Texas Real Estate Daily

Believe it or not, in the future people will be buying and selling homes in the United States. Some of them will even make a profit.

It’s not so crazy an idea. Consider Albuquerque, N.M. The mid-sized Southwestern city has experienced housing price declines since a peak in the third quarter of 2007, job growth has been flat, and housing starts are expected to fade by 45% through the end of 2008. Nevertheless, it’s a city that home builders and economists are bullish about for 2010 and beyond.

According to analysts at Moody’s Economy.com, Albuquerque’s job growth through 2012 is projected at an average annual rate of 1.6%, fueled in large part by its low costs and local business expansion. Housing starts in the city are expected to reverse course in 2009, growing by 26.6%, according to the National Association of Home Builders (NAHB). This means builders have high hopes for 2010 and 2011, when those homes will be completed and on the market.

It’s the same story in several other cities: more tough times to come in the short term, but potential for a recovery and a rise in prices in the long term.

Behind The Numbers

To determine where house prices are expected to rise next, Forbes.com looked at projections for housing starts from the NAHB and job-growth figures from Moody’s Economy.com, for the 100 largest metro areas in the U.S. The estimates are based on the cost structures of business in the respective cities and the composition of the local economies.

Housing start projections from the NAHB may seem like wishful thinking. Trade-association economists often view their own industry through rose-colored lenses. The National Association of Realtors (NAR), for example, has developed a reputation for its positive outlooks despite negative numbers.

But the NAHB data are filled with laggards, signifying some realistic thinking. Housing starts in Las Vegas are expected to drop by 32% in 2008 and actually get worse in 2009, falling by a further 43%. In overbuilt, highly leveraged Phoenix, starts are predicted to fall 50% this year and descend another 11% more in 2009.

Because houses take six months to two years to build, that means home builders aren’t expecting profits in the Vegas or Phoenix market until past 2011.

“These are some of the most overbuilt markets,” says Robert Denk, an economist at the NAHB. “There are some markets that got really out of hand and they’re going to be in trouble for a couple years still.” He cites Cape Coral, Fla., as the poster child of overbuilding exuberance. “They built 10 years of housing in two years.”

The prognosis isn’t as bad elsewhere.

Texas On The Rise?

Centex, one of Texas’ largest homebuilders, has been stung by overextension into Michigan and Colorado, as well as big bets on the vacation-home market in Texas. In July, the builder reported losses of $150 million. There’s a bright spot, however.

San Antonio and Austin, Texas, have largely avoided the real estate crash, with price increases of 2.5% and 4.1% in year-over-year terms, respectively, according to the NAR. This is driven in part by the fact that the two markets are expecting building slowdowns of 24.7% and 28.2%, respectively, through the end of the year, as home builders are bearish about the remainder of 2008 and 2009 in the sales market or cannot find financing. Builders as a whole are taping their wounds and cutting back production, adopting a wait-and-see approach to home prices in the coming year.

But for the start of 2010 and into 2011, builders expect a more vibrant market for sellers. For homes built in 2009, which would come off the conveyor belt in 2010 and 2011, the NAHB forecasts a 9.6% increase in Austin and a 20.9% increase in San Antonio above 2008 levels. Much of that has to do with expected job growth in all non-farm sectors.

Recovery In Obvious Places

At this point, it’s clear the subprime contagion won’t be contained in the next year, based on the acceleration of home price drops and foreclosures nationwide. But when the bad vintages of loans finally come off the books, the cities where prices are expected to rebound are largely those with vibrant economies.

“The logic is pretty straightforward,” says Mark Zandi, chief economist at Moody’s Economy.com. “People will spend as much on housing as their income will allow them. House prices are very closely tied to household income over the long run when you look at business cycles.”

This means that recovery is likely in the cards for even the hardest-hit spots. Cities like Atlanta and Colorado Springs, Colo., may be reeling from high defaults and foreclosures, but from 2007 through 2012, their economies are expected to experience 2% and 1.6% average annual job growth. That means more in-migration and more money in the economy, factors that help businesses grow and profit–and put more money in residents’ pockets.

As local economies grow bigger and more dynamic, land values increase because the value of what can be produced on that land increases. When land prices go up, home values go up.

Home prices moving up; it sort of makes one nostalgic.

Credits: Financial Post

Building inspections are nothing new to builders, but there are new laws regarding those inspections for the entire state of Texas. Rashi Vats explains how those new regulations could affect us in Texoma.

If your home is being built after September 1, it will have to be inspected three times over the course of construction, and after that construction is completed. That’s according to new statewide regulations now in effect.

Builders say the goal of those new regulations is to keep homes in Texas consistent and safe.

“They made it to where the builders are required to get a licensed inspector once you start,” Scott Bates, vice president of the Ceci Bates Group, says.

Now all of the supplies and construction methods must follow stricter guidelines and be looked over by licensed inspectors more thoroughly.

“We’ll have a third party inspector and come out and as we are ready to pour out the foundation then he’ll come out and inspect the plumbing.”

“The city of Sherman is one of the toughest in the area in inspection but we try to do all our stuff to code no matter where we operate,” subcontractor John Walters says.

Officials say the consistency will lead to a better quality of life in the Lone Star State.

“Better quality living in homes. Get a more consistent product”

“It’s about safety. They’re going to have a better, safer home when it’s complete.”

Credits:KXII

Old newspapers, phone books and lottery tickets are trapped within the walls of three homes in Mason.

Mason Greenstar, a new company settling into Mason, is mixing recycled paper with water and cement to create home building blocks to use in place of the conventional wood framing and cement cinder blocks.

Zach Rabon started the company.

“I was just fascinated with the amount of waste that was going into every one of those homes,” said Zach Rabon. “Not to mention all the different crews that had to go into the process of construction itself.”

Rabon plans on sticking to his motto: ‘one material, one crew.’ Each block weighs about 17 pounds and is made of 65 percent recycled paper. When they stack up and are cemented down, they create a monolithic wall.

The material is designed to do more than create less waste in the landfill.

“I have a 3,200 square foot home, and my electric bill runs about $130 a month,” said Rabon.

Rabon built his first “paper block” home for himself. Not only do the walls keep the heat out in the summer, but they help retain heat in the winter. He says home insurance is lower, because the blocks do not succumb to termites, mold, fire, and even bullets.

For Rabon’s father, a fellow home builder, it is the environmental side he has warmed up to.

“I just don’t believe we can afford to cut down anymore trees for houses,” said Kent Rabon.

He also enjoys the Santa Fe style look the walls create.

With so many wood framed homes going up, finding crews with the right skill set to build the homes may the biggest challenge.

“This is very nice, because it is standard masonry and that’s done around the world, but a majority of the frame homes in United States use a different skill set,” said Mason Greenstar investor Ed Risinger.

Risinger is confident the building ‘green’ trend is here to stay.

Equipment is being transferred to mass produce the blocks at their first plant in Mason. The plan is to open up five additional plants across the U.S. over the next five years.  For more information on the material, visit their Web site.

What do you think about this new way of making homes?

Credits: KXAN

Mold, maggots and piles of festering trash - no wonder home prices are in freefall.

It’s not just the subprime mortgage crisis that’s to blame for plummeting home prices. A flood of squalid properties on the market is helping to exaggerate the post-bubble price declines.

“Part of the reason home prices are declining is a fundamental deterioration in the housing stock,” said Glenn Kelman, CEO of the online, discount broker Redfin. “During the boom, nine out of 10 houses for sale in many markets were in prime condition. Now, for every 10 houses, at least three are dogs.”

Most of these mutts are foreclosed properties that have been permitted to fall into disrepair by lenders overwhelmed with thousands of vacant homes. If these houses sell at all, they’re going for bargain basement prices that are hurting home values throughout the neighborhood.

“I’ve never seen so many houses in this condition before,” said Ray Anderson of Buyer’s Advantage Real Estate in Auburn Calif., near Sacramento. “And I’ve been in the business 20 years. I’ve seen bank-owned properties in the past. They were never like this.”

Distressed properties usually sell for discounts of 10% to 40% below comparable, well-maintained homes, according to Tom Inserra, executive vice president for Zaio, an appraisal company that is creating a national database of home values.

Richard Smith, CEO of Realogy, the parent company for Coldwell Banker, Century 21 and Sotheby’s International Realty, estimates that homes that are not bank-owned have actually only seen price declines in the low single digits over the past 12 months. That’s compared with the 15% price drop recorded by the S&P/Case-Shiller Index for all homes over the same period.
‘Crime scene’

Lori Mize has firsthand experience with horrible homes for sale. She waited for years for prices to come down in her Elk Grove, Calif. home area, just east of Sacramento. With the median home there now selling 30% below the market’s peak, Mize thought it was time to buy. But nearly all the homes in her price range - $250,000 to $300,000 - are bank-owned properties, which tend to be in the most beat-up condition.

After looking at a few of them, she was almost ready to give up.

“The first one I saw was the worst home I had ever seen in my life,” said the married mother of two young girls. “There were magic-marker messages on the front door saying, ‘STAY OUT.’ They had poured paint and other stuff on the carpets. There was a lot of trash. I felt like I was at the scene of a crime. I wouldn’t let my daughters touch anything.”

In Florida, another foreclosure hot spot, vacant homes deteriorate rapidly in the high heat and humidity.

Garbage and food that’s left behind fester. “The properties smell,” said Eve Alexander, an agent in Orlando. “You find maggots. The swimming pools are green. The lawns dry up. They’re eyesores. Neighbors yell at us to water the lawn.”

Often the homes have been stripped bare. “All the kitchen appliances, cabinets and countertops, bathroom fixtures, lights are [stolen],” she said.

Others trash the place before they leave, according to Adele Hrovat, a real estate agent with the Buyer’s Realty of Las Vegas. “They punch holes in the walls, dump oil on the carpets. The banks are so overwhelmed, they haven’t gotten to the point when they send in crews to fix them up,” she said.

Indeed, soaring foreclosures have returned many houses to their lenders, who put them right back on the market - usually as is.

Nationally 18.6% of all homes sold during the three months ended June 30 were foreclosures, compared with just 7% during the same period a year earlier, and 3.1% in 2006, according to the real estate Web site Zillow.com. And that doesn’t include short sales, which is when a home is sold for less than the mortgage balance and the bank forgives the unpaid balance and also account for a lot of sales in many areas.

Just a few years ago in Detroit, only one in a hundred listings were foreclosures or short sales, according to agent David Mills of Homebuyer’s Realty. Now half of the listings are. Some have been badly damaged and suffered huge drops in value.

“A three-year old home that recently sold for $660,000 is listed for $350,000. There’s no kitchen, no master bath. The toilet was taken, the tub, cabinets gone.”

A growing problem

With the number of foreclosed properties projected to keep rising, there seems to be no end in sight to falling prices, according to Texas A&M real estate economist Mark Dotzour. Even though many of these dilapidated homes are actually pretty good bargains, Dotzour isn’t surprised that more people aren’t jumping in. Everyone is reluctant to buy in a declining market.

“Once buyers start to feel confident that prices in a given community have stabilized, they’ll start buying again,” he said.

For that to happen, the natural population increase will have to absorb all the excess housing inventory, until supply and demand are in balance again.

In the meantime, Congress has allocated $4 billion for municipalities to rehab derelict foreclosures in an effort to prevent them from dragging down nearby neighborhoods.

But mostly hitting bottom is just waiting for market events to play out and the construction of new homes drops and remains below below the replacement rate for a while.

“Once that inventory is gone, we’ll be at the market bottom, and the price trajectory will flatten out,” said Dotzour.

Until then, dilapidated homes will continue to aggravate the steep price drops being recorded throughout the nation.

Credits: Money.CNN.com