Mark Dotzour, chief economist at Texas A&M’s Real Estate Center stopped by yesterday to chat. Lots of parts of Texas are doing just dandy, he reported, thanks to the booming energy and technology industries, trade with Mexico, internal population growth and people moving to Texas from other parts of the country. House prices last year were up 7.9% in Austin, 8.2% in San Antonio, and 10.1% in Waco.
Of course, not all cities have it that rosy (see: Dallas). So Dotzour does spend time trying to figure out when certain markets will bounce back. Seems to be a popular pursuit these days. He was nice enough to break it down into a four-step process for playing along at home:
1. Read your local Sunday newspaper and keep track of the concessions homebuilders are offering to get people into new houses. In Texas, building permits were off 31% last year, but they’ve still got another 10-20% to fall, Dotzour figures. When inventory stops being so slack, homebuilders will stop throwing $30,000 kitchen upgrades at potential buyers.
2. Make friends with a Realtor and find out how many months’ inventory you’ve got in your local MLS. Some recent research by Dotzour’s colleague Ali Anari adapts an old Milton Friedman concept in order to predict future house price appreciation from home inventory. If the number of houses for sale is below an area’s natural inventory level, then prices have got to appreciate. Unfortunately, that varies by market (Houston’s equilibrium is 9.8 months; Austin’s is 6.3), so talking to your Realtor friend and getting a feel for what’s happening now compared to the long-term trend is going to have to be something of a guesstimation. If you want to spend a little time at this, plotting historical data of local inventory against home price changes gets you to the same place.
3. Keep an eye on OFHEO’s city-level data on home prices and look for an uptick.
4. Keep an eye on foreclosure notices (in your local paper or at a site like RealtyTrac) and look for a downtick.
Not the most precise methodology in the world, but maybe fun for armchair economists.
In other news, I’m heading to Omaha this afternoon for the Berkshire Hathaway annual meeting and as many Warren Buffett encounters as I can pack into three days. I’ve never been and am very very excited—but am desperately trying to play it cool. I’ll be sending in some dispatches, so stay tuned.