Real Estate Bubble That Hasn’t Popped

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MORTGAGE EXPERT
6 · 17 · 11

As real estate markets in Florida, Nevada and the inland areas of California struggle to find relief from bloated inventories of foreclosed properties — one market is struggling to keep up with voracious housing demand: the Permian Basin.

Unemployment as of Dec. 31, 2010, stood at just 4.9 percent in Midland, Texas. The city sits next to Odessa, where unemployment was 7 percent. Both cities fared better than the 8.0 percent rate in Texas and the U.S. rate of 9.1 percent.

The strong employment in Midland has helped keep home prices rising over the last three quarters of 2010, data from the Real Estate Center at Texas A&M University indicated. In fact, only during the last quarter of 2009 and the first three months of 2010 did Midland ever see a decline in home prices based on data back to 2000. While Odessa’s market has had some weak spots, local appraiser Linda Stovall explained that recent market slowdowns were primarily the result of banks’ tightening of lending guidelines.

Odessa real estate broker Steve Oliver says new arrivals to the area are finding it hard to find a place to live.

Oliver, who says he’s been in the business for 27 years, noted that one recent listing which he considered marginal had three offers within 24 hours “and two of them were above list price.” Except for brand new listings and new construction, all of his listings are under contract. He said he’s had 68 transactions close so far this year versus the 6.2 sales per year by the average U.S. real estate agent.

The supply of available homes has tumbled from around 450 two years ago to roughly 260 now, according to Oliver. And demand is so strong that most rental properties are rented out.

“There’s tons of people moving to Midland-Odessa,” Oliver explained. “It’d be kind of scary if I was moving here and needed a place to live to rent. You’re going to pay a dramatic rent or going to end up at a motel if you can find one that is open.”

Don Hallmark, another local real estate appraiser, agreed that housing is hard to find in the area.

“Builders are building as fast as they can, the apartments are full and there’s not enough,” Hallmark said — adding that FEMA trailers are renting for $500 a month.

Hallmark said he has trouble finding active listings on Midland’s multiple listing service. He noted that one house he just appraised was sold at the listing price through word of mouth.

“She never put it on the market,” Hallmark said of the listing agent. “We’re trying to grasp at sale prices that are higher than what we can comp out.”

He said the Midland market has been pretty hot for around nine months, while the Odessa market only picked up in March. He explained that while values have been steady for more than two years, prices were rising 1 percent per month before that. The frenzied market started in 1996.

Some homeowners are moving up into more expensive houses, said Stovall, the other appraiser. She indicated that prices quickly climbed between 2005 and 2008 and have remained steady since.

Stovall added that there is a shortage of rental housing, though multifamily buildings under construction should help ease the problem in five years.

Foreclosures aren’t a factor in home sales because delinquent borrowers are able to sell the properties, according to Oliver.

Last year’s inventory supply was around five-and-a-half months in Odessa and five months in Midland, the A&M data indicated. Single-family building permits in Odessa rose to 268 last year from 220 in 2009. In Midland, which President George W. Bush calls his hometown, permits jumped to 394 from 330.

Behind the strong real estate market is “tons and tons of drilling out in this area,” Oliver explained.

Known as the center of the Permian Basin, “The region is in the heart of the largest single source of oil and gas deposits in the United States,” according to Texas A&M.

Midland, which was named for its location halfway between El Paso and Fort Worth, was ranked by Inc.com as the best city to do business in 2008. Odessa reached No. 4 in Inc.com’s ranking. The population in Midland last year was 136,872, while it stood at 137,130 in Odessa.

“They’re drilling thousands of wells in the Permian Basin,” Oliver stated.

The market heated up when oil hit around $90 a barrel, Oliver said. But he speculates the local real estate market would likely turn sour if oil dropped below $70 a barrel.

Oil closed under $95 a barrel today.

Hallmark, the appraiser, says that the two towns have diversified their economies during the past two decades.

“So it’s not gonna blow away when the oil business is bad,” he stated.

Oliver says a planned coal processing plan with low emission will only increase employment and boost housing demand.

Mortgage Expert

Mortgage Daily Staff

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