Monday, May 10, 2010

In the wake of last week's astounding job creation numbers and upward job revisions from prior months, confidence is definitely returning to the market. It's always important when considering broad market conditions and consumer sentiment not to dwell on the antics of the exchange market indices like the Dow and Nasaq. Stocks are only one asset class and should be factored into any market analysis as such. A strong market analysis includes as many data points as possible, with reliable analysis.

I'm not the best market analyst, but I'm far from the worst. One of my advantages is that I can read broad market indicators including the stock markets and official economic data, but I also as a real estate broker practicing on the ground am privy to first hand real time data in real estate and finance.

Accordingly, I feel confident in saying that overall market confidence is organic and remains stronger than last year and is gaining as data keeps building that a modest and sustainable recovery is underway. With the largest net gain of jobs last month in 4 years along with revised net gains from prior months, that presages an increase in consumer and job confidence. Indeed we can already see signs of that confidence on the ground in our own business.

As job confidence returns and worries about further layoffs subside, employees will breathe a sigh of relief and begin to think about the transactions and moves they've been putting off during the last couple (few) years of frightening uncertainty. Add to that the passage of major health care legislation which hung over the nation for a year, the finalizing of banking reform, and already implemented consumer protection regulations in the lending industry that are now settling in, and we're beginning to see that businesses and consumers have better forward visibility, which again breeds confidence. The shaking of the shaking out is subsiding, although it is not gone.

May's home sales figures will be astonishingly strong, since buyers who were already in the market rushed to put down contracts before the April 30th deadline for home buyer tax credits. But while that demand was pulled-forward a bit, we're still seeing healthy buyer activity in the wake of the tax credit deadlines that foretells a probable strong June, although it's too early to tell if June's sales will match May's sales.

Builders are not as shy this year about building up their spec inventory ahead of the summer sales season, which indicates revived builder confidence by the nation's largest builders, especially in Houston markets. They can be wrong, but it's a positive sign. Clearly the strongest activity will be among well-qualified buyers as new conservative lending standards are keeping the marginally qualified buyers mostly to the sidelines for now.

Commercial real estate activity will continue to lag through this year, although some multi-billion dollar investment funds have been formed to acquire distressed CRE, and I think many good opportunities exist in Texas for future economic growth in the industrial and services sectors, with energy, logistics, and high-tech leading the way for the rest.

We continue to be modestly (though not cautiously anymore) optimistic about both the real estate market and the economic prospects for Houston and Texas overall. The national recovery is being led now by the industrial sector, and fortunately that is a strength in Houston. With jobs recovering, employees are also relocating to take those jobs, which is leading to increased buying and selling activity in the strong Houston economy.

With many foreclosures still on the market, right now is a particularly good time to buy distressed property, however we are not seeing significant price declines in prime properties, which continue to be in demand by relocating, upsizing, and downsizing prime buyers. The properties languishing the most are properties that are not in top condition and are priced incongruently. Effective sellers aren't necessarily selling lower (though some choose to do so for personal reasons), but they are selling with effective investments in maintenance and upgrades. Buyers and lenders in more conservative modes are seeking the most reliable properties that have little or no accumulated deferred maintenance and deferred updates.

Overall expect to see growing confidence market-wide, especially once May sales figures are released in June and as jobs continue to recover. After a wickedly slow first two months, the market has surged back and we expect moderate improvement throughout the year that will result in a notably better year in 2010 over 2009.