Single family home sales fell for the third consecutive month but the average home prices are still rising. With the ever changing landscape that is our economy with inflation and interest rates climbing month by month, you would think that you would be seeing the exact opposite on the prices for homes. Rates in June of 2022 for a 30 year fixed rate mortgage were just above 5.5% which at the same time in 2021 we were seeing 2.98%.
With these changes in rate and inflation, you are seeing mortgage applications decline and reach amounts seen in 2000. As the FED plans to increase rates again, how is it that home values continue to rise? Well, we still have an inventory issue. Even though the actives are steadily rising, we are still about 2 months of inventory. Thats still very low. Most people that predict real estate markets base that a 6 month inventory is balanced. My own opinion is that really 4 months is balanced where 6 months is slightly pushed into a buyers market.
It just can't be inventory... can it?
Well, most of the homes sold were in the $500,00 to $1MM range according to HAR. With the recent increase in values, those buyers that are trying to find homes under that continue to find limited options and either have to do one of four things, if they need to buy, they have to increase their budget, they have to find a place to rent, pursue other housing options, or just stay where they are at. You can see the problem there. If you look to buy outside of your price range, with climbing rates, most likely you are not going to be able to get your loan. If you find a place to rent, it takes away 3 transactions from the market, the house the buyer was going to sell, the property the buyer was going to buy, and the house the seller would have bought if they sold their house. If you stay where you are at, then it still takes 3 transactions away from the market. Finding other solutions, same thing. So as we see why the average price is increasing, you have to see what is being sold in relation to the number. We are seeing more $500-$1MM home bracket properties sold than the other brackets increasing the average.
But did you see one of the more useful options for our market, find a place to rent. When these things happen in the market, and we have been here before, home values can continue to climb, but rent follows. As we make post after post about pivoting in changing markets, you should really be eyeing picking up more rentals not only improve you wealth, but to increase the return on the rental market. My opinion, in any market, you should always have a long term refi strategy if you are flipping a home to have short-term and long-term rental options if you home surpasses your profit threshold on hold time.
Houston continues to have a "Close to Original List Price Ratio" that surpassed the 100% mark for the 3rd straight month but this still shouldn't let you breath a sigh of relief if you are selling your home right now. Watch your ratio of listing appointments and be ready to pivot that flip into a rental if need be to protect your asset if mortgage rates climb higher. Make sure you price your properties to compete.
Now this is not doom and gloom by any means. We still have an active, vibrant market, with low inventory and a growing influx of people moving into the area. This is not meant to deter you, just educate you that, in all intensive purposes, luck follows the prepared and be prepared to be competitive, work with buyers, and get with a lender like Jet Lending to prepare Refinances to rent your properties if you are past the point of profiting well on your flip.
