An Actual Report of the Local Real Estate Market

When articles or news stories get your attention on the residential real estate market, pay close attention to the style of reporting. Are the facts based ONLY lon ocal information OR are statistics being used that are for the entire United States?

As it stands today, there are a number of markets experiencing a sharp decline in housing values. These same markets have been riding a wave which started around 1995 (like some places in California) and continued with 20% to 30% appreciation (at their highest levels for 5 years plus running) through 2005. As stated by the owner of the company I hold my license with, Gary Keller of Keller Williams Realty, ''...from 2001 through 2006 the real estate market got 'overtime', bonus playing time so to speak...''. His comments come from the loosening of the lending, the liberal regulations on lending practices nationwide.

In 1995, the markets simply began a cycle that could be expected, however in 2001/2002, the current President Bush continued what the former President Clinton was doing with an emphasis on home ownership. Two Administrations in the White House spanning approx 12 years plus a new level of acceptance by the Federal Reserve in ''manipulating'' our economy resulted in some loan programs never seen before. This fueled a market that was due a correction.

These new loan programs supported the continuation of the appreciation of home values in areas like the city of Boston and many parts of the state of California. One fact that has been brought to my attention is the fundamental principal that housing values and income must be in line, otherwise a ''bust'' will follow - ALWAYS! If home prices are double and triple compared to income, either a second income needs to be created (as seen in the 1980's with two income households becoming a norm) or a third income could be seen (like now with children aged 17, 18, 19+ who are staying at home and bringing in $300 to $600 per month towards housing expenses for the family). In any event, housing prices and income must stay relative. With the continuation of housing prices in some markets in the United States, and income not growing, we get the news of depreciation in neighborhoods.

As the lenders correct themselves (they have) and take their medicine (they have and are) and work through the reporting of their mess (they are and some of the reporting has been bogus, i.e. the reporting on Country Wide) ''things'' are getting back on track. Loans towards persons with poor credit, flexible income are almost non existent. However, that is just the ''sub prime'' markets. ''Normal'' lending, the lending that has always been around? - that is doing fine.

Another key word, intrinsic value, is what to keep an eye on. How are the markets in these areas like California going to work out? What is unkown is what the borders to these markets are. Because of the long, rich years of massive appreciation (higher values while income stayed put) there should be many years of a drop - 2011 some experts are predicting for these markets that had such a huge spike (spike will follow with ''bust''). While this will be hard news for people in this areas that were taking home equity loans to support their living year after year, Buyers who had to stay on the fence and rent will get into this market - GREAT for them.

With our local ''5 County Area" (Travis, Hays, Williamson, Caldwell, Bastrop)/Austin market doing well economically and staying on the radar of expected population growth (plus of course job growth) we are a bit of an exception to much of the national news. We have around 6.5 months of inventory. The ''experts'' state that under 6 months is a Sellers market (locals state under 5 months for Austin is the Sellers market) while over 6 months is a Buyers market.

For prices to drop, the ''experts'' state that the months of inventory need to reach 9-10-11 months to see a price drop. We experienced a drop in sales in August (contrary to the reporting in the Austin Statesman, we Realtors usually do see a drop in August) and a drop in sales in September. This ''drop'' in sales has been compared to 2006 and though relative, it should be pointed out that 2006 was a CRAZY year for ''wide open lending practices never seen before''! So is the drop expected after such a high year in 2006? or is this a trend? Lets watch the economics of Austin and the intrinsic value of real estate......and hope the reporting of news in the Statesman begins their stories how they like to end them :)