By David S. Jones, senior editor, Real Estate Center

COLLEGE STATION, Tex. (Real Estate Center) – A new study from the Real Estate Center at Texas A&M University explains why Texas’ housing market fared far better than other states during the current downturn. It also suggests why the state’s economy is expected to continue to do better than the rest of the nation in the coming months.

“Texas’ lower-than-national-average housing cost is one reason for the state’s higher-than-national-average growth rate,” said Dr. Ali Anari, a Center research economist and one of the study’s authors. “When Texans are able to spend more on nonhousing goods and services, the state’s economy is strengthened and more people attracted. “These results illustrate one of the key reasons the Texas economy outperforms the United States in terms of job growth almost every year,” said Center Chief Economist Dr. Mark Dotzour. “The fact that Texans pay less of their income for housing means they have more to spend on other things that add to the overall quality of life. Texas offers a lower cost of living than many places in the United States.
“This allows Texas employers to be able to attract workers at a reasonable wage rate that allows them to compete successfully in the global economy,” said Dotzour.

Since 1987, the average annual expenditure for shelter per consumer increased in every major American metropolitan market. Texas data for the study came from the Dallas-Fort Worth and Houston-Galveston-Brazoria metro areas because they are among the major metropolitan areas for which consumer expenditure data are available. These two metros accounted for 60.3 percent of Texas labor force last year and 64 percent of Texas GDP the previous year.

“Houston and Dallas consumers spent the smallest shares of their incomes on shelter in 2008 (18.6 percent),” said Anari. The two Texas metros in the study had virtually no increase in their shelter expenditure shares from 1987 to 2008. Houston’s share rose 1 percent while Dallas’ share increased 2.2 percent.

According to the National Association of Realtors, Houston was the only metro in the study to post a home price appreciation, albeit a small one. Dallas had the nation’s smallest home price decline (-3.8 percent). “It is not surprising that the two Texas regions are experiencing normal home price fluctuations,” said Anari. “The risk of a home price decline in Texas is low.

“The study found that the larger the share of housing expenditures in the consumer’s budget, the more home prices in their region have fallen since 2007,” said Anari, who conducted the study along with Center Chief Economist Dr. Mark Dotzour. “Consumers allocate their income among various goods and services,” said Anari. “By doing so, they determine the quantities produced and prices of consumer goods and services. “Regardless of income level, the most important items in a consumer’s budget are food, shelter and clothing. However, no matter how important an item, its share of a consumer’s total expenditures cannot continually increase for a long time.”

When expenditures in a particular category in the consumer’s budget take larger and larger shares of total expenses, consumers look for less expensive substitutes, which can lower demand for more expensive goods and services, leading to lower prices for those goods and services. “For example,” said Anari, “if the price of beef gets too high, people eat more chicken.”

Consumers have two basic shelter choices: buy or rent. Shelter expenses run the gamut from rent to mortgage interest, to property taxes, to insurance, to repairs, to security and other expenses.

“Even when on vacation, consumers have shelter expenses,” said Anari, “from costs on vacation homes to hotels and motels. Family members in college must be housed, and that’s another shelter expense.”
Anari points out that home price changes affect expenditures and wealth. Lower housing costs allow consumers to spend more on other goods and services, leading to higher regional economic growth, increased growth rates, a larger labor force and more demand for goods and services.

“At the same time,” he said, “lower costs and prices of real estate properties can significantly increase economic productivity, lead to more investments and increase economic growth rates.” Where were shelter shares of income highest? California. San Diego-Carlsbad-San Marcos led the nation with 30.8 percent of income going to shelter.  Spending by U.S. consumers accounts for about 70 percent of the nation’s gross domestic product (GDP). Consumer expenditures are critical to the nation’s economy, and since 1980, the U.S. Census Bureau has conducted the Survey of Consumer Expenditures for the U.S. Bureau of Labor Statistics.

Texas Real Estate Center

• Update on Tuscan Lakes in League City: 592 homes are now built; the master plan calls for 1,659 single-family homes. The 870-acre development is at FM 270 and the League City Parkway (SH 96). Four new builders were recently added to the mix with home prices ranging from the $130′s to $300′s.
• First residents at the Voyager Apartment Homes at the Space Center are moving in. The 313-unit complex is the first development to be completed at the new Nassau Bay Town Square. Sizes range from 670 – 1,422 SF, one, two and three-bedroom homes. Location is 18101 Point Lookout Drive, directly across from the Johnson Space Center.
• Fifteen more lots have been purchased by K. Hovnanian in Bentwood at Bay Colony, a Dickinson subdivision.
• The engineering phase is underway for Section 3 of Bayou Lakes on FM 517 in Dickinson.
• Two million dollar renovation and repair is underway on the Clear Lake-waterfront Endeavour condominiums in Pasadena. Available units will be marketed this spring.
• A new builder, Highland Homes, has been added at Creekside in Friendswood’s West Ranch. The south side of FM 518 will be under development sometime this year. Plans include lakes, a community clubhouse and larger swimming pool, parks, greenbelt trails and commercial development.
• Rolling Meadows is a new 124-unit apartment community planned in Kemah on FM 518 near Wal-Mart. It’s affordable housing for active people 55+ — high quality units and monthly rents that are below the market rate. One and two bedroom units will be
  available; amenities include a swimming pool, computer center, perimeter fencing and controlled gate access.

The rapidly approaching April 30 federal homebuyer tax credit apparently inspired Houston-area consumers to house shop, as sales of single-family homes throughout the Houston market rose in March with the strongest sales volume continuing in the upper housing segments. Prices of single-family homes also continued their months-long appreciation.

Overall March sales of single-family homes across greater Houston climbed 10.8 percent compared to March 2009, according to the latest monthly data compiled by the Houston Association of Realtors® (HAR). All single-family home pricing segments except the under-$80,000 market experienced gains, with the sharpest increases in homes priced from $250,000 and above. Sales of all property types rose 14.5 percent in March on a year-over-year basis.

The average price of a single-family home appreciated for the sixth straight month, reaching $212,403, up 10.2 percent versus March 2009. That represents the highest pricing level for a March in Houston. At $154,250, the March single-family home median price—the figure at which half of the homes sold for more and half sold for less—rose 6.4 percent from one year earlier. That represents the 11th consecutive monthly increase in median price and is the highest dollar figure for a March in Houston.

Foreclosure property sales reported in the Multiple Listing Service (MLS) fell by 14.1 percent in March compared to one year earlier. The median price of March foreclosure sales rose 4.2 percent to $87,500 on a year-over-year basis.

Sales of all property types in Houston for March totaled 5,758, up 14.5 percent compared to March 2009. Total dollar volume for properties sold during the month was $1.2 billion versus $938 million one year earlier, representing a 24.2 percent increase.

Homebuyers are nearly out of time to take advantage of the credit since a contract must be in the title company by midnight on April 30, although closing can take place as late as June 30.”

March Monthly Market Comparison

The month of March brought Houston’s overall housing market positive results when all listing categories are compared to March of 2009. Total property sales, total dollar volume and both median and average single-family home sales prices all increased on a year-over-year basis.

The number of available properties, or active listings, at the end of March rose 7.1 percent from March 2009 to 49,030. That represents 2,372 more active listings than one month earlier, in February 2010, and is widely thought to reflect increased activity stemming from the homebuyer tax credit.

Month-end pending sales for March—those listings expected to close within the next 30 days—totaled 4,242, up 14.3 percent from last year. The months inventory of single-family homes for March stretched slightly to 6.7 months compared to 6.1 months one year earlier, but remains better than the national months inventory of single-family homes of 8.6 months, reported by the National Association of REALTORS® (NAR).

Single-Family Homes Update

March sales of all single-family homes in Houston totaled 4,832, up 10.8 percent from March 2009. The increase ended three consecutive monthly declines in sales. Broken out by segment, sales of single-family homes priced between $250,000 and $500,000 rose 30.6 percent in March while sales of luxury homes—those priced from $500,000 to the millions—soared 49.5 percent. Homes priced between $80,000 and $150,000 were up 6.5 percent while those in the $150,000 to $250,000 range rose 11.8 percent. By contrast, sales of homes in the below-$80,000 segment were off 8.4 percent.

Heightened sales activity in the higher end of the housing market drove pricing up again in March. At $154,250, the median sales price for single-family homes rose for the 11th consecutive month, up 6.4 percent from March 2009. The national single-family median price reported by NAR is $164,300, illustrating the continued higher value and lower cost of living that consumers enjoy in the Houston market. The average price of single-family homes in March was $212,403, an increase of 10.2 percent from one year earlier. That represents the sixth straight monthly jump in the average price. Both median and average pricing reached the highest levels ever recorded for a March in Houston.

Townhouse/Condominium Update

The number of townhouses and condominiums that sold in March jumped 30.4 percent compared to one year earlier. In the greater Houston area, 463 units were sold last month versus 355 properties in March 2009.

The median price of a townhouse/condominium slid 8.9 percent year-over-year to $123,000. The average price was flat at $160,886 from March 2009 to March 2010.

South Shore Harbour has been very active with the homebuyers tax credit. Here is a break down of current listings on the market and homes sold in the past 12 months.

 Months of Inventory (estimates the number of months it will take to sell every home currently on the active) – 6.3 months

A 6.3 month supply indicates a stable market.

Average price of homes listed for sale – $267,963

Average price of homes sold – $240,487

 Numbers of homes sold in South Shore Harbour in the past 12 months – 136

 Number of homes for sale currently on the market in South Shore Harbour – 71

This is my April newsletter I e-mail out to my clients. If you would like to receive it monthly enter your e-mail address here.

The media continues to talk about the real estate market “stabilizing”. The reality is until our economy starts to add jobs, real estate sales will be stagnant. Unemployment in Houston decreased from 8.8% to 8.5% in February but that is still well above the 2009 rate of 6.7%. Every market is different. There are areas in Houston that values have actually increased in the past three years and others that have been heavily affected by the recession. The Houston economy for the most part is still driven by the energy sector and the price of oil. Once energy companies start hiring as energy prices increase there should be an increased demand and sales should return to more normal levels or beyond. Energy prices won’t increase until there is more demand which will only happen when the global economy recovers.

I am frequently asked “what will be the impact of the tax credit expiring?” People buy homes because of life events (births, deaths, new jobs, divorces, etc) not because of tax credits and for move up buyers $6500 is not enough to motivate them to move because their costs to buy and sell far exceed the credit. Receiving a tax credit has motivated those who qualify, mainly first time home buyers to act before the April 30th deadline. Once the credit expires I believe there will be a slight short term drop in demand for homes under $150,000 that are typically purchased by first time home buyers.

My biggest concern for the rest of the year is sharp increases in interest rates. Many economists believe rates will increase to 6.5. – 7% by December. While historically that is a very good interest rate it is something that current home owners and buyers are not use to. While 2% increase doesn’t sound like much but that would increase a buyers payment by $192 a month on a 30 year conventional $150,000 note. The total cost of the loan would increase by $52,430. As of today loan rates for non government backed loans (commercial and jumbo loans) are around 7% because investors are expecting higher rates of return with real estate loans. Today the rates for conventional government backed loans (FHA) are 5%. With large deficits looming many economist believe the bond investors will require greater return on US bonds which will raise mortgage rates for consumers. Obviously if the end of the year rolls around with little to no job increase and 7% interest rates the real estate market will be in a tough spot. Only time will tell.

Below information about the National real estate market and Houston real estate market.
Nationally
Unemployment – March 9.7% Unemployment

* Pending home sales have increased across the board with an 8% increase in the South Region.
* Existing-home sales, slipped 0.6 percent nationally to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January, but are 7.0 percent higher than the 4.69 million-unit pace in February 2009.
* Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.
* The national median existing-home price for all housing types was $165,100 in February, which is 1.8 percent below February 2009.
* Distressed homes, generally sold at discount, accounted for 35 percent of sales last month.
* First-time buyers purchased 42 percent of homes in February, up from 40 percent in January.
* Investors accounted for 19 percent of transactions in February, compared with 17 percent in January; the remaining sales were to repeat buyers.
* Regionally, existing-home sales in the the South, slipped 1.1 percent to an annual pace of 1.85 million in February but are 6.9 percent above a year ago. The median price in the South was $139,600, down 4.2 percent from February 2009.

Houston

Unemployment – February 8.5% Unemployment

* February sales of all single-family homes in Houston totaled 3,251, down 5.8 percent from February 2009. This is the Houston market’s third consecutive monthly decline in sales.
* Sales of single-family homes priced between $250,000 and $500,000 rose 15.8 percent in February while sales of luxury homes—those priced from $500,000 to the millions—climbed 14.9 percent.
* Sales of homes in the below-$80,000 segment fell 27.5 percent
* Sanes of Homes priced between $80,000 and $150,000 were unchanged.
* The months inventory of single-family homes for February grew to 6.3 months compared to 5.9 months one year earlier.
* At $147,000, the median sales price for single-family homes rose for the tenth consecutive month, up 6.5 percent from February 2009.
* The average price of single-family homes in February was $203,271, an increase of 12.3 percent from one year earlier. That represents the fifth straight monthly jump in the average price.
* In February 2010, existing home sales totaled 2,681, a 5.1 percent drop from February 2009.

Mortgage Industry

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage dipped to 4.99 percent in February from 5.03 percent in January; the rate was 5.13 percent in February 2009. Single-family home sales declined 1.4 percent to a seasonally adjusted annual rate of 4.37 million in February from a pace of 4.43 million in January, but are 4.3 percent higher than the 4.19 million level a year ago.