Texas Real Estate Daily

LandOwner subscribers are familiar with Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University. Here is his perspective on the proposed $700 billion bailout:

“It’s a sad day in America when the federal government (the American taxpayer) has to bail out homeowners who purchased homes they couldn’t possibly afford. It’s sad because of the vast majority of Americans who live within their means and pay their mortgages on time are now being asked to pay for other people’s mistakes.

“It’s a sad day in America when we have to spend billions to bail out financial institutions that made loans to those people, then sold those loans to pension funds and endowment associations that had no idea of the risk they were taking when they bought the ‘complex and sophisticated’ bonds. ‘Complex and sophisticated’ is just a euphemism for ‘I have no earthly idea what I’m buying.’

“Now for the pragmatism. If we don’t bail out the banks, the American economy grinds to a halt. Many U.S. businesses are financed with short-term notes that mature in 90 to 180 days. This is called commercial paper. What happens when your 90-day note matures, and nobody will refinance it? Just ask Fannie and Freddie, who had $225 billion in short-term notes mature and nobody would refinance them. Hasta la vista.

“The commercial paper market is virtually frozen, and many businesses are in the same boat as Frannie was. The smartest people working in the global financial system say that this $700 billion is a good first step, that it might help to thaw the frozen credit markets but that the devil is in the details. Some say it might take another $500 billion later. The fact is that there is a market for these bad loans. It’s about 22 cents on the dollar. The problem is that nobody wants to sell for that price as long as the taxpayers will pay a higher price. So the federal government will buy these assets for a higher price, and it’s possible that they can sell them later and make a profit. It’s possible that the net cost to the taxpayer will be very little. The bottom line is that we are in uncharted waters, and this $700 billion plan is the best plan that seems to have some hope of temporarily solving the problem.

“The long-term problem is still on the table, and that is the simple fact that the U.S. government can’t keep spending more money than it has. Even governments can go bankrupt. The long-term solution for the U.S. government and every American household is to live within their means. Who is going to want to invest in mortgage bonds in the future if the federal government can freeze the interest rates below what was promised? Who is going to want to invest in mortgage bonds if the government can cram down the principal on the bonds you bought? Until the federal government can restore some confidence in the global investment community that if you buy a mortgage bond you have a reasonable certainty of getting your principal and the promised interest, the problems will linger.

“The bailout is inevitable and has to happen. Expect more to come. These are just bandages on a gaping wound. Hopefully lessons will be learned, and we will begin to address the illness and not just put on more bandages.”

Credits: AgWeb

The controversial state agency that registers home builders is too broken to fix and should be abolished, according to a report from the Texas Sunset Advisory Commission.

The sunset commission recommends that the Legislature get rid of the 5-year-old Texas Residential Construction Commission, according to a report released Tuesday. The sunset commission spent six months analyzing the agency, said Joey Longley, executive director.

The report said the TRCC is not a true regulatory agency and is not effective in keeping problem builders from working. The report also said that the process for homeowners to resolve disputes can be difficult and frustrating and that homeowners do not trust the inspection process.

The sunset commission concluded “that anything short of a true regulatory program does more harm than good, and should be abolished.”

Duane Waddill, the construction commission’s executive director, said the agency plans to counter the recommendation with suggestions that would bring it closer to what the sunset commission wants the TRCC to be.

In a statement about the report, the TRCC said the ability to handle conflicts between homeowners and home builders is an essential role.

“With the downturn of the market and the ongoing crisis among lending institutions, eroding consumer confidence in the housing industry by deregulating the building industry could be strike three to a fragile economy,” the TRCC statement said.

The TRCC will discuss the report at its next meeting, on Sept. 3, and will take suggestions to the sunset commission’s public meeting Sept. 23-24.

Reaction mixed

Consumer groups such as Homeowners for Better Building and Texas Watch have described the agency as a bureaucracy that lacks the teeth to stop bad building practices or offer consumer protection. Home builders said the agency is important for consumers and builders.

Scott Norman, executive director of the Texas Association of Builders, said the construction commission provides important consumer protection such as warranties and an avenue for disputing problems that sometimes arise. The agency has also punished 500 builders and registered 28,000 builders, giving some oversight to the profession, he said.

Ron Connally, an Amarillo home builder and the TAB’s first vice president, said the recommendation is shortsighted.

“The Texas Association of Builders is disappointed that the sunset commission staff has recommended throwing the residential construction industry in this state back to a time when there was no regulation at all of the industry with no corresponding ability to prevent bad actors from continuing to harm Texas consumers,” he said in a statement.

Problems cited

The sunset commission report said homeowners must go through the agency to air disputes with home builders before going to court. In reality, homeowners get so frustrated with the process that the cases never go to court, according to the report.

“No other regulatory agency has a program with such a potentially devastating effect on consumers’ ability to seek their own remedies,” the report said.

The agency has been controversial since state lawmakers created it, in 2003. The Legislature has expanded the agency’s powers, most recently in 2007. It can now enforce 26 rules instead of five, impose larger fines and was to start requiring building inspections for homes built in counties, Waddill said.

The sunset commission reviews state entities and can recommend changing or abolishing agencies. Any final action is left to the Legislature.

Credits: Star Telegram

Economist Mark Dotzour with the Real Estate Center at Texas A and M University predicts the Austin economy will continue to be slow for the rest of 2008, but will likely begin to rebound in 2009.

“The good news, it might turn around between April and July of next year,” he said during a presentation to the Real Estate Council of Austin. “The bad news is, everybody’s got to hold on between now and April. That’s pretty much the bottom line.”

Dotzour said Austin and Texas are continuing to fare better than most other parts of the country. “Austin will have positive job growth next year, but it’s going to be along the line of 1.1%, and that’s going to translate into about 8,500 jobs.”

Credits: 590KLBJ.com

The Texas Residential Construction Commission should be abolished because it is ineffective and frustrates homeowners trying to get builders to address defects in their homes, according to a state agency review released Tuesday.

Created in 2003, the agency does not have the trust of the consumers to protect them from unqualified builders, according to staff of the Sunset Review Commission, which reviews state agency performance and makes recommendations to lawmakers.

The creation of the commission was backed by homebuilders. It was praised by the industry for establishing standards and warranties for home construction, and for creating a process to resolve disputes between builders and buyers out of court.

Consumer groups have argued the agency did more to protect builders than consumers and limited homeowners’ legal recourse in disputes.

“We need to scrap it,” said Alex Winslow of Texas Watch. “Consumers need real protections against unscrupulous builders who build shoddy homes, and the TRCC has never provided homeowners with that kind of protection.”

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Home building fell sharply in July to a 17-year low, according to government readings released Tuesday that offered fresh signs that the battered real estate market has yet to hit bottom.

Housing starts plunged 11% to an annual rate of 965,000 from a revised 1.084 million pace in June, according to the Census Bureau report. Economists surveyed by Briefing.com had forecast starts would fall to a rate of 960,000.

Permits - often seen as a sign of builders’ confidence in the housing market - tumbled 17% to an annual rate of 937,000 from a revised 1.138 million in June. Economists had forecast that permits would come in at 959,000.

The sharp percentage drop from June was due partly to a jump in multi-family home starts and permits during that month. Single-family home starts and permits slipped only slightly from the June level. But the single-family starts were also at a 17-year low in July, while single-family permits fell to a level not seen since the 1982 recession, reaching a rate of only 584,000 homes in July.

The sharp fall in building activity suggests that home building will continue to be a drag on the economy in the second half of 2008. Earlier this year, many economists hoped that building activity would bottom out this summer and start to show signs of improvement.

In the second quarter, the drop in home building took 0.6 percentage points off gross domestic product, the broad measure of the nation’s economic activity. It marked the 10th straight quarter that home building has been a drag on GDP.

But the continued drop in building could be just what the battered real estate market needs. One of the biggest problem for sellers is a glut of unsold homes on the market. Since demand for homes remains weak, the glut will only ease if fewer new homes are built.

In June, builders faced a median wait of 8.4 months to sell a completed home, the longest delay in selling time in 25 years, according to a separate Census Bureau report issued recently.

David Seiders, chief economist for the National Association of Home Builders, says he’s hopeful the historically low levels of single-family permits is a sign that the glut of homes on the market could finally start to decline.

Seiders said he’s hopeful that the market for new homes will hit bottom in late 2008 or early 2009. But he added that his forecast could prove optimistic given other problems, such as rising job losses and the credit crunch. And the continuing rise in foreclosures adds to the glut of homes available for sale, particularly in markets such as California and Florida.

“We’re dealing with a weakening economy in the second half of this year, and early ‘09 doesn’t look that great either,” Seiders said. “We don’t have any numbers that really show stabilization in the housing market yet.”

The government report on housing starts and permits comes the day after a survey of builder confidence by the National Association of Home Builders remained at a record low in August. Only 5% of builders said the current market is good, 8% said they expected a favorable market in the next six months and fewer than 2% said they were seeing strong traffic from potential buyers.

The downturn in housing and building has hammered the results of most of the nation’s major builders. Late last month Centex, which is the No. 2 builder by revenue, reported a larger-than-expected loss and warned it was seeing no improvement in the home building market.

Most builders have reported larger than expected losses, although Pulte Home, the largest builder by revenue, did slightly better than forecasts. Only one major builder, NVR, has reported a profit through the current downturn, although its earnings have plunged.

As a group, the revenue of the nation’s eight largest home builders has plunged 37% over the last year. Analysts surveyed by Thomson Reuters are forecasting another 36% drop in revenue over the course of the next 12 months.

Credits: CNNMoney.com