So the fed dropped a key interest rate again today; that's 2 times in as many quarters. Additionally there have been some employment numbers out. While the quarter percent cut in the discount rate was not the hoped for half a percentage point it was still an indicator that the Fed is watching the credit crisis very closely.
What does it mean to us? Well, locally, Houston's economic outlook continues to be bright; for the most part. If one discounts the stalemate in the real estate market. Employment numbers look better than this time last year. Other expansion projects, especially in the bio-tech and medical sector, have just begun and others are well underway that will provide excellent stimulus to our economy.
The real estate market in Houston is a bit sluggish right now but data from various sources suggests this is merely the result of local consumer's lack of confidence based on national news stories of doom and gloom in far flung housing markets. There are many markets that are showing price gains again, some of them in double digits. In fact the Houston Association of Realtor's consumer web site HAR.com is now number 20 on the list of most popular Real Estate related web sites. Additionally national statistics show some increase in homes sales in the next few months.
It's important to remember that real estate is local. It is affected, sometimes significantly, by economic factors outside the market's geographic area but rarely are those permanent; the local economy holds a much stronger sway over a city's real estate market. Also, too often, news outlets, which are for-profit concerns, are often more concerned with grabbing attention more than presenting news for its own sake.
The best advice I can give; talk to someone who is knowledgeable. Talk to your CPA or investment counselor. Talk to your REALTOR®. Talk to someone in manufacturing or logistics. Find out about their position and you'll have a much better idea of what's coming up and can make a more informed decision.
Tuesday, December 11, 2007
Tuesday, December 4, 2007
It's a nice place ... but I can't afford it
This is a phrase I hear in my practice on a regular basis. Houston is still the 4th largest US city by population and what's more we have a busy amount of new residents relocating. Houston's thriving economy from hydro-carbon and energy companys, education and medical industry draws large numbers of people to live, work and thrive in our cosmopolitan and unique metropolis.
There is a rumor that Houston is one of the 5 most affordable places to live in this country. This is in part based on the very affordable cost of housing and the strong local economy. As I've mentioned before Houston's economy is based around the world and that makes it one of the most resiliant.
If it's so affordable here why do I hear "I can't afford it" so often? The answer is simple; Houston is a VERY diverse area and the cost of housing varies greatly from place to place. Just like any other major urban area there are some areas of town that are more coveted than others.
So how does one overcome this? Well, first of all, consult a professional. Any REALTOR® worth his or her salt will be able to speak intelligently about housing costs and what is driving home values in a given area.
I pride myself on my current knowledge of home prices and the whys and wherefores of those valuations. It's important to know what to compromise on and to look at your home purchase in the long term. When you decide to sell how will the neighborhood look to future potential buyers? Chances are if you were anxious to buy in a particular location others will be too.
Houston is slowly getting more friendly with condominiums, townhomes and other home styles that allows us to densify sensibly while allowing us to live close to the fantastic arts and leisure our great city has to offer and still keep home prices affordable. (Ask me about some of the amazing prices on brand new town homes close to just about anything you can think of!).
Obviously Inner-Loop living is going to be more expensive but here are some ideas to help you find the right place that you can afford:
There is a rumor that Houston is one of the 5 most affordable places to live in this country. This is in part based on the very affordable cost of housing and the strong local economy. As I've mentioned before Houston's economy is based around the world and that makes it one of the most resiliant.
If it's so affordable here why do I hear "I can't afford it" so often? The answer is simple; Houston is a VERY diverse area and the cost of housing varies greatly from place to place. Just like any other major urban area there are some areas of town that are more coveted than others.
So how does one overcome this? Well, first of all, consult a professional. Any REALTOR® worth his or her salt will be able to speak intelligently about housing costs and what is driving home values in a given area.
I pride myself on my current knowledge of home prices and the whys and wherefores of those valuations. It's important to know what to compromise on and to look at your home purchase in the long term. When you decide to sell how will the neighborhood look to future potential buyers? Chances are if you were anxious to buy in a particular location others will be too.
Houston is slowly getting more friendly with condominiums, townhomes and other home styles that allows us to densify sensibly while allowing us to live close to the fantastic arts and leisure our great city has to offer and still keep home prices affordable. (Ask me about some of the amazing prices on brand new town homes close to just about anything you can think of!).
Obviously Inner-Loop living is going to be more expensive but here are some ideas to help you find the right place that you can afford:
- Trade in yard space for living space: Often times you can get more house for the money if you are willing to give up on yard size or even eliminate yards altogether. Remember, our warm weather means nearly all year spent on mowing and upkeep in addition to an exceptionally long fall where leaves will clutter your landscaping for a couple months instead of just a few weeks.
- Have your REALTOR(r) look for undiscovered neighborhood: A savvy REALTOR® will be able to search out those undiscovered neighborhoods that are cost effective but still offer everything you want and need.
- Smaller space for a Better Place: There are very few problems with a home that cannot be cured. Location, however is one. NO matter how fancy the upgrades in the kitchen you can't remodel a home to be further away from a freeway or closer to the school. When buying a home consider losing a few hundred square feet of living space to get into that home on the cul-de-sac or in the better school zone.
- Follow the money: Look for a smaller home in an affluent neighborhood. When the time comes to sell others will undoubtedly do the same. But also, look for a house with lower property taxes and be certain to take advantage of all your exemptions. Lower property taxes can help you afford more home. Again, consult your REALTOR® to find the lowest tax rates.
Hope these tips have helped! Feel free to ask me for details or if you have any questions or comments.
Thursday, November 29, 2007
Discontinuing Tax Incentives
Not a good idea; at least in my opinion.
Congress is searching for a way to fix the mortgage market, correcting the errors of the past and strengthening the sector to survive and avoid future problems. One economist says the best way to do this would be to get rid of the mortgage interest deductions from federal income tax.
Chris Farrell , economy correspondent for APM's Marketplace, says we should discontinue the incentives for owning real estate. His logic says that with Uncle Sam picking up the tab in part on home ownership it's discouraging investment diversification.
I don't agree with this idea or the rationale. Diversification is one of many investment strategies. I prefer to subscribe to the idea of putting your eggs all in one basket but then you protect and nurture that basket. An idea espoused by steel magnate Andrew Carnegie "Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket".
I find that philosophy more consistent with fundamentals of investing; invest in what you know; once you have a goal focus your energies on achieving it. I've always been confused about why we're encouraged to behave opposite of these principals.
Not that I am saying real estate is the only valid investment. I'm saying invest in what you know or what you want to know. Become an expert or find an expert you can trust. Stay in your comfort zone and slowly expand it to encompass more and more in depth information. This strategy is true in the stock market, bond market or real estate. Dollar-cost-averaging agrees with this philosophy.
The key to this is concentration. Keeping focus so that you know you're energies and finances are being spent wisely. Taking away advantages such as mortgage interest tax deduction or capital gains tax deductions would discourage this. Real estate is not an easy investment to make and some would argue, me among them, that owning your residence is not so much a true investment as a hedge. By removing incentives fewer people would be able to own homes.
Keeping homeownership levels high is what this country is all about. Let's keep it that way.
Congress is searching for a way to fix the mortgage market, correcting the errors of the past and strengthening the sector to survive and avoid future problems. One economist says the best way to do this would be to get rid of the mortgage interest deductions from federal income tax.
Chris Farrell , economy correspondent for APM's Marketplace, says we should discontinue the incentives for owning real estate. His logic says that with Uncle Sam picking up the tab in part on home ownership it's discouraging investment diversification.
I don't agree with this idea or the rationale. Diversification is one of many investment strategies. I prefer to subscribe to the idea of putting your eggs all in one basket but then you protect and nurture that basket. An idea espoused by steel magnate Andrew Carnegie "Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket".
I find that philosophy more consistent with fundamentals of investing; invest in what you know; once you have a goal focus your energies on achieving it. I've always been confused about why we're encouraged to behave opposite of these principals.
Not that I am saying real estate is the only valid investment. I'm saying invest in what you know or what you want to know. Become an expert or find an expert you can trust. Stay in your comfort zone and slowly expand it to encompass more and more in depth information. This strategy is true in the stock market, bond market or real estate. Dollar-cost-averaging agrees with this philosophy.
The key to this is concentration. Keeping focus so that you know you're energies and finances are being spent wisely. Taking away advantages such as mortgage interest tax deduction or capital gains tax deductions would discourage this. Real estate is not an easy investment to make and some would argue, me among them, that owning your residence is not so much a true investment as a hedge. By removing incentives fewer people would be able to own homes.
Keeping homeownership levels high is what this country is all about. Let's keep it that way.
Monday, November 26, 2007
Texas: The Super-Consumer Nation-State
Texas sure has lots to be proud of; the only state to join the Union as an autonomous nation, enough arable land mass to house the entire earth's population with 1,000 square feet for each person, some of the most diverse landscape housed within a single state and a lot more. But did you know that Texas is also the leader in emitting the greenhouse gas CO2?
It's true and a dubious honor to be sure. Not an easy one for many of us Texans to grapple with. In fact there are greater issues at stake here. Many people, especially in Houston, are very interested in responsible consumerism. This 'green' trend has even reached into our daily lives as individuals as well as large projects like home construction, new car technology even paper products and light bulbs. In fact light bulbs are a perfect example of the dichotomy of sustainability. The newer energy efficient compact florescent light bulbs take more packaging. More packaging means more natural resources consumed, more space in transit thus more fuel to transport. Is the net savings of electricity enough to balance out the additional consumption of resources and extra emission of these bulbs? Not to mention the specially required disposal needs; compact florescent bulbs, like all florescent bulbs, require special recycling and can't just be dumped into the garbage and into the landfill.
As Texans we have a smaller population than either Wisconsin or California but we provide more carbon gases than both of those states combined. Conservation is more than just recycling and turning out the lights when not in use, it's being aware of the balance required to live a sustainable consumer existence. Fewer trips to the grocery store, combining errands, generating less trash. It's all part of a life-long complex web of actions and reactions.
All in all and above all it requires individual responsibility. On the face of it that's fairly easy to do.; be responsible for yourself and your actions but at the same time we are influenced by the myriad of other inhabitants of this planet. Here are some places you can find suggestions to help you make small changes over time. If we can all make small adjustments the impact could be immense.
Ideal Bite
Green Living Ideas
Campaign Earth
Low Impact Living
For more in depth discussions check Marketplace.org's Consumed special report.
It's true and a dubious honor to be sure. Not an easy one for many of us Texans to grapple with. In fact there are greater issues at stake here. Many people, especially in Houston, are very interested in responsible consumerism. This 'green' trend has even reached into our daily lives as individuals as well as large projects like home construction, new car technology even paper products and light bulbs. In fact light bulbs are a perfect example of the dichotomy of sustainability. The newer energy efficient compact florescent light bulbs take more packaging. More packaging means more natural resources consumed, more space in transit thus more fuel to transport. Is the net savings of electricity enough to balance out the additional consumption of resources and extra emission of these bulbs? Not to mention the specially required disposal needs; compact florescent bulbs, like all florescent bulbs, require special recycling and can't just be dumped into the garbage and into the landfill.
As Texans we have a smaller population than either Wisconsin or California but we provide more carbon gases than both of those states combined. Conservation is more than just recycling and turning out the lights when not in use, it's being aware of the balance required to live a sustainable consumer existence. Fewer trips to the grocery store, combining errands, generating less trash. It's all part of a life-long complex web of actions and reactions.
All in all and above all it requires individual responsibility. On the face of it that's fairly easy to do.; be responsible for yourself and your actions but at the same time we are influenced by the myriad of other inhabitants of this planet. Here are some places you can find suggestions to help you make small changes over time. If we can all make small adjustments the impact could be immense.
Ideal Bite
Green Living Ideas
Campaign Earth
Low Impact Living
For more in depth discussions check Marketplace.org's Consumed special report.
Sunday, November 25, 2007
Case Study #1
Why multiple exit strategies?
Investor A was looking for homes to flip. Now, this is not a practice I recommend in Houston. It is much more successful in Seattle or Atlanta (at least for the moment). Houston's reasonably priced housing market makes it a much better place to employ a buy and hold strategy; more on that later. Investor A was adamant and we began our search for deeply discounted property.
We located a property in Missouri City that was deeply distressed cosmetically but had already been fairly well prepared on the inside; the master bath had been completely gutted, the flooring was already removed, some slate tile had been mostly installed in the 2nd bath and entry way. We put in an offer and eventually got a purchase price of $80,000 for a 3 bedroom, 2 bath, 2000 square foot, 2 car attached garage patio home built in the 80's. It was estimated repairs would be around $16,000. This included new carpet, new paint inside & out, tile for the wet area, new appliances, some yard work and a new A/C condenser (the old one had been stolen). According to the market data the property could sell for between $124,000 and $130,000 quite easily with rents in the area going for between $1,050 and $1,100 for the 3 bedroom homes in the subdivision. A nice $40,000 equity proposition!
Restoration work began immediately or at least they tried. There was no electricity to the property in the quiet subdivision and Investor A came to find out that there was a special inspection and permit required by the city to have electricity turned on in Missouri City's jurisdiction. The inspection revealed there had been tampering with the electrical box and meter and it would need to be repaired or replaced by a qualified electrician. Such an electrician was hired and after some significant costs the investor was ready to have another inspection from the city and request the power be activated.
The power company reported the power was on to the house but the contractor was reporting no power in the house itself. Another electrician was called out and it was discovered there was a problem with the underground wiring from the utility pole to the house. This issue required retrenching and replacing of all the exterior wiring as well as a new meter casing. The final price tag $2,400.
This was just the beginning; when time came to begin work on various parts of the interior it was discovered that all the copper piping and much of the copper electrical wiring had been stolen along with the A/C condenser. The plumbing was completely replaced for an additional $1,900 and the new wiring was an additional $1,000. Finally it was time to replace the A/C unit. The HVAC contractor said the duct work was too old and inadequate for the new model condensers. An additional $3,800 for the required duct work yielded a non-working A/C in addition to breaking the newly installed plumbing. The hard working handy-man was able to restore the plumbing and the HVAC contractor did return and get the A/C working again.
After that the rest of the remodel went great. The cabinets in the kitchen were in great shape and were restored instead of removed and the money saved was used to replace the outmoded sink in the 2nd bath. The porch was screened in and the upstairs hardwoods were in near mint condition. The exterior siding was in good shape and only a few areas needed full replacement. The money saved there was put into two new garage door openers and upgraded carpet and pad (made from recycled plastic bottles with a 10 year warranty and embedded stain resistance).
Only 12 weeks off schedule the home was finally ready to stage and put on the market to sell. This was a blessing and a curse; the conditions of the financing stated the home could not be resold for a profit of more than 20% within 90 days of the purchase without significant penalties. The delays in the rehab worked out perfectly. On the down side the market in the area was beginning to flatten (July 2007) and though prices were holding steady traffic had fallen off sharply and several other homes had come on the market both foreclosure and resale.
The investor was adamant about their price of $125,000 due to the nearly doubling of the rehab costs (still very reasonable at about $24,000 especially considering the all new A/C, electrical, plumbing and master bath) and wanted to be able to still make a profit in the flip while absorbing the cost of the sale (about 8%) as well as the rehab. This would leave only $15,000 profit from what was supposed to be $23,000.
Unfortunately the market continued to slow and Investor A was burning money on utilities and mortgage costs. They had put aside 120 days worth of these carrying costs but 120 was fast approaching and something had to be done to avoid a loss. This is where the multiple exit strategies come in to play.
The Investor decided to market the property for rent and after filling it with a tenant either refinance to get the capitol out or sell it as a turn-key cash-flowing investment. Finding the tenant was no problem; theirs had become the most well improved property in the subdivision and they were easily able to get $50 above asking price and rent the property for $1,200 (the next door house was asking $1,150 and had to settle for $1,100 due to property condition).
It was not as though no one was interested in buying the property. Even with the small amount of traffic Investor A had several offers tendered at or near the asking price but none of the buyers were qualified and were not able to find loans to finance the purchase.
That's actually where the property stands now. It has a positive cash flow of about $200 a month and, according to the lender working on the refi, is worth $129,000. That's not liquid equity but Investor A is willing to wait 12 months, have an extra $2,400 in cash as well as the equity in the property. By choosing a location for the flip that not only had flip potential but a strong rental market the sudden downturn in the market and the added costs of the repairs were easily assimilated and another strategy put in place. Flexibility is a key element in successful investing.
Investor A was looking for homes to flip. Now, this is not a practice I recommend in Houston. It is much more successful in Seattle or Atlanta (at least for the moment). Houston's reasonably priced housing market makes it a much better place to employ a buy and hold strategy; more on that later. Investor A was adamant and we began our search for deeply discounted property.
We located a property in Missouri City that was deeply distressed cosmetically but had already been fairly well prepared on the inside; the master bath had been completely gutted, the flooring was already removed, some slate tile had been mostly installed in the 2nd bath and entry way. We put in an offer and eventually got a purchase price of $80,000 for a 3 bedroom, 2 bath, 2000 square foot, 2 car attached garage patio home built in the 80's. It was estimated repairs would be around $16,000. This included new carpet, new paint inside & out, tile for the wet area, new appliances, some yard work and a new A/C condenser (the old one had been stolen). According to the market data the property could sell for between $124,000 and $130,000 quite easily with rents in the area going for between $1,050 and $1,100 for the 3 bedroom homes in the subdivision. A nice $40,000 equity proposition!
Restoration work began immediately or at least they tried. There was no electricity to the property in the quiet subdivision and Investor A came to find out that there was a special inspection and permit required by the city to have electricity turned on in Missouri City's jurisdiction. The inspection revealed there had been tampering with the electrical box and meter and it would need to be repaired or replaced by a qualified electrician. Such an electrician was hired and after some significant costs the investor was ready to have another inspection from the city and request the power be activated.
The power company reported the power was on to the house but the contractor was reporting no power in the house itself. Another electrician was called out and it was discovered there was a problem with the underground wiring from the utility pole to the house. This issue required retrenching and replacing of all the exterior wiring as well as a new meter casing. The final price tag $2,400.
This was just the beginning; when time came to begin work on various parts of the interior it was discovered that all the copper piping and much of the copper electrical wiring had been stolen along with the A/C condenser. The plumbing was completely replaced for an additional $1,900 and the new wiring was an additional $1,000. Finally it was time to replace the A/C unit. The HVAC contractor said the duct work was too old and inadequate for the new model condensers. An additional $3,800 for the required duct work yielded a non-working A/C in addition to breaking the newly installed plumbing. The hard working handy-man was able to restore the plumbing and the HVAC contractor did return and get the A/C working again.
After that the rest of the remodel went great. The cabinets in the kitchen were in great shape and were restored instead of removed and the money saved was used to replace the outmoded sink in the 2nd bath. The porch was screened in and the upstairs hardwoods were in near mint condition. The exterior siding was in good shape and only a few areas needed full replacement. The money saved there was put into two new garage door openers and upgraded carpet and pad (made from recycled plastic bottles with a 10 year warranty and embedded stain resistance).
Only 12 weeks off schedule the home was finally ready to stage and put on the market to sell. This was a blessing and a curse; the conditions of the financing stated the home could not be resold for a profit of more than 20% within 90 days of the purchase without significant penalties. The delays in the rehab worked out perfectly. On the down side the market in the area was beginning to flatten (July 2007) and though prices were holding steady traffic had fallen off sharply and several other homes had come on the market both foreclosure and resale.
The investor was adamant about their price of $125,000 due to the nearly doubling of the rehab costs (still very reasonable at about $24,000 especially considering the all new A/C, electrical, plumbing and master bath) and wanted to be able to still make a profit in the flip while absorbing the cost of the sale (about 8%) as well as the rehab. This would leave only $15,000 profit from what was supposed to be $23,000.
Unfortunately the market continued to slow and Investor A was burning money on utilities and mortgage costs. They had put aside 120 days worth of these carrying costs but 120 was fast approaching and something had to be done to avoid a loss. This is where the multiple exit strategies come in to play.
The Investor decided to market the property for rent and after filling it with a tenant either refinance to get the capitol out or sell it as a turn-key cash-flowing investment. Finding the tenant was no problem; theirs had become the most well improved property in the subdivision and they were easily able to get $50 above asking price and rent the property for $1,200 (the next door house was asking $1,150 and had to settle for $1,100 due to property condition).
It was not as though no one was interested in buying the property. Even with the small amount of traffic Investor A had several offers tendered at or near the asking price but none of the buyers were qualified and were not able to find loans to finance the purchase.
That's actually where the property stands now. It has a positive cash flow of about $200 a month and, according to the lender working on the refi, is worth $129,000. That's not liquid equity but Investor A is willing to wait 12 months, have an extra $2,400 in cash as well as the equity in the property. By choosing a location for the flip that not only had flip potential but a strong rental market the sudden downturn in the market and the added costs of the repairs were easily assimilated and another strategy put in place. Flexibility is a key element in successful investing.
Saturday, November 24, 2007
What goes down...
There is that old saying "What goes up must come down". Well, the reverse is also true; especially about real estate. We all know "they ain't makin' it anymore" is more true about real estate than anything else. So it makes sense that according to the latest quarterly survey by the National Association of Realtors 93 of 150 major metropolitan areas are showing price gains again. (see full text of survey after the jump)
I'm no doom and gloomer but I don't think we're not entirely out of the economic woods yet. I may change my mind after we see the Black Friday numbers. With a solid return of consumer confidence all bets are off. As I've said before the real economic indicators are just pointing towards a cyclical bear market which is healthy. Best of all it makes us all evaluate our situations and make better choices for the future. So if the shoppers are out in force I think we'll see a return to sanity as early as 2nd quarter 2008.
Americans as a society could afford to return to being a little more savings savvy like we used to be. It's been decades since America was The Land of Savers now we tend to be a little bit more into instant gratification. That means more credit card debt and little if anything in the old savings account. This is a bad trend but it does not change the fact that real estate assigned debt has some of the greatest financial advantages of any debt. Besides saving money on Federal Income Tax it is a great place to hedge your bets against the falling dollar, higher rents and increasingly expensive property. As an investment (i.e. homes you own but do not live in) it offers one of the only fully insurable investments around. Let's see the S&P 500 offer that!
Let's all try to have a little less credit card debt and put a little more into our houses and see how much better off we are at the end of next year.
I'm no doom and gloomer but I don't think we're not entirely out of the economic woods yet. I may change my mind after we see the Black Friday numbers. With a solid return of consumer confidence all bets are off. As I've said before the real economic indicators are just pointing towards a cyclical bear market which is healthy. Best of all it makes us all evaluate our situations and make better choices for the future. So if the shoppers are out in force I think we'll see a return to sanity as early as 2nd quarter 2008.
Americans as a society could afford to return to being a little more savings savvy like we used to be. It's been decades since America was The Land of Savers now we tend to be a little bit more into instant gratification. That means more credit card debt and little if anything in the old savings account. This is a bad trend but it does not change the fact that real estate assigned debt has some of the greatest financial advantages of any debt. Besides saving money on Federal Income Tax it is a great place to hedge your bets against the falling dollar, higher rents and increasingly expensive property. As an investment (i.e. homes you own but do not live in) it offers one of the only fully insurable investments around. Let's see the S&P 500 offer that!
Let's all try to have a little less credit card debt and put a little more into our houses and see how much better off we are at the end of next year.
Thursday, November 22, 2007
Oh man! I feel bloated
But ever so thankful, grateful and just plain FULL!
I'll keep it light and fluffy for today's offering. As friends and family gather around the fire and hearth of home and ken I encourage you all to think happy uplifting thoughts: Here's to a prosperous end of year and continuing on into 2008. I am thankful that consumer confidence is returning. I am thankful that the Leading Economic Indicators are ceasing their downward slide and I am most grateful for my forgiving and long-suffering family that endures my workaholic nature. To make it up to them I baked my fingers to the bone (though I still owe my son a lemon meringue pie).
To all best wishes and a good night.
I'll keep it light and fluffy for today's offering. As friends and family gather around the fire and hearth of home and ken I encourage you all to think happy uplifting thoughts: Here's to a prosperous end of year and continuing on into 2008. I am thankful that consumer confidence is returning. I am thankful that the Leading Economic Indicators are ceasing their downward slide and I am most grateful for my forgiving and long-suffering family that endures my workaholic nature. To make it up to them I baked my fingers to the bone (though I still owe my son a lemon meringue pie).
To all best wishes and a good night.
Wednesday, November 21, 2007
Peaceful Preservation or Progress Paralyzers
... or why the Ashby High Rise and Rail on Richmond are so divisive.
There have been a lot of yard signs and bumper stickers, even t-shirts, for or against various proposals or civic activities by various developers. The two that seem to be sharing the limelight currently are the Ashby High Rise (the proposed development on 1700 block of Bissonet that would provide 210 living units, 10,000 square feet of office space and a full function restaurant) and the Rail on Richmond proposal to bring a line of the light rail from Downtown to the Galleria.
There are supporters and there are detractors. Why would this sort of item cause such a stir in our community? Why are some for and some against? It seems there is no meeting in the middle or happy medium with any of it. Well, I just want to take a moment to voice my concerns; and by the way, I'm for BOTH of them!
Real Estate prices are ever-climbing. Even though Houston's real estate market has declined in September and October there has been a 5.7% price increase over the same period one year ago with the average home price in Houston rising over $199,000. How long can these increases go on with no analogous increase in average income? Or consider the price of gas etc; when those are factored in the picture changes somewhat.
Urban sprawl has overtaken Houston in a big way. Our city's residents think very little of driving 35 miles each way on congested highways to and from work; well, they did until the price of gas nearly doubled. Now it's more and more costly to commute in such a fashion but the rising cost of gas is pennies compared to the cost of a home in Heights or Midtown or Montrose or any of the other work-adjacent living areas.
Affordability is a major player. It's not even that taxes are cheaper in the suburbs; they are NOT. Property taxes in Cy-fair or areas of Klein can be well above 3.5% annually. It's the low cost of homes that is keeping up our collective flight to the Beltway.
With a moderate amount of intelligent densification of the urban area (i.e. inside the Loop 610) we would accomplish several things; shorter commutes means lower carbon emissions, higher population density would make mass-transit a more palatable reality and, presto, carbon emissions lower even further (not to mention fewer cars on the road, less wear and tear on our roads), affordable housing for middle income increases availability and popularity of homes while keeping prices balanced and affordable with actual household incomes.
Those who say "not in my backyard" are really not looking at progress from a balanced perspective. They only care when it's no longer convenient for them but the truth is, short-sighted views of natural resources will result in an even less favorable quality of life and ultimately to lower property values as well.
There have been a lot of yard signs and bumper stickers, even t-shirts, for or against various proposals or civic activities by various developers. The two that seem to be sharing the limelight currently are the Ashby High Rise (the proposed development on 1700 block of Bissonet that would provide 210 living units, 10,000 square feet of office space and a full function restaurant) and the Rail on Richmond proposal to bring a line of the light rail from Downtown to the Galleria.
There are supporters and there are detractors. Why would this sort of item cause such a stir in our community? Why are some for and some against? It seems there is no meeting in the middle or happy medium with any of it. Well, I just want to take a moment to voice my concerns; and by the way, I'm for BOTH of them!
Real Estate prices are ever-climbing. Even though Houston's real estate market has declined in September and October there has been a 5.7% price increase over the same period one year ago with the average home price in Houston rising over $199,000. How long can these increases go on with no analogous increase in average income? Or consider the price of gas etc; when those are factored in the picture changes somewhat.
Urban sprawl has overtaken Houston in a big way. Our city's residents think very little of driving 35 miles each way on congested highways to and from work; well, they did until the price of gas nearly doubled. Now it's more and more costly to commute in such a fashion but the rising cost of gas is pennies compared to the cost of a home in Heights or Midtown or Montrose or any of the other work-adjacent living areas.
Affordability is a major player. It's not even that taxes are cheaper in the suburbs; they are NOT. Property taxes in Cy-fair or areas of Klein can be well above 3.5% annually. It's the low cost of homes that is keeping up our collective flight to the Beltway.
With a moderate amount of intelligent densification of the urban area (i.e. inside the Loop 610) we would accomplish several things; shorter commutes means lower carbon emissions, higher population density would make mass-transit a more palatable reality and, presto, carbon emissions lower even further (not to mention fewer cars on the road, less wear and tear on our roads), affordable housing for middle income increases availability and popularity of homes while keeping prices balanced and affordable with actual household incomes.
Those who say "not in my backyard" are really not looking at progress from a balanced perspective. They only care when it's no longer convenient for them but the truth is, short-sighted views of natural resources will result in an even less favorable quality of life and ultimately to lower property values as well.
Tuesday, November 20, 2007
Builders Gone Wild
It might just be me, but it seems lately, at least among new homes, we've returned to the Halcyon days of a year or two ago. Houston already has more housing starts that any other city in the nation (55,105 for 2006 according to Bank of America Real Estate Survey October 2007) and yet, of late, builders have been proving to be the biggest competition in the resale market. In some areas in our metro resale homes sit on the market while builders down the street sell their product at or below cost.
Most of the time a builder will not negotiate price. Instead they offer incentives; free upgrades of material or decorator options, free appliances, assistance with closing costs etc. But as builders feel the credit crunch they're dropping prices in addition to offering the incentives. This is because it's often more expensive overall for a builder to maintain an unsold home than to slash the price and get it off the books.
The more saavy builders saw the writing on the wall and prepared for this by setting prices on new developments at or below previous year's prices. This is espcially true inside the Loop. My listing in attractive areas of town are sitting there longer while buyers drive past these quality homes to buy something brand new for only slightly more. They're still buying in the best neighborhood and they're getting something 5 or 7 years younger.
It really is the smart way to go. Even a $30,000 increase in sale price only represents a small increase in a mortgage payment when spread out over 30 years (less than $200/mo). That extra payment can turn into more equity at the end of the day; the home is newer, right now the builders are selling at lower prices with more upgrades and buyers don't have to wait if buying homes already in the builder's inventory (now those are the ones the builders want to get rid of!).
Of course, some builders offer more than others and some are better quality so it's wise to consult your REALTOR® for the scoop on the various builders in your area.
Most of the time a builder will not negotiate price. Instead they offer incentives; free upgrades of material or decorator options, free appliances, assistance with closing costs etc. But as builders feel the credit crunch they're dropping prices in addition to offering the incentives. This is because it's often more expensive overall for a builder to maintain an unsold home than to slash the price and get it off the books.
The more saavy builders saw the writing on the wall and prepared for this by setting prices on new developments at or below previous year's prices. This is espcially true inside the Loop. My listing in attractive areas of town are sitting there longer while buyers drive past these quality homes to buy something brand new for only slightly more. They're still buying in the best neighborhood and they're getting something 5 or 7 years younger.
It really is the smart way to go. Even a $30,000 increase in sale price only represents a small increase in a mortgage payment when spread out over 30 years (less than $200/mo). That extra payment can turn into more equity at the end of the day; the home is newer, right now the builders are selling at lower prices with more upgrades and buyers don't have to wait if buying homes already in the builder's inventory (now those are the ones the builders want to get rid of!).
Of course, some builders offer more than others and some are better quality so it's wise to consult your REALTOR® for the scoop on the various builders in your area.
Monday, November 19, 2007
The Opening Volley
So here we are in the 4th quarter of 2007 and we've had quite a bumpy ride. As is typical the Real Estate Market is slower to respond (compared to stocks or money markets) and is lagging behind in recovery. Many consumers are still looking for answers and direction; they want to know if it's safe yet.
Just the Facts Man
How long will the downturn last? Is 'recession' really being pronounced by the pundits? Do I have to worry? We are all asking this question of each other; our colleagues, our friends, ourselves. Let's remind ourselves of some facts that at first appear to be painfully obvious;
Just the Facts Man
How long will the downturn last? Is 'recession' really being pronounced by the pundits? Do I have to worry? We are all asking this question of each other; our colleagues, our friends, ourselves. Let's remind ourselves of some facts that at first appear to be painfully obvious;
- Markets are cyclical; they have to have ups and downs to generate energy to create long-term growth.
- News often becomes a self-fulfilling prophecy.
- External factors weigh heavily on even seemingly unrelated items.
But What Does It Mean?
The Wall Street economists are all using words like "recession" and "down-turn" etc to describe their rather grim vision of the future. Other experts are saying just the opposite. Dave Johnson, a stockbroker and analyst in Dallas Texas says "Don't listen to Wall Street economists". Citing Dr. David Kelly, an economist in Boston: They're all worried about losing their jobs, they're worried about losing their year end bonuses. They're out of touch. Looking at the classic signs, employment, market valuation, the market is not in such bad shape. In fact he reminded us there have been 10 recessions in 60 years and market went up in 6 out of 10 or those 'recessions'.
The market needs corrections. People need to call them something. Many econimists warn that a cyclical Bear market is the only way to remove incorrectly indexed markets and avoid inflation and recessions. Many pundits have stated we've not had a true bear market in a number of years and this is the healthiest thing to happen right now.
What it Means to Houston
The most important thing to remember is lending is a national practice, real estate (and most other activities) are local. Simply put, you don't often buy a car from Tulsa OK if you live in Houston TX. The same is true especially for houses; you buy a house locally. Most people go to work for a company that has a local presence. Loans are regulated by Federal overseers. This means one decision will effect the entire country. Not so with most other elements. As lenders see the error of their ways in lending practices that are unsound and return to investing intelligently in qualified borrowers instead of profit-lusting we'll see a very quick return to stability.
Houston is special because the 3 major elements of our local economy are strong not just locally but bouyed from national and international sources; hydro-carbons are significant to the entire world AND Houston, MD Anderson and Texas Children's Hospital (not to mention Baylor College of Medicine) are international destinations for specialized healthcare, education is the 2nd largest employer in the Houston Metro area drawing in new residents to our city from all over.
Playing Pundit
In my current evaluation we're really well poised for the continued growth that Houston has always expected. Number one in New Home Starts, Prime Destination for retirees, one of the fastest growing cities, good employment numbers; all these point to sustained healthy growth over the long term. I don't think we've hit rock bottom yet; there are some lower prices for homes in the future, longer time for homes to spend on the market waiting for sale and increased inventory. I think we'll see the bottom of that by 1st quarter of 2008 and a distinct recovery by the second quarter. That means buy now and sell later; buyer's market y'all! But that does not mean everything is at fire-sale prices. In fact, since Houstonians are famously frugal there was never a true housing bubble so our correction will be very slight compared to many other places in the nation.
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