Texas Housing Flies High, U.S. Fastens Seat Belt

COLLEGE STATION, Tex. – Remember that “soft landing” economists were predicting for the national housing market? Now, they have turned on the “fasten seat belt” light.

National analysts foresee an 11.5 percent decline in housing starts this year and another 11.7 percent drop in 2007. U.S. housing should hit bottom by the middle of next year. Once the bulwark of the national economy, housing is now seen as a major source of weakness.

The Texas housing market, however, continues to fly high. The state’s population has soared by two million so far this decade. Home inventory remains low, and prices continue to appreciate.

Some speculative money has made its way to Texas, but much less than in Florida, Nevada and California, says Real Estate Center Chief Economist Mark Dotzour.

Despite the smooth flight Texans currently enjoy, Dotzour sees two blips on the radar screen that might spell trouble ahead. 

“At this time, the most significant risk to the Texas housing markets is the possibility of large-volume builders attempting to make up for lost volume in East and West Coast markets by increasing volume in Texas cities,” says Dotzour. But he added, “I’m hopeful that will not happen.”

The second is one the entire U.S. housing market faces — a recession in 2007.

Dotzour is concerned because the United States has had a flat or inverted yield curve for nine months. This artificial situation occurs when short-term interest rates are higher than long-term rates.

“It almost always causes a recession within 12 to 18 months,” says Dotzour.

The Center’s chief economist says the declining ten-year treasury rate and home mortgages indicate that bond investors are convinced the 5.25 percent Fed funds rate is high enough to slow things down considerably.

“I don’t expect any movement on interest rates between now and the end of the year,” he said. “The Fed doesn’t like to take action before elections. But I think it’s highly likely that every day the yield curve stays inverted as it is now, brings us another day closer to a national recession.”

A real estate agent from Austin asks Dotzour how one goes about recession-proofing a real estate business and personal portfolio.

“The good news is that even though the United States could have a recession, it’s highly possible that Texas won’t participate in it,” Dotzour says. “The Texas economy is not overheated in the housing market, and we don’t have a lot of ailing auto plants in our state.

“When an economic cycle is near the top, the best plan for businesses is to not take on a lot of new debt. If revenues start to flatten out,” he says, “the people that can continue to meet their debt obligations will be around for the next cycle.”

Source:

The Real Story About
San Antonio’s Real Estate Boom

Barbara Tarin, Chairman of the Board

SAN ANTONIO BOARD OF REALTORS®

	Median Price	Average Price	2005 Appreciation	3 Year Appreciation
DFW	$ 149,100	$ 160,955	6%	11%
Houston	$ 142,500	$ 187,442	2%	8%
Austin	$ 166,800	$213,299	5%	6%
San Antonio	$ 134,000	$ 158,000	8%	22%

Home Price Analysis for San Antonio 

	San Antonio	Top 20 Metros	National Average	Comment
Price Activity Current Appreciation 3-year Appreciation	8% 22%	25% 79%	13% 32%	Strong Strong
Affordability Home Price to Income Ratio*   Mortgage Debt Servicing Cost to Income Ratio*	1.6%   12%	3.8   30%	2.3   16%	Very Favorable   Very Favorable
Local Fundamentals 3-year Job Growth   Housing Starts to Total Employment   Net Migration	1.0%   1.5%   27,000	7.2%   1.0%   19,100	2.4%   1.5%   0	Favorable   Neutral   Very Favorable
Risk Factor	Nationwide, there has been an increased use in exotic mortgage loans of interest only and adjustable rate mortgages.  Though, such data are not readily available for local market, it is likely following this national trend.  Therefore, rising interest rates will place some homeowners in greater risk of default.  But the risks are mitigated from recent healthy job gains.  Given the favorable housing affordability, significant gains in home prices are certainly possible, particularly if the job market strengthens.

Home Price Analysis for Austin-Round Rock 

exas has some of the largest, fastest-growing cities in the nation. In fact, three of the top ten largest U.S. cities in 2005 were in Texas.

San Antonio had been the eighth largest U.S. city a year earlier. But an additional 21,400 new residents coupled with San Diego's loss of nearly 8,300 moved the Alamo City up one spot.

No doubt about it. Populations in big Texas cities are burgeoning.

In the five years ending in 2005, Texas was the only state to have more than one city among the fastest-growing in America, and it had four.

Only Los Angeles (up some 150,300 to 3.8 million); Phoenix (up nearly 140,000 to 1.5 million) and New York (up more than 134,500 to 8.1 million) added more new residents than San Antonio and Fort Worth.

Looking at 2000-05 population growth by percentage makes little difference in the overall picture. Texas metros still dominate the nation.

Las Vegas - billed as the fastest-growing city in America for many years - was second with a 13.6 percent gain. Arizona was the only other state with more than one city in the top ten fastest-growing cities by percentage (No. 3 Phoenix, 10.6 percent; No. 8 Tucson, 5.8 percent).

In the past year, Texas cities appear to have been growing even faster.

Only Phoenix, which added nearly 44,500, could claim more new residents than the big Texas cities during the year.

In percentage growth for the last year, Texas once again dominated as the only state with more than one city on the list.

Of the 1,203 Texas "places" reported by the census in 2005, 70 percent had grown in the past five years. Another 3.5 percent remained the same, and 26.5 percent posted population declines.

Towns and cities in the Beaumont-Port Arthur area, those in rural areas and those in West Texas and the Panhandle in particular found it difficult to maintain their populations.

Almost hidden in the head count are some smaller Texas cities with percentage population increases that can only be described as phenomenal.

Any talk about population gains invariably raises questions about the other end of the spectrum - those cities that lost population.

In percentage terms, population growth in several small Texas communities is nothing short of remarkable.

In percentage terms, some of the big population losers were among some of Texas' smaller places. Aspermont lost most - 18.6 percent. Pecos was second with 13.2 percent. Morton, Throckmorton and Woodson all lost 12.8 percent. White Face declined by 12.5 percent.

There also were losers among small towns and cities. Kempner lost 4.9 percent, Lampasas 4.8 percent, Lometa 4.7 percent, Texhoma 3.7 percent and Menard 3.5 percent.

Texas population patterns show the state's large cities are not just growing rapidly, but even those such as Austin, which struggled during the post-2001 recession, have recovered.

While such large U.S. cities as Detroit, Philadelphia and Chicago lost population in the first five years of this decade, big Texas cities attracted new residents by the thousands and drove real estate markets to record levels.