Has the Texas Real Estate Market Slowed?

by Mark Sprague

I am frequently asked if the Texas real estate market has slowed. In this piece I’ll explain the state of the market and try to answer this question. First, some context.

Austin real estate has been traveling at light speed with over 60% appreciation on residential real estate in the last ten years. DFW has seen over 50% appreciation in the same period. While these aren’t as robust as the ‘go go’ years of the sand states (California, Arizona, Nevada and Florida who at times pre-recession were appreciating 40%+ annually), they have led the nation in the last ten years. Since 1990, Austin has had an average residential real estate appreciation of 5.4%, Houston 4.9%, San Antonio 4.7%, and DFW 4%.

Recently, we have seen sales slow, as you can see in the charts below. Not much, but a little.


Point of distinction: Residential appreciation has slowed, but not declined.

Commercial real estate sales nationally are off about 20% from last year. Here in Texas, it is slower but not by nearly that much. Commercial values continue to be strong in all Texas metros, except Houston due to the oil downturn (pre-Harvey). Pre-Harvey there were concessions on multifamily rentals. Those all but disappeared after Harvey. The other Texas metros continue to see good appreciation and occupancy. Most commercial channels have occupancy above 90%. These are all signs of healthy markets.


So the important takeaway is that Texas metros real estate values continue to appreciate. In some price points, inventory is up, particularly luxury above $2 million. Buyers are looking at properties as a commoditable product so they are not willing to overpay. The buyer will see multiple homes, and the one that best fits their needs and budget will be their new home. Sellers are having to travel farther to meet buyers expectations. Luxury is in a ‘buyer’s market’.

Have values increased in this price point as aggressively as the rest of the market? No, luxury values have historically been less than the general market due to the smaller pool of buyers.

If you are shopping for a house with a budget above $2 million? I have good news: You have more than a six-month supply of homes to choose from, as opposed to a couple months’ supply of homes in many of the lower prices.

Below $700,000, if priced correctly, we are still seeing multiple bids in Austin and Dallas. Sales volume has been dropping, but days-on-market has gone down. Overall, the market is clearly slowing down for the season, though it’s not painfully dull like it was in 2013 or 2014 during the fall. This is key to understand because when we say values are “softening,” some interpret that to mean the market is really slow or crashing. But we’re really only saying sales are slowing.

These charts show you which price segments are strongest in our metro areas.

Many price stats last month actually showed an increase in value. What does that mean? Does this mean the market improved? I thought you just told me the market is slowing? In reality, sales from October really tell us more about properties that went under contract in August and September before they actually closed escrow in October. Thus that 1% uptick really happened in the market a couple of months ago rather than in October. In other words, we’ll see the real trend of the market for October when the pendings from October close in November and December.

Let’s not make a big deal about the market technically showing an increase, because the uptick didn’t actually happen last month. If we want to see the current market, we must look at the sales, but we cannot forget to give strong weight to the listings and pendings. Are properties taking longer to sell? Are there more listings hitting the market? Are properties starting to generate less offers or offers at lower prices? What are buyers, sellers, and the real estate community saying about the market? All these are factors to consider.

To borrow an analogy from the holidays, I’d say the real estate market is like searching the freezer and refrigerator for leftovers from the holidays. You cannot expect the food to taste the same or cook at the same rate. It depends on each market. Some portions are blazing hot

while others remain only warm — or even frozen. Like leftovers, we can say the real estate market is hot overall, but it’s definitely not the same temperature in every area or price range.

Lower price points have had the largest appreciation

Some of the largest price increases in the Texas metros these last few years occurred at the lowest price ranges. While values increased by 5+ percent or so for many price points, in some starter areas, values easily increased by five times that amount. So the market is ultra hot at some of the lowest prices in town, but we don’t see the same rate of appreciation at every price point throughout the region. On top of that, this year, properties above $1 million typically took three times longer to sell compared to properties under $300,000.

Some neighborhoods have begun to see a flattening of sales compared to previous years. The reason is that prices have increased to a point where the area is still desirable, but $100,000+ more than it was three or four years ago. That appreciation is great for those already vested in the neighborhood, but prevents many from moving into their desired location.

We have a housing shortage in the lower price points. The cost of land, labor, and materials continues to escalate, with the hurricane, wildfire, and a lumber tariff not helping. Slower job creation in Austin, San Antonio, and Houston for 2017 have also not helped.

See what I mean now about those unevenly heated leftovers?

If someone asked me whether the Texas metro markets were “hot,” I’d say they are strong. But, realistically, I’d probably first answer with a question, “Which market are you talking about?”

Austin, DFW, and San Antonio continue to be some of the most desirable markets in the nation. Should you wait for values to drop? Never say never, but I don’t see values softening anytime soon, barring a catastrophic economic event. With rates and values rising, the time to buy is now.

Beware! Wire Fraud is at an All Time High.

You’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.

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 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 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.












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


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.


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.


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.


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.



Houston and DFW midyear review

Last week we started our midyear review of Texas markets with a look at San Antonio and Austin. This week we will be looking at DFW and Houston. As stated last week, the majority of our state has enjoyed tremendous job growth and all the benefits it brings.

Over the last twenty-three years, the number of jobs has increased almost twice as fast in Texas as it has in the rest of the country. Many people might imagine that most of those new jobs pay low wages, but that turns out not to be true. To be sure, Texas has more minimum-wage jobs than any other state, and only Mississippi exceeds it with the most minimum-wage workers per capita. According to the Dallas Fed, only 28 percent of the jobs created in or relocated to Texas since 2001 pay in the lowest quarter of the nation’s wage distribution. By comparison, jobs paying in the top half account for about 45 percent of the new jobs in Texas.

Texas has been creating or attracting middle- and high-wage jobs at a far faster pace than the rest of the country taken as whole. For example, between 2001 and 2012, the number of Texas jobs in the upper-middle quarter of the nation’s wage distribution increased by 25.6 percent. This compares with a 4.1 percent decline in the number of such jobs outside of Texas. Though coming off a comparatively small base, Texas has also outperformed the rest of the country in its growth of high-paying jobs.

That’s a big deal. From 2000 through 2010, the country as a whole experienced zero net job creation, and the continuing decline in middle-class jobs is arguably the largest single threat to the economy’s viability. The first and most obvious question to ask about the Texas boom in jobs is how much it simply reflects the boom in Texas oil and gas production. Texas boosters say the answer is very little, and play up how much the Texas economy has diversified since the 1970s. And indeed, Texas has more high-tech, knowledge-economy jobs than it did forty years ago. But so does the rest of America, and the stubborn truth is that, despite there being more computer programmers and medical specialists in Texas than a generation ago, oil and gas account for a rapidly rising, not declining, share of the Texas economy.

Thanks to fracking and other new drilling techniques, plus historically high world oil prices, Texas oil production increased by 126 percent just between 2010 and 2013. Only a few years ago, Texas’s oil production had dwindled to just 15 percent of U.S. output; by May of 2013 production had jumped to 34.5 percent, as new drilling methods opened up vast new plays in once-forgotten corners of south and west Texas with names like Eagle Ford, Spraberry Trend, and Wolfcamp. Thanks to the increase in drilling, Texas already produces more oil than major oil producing countries such as Venezuela, and is headed to become the ninth-largest producer of oil in the world, ahead of Kuwait, Mexico, and Iraq.

The economic effect of the energy play on cities and metros is apparent in traditional oil towns such as Midland/Odessa, Houston, and Fort Worth, which have unemployment rates lower than Texas’s and the rest of the country in April 2014. In addition non-oil Texas cities and metros such as Lubbock, San Antonio-New Braunfels, San Angelo, and Longview have seen their unemployment numbers bolstered by the strength of the energy play.


To say growth in Houston has been fueled by the strength in oil and gas exploration and the supporting technologies would be an understatement. The shale gas exploration in particular is creating jobs in multiple areas. It’s led to 10,500 jobs in professional and scientific services, while administrative, machinery, and manufacturing industries have also seen job gains. Job growth is the seventh strongest in the country over the last five years, largely because Houston’s energy infrastructure is only getting more developed. Multiple companies are building export terminals, fractionaters, and ethane crackers. Because of this growth Houston has seen a huge increase in engineering and construction jobs as a result.

Houston saw little to no slowing during the recession compared to the rest of the US. More than 100,000 new jobs will be created in 2014 for the Houston MSA, drawing thousands of new residents. Despite an increase in multifamily completions this year and last, housing supply and demand will remain well aligned. Since hiring resumed four years ago, more than 12 jobs were created for every apartment brought online over the same period. The ratio of jobs to completions will decrease in 2014, but should remain highly favorable, supporting a little decline in vacancy of residential rental.

Bayou City home sales saw sales volume fall for the first time since May 2011. The lack of housing inventory resulted in the market’s first home sales decline in three years in May. Thirty-four consecutive months of positive sales ended in April with flat year-over-year sales. However, sales activity for homes over $500,000 outpaced last May 2013, and coupled with low inventory levels, drove the average sales price to a new record

Houston’s office channel continues to improve as booming energy markets support expansion of top industry players and their campuses. The second half of 2013 and the first half of 2014 was characterized by several major leases, with Bechtel, ConocoPhillips, Statoil, and ExxonMobil each committing to more than 400,000 square feet. This year, ExxonMobil will also complete its 3 million-square foot campus in The Woodlands/Spring area, where Southwestern Energy’s 515,000-square foot headquarters is slated for delivery. Numerous other build-to-suit projects have broken ground in the metro, including BHP’s office tower in Uptown, Phillips 66’s campus in Westchase, and Noble Energy’s headquarters in the Northwest submarket. Downtown, Chevron’s plans to expand its presence with a 1.7 million-square foot tower were recently delayed. The project, which was initially slated to break ground in 2014, could bring 1,700 jobs to the area. In the Class B sector, construction is limited, which will support occupancy gains among existing properties.

Houston remains on many equity and investors ‘needs’ lists this year as local job growth reaches well beyond the national rate. The metro’s surging economy recaptured the attention of REITs and institutions, which accounted for nearly 70 percent of dollar volume in 2013, up dramatically from the previous year. This influx of capital has heightened competition for best-of-class deals, driving cap rates for high-credit assets in strong locations into the mid 6 to 7 percent range. Activity in the metro’s Class B sector has also picked up, thanks in part to the return of private out-of-state buyers who have focused almost exclusively on core submarkets.

Houston retail has benefitted also, with retail vacancy slipping to its lowest level in years and should continue to improve in 2014 amid the strong economic growth and resurgent homebuilding. The Woodlands, Katy and Energy Corridor submarkets, in particular, stand to benefit tremendously from healthcare-sector growth and expanding energy firms.

We have talked a lot about the resurgence of the energy industry and its effect on the metro. Remember that Houston is also home to one the largest medical centers in the world. The innovation and leadership generated from Houston leads most of the country and world in the industry. This area will continue to be one of the major employers and leaders for the Texas economy. As the Dallas Federal Reserve has pointed out, 40+% of jobs created the last 15 years were in the health and education channels.

As in the other real estate channels, above-average economic expansion and growth prospects in the Houston area continue to attract retail investors to the area, supporting property values escalating and encouraging more owners to sell. Because of that demand in closer-in submarkets, land constraints and rising costs have relegated much of the new retail space to mixed-use projects.

The opening of Mexico to oil exploration for the first time in 25+ years, and the value of lower priced, yet high occupancy real estate should continue to help Houston be one of the healthiest economic metros not only in the state and region, but the nation also.


In Dallas/Fort Worth the housing market has not been as robust as the rest of Texas. 2013 showed a burst of activity that slowed with the start of 2014. Gains in home values and sales early last year have slowed. A year ago, sales of pre-owned homes were up 23 percent and prices were rising at double-digit rates from the previous year. However this last month, home sales in the area fell 1 percent from a year earlier. Prices rose, but by 6 percent from May 2013. The slowdown in the pre-owned home market growth is likely to continue in the months ahead because of a tight supply and consumer push-back against huge price increases.

The feeling among builders and realtors is that consumers in the D/FW market are waiting for better economic signs before taking a leap to buy in many cases, which continues to keep the market sluggish and adds to the time it will take the market to heal. Adding to the sluggishness is the delays in completing homes during the quarter due to a shortage with many trades. The extended construction timeline negatively impacted the number of closings for the quarter, leading to only a 14% increase in closings compared to a year earlier. The tight supply is extending the construction cycle and driving up construction costs, lot costs, and ultimately home prices.

The DFW metro area continues to have one of the most diverse economies in the US, with strong establishments in tech, aerospace, telecom, and financial services. Employers will create 113,900 jobs in 2014, more than any other metro in Texas, raising payrolls 3.6 percent. In 2013, 112,700 positions were added. Population growth is strong, housing sales are, and employment at corporate headquarters increased by more than 4,000 works over the last five years.

Toyota Motor Corp.’s relocation of its U.S. headquarters to Plano has been a welcome addition and may bring $7.2 billion of economic activity over 10 years. The figure includes $4.2 billion from payroll, along with direct and indirect spending, and sales and property tax revenue, according to the analysis by Grant Thornton LLP, a Chicago-based audit, tax and advisory company. The report was released May 12 when the city, a Dallas suburb, approved incentives for the company.

The central location of DFW and the abundance of large contiguous space will continue to attract corporations as they look to expand.

The push back from home buyer bodes well for DFW landlords. These buyers who are waiting for values to change, combined with rising interest rates and tight underwriting, will preclude them from purchasing a home, a positive trend that will further support apartment operations this year and next. Almost all submarkets will post gains in occupancy and rents during 2014, and construction will reach the highest level since 2000, lifting competition and encouraging greater concessions in some areas

The DFW office market continues to be healthy with major office leases being shopped. The lack of aggressive concessions from landlords is a testament to the strengthening of the market. Another year of strong economic growth in the Metroplex will reinforce investor optimism through 2014. REITs and institutional investors, which accounted for more than half of last year’s dollar volume, will again dominate the market for high-credit Class A deals. Landlords continue to see small rent improvements strengthened by corporate inquiries.

Texas is extremely business-friendly with a low tax, low regulation environment that makes it attractive to out-of-state firms. All of the tech hustle and bustle has led to an influx of young professionals, which has led to a boom in construction in all metros. To consider that the state has put its focus on too few industries for a strong future is a weak argument, when looking at the facts. Again realize that we are lucky, blessed to be living in Texas, at one of the best times in history. Austin, San Antonio, Houston, and DFW will be the recipients of over 25 million new Texans over the next 20 years. To put that in perspective, few if any states will see that type of growth over the next 20 years. That type of growth has been likened to what happened to California in the 60s by some economists.

As in all Texas markets, the number of jobs and lack of inventory has gotten most buyers off the fence and helped new and resales through the first of the year. Developers are scrambling to put lots on the ground to address the lack of inventory. Comparatively all real estate channels have stayed healthy also. Not as robust as previous years, but good. Values have remained stable with a little appreciation. Developed lots are just above equilibrium, with expansion in the pipeline for the first time in all metros, however most markets will continue to be tight through the end of 20114.

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.


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.


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).


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.


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.