Texas Real Estate Poised For Growth As Many Housing Markets Fade

With the white-hot housing market fading in much of the country, it may finally be Texas’ turn for a real estate boom, reports today’s Fort Worth Star-Telegram.

With median home prices sliding and building permits slowing in once-hot markets such as California, Arizona and Florida, both are on the rise in Texas, where home construction has been robust but prices have lagged behind the national averages by a good margin since 2000.

Building permits have declined for four months in a row nationally, a sign that construction is likely to fall. In the Fort Worth-Arlington area, however, building permits have grown at double-digit rates in six of the past eight months. Total building permits for the past year are 21 percent higher than in 2005.

Even home prices, traditionally kept down by Texas’ ample supply of land and builders, are starting to gain some ground. The state’s median price rose slightly for the six months ending in March, while the national average fell, according to the Federal Reserve Bank of Dallas.

“In essence, Texas’ housing market has been driven by economic fundamentals — affordability, new residents and economic growth,” said D’Ann Petersen, an Associate Economist for the Dallas Fed.

Also intriguing is the growing interest from outside investors. Realtors have talked at length about real estate speculators cashing out their holdings in the California and Florida housing market and buying in the Lone Star State – often sight-unseen. Petersen says people and businesses are also moving to Texas, attracted by a low cost of living and strong economy (job growth was up 3.1 percent last year, the state’s best showing since 2000).

“At the same time, California, Massachusetts, New Jersey, New York and other states with elevated home prices lost some population to out-migration,” Petersen said.

The gap between home costs in the Middle America and on the East and West coasts has surged since 2000, more reflective of a housing bubble than of differences in pay scales, job growth, even available land.

• Compare the first-quarter median price of a home in Fort Worth-Arlington ($157,000) or St. Louis ($109,000) to the median prices in Stockton, Calif. ($430,000) or Boston ($360,000).
• Or, how about Lima, Ohio ($75,000), and San Francisco ($745,000), according to the Housing Opportunity Index, a creation of the National Association of Home Builders and Wells Fargo.

Factor in the median incomes to gauge the affordability of a market, and it’s clear that few people can make it work in some parts of the country. In Los Angeles, for example, a family earning the median income can afford fewer than 2 percent of homes in the market. In Indianapolis, more than 90 percent of homes are affordable to families with a median income.

A separate analysis by Global Insight and National City Corp. reiterates those trends and projects where changes are more likely to occur. Their model considers home prices, mortgage rates, household income, population density and the market’s historical premium or discount. And it assesses whether a city’s housing is overvalued or undervalued and by how much.

In the first quarter of 2006, home prices in 71 U.S. metropolitan areas were classified as extremely overvalued, meaning homes were selling for at least 34 percent more than economic conditions would predict. That was unusually high, a figure representing 39 percent of the value of all U.S. single-family homes. Two years ago that figure totaled just 1 percent.

California and Florida post 17 of the top 20 overvalued markets (the Naples housing market taking the cake), while at the other end of the spectrum, Texas boasts eight of the 10 cities deemed most undervalued. Houses in Dallas-Fort Worth are going for 19 percent less than where economists would project their market value, while Houston is much the same at 16 percent below.

Limited price appreciation has actually led to foreclosures becoming a growing problem in North Texas, as home values haven’t climbed enough to let cash-strapped borrowers tap equity or sell their homes to cover their costs. In the Sunshine State, rising Florida home loan costs (particularly in the case of adjustable-rate mortgages) result in delinquencies for many as payments spiral out of control.

Interestingly, Fort Worth homes were 54 percent overvalued, according to Global Insight, in 1986. They proceeded to decline 16 percent between then and 1989. Homes in Austin were 48 percent in 1985, falling 30 percent from 1986-1990. This time, the housing market is set to move in the other direction — the only question is how much, and for how long.