Last week Erion Shehaj writing at AgentGenius captured a striking shift in the Houston real estate market. Erion’s firm does a lot of work with HUD foreclosures. In the past two years, investors were clearing the market of these foreclosures and swooping in for vulture-good deals.
This year something’s changed. The investors have to compete against actual home buyers. The result: bidding wars. You heard it right. People are bidding over asking price in order to score that foreclosure home in Houston. Erion says,
During the period from Jan 1st – Jul 1st 2008, there were a total of 207 HUD properties sold in Harris County, 49% of which sold at or over asking price. During the same period in 2009, there were a total of 128 solds, 69% of which sold at or over asking price. That’s a 40% jump without even counting the 75 properties currently pending that didn’t make it into the analysis.
Why would a buyer of a $100,000 home in Houston over bid? Erion suggests the “overzealous” agents may be the cause. I suggest something different. Elementary supply and demand.
Supply, also known as available inventory, is the easiest to plot. The fact is there are significantly fewer homes on the market in Houston than there have been for several years.
Demand is a little harder to quantify, but consider the Uncle Sam imposed housing demand stimulus of the last several months: crazy low interest rates and the first-time home buyer tax credit.
Erion points out that
When you purchase a HUD Home with FHA financing and bid higher than the asking price, the Buyer has to make up the difference in cash since the lender is obligated to use the HUD appraisal.
How do you measure that impact? Well you can start by watching the market where the first timers buy – at the low end. Check this out:
What does this tell us? The first-time home buyer tax credit is likely pushing the low end of the market in Houston. Not all these properties are foreclosures and the tax credit is an excellent psychological push for a potential buyer to take action now, while the getting is good – whether or not the house is in foreclosure.
The result is evidence of the housing stimulus policies “working”. (ahem, they are doing at least partly as the pols intended. Whether or not that’s a good thing is a topic for another post.)
Demand for entry level Houston real estate (especially the perceived bargain foreclosure properties) in 2009 has accelerated just as available inventory has shrunk. Shake. Enjoy.
(See also: Erion at Signature Houston)