About Austin's Westminster Glen

What does the DOW Jones Average have to do with a Farm?

07-17-09

Tim Moncrief : Real Estate Agent in Austin, TX

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Office: (512) 418-1435

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So what is the correlation of either the stock market or interest rates to your market? Or is it both? Or are you throwing darts at the wall for answers?

I have been farming an area that has a price range from abut $300k to $4mm, with about 6000 homes for the past 15 years. (Californians: that is sizable amount of money outside CA). Though this has been my market I have also worked entry level housing as well. What I have noticed for the areas that I have farmed, is a break point of somewhere in the vicinity of about $400k and below where interest rates are a primary motivating factor to purchase, and investment holdings are secondary; and from $400k to $2mm where investment holdings are primary motivation to purchase and interest rates are secondary; and over $2mm where, in most cases, the buyers are set and interest rates and investment holding have an effect, but are not major motivating factors as compared to the previous two sectors.

In the lower sector, this market is greatly influenced by interest rates, and the slightest tick up or down can have a dramatic effect on the demand for homes. Depending on the area of the country, this market may also be hit by unemployment. In our local market, this sector has not been heavily affected by unemployment as unemployment has hit the higher income producers to a much higher degree. Thus, at this point in time, this market is doing quite well in our area.

In the middle sector, interest rates have had an opposite affect on the market as a motivation to purchase. The lower the interest rates go the more fear is brought to our buyer that the market may be falling further. Though interest rates are a factor, this buyer is more concerned about what is in their back pocket over their monthly payments. Over the last year, this market has been devastated as the market has had a tremendous effect on the confidence of this market. What has hurt this market is unemployment, as our area has been hit with unemployment for higher wage earners. When the country sees Austin with relatively low unemployment, it is quite misleading, as the unemployment may not be vast, but it hit a high wage earner that affects all areas of the economy to a greater degree.

In the upper sector, the market over $2mm has been recently affected mainly from acquiring borrowed funds, but has not had a tremendous reduction in the demand for homes. We just saw a $4mm home in our neighborhood sell in 30 days. A nice some of cash made this deal work. Though this market sector has been hit, the buyer has, to a degree, made their money, and is, to a degree, not heavily involved in the recession; thus it has barely affected their buying demand; just their borrowing power.

So my little farm goes hand in hand with the stock market. When the stock market goes up, my business goes up. When the stock market goes down, my business goes down. In most cases we see about a two week lag time in what is going on in the stock market to what is going on in our real estate market in our farm. So the past two weeks have seen a noticeable slow down, and odds are pretty high that we will see an increase in activity in about a week or so from the activity seen this past week.

It has been a fun to watch the consistency of this trend over a long period of time. The point of this is not to put a universal conclusion on all markets or all sectors within a given market; but to understand what makes your particular market tick. It is vital that you know this as you can start following statistics that have nothing whatsoever to do with the market that you work. Our markets are very localized; thus understand the economics of what makes your market move up or down. You data may be completely different than what is in my market; but, my market is what it is.

We are hearing wonderful things from different parts of the country and terrible things from other parts of the country. The question you have to know, is why is your market moving and is the trend based on reality of what that market normally does or is it just bump.....either up or down.

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