MARKET BREAKDOWN
STATE SPOTLIGHT: TEXAS
matter where you are. When the supply starts to outpace the demand, you'll start to see a correction. It starts with prices flattening, continues with sales volume declining and ends with price reductions. That is starting to happen with luxury for-sale and rental product in high-density settings, especially when more affordable alternatives are nearby. I have seen some recent proposed devel- opments in San Antonio and Austin that have me concerned they may be follow- ing a similar path, but that is only a small part of the market. Overall, I expect 2018 to be another banner year for the Texas housing market as a whole." DALLAS-FORT WORTH (DFW) “The Big D" Since 2016, analysts have been placing DFW on the lists of most overvalued cities in the country and talking about housing market corrections in the area. Brian Spitz, owner and president of Big State Home Buyers in Houston, had a front-row seat for one of the worst natural disasters to hit the Bayou City in recent years. He relat- ed his personal experience with real estate investing and natural disaster recovery as it happened in Houston after Hurricane Harvey. " Whenever there is a market event like a flood, the people who buy and sell first get the most money. We have seen that to be true in Houston. Flooded-home prices have fallen in certain areas of the city because the people who would have been the most willing to buy those properties already bought what they need. Properties coming to the market now require a new segment of
And for many more years than that, DFW home prices have continued to rise. Since 2010, DFW values have risen more than 40 percent, thanks in large part to eco- nomic incentives and tax benefits offered both on state and local levels that have brought in a vast array of businesses in nearly every industry sector. “When you look at the economy of DFW, it is the most beautiful pie chart you could ever see from an economic stand- point because we do not rely on any one or even two or three things,” said Ryan Bowers, president of DFW-based Prime Properties Realty, a turnkey investment provider. For example, Bowers noted, although many people did lose their jobs during 2009 due to the financial crisis, those individuals did not flood the market and experience sustained unemployment to the same degree their counterparts did elsewhere in the country. “For example, near our office a huge Countrywide office people to buy them as they decline in price, and it represents a rare opportunity for new investors to buy on the open market. “It is very rare any time you can buy houses for 40 to 60 percent of their val- ue, and only a natural disaster will push those prices down. Most investors are scared by the size of the remodel and the uncertainty of whether the Houston housing market will recover, but Texans are resilient, and Houston is a strong community. In a lot of local areas, it’s already recovering. These properties are a really good opportunity for new inves- tors to enter the market and have equity. “I advise investors to not be afraid to make offers. The critical piece is that you repair correctly. Go the extra mile to permit and inspect everything. Do
closed, and all of those people were out of a job. Because our economy isn’t solely based on the financial industry, though, they were able in many cases to find work elsewhere,” he said. At Bowers’ company, investors often purchase mid-level (B class) rental proper- ties in areas of DFW that are likely to expe- rience growth in the next five years or so. Rehabs and renovations tend to be slightly more focused toward retail buyers than toward renters even though the properties start out as cash-flowing rentals. Then, when prices rise sufficiently, investors sell before the local market levels out. This shift toward higher-level up- grades and rehabs has been spreading across all levels of the DFW market, observed Blake Johnson, owner of Fin- ishing Touches Remodeling and a reg- ular on "Flip or Flop Fort Worth." “The dynamics in this market are changing tremendously when it comes to the
A view of the Austin, Texas, skyline.
HURRICANES, HOUSTON, REAL ESTATE & RECOVERY
cent year-over-year in Q3 2017, with new home prices just under $290,000 and still relatively affordable compared to West Coast cities with similar job markets and a profusion of high-tech professionals, scientific experts, and technical services providers, many of whom are now mi- grating eastward to Texas. “Our previous governor, Rick Perry, went out and solicited companies to come to the state of Texas and bring their headquarters, their sub-headquarters, and lots of jobs with them, which drove prices up everywhere when they relocat- ed,” observed Cathy Crowe, a team lead- er at All Star Home Group Realty and 30-year veteran of the Texas real estate industry. “That hard work is one reason we are seeing these huge price increases across the state,” she added.
cord-breaking year in the housing market, but there are many factors for investors to consider in 2018. The updated U.S. tax plan, slowing job growth, and increased costs of buildings supplies could lead to an overall slower 2018 market," warned local realtor Pirie Humphries. However, investors should be aware a pending overhaul of the local development process called CodeNEXT "could allow for more opportunities for land development and potentially more afford- able housing," she added. "Even in hot markets like Austin, housing retains relative value to more expensive markets and should remain attractive to new transplants," said Investability Solutions CEO Dennis Cisterna. Investability provides a wide variety of services to the single-fami- ly rental sector in multiple markets, provid- ing Cisterna with a comprehensive view of the national market and Texas' place in it. Cisterna also offered a caveat: "There is always a ceiling to prices, no
AUSTIN “Silicon Hills” In July 2017, Forbes named Austin one of the “most overvalued cities in the United States,” citing a hot demand for housing in Texas’ capital city as the main source of ana- lysts’ estimated overvaluation of 17 percent. Fitch Ratings analyst Samuel Ho pointed out in response to the findings that a label of “overvalued” does not necessarily mean that a city is in economic trouble, but rather tends to mean analysts believe “home prices are just growing too fast compared to the fundamentals” like wage growth, population growth, unemployment, and rental rates. As if to counter the accusation of overvaluation, by Q3 2017, Austin-area builders had started 12.5 percent more homes than they did during the same period in 2016. This was the highest posting of housing starts in 10 years. Furthermore, in the extended metro area, new home starts were up 19.1 per-
Brian Spitz
everything possible to maintain the integrity of the house. “On a broader note, I would say any market that has a stable level of growth and decline over the course of any given period of time, like Houston, for example, would be a market where a natural disaster would make for a good buying opportunity.”
Investor Insight: "Austin closed out 2017 with a re-
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