2007 east texas development summit - texas gulf coast …€¦ · dr. james p. gaines research...
TRANSCRIPT
4/23/2008
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Second Homes in Texas:
Current Real Estate Trends and
Long-Term Projections
Woodlands Waterway Marriott Hotel &
Convention CenterApril 20, 2008
Dr. James P. GainesResearch EconomistReal Estate Center
Texas A&M Universityrecenter.tamu.edu
What We’ll Talk About
• Economic Review and Outlook
• Capital Market Chaos
• Land and Housing Markets and Trends
–Prices
–Sales
–Construction & Development
• Demographic Trends
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Economic
Overview
2008 Very Challenging
Economic Environment
• Significant economic slowdown – recession?
• Political uncertainty – taxes, laws,
regulations, spending
• Financial uncertainty – credit freeze, liquidity
• “Wait and see” attitude not only in housing,
but whole economy
• Inflation and consumer spending
• Unemployment
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Texas Economy
• Running ahead of US Economy
• Employment Steady Increase
• Low Unemployment
• Personal Income Growth
• Population Growth
• Not immune to forces of national and international events over time
Top 10 Job-Creating States in 2007
Source: BLS
Thousands of jobs created December 2006 to December 2007
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formatted by TexasGulfCoastOnline.com
4/23/2008
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15 Top Job-Creating MSAs in 2007
Source: BLS
Thousands of jobs created December 2006 to December 2007
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Annual Employment Growth
Rates for US and Texas
8Source: BLS
Texas
US
The Texas Outlook for 2008• US job growth less than 1%
• Texas will double the national job growth rate
• Houston, Austin and San Antonio will exceed the state level, Dallas and Ft. Worth likely to be closer to the national growth trend
• Texas housing markets generally strong but “spotty”
• Mortgage interest rates unlikely to change much
• Fall in residential demand: tighter credit, less investment buying?
• Rent and occupancy rates of Texas commercial real estate will continue to rise
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What to Expect• Look for the Fed to cut interest rates further
in spite of inflation
• Gasoline prices will continue to increase
• Massive federal bailout of the banks and
financial institutions labeled as being for
American consumers/borrowers
• Higher inflation and higher taxes
• 2008-2009: “Stagflation?” - high inflation,
low economic growth, job losses
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Chaos in the
Mortgage and
Capital Markets
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Total HH Home Mortgage Borrowing
Source: Federal Reserve, Flow of Funds, D-2, 3/6/2008
$0.5 trillion in home mortgages between
1972 and 1979;
$1.5 trillion in home mortgages between
1980 and 1989;
$2.12 trillion in home mortgages
between 1990 and 1999;
$6.1 trillion in home mortgages between
2000 and 2007
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Mortgage/Capital Market Issues• Problems in the capital and mortgage markets are more severe than
anticipated
– Pricing of mortgage-backed assets by public and private
institutions
– Capital requirements and solvency among major institutions
– Loss of confidence in debt ratings and ratings services
– Plethora of proposed legal/regulatory changes
– Likely mergers, acquisitions and/or bankruptcies
– Law suits
• Return to traditional mortgage loan underwriting: severe impact on
home sales, prices and housing affordability
• Foreclosures will remain high into 2009 and probably early 2010
• Mortgage delinquency/default problems are spilling over into
business and consumer debt delinquencies further exacerbating
credit problems
• Plenty of liquidity in market, nobody knows how to or is willing to lend13
Percent of Foreclosures Started by
Type of Loan 4Q2007
Type of Loan
Percent of
Outstanding
Loans
Percent of
Foreclosures
Started
Source: Mortgage Bankers Association, National Delinquency Survey, March 6, 2008
California and Florida have 39% of all prime ARM loans, but 47% of
foreclosure starts for prime ARMS; the two states have 29% of Subprime
ARMs and 36% of subprime ARM foreclosures. 4Q06-4Q07 foreclosures
in FL tripled; CA doubled.
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Monthly Foreclosure Filings
Source: RealtyTrac, Inc. Data include Notices of Trustee Sales plus Notices of Foreclosure Sale
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US
Housing
Market
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Housing Fall Off
• Unlike past housing downturns, this one not preceded by rising interest rates or unemployment
• Causes:
– Falling affordability leading to lower user demand
– Excess building in fast growing markets
– Slowdown in appreciation
– Fall off of speculative building and “investor” market
– End of “Easy Credit – Easy Terms”
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US Homeownership Rate and the
FHLMC 30-Year Fixed Rate
Source: US Census Bureau; FHLMC (4-quarter moving average homeownership rate)
1970sBaby Boomers enter market;
homeownership grows
1980-1985Mortgage interestrate exceeds 12%;
Homeownership plummets
Since 1997
Low interest
rate and new
mortgage
products;
Homeownership
explodes
FHLMC 30-Year Rate (right scale)
(Percent)(Percent)
4/23/2008
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19Sources: US Census Bureau , NAR, NAHB, NBER
(000s)
Existing SF Sales
New SF Sales
New and Existing SF Home Sales U.S.
20Source: NAR, Real Estate Center at Texas A&M University
US Median Home Prices in 2008
At 2001 Trend, 2008 median prices
should be between $185,000 and
$190,000. 2007 = $217,900,
if 2008 = $187,500 along trend line, down
14%;
if 2008 = $200,000, down 8.5%.
US SF Housing Permits12-Month Moving Average
21Source: US Census Bureau, Real Estate Center at Texas A&M
22Source: US Census Bureau, NAHB
(000s Units)
Inventory of New SF Homes For SaleMonths Inventory
Excess of about 475,000 units
plus new construction in 2008
at annual sales of around
700,000 will take several years
to get back to balance
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Texas
Housing
Market24
The Texas “100,000 foot” View
• 2006 peak of current housing cycle in Texas, not sure
about the trough – when or how long
• Sales-transaction volumes down probably 5% to 10% by
year end – a return to long-term “norm”
• Home prices across the state continue to rise, but
slower
• Significant and needed decline in new home
construction – permits down about 30% from ’06
• Period of “easy credit, easy terms” over
• Biggest current threat is recession
• Long-term outlook for Texas is substantially positive
over next 25 years
4/23/2008
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U.S. and Texas Median Home Price
Source: NAR; Real Estate Center at Texas A&M University
Texas is a housing bargain.The gap between the US and Texas median price has widened from around 25% to 33%.
Price Distribution of Texas Home Sales
26Source: Real Estate Center at Texas A&M University
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Home Sales
Outlook
Texas Home Sales 12-Month Moving Average
28Source: Real Estate Center
29Source: Real Estate Center at Texas A&M University
Annual Texas Home Sales2003 Trend
2007 = 272,100 about 5% decline from
2006.
2008 = 262,000 (4% less)
2009 = 272,000 back = 2007
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Texas Home
and Land Price
Outlook
4/23/2008
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31Source: OFHEO
US and Texas Appreciation4Q2007 HPI Percent Change Year over Year
US
Texas
US average = 5.4%
Texas average = 4.0%
US = 0.8%
Texas = 5.2%
Texas Homes Appreciate !
Abilene 2.09% Fort Worth 2.89% San Antonio 8.25%
Amarillo 5.25% Houston 4.79% Sherman -0.77%
Austin 7.95% Killeen 6.35% Tyler 3.67%
Beaumont 7.31% Laredo 9.31% Victoria 8.84%
Brownsville 3.87% Longview 3.14% Waco 10.14%
College Station 0.96% Lubbock 0.34% Wichita Falls 4.01%
Corpus Christi 5.15% McAllen 2.13%
Dallas 2.95% Midland 12.31%
El Paso 6.86% Odessa 19.08%
Source: OFHEO, 4Q200732
Texas Median Home Prices2003 Trend
Source: Real Estate Center at Texas A&M
Median Home Price of $154,600 by 2010 equals a 4.8%
increase over 2007.
Annual average increase of 4.4% 1990-2007;
Annual increases of -1.3% in 2008 and 3% in 2009 and 2010.
2003 trend line
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Nominal and Inflation
Adjusted Texas Land Prices
34Source: Real Estate Center
Nominal Prices
Real Prices
Nominal Texas land prices have increased
117% since 2000 and 111% since 1985.
Real land prices are up 87% since 2000 and
26% since 1985.
Texas Land Prices
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Median Price per Acre: LMA 26Counties: Bastrop, Caldwell, Hays, Lee, Milam, Travis, Williamson
36Source: Real Estate Center at Texas A&M University
4/23/2008
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Texas Home
Construction
Outlook
Texas SF Permits12-Month Moving Average
Source: US Census Bureau, Real Estate Center at Texas A&M 38
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Texas SFD Building Permits
Source: U.S. Census Bureau, Real Estate Center at Texas A&M University
-31.3%
-10%
Year
Average Permits Per Month
2002 10,250
2003 11,460
2004 12,600
2005 13,850
2006 13,600
2007 9,340
2008p 8,400
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"If we don't change the direction we are headed, we will
end up where we are going."
Chinese Proverb
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POPULATION
GROWTH
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US Population Growth 2007-2012
Source: Global Insight, Inc.
4/23/2008
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Texas – Poised for a 21st
Century Boom• Population and Economic growth
• Low cost, available labor
• Pro Growth Attitude
• Migration into State from elsewhere
• Attractive Retirement Area
• Pressure on infrastructure, government services, public finance
• Most affordable state for land, housing and overall cost of living
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Things Are Going to Change!
• Urbanization and concentration of population: metro areas will get bigger and so will most of the small/medium-sized towns
• Shift from Anglo to Hispanic majority
• Rapidly increasing public service demands: education, roads, transit, safety, healthcare
• Local Growth/No-Growth/Controlled Growth advocates and confrontations
• Main challenge will be to maintain quality-of-life
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Demographic Overview
• Texas is fastest growing state in absolute number of
people
• Texas is a “younger” state than the US as a whole
• Immigration – foreign and domestic - is the major
contributor to Texas population growth and probably
is significantly undercounted
• Racial/Ethnic mix will reverse in the next 25 years
• Aging Boomers represent a primary force
2000 – 2007 States with Population
Increases > 1 million
Number Percent
Texas 3,052,581 14.6%
California 2,681,560 7.9%
Florida 2,268,419 14.2%
Georgia 1,357,934 16.6%
Arizona 1,208,140 23.5%
North Carolina 1,014,541 12.6%
Source: U.S. Census BureauTable 2. Cumulative Estimates of the Components of Population Change for the United States, Regions, States and Puerto Rico:
April 1, 2000 to July 1, 2007 (NST-EST 2007-02), December 27, 200746
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Top and Bottom 10 States by Domestic Migration:
1990 to 2007
Sources: "Domestic Net Migration in the United States: 2000 to 2007," US Census Bureau; US Census Population Estimates Program
Top Growth MSAs 2000-2007
48Source: U.S. Census Bureau
4/23/2008
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49Source: U.S. Census Bureau, Texas State Demographer
(000s)
Projected Texas Population
2000 - 2030At 50% 1990-2000 rate of immigrationAt 2000-2004 rate of immigrationAt 100% 1990-2000 rate of immigration
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Averaging the projections results in an increase of 13.6 million people by 2030.
another Dallas-Ft. Worthmetropolitan area, plus
another Houstonmetropolitan area, plus
another San Antoniometropolitan area, plus
Over the next 25 years, equivalent of adding:
another Corpus Christi
Central Texas Triangle
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Second Home Markets in Texas:
They’re Everywhere!
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Texas Age Distribution 2005-2030
Boomers
Boomers
2020Boomers
2030Boomers
2005 2010
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Five Generational Groups
to Watch
• Baby Boomers
• Young and Hip
• Retired and Hip
• Immigrants’ Aspirations
• International Vacationers
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Population 65 and Over
• Number 65+ in 2000 = 35 million, 12.4%
• Number 65+ in 2010 = 40.2 million, 13.0%
• Number 65+ in 2020 = 54.6 million, 16.3%
• Texas 65+ in 2000 = 2.07 million, 9.9%
• Texas 65+ in 2010 = 2.59 million, 10.5%
• Texas 65+ in 2020 = 3.76 million, 13.1%
Second Homes in Texas:
Current Real Estate Trends and
Long-Term Projections
Woodlands Waterway Marriott Hotel &
Convention CenterApril 20, 2008
Dr. James P. GainesResearch EconomistReal Estate Center
Texas A&M Universityrecenter.tamu.edu