People looking to trade single-family homes in the coming months would be wise to obtain a seasoned professional's help, given the economic uncertainty looming over the market, said Stephen Buschbom, an assistant professor of finance and real estate at the Jerry S. Rawls College of Business.
Last week, the National Association of Realtors reported a 1.7-percent drop in the number of existing-home sales from May to June following a month of gains, while the U.S. Commerce Department reported a 7-percent increase in sales of newly built homes from the same period following two months of declines.
"Right now, we're not in a distinct seller's or buyer's market, and uncertainty seems to be the overarching theme," Buschbom said, "so it is as important as ever to have a well-informed agent representing you who can keep you up to date on market trends."
Rawls alumnus Lee Mazurek ('10), an agent with the Lubbock brokerage Williams & Co. Real Estate, agreed that getting current information about the local market is essential.
"Talking with a seasoned professional on what the best strategy is for either buying or selling is the best advice I can give because everyone's situation is different," he said.
For most of the past decade, mortgage rates have stayed below 5%. The lower rates, coupled with wage growth and declining unemployment, have fueled residential housing demand and driven up prices, Buschbom said. But despite national economic growth, the housing market began to show signs of a slowdown in 2018 as mortgage rates increased, particularly in markets where home prices have increased the most over the past five to seven years.
Home sales picked up when mortgage rates dropped back below 4% this year and buyers who were waiting on the sidelines re-entered the market.
About 40% of home sales occur from March through June, and falling sales this year during that stretch have puzzled economists, The Wall Street Journal reported last week: "They struggle to explain why the housing market has remained soft while the rest of the economy has been booming."
The timing of the lag seems noteworthy, Buschbom said.
"We've had a strong run in price increases over the last decade nationally and for Texas and Lubbock, but we're at a point now where the trajectory of prices and number of sales may be somewhat range-bound, at least in the near term," he said. "That's just based on the slowing we've seen in the number of transactions and rate of price appreciation during what is typically the most active season of the year for the residential housing market."
Outside of housing data, the Federal Reserve lowered interest rates by a quarter-percentage point on Wednesday, marking the first time the Fed has lowered its target rate since December 2008. The Fed had initiated a series of rate cuts beginning in September 2007.
"While households are not carrying as much mortgage debt now as they were in 2008, there are plenty of people who probably wish they had invested more conservatively after the first rate cut in 2007," Buschbom said.
The Lubbock and larger Texas markets saw prices increase in June from the prior month and year-over-year while the volume of existing home sales fell, according to data released last week by the Texas A&M Real Estate Center, which tracks Texas home sales data. The median sales price of existing homes in Lubbock is $173,000, up about 5% from $165,000 last July.
"There's been plenty of commentary in the past few months about slowing price growth," Buschbom said. "The housing market in Lubbock and for Texas as a whole though still seems to be in a relatively good place as far as supply and demand are concerned, but we're definitely not seeing the same level of price appreciation as we did between 2014 and 2017."
Sales of expensive homes and those in the southwest part of Lubbock have been selling more slowly, giving buyers the advantage, while other segments of the local market have remained strong, favoring buyers, Mazurek said.
"Anything from $200,000 and below is still a very hot market in Lubbock," he said. "Above that, as you get into that second half of the market and creep up towards the higher end, that's where we're feeling a lot of stagnation."
Like the existing home market, the new home market in Lubbock has seen similar trends, Mazurek said. New homes priced under $200,000 are selling fast, while demand for new homes over that price point is less robust, Mazurek said.
Companies that build homes have behaved cautiously lately, which could be significant if the caution continues, Buschbom said. Though new-home sales comprise less than 10 percent of U.S. home sales, economists consider this measure a barometer of stability for the overall housing market.
Sales of newly built homes nationwide rose in June from the prior month, but that increase followed two consecutive months of declines, and the median sales price of new homes remained about the same as a year earlier, according to the Commerce Department.
"The tariffs on goods from China in the last six months have increased the cost of new construction and have hurt margins for builders that absorb part of the price increase in order to stay competitive," Buschbom said. "For home builders, the increase in the cost of steel was particularly impactful since steel plays a vital role is many different parts of a structure, from the rebar used in a concrete foundation to the screws and nails in a wall to the stainless-steel kitchen sink."
Stephen Buschbom received his Bachelor of Business Administration in real estate, his doctorate in business administration with a concentration in real estate, and a minor in finance from the University of Georgia. Prior to starting his doctoral studies, he worked at Voya Investment Management in Atlanta for six years as he specialized in risk management and analytics for commercial real estate whole loans and commercial mortgage-backed securities. His areas of research expertise are real estate finance and investment, mortgage-backed securities, urban economics and spatial economics.