Real Estate News & Commentary

Real Estate Is Local (Except When It Isn’t)

Expertise:
15 Articles Written

I just finished reading Ryan Hinricher’s article on The Week In Housing, as I typically do every Monday. By show of hands, who else likes to see this report?

Ryan provides a nice synopsis of some key housing trends that only takes a few minutes to digest. One of the first thoughts that echoes in the back of my mind as I read his reports stems from all of those REALTORS® before me who preached,  “real estate is local!” So why even bother taking a macro view of the housing market?

Real estate is local, but mortgage rates aren’t.

Mortgage rates vary only slightly from State to State, so Ryan’s view of mortgage interest rates is just as valid in Tallahassee, Florida as it is in his home State of New York. When rates go down, affordability rises, and the opposite is true when rates rise. I concur with Ryan that rates will most likely remain near historical lows for the remainder of the year.

Real estate is local, but the economy typically isn’t

Unlike mortgage interest rates, it is possible for the national (global) economy to be in the tanks, and yet your local economy could be thriving. If you have a large employer that is in an industry that is doing well, your local economy could be jamming. From what I read online however, communities that are bucking the economic trend these days are few and far between. Is there a community in the US whose primary industry is Bankruptcy filings?

Economic conditions play havoc on the real estate market. Even when people are doing well, fear of change often times leads to constriction and a tightening of the purse strings at home. Of course, the opposite was true in 2004 through 2006, when everybody felt they could afford to buy everything.

If I had everything, where would I put it? – Comedian Steven Wright

Real estate is local, but most markets follow the national trend

The national reports are good market intelligence, even if you only plan on owning real estate in a singular market area. No area is immune to the ingress and egress of the relocation market, so the outside world will play some role in the viability of your current housing market.

Because Ryan tracks the national statistics, he has to wait a little bit longer for them than I do for my local report. When I looked at our year over year pending home sales report, I saw that we gained in January, but fell in February. It’s not unusual for the Tallahassee market to lag the rest of the Country.

Pending Home Sales Graph Image

In the graph above, year over year home sales are plotted in purple, with gaining months graphed above the 0% line and declining months graphed below.  The monthly change (non-year over year) is graphed in yellow.

Regarding the national year over year pending home sales report, Ryan wrote:

I saw weather impacting this number more than anything in January. Year-over-year the number is down though the home buyer tax credit was in place last year. While the decline may be disappointing, I expect to see it climb when February is reported.

I wish I were as optimistic as Ryan. I believe the number of first-time homebuyers in the market today is significantly lower than at the same time last year. As we progress closer to the April 30 anniversary date for the end of the tax credit, I think we will see the year over year pending home sales decline to an even greater degree.

It is my belief that the credit did not create “new buyers,” rather it pulled future buyers (like those that would be buying now) into the tax credit period. The market is now absorbing those that got “fired up” prior to the deadline.

    Ryan Hinricher
    Replied over 8 years ago
    Joe, thanks for the mentions. I truly appreciate it. Great expanded thoughts on macro vs. local!
    Jeff Brown
    Replied over 8 years ago
    Hey Joe — Excellent observations. I look forward to Ryan’s Monday posts also. You wrote, “Real estate is local, but most markets follow the national trend.” Real estate investors who free themselves of the shackles of their ‘must be able to drive by’ local market mentality, believe the key phrase in that sentence is, ‘most markets’. Instead of playing the real estate version of Twister, they eschew the spine bending required by ‘most’ local markets, and go to markets producing results without contortion. A first hand example are those, me included, who left San Diego’s market over seven years ago. Those who elected to remain, have paid a terrible price. Truth be told, I was at least a year late in leaving. Good stuff, Joe.
    Jill Kipnis
    Replied over 8 years ago
    Another way to look at it: the ‘national’ market is really just a sum of all the local markets, and they do affect each other. Take a look at this article, which explains further: http://www.realtor.com/blogs/2011/03/03/real-estate-is-hyper-local/
    Joe Manausa, MBA
    Replied over 8 years ago
    Thanks Ryan, I do look forward to your weekly posts. Concise and spot on. Reply Report comment
    Joe Manausa, MBA
    Replied over 8 years ago
    Thanks Ryan, I do look forward to your weekly posts. Concise and spot on.
    Joe Manausa, MBA
    Replied over 8 years ago
    Thank you Jeff.
    MH
    Replied over 8 years ago
    I always read “This Week in Housing”. Great stuff. And Joe, you make some pretty smart observations yourself. Thanks for writing.
    Joe Manausa, MBA
    Replied over 8 years ago
    Thanks MH, I fake-it pretty good :).
    Joshua
    Replied almost 8 years ago
    I am completely in agreement with this. I have even seen property that is virtually identical sell for too much or too little as it was presented by the agent. In every market there are people who fail and people who succeed.