HA: Will home prices keep rising?

Jack Haymes (JH): Yes. I think it will be a simple supply and demand, especially here in Houston. The demand keeps on rising. We saw a little slow-down during the holidays, but everybody is anticipating it to pick back up to where we left off in October.

Tom Plant (TP): The cause of the recent escalation in prices is the imbalance between supply and demand. In the current environment the demand for homes is strong but not overheated. The imbalance is caused by historically low inventory.

I have kept monthly inventory statistics since December 2000. Inventory at the end of October was 3.05 months, the lowest it has been since I have kept records. Inventory has been below 4 months since November 2012. Prices will continue to increase until we see inventory increase to at least 5 months. Currently that would require another 11,800 homes to be actively on the market or an increase of 64% in current inventory.

So my short answer is yes, home prices will continue to increase at least until mid-Spring 2014 when we may see some improvement in inventory.

HA: What will happen with the seller’s market?

JH: During the last month or so, it’s been more of a buyer’s market because of the holiday season. But the seller’s market is going to continue into next year, especially into the summer. That’s what all of us local agents in Houston are looking for.

TP: My answer to the first question pretty much covers this. We will continue to have a Sellers’ market until we see a substantial increase in inventory. I do not see a chance of this occurring before mid-spring of 2014. Keep in mind the inventory of 3.05 months is an average for all of Houston.

In West University, one of the key markets in which I work, the inventory level is 1.8 months. A buyer with whom I closed a West University home last month was one of 15 offers. We got the home by offering 15 percent over List Price. The inventory in the higher end close-in markets needs to more than double before sellers will begin to lose their edge.

HA: Do REOs and foreclosures still have a big effect on the market, and will they continue to have that effect next year?

JH: It’s lessening. You really see a dramatic decrease in the properties that are out there still. If you find that one is out there, then most of the time it’s either a catastrophic property or it’s just priced way over what the market is bearing.

I think one of the reasons why this occurs is because pressure is on the bank. I think in the very beginning, they tried to bully their way through, forcing higher prices and then were forced to lower. And once the prices went lower, all the investors jumped on the properties. I personally bid over 100 properties, and it was a real war to get a decent price.

I think we’re still going to have distressed properties in 2014, but I don’t think they will ever be at the levels they were a year ago, at least not for another five or eight years. After the distressed properties on the market were sold off, I think that the loan modifications and the other programs that were put into place eased the fears of a lot of the homeowners. What I fear is that as soon as the seller’s market resumes, if they can get anywhere near their price, they’re going to get out of their property.

TP: I am so fortunate to be able to work in the markets I do. The higher end close-in markets inside Loop 610 had only a minimal impact from REOs/foreclosures and currently I would say next to no impact. My sense is that in those Houston markets that were impacted, the effect is much reduced. However, you should rely upon others with more experience in those markets.