What's Going On With These Prices?
If you've been casually paying attention to the real estate market this year you've probably noticed or heard about the price gains in much of the metroplex. The latest figures are showing the median home price in May was at $204,900, up 5.1% from April. Wow! I noticed it starting to climb rapidly from about February; 1st about 2%, then 3% in March with a steady climb ever since. North Texas Real Estate Information Service has reported an 11% over-valuation of real estate here and clearly with the additional job growth coming with companies like Toyota relocating here, limited inventories of existing homes and slow building of new homes, we will continue to see much of the same. Most of the country is experiencing similar growth and while The National Association of Realtors reported last month that this is not another bubble, I would say hogwash. This is the kind of rapid growth that causes bubbles the worst. Just look to California for a stellar example.
That being said, what is a good course for existing homeowners and first time home buyers right now? Well, it all depends. If you're an existing homeowner and don't have a compelling reason to move; i.e., enlarging family, job transfer or pre-retirement down-sizing, then staying put and letting your equity rise with the tide may be enticing. Home buyers have been in a frenzy lately trying to take advantage of some of the lowest interest rates in years, which is fueling the price increases even more. If you're looking to take advantage of low interest rates but are stymied by the crazy competition in some North Texas areas, be sure you are adequately funding your offers to the sellers. Cash is king so make sure you have plenty of down-payment money on the line so the seller knows you are serious and well qualified. There is nothing worse than to have a contract fall apart because underwriting decides in final review that your cash position is too weak to support the loan. Everybody loses in that scenario, so sellers in a hot market will take the offer that has the most money for down payment; 20% or more is the rule for a winning offer in this environment. A 20% down payment resolves most of the risk for a lender so underwriting is usually a breeze. So with as many as 20 -25 offers for homes, many times in the first week or two, sellers are selecting only the strongest offers, not necessarily the highest.
And a word or two of caution on refinancing your current home to take advantage of the low interest rates. For many years Texas restricted refinancing so as to protect homeowners' equity positions but that all went out the window some years back with aggressive lobbying and a less than fiduciary minded state legislature. There are some smart ways to refinance and some not so smart ways. If you want to lower your payments, refinance only what you owe for a 10-15 year term. Often I see homeowners that refinance the full allowable value (80%) at 30 years so they can take out cash for remodels, college tuition, etc. But here is the rub on that score. The lenders will often encourage a full allowable loan and to up the ante a bit, the home's value is scored a bit higher in order to sell you on more loan. Though appraisal standards have tightened somewhat as a result of the bursting in 2007-2008, it is rapidly going back to the same old game. So when the market adjusts; glub, glub, glub, you're under water. For some of you that remember the 1988 real estate bust, I know many of the same factors were at play as with the most recent bust. Adjustable Rate Mortgages and lax lending practices had a lot to do with the bubble in 1988, just as they did in 2008.
Where Are The Best Values Now?
Certainly some of the better values for the money are in the areas of lesser demand. Of course, depending on where you work you'll want to consider the commute times into your value equations, but certainly areas away from the mainstream can offer the best deals. And you don't have to go out as far as Greenville to get them. Many existing and newer developments east and northeast offer great deals for downsizing or growing a family. Communities like Garland, Mesquite, Forney, eastern and southern Dallas areas like Casa View and Oak Cliff all have some terrific neighborhoods with affordable housing and reasonable commutes.
And if you're at or approaching retirement age and are wanting to downsize to reduce your overall expenses but stay near good medical facilities and metropolitan amenities, exploring the area a bit to see what the rest of the metroplex might offer should give you some good ideas. You never know, you might even find a really great restaurant or two along the way.