"Texas Foreclosure, Delinquency Rates Down" was brought to you by the outstanding agents at Register Real Estate Advisors.

This year we went from extreme drought to a rainy winter and spring.  You never know what the Texas weather will bring and the housing market is very similar.

Many factors influence the underlying reasons for increases and decreases in sales volume that predicts future real estate sales.  The normal flow of the residential real estate market is affected by demand for housing.  Demand in turn is influenced by many “life events” that occur throughout peoples’ lives.  For example, they may:

• graduate from college and get a job;
• get married;
• have children and need a bigger home or a different school district;
• get promoted and move to another city or another neighborhood;
• lose their job and no longer be able to afford the house;
• get divorced and have to sell the house or move into a smaller one;
• buy a second home near their adult children;
• need to move into a smaller, one-story house with less maintenance;
• reach a point at which they can no longer care for themselves and need to move to an assisted-living facility;
• move to the United States from other countries to improve their quality of life; or
• move from other countries and buy homes here to protect their wealth and secure their safety.

The expansive Midwest flooding that made headlines for weeks this spring is a reminder that every now and then nature plays havoc with rivers.  Similarly, certain events and circumstances can cause housing transaction volume to rise significantly.  For example, increases may occur when:

• home prices increase fast enough that the investment motive spurs purchases;
• prices increase even faster and speculators buy homes to flip them;
• prices increase consistently, so people prefer to buy now rather than pay a higher price later;
• mortgage rates drop enough that many people can afford to buy a bigger house or move to a nicer neighborhood without a significant increase in their house payments;
• the government offers tax incentives to homebuyers; or
• houses are affordable to a broad segment of all households and mortgage underwriting standards are lowered to include a broader range of credit risk.

The extreme weather patterns that spawn floods do not last forever.  When they end, the river returns to the normal level within its banks.

At the other end of the weather spectrum is drought, which lowers the river’s water volume.  Transaction volume ebbs, too, when circumstances such as the following occur:

• people are worried about losing their jobs so they postpone buying decisions;
• people are worried that home prices will fall, and they might lose their equity;
• house prices rise so fast that they become unaffordable;
• lenders tighten mortgage underwriting standards, and by doing so remove potential buyers from the market;
• appraisals come in  well below the contract price agreed to by a seller and a buyer;
• cost of homeownership increases (taxes, utilities and insurance);
• lack of liquidity in the market makes it harder to sell homes;
• employers reduce corporate transfers to save money; or
• random scares, such as radon gas or black mold, make media headlines.

Buyers all over the country are still skittish because of all the negative housing headlines.  But there is evidence that Texas’ residential housing market is beginning the gradual, lengthy process of moving back to normal.

And remember, real estate operates in local markets.  What happens in Las Vegas does not really matter to a homebuyer in Abilene.  Each local market has its own story and its own dynamics.  So be familiar with where you are purchasing a home.

Real estate professionals must understand their clients’ psychology—their hopes and fears.  Careful consideration of the factors influencing home sales volume will help buyers and sellers make the best decisions for their circumstances.

"The River Wild – Housing Market Ebb and Flow" was brought to you by the outstanding agents at Register Real Estate Advisors.

During the past decade, Americans witnessed a home price bubble develop and then burst.  The aftermath showed how broadly these bubbles impact the U.S. economy.

To monitor real estate price movements leading to price bubbles, a Real Estate Center research program developed economic indicators that help detect bubbles at both the national and regional levels.

Detecting Bubbles

Real estate bubbles are rapid rises in real estate prices not related to or driven by economic fundamentals, followed by rapid price declines.  In residential real estate markets, property rents, family income and population are economic fundamentals for house prices.  That is, in the long run, home prices are driven mainly by these three economic indicators.  In the short run, the availability and costs of residential mortgage loans, changes in local job markets and imbalances between housing supply and demand can boost home prices, though these are not economic fundamentals.

Economists have developed several economic indicators for monitoring and forecasting real estate price movements by investigating the relationships between economic fundamentals and real estate prices.  Comparisons of long-term real estate price forecasts with their short-term price fluctuations can provide insights into the probable directions of prices.

The Real Estate Center has developed two major economic indicators for monitoring residential real estate prices:  housing costs as a percentage of total family income; and, sales-price-to-rent ratio.  A Center research study (see Center Publication 1944, “Consumer Spending Survey:  Texas Downturn had an Upside”) found that the larger the share of housing expenditures in consumers’ budgets in large metro areas, the more home prices declined from 2007 to 2009.  That study showed the importance of monitoring the percentage of family income spent on housing as a leading indicator for future home price movements.  This indicator offers insights into the likely growth rates of home prices in a region.

Recently released 2009 housing data from the U.S. Census Bureau allowed the Center to investigate whether changes in home prices in Texas metropolitan areas from 2007 to 2009 were related to share of housing costs in family incomes.  The research shows that home price appreciation was lower in Texas cities where housing costs represented a larger portion of family income.

The sales-price-to-rent ratio also can predict real estate price bubbles.  This idea is borrowed from asset pricing literature and the stock market, where the ratio of stock prices to dividends, earnings or profits is used to determine whether stock prices are overvalued or undervalued.  Stock prices are the discounted values of expected future earnings–the larger the expected future earnings, the higher the stock prices.  If expectations prove unrealistic, stock prices generally fall.

Price-to-rent ratios in real estate markets resemble stock-price-to-earnings ratios in stock markets.  Large ratios of home prices to annual rents are indications of potential home price bubbles.  Estimating price-to-rent ratios for Texas metropolitan areas and comparing them with national averages, the Center asserted in two previous articles that the risk of a price bubble in the Texas residential markets was low (see Center publications 1731, “Bubble Talk” [July 2005] and 1854, “Bubble Watch 2008” [April 2008]).

Great Recession Housing Costs, Prices

The median value of owner-occupied housing units in the United States fell 4.7 percent from 2007-09, from $194,000 to $185,000 [see table].  Over the period, only two Texas metro areas, Tyler and Victoria, recorded home price declines.  The median value of owner-occupied housing units in Victoria and Tyler fell 3 percent and 1.5 percent, respectively, from 2007 to 2009.

Odessa had the largest percentage of home price appreciation (28.3 percent) followed by Abilene (13.7 percent), Beaumont-Port Arthur (13 percent), Midland (12.1 percent) and El Paso (11.1 percent).  Home price appreciation in the Odessa and Midland petroplexes likely was influenced by record high oil prices in 2008 when the price of West Texas intermediate crude oil reached an all-time high of $140.20 per barrel.

The state’s larger metropolitan areas also reported home price appreciation during the Great Recession.  Austin-Round Rock experienced the largest increase (6.7 percent) followed by San Antonio (5.5 percent), Dallas-Fort Worth-Arlington (3 percent), and Houston-Sugar Land-Baytown (3 percent).

Housing costs include property taxes, insurance expenses, maintenance costs and mortgage costs.  Housing costs as a percentage of total income in all Texas metro areas were lower than the national average of 25 percent, except in Brownsville-Harlingen (26.5 percent), Laredo (28.7 percent) and McAllen-Edinburg-Mission (25.7 percent).  The higher than national average percentages of housing costs in these three metro areas mainly reflect lower total family incomes rather than higher housing costs caused by higher home prices.

Odessa housing costs represented the lowest percentage of income (17.7 percent), followed by Midland (19.6 percent), Beaumont-Port Arthur (19.6 percent) and Longview (20.6 percent).

Among the larger metro areas, Dallas-Fort Worth-Arlington had housing costs representing the highest percentage of total family incomes (24.3 percent) followed by Austin-Round Rock (24 percent), Houston-Sugar Land-Baytown (23.3 percent) and San Antonio (22.6 percent), all lower than the national average of 25 percent.

Plotting home price appreciation in the Great Recession against the housing costs as a percentage of total income for Texas metropolitan areas in 2007 reveals a negative relationship between home price appreciation and share of housing costs.  The larger the share of housing costs, the smaller the home price appreciation.

Texas, U.S. Sales-Price-to-Rent Ratios

Sales-price-to-rent ratios for all the state’s metro areas in 2009 were smaller than the national average of 18.3.  Austin-Round Rock ha the largest price-to-rent ratio (17.4) followed by Dallas-Fort Worth-Arlington (14.7) and El Paso (14.6).  San Angelo has the smallest price-to-rent ratio (10.1) followed by Odessa (10.3) and Brownsville-Harlingen (10.9).

Comparisons of housing costs as percentages of family income and price-to-rent ratios for the state’s metropolitan areas with the corresponding national averages once again show that the risk of a major home price decline is low in the foreseeable future and that Texas has a healthy residential real estate market.

"Bubble Radar" was brought to you by the outstanding agents at Register Real Estate Advisors.

NAR’s Housing Affordability Index rose to the record high 206.1 in January, based on the relationship between median home price, median family income and average mortgage interest rate.  The higher the index, the greater the household purchasing power.

An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20% down payment and 25% of gross income devoted to mortgage principal and interest payments.    For first-time buyers making small down payments, the affordability levels are relatively lower.

NAR President Moe Veissi, broker-owner of Vessi & Associates Inc., in Miami said this latest data underscores buyer opportunities in today’s market.  “This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” he said.  “For buyers who can qualify for a mortgage, now is a very good time to become a homeowner.”

NAR projects the affordability index for all of 2012 will be at an annual high with little movement in mortgage interest rates or home process during the year.  “Housing inventory levels have declined to a point where conditions are becoming much more balanced in much of the country,” Veissi said.  “If access to credit improves, we could see a much more meaningful increase in home sales and broader stabilization in home prices with modest gains in areas with stronger job growth.”

The National Association of Realtors, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

"Housing Affordability Index Hits Record High" was brought to you by the outstanding agents at Register Real Estate Advisors.

The economy gained 266,200 nonagricultural jobs from February 2011 to February 2012, an annual growth rate of 2.6 percent compared with 1.6 percent for the United States. The state’s nongovernment sector added 319,000 jobs, an annual growth rate of 3.7 percent compared with 2.1 percent for the nation’s private sector.

Texas’ seasonally adjusted unemployment rate fell to 7.1 percent in February 2012 from 8 percent a year ago. The nation’s rate decreased from 9 to 8.3 percent.

All Texas industries except the information industry and the state’s government sector had more jobs this February than last. The state’s mining and logging industry ranked first in job creation, followed by the leisure and hospitality, other services, and the professional and business services industry.

All Texas metro areas except Abilene, Beaumont-Port Arthur, Waco and Wichita Falls had more jobs than a year ago. Odessa ranked first in job creation followed by Laredo, Corpus Christi, San Angelo and Midland.

The state’s actual unemployment rate in February was 7.2 percent. Midland had the lowest unemployment rate followed by Odessa, Amarillo, Lubbock, San Angelo and Abilene.

"Texas’ Recovery ‘More Solid’ Than Before" was brought to you by the outstanding agents at Register Real Estate Advisors.

"Get Ahead in a Rising Rental Market" was brought to you by the outstanding agents at Register Real Estate Advisors.

Nearly 28,000 jobs were added in February, dropping the state’s unemployment rate to 7.1 percent, down two-tenths of a point from January.

Unemployment was at 8 percent last February.

Ronny Congleton of the TWC said eight of the 11 major industries saw growth in the state in February, with local governments adding the most jobs. The construction industry added 4,500 jobs, which Southern Methodist University economist Bernard Weinstein said is due to an increase in commercial and infrastructure work.

The lowest unemployment numbers in the state can be found in Midland and Odessa. Their rates are 3.8 and 4.5 percent, respectively.

Beaumont-Port Arthur has the highest unemployment rate in Texas, at 10.9 percent.

"Texas Unemployment Continues Decline" was brought to you by the outstanding agents at Register Real Estate Advisors.

In 2005, California resident Carole Severance purchased several houses on the beach in Galveston. After Hurricane Rita hit that summer, the General Land Office sent Severance a letter stating her property was on the public beach and subject to removal under the Open Beaches Act. She was later offered up to $40,000 in public money to move each house off the beach.

Severance sued, claiming the public’s right to access the beach violated her constitutional rights.

In 2010, the Texas Supreme Court issued an opinion in the case that called into question the public beach easement, a key provision of the Texas Open Beaches Act. The Court ruled that a public beach easement does not exist on West Galveston Island because the original Republic of Texas land patent from 1840 failed to reserve the public’s right to use the beach.

The Court stated in last week’s ruling that even for areas where a public beach easement could be proven by the State, that easement did not “roll” landward and would effectively be extinguished after each new storm event or hurricane that moved the line of vegetation.

In a press release issued by the General Land Office, Texas Land Commissioner Jerry Patterson said the ruling ends any future possibility of much-needed beach renourishment projects for Galveston island’s rapidly eroding west end and will make it impossible for the state to step in quickly to clear the beach of debris after the next hurricane demolishes the front row.

"State Supreme Court Reaffirms West End Beach Ruling" was brought to you by the outstanding agents at Register Real Estate Advisors.

One rule, which took effect yesterday, disqualifies first-time homebuyers with more than $1,000 in medical or other collections from getting an FHA-backed loan. To qualify for the loan, the buyer must pay off the debt or show that three months of payments have been made.

Meanwhile, all homeowners who have FHA loans will have to pay more in mortgage insurance starting next Monday.

They’ll have to pay 1.25 percent of their mortgage balance annually, up from 1.15 percent previously. And up-front mortgage insurance, which is paid at closing, will increase from 1 percent to 1.75 percent of the loan.

"New FHA Mortgage Rules Take Effect" was brought to you by the outstanding agents at Register Real Estate Advisors.

According to the news source, residential real estate in Texas is benefiting from an economy driven by energy production. Real Estate Center Research Economist Jim Gaines agrees.

“The middle of the country, the spine, has done much better than the two coasts,” Gaines said. “A common thread is energy, from Texas to the Dakotas — there has been a real boom time due to the exploration and drilling activity.”

This boom means more jobs. In fact, data from the Bureau of Labor Statistics show Texas ranks in the top ten in job growth from 2001 to 2011.

That helps with housing prices. CNBC reports Houston, Dallas-Fort Worth, Austin and San Antonio saw minimal declines in the bust and are essentially fully recovered.

“The ability of all markets in Texas to weather the national economic storm was due in significant part to the strength of the energy industry,” said Texas Association of Realtors Chairman Joe Stewart. “However, more important than that is the diversity of the Texas economy, which has helped drive job growth and demand for real estate.”

"Texas “Well-Oiled Real Estate Machine”" was brought to you by the outstanding agents at Register Real Estate Advisors.