Consumer Confidence Rebounds
Consumer confidence bounced back in July to highs not seen in nearly six years as Americans grew more upbeat about the economy, according to The Conference Board. The Consumer Confidence Index climbed to 112.6 this month from 105.3 in June, and hasn’t been this high since hitting 114 in August 2001. Consumers were considerably more positive about current-day conditions in July than they were in June. Consumers were also more upbeat about the job market and were less pessimistic about the short-term outlook. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Conference Board July 2007
Pending Home Sales Up Nationwide
A forward-looking indicator based on pending sales of existing homes suggests the market may stabilize in the months ahead, the National Association of Realtors reports. Although the Pending Home Sale Index, based on contracts signed in June, was still 8.6 percent lower than a year ago, it rose 5 percent to 102.4 from the downwardly revised May Index of 97.5. This is the largest monthly gain in more than three years, since a 6.1 percent increase in March 2004, according to NAR. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales. Lawrence Yun, NAR senior economist, said it is encouraging that the increase occurred in all four major regions. The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
NAR August 2007
Housing Price Update: Big D is Big Deal
Standard & Poor’s has released its S&P/Case-Shiller U.S. National Home Price Index. Of the 20 markets tracked by the indices, 15 showed price decreases and five showed price increases. Seattle was up a very strong 9.1 percent, Charlotte a healthy 7 percent and Portland 5.7 percent. Other markets like Atlanta and Dallas had increases of 1.7 percent and 1.8 percent, respectively.
Realty.com August 2007
D-FW Tops in Millionaires
Some 69,710 millionaires called North Texas home in 2006. That’s up 4% from 2005, according to data from Merrill Lynch and Capgemini Group. The Dallas area is expected to have the highest millionaire growth rate in the country during the next five years, at 62.6% compounded through 2011. Houston is projected to have the third-highest millionaire growth rate in the country during that time at 61.3%. North Texas is home to the largest number of millionaire Texans and is ranked No. 6 nationwide. The 2007 World Wealth Report – prepared by Merrill Lynch and Capgemini Group, shows there are 3.1 million high-net-worth North Americans with investable assets of at least $1 million. In 2006, the largest increase in the number of high-net-worth individuals was in Singapore, with a 21.2% increase over 2005, and India with 20.5% growth. The World Wealth Report says that high-net-worth individuals significantly increased their real estate holdings in 2006, and will favor real estate investment trusts and alternate investments in 2007 to 2008.
Dallas Business Journal July 2007
America’s Fastest-Growing Suburbs
The fastest-growing suburb in the nation is Lincoln, California, just outside Sacramento. The fastest-growing big suburb (with a population of 100,000 or more) is Gilbert, Arizona, outside Phoenix. Texas has the lion’s share of the country’s 100 top-growth suburbs, with 20. (Twelve of these are in the Dallas metro area.) These areas have some of the most affordable homes in the nation, because there is plenty of demand.
Forbes.com August 2007
Retailers Flock to D-FW for Results
Dallas-Fort Worth’s retail market is a national phenomenon, one that keeps getting bigger and better. In fact, during this decade alone, our market has added more than 35 million square feet of space. D-FW ranks as one of the most important targets for retailers’ expansion plans for several reasons. These include:
• Population growth. D-FW’s population of 5.8 million now is expected to increase to 6.5 million within four years.
• Housing growth. During this decade, D-FW has added more than 35,000 single-family houses every single year. For 2007, a year when housing construction is dropping, we’re still on track to add 38,000 houses.
• Incomes. The average household income in D-FW is around $75,000 annually.
• Job growth. D-FW consistently ranks as one of the top job-generating markets in the country, and this year will be no exception. We expect to see around 85,000 – 90,000 net new jobs, which is phenomenal growth.
Dallas Business Journal August 2007
Measuring Texas Real Estate Wealth
Real estate properties constitute the biggest slice of theAmerican pie. In 2005, these properties comprised more than 84 percent of the value of U.S. households’ total tangible assets, which include real estate, equipment and software, and consumer durable goods. Real estate also is the largest segment of the tangible assets of corporate and noncorporate organizations. The total value of Texas real estate wealth in 2005 was more than $1.2 trillion, up 8.3 percent from 2004 and 74.6 percent from 1997. Per capita wealth is an important indicator of national wealth. Texas per capita real estate wealth rose from $35,059 in 1997 to $52,874 in 2005. The total value of Texas single-family residences in 2005 stood at $688.2 billion, accounting for 56.9 percent of the aggregate value of the state’s real estate wealth. The aggregate value of multifamily residences in 2005 stood at $61.6 billion or 5.1 percent of the state’s aggregate real estate wealth. From a national perspective, the total value of Texas residential units (single-family and multifamily) in 2005 was 5.4 percent of the aggregate value of residential fixed assets in the United States. The total value of Texas single-family properties increased by 7.8 percent from 2004 to 2005 and by 103.4 percent from 1997 to 2005
Commercial properties are the second most important segment of Texas real estate wealth. The total value of the state’s commercial properties in 2005 was $193.5 billion, accounting for 16 percent of the total value of Texas real estate properties that year. Real estate categorized as vacant lots grew in value from $19.8 billion in 1997 to $30.5 billion in 2005, a 54.1 percent increase. Vacant lands’ share in total Texas real estate wealth has been relatively stable at around 2.5 percent. The total taxable value of Texas real estate wealth increased 74.6 percent from 1997 to 2005.
Texas A&M Real Estate Center July 2007
Homeownership: Along With Diet and Exercise
The National Housing Conference’s Center For Housing Policy and Enterprise Community Partners, two housing advocacy groups, say more than just a roof over your head, homeownership with solid neighborhoods in the mix can enhance the lives of families and their children and improve their futures. A group of reports, “Vital Links: Housing’s Contributions to the Nation’s Health and Education Objectives” makes the case for affordable housing by revealing its benefits.
• Residential stability provided by affordable housing reduces stress and related adverse health conditions.
• Homeownership also contributes to health improvements by fostering self-esteem, better physical and mental health, lower blood pressure and lower levels of depression and alcohol abuse.
• Green building and transit-oriented development strategies can lower exposure to pollutants by improving the energy efficiency of homes and reducing reliance on personal vehicles. Forty percent of the nation’s energy use is consumed in households and private transportation.
• Some affordable housing strategies help families move to communities with stronger school systems and more education-supported environments.
• Homeless children are more likely than their low-income peers to drop out of school, repeat a grade, perform poorly on tests and in the classroom and suffer from learning disabilities and behavior problems.
• Children of homeowners do better in school, up to 9 percent better in math scores, 7 percent better in reading achievement and 1 to 3 percent lower in behavior roblems, than those who live in rented homes.
National Housing Conference Center July 2007
Texas: Still Growing
The “State of the World Population 2007” report finds that over half the world, about 3.3 billion people, will live in cities by 2008, and by 2030, cities will have approximately 5 billion residents. Smaller cities, not major metropolises, will absorb the bulk of urban growth, the report said. In 1910, each of the 10 most populous cities was within roughly 500 miles of the Canadian border, but in 2006,
estimates show that seven of the top 10 – and three of the top five – are in states that border Mexico. Leading all states was California, which had seven cities among the 25 fastest growing. Texas dominated the list of the 10 highest numerical gainers, with San Antonio, Fort Worth, Houston, Austin and Dallas each making the top 10. One reason is jobs. While the country is happy with 4.5 percent unemployment,
Texas’ unemployment rate has dropped from 5 percent to 4.1 percent. Overall, eight Texas cities were among the 25 biggest numerical gainers to lead all states. On the list of the 10 fastestgrowing cities were three in the Dallas metro area: McKinney (ranking second), Grand Prairie (sixth) and Denton (ninth). In the same vicinity, Fort Worth just missed the list, ranking 11th. New York continues to reign as the nation’s most populous city, with 8.2 million residents. That’s more than twice
the population of Los Angeles, which ranked second at 3.8 million.
Realty Times June 2007
“Home” – is What?
According to the U.S. Department of Health and Human Services, Administration on Aging, the older population, represents 12.4 percent of the U.S. population, about one in every eightAmericans. By 2030, there will be about 71.5 million older persons, more than twice their number in 2000, or 20 percent of the population.
Progressive builders understand that for olderAmericans, a home is much more than a place to live. It is increasingly becoming a smaller part of a larger community of like-minded individuals who seek easy access to products, services and other life-enhancing features that meet their needs and desires as older adults. If the statistics above are not convincing enough for builders to consider adding “senior living services specialist” as an ancillary product, perhaps these numbers will. According to the U.S. Government Accountability Office, the federal government will face a fiscal crisis as the cost of entitlement programs for OlderAdults is expected to exceed revenues with the retirement of the baby boomers. From the consumer perspective, AARP data consistently shows 9-in-10 older adults want to, or by necessity, will “age in place” or stay in a home with living services and other like-minded individuals for the remainder of their lives. Furthermore, AARP surveys of younger adults (age 45 and older) also indicate the vast majority of adults
(better than 80 percent) want to age in place and expect to receive the services needed to do so.
Realty Times August 2007
Second Home Better Than Stocks?
Conventional wisdom still holds that common stocks offer the best returns over time. If you measure cash-on-cash return, this may be true, but when you look at total return, the picture changes. The ownership of real estate offers four distinct advantages over stocks:
1. Real estate prices are less volatile in most areas. As seen in the opening years of this century, stocks can move a great deal in both directions. This makes ownership of stock a crapshoot, with profit solely dependent on timing. House prices fluctuate, but within a lesser range. If real estate prices don’t shoot up the way stock prices do in a bull market, real estate markets don’t crash the way stocks do when the bull runs out of steam. In short, it’s a less risky investment.
2. Real estate is a leveraged investment. You can own a second home with an equity investment (down payment) of no more than 20 percent. In fact, there are many programs that let you buy with a lot less. Most people can’t do this with stock. So, when the price of a stock rises 5 percent, you make 5 percent on your money. If your real estate rises by 5 percent value, your return is upwards of 25 percent.
3. Real estate is tax-advantaged. Any interest incurred for the financing of a second home is deductible from ordinary income for tax purposes. If your second home becomes an investment property, tax can be deferred and sometimes eliminated. You still pay capital gains tax on stock and you can’t deduct the interest on any debt incurred for the purchase of financial assets.
4. And finally, you can live in real estate. Stock certificates are pretty, with great colors, cool writing and embossed letters. Unfortunately, you can’t go to sleep in them or stand on them to watch the sunset over the lake, or hold a party for your friends and family in them. They just (hopefully) make you money. Real estate provides many different kinds of satisfaction that money can’t.
Inman News April 2007
NAR Notes Foreign Investment In Real Estate
The 2007 NAR Profile of International Home Buying Activity found that an astonishing number of customers for American property are foreigners. Nearly one in five Realtors has sold a home to an international client in the past year. The NAR classifies an international client as “a foreign citizen living abroad who has legally entered the United States to purchase a home.” Forty-nine percent of international clients bought in the sunny south, while 31 percent bought in the west, 11 percent in the Midwest and nine percent in the northeast. The top countries exporting homebuyers to the U.S. were Mexico (13 percent), the United Kingdom (12 percent), Canada (11 percent), India (6 percent), and China (5 percent). Thirtythree
percent were from Europe while Asia accounted for 24 percent and North America (outside the U.S.) accounted for 23 percent. Sixteen percent were Latin Americans. The NAR says that like domestic buyers, international clients prefer single-family detached homes or townhomes, but they also showed a stronger preference for condominiums and apartments compared to homebuyers in general. Forty-seven percent of all international buyers purchased homes exclusively for vacation, while 22 percent were motivated primarily by investment. Nearly a third of foreign buyers cited both vacation and investment as reasons for their purchase. International homeowners spent an average of 4.2 months of the year in their U.S. property in 2006.
NAR July 2007
Texas: International Appeal
Foreign buyers of agricultural land in this country must register their purchases with the United States Department of Agriculture (USDA), which publishes an annual report, Foreign Holdings of U.S. Agricultural Land. Analysis of the report reveals that foreign ownership of U.S. land did indeed increase by more than 1.3 million acres in 2006, to a total of 16.4 million acres, about an 8.6 percent increase from 2005. Of that, 15.9 million acres were classified as agricultural. Maine and Texas lead all states in foreign-owned land. Foreign ownership in Maine stands at 3.6 million acres, 22.6 percent of all foreign-owned U.S. agricultural land. Texas is in second place with 1.7 million acres, 10.4 percent of all foreign-owned land.
Foreign-owned agricultural holdings are divided into forest, cropland, pasture and other land categories. Clearly much of the increase in foreign ownership of U.S. land through early 2006 occurred in forest holdings, which grew by 1.1. million acres, 34.5 percent of which were in Texas. In 2005, foreign investors owned roughly 308,000 acres of Texas cropland, 830,000 of pasture, and a meager 29,000 acres of forest land. By 2006, foreign-owned timber holdings in Texas increased 1,357 percent to over 424,000 acres. According to the USDA, John Hancock Life Insurance and its subsidiaries are responsible for the majority of this activity. John Hancock is indirectly owned by Manulife Financial, a leading Canadian-based financial services company. The main buyer of timberlands under this umbrella is the Hancock Timber Resource Group, one of the largest timber investment management organizations (TIMOs) in the United States. TIMOs’ investors are primarily institutional and high-net-worth individuals or families. Much East Texas timberland has changed hands in recent years as the major timber companies continue to sell their land holdings. In February 2007, the lone holdout, Temple-Inland, announced plans to sell 1.8 million acres of timberland in Texas, Louisiana, Alabama and Georgia.
Texas A&M Real Estate Center July 2007
Luxury Home Trends
The Luxury Home Council recently released results of “The 2007 Membership Survey of Luxury Housing Market Trends.” Highlights from the report include:
• The largest percentage of luxury home buyers falls into the 40-50 age group (48 percent) followed closely by the 50-65 age group (44 percent).
• The most common occupation of luxury home buyers is that of an entrepreneur (51 percent), followed by large business executive (46 percent) or medical doctor (24 percent).
• The number one service affluent home buyers are interested in receiving from their luxury home specialist is help in finding a home (86 percent) followed by help in managing the transaction (56 percent), and expert counsel during a negation (43 percent).
• The average luxury home buyer spends 11 weeks looking for a home and views 12 homes.
• Luxury home buyers on average search for homes consisting of at least 3500-4000 square feet, with 4-5 bedrooms, 3-4 bathrooms.
• When selecting a home to purchase luxury home buyers often search for a home that will provide a lifestyle, not just a place to live. The most popular amenities include gourmet kitchens (95 percent), master bedroom suites (86 percent), specialty construction items (66 percent), high end appliance packages (64 percent), home office suites (58 percent), and home theater rooms (55 percent).
• By far the vast majority of luxury home buyers active in the market today are best described as “new money.” This means that they are not merely living off the successes of past generations. Luxury Home Council June 2007 Texas: Alive and Well
Moody’s Economy.com has devised a Business Vitality Index rating the overall vitality of a metro area by looking at a range of factors. In June, their Top 50 Metro Areas rated Dallas as 27, Houston at 32, and Longview as 45. Considering local, state and federal tax burdens as a percentage of each state’s income, Texas ranked 42nd, with 29%, well under the U.S. average of 32% or New York’s 37%, D.C.’s 36%, or California’s 34%. Texas was third for investing in venture-backed companies, with 176 deals, at a value of $1,384,577,200, behind Massachusetts with 368 and California with 1,445. New York had more deals with 190, but at a lesser dollar volume. And Texas held its own with patents issued – 6,345, second only to California’s 23,579 and ahead of New York’s 6,075. One more statistic of interest – in the hunt for hunks our state ranked 22nd in the ratio of unmarried men, age 15 –
44, per 100 unmarried women, same age – 110 to 100.
Moody’seconomy.com July 2007
The Price is Right
Texas land jumped 23% per acre from 2005 to 2006. The 2006 price represented appreciation at a 14 percent annual compound rate since 2001 and a more than 90 percent total increase over the five-year period. This was the fourth straight year annual price growth exceeded 10 percent. Sales volume remained strong. Fueled by high demand, Texas recorded 8,215 sales, slightly below 2005’s record volume of 8,368. The explosion in land-buying activity that began in 2002 continues unabated.
At 98 acres, the typical transaction remained at the low end of the size spectrum. The drop in tract size roughly coincided with the increase in sales volume as a growing number of buyers scoured the countryside for properties that met their land purchase budgets. The rush to subdivide larger holdings has resulted in a shortage of larger properties. As Texas evolved from an agricultural to an urban-based society, nonfarm buyers flocked to the countryside, buying acreage for recreation and investment. In the past decade, theses buyers have come to dominate the market activity. Many land market participants note that 1031 exchanges, often involving buyers from outside Texas, are motivating a substantial number of transactions in Texas land markets. And rising corn prices, in response to an expected increase in demand for ethanol, have prompted farmers to return to the land market. All three of the traditional pools of prospective buyers – consumers, investors and producers – should be active in Texas’ land market in the next year. The highest percentage price gains were geographically dispersed. Urban areas near Houston, Dallas and San
Antonio all increased more than 30 percent, fueled by demand from homebuilders, developers and private equity firms. The Wichita Falls area continued to grow rapidly, as did San Antonio and Fredericksburg. In 2007, forces propelling prices upward have accelerated and expanded. Markets appear posed to reach even higher
levels. Some investors seem to sense inflation ahead and are searching out tangible assets, including land. Meanwhile, institutional and foreign investors have developed an appetite for Texas forest land.
Texas A&M Real Estate Center July 2007
Cities See Signs of a Turnaround
The latest trends offer some hope for an eventual recovery in a U.S. housing market that generally has been cooling since mid-2005. Even so, many economists and industry executives say that recovery will be very gradual and won’t start before 2008 at the earliest. That’s partly because more stringent lending policies are keeping many potential buyers on the sidelines, while others are holding off in hopes of prices heading even lower. Lenders are adopting federal guidelines for nontraditional mortgages, making it harder for borrowers to qualify for mortgages that allow them to pay interest but no principal in the loan’s early years, or make a minimum payment that may not even cover the total interest owed. Fannie Mae and Freddie Mac, which purchase loans from lenders and package them into securities, will apply the guidelines to loan applications beginning in September.
Wall Street Journal, July 2007
Consumers Don’t Understand Credit Scores
A new national research study found that American consumers have a “poor” grasp of the mechanics and importance of credit scores – a lack of knowledge that can cost them thousands of dollars needlessly when it comes to obtaining a home mortgage.
The study, conducted by pollster Opinion Research Corp. and sponsored by Washington Mutual and the Consumer Federation of America, surveyed a nationally representative sample of more than 1,000 consumers. Misunderstanding about credit scores were rampant:
• Less than a third (29%) of respondents were aware of the meaning or used of credit scores – that they predict the risk of nonpayment of loans.
• Less that half (47%) knew that Experian, Equifax and Trans Union are national credit bureaus.
• Less than a quarter (24%) knew the lowest FICO score needed to qualify for a low-cost mortgage generally is around 700.
• Only 45 percent of consumers polled were aware that they have more than one score-one each from the three credit bureaus.
• A stunning three quarters (74%) of respondents said they believe that their income level influences their credit score – despite the fact that the credit bureaus have no access to data on personal income. The potential impact on home buyers is especially severe. Using data compiled by Fair Isaac Co. from regular surveys of mortgage lenders, if an applicant seeking a $300,000 fixed rate mortgage raised his or her credit score from 580-619 to 660-669, the applicant would save $5,148 in annual interest payments. Raising the score from 620-639 on a 15-year home equity loan of $50,000 would cut annual interest costs by $1,044.
Opinion Research Corp., July 2007
Bernanke promises new rules for unfair lending
The Federal Reserve will propose new rules to combat unfair or deceptive mortgage lending practices later this year, Chairman Ben Bernanke has told members of the House Financial Services Committee. In his prepared remarks to lawmakers, Bernanke noted federal regulators have already improved disclosures for adjustable-rate mortgages, requiring better explanations of risks like payment shock and negative amortization. And by the end of the year, he said, the Federal Reserve will propose changes to Truth in Lending Act rules governing incomplete or misleading
claims in mortgage loan advertisements. “Promoting access to credit and to home ownership are important objectives, and responsible subprime mortgage lending can help advance both goals,” Bernanke said. “In designing regulations, policymakers should seek to preserve those benefits.”
Inman News, July 2007
Harvard Studies Impact of Immigration
The number of legal immigrants into the U.S. is abut one million annually, and between 300,000 and 500,000 illegal immigrants move into the U.S., too, says research gathered by the Joint Center For Housing Studies at Harvard University for its yearly report, The State Of The Nation’s Housing. Over 10.5 million illegal immigrants resided in the U.S. as of January 2005. California, Texas, Florida, Georgia and Arizona are among the states with the fastest-growing foreign-born
populations. One quarter of the nation’s immigrants live in California in 2005, and 62 percent of foreign-born populations live in just five states. One out of every five people in the 25-34 age group, which are the peak years for household formation, are foreign-born. Household formation helps drive housing growth. The foreign-born “contributed over 40 percent of the net household formations between 2000 and 2005, up from less than 30 percent in the 1990s and a little over 15 percent
in the 1980s,” says the report. In some parts of the nation, minority growth has been significant. Hispanic households are four out of ten new households in the Northeast and the West. In California, New York, New Jersey and Florida, the foreign-born made up to 20 percent of homebuyers and 25 percent of renters. Not only are minorities major consumers of housing – they help build houses. In California, Texas
and Arizona, construction forces were over 38 percent foreign-born. The Joint Center finds that minorities will account for 68 percent of 14.6 million new households between 2005 and 2015. Hispanics will account for 35 percent of that growth. Among echo-boomers (those born between 1985 and 2004,) minorities will make up 40 percent of household growth and Hispanics will drive nearly 20 percent of household growth through 2015. Hispanics will be the major focus for starter home, move-up, and entry-level apartment homes.
Realty Times, June 2007
Are You Leaving a Tax Deduction on the Table?
If you refinanced your home recently, you’re not alone. According to Plunkett Research, approximately $1.1 trillion dollars in mortgage loans was refinanced in the United States last year. But did you remember to take an increased mortgage interest deduction on your tax return if you were entitled to one? Here’s how it works. You are allowed to take a deduction on your personal tax return for mortgage interest you pay on a loan that is secured by either your principal residence or a second home, up to one million dollars in acquisition indebtedness. That means mortgages, lines of credit and home equity loans all qualify, as long as they are secured by your home, and you are the primary borrower, and legally obligated to repay that loan. The amount you can deduct depends on your mortgage. If your mortgage is more than $1 million, you can deduct all of the interest you pay on the first million, but you can’t deduct any more interest after that. Same goes from home
equity loans of more than $100,000. You can deduct all the interest you pay on the first $100,000 of debt, but you can’t deduct any remaining interest. As with most things, there are some tax loopholes around that as well. It all has to do with what you do with the money you get from the loan. If you have an Option ARM (adjustable-rate mortgage), and you have been paying the interest-only option, then theoretically your entire mortgage payment is tax-deductible if is fits under the $1 million cap. Another type of Option AM featured a “deferred” component, which meant not only could you defer your principal payments, you were also able to defer a portion of the interest due. However, when it comes to your taxes, taking the deferred option route means your mortgage interest deduction is limited to the interest you actually paid. This makes sense – after all, why should you get a tax deduction for money you haven’t paid out? And you don’t lose anything, either. The interest deduction is merely suspended until such time as those extra interest payments are made. When the Option ARMs began to adjust (and turn into traditional mortgages), many people found that their new mortgage payments were too high and the rush to refinance into lower payments was on. In most cases, a portion of the refinanced loan was also attributed to catching up on all of the unpaid mortgage interest that had accrued to date. Once you’ve refinanced and paid off that accrued interest, your suspended deduction is no longer suspended. So does this mean that the interest is suddenly deductible when you replace it with a new note? Perhaps! As of this moment, the IRS has not yet come up with a strong position one way or the other. As with all tax strategies, but especially brand new ideas like this one, make sure you check in with a tax professional who is clearly versed in the ins and outs of the tax code.
Realty Times, July 2007
Park Cities • Preston Hollow • North Dallas • Lakewood • Uptown • Turtle Creek
See your next home at www.alliebethallman.com
Consumer’s Choice Award 2007