When I look at the real estate market today, I am somewhat reminded of Charles Dickens’ opening line in his book, A Tale of Two Cities, “It was the best of times, it was the worst of times.”
This, however, needs to be tempered somewhat, it isn’t the ‘best’ or ‘worst’ of times, but it’s not too bad here in Fredericksburg, especially if you are a buyer, a patient buyer, and to some extent if you are a patient seller you should also be ok.
What is happening in today’s real estate market is similar to the real estate meltdown of the 1980s when home and land prices fell, and foreclosures dominated the landscape.
I was in real estate in Houston at the time and I saw home and land prices, driven by hype and speculation, go up to heights that everyone seemed to know would not be sustainable, but continued forward nonetheless. And sure enough like a house of cards, it all came tumbling down.
There are some out there today that will try to paint a rosy picture about our present market here in Fredericksburg. But they can use all the smoke and mirror tricks they want, it doesn’t change the fact that we are in a down market here, it may be mild, but it’s down nonetheless.
Consider the Dow Jones Index at 11,893, down 2387 points since November 2007 where it had a yearly high of 14,280, and the number of home sales in San Antonio down 17.3% for 2007 as compared to 2006 (1).
Nationwide, the current inventory of homes is such that it would take 9.9 months to exhaust, the longest period in 26 years (2). These facts will have an effect on our local market.
Recently the Gillespie County Board of Realtors was provided with sales figures put together by David Oehler, the chief appraiser in the county. He had a number of charts showing details of real estate activity in the county, some going back to 1986. Two of the charts were especially interesting.
One chart (the chart above labeled "GCAD Warranty Deeds") showed the number of warranty deeds (a measure of real estate transactions) filed at the courthouse in 2007 dropped to 886 as compared to a peak of 1,253 in 2006, a decline of 30%. This was at a time when the average price per square foot of home sales rose from $127.52/sqft in 2006 to $166.66 in 2007, an increase of 30% (3) (Refer to the chart below labeled "Average FISD Home Sales Price per Square Foot.")
See a correlation here? It may not necessarily be linear but there is, in my opinion, a real cause and effect linkage between the two. Also, in information provided by Brian Jordan with the City of Fredericksburg, he advised that the number of home building permits declined in 2007 to 58 from 102 in 2006.
What should I do if I want to buy or sell in Fredericksburg today?
Buying? Be patient. In my opinion, I don’t think we will see prices fall to the extent they did in the 1980’s. But you need to watch for prices that are based on real value. Compare asking prices with recent sales, not 6+ months back. Don’t wait for everything to go into foreclosure; I don’t think it will happen here in Fredericksburg. There will be some foreclosures, but the best thing to happen will be a marketplace with fairly priced homes and land.
Shop wisely and check out recent sales. Don’t wait around too long, you will be depriving yourself of a home to live in and enjoy, which should be your main purpose for buying a home, not solely as an investment, although it will serve that purpose also.
Selling? Don’t be tempted by tales of high prices. This is the ‘Theory of Rising Expectations’ you read about in Economics 101. Know the facts. A fair market price is based on sales, not what you would like to get, or what your neighbor is asking, it doesn’t work that way, especially in a buyer’s market.
Most buyers are smart and apply what we refer to as the “Rule of Comparative Selection” summed up by the saying ‘getting the most bang for your buck’. Follow well qualified advice in determining a fair market price for your home. Don’t wait around too long for prices to rebound.
Based on the figures provided by David Oehler - mentioned above - the average price per square foot of homes in Fredericksburg in 1986 was $43.42/sqft. Adjusting for an average 4% inflation rate, I estimated that it took 10 years to get back to that price. It was 1996 before the average price reached $64.63, or an adjusted price of $44.59 (3). So if you have owned your home for over 3 years, you probably have a good margin of profit in it.
Contact me at (830) 997-6123 or by email, I would be happy to discuss your needs, no charge, no obligations.
Willie Gold is associate broker at GMAC Real Estate Fredericksburg. Click here to read his agent bio.
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