Beware! Wire Fraud is at an All Time High.

WireFraudSQYou’ve done it!  You took a Buyer from shopping for a house, to a contract on a house, to the closing table and you couldn’t be more ecstatic for them.  Then… in total shock you find out your Buyers have wired thousands of dollars to a thief!  You discover the “I could never be a victim to wire fraud, it’d never happen to me” has actually happened to you!  It’s becoming more and more common in our industry and way more sneaky and sophisticated than you may think.

Unfortunately, we are seeing attempts to divert wires to imposters’ accounts on a weekly basis, leaving the Buyer, Seller, Realtor and Title Company at risk.  More often than not, the fraudster hacks into the Realtor’s email account (yes YOUR email account) or creates a close duplicate email account along with your exact signature, and then posing as the Realtor gives bogus instructions trying to divert the funds of one of the parties involved.  It’s happening and it could very well happen to you!  As a Realtor, the video below is a great tool to send to your Buyers & Sellers warning them of the risk.  NAR’s General Counsel, Katie Johnson, has made this video to help you educate your clients on how to avoid being in a wire fraud scam.

Here at Independence Title, we have put many policies and procedures in place to combat this growing issue.  This document is a great tool to send to clients during the contract process.  We send this out to all parties with a commitment and/or contract.  It is critical that you take the time to educate your Buyers and Sellers and warn them of this risk.

Looking for Something to do While Sitting in Traffic?

PodcastHeaderLet’s face it, sitting in traffic isn’t ideal.  Especially when your to-do list is a mile long, you were supposed to be at your appointment 20 minutes ago and every radio station is playing that VERY annoying used car guy commercial.  We get it and can very much relate!  What can you do while you sit in your car bumper to bumper or in-between appointments across town?  Take a look at this list of the Top 40 Real Estate Podcasts courtesy of Curaytor.com.  While there are thousands of real estate podcasts across the internet, we agree, these are the best and most informative.

Top 40 Podcasts for Real Estate Agents

What exactly is a podcast you ask?  A podcast is basically a digital audio file made available on the Internet and subscribed to and downloaded or streamed online to a computer or mobile device.  According to researcher Richard Berry, podcasting has become a recognized medium for distributing audio content, whether for corporate or personal use.  A podcast is similar to a radio program with key differences: listeners can tune into their favorite shows at their convenience and listen to podcasts directly on any device that can play audio files.  These podcasts are great to listen to while driving, exercising, grocery shopping, etc!

End of year Texas economic review

It seemed like the Texas growth miracle would never end. Texas has led the nation in job creation and home price appreciation since the end of the Recession. 2013 was a tremendous year, with home price appreciation at 15% or greater in all Texas metros. 2014 saw continued strength but a slowing of demand. At the start of 2015, the Texas region was coming off a good year, yet there was concern about declining oil values, (WTI per barrel high of  ~$105 in June 2014, now at ~$38) and the effect on our region’s economy.

While Texas is still experiencing growth, the effect of lower oil prices and a stronger U.S. dollar has weighed on the region’s economy. 203,900 jobs were added in Texas this year, and employment in December 2015 will be at 11.9 million jobs, just under a 2% increase for the year. But for the first time in five years, the state lost jobs on a monthly basis – 25,200 jobs in March and 13,700 jobs in August, after four months of job gains. As stated before, the state still added jobs overall, even with the job losses from the energy sector. However the job losses signal a slowing of the market in some channels. The state gained 204,800 nonagricultural jobs from October 2014 to October 2015, an annual growth rate of 1.7 percent, lower than the nation’s growth rate of 1.9 percent. This is the first time since the Recession that Texas has added jobs slower than the rest of the nation.

Existing home sales dipped in October, while third quarter exports fell. The employment forecast ticked up, and the estimated value of the Texas Leading Index rose in October following four consecutive months of decline. All metros continued to see great low unemployment numbers, with jobs being created in services, trade, and utilities industries. Looking at employment data through November, it now seems certain that Texas will get through the 2015 oil bust with net positive job growth for the year and continue into 2016.

While the forecasted 1.3 percent job growth is much weaker than the 3.6 percent growth in 2014, it is stronger than that of other energy states and much better than what occurred in the 1980s following similar oil price declines, according to Dallas Federal Reserve analysts. The difference is that Texas is much more diversified today than it was in the 1980s, and its real estate markets were in much better shape heading into this energy downturn. If oil prices remain near recent levels, 2016 job growth will likely remain close to this year’s pace.

Last year, the state gained a net total 103,465 new residents, the second most of any state in the country. Americans relocated with good reason. Between 2012 and 2014, employment in the Lone Star State grew 6.2%, 2.5 percentage points ahead of the national growth rate of 3.7%.

With this growth, housing demand in all metros is strong but with some signs of slowing. Statewide housing sales increased year over year by 9.2 percent this year. All Texas metros, with the exception of Houston, are driving this increase in residential and commercial real estate sales while the border cities record moderate growth. To no one’s surprise, Houston’s housing sales have remained flat in following declines in energy prices.

Houston

Houston is the one metro nationally that seemed impervious to the recession with incredible growth in all channels. Although the annual employment is off 30%, growth is still there. Apartment demand continues strong in the Houston area in the wake of dipping oil and gas prices. The employment picture upside exists as the oil and gas operations consolidate in the Houston area and the continued growth in the area’s medical community. Though the employment growth remained slower this year, these two sectors lead the charge in fueling demand for rental housing. In the eastern portion of the metro and along the Gulf Coast, several petrochemical plants are underway or proposed, stirring demand for Class B and C apartments nearby and driving property interest and values in the area.

West Houston is coming off a several year building boom that has brought thousands of new units online. Softening  has begun to occur and developers are ramping up efforts to lure tenants to recently constructed properties. Developers attitudes about the market are shifting and new developments coming out of the ground are already beginning to slow (if adding 20,000+/- units to the market is slowing). Rent values have slowed but continue in a positive trend with some concessions, except in the class A channel. Occupancy continues to be in the mid 90% range and projected to remain steady in 2016. With a 110,000 jobs continued to be created, Houston’s so-called “slowing” is envied by many.

Home sales slowed but values remained strong. Home sales in the Bayou City saw a 12% drop from the previous year and increase in resale inventory rise from 2.8 months of supply last October to 3.5 months of supply. Inventory has held at a 3.5 months of supply for the past four months, but remains below the current national housing supply of 4.8 months of inventory. Nonetheless, home prices achieved the highest levels ever for an October in Houston. The single-family average price rose 3.7 percent from last year to $271,648, while the median price jumped 6.6 percent year over year to $205,000, and average days on market ticked up slightly from 51 days to 53.

Office space is feeling the brunt of the energy slowdown with over eleven million square feet coming on line this year, surpassing the 9 million that came on line last in 2014. All this office development has pushed vacancy up near 18%, with rents beginning to stabilize after years of increasing values. Hopefully developers will begin to pull back in 2016. Houston industrial and retail have slowed but maintain above national occupancy in the mid 90% range.

Dallas/Fort Worth

Strong job formation (130,000+ jobs 2014, 90,000 in 2015) continues to be the driving force behind the Dallas/Fort Worth metro’s growth, and these factors will play a large role in propelling the market. Many companies are expanding, moving headquarters to the area, and employment additions remain broad in nearly every employment channel. Rising employment in the market is stirring demand for housing, and despite developers bringing nearly 75,000 apartments online since 2009, vacancy has continued to tighten with no concessions and rising occupancy (95+%). Tight conditions combined with healthy rent growth have prompted developers to resume building activity, and developers will deliver 22,000 units this year. Nearly 40,000 apartments are underway throughout the region, and multifamily permitting remains strong in almost all North Texas cities, signaling builders’ continued confidence in the market. Though some softening should occur in 2016 as newly constructed units come online, vacancy should remain well below the last 10 years average. Because of this, rent growth and sales growth should remain strong through 2016 into 2017.

With all the new people and tight rental inventory, home values have continued to improve over 7% to 12% depending on what county you are in North Texas. Home sales are brisk with less than 2.5 months of inventory. In the northern suburbs where business is brisk there is concern of overdevelopment by some due to the number of communities coming online by the end of 2016.

With all the corporations moving to the area, office development is strong with over 7.5 million square feet new in the market in 2015, featuring headquarters space for State Farm, Raytheon, and FedEx, etc. In 2016, roughly 3.6 million square feet was finished. Even with all the office space demand, vacancies will continue to move up to around 20% in the market. Lease concessions continue to be available to larger tenants through 2016 and rent values should continue upward.

San Antonio

Job growth remains steady with the lowest employment of the last 20+ years at 3.5%. This employment growth should remain through 2016, supporting household formation and property values, keeping rents and occupancy strong. Several sectors of the metro’s employment base added a sizable number of jobs during the last 12 months, further diversifying the economy.

The trade, transportation and utilities industry makes up the largest share of metro wide employment, driving demand for B and C class apartment properties throughout the area. The continued healthy pace of hiring in the leisure and hospitality and construction sectors is strengthening demand for these older communities. The number of rental communities built in the 1970s and 1980s offering concessions remains well above the metro average.

Through 2016 the continued growth in the metro’s blue-collar / entry level workforce will bode well for landlords and operators of these properties and will contribute to the strength of the market through 2015. The continued expansion of the local medical community and technology industry is creating thousands of well-paying jobs. Young professionals moving into the market underpin the strong performance of recently built properties. Vacancy at apartment communities built since 2000 has tightened below 5 percent, and the number of these properties offering concessions has dwindled to 3 percent from 14 percent one year ago.

Construction added 5,500+ apartment units in 2015, an increase of 3.2 percent from last year. However because of the demand for lower priced units, multifamily permitting activity is down 70+% from a year ago as builders begin to scale back new developments watching absorption of new inventory. With 94+% occupancy, rents will continue to rise about 5% through 2016.

San Antonio retail and office continue to be moderate in construction and sales with 90+% occupancy. A potential game changer for San Antonio is Microsoft. The tech giant  has bought 158 acres of Texas Research Park real estate controlled by the Texas Research and Technology Foundation.  TRTF officials said the company plans to develop one of the largest data centers in the country at the far west San Antonio site. This type of catalyst could change the dynamics of the San Antonio economy. Do not be surprised by other announcements in the same vein for San Antonio.

San Antonio and Austin are interesting due to their limited bandwidth of where they can expand development to. San Antonio prefers to stay north of I-10 and west of I 35, but moving west is an issue with the government owning so much land. Two years ago we suggested to our Alamo Heights group that the King William area was prime for redevelopment and have seen an explosion as developers look at ‘underutilized properties’ for denser development. We feel that San Antonio has tremendous opportunity with their underutilized properties inside the loop and along it.

The average price of a home in the San Antonio metro improved 10% from a year ago to $231,116 (10% increase), with median values to $187,200 (6% increase). Sales increased by 5% and the market remained a seller’s market with 3.9 months of supply.

Austin

Austin is the last major Texas metro that we will address. Austin cannot continue to grow West due to geography, road infrastructure, and environmental concerns. Do we move east, north or south? Recruitment of new business and organic local growth will be the driver of our city’s economy for the foreseeable future.

Google and Apple have not even begun to hit stride in expansion. Other companies that are moving to or expanding in Austin are Dell /EMC, GMC, Hewlett Packard, the University of Texas medical school, and Emerson Process Management. The potential for continued growth is much greater in Central Texas than the rest of the nation.

The strength of this market is shown by the number of units being brought to the market and absorbed. It is not a secret that Austin has the most expensive housing costs in the state of Texas, and this trend will continue in a slower fashion, even as more supply comes online. While the median household income can still buy a median-priced home in areas surrounding Austin, home values in the core are well out of range for many would-be homeowners. As a result, demand for apartments in these areas has risen significantly as residents seeking to locate near popular employment and cultural districts choose to rent in lieu of homeownership. This is apparent as we see 10,800+/- units brought to the market, following 12,100 in 2014. That type of growth and development has not been seen since the late 80’s in the Austin area. Yet concessions are few, and rents continue to rise, although slower.

The Liberty Hill, Cedar Park, and Leander areas are experiencing rapid growth because they have some of the last affordable, developable land available. Home sales in the $400K to $700K will be the most difficult to move for sellers. Values will continue to improve, just not as aggressively. As a smaller builder, I would stay focused on value for the dollar and keeping labor happy as competition continues to battle for their services. The ability to build entry level homes will present opportunity for large market share for those builders who can do so.

The demand for office space is apparent with the number of construction cranes dotting the landscape. In 2015 3.5 million square feet will be completed, which is the largest amount of space delivered since 2007. Last year, office inventory rose by 1.1 million square feet. The strong demand has kept occupancy in the low 90% range, and rents continue to escalate.

We started this conversation concerned with the cooling of the regional market. Yet, if we look at the numbers, the continued pace of sales and values should continue. All this positive news actually scares me a little, since in my lifetime I have never seen Austin or Texas with this level of potential and few clouds on the local horizon. Time will tell.

 

 

 

 

 

 

 

 

 

 

 

Texas metros remain sellers’ markets

We are in interesting times. Texas metros have had hot real estate markets for the past five years. For the last few months, we have had questions at both end of the selling spectrum. On the one hand, we are still seeing a sellers’ market in terms of inventory and demand. On the other hand, we are seeing homes at certain price points taking longer to sell and some values softening. What’s going on?

First let’s examine the dynamics of the national, regional, and local real estate markets to answer those questions. Again I look at this not as a seller, buyer, or broker. I’m a developer and a real estate and equity analyst with forty years of watching the Texas market.

Presently there are eight metro areas with a population of over a million nationally that have fully recovered from the recession. “Fully recovered” means they are at or above pre-recession GDP, employment, and real estate values. Four of them are in Texas – Austin, San Antonio, DFW, and Houston. Only 2% of our nations counties have fully recovered. Those cities carry a lot of economic weight, but can’t carry the nation by themselves.

Dallas / Ft. Worth, San Antonio, Houston, and Austin continue to be sellers’ markets based on the lack of inventory and high demand in all real estate channels. What constitutes a sellers’ market? Analysts consider six months of supply as equilibrium. Above that it is a buyers’ market, below a sellers’ market. A buyers’ market is where the buyer trends show sold values being 7-10% less than asking price and other concessions are common. Historically in a sellers’ market the seller is able to sell within 2% of their list price, often with multiple bids. The Texas region has not been in a buyers’ market for nearly five years in our major metros.

The only city that has seen sales slowing is Houston. Low oil prices have caused employment growth to slow. Houston is not as robust as it has been for the last five years, but sales continue to remain relatively strong. At 3.4 months of inventory, it is still solidly a sellers’ market. Demand for commercial real estate has slowed as companies are pulling back on expansion plans. The good news is that there is not the speculative commercial space that we have seen in previous years.

So, if you live in one of the Texas metros, what type of market are you in? These number are from the Texas A&M Real Estate Center.

NL Graph 9-18

Attached are our breakdowns of the Austin and DFW residential markets by zip code. Local real estate data is very important, because even though these metros are broadly sellers’ markets, specific areas have more inventory and are hinging closer to buyers’ markets. You have heard this for years – all real estate is local. Neighborhood values can be dramatically different and it is important for sellers to sit down with a real estate professional to price their inventory correctly.

If priced correctly, homes in all price points in Texas metros should sell within 60 days. However be aware of each local neighborhood, because a few areas of each metro are taking 3 to 4 times longer to sell than the norm in that area. Homes under $1 million if priced correctly should sell within these parameters.

Those sellers that argue with this logic need to step away and look at it from the buyers’ perspective. Let’s look at the logic of setting the proper value against an inflated value when placing your home on the market. A great example is the value of the dollar; if I take a dollar and walk back to where we have our cubicles and ask $.90 for it, there is a chance I may have multiple offers up to the true value. The point of this is that buyers are not going to overpay in this market in general and will not take the time to look at a home that is out of line with fundamentals. Would you?

Demand for shelter, whether for sale or rent is still strong throughout all our metros. Jobs are still being created. There is not enough shelter for everyone moving here. As long as Texas and our metro have strong job creation there will be demand for Texas homes.

Home sales in general were slower last month. In Austin, this last month ABOR reported residential values rising, but the number of sales slowed just a little. Rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Yet the naysayers want to say the ‘overvalued bubble’ has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. It is not a softer real estate market.

Some metrics in housing (higher price points in certain neighborhoods) may be showing signs of a slowdown temporarily, but one thing that is evident is housing demand continues to strengthen. Values, inventory, and other analytics need to be reviewed if selling your home in a timely manner is important. Check with your real estate professional to see what values and inventory are doing in your specific neighborhood.

Total home sales nationally increased to nearly 6 million annualized in June. This was the fastest pace of sales since before the financial crisis and is a clear sign that the housing market is gradually normalizing. Granted, people may not have the income to keep pace with growth of home prices nationally or locally. And credit restrictions are either too tight or too loose, depending on which assumptions you start with. But demand is strong, particularly in Texas and that’s a critical component of the whole supply, demand, and price thing that often gets put on the backburner.

What we are seeing is a readjustment of the market in some neighborhoods. With the potential of rates increasing this year, the ability to buy as much house as you can today will disappear. A one percent rise in rates is a 12% loss in buying power. All buyers want the best possible buy and all sellers want the most profit they can get. The happy medium is to look at the analytics and buy or sell at the right value.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Texas Midyear Review, Part II

We are continuing our review of the major metro real estate markets in Texas. This week we will spotlight Dallas / Fort Worth.

Five Texas cities were among the top 10 U.S. cities in population growth between July 1, 2013, and July 1, 2014 — Houston, Austin, San Antonio, Dallas and Fort Worth, with each adding between 18,000 to almost 36,000 people in that 12 month period.

nl graph 8-7

Jobs

Texas continues to attract transplants from other states due to stellar job creation. In 2014, Dallas / Fort Worth added 112,100 jobs, and in 2015 we should see a 3.6 percent increase. Over the past 12 months, the Metroplex has created jobs at a 3.3 percent rate, second only to Austin, which grew 3.6 percent.

The economy in the Metroplex flourished in the first five months of 2015 and added more than 100,000 jobs year over year through May to outpace the rate of growth for the entire state. Statistically, one new job can support 2.6 new residents, so DFW is still on the course of continued population growth.

In June, the unemployment rate fell to 3.7 percent in Dallas and held steady at 3.9 percent in Fort Worth, while edging down to 4.2 percent in Texas. All three figures are lower than the U.S. rate of 5.3 percent. Unemployment in both Dallas and Fort Worth is below its prerecession low of 4.1 percent. Remember that 4% unemployment is considered near full employment, because there will always be some number of peole in between and looking for jobs.

Office

Five years ago there was an abundance of vacant office space due to the recession. The good news is that professional and business services payrolls, for example, are 18 percent larger than the pre-recession peak through year-end 2014, while financial services staffs expanded by a similar amount. Since those previous thresholds were reached, office inventory has grown only 6 percent. This has obviously put a strain on finding office space, which is good news for landlords and developers.

Further gains in employment in these major office-using sectors will continue to help alleviate the supply imbalances that will arise in the months ahead. Developers will finish 7.5 million square feet of office space this year, featuring headquarters space for State Farm, Raytheon and FedEx. To put that in perspective, last year roughly 3.6 million square feet was finished and absorbed. Supply will grow and should outstrip demand temporarily, moving vacancy closer to 20% for the 12 county area. That said, most of north Dallas and the northern counties will continue to be challenged as office space is at a premium. There have been close to 20 million sq. ft of expansions and relocations in 2014 -15 announced, with more certainly coming.

Apartments

Apartment developers will complete 20,000 units in the Metroplex in 2015, increasing inventory nearly 3 percent. This year deliveries are up from the 15,600 units completed in 2014 and will be the largest addition to inventory in more than a decade. As in the office channel, apartment supply will outstrip demand. However 94% occupancy is a healthy market as evidenced by continued rent increases. The good news is that more deliveries that were scheduled for 2015 /16 have been delayed, keeping the market healthy for developers and equity.

Retail

Developers will complete 3.0 million square feet of retail space in the Metroplex this year, of which more than 90 percent is pre-leased. Last year, developers brought 2.9 million square feet of space online. Rents will continue to rise, advancing 2.6 percent year over year. This is down slightly from the 2.8 percent growth in rents realized in 2014.

Single family residential

With resale inventory at 2.2 months of supply, the Dallas area leads the country in home price gains presently. Median home sales prices are more than 10 percent higher this summer than a year ago. In some neighborhoods the price hikes this year are two to three times that rate. Prices for homes are up 30 percent in Oak Cliff, 29 percent in Fairview, and 22 percent in North Dallas in the first six months of 2015. Additionally, prices were up 15 percent or more in a dozen other Dallas-area neighborhoods, according to a midyear analysis of the North Texas home market based on data from the Real Estate Center at Texas A&M University. Those areas seeing strong appreciation are in inner city locations where new construction is beginning to replace older homes.

Single-family home construction has continued to increase in the Metroplex. Year to date through May, single-family permits are up 30.5 percent in 2015 over the same period last year. The ability for employees to be able to afford a home compared to most areas in the nation may be the single biggest cause for this push. New home construction is around 30,000 to 35,000 homes a year. While this places DFW among the nation’s most robust building markets, it is still less than 50% of the number of new homes being built before the recession.

DFW median home prices are at an all-time high of $220,000, and homes are selling for about 60 percent more than they were at the worst of the recession in early 2010. Overall, Dallas / Fort Worth and its suburbs have a well based multi-industry growth that should maintain its strength over the next 4 to 5 years.

 

 

Mid-year condo report doesn’t tell the whole story

The Texas Association of Realtors released a report about condo sales in the Austin, DFW, San Antonio, and Houston metro areas. Values are strong in all, and sales are strong and improving except for Austin.

According to the report, Austin, Dallas, Houston, and San Antonio experienced an aggregate 1% decrease in condo sales between January and May 2015. While Dallas and San Antonio posted small annual gains of 3% and 6%, respectively, condo sales decreased 1% year-over-year in Houston and 12% year-over-year in Austin in the first half of the year. This sparked misplaced concern in Austin that the market was overvalued and over built.

Despite the short-term decline in sales in Austin, prices are up. The median price has increased 4% to $222,000, and price per square foot is up 9% to $222. There are 14% more listings, but units are selling faster with an average of 43 days on market. The important take away is that you cannot pick and choose one statistic and generalize an entire market. The headline of the linked article could easily be, “Condo market sees higher prices and faster sales”.

The reasons that sales are improving in Dallas/Fort Worth, Houston, and San Antonio areas is those markets are showing stronger development of condos in many of the older, central communities. Austin is about 10 years ahead of this curve with phenomenal acceptance of Central Business District (CBD) living, with over 10,000 living in the Austin CBD presently. The other Texas metros have begun to see this same level of interest in their downtowns.

Realize that downtown and inner ring living in Texas metros has not been that popular until the last few years. The demand for downtown has been driven by employment as well as desire to have a permanent residence where one can live, work, and play without commuting.

In reading this report, my first question is about inventory. Not all inventory that is available has been included. Two major residential towers in downtown Austin have not started construction, even though they are a 95% sold out (reservations with escrow money deposited). If you look at the values quoted for median ($222,000) and average ($284,089) values, they are very affordable comparatively to single family in the same neighborhoods.

Sales are a product of the market, and if buyers cannot find the product they want, they will wait for it. Presently, values are not being driven by speculation. Successful multifamily sales historically are 15% to 20% less expensive then the same single family square footage in the neighborhood in Texas. You can’t use this formula with CBD (Central Business District) multifamily because of lack of single family detached.

Unfortunately the higher values of the Austin CBD condos have captured everyone’s attention and focus. Also most condo resales, if priced properly, are seeing multiple offers, which is not a sign of a slowing demand on the market. In a given market if you continue to see multiple offers on properties, even though sales may slow, don’t make a snap decision that the market has an issue. Step back and look at the parameters of that decision. How much inventory is available? Less than sixth months of inventory is a seller’s market. All residential channels in Texas metros are a seller’s market due to limited inventory and high demand.

There is the question of affordability in certain areas of town. Values continue to rise strongly in the CBD and inner ring neighborhoods here in Austin and our other Texas metros. According to ABOR MLS statistics, larger downtown condos are going for over $750 per square foot – a lack of supply of 3 bedroom and larger condos has driven values of such units up. This is unusual – historically it’s the smaller units that are priced her per square foot. Note that many high-end condo transactions take place off MLS, and we’ve heard of large condos going for over $1100 per square foot.

Most residential properties in downtown areas are priced above what the median income can afford. The primary buyers for these closer in residences have always been buyers with substantial assets. Also realize that affordable housing has never been the highest and best use for CBD and inner ring land historically. Desirable, yes, affordable, no.

When will rising values downtown slow purchasing? As long as Austin and Texas metros have strong job creation there will be a desire for having a ‘place’ in Austin or your respective community.

Be reminded that Austin home sales in general had a slower month in June. This last month ABOR reported continued residential values rising, but the number of sales slowed just a little, which is probably a healthy respite for the market. Interest rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Inventory is tight in desirable neighborhoods. The biggest complaint is there is not enough inventory in the inner neighborhoods.

Yet the naysayers want to say the ‘Austin bubble’  has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. Not just residential, but across all real estate channels presently in most of state, particularly in the four major metros. The driving force of the market – job creation – is still here and continues to mature. Demand should continue based on job creation and relative affordability, compared to other job creating metro areas nationally.

 

 

 

Metropolitan job growth drives demand for all real estate channels

The median price for homes in the state of Texas hit another all-time high in June 2014 in the four major metros, and demand for homes in the state continues to be strong, but demand has seems to reached a plateau in the last couple of months with values and rents continuing to remain strong while sales have dropped slightly. Office, retail, and most commercial channels continue to have strong absorption with few concessions.

On a statewide basis, 295,769 single-family homes were sold in the last 12 months, up 10.73% from the previous 12 months. This represents the most homes sold in a single year since the boom years of 2005-2006. However, in August 2014, there were 27,999 sales of existing single-family homes, 1.2 percent less than in August 2013.

Continuing the steady increase seen in recent years, prices for Texas homes were extremely strong in the second quarter, hitting an all-time high for the quarter. The median price in 2Q 2014 was up 5.87% from the prior year, reaching $187,300. The average price rose 5.28% from the prior year to $246,209. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate.

Texas and California continue to lead the nation in job growth, with Texas capturing over 40% of all jobs created in the country in the last 12 months. The effect on local residential markets has been dramatic.

Austin

Austin continues to create jobs and have one of the most healthy labor and real estate markets in the state. Although Austin will probably have a record year in resales, the lack of supply of resales and new homes continues to present challenges to buyers. Austin area home sales declined for the second consecutive month in August 2014 as rising home prices and housing affordability issues continue to affect the Austin-area housing market. Austin area home sales decreased four percent year-over-year to 2,835 single-family home sales in August 2014. Resale home inventory continues to dwindle in September of this year, hitting just 3 months (6 months is considered the equilibrium of a sellers and buyers market).

Austin is looking at 9,800 to 10,000 new home starts this year. Delivery has begun to catch up to demand, with builders aggressively looking for developed lots to meet demand, but also seeing a slowing demand for speculative inventory over $500k. The production builders who are able to deliver homes under $250,000 continue to have more demand than product.

Austin not only has one of the state’s lowest unemployment numbers (4.6%), but has been creating 22,000 to 30,000+ jobs for the last three years. Traditionally, for every two jobs there should be one housing start, however with rates creeping up around a point, cost of land, materials and labor, there has been a shift of buyers pushed to rentals. The new formula is closer to three jobs for one housing start. The new employees still need shelter, however their options now are limited to resale or rental. The good news is that demand is still strong in the $250,000 and below price range and apartments continue to lease with little to no concessions. The statement about rental concessions is significant, seeing that Austin as well as the other metros have been leading the nation’s apartment construction for the last 3 years, leading many analysts to think that overbuilding is a risk. However, due to the demand rents and occupancy continues to lead the state.

A majority of Austin area homes are now priced out of an affordable range for first-time and first-time move up homebuyers, where a significant portion of home sales historically occurs (30+% historically, now around 7%). According to the latest ABOR report, the median price for single-family homes jumped 11 percent year-over-year to $247,500 and average price rose nine percent year-over-year to $311,414. Single-family homes continued to sell quickly as they spent an average 42 days on the market, one day fewer than August 2013.

San Antonio

San Antonio remains on track to end the year with job growth in the 2.5 to 2.6 percent range, a 2.5 percent rate means the area will produce a net gain of about 22,800 jobs this year. The job-growth rate is mostly good news. It’s faster than both the national rate and San Antonio’s long-term job-growth pace. But it’s slower than the forecast for Texas as a whole with San Antonio’s job growth between July 2013 and July 2014 at 2.17 percent, which is below the state’s 3.22 percent but higher than the U.S. pace of 1.88 percent. All other large Texas cities except Dallas were higher than San Antonio during that period. Last year was a bit of a struggle due to the high number of civil defense job layoffs (85,000+/- in Texas affecting El Paso/ Fort Bliss, Killeen / Fort Hood, and San Antonio / Fort Sam Houston, Lackland Air Force Base, and Randolph Air Force Base), however this year San Antonio has averaged under 5% unemployment, a number that a number of national metros covet. So even with the layoffs, the market has gained traction in most areas.

With one of the nation’s largest oil shale plays nearby and the increase in high tech jobs, the market will be challenged to meet demand. Resale inventory is at a six year low with just over 4.5 months supply and most properties selling for near full list price (95+%). Apartment occupancy is just under 92% with rents rising above a $1.00 per square foot. While this is not as robust as other Texas metros, it is still attractive for many investors. The good news is the rental market remains strong even with new units coming to the market. Like Austin, the lack of completed developed lots is a challenge and has led to tremendous activity in large land tract sales to builders and developers.

DFW

Dallas / Fort Worth continued to improve this year with a healthy 120,800+ jobs created in the last 12 months, led by the professional and business sector with over 45,800 jobs. This surge of quality jobs has created housing demand.

Over 15,200+ apartments are to be delivered over the next 12 months with occupancy staying above 94+%. Multifamily construction and completions have picked up significantly in the Dallas/Fort Worth region. That would normally cause concern for equity as supply could outstrip demand. However, substantial growth in the Dallas/Fort Worth economy and other demand drivers have helped maintain absorption enough to mute the effect of elevated supply. The Metroplex market demand for new product class ‘A’ has been strong, and ‘B’ and ‘C’ class demand remains strong as well. Such demand has prevented significant occupancy declines, giving apartment management and owner’s confidence to continue raising rents. In particular, middle- and lower-tier market segments in the Dallas metro have exceeded rent growth expectations.

The big questions moving forward are: can the middle and lower tiers maintain that pace, and how long can top-tier units continue to show few side effects from apartment development and a strong single-family home market – especially now that (presumably) much of the pent-up demand will begin to be burned off? In particular, the Metroplex’s ability to absorb new apartment product will face more trying tests going forward, as 14-year high construction volumes promise to push supply levels even further over the next two years.

The lack of resale listings is slowing home sales in most desirable Dallas-area residential districts. The inventory of homes being marketed by Realtors has fallen to less than a 2.5 month supply in the Metroplex, allowing values to continue to improve. The second quarter of 2014 improved over 45% from the first quarter, but demand has slipped a little, 2.5% less than this time last year.

Home starts and development will remain strong for the rest of 2014 and into 2015, with developers / builders following the same script of the other Texas metros in trying to secure as much land as possible. In contrast to the roaring growth in multifamily, single-family home construction has increased at a more gradual pace. The slower growth is partly due to constraints on the supply side, such as a shortage of developed lots, higher construction costs, and widespread labor shortages. Dallas home price appreciation is slowing, increasing 0.2 percent in the second quarter, according to the Federal Housing Finance Agency purchase-only house price index. Year over year, prices are up 6.5 percent.

Like most of the Texas metros, the Dallas / Fort worth area is still facing an inventory shortage. A steady, ongoing supply of new housing stock — particularly in the entry level and first-time move-up market – continue to face challenges. This channel was over 30% of the market and has fallen to less than 10%. These homebuyers represent a large majority of home sales historically and their equity growth and ability to move up will be crucial to Texas housing market growth.

Office markets are healthy, as Dallas/Fort Worth’s office market continues to improve this year as corporate expansions and relocations improve job creation and boost office demand. A great example was the market’s ability to recover relatively quickly from large corporate move outs. Plano, for example, was dealt a blow late last year from Encana Corp.’s (Canadian natural gas company) decision to vacate its newly built offices, but the city has since been selected by FedEx and Toyota for their new corporate headquarters. Combined, these two relocations alone will bring an estimated 5,200 jobs to the area within five years and will attract secondary supporting firms. The Metroplex has shown an envious ability to recover from overdevelopment and building the last few years. A great example is Richardson where over 30% of all office space was available for lease just five years ago, but the corporate campuses for State Farm and Raytheon has sparked a dramatic turnaround in recent quarters. Downtown Dallas has also received a boost from major office-using tenants, with Tenet Healthcare leasing 242,000 square feet and Santander Consumer USA committing to 350,000 square feet in the area. In Fort Worth, the North submarket, which includes Alliance, reports the lowest vacancy rate, though the Northeast and Mid-Cities areas recorded the most tightening over the past year.

Houston

The Houston economy continues to lead the nation with over 112,000+ jobs created in the last 12 months. To say the economy is doing well is an understatement. Houston continues to remain strong with a booming energy market, strong trade, and surging real estate development activity. If you have not been able to go to the Woodlands in the last year, you need to take a field trip. The relocation of Exxon and Occidental to the area has caused tremendous growth that has to be seen to be believed. Demand in all channels in this 30,000+ acre community is off the charts.

Although it is off the 2009 high of over 20,000 new apartments delivered, Houston continues to have strong construction in the apartment sector. 2014 should have 12,000+ apartment units being deliver this year, and rental occupancy has stayed steady at 94%. Resale and new home sales struggle with the tremendous demand for inventory, although we saw sales slow this September. Like all of the Texas metros, resale is definitively a seller’s market with just a 3.2 month supply. Like the rest of Texas, land developers of residential, office, and retail are quickly securing positions and starting construction to address the demand.

Citywide, August delivered gains in both residential home sales volume and prices. Housing inventory held steady month-over-month, but is tracking slightly below 2013 levels. While prices were the highest for an August on record, they fell short of the all-time records set in June 2014. Single-family home sales were up tad, at 1.1 percent versus August 2013. Months of inventory, which estimates how long it will take to deplete current active housing inventory based on the previous 12 months of sales activity, matched July’s 3.0-months supply, lower than the 3.3-months supply of last August. It is significantly below the current national supply of 5.5 months of inventory.
Residential values continue to show the strength of the market, with the average price of a single-family home up 6.4 percent year-over-year to $275,369. The median price jumped 10.4 percent to $206,000.

The tremendous job growth and corporate expansion continues to intensify in Houston, driving demand for office space and sparking a construction boom. This year, developers will complete more than 11 million square feet of office space in the metro, which represents the highest total on record since at least the turn of the new millennium. Pre-leased office towers and build-to-suits will account for a sizable share of deliveries through 2014-15, and demand appears strong enough to absorb much of the new construction that remains available. Approximately 85% of the 4.4 million square feet delivered in the first half has been spoken for, and pre-leasing of buildings slated for completion over the balance of the year already exceeds 70%. The market’s recent performance and a dwindling supply of large blocks of Class A space suitable for corporate tenants have renewed speculative development in the metro.

Conclusions

After reviewing most of the state, residential sales demand has slowed, yet values continue to improve, and will allow somewhere between 5-7% appreciation of most residential real estate throughout the state. This lack of sales demand is to be expected with new and resale inventory improving. Even with the tremendous growth Texas has seen over the last number of years, with supply improving, values will remain strong but may be challenged to continue. They should still see appreciation, just not to the degree we saw in 2013. Other channels of real estate will bear watching throughout the state, since many are at a ‘tipping point’ of supply overwhelming demand.

With such strong supply and continued demand, the inventory of Texas resale homes has remained in a ‘sellers’ market. The Texas market had 3.7 months of inventory, and has remained there much of the year. A 6-month supply of homes in a market indicates a balance of supply and demand. The Texas inventory supply indicates strong demand for homes of all values, but particularly entry level.

The point of this exercise is that with mortgage rates and home values continuing to increase, Texas metros as well as many smaller towns continue to see appreciation to the point that waiting to buy does not make sense. The home you look at today will not be there tomorrow. Whether this is just a couple of years of appreciation or a longer cycle for the majority of the state has yet to be seen. However, it is safe to say that buying today is a wise investment.

The future of Texas is bright

With the media attention on the lack of housing starts and the lukewarm national economy, I felt it was time to revisit why Texas continues to stand out from all the negative news about the national economy. The $1.3 trillion Texas economy has shown a complete recovery from the Great Recession and is getting stronger, with few foreseeable economic hurdles over the next few years. To put that in perspective only 3 states are producing a significant number of jobs, Texas with 375,330 jobs, California 331,000 jobs, and Florida with 218,000 new jobs in the last 12 months. There are 18 other states at prerecession employment numbers. But there are still 32 states that have had yet to regain all the jobs lost in the downturn, based on revised state-level employment data from the Bureau of Labor statistics.

The Texas economy is now larger than those in Michigan, North Carolina, and Georgia combined. The Texas economy has recovered from recession and entered into a phase of expansion. This is different than the majority of states in the nation. Texas has left the stabilization and recovery phase that the rest of the country seems to be stuck in. Not all Texas metros are fully recovered as shown below.

• US – Stabilization – The Federal Reserve lowers rates, then gradually allows increase, as housing and job growth historically follow. When the rates are at zero, the Federal reserve uses other means, such as quantitative easing (QE) to encourage growth. As Fed reduce stimulus, rates should rise.
• Texas – Recovery/Expansion – Supply and demand is in balance, and home and land appreciation meets or beats inflation.
• Austin – Expansion – Economic housing formation as well as other real estate channel demand exceeds supply. Housing and real estate appreciation stronger. Austin is at 111% of prerecession employment numbers.
• Houston – Expansion – Economic housing formation as well as other real estate channel demand exceeds supply. Housing and real estate appreciation stronger. Houston is at 309% employment recovery of prerecession numbers.
• San Antonio – Recovery – Demand has picked up, putting pressure on supply. San Antonio is at 93.2% of prerecession employment numbers.
• Dallas/Fort Worth – Recovery – Demand has picked up, putting pressure on supply. DFW is at 228.6% of prerecession employment numbers.

To see how Texas metros rank against the rest of the national metros we have the following chart from the Bureau of Labor Statistics.

voice graph 7-25

Texas lost 400,000 jobs between 2007 and 2011 during the recession, but has since added more than a million. Those who lost their jobs may not have gotten one of the new ones. The current oil and gas boom is fundamentally different from one in the late 1970s because it is driven by increased demand and production, not just higher prices.

The strength of the regional economy is apparent when you realize Texas unemployment has been at or below the national rate for 90 consecutive months. Non-agricultural employment in Texas expanded over the last month for the 45th straight time with the addition of an estimated 19,100 jobs in June. This growth followed on the heels of gains of 55,500 and 62,400 positions in May and April, respectively. Seven of the eleven major industries in Texas showed employment increases over the month. Total non-agricultural employment ended the last 12 months at an estimated level of 11,550,000 jobs, an increase of 371,000 jobs over the year. The annual growth rate for was nearly unchanged at 3.3 percent in June and has been at or above 3.0 percent for four of six months in 2014. Trade, transportation, and utilities employment continued its expansion with the addition of 7,700 jobs in June. Regional retail trade grew by 3,100 positions, and wholesale trade added 1,200 jobs in June. Trade, transportation, and utilities employment added 90,400 jobs over the year as its annual growth rate reached 4.0 percent, the highest in this regional channel’s history.

With this employment growth, construction has increased in residential and commercial. Regional construction starts and automobile sales also have helped spur the recovery that would not be here if it was not for the other channels employment growth.

Because of this, consumer confidence in Texas is above average, while it remains low nationally and in other regions of the country as evidenced by the chart from the Texas Comptroller’s Monthly Report (a healthy economy traditionally is shown by the index being above 100). When you have strong consumer confidence, the consumer spends more, which in turn helps the regional economic growth.

voice graph 2 7-25

On top of this, Texas-based companies are blazing new trails in innovation, driving job creation and spurring some new record-setting growth for the Lone Star State.

For the first time, Texas recently surpassed California in technology-related exports, according to a report by the TechAmerica Foundation. Technology now accounts for 17 percent of all exports from our state, and there are plenty of reasons why that trend will increase, not decrease.

A significant amount of credit for this pro-tech, pro-investment environment in Texas must go to state leaders, who have enacted some of the smartest, most forward-looking policies anywhere in the nation. The Governor’s office and staff, and local and state policymakers have been squarely focused on public policy that spurs business and manufacturing investment broadly and that encourages the growth of the tech sector, in particular. And that, of course, means more jobs. Particularly in one of the fastest growing industries in the world.

It’s because of the economic, regulatory, and business climate in Texas that technology companies are willing to invest billions of dollars and create tens of thousands of jobs with confidence. Notably, a sales tax rebate on certain technology manufacturing equipment (House Bill 1133) correlates to $800 million in new broadband network investment by companies every year in our state. Also, passage of House Bill 800 has promoted Texas as a place for research and development activity, a key element of tech innovation.

The state’s public policy decisions have played an integral part in the decisions technology companies make every day on expansion. With only so much capital to invest, companies must decide where the best environments are for investment. A strong, pro-growth climate with policies that reflect a commitment to growing jobs and the economy make Texas standout from the rest.

Last year, weakness in manufacturing and cuts in federal spending (85,00+ jobs just in Texas) contributed to the state’s job growth slowdown. Still, our regional economy continued to expand, with employment in oil and gas, leisure and hospitality, professional and business services, and construction growing strongly. Even with slower job expansion, Texas remained the third-fastest-growing state in 2013, trailing only North Dakota and Florida.

Where is the rest of the year headed? 2014 should be another good year, with many analysts expecting improvement in global and U.S. economic activity, Texas should benefit as demand for its products and services increases. Federal government cuts are unlikely to be any harsher than they were in 2013, nationally as well as regionally. The latter part of this year’s national pickup in job growth suggest that 2014 employment will increase by 2.5 to 3.5 percent. Texas will see the same gains in job growth in 2014 with an increase by 2.5 to 3.5 percent. Texas will likely continue growing faster than the national average and most other states.

Factors driving the Texas economy

Texas cities are clearly the place to be in terms of job creation, wealth formation, and overall growth. All the major Lone Star cities continue to show economic strength while the rest of the nation struggles.

I thought we would look at each of the metros and see what is driving the growth in each metro, rather than focusing on just real estate.

San Antonio

San Antonio’s economy is standing out once again as one of the four strongest metropolitan areas in Texas and eleventh overall in America according to a recent Brookings survey of the 100 largest metros in the United States. The Brookings MetroMonitor survey evaluated unemployment rates, housing prices, economic output, and employment in each city.

The unemployment rate in San Antonio is expected to decline at a slower rate as the oil and gas drilling continues to moderate. Texas is losing 90,000 military-related jobs due to the sequester and budget reductions last year. Even with the reduction in force, San Antonio is fortunate to have added 8,000+/- jobs to their economy, most of them coming from the services and construction industries. San Antonio continues to see improvement in the unemployment rate as it declined to 5.9% compared to 6.0% at the end of 2012. Employment growth is expected with residential construction picking up at the end of 2013 compared to the rest of the year. San Antonio’s residential demand continues to improve moderately, consistent with job and income growth in the area.

The Alamo City’s focus on strong growth sectors like bioscience, healthcare, aerospace, and cyber security will continue to contribute to improved employment opportunities.

San Antonio also appears in the 2012 Cost of Living Index, developed by The Council for Community and Economic Research (C2ER), as the No.1 least expensive city for food costs (as measured by the grocery item index), making for more disposable income for its residents. With the lowest cost of living in the state and one of the strongest economies in the country, San Antonio continues to attract industry and consumer alike.

Keith Phillips, senior economic policy adviser for the Federal Reserve Bank of Dallas, expects the area to add about 22,400 jobs this year, expanding the job base by 2.5 percent. That would be a significant improvement over the 1.1 percent job-growth rate in 2013 that produced about 13,200 new jobs. That was down from 2012’s 2.6 percent growth rate. The San Antonio MSA has benefitted greatly from the Eagle Ford shale opportunity. The area will continue to benefit, although at a slower pace.

All these factors have led San Antonio to a 17 percent increase in home resales in 2013 when compared with 2012. With so many people moving into the city, more jobs have been created which has translated into economic growth and a rise in home sales and home prices.”

Houston

The Houston metro area should create just under 70,000 jobs in 2014. Employment will grow in all sectors, with professional and business services, education and health services, trade, transportation and utilities and construction turning in the strongest performances. Energy and manufac¬turing will grow but at a slower pace. The year should end with 2.9 million payroll jobs, a net increase of more than 500,000 jobs since January ’05. Only two other metros – New York and Dallas-Fort Worth – are able to make a similar claim.

For the 12 months ending October ’13, the metro area created 79,600 jobs, a 2.9 percent annual growth rate. This is a slower pace than earlier in the year. Growth peaked at a 4.5 percent annual rate, or 119,300 jobs, during the 12 months ending February 2013. That was the fastest pace since June 2007, when the region added jobs at a 4.6 percent annual rate.

Houston has enjoyed almost four years of phenomenal growth. Since January ’10, the region has added 337,300 jobs, or more than two for every one lost in the reces¬sion. In that time, the region has built 100,000 single-fam¬ily homes, and exported $434.6 billion in manufactured goods and commodities.

All channels of real estate are doing well. In the 12 quarters ending Q3 2013, Hous¬ton absorbed 10.5 million square feet of office space, 12.9 million square feet of industrial space, and 3.8 million square feet of retail space. Since January ’10, residential brokers have sold more than 274,000 homes, or one home every 7.2 minutes.

The phenomenal pace of job growth that Houston experienced over the past few years couldn’t be sustained indefinitely. Some easing of the employment throttle was inevitable. That easing began mid-year 2013 and should continue through 2014 as the region moves toward a more normal and sustainable pace of job growth. Since 1993, excluding the recession years, Houston has averaged 61,900 net new jobs per year. Payroll growth has almost doubled the rest of the nation at 3.0% compared to 1.7% nationally.
Strong energy markets and a broadening economic base will continue to drive the Houston economy through 2014. Oil prices by the barrel remains healthy. West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing and continues to hover around $100 a barrel in February.

The extreme weather hammering the rest of the country has increased natural gas demand, supporting price gains and helping Houston’s and the other Texas metros’ economies. Natural gas producers have been thankful that the rest of the nation has pushed demand up to $4.60 per MmBtu (million BTU) in February, about 30% higher than last Novembers lows.

Also creating optimism is the potential of repealing crude oil exports, an export law that was put in place in the 70’s when the US was not the chief oil producer in the world. A significant portion of the gasoline produced by the regional coast refineries is exported, helping supporting the nation’s balance of oil exports. In addition Occidental Petroleum is moving its head quarters to Houston in 2015. As Mexico opens up its energy sector to international investment, Houston is poised to benefit.

DFW

The Dallas-Fort Worth economy has shown good growth through 2013, supported by three pillars: energy, organic growth, and links to the broader U.S. and global economies. Even with the flattening of the metro economy at the end of the year due to reduced Federal spending, most local labor markets continued to show strong expansion. Year-over-year payroll job growth of 3.2 percent for the Dallas-Fort Worth metropolitan statistical area was nearly double of the national average of 1.7 percent in October. Likewise, the metro area unemployment rate of 5.4% in January 2014 was well below the national average of 6.5% for the month. Payroll employment now stands at 3.15 million jobs, which is 5.4 percent above the pre-recession peak of 2.99 million jobs from May of 2006.

The Dallas-Fort Worth area also will see strong steady growth through 2014, but it will be down slightly from the fast pace of the last two years. Dallas-Fort Worth’s economy is expected to expand by 3.3 percent this year, compared with 3.4 percent last year and 4.3 percent in 2012. Dallas-Fort Worth’s job growth is projected to be 3.1 percent, compared with 3.4 percent last year. Dallas-Fort Worth’s unemployment rate is expected to decline to 5.2 percent by the end of this year from 5.6 percent in November.

In an example of strong local corporate (organic) growth, North Texas healthcare-related construction is booming. Beyond the monumental $1.3 billion Parkland Memorial Hospital in Dallas, other projects are spread throughout the region. According to the Dallas-Fort Worth Hospital Council, hospitals in North Texas account for 265,000 jobs and generate $14.4 billion in income for healthcare workers. Global links to North Texas are strengthened by the American Airlines/US Airways merger, finalized on December 9, as American emerged from bankruptcy protection. Several speculative warehouse / distribution facilities are under construction in the area. Dallas-based Southwest Airlines also benefitted from the merger, picking up 22 slots at New York’s LaGuardia Airport.

Austin

Austin continues to be one of the strongest job creating metro areas in the US with 23,600 jobs created in 2013, most of them coming from services producing sector, professional jobs. The capital city is home for many high tech companies, and wages in the tech sector are some of the highest in the area. 2014 should see Austin add thousands of additional jobs in 2014, mostly in the high tech and services sectors. High tech giants such as Google, AT&T, and Time Warner cable are competing to provide superfast internet service in the area and networking to start around mid 2014. The new service has the opportunity to attract so much business that needs the 100+% increase in internet speed.

Austin’s unemployment rate declined to 4.9% in December matching the August 1989 rate. The unemployment rate is expected to fall continuously as the year progresses, powered by the continued strong job growth. Year over year growth of personal income climbed to 4.7% in the latter half of 2013, which is second only to Houston in the state.

After a strong 2013 in all real estate channels, home starts will continue to improve, only slowed by the lack of developed lot inventory. Lack of inventory will be the biggest challenge to the local industry as the area continues to attract more residents drawn by strong job growth, cheaper cost of living, friendly business atmosphere and Austin favorable and creative investment climate. Currently Austin home prices are at a record high. Continued appreciation should continue through 2014 in most if not all Austin submarkets.

Last year saw the return of a thriving office investment market, so much so that several regional markets saw significant chunks of their overall stock of buildings change hands in 2013. Five Southern markets saw more 10% or more of their total office market inventory change hands last year: Austin, Dallas-Fort Worth, Atlanta, Houston and Denver. Austin was especially popular with office investors as 13% of its office space was acquired by new owners in 2013.

Austin has also been on the radar of institutional investors for quite some time. The metro had a huge inventory turnover in 2013 (13.1% of inventory), although a sizable portion of that (40%) was due to portfolio sales. The biggest portfolio to trade hands last year in Austin was the sale of the Thomas Properties Group portfolio of five class ‘A’ CBD towers as part of the firm’s acquisition by Parkway Properties. With a large chunk of the CBD inventory having already traded in this market the last couple of years, expect sales to remain strong, but turnover rates to moderate in the near term.

Several factors have helped Texas retain its national lead. Among them:
• Strong job growth. 40+% of all jobs created in the US last 3 years were in Texas.

• The cost of living is low. Beer? Cheap. Food? Reasonably priced. Apartments? Affordable. No state income tax gives former residents of CA or NYC an automatic raise. Texas has the second lowest cost of living of any state in the country. The same paycheck you receive in California, Florida, etc. goes a lot farther in Texas.
• Low unemployment. Only one other major market has jobless rates below 4.9 percent. Austin is at 4.9 percent. Our assumption is that strong local economies attract the most people and create the best conditions for family formation, which in turn generates new demand. Strong productive industries drive demand for such things as heath care, business services, and retail, as well as single-family houses, a critical component of local growth, and owning a home is still the aspirational goal of the vast majority of Americans.

• Retail strength. Employment in the Texas retail sector has grown by since the recession. As the retail industry will tell you, no other state has had the retail growth that Texas has shown the last five years.

• Appreciating home values. Nationally the typical home has declined in value since 2008 in 92 of the 102 markets. Among the exceptions are Texas metros, cities, and towns, with most appreciating the last 5+ years.

• People are friendly and genuinely want to help. I do not blame you if you think this sounds hopelessly naïve. Many don’t believe this statement, but time after time I hear this from newly transplants and relocating business owners. I’ve had this confirmed by multiple outside visitors: if you come from either of the coasts, you’re going to find the middle of the country almost disarmingly welcoming. People you don’t know wave to you. You can strike up a conversation with essentially anyone. Accidentally making eye contact with a stranger isn’t an awful stare-down that leaves you feeling dried out and steely; they’ll probably just smile at you. It’s the sort of thing you notice right away, in all sorts of subtle ways –- the people are just friendlier. It’s contagious, as well.

• There’s weather! If you don’t like it wait a day. Most of Texas has two seasons — summer and spring, although this year has been an exception with several winter storms. It doesn’t have the maddening consistency of California or the weather disasters of Florida. It snows occasionally and doesn’t stick. It’ll rain once in a while, it’ll get down to 30 for a week or two in February, it’ll spike up to 100+ in the summer, there are clouds and such — but most of the time, the word I would use is ‘nice, warm, with occasional swelter in August’.

• There’s stuff to do. The rest of the country tends to look at Texas as devoid of culturally fun events that you see in so many metros on the East Cost. However that is wrong. All four major metros have something happening almost every weekend. Austin leads this category. SXSW, Austin City Limits, film festivals, F1 racing and more.

The bottom line is that a lot of people are and will continue moving here, causing more demand than product. If you are moving here, don’t dawdle. If you are looking for shelter, make a decision quickly. The home / apartment you look at today will not be there tomorrow.

If you are reading this from another state / country you may be snickering as you read this. But reserve judgment till you have been here. You will see the statements above are backed by the facts.

If you live in Texas, count your blessings and know that the Texas economy has room to run.

Remarks from Federal Reserve Bank of Dallas President Richard Fisher

Last Friday, I had the good fortune to hear a speech by Richard Fisher, President and CEO of the Federal Reserve Bank of Dallas. Fisher has been known for his hawkish views on monetary policy and candid comments as the President of the Federal Reserve Bank of Dallas.

Fisher became head of the Dallas Fed — one of twelve banks in the Federal Reserve system — in 2005 after spending seven years in Washington, D.C., as a top trade negotiator in the Clinton administration and working with former Secretary of State Henry Kissinger as Vice Chairman of Kissinger McLarty Associates, a strategic advisory firm headed by former U.S. Secretary of State Henry Kissinger. In his role as President of the Federal Reserve Bank of Dallas he oversees about 1,300 employees and a district of 27 million people in Texas, northern Louisiana, and southern New Mexico.

As always it was an entertaining yet very on point discussion of what is happening economically in Texas, the rest of the country, and where our monetary policy needs to head.Below is the link to his presentation.

Excerpts From “A Conversation About Longhorns, Longnecks and Liquidity: The Economy and the Course of Monetary Policy”

Here are some of the strong points made in the speech
• Texas drink a lot of beer. 34.4 gallons annually. That is a lot of longnecks.
• The concept that too much liquidity can be a very dangerous thing (with beer or finance).
• Texas has led the nation in employment growth for a number of years. If you remove the jobs created in Texas over the last 12 years, the US has actually experienced job loss over the last 12 years in the middle income quartiles. Most of us understand how blessed we are to live and work in Texas, however, the bigger concern is the amount of unemployment and job creation in the rest of the US. The lack of job creation and continued lending regulation is a concern for the long term health of the national economy.
• “It is fiscal policy that is leading to the Californication of our national economy rather than the Texification.”
• “QE (quantitative easing) puts beer goggles on investors by creating a line of sight where everything looks good.”
• “When money is made available at close to free and is widely available, there is a presumption that the central bank will keep it that way indefinitely…a bull market for stocks and the financial world looks rather comely.”
• “Fiscal policy is not an ally of US growth, it is its enemy.”

No bubbles here: a look at the DFW real estate market

Last week, we took a close look Austin’s real estate economy. This week we are going to look at the growth in Dallas-Fort Worth. We also wanted to spend some time discussing why the strong appreciation we are seeing through out Texas is indicative of a healthy market and not a real estate bubble.

The Dallas-Fort Worth Metroplex has continued to grow even amidst a recession. It’s true that job growth slowed following the recession. That said, in the last ten years this metro has had some of the best growth in the country. Its location in the middle of the country makes it an easy plane ride from either coast, which is why many companies decide to put their headquarters there. Firms such as American Airlines, Lockheed Martin, Citigroup, and AT&T all have major operations in Dallas, which has helped insulate the city somewhat from the recession. Texas now has more Fortune 500 headquarters than any other state.

According to Census Bureau estimates the Metroplex population is over 6.7 million people. Since the 2010 census DFW’s growth has been even more impressive. The population has increased by 4.3 percent, or 274,781 people. With all this robust growth there is a need for shelter.

Residential

Population and job growth has driven strong home sales. For 26 months in a row, area home sales were higher than the same month of the previous year. Median home prices in October 2013 rose 13 percent from a year ago. Through the first 10 months of 2013, pre-owned home sales are 19 percent ahead of where they were in the same period last year. And median home prices are up 10 percent from the first 10 months of 2012. In October, there were 22,656 homes listed for sale with Realtors in the roughly 50 counties included in the monthly survey. That’s 13 percent fewer houses on the market at this time last year. Currently there is only a 3.1-month supply of houses for sale in North Texas — the lowest inventory in more than a decade. As supply decreases, and demand increase, values also increase. DFW suffers the same problem the other metros have and that is not enough developed lots in desirable areas due to the downturn in development during the recession. As the market has turned this has caused a lack of inventory.

The job and population growth of the last 18+ months has helped DFW apartment owners and should allow them another secure 2 to 3 quarters before new construction begins to dictate long term performance and values at existing properties. The continued strong job creation and population growth have kept values and rents strong, allowing the lowest level of vacancies in over a dozen years. The attraction of this market has a number of equity and management groups looking to develop more units in the coming year.

With single family sales doing so well, a lack of housing inventory and continued strong demand has allowed the apartment market to deliver over 13,500+/- units with little erosion of rents currently. Another 24,000 units are under construction, which normally would make equity and analysts nervous. However, last quarter 6,355 units were leased – more than the 4,992 new units delivered. Demand is outstripping supply, which is a sign of the strength of the local rental market.

DFW leads the nation on new apartment deliveries an annual basis. Looking forward, future job growth continues to be impressive with over 8,000 new jobs at State Farm in Richardson, 1000+/- jobs at Amazon’s two fulfillment centers, and a wide mix of white collar and blue collar positions this year, which will continue to generate strong demand over all tiers in the coming months, potentially years. According to the Bureau of Labor statistics local payrolls have exceeded prerecession employment by over 150,000+ jobs, a sign of the strength of the market and continued improvement.

DFW leads the nation in both net apartment leasing and construction, according to a report released by MPF Research. The strong third-quarter performance surprised many apartment analysts. They expected Dallas-Fort Worth to do well given the strength of the local economy, but no one thought the market would see occupancy move to a 12-year high and be able to continue to add that many new units without erosion to rental income.

Most of the construction is in central Dallas, with class ‘A’ units — uptown, downtown and the Oak Lawn area. In the suburbs, building is concentrated in Lewisville, Las Colinas, the Allen-McKinney area, Frisco, Plano, and Denton. Beginning in 2014, the large number of class ‘A’ apartment community deliveries may allow ‘B’ and ‘ C’ communities growth, both in rents and potential sales as investors begin to look for new opportunities.
Couple that with some of the tightest rental conditions since 2001 and its clear that all residential should see values rise and should continue to improve for the next couple of years, barring a catastrophic event. Even though housing is on the rebound, the bounce back is stronger in more affluent neighborhoods, like the inner loop areas. The spread between cap rates and interest rates remains favorable, and most local multifamily investment groups have been trading up.

Office

The office market has experienced some of the strongest leasing activity in its history, and seems destined to tighten as job growth drives record expansions and relocations. New deliveries this year are more than double last year’s production (2.6 million square feet delivered this year compared to 1.2 million in 2012), but with strong absorption the impact on vacancy is forecast to be minimal in 2014.

The office market’s strong performance has been driven by demand from the professional services sector including insurance, IT, and financial services firms. Most analysts agree that Dallas employment growth accelerated in Q3 2013 due to the sharp increases in the financial and professional/business services sectors, which fueled the strongest quarterly office demand in over four years. As stated earlier, large corporate user activity, led by State Farm, has reduced available office space by 25%-to-30% over the past year in the Richardson/Plano and Las Colinas submarkets. North Dallas has become a draw for major office development and relocations due to the areas relatively affordable housing and quality rated schools.

Office sales improved dramatically because of the amount of developed unused contiguous space in the DFW area. Office sales improved 40+% compared to the previous 12 months, with smaller (50,000 square feet or less) accounting for approximately 50% of transactions in the markets. The large properties that have been purchased are being acquired for redevelopment or repositioning. A good example is the old Texas Instruments site, which is being considered for mixed-use residential (previously it was industrial).

Retail

As the other channels, retail has been spurred by all this economic growth, adding 2.6 million square feet of retail space, up 200,000 square feet from 2012. Vacancy has risen slightly but rent values have remained strong. Most existing strip centers over the last two years have seen improvement with large blocks of space being absorbed. Vacancy at area shopping centers peaked at near 15% in 2010 and have continued to improve through this quarter.

2014 should be stronger for retail, particularly with grocery retailers expanding with 5 percent sales growth in the metro area. The concern of overbuilding of retail in the DFW market in 2010 has given equity some great opportunities. Those opportunities will be a challenge to find through 2014.

As you can see, Texas metros continue to be the bright spot in the nation’s economy, but come with their challenges. Each metro continues to have challenged submarkets that may take years to fully recover, but all in all Texas real estate continues to improve and grow.

Most importantly, inmigration is not slowing down. We are seeing significant domestic migration, but international migration is right up there as well. We have people moving here from all over the country and all over the world. College graduates and job seekers are moving to areas with greater economic opportunities, and Texas is high on most lists. Part of that is employment, but you also have the economics of the low cost of living in Texas.

Being the center of the nation’s energy sector has helped, fueling growth across Texas and the nation. Most analysts and economists understand that we are in the midst of an energy boom unlike anything we’ve seen since the 1970s, and this time it is not just in Texas, Oklahoma, and the Southwest. It’s all over the country. Wherever there is drilling and production of oil and gas from shale plays, you are seeing significant population and job growth.

The continued strength of this market, along with the tax and financial advantages of Texas should continue to bode well for this area through 2014.

Are we in a new real estate bubble?

This week Trulia published Bubble Watch, a quarterly report that tracks whether home prices nationally and in the 100 largest metros are under or overvalued.

“Nationally, home prices were 4% undervalued, but home prices at the metro level are above their fundamental value in 17 of the 100 largest metros. Most of these overvalued metros are only slightly so: of the 17 overvalued metros, just two – Orange County and Los Angeles – look at least 10% overvalued. Meanwhile, home values are on the high end and are actually 10% overvalued in Austin.”

What is a bubble? Bubbles have characterized recent economic history, as institutional and other major investors have sought high-return, low-risk investments. These investments have turned into speculative manias that eventually come crashing down. The last decade alone has seen the telecom bubble, the nearly simultaneous dot-com bubble, the housing bubble, and most recently, the oil bubble. Of all of them, the housing bubble seems to be the most significant and far reaching.

Four things have to be available for a housing bubble: tight supply, demand, restrictive regulation, and easy financing. Statewide, only tight supply and demand are present; only in Austin does regulation come into play. Financing is still a challenge in today’s environment. When looking at local markets, it is good to look first to job creation, population growth, and lack of inventory available. These basics are not taken into account when looking at naming these ‘bubble markets’. No, the Texas markets are not bubble markets. The current appreciation is driven by demand, not speculation. Supply will take 2 to 3 years to catch up to demand, until then we will see higher values for real estate.

Where do I have concerns about real estate bubbles presently? Markets like Orange County and Phoenix have seen land escalate 30+% in the last year. I would think that level of appreciation would be bubble driven.

For a more complete discussion, I recommend checking out the March 29th edition of the Independence Voice on the Independence Title blog.

I think highly of Jed Kolko, the Trulia economist. However this is one of those releases that doesn’t fully understand the local markets and their trends.
The caveat with Zillow, Trulia, and other similar websites is that all information needs to be verified if you are serious about a property or community. Information on the website is not always 100% accurate. Estimates provided by Zillow as “Zestimates” are just that – estimations, not promises, and not verified. Rremember, Texas is a non-disclosure state. Your own valuation, with the help of a qualified Realtor through the MLS, will almost always arrive at different numbers that are vastly more valid and reliable.

These websites are amazingly useful tools for real estate investors, provided they are used with understanding of their pros and cons. These are great sites to begin to educate yourself on your local market. The level of information makes an investor’s job much faster and more efficient. But the information should not be relied on as gospel – these sites typically have a disclaimer that actual values can be 25% +/- the actual value. Check official records and verify the information you intend to rely on for your real estate investing decisions.

Should you or your customers have any questions, please let us know.

MS

Continued job growth drives strong Texas real estate market

The median price for homes in the state of Texas hit another all-time high in September 2013 in the four major metros, and demand for homes in the state continues to surge to record levels, increasing home values and rents.

On a statewide basis, 271,839 single-family homes were sold in the last 12 months, up 17% from the previous 12 months. This represents the most homes sold in a single year outside of the boom years of 2005. Additionally, demand in the state was as hot as ever, with 43 out of the 47 markets followed by the Texas A&M Real Estate Center showing an increase in sales year-over-year.

Prices for Texas homes were extremely strong in the second quarter, hitting an all-time high for the quarter. The median price in 2013-Q2 was up 9.98% from the prior year, reaching $177,300. The average price rose 10.44% from the prior year to $235,075. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate.

Texas and California continue to lead the nation in job growth with Texas capturing over 40% of all jobs created in the country since 2009. What effect has that had on the local residential markets?

Austin

Austin continues to create jobs and has one of the healthiest labor and real estate markets in the state. Although Austin will probably have a record year in resales, the lack of supply of resales and new homes continues to present challenges to buyers. Resale home inventory continues to dwindle, with just 2.7 months supply available, dropping from 3.7 months supply in August. Builders will deliver 9,200 new home starts this year. Builders are happy that demand is outstripping supply, but are scrambling for developed lots to meet demand. Austin has one of the states lowest unemployment numbers (5.2%) and has been creating 22,000 to 30,000+ jobs per year over the last three years. Remember for every two jobs there should be one housing start, so the new home market has to play catch-up for the last few years. Due to the longer entitlement process in Austin, it will be two to three years before lot development catches up to demand, which in a broader perspective is a “good problem” to have.

San Antonio

San Antonio also has strong job and population growth across the metro, accelerating demand for shelter. With one of the largest oil shale plays nearby and an increase in high tech jobs, the market will be challenged to meet demand. Resale inventory is at a six year low with just over 4.5 months supply and most properties selling for near full list price (97+%). Apartment occupancy remains strong at around 95%, even with new units coming to the market. Like Austin, the lack of completed developed lots is a challenge and has led to tremendous activity in large land tract sales to builders and developers.

DFW

The Metroplex economy continued to improve this year with 92,000+ jobs created in the last 12 months, led by the professional and business sector with over 21,000 jobs. This strong demand has been tempered by the reduction in forces in the banking and mortgage industry. This surge of quality jobs has created housing demand. Over 13,500 apartments are to be delivered over the next 12 months, with occupancy staying above 93%. The lack of listings is slowing home sales in most Dallas-area residential districts. The inventory of homes being marketed by Realtors has fallen to less than a two-month supply in the Metroplex. In addition, the number of pre-owned single-family home listings in North Texas is down 14% year-over-year, according to data from the Real Estate Center at Texas A&M University. The rest of 2013 and into 2014 should remain strong as developers try to secure as much land as possible for future deliveries.

Houston

Houston is the nation’s #1 job creating city. With over 106,000 jobs added in the last 12 months, to say the economy is doing well is an understatement. Houston continues to remain strong with a booming energy market, strong trade, and surging real estate development activity. The level of development in this area is unbelievable. Last time I was in the Woodlands we counted 37 cranes just from 290 to the business district in the middle of the community. West Houston has the same amount of construction. Even with over 10,000+ apartment units being deliver this year, occupancy has stayed steady at 92+%. Resale and new construction struggle with the tremendous demand for inventory, although we saw a slower September. Resale is definitively a sellers market with just a 3.2 month supply. Like the rest of Texas, land developers of residential, office, and retail are quickly securing positions and starting construction to address the demand. If you were to list the strongest markets in Texas, Houston would easily lead.

Bryan/College Station

Bryan/College Station is another bright spot in the Texas triangle that has seen new home and resales improving over 30% and values following. As in the other metros within the triangle, inventory is lower than a year ago and dropped to less then six months this year. Texas A&M’s continued growth should help this areas continued growth through 2014.

Beaumont

Beaumont saw improvement in values and sales over the last 12 months. Beaumont is one of the few Texas markets where the last four years have been a ‘U’ shaped curve due to the loss of jobs and since then improved job creation. Golden Pass LNG’s expansion in Sabine Pass is expected to create thousands of jobs and generate billions of dollars in investments. We have seen the average price for sold homes move dramatically from $143,839 a year ago to $241,162. This was on the heels of a 45.8% decline in June from a year earlier. Thank goodness that energy has brought strength back to the market.

Amarillo

The real estate market in Amarillo has remained flat (literally as well as figuratively) through 2013, mostly due to a lack of job creation. The good news is that it has become more of a sellers market with resale inventory remaining under equilibrium for the last 11 months. Median values have improved to $139,700 with slow employment growth. Amarillo continues to have the same challenge that most of rural America has: population and employment stagnation. An oversupply of resale properties and little to no job growth has kept things slow for 2013 and through 2014

El Paso

El Paso has maintained strength even with the defense cuts affecting Fort Bliss. Although job creation has suffered this year, the strength of the local market has helped the real estate market continue to move in an upward direction. The median sales price is up 4.9% year to date over last year to $138,600. The number of homes sold has increased 5.3%. The supply of homes on the market has decreased from 8.1 months to 7.3 months. This fast growing population has helped El Paso climb five notches on the Milken Institutes latest Best Performing Cities Index, ranking ninth out of the nation’s 200 metro areas. El Paso did not see the boom price surges as the rest of Texas, so they have seen continued appreciation in new and resales.

Lubbock

In Lubbock closings of new homes increased year-over-year in July, and the market seemed to be hinting at strengthening with a percentage hike more robust than June 2013. The market has been driven by campus enrollment, rather than job creation. There was a 50%+ jump in new home closings from a year earlier. Closings of new and existing homes gained in July after staying steady in June from a year earlier. The average per-unit price of newly sold homes jumped year-over-year to $247,395 in July, up 21.1% from last year. This rise is better than the 10.4% boost in June year-over-year.

Abilene

Abilene has seen improvement in resales this year, and the natural gas boom has added more jobs for the area and should continue to be beneficial for the local economy. Any boom in real estate, however, is unlikely as Abilene moves back into the sort of slow paced market it has been for years. As in other Texas markets, we saw fewer sales and continued appreciation recently. New and used sales are slow and will continue through 2014.

Killeen/Temple

In the last five years three Texas towns had benefited from the military realignment: San Antonio, El Paso, and Killeen. Fort Hood in Killeen is one of the largest United States military installations in the world. At the top of the market, Killeen was doing about 5,000 sales annually. It has dropped to a good pace of about 2,500 home sales with about 700 new home starts. Although sales are slower, values as in other areas of Texas have maintained and appreciated slightly, because of the lack of available real estate. Again the reduction in force caused by the defense layoffs and the near 17 billion lost from the budget impasse at the start of the year has been covered by the continued good fortune of job creation in surrounding towns.

We should continue to see 5 to 10% appreciation of most residential real estate in Texas’s major metros. While this improvement in sales and values is welcome, areas outside of the major metros and oil/gas boom areas will continue to be challenged.

Most of our state did not have the big price drops we saw in the rest of the country, so to see 10% price increases on top of properties that held value in recent years means we’re seeing even more significant growth in Texas over the next few years.

With such strong demand, the inventory of Texas homes has decreased 32.5% year-over-year, to 3.9 months of inventory. A 6-month supply of homes in a market indicates a balance of inventory and demand. The Texas inventory levels indicates strong demand for homes and a seller’s market.

Texas metros as well as many smaller towns will see price appreciation to the point that waiting to buy does not make sense. Whether this is just a couple of year’s appreciation or a longer cycle for the majority of the state is yet to be seen. However, it is safe to say that buying today is a wise investment.

Texas real estate: no sign of slowing down

Texas continues to lead the national economic recovery. Home prices are on the rise, businesses are relocating here, and jobs are being created. I wanted to revisit the major Texas metros and examine all channels of real estate to really show how well we are doing.

First, understand that the median price for homes in the state of Texas hit another all-time high in the second quarter of 2013 as demand for homes in the Lone Star state continues to rise as supply struggles to keep up. On a statewide basis, 79,760 single-family homes were sold in the second quarter of 2013, up 17.78% from the same quarter of last year. This also represents the most homes sold in a single-quarter since the Texas Association of Realtors began this report in 2009. Austin had their best month ever since records were started in the early 1960’s, with 3,135 single-family homes sold in the Austin area, which is 35% more than July 2012.

To put that in perspective, realize that there were only 6,100 listings, so a little over 50% of all listings sold in central Texas. San Antonio had a record month with 2430 listings sold, over a 24% increase in sale over a year ago. Dallas had a record month with close to 9,400 home sales in July. Houston also had a record month. In Texas, demand in the state was strong as ever, with 43 out of the 47 markets included in the report showing an increase in sales year-over-year.

More homes are selling, and for higher prices. The median price in Q2 2013 was up 9.98% from the prior year, reaching $177,300. The average price rose 10.44% from the prior year to $235,075. According to the Texas Association of Realtors, those are the highest figures for median and average price ever seen in Texas real estate. All of us living in one of the Texas metros sees or hears about the strength of the residential market, with home values increasing at around 10% this year.

The economy is booming with job and population growth. And, for the first time perhaps ever, home values are appreciating at double digit rates. We don’t believe this will last forever. But for a limited time, we have the opportunity to experience what the rest of the country has had in appreciation in the last boom and now.

Houston
Houston’s economy continues to remain well positioned with over 99,000+ jobs created this year. This continued increase in employment will feed housing, office, and retail absorption. The rapidly expanding energy and medical sector are the major economic catalysts for Houston. New and resale residential properties are doing well, with the lowest supply of homes on the market since December 1999. Houston is leading the nation in home starts, adding pressure to an all ready tight market. 2013 should bring in excess of 27,000 starts. This is still far below the boom days of 2006, when home starts neared 50,000, but a strong recovery compared to other cities. Rental rates are also way up — in office towers, in apartments, warehouses and even for people who are leasing single-family homes.

Metro wide, over 9,200 apartment units are under construction with another 20,000+/- planned. While new apartment supply continues to increase, demand is outstripping development, putting pressure on rents, particularly in class A complexes. With the potential of overbuilding, and with average Class A vacancies below 7% and rents spiking, developers have been hustling to be first in line to bring new multifamily product out of the ground and to the Houston inner loop market. Apartment absorption has caught up with new construction, shown by the 92% occupancy citywide, even though there was a 77% increase in construction the last twelve months rental rates have increased 5%. With the continued strength of the market, we see sales continuing to improve particularly in the B and C class with apartment communities that have less than 100 units.

Over five million square feet of new office space will be delivered this year. That said, vacancy rates stayed stable with not a dramatic increase in the 85% occupancy even though over twice the amount of space as last year was brought to market and rents continue to increase. With the strength of the energy sector and all its support industries, CBD and the energy corridor have put pressure on raising rents. That has been offset by slower interest in non-core areas such as Greenspoint where office leasing continues to be a challenge. Because of the strength of employment, many institutional investors continue to show high interest in core office space. Sales velocity increased more than 50% over the previous 12 months.

With over two times the national employment growth, retail continues to buck the national trend. Retail rents and sales continue to improve with a conservative (220,000 sq ft in 2012 and 240,000 in 2013) amount of space coming on the market. There has been a flight to quality on the loops and areas of high housing growth which should continue into 2013.

San Antonio

San Antonio employment grew this year by 32,000 jobs, or a 3.6% increase. San Antonio’s future continues to look bright, thanks in part to the strength of oil and gas production in the Eagle Ford Shale, which continues to strengthen renter demand in south SA and counties south of the city. In the northwest and west, Nationwide’s new campus along with expansion in the growing bioscience sector will continue to drive the market.

Apartment leasing is still strong at just under 95% occupancy and rents and sales are still rising, even with over 4,000 units coming on line this year, another sign of a good market. Rising construction costs, particularly framing and lumber may slow down development with lower paying industries adding jobs primarily. There is some chance of higher vacancies with the amount of units coming on this year.

Office continues to be a bit challenged compared to other Texas metros, with 85% occupancy and the hardest hit classes being b and c class properties. This is due primarily to corporate relocations and owner-occupied and/or build-to-suit properties. That said, rents are stable with a little rise, due to the Eagle Ford Shale play south of SA. Corporate relocations to owner occupied and build-to-suit have caused office vacancies to increase over last year. However, the strength of the Eagle Ford Shale play and stronger housing market conditions are working to revive previously stalled developments.

Eagle Ford drilling has had a dramatic effect on boosting retail in San Antonio. San Antonio experienced a spike in buyer demand as in Class A properties, which in turn has encouraged more sellers to enter the market. Rents continue to rise despite the fact that occupancy dropped just over 1% due to over 400,000 sqft coming to market. Retail should continue to improve with modest increases this year, as continued job growth in most sectors has allowed San Antonio families an increase in spending in San Antonio. Most tenants are concentrating in areas with high home sales and job growth, causing retail space demand to exceed supply this year, gearing the market toward healthy vacancy improvements and modest rent growth.

Dallas / Fort Worth

The DFW economy has turned the corner with over 96,000 jobs created last year, a 3.2% increase. Of all four major metros, D/FW has lagged behind the others in returning to prerecession employment. However it is doing better than most of the country at 99% recovery. The economic slowdown and hesitancy to build is apparent in the tightness of the market.

With apartment occupancy at 94%, and a limited number of new apartment communities coming on line (13,500+/-), rents should continue to rise and lease negotiation should remain firmly on the sides of the landlords. While this is sizeable increase from 2012, when just fewer than 7,500 units were delivered, the market remains 25+% under the metros cyclical peak in 2009. Construction was slower than other Texas metros till 2012 because of the competition from the large amount of foreclosures. Now that these have largely disappeared, the market is prime for growth.

The DFW office market continues to post improvements in occupancy as new supply continues to stay current with demand. Over 2.6 million sq. ft. will come online this year, more than doubling last year’s output of 1.2 million square feet. DFW vacancy is still challenged at 80 to 85% occupancy. However, with 80% absorption of new product this year, rents are still improving for lessors. Dallas offices include the homes of 24 Fortune 500 companies. Demand for retail continues to tighten the market. Over 2.1 million square feet of new retail space is planned to be finished by the end of 2012, a 100% increase over last year. Occupancy is good at 90% and should continue to improve with the uptick in housing demand in the outlying suburbs. Commercial real estate in rural Texas towns has also improved from demand in the energy sector as evidenced by the strength of rents south of San Antonio and in the energy counties around Midland/Odessa. Barring a catastrophic event in the Texas economy, we should continue to see strength in most portions of the commercial market in our state. With an improving market, office sales have improved 40+% with over 50% of the transactions being under 50K sq. feet.

With improved employment, over 800,000 sq ft of retail space will be delivered to the market, and another 4 million planned. Rents are slowly improving even though vacancy has grown to 12.8%. Buyers are pursuing high quality, triple net in prime locations. The trend should continue till saturated, and the attention will turn to the lower rated tenants and locations.

Austin

Austin continues to be an economic success story in the face of nationwide uncertainty, with employment at an estimated 4% annual growth rate and the addition of 33,700+/- jobs annually. Austin is coming off of their best home resale market since the records started in the 1960’s. Austin has an extremely limited supply of resale homes – 2.6 months of inventory, which is a 40% decline from a year ago. Residential and commercial rents continue to rise due to lack of supply.

Austin apartment owners are in an enviable position with 94+% occupancy, even with 9,000 new units coming on line. Almost all channels of Austin’s economy are comfortable at or above prerecession values and income. Apartment sales continue to improve with almost a 40% increase in sales from 2012. Median prices have improved to $86,500. Compared to a cyclical low in 2010, the median price per unit has increased approximately 80%. With the good fortune of job creation, drawing over 60,000 people per year to the Austin area, the market should continue to hold its values and strength. Asking rents will continue to rise 5% or more, which means the housing affordability gap has closed for class ‘A’ renters with upward pressure on ‘B’ and ‘C’ renters.

With employment improving 4+% annually, office space continues to see rents and sales improve even as occupancy drops to 88%. Of the 520,000 sq. ft. being delivered this year, over 45% is medical. Medium sized transactions of 50,000 sq feet or less accounted for the majority of the activity this year and the potential of continued strong values in sales and rents over the next few years seems probable.

Retail continues to be challenged nationally as evidenced by the downsizing of most retailers, except grocery and medical. That said, local retail is doing ok with approximately 120,000 sq feet brought on line this year. Rents and sales should continue to rise with some concessions.

The bottom line is that our metros offer the amenities and economic stability that so many investors are looking for. Texas real estate will continue to grow as individuals and businesses move here. The bottom line is the same across all channels: the property you look at today is going to be more expensive or gone tomorrow.

2012: A Year in Review – San Antonio, Houston, and DFW

Last week we talked about the major 2012 happenings in Austin real estate. This week we wanted to focus on the other Texas metros and the strength of their markets.

San Antonio

Over the last year, San Antonians have shown more confidence as the city’s economic base expands – signs of an improving metro economy and of higher wages in a city that has long been known as a low-wage town.

Sales tax revenues jumped 12.2% in the six months from April through September compared to the same period in 2011, a pace of growth that was the highest since 2006, when the metro area showed robust expansion. On a percent basis, the bump in sales tax revenues in San Antonio was greater than in Houston, Austin, Dallas and Fort Worth in the same six-month period.

And the good news didn’t stop there. 2013 census data will show that San Antonio incomes are rising. With new jobs in fields like medical technology, personal income prospects go up, and that attracts better possibilities for retail activity and a whole range of services. The San Antonio economy stands to record better job creation over the next year as drilling in the Eagle Ford Shale intensifies, development accelerates, and the local leisure and hospitality sector continues to post strong growth.

Year to date through the third quarter, businesses in San Antonio added 18,400 jobs. While employment in most major metros remain shy of pre-recession levels, San Antonio has surpassed their late 2007 pre-recession number by over 25,000 jobs.

That growth continues to attract investors from across the continent. 2012 payrolls in San Antonio rose 3% with the addition of over 26,000 jobs. This is a dramatic improvement over 2011, when metro wide growth increased just .5%.

If present growth trends for new jobs continue through 2013-14, the city would add about 20,000 positions by late spring, even after accounting for losses in city, county and state government positions. That would take the area closer to the record 31,000 jobs created during the boom year of 2006.

That improvement is evident when looking at real estate. Single family permits year to year are up 20% from 2011, while multifamily permits are ahead by 18%. San Antonio’s population grew by approximately 47,000 people, which includes about 26,500 prime renters in the 20 to 34 age range. With only 1,000 units are being constructed this year, up from 400 last year, demand should outstrip construction.

Downtown SA revitalization efforts are beginning to show strength along the Broadway corridor with over a 1,000 apartment units coming on line in the next couple of years with continued strong absorption.

Regional office, industrial, and retail properties posted an expansion of 2.3 percent in square footage. This is impressive due to the amount of large office space vacated over the last couple of years. The city’s industrial properties showed strong growth in rental revenue of 6.8 percent in the six-month period, largely as a result of the Eagle Ford Shale.

The tourism sector continues to be a strong performer. Combined room demand and rental revenues showed a growth rate of 7.3 percent in the April-September period. Although still healthy, it was slower than the 9.2 percent for the same period in 2011.

Christus Santa Rosa, a health care group, purchased 50 acres within the 2,400-acre Word-Borchers ranch along the Guadalupe River, which will be turned into a master-planned development over the next 15 to 20 years. The health system plans to develop a short stay surgical hospital, emergency center, and medical offices to supply the growing retirees’ boom in the area.

Expansion of the Texas Biomedical Research Institute will solidify San Antonio’s place in the biomedical industry and help create strong demand for office, retail and residential in Western SA. Activity in the Eagle Ford Shale made a $25 billion dollar impact on South Texas economy, which in turn made San Antonio’s south submarket one of the tightest in residential, office and industrial absorption.

San Antonio is the last of the Texas Triangle markets to enter the economic recovery. This means most of the markets in the SA metro area are just at their tipping points, which in turn is attractive to investors as they look to getting in on the upside of the market. Buyers looking for distressed or value-add opportunities will look to SA in an effort to locate opportunity that has become scarcer in the other Texas metros.
San Antonio’s west side saw the doubling of SeaWorld San Antonio, which aided surrounding retail and hospitality. The expansion of the Port San Antonio East Kelly Railport should continue to attract suppliers for the shale boom south of SA and in turn help all channels of real estate and finance in the area.

All in all San Antonio’s economic forecast for 2013-14 will continue to improve.

Houston

Houston has one of the strongest economies in the nation, accounting for one out of every ten jobs created in the US. Analysts expect continued job growth for the next two years. The greater Houston area added 98,000 jobs in 2012, almost a 4% growth from the previous year. Conservative estimates forecast 72,400 jobs in 2013 and 74,400 jobs in 2014. Residential and commercial real estate sectors are poised for growth as a result.

Growth is similar to the experiences in the early 80’s, but with a better balanced economy with energy making a smaller percent of employment growth. Houston’s employment options and affordable cost of living have made it an attractive destination for people from all over the country.

Existing home sales increased by 7.5 percent this year and are forecasted to rise to 8.1 percent in 2013. Houston currently has the highest home prices it has ever had. The metro market cannot have this strong job growth and some of the strongest rent increases in the nation on multifamily rental rates and not have home prices rise in the next 12 to 24 months.

Since construction debt remained non-existent through the first of 2011, most developers were not ready for the post-recession renter surge. As of the end of this year, over 14,000 rental units were under construction with much of the focus on the 1960 corridor, yet absorption has kept pace, forcing interest from equity sources for more apartment building through 2013. West inner core, class ‘A’ apartments continue to be the most desired, leading a thirteen year high on rent rates.

The foreclosure problem in Houston has improved dramatically. For every two existing home listings in Houston, there is one home destined for foreclosure that makes up a set of shadow inventory. This is much improved from 2007, when there was one existing home listing for every four to five Houston foreclosures.

How did the recession and downturn in the national housing market affect the prices of homes in the Houston area? The Houston housing market has fared much better than the national housing market. Prices in Houston started declining in July of 2007 and fell approximately 7% (based on incomplete data for 2012). Mid-year we began to see values stabilizing. You should keep in mind that this figure is for the overall market, not for individual areas.

Above average job creation and limited new office supply will continue to support Houston’s market recovery through 2013, although area wide vacancy will end up over pre-recession levels. That said, Houston will be one of the tightest office markets in the nation. The continued expansion of energy and technology support the increased space demands of office and industrial. With just 450,000 square feet delivered in 2012 (a fifteen year low) several large projects have been announced, and the planning pipeline continues to expand.

Phillips 66 split from ConocoPhillips, and will look for a new headquarters in the Houston area, most likely in the Katy energy corridor area. ExxonMobil continued staff consolidation will bring 2,000 more employees to the Woodlands campus from Virginia. These expansions, with supporting industry, have pushed the planning pipeline to over 13 million square feet of competitive office space in the future. The market continues to be tight presently, but should continue to be monitored as these many projects come on line.

The medical center continues to expand with over a million square feet having come on line this year. However, absorption continues to be good with little contiguous space left over 50,000 square feet.

Houston’s strength of job creation and the worl’ds continued need for energy will allow all channels of real estate to be good through 2014.

Dallas / Fort Worth

D/FW real estate has been slower than the rest of the Texas metros, but finally turned to near pre-recession levels by mid-2012. Because of the lack of new development, inventory fell and has put positive pressure, finally causing appreciation in most channels.

The DFW region has experienced a 32% jump in starts the third quarter of 2012, and new home inventory is at a twenty year low with little development in the pipeline. Lot inventory is challenged with less than an 18 month supply in most desirable areas (24 months being equilibrium). 21,000 of those lots had little to no activity this last year, so it shows the need for new residential development.

Couple that with some of the tightest rental conditions since 2001 and its clear that all residential should see values rise, including rents. Apartment and office deliveries accelerated this year but fell short of historical norms. 9,600 apartment units were delivered this year with 15,000 under construction and over 35,000 in the planning pipeline. That said, rents and values should continue to improve for the next couple of years. Even though housing is on the rebound, the bounce back is stronger in more affluent neighborhoods, like in the loop areas.

With over 75,000 jobs created this year, apartment developers continue to focus on close in locations in northwest and central Dallas. Fort Worth saw strength in the southeast quadrant, north Arlington, and Grapevine. Since peaking in 2009, vacancy has almost been halved to less than 6%.

Office continues to be challenged with an overdeveloped office market still not recovered, particularly in the outer rim areas. The overall market vacancy still hovers around the 20% mark, higher than the other Texas metros.

2013 should be stronger for retail, particularly with grocery retailers expanding with 5 percent sales growth in the metro area. Overbuilding of retail in other portions of the DFW market will continue to be a challenge through 2014, but an opportunity for investors.

Two important finance and real estate figures live and work in Dallas – Richard Fisher, President of the Federal Reserve Bank of Dallas, and Harvey Rosenblum, the Director of Research. These men are some of my favorite financial writers and mentors. They both want to see the big banks broken up. Me, I’d shatter them into itty bitty pieces.

Still, it’s not a bad idea to listen to one of the big banks – J.P. Morgan CEO Jamie Dimon – when it comes to real estate. He says housing is positively flashing green. Now, if we could only get federal regulators to loosen up the banking and mortgage rules.

As you can see, Texas metros continue to be the bright spot in the nation’s economy, but come with their challenges. Each metro continues to have challenged sub markets that may take years to fully recover, but all in all Texas real estate continues to improve and grow.

Texas’s Largest Independent Title Company Continues Expansion, Announces First Branch Located in DFW

PRESS RELEASE – November 5, 2012

Austin, Texas – Austin-based Independence Title Company is expanding its presence into the Dallas-Fort Worth market with the acquisition of Noble Title, located in Dallas.

“The Dallas-Fort Worth metro market was the only major Texas metro market that we did not serve. This addition will put us in a better position to serve customers on a statewide basis and continue to grow our brand with some of the best title professionals in the market place,” said Brian Pitman, ITC President and COO.

Pitman and Jay Southworth, ITC Chairman and CEO, founded Independence Title in 2005 on the belief that Texas needed a return to local title service providers owned and operated in Texas.

“Our ability to make decisions right here on the ground allows us to respond much more quickly to the needs of our customers and the opportunities in the marketplace,” said Southworth. “We all know Texas is a unique business and cultural environment, and we’re better able to reflect that as a local company.”

“We are excited to have this team, led by Steve Hightower, join our Independence Title family,” said Pitman. Hightower will be joining Independence Title as the company’s Vice President and DFW Area Manager. Hightower began his career in the title business at Commerce Title. He held several senior management positions with the company and has an extensive knowledge of the title business and the Dallas Fort-Worth market. He also worked for Red Vision, a national title data provider, before joining Noble Title.

Independence Title has continued to grow organically adding new branches and markets over time with the addition of selective acquisitions, like Noble Title. According to the most current Texas Department of Insurance Statistical reports, Independence Title is the largest independent title agency in Texas, as measured by gross revenues or total number of policies issued.

Earlier this year, Independence Title opened its first office in the Greater Houston area, and now has 10 branch locations in the Houston market. All told, Independence has title plant operations covering 22 counties across Texas to date, plus 52 office locations serving all of the major metro markets in Texas. Independence transactions are supported by 9 national underwriters, including all major national brands. Independence is the Austin Business Journal’s number-one title company, and the San Antonio Business Journal’s top-ranked independent title company.