Paradigm Shift in Real
Estate
A
Paradigm can be thought of as a set
of assumptions or rules-of-thumb that can be used
to make decisions during a particular period of
time. Stated another way; a
paradigm valid throughout a specific period of
time, or era, and represents a way of viewing
reality for the duration of that era.
When these underlying assumptions change,
the rules-of-thumb need to be re-evaluated and our
view of reality changes, there is said to be a
Paradigm Shift.
It is
suggested that for the real estate and mortgage
markets, we are in the middle of a paradigm
shift signified by at least six significant
market changes, the full implications are yet to
be known:
1.
Real Estate has been
accepted as a fourth category to be included in
portfolio investment strategies, in addition to
stocks, bonds and cash equivalents leading to an
increased demand for income producing property in
first and second tier cities
2.
Regulation of the
investment banks will significantly change as a
result of the a de facto run on the banking system
(as evidenced when Bear Stearns' clients stopped
doing business with the bank and the overnight
Federal Reserve changed rules to aid in the
purchase of Bear Stearns by J.P. Morgan Chase
& Co.), leading to an increased blurring of
the distinction between investment banks,
securities companies, and retail/wholesale
banking.
3.
The collapse of the
Mortgage Backed Securities Market (due to an
almost double the expected default rate), means
that new instruments to finance real estate
purchases will be developed, probably leading to
an increased loan to asset ratio and an increased
usage of government backed security to finance
housing and mixed-use developments (in 2007,
Freddie Mac and Fannie Mae insured about 55% of
home mortgages, this year that number is likely to
approach 80%)
3 (a)
The lack of availability of
credit for middle and low income people will see a
reduction in demand for owner occupied housing and
an increase in demand for rental units, leading to
a decrease in small single family home builders
and an increase in demand for moderately priced
mixed-use developments
3 (b)
Higher loan limits for FHA
and VA loans will insure an increased position of
government backed securities in the market
4.
The rise
of the Internet and its World Wide Web has changed
the way real estate is marketed as evidenced by
83% of all people contemplating the purchase of
real estate start their search on the Web about 18
months before they contact a Realtor®.
5.
We are in the middle of a
presidential election cycle that will set records
on several fronts including the possibility of
having a woman president, an African America
president, or the oldest elected
president. With this election,
there will be a clear political choice; whoever is
elected will foster changes in the political
landscape that will last for at least a
decade.
6.
The passage of Oklahoma's immigration act, which
mandates proof of citizenship for any employment
and to receive non-emergency state aid, will
impact employment in the state. (See Fall
2007 Newsletter for more
information)
National Commercial Real Estate
Indices: Real Estate a New Investment Class
Indices
With Real Estate being
generally accepted as a fourth category of
investments (others being Bond, Stock, & Cash
equivilant), Standard & Poor's has launched a
series of indices that measure the change in
commercial real estate prices by property section
and by geographic location that are available
through both Bloomberg and Reuters ticker
services. The indices are
maintained by S&P with data provided by
GRA/Charles Schwab Investment Management and can
be found at http://www.spcrex.standardandpoors.com/.
Economic Stimulus Act's
Impact on Real Estate -- Increase in Lending
Limits
As mandated by the Economic
Stimulus Act signed by President Bush in February,
the U.S. Department of Housing and Urban
Development has published new FHA and conforming
loan limits that are based on a region's median
home prices. New loan limits for FHA and Fannie
Mae and Freddie Mac are now calculated at 125
percent of the HUD published median prices, with a
floor of $271,050 and $417,000, respectively, not
to exceed $729,750. The impact on the Oklahoma
City metro area is not as significant as will be
felt in other high cost areas of the country, but
the limits will rise. For the Oklahoma City
Metro area, loan limits have been raised from
$200,151 to $271,050, typically with 3% down and a
credit score above
550.
For more
information, contact Santa Fe Mortgage loan
officers: Steve
Sivigliano (steve.steve@wellsfargo.com)
or Todd Parrish (todd.parrish@wellsfargo.com)
OKC Metro Populaiton
Statistics
The population in the
central Oklahoma Metro region is continuing is
steady increase, since 2000 there has been an 8.8%
increase for the Oklahoma City MSA area and a 9%
increase for the 10 county regional chamber of
commerce economic development
consortium.
Between
October and November of 2007 there was a 20,000 to
25,000 decrease in labor force, but there was not
a corresponding increase in unemployment.
This reduction in labor force is attributed to the
passage of Oklahoma's version of an immitration
law that mandates proof of citizenship for
employment and to receive non-emergency state
aid.
The
Oklahoma City MSA (Metropolitian Statistical Area)
covers the seven central Oklahoma Counties
outlined in Red. The Oklahoma City CSA
(Combined Statistical Area) includes the MSA plus
Pottatatomie County (including Shawnee). The
Oklahoma City Chamber of Commerce's 10 county
economic development consortium includes the OKC
CSA plus Payne County (Stillwater) and Kingfisher
County.
OKC Metro Real Estate
Statistics
(Still a Safe Harbor for
Investments)
Despite
national trends, the real estate market in
Oklahoma is doing well. Average home prices
increased 4.5% in 2007 in the OKC
metro. While average price dropped in
February, it is arguable that the drop is seasonal
in nature. February 2008 average prices
are still higher than February 2007 average
prices.
The
volume (or number) of homes that have closed has
remained relativley constant on a seasonally
adjusted basis since 2004. The chart below
shows actual data for number of homes closed.
The
gradual decrease in home creations (both single
family and multi-family) can be attributed to the
absorption of a significant number of dark (units
that were built but mothballed and not on the
market) multi-family units left over from
the Metro's last housing recession.
Interest
Rates are at near all time lows and
is making it very actractive to purchase
housing, provided the purchaser has good credit
and stable job. Single family
listings are increasing slightly while the number
of days that the average home is on the market
before being sold is steady at 95 days.
In
conclusion, the Oklahoma City Real Estate Market
is still fundamentally sound, but not immune from
the impact of national events.