increases in numbers of active listings, Houston’s market has been able to absorb the additional listings at current sales paces. Despite slowing sales in 2007’s second half, Houston’s inventory has not grown past a 6.3 month supply. Sales volume is on pace to surpass 2005 and the growth in available listings has eased during the last two months — helping slow or reverse previous inventory growth.

The number of available homes (active listings) at the end of November stood at 52,217 properties, an increase of 13.3 percent when compared to last year. Active listings have posted 17 consecutive increases in year-over-year comparisons. When compared to last month, active listings declined by 1,190 properties — reflecting the slower pace new listings are added to the market. Home sellers may be waiting for better market conditions or may be converting their properties into lease rentals, helping to maintain the market balance between buyers and sellers as reflected in the inventory calculation.

Month-end pending sales – those listings expected to close within the next 30 days – reached 4,159, down 5.7 percent from last year and signaling further sales declines for December and implications for December’s inventory if sales decline faster than the market can absorb available listings.

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Inventory describes the time it would take to sell available listings at the monthly average sales pace for the previous 12 months. Inventory below 5 months indicates a seller’s market, as buyers compete for limited housing. Inventory levels between 5 and 6 months reflect a balanced market. Inventory levels beyond 6 months are considered excessive.

Houston Metro Area Market Activity

Year-to-year market comparisons illustrate activity changes between November 2006 and 2007. Looking at closed sales by price class, single family homes priced between $80K and $200K experienced sales volume declines of more than 14% — sales volumes for homes priced over $200K were relatively flat for the month.

While most market metrics are indicating negative trends, the median home price posted a 1.7% gain for the month. Lower pending sales indicate further sales declines for December. Listing growth slowed in November, helping reverse previous inventory supply increases.

November 2005 – 2007 Closed Sales by Price Class

Price Class	2005	2006	2007	Change
0 – $79K	393	492	550	11.78 %
$80K – $199K	3,034	3,307	2,815	14.87 %
$200K – $499K	1,103	1,311	1,286	1.91 %
$500K +	193	242	243	0.41 %

Houston Single Family Housing Year-to-Year Comparison

November	2006	2007	Change
Sales Closed	6,428	5,772	10.2 %
Median Price	$147,500	$150,000	1.7 %
Active Listings	46,071	52,217	13.3 %
Pending Listings	4,412	4,152	5.7 %
Month’s Inventory	5.3	6.1	14.5 %
Days On Market	77	81	7.0 %

Weekly average rates January — November 2007

Interest rates declined to their lowest levels for 2007 during November before rising after December’s Fed rate cut. As the housing and mortgage crisis dragged down economic growth, the Fed responded with a rate cut in September and another in December.

The Fed has indicated that housing and credit market worries pose a greater risk to the economy than the inflationary effect of high energy prices. While Fed rate cuts are meant to spur short term lending, banks are hesitant to make loans in a weakening credit market. Reports indicate that the credit markets will be in turmoil for much of the next year — raising the cost of credit and hurting housing affordability.

According to the Freddie Mac weekly mortgage survey, illustrated on the adjacent chart, the average 30-year fixed rate for the Southwestern US, including Houston, remained above 6.0% for November before dropping to 5.94% in December. Rate averages for 15-year fixed rate loans stayed below 6.0% for the month. Mortgage pricing for the 1 Year ARM was volatile again in November as banks struggle to accurately price variable-rate loans. The long term interest rate remains uncertain — despite recent Fed rate cuts, higher mortgage costs resulting from credit market problems could offset Fed rate movements.

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Humble & Atascocita Area Median House Price

The single family home median price for the Humble & Atascocita area was $148,710 — a 2.2 % increase from November 2006 in year-to-year comparisons. Closed and pending sales were down in November. An increase in active listings and slower sales helped increase inventory to a 6.3 months supply.

Charting median single family prices over the previous 18 months illustrates year-to-year price appreciation. Year-to-year comparisons are made to reduce seasonal variations.

Humble & Atascocita Area Inventory

The Humble (and Atascocita) area’s housing inventory was at 6.3 month for November 2007 — an 18.8% increase over last year. As available listing growth outpaced sales, inventory grew from 5.0 months (December 2006) to 6.5 months (September 2007). During November, inventory dropped to a 6.3 month’s supply when compared to October. Pending sales (listings under contract) were down 3.6%.

At 6.3 months, the market advantage favors buyers — particularly in homes priced between $80,000 and $200,000. Higher closed and pending sales could reduce inventory further in December.

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Inventory describes the time it would take to sell available listings at the monthly average sales pace for the previous 12 months. Inventory below 5 months indicates a seller’s market, as buyers compete for limited housing. Inventory levels between 5 and 6 months reflect a balanced market. Inventory levels beyond 6 months are considered excessive.

Humble & Atascocita Area Single Family Housing Year-to-Year Comparison

November	2006	2007	Change
Sales Closed	224	208	7.1 %
Median Price	$145,500	$148,710	2.2 %
Active Listings	1,265	1,452	14.8 %
Pending Listings	164	158	3.6 %
Month’s Inventory	5.3	6.3	18.8 %
Days On Market	88	78	11.4 %

Kingwood Area Median House Price

The median price for Kingwood Area single family homes was $185,000 —- a 1.2 % increase from November 2006. Despite lower closed and pending sales, the overall median price has been holding steady in recent months.

Year-to-year comparisons are made to reduce seasonal variations. Charting median single family prices for the previous 18 months reveals the seasonal variations present over the sales year and reflects price declines as we leave the selling season.

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Note: Area 32 is a small sales area with wide variation in sales prices — this can create wide median price swings as illustrated in the chart above, reducing the effectiveness of the chart in illustrating price trends.

Kingwood Area Inventory

The Kingwood area’s housing inventory increased to a 4.4 month’s supply during November 2007 in year-to-year comparisons — a 25.7% increase from 2006. After September’s peak inventory of 4.8 months, the number of available listings has decreased, helping reverse inventory growth. Pending sales (the number of MLS listings under contract) were down 19% — a notable decrease in buyer traffic indicating that inventory levels may rise again in December.

While market trends indicate further inventory increases, at 4.4 months, the market still favors home sellers. If closed and pending sales volume remains stable and fewer listings are added to the market, inventory will continue to favor sellers in the Kingwood area market.

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Inventory describes the time it would take to sell available listings at the monthly average sales pace for the previous 12 months. Inventory below 5 months indicates a seller’s market, as buyers compete for limited housing. Inventory levels between 5 and 6 months reflect a balanced market. Inventory levels beyond 6 months are considered excessive.

Kingwood Area Single Family Housing Year-to-Year Comparison

November	2006	2007	Change
Sales Closed	98	90	8.2 %
Median Price	$183,000	$185,000	1.2 %
Active Listings	405	487	20.2 %
Pending Listings	68	55	19.11 %
Month’s Inventory	3.5	4.4	25.7 %
Days On Market	73	77	5.4 %