 Back in October, noted economist John Kenneth Galbraith was quoted in Money magazine saying there are only two kinds of economists: those who don’t know what will happen in the future and those who don’t know they don’t know. Despite that disclaimer, if you want to know what’s ahead for Texas real estate, the best place to find out is to talk with one of the research economists at the Real Estate Center at Texas A&M University.
Writing in the January issue of Texas REALTOR® magazine, chief economist Dr. Mark G. Dotzour notes that center research shows how Texas home sales volume is largely determined by three factors: interest rates, job growth, and rising home prices.
"When interest rates are low, buying a house is nearly irresistible to American consumers," Dotzour says, "if they are confident they will not be laid off."
The new year has begun with relatively low mortgage rates and little threat of renewed inflation on the horizon. The Federal Reserve is aggressively trying to re-ignite the economy, pumping large amounts of cash into the system. If it overdoes it, Dotzour cautions, inflation will pick up, and mortgage rates could push to 8% or more.
Home prices move upward when there is more demand than supply. From August 1998 through March 2001, there was less than a five-month supply of homes for sale in Texas. Although Texas had a 5.5-month supply of unsold existing homes in October, that was still substantially lower than the 7.4-month inventory the state had in May 1997 (when Dotzour was calling the market "red hot").
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With more homes for sale today, buyers have greater selection. This fact will slow the rate of appreciation this year. More selection slows appreciation, and that in turn reduces sales volume.
"Job growth is the most important determinant of home sales volume and the most difficult to assess," Dotzour says. He sees slow times ahead for the oil and gas industry, computers, airlines, and telecommunications. The Mexican economy is slowing dramatically as well, and that will affect the explosive growth along the border as truck traffic is reduced.
"Many of the big engines of the Texas economy are sputtering as we enter the new year," Dotzour says. The center’s research director concludes that low interest rates are likely to keep homes attractive to buyers in 2002. The uncertain job market, however, may dampen enthusiasm to buy homes in the first half of the year.
"It is very likely that Texas home sales volume will decline in 2002 compared with last year," he says. "The decline from 2001 could range from 5% to 10%."
Real estate professionals understand that ups and downs are a normal part of doing business. A slow year or two is normally followed by years of dramatic sales volume growth.
"For Texans needing to sell a house, 2002 could be the most difficult year we’ve seen in several years," Dotzour says. That’s not all bad news for real estate professionals, either.
"Sellers will need the services of real estate professionals more than ever," Dotzour reasons.
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