Category Archives: Market Analysis

What Determines Value in a Changing Market?

What determines Value in a Changing Market?

I am currently in the market for a home. I found a builder who caught my attention in an area under construction, 37 homes inside a gated community. Although this development is not quite flourishing, still with half the number of lots available, my concerns of value outweigh the personal attachment I have to stone front elevations, tile roofs and1-story floor plans in an ideal location.

The 2 most important factors to consider in determining value come down to location and timing. There are areas, which dictate higher values and will appreciate far faster than others. Some areas may not increase in price at all, even over many years and these are the reasons why.

If you are buying at a time when the market has already reached a peak (and how to know when that is-to be discussed in my next article), be cautious if you are paying full price. There are areas where new home construction is still going strong. The significant question to ask is whether an area is going to flourish right away or if it will take years for the value of your home to catch up to the number, which it was purchased at? If you buy in a new development where there is enough land to allow building for years, then chances are the value of your home will not increase until the community is completely finished. Supply has to be limited in order for prices to increase and the market needs to remain healthy. If the inventory is excessive, and demand is not, prices will lower or not increase.

If you buy in an area where there isn’t excess land for new development, and considering the location is attractive, your purchase may show a substantial increase over time. Areas where there is minimal room for new construction, leaving only existing lots for teardown and rebuild will help prices increase in the neighborhood.

Timing has a lot to do with value in a purchase because the dollar value at the time of purchase may or may not be in line with the position of the market. For example, if you paid full price for a home when the market was steadily moving in sales, prices may have been overinflated from where they would traditionally have been. When supply is low and demand drives a market, prices accelerate, and a furry in buying may have put you in a home, but at a disadvantage in the price you paid. Let’s be realistic. No market ever stays the same. Many economic factors will cause a rise or a decline in momentum, resulting in price changes in homes. The most important point is that real estate doesn’t change over night. It takes time for economics to affect a market and make an impact. So head the rush, as things in the market will change; it just takes time to see the turn.


Understanding the Market

Michele Marano and her team is the only “Real Estate for the Energy Professional” in Texas who correlate the energy markets to the movement and trends of Texas real estate.  It is apparent the driving factor which determines real estate trends is the economy, but understanding the global and national pricing of oil is one of the most efficient ways in translating the movement of Texas real estate.  With every turn in oil pricing, whether up or down, there is an underlying forecast of real estate.  Michele Marano and the Energy Team have the knowledge and understanding in helping you best determine your position, whether on the buy or sell side of Texas real estate.

Oil Boomtown

As I am on my way to the Formula One Race in Austin, which is where the U.S. leg of
the International F-1 series takes place, I marvel over the development that has been
created by the U.S. Shale boom in the last several years. I have lived in Houston since
1990, with relocations back and forth from the East Coast and I have seen the consistent
development of a city as it survived different economic turbulences. When you hear the
words oil boomtown, there is something nostalgic that comes to mind, like visions of
Williston, N.D., but with Houston, it reinforces an already established global presence,
echoing the vibrations of oil and energy markets.

Unlike Williston, N.D., whose history has been rewritten by the U.S. Shale boom,
Houston expanded this year alone by 35,000 new residences, while over 100,000 new
homes have been added and 119,000 plus job created. For every job lost since 2010, three
jobs have been replaced. The designing of my entity, Real Estate for the Energy
Professional was not created by accident either. Having worked for over a decade in
energy commodity markets and then Houston’s real estate, I realized the need for a
dedicated service to a city that obtained title to “Energy Capital of the World.”

Houston’s housing market skyrocketed over the past several years, after the initial breaks
on development were placed, following a recession that seemingly had no end in sight.
The city had an overwhelming economic expansion in all energy sectors, as well as
additional industries that drives Houston’s economy, however, housing supply was short.
Low inventory levels resulted in an increase in home prices due to people having to bid
over and above listing prices, which resulted in higher prices across the city. This helped
many neighborhoods in Houston that would not have likely seen price hikes, but did.
The idea of buying brand new construction feet away from railroads tracks would not
have been a first inkling for an out-of-towner, but there were requests for that too.

With people moving here from all parts of the world, different parts of Houston have
been developed to serve different lifestyles. Most of my clients have come from
everywhere but Texas, and many are from abroad, all vying for a home to which they feel
familiar. Over a half dozen new luxury high-rises were added to the Galleria and Inner
Loop locations. For $3,000.00, you can lease a 950 sq. ft. unit overlooking Post Oak
Blvd. or for $2,000/month you can get a 624 sq. ft. place at City Centre and a 3 bedroom
for $7,500/month. Last year at this time I showed the Penthouses at Hotel Sorella to an
energy executive and it cost $5,000/month for a 2 bedroom, 2 baths, with all the same
amenities as the hotel. This year, the prices have increased to $10,000/month and now
they have a new 1 bedroom for lease for $7,500/month.

The beauty of Houston is that as oil prices increase, so does its real estate and
development. The only real difference in watching oil price change versus real estate is
that oil changes instantly and real estate is the after-effect of it. Not everyone correlates
the two markets, but having worked in both energy commodities and Houston real estate,
I have witnessed the relationship of how it directly affects the Houston market. Now, as oil prices are dropping, and real estate supply has caught up with demand, prices will likely flatten to soften and a shift from a sellers market to a buyers will most likely be the after-affect.

As for the Formula-One race in Austin, the world-class track draws attraction from
drivers and fans from all over the world. The Austin Circuit of Americas event is as
symbolic to the venue as oil is to the state; Texas sized and growing.

Article Published by Breaking Energy