Balance is something we all seek. As a mother of 7, I often find that balance is something I seek but rarely achieve. Something may happen in the life of one of my children and they will need some extra attention. As I give that child a little more attention, then another one will soon feel some sort of neglect and will then be in need of attention. Thus, it is a constant back and forth seeking balance but rarely achieving it. The same for my work/family life. There is a constant need to find a balance. I think the desire for balance is something we all seek. What about housing markets? What is a balance as it relates to real estate?
Looking at Local North Texas Markets:
Looking at North Texas, there is an imbalance of suppy and demand. According to Dr. Jim Gaines, a research economist with the Real Estate Center of Texas A&M University, for Texas balanced and stable markets are typically around 6 months of inventory. When the inventory (number of homes for sale) becomes very low or very high, home prices are impacted. Lower inventory creates price appreciation and higher inventory, or a glut of homes for sale, lowers the prices of homes. Looking at this graph showing the months of inventory with the median sale price, in Collin County and Dallas County, the past three years have shown the lowest inventory and highest increase in the median sale price. The inventory peaked for both Collin and Dallas County in 2011. The only time these markets were around 6 months was briefly around the peak in 2010 and 2011. There has been a more rapid increase in median sales price in the past three years as inventories have been less than 3 months.
As the supply goes up, the price goes down and inversely as the supply goes down the price goes up. This appears to be more dramatically depicted in the past three years as there are greater forces of demand and anticipation in Dallas and Collin County. Collin County has been experiencing record growth with a 71% increase in population since 2000. There has been a large influx of people moving into Collin and Dallas counties in conjunction with several large corporate relocations to the area, such as Toyota's North American Headquarters, Liberty Mutual and JP Morgan Chase. Market values have been impacted not only by low inventories but also the anticipation of alife large number of jobs coming to the area.
What is the definition of a Balanced Market?
The Dictionary of Real Estate Appraisal defines a balanced market or market equilibrium as:
The theoretical balance which the supply of and demand for real estate move over the long run--a balanced that is seldom achieved. (Dictionary of Real Estate Appraisal, 4th Edition, Appraisal Institute)
I find it interesting that the definition ends with " a balance that is seldom achieved", however, it is so very true. Just as I seldom achieve balance in my personal life, the market too seldom achieves balance. The market is constantly changing and fluctuating. As inventories are low, new construction of homes can help increase inventories and balance the supply. However, supply and demand are not the only forces that impact real estate values. Factors such as access to credit, home affordability, and wage growth have an impact on real estate values. Just as in our personal lives many forces impact or influence our ability to have balance, so are the many forces that influence real estate values. One of my favorite illustrations of this comes from appraiser Ryan Lundquist, the multi-layered cake analogy ,which describes many of the different forces impacting real estate values.
Many markets in the nation having been showing low inventories driving up home prices similar to our North Texas markets. Some markets are starting to show a correction with inventories starting to increase and prices beginning to decline, thus moving toward balance. The DW Slater Company will continue to read, report and analyze our markets as they seek balance. We will also continue to seek balance in our work and personal lives. Just because it is seldom achieved, does not mean we will not seek it. As always, if you have questions or comments regarding real estate appraisals or appraising feel free to contact us at www.dwslaterco.com or comment on this blog.
The Texas Housing Market More Stable Than It Seems- SouthStar Communities Blog
Housing Glut is the New Headline "Gold"- Housing Notes by Jonathan Miller
Market Update for Denton and Collin Counties - DW Slater Company Blog
The Multi-Layered Real Estate Cake Analogy- Sacramento Appraisal Blog by Ryan Lundquist
The Art of Achieving a Work Balance - Huffington Post by Dr. Nikki Perez
Housing Shortage Eases in Some Markets - USA Today