Jones

I was down to the last bite of a warm, butter-flavored bread pudding topped with vanilla ice cream. Sitting across the table at the annual Real Estate Center holiday luncheon, our Chief Economist Dr. Mark Dotzour had resisted temptation and not ordered dessert. He then gladly accepted “samples” from those around him.

“You know,” he said, wiping his chin, “a case could be made that America’s obesity problem is linked to real estate.”

Suddenly that last bite of bread pudding tasted like grapefruit. He had my attention.

“Well, commercial real estate rents are on the rise,” he noted. “If you own a restaurant, you need to increase prices to pay the additional rent.

“You can’t just add $1.50 to a menu item without a reason. And for a restaurant, the recipe is simple: supersize it.”

Dr. Dotzour may have been putting a holiday spin on a real estate reality, but his comments show exactly how the staff of the Real Estate Center views the world. Our answers offer practical solutions in the everyday life of Texans.

The January issue of our quarterly magazine Tierra Grande will continue the tradition of applied research we began more than 35 years ago. Here’s a sampler.

“Looming Boom.” Driven by population and job growth, Texas next quarter century should be marked by prosperity, says Research Economist Dr. Jim Gaines. By 2039, the state is expected to add 13.6 million people. That’s the equivalent of another Dallas-Fort Worth, San Antonio, Houston and Corpus Christi.

“Double Whammy.” Ever consider the tax consequences of foreclosure? Research Fellow Dr. Jerry Stern has. He sees two potential problems. Tax may be due as ordinary taxable income associated with the cancellation of debt or as taxable gain from the disposition of the asset.

“How Inventory Affects Housing Prices.” What’s ahead for housing markets? Economic theory suggests that when the inventory of homes for sale falls below a “natural” level, prices will rise. In July 2007, Texas’ inventory of homes for sale was six months. The natural inventory is 8.7 months. What does this mean to you? Continued home price appreciation is likely, says Research Economist Dr. Ali Anari.

“Ranching for Rookies.” Many new landowners are unprepared for the challenge of managing land in a way that sustains a healthy ecosystem. Experts recommend drafting grazing leases based on animal units rather than flat per-acre rent. Dr. Charles Gilliland’s article includes a table with equivalent revenue per acre for various lease rates per animal unit at various carrying capacities.

“Recognizing Mortgage Fraud.” Here’s a serious discussion about a serious topic from the Center’s legal expert, attorney Judon Fambrough. Lenders are most vulnerable, but all real estate professionals should recognize signs of mortgage fraud and know what to do if they encounter it. Suspected fraud can be reported to authorities without fear of reprisal.

“Packin’ It Up: Texans on the Move.” Texans are more mobile than average Americans; four million Texans changed homes in 2005. Dallas had more movers than any Texas metro. Relocating Texans translate into commissions for real estate licensees and big bucks for moving-related businesses.

“Little Pieces, Big Prices.” Texas land sales are slowing somewhat, says Dr. Gilliland, a Center research economist, but prices are still rising. For the first time, the per-acre price was more than $2,000. It hit $2,075 in 2007.

Whether real estate contributes to the fattening of America, I can’t say. But I do know these articles are the vanguard of an ambitious research agenda planned by the Center’s staff. The practical solutions uncovered in 2008 will certainly give Texans plenty of food for thought.

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You see it everywhere. Something is advertised at $9.99 rather than $10 or $97.50 rather than $100. When sellers back off the rounded number by a few cents or few dollars to make something look less expensive, it’s referred to as “charm” pricing.

Such pricing make sense for items sold at retail for a set price. But what about house prices? Does a seller gain anything by setting the listing price to seem lower than it actually is, such as $129,900 instead of $130,000? The January issue of the Real Estate Center’s quarterly magazine, Tierra Grande, tells what researchers discovered about giving real estate a “charming” price.

Marcus Allen of Florida Atlantic University and William Dare of Oklahoma State University did the research. Looking into previous work in the field, they discovered that charm pricing was found to have both positive and negative effects on the eventual sales price. So they focused on how charm pricing affected the difference between sales price and listing price.

They studied a large sample of home sales in the Fort Lauderdale metro area. They discovered that when charm pricing was used, homes tended to sell closer to the listing price than those offered at a rounded price.

Allen and Dare concluded that sellers who use charm pricing are indicating that the listing price is close to their reservation price (the lowest amount they will accept). Sellers appear to indicate the price is fixed, and they expect a minimum amount of bargaining.

“On the other hand, sellers who list homes with a rounded price seem to be indicating there is a room for bargaining,” said Dr. Jack Harris who monitors national real estate research for the Center. “They expect this price to be a mere starting point for negotiation. They need a round figure only to position the property in the range of comparable properties.

“A buyer knowing this might approach sellers differently depending on how the listing price is expressed.”

To learn more about the latest real estate research nationwide, read “Principles, Practices and Pricing” available free online at http://recenter.tamu.edu/tgrande/vol14-1/1802.html.

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Remember that “soft landing” economists were predicting for the national housing market? Now, they have turned on the “fasten seat belt” light.

National analysts foresee an 11.5 percent decline in housing starts this year and another 11.7 percent drop in 2007. U.S. housing should hit bottom by the middle of next year. Once the bulwark of the national economy, housing is now seen as a major source of weakness.

However, the Texas housing market continues to fly high. The state’s population has soared by two million so far this decade. Home inventory remains low, and prices continue to appreciate.

Some speculative money has made its way to Texas, but much less than in Florida, Nevada and California, says Real Estate Center Chief Economist Mark Dotzour.

Despite the smooth flight Texans currently enjoy, Dotzour sees two blips on the radar screen that might spell trouble ahead.

“At this time, the most significant risk to the Texas housing markets is the possibility of large-volume builders attempting to make up for lost volume in East and West Coast markets by increasing volume in Texas cities,” says Dotzour. But he added, “I’m hopeful that will not happen.”

Dotzour is concerned because the United States has had a flat or inverted yield curve for nine months. This artificial situation occurs when short-term interest rates are higher than long-term rates.

The Center’s chief economist says the declining ten-year treasury rate and home mortgages indicate that bond investors are convinced the 5.25 percent Fed funds rate is high enough to slow things down considerably.

“I don’t expect any movement on interest rates between now and the end of the year,” he said. “The Fed doesn’t like to take action before elections. But I think it’s highly likely that every day the yield curve stays inverted as it is now, brings us another day closer to a national recession.”

“The good news is that even though the United States could have a recession, it’s highly possible that Texas won’t participate in it,” Dotzour says. “The Texas economy is not overheated in the housing market, and we don’t have a lot of ailing auto plants in our state.

“When an economic cycle is near the top, the best plan for businesses is to not take on a lot of new debt. If revenues start to flatten out,” he says, “the people that can continue to meet their debt obligations will be around for the next cycle.”

COLLEGE STATION, Tex. – After reading the reports, one person used the information to select a new hometown. A landscaper who read them learned that new buildings were going up nearby and was able to add new accounts.

There are many uses for the 2006 Market Reports from the Real Estate Center at Texas A&M University. Thousands view them online each month. Reports on all of the state’s 25 Metropolitan Statistical Areas (MSAs) are available online for free as .pdfs.

Each report includes employment trends and population data plus residential, multifamily, office, industrial and retail information. Coordinator Edith Craig updates the reports annually.

“Our clients rely on us providing valuable and accurate information on markets into which they are investing,” wrote one recent report user. “You have helped us immeasurably in meeting that goal.”

Each report contains an up-to-date MSA map from the Labor Market and Career Information Department of the Texas Workforce Commission. Projected population numbers come from the Texas Water Development Board and the Texas State Data Center.

“There also are graphs comparing population growth in all Texas MSAs from 2000 to 2020,” said Craig.

Users looking for college enrollments can find the 2000-05 information in the reports. There are numbers for each community college, state university or private college.

“We get a lot of good use from your information, especially in educating major retailers” wrote one user after viewing the reports for Dallas and Fort Worth. “I have aimed a number of major advertisers and other publications to your website over the past few years and all have commented on how great the information is.”

Each report has a home price appreciation (HPI) graph from the Office of Federal Housing Enterprise Oversight. The HPI for each geographic area is estimated using repeated observations of housing value for individual single-family residential properties on which at least two mortgages were originated and subsequently purchased by either Freddie Mac or Fannie Mae.

“When available,” said Craig, “sources give data to the Real Estate Center for retail, industrial, office and multifamily markets. That also is included in the market reports.”

Reports also contain hotel occupancy for each MSA. This includes the number of rooms, average daily rate and occupancy rates in percentages.

“The Real Estate Center is not the source for much of the data. We are the information gatherer. We provide a point of reference for others to dig deeper,” Craig noted. “Our goal is to provide a readily accessible source of reliable information on real estate related topics.”

Real estate sales are hot. As a result, more Texans are getting a real estate license. Despite the rush to sign up, however, there is still plenty of room for others — especially compared to the most populous states.

“The number of active real estate licensees provides a measure of the relative size of the real estate brokerage industry through the years and across state boundaries,” said Charles Gilliland, research economist with the Real Estate Center at Texas A&M University. “Among the largest states, Texas lags California, Florida and New York in total active licensees.”

Texas has 100,000 active real estate licensees. California has four times that number of active licensees. Florida has twice as many, and New York has 50 percent more.

The number of active Texas real estate licensees peaked at nearly 154,600 in 1986. Then came the real estate bust, and by 1997, the total had dropped to fewer than 81,200.

“In the 1990, school finance reform imposed a substantial new tax on real estate license renewals,” said Gilliland. “That tax and increased educational requirements combined to further erode the number of active agents.”

Since 1997, the number of Texas real estate licensees has been growing. Today, there are an estimated 140,000 Texas licensees. But while the number of agents has been growing modestly, the number of Texans in need of real estate services has exploded.

“The number of active agents per 1,000 Texans is about half what it was in 1984-88,” said Gilliland. “In 1985, the industry fielded 9.4 agents for every 1,000 state residents. That ratio hit bottom in 2000 at 4.1. Today it’s about 4.3 agents per 1,000 Texans.”

Theoretically, said Gilliland, the number of licensees should increase and decrease as the population grows and economic activity expands and contracts. More people buying homes mean more business for more agents.

“Real estate licensees who think there is too much competition in Texas should thank their lucky stars they work here and not in Florida,” said Gilliland.

In 1986, Florida led the nation with 19.5 real estate agents for every 1,000 residents. By 2000, the Sunshine State was down to 9.4 agents per 1,000 — substantially fewer than the peak but still twice as many per 1,000 citizens as Texas.

The agent-to-resident ratio in California, Florida and New York has been going up since 2001. The California ratio is up 30 percent, Florida 20 percent and New York 26 percent. The Texas ratio is up 5 percent since 2000.

Maryland holds the record for the fewest real estate agents with one per 1,000 residents in 1990. Massachusetts holds the record for the greatest saturation of real estate agents per 1,000 residents — 37.8 in 1992.

Gilliland says technology has helped fewer agents accommodate the increased demand for services.

“One explanation for the differences in state-to-state real estate agent populations may relate to the feverish investment activity in residential real estate in California, Florida and New York,” said Gilliland. “Until recently, that kind of activity has largely bypassed Texas markets. Reports suggest that investors from other states, however, discovered Texas in 2005.”

Much to the surprise of the experts, the Texas economy begins 2006 with momentum. Of course, real estate can take a lot of credit for getting the New Year off to a strong start.

“Soaring energy prices, devastation from hurricanes and the financial burden of the Iraq war dealt powerful blows to the U.S. economy in 2005,” says Dr. James Gaines, research economist with the Real Estate Center at Texas A&M University . “But thanks to consumers and historically low long-term interest rates, the economy continues to grow steadily. And the real estate market, particularly the residential market, is one of the reasons.”

In their annual outlook for Texas , economists for the Real Estate Center outline their reasons for optimism in 2006.

Interest rates. The Federal Reserve raised its influential fed funds rate six times in 2005. While the rate hike raised short-term interest rates (bank loans, credit cards), so far long-term interest rates have not been significantly influenced. In November, a 30-year, fixed-rate mortgage was 6.36 percent.

“In December, the 30-year, fixed-rate mortgage rate was 6.27 percent,” Gaines said. “The average rate for all of 2005 was 5.87 percent; it was 5.84 percent in 2004. For 2006, the rate is expected to be between 6.4 and 6.9 percent.”

Personal income . Texas ranks 12 th among all states in personal growth income. Total personal income is closely related to total output. A higher-than-national-average growth rate means the state’s economy is growing strongly.

Employment. For the year ending in October 2005, Texas nonfarm employment added 69,000 jobs. After lagging the nation for much of the year, Texas ’ employment growth for October trailed the United States by only 0.6 percent. Meanwhile, Texas unemployment hit a four-year low — 5.2 percent.

Home prices . While Texas has an active, record-setting housing market, prices are increasing much more slowly than in the rest of the country. Fears the state has a housing price bubble that may burst are not supported by facts.

In the first half of 2005, Texas ’ 4.7 percent house price appreciation rate was less than half the 13.4 percent national average. The average price for a Texas home in September 2005 was $176,800 or 15.9 percent higher than it was in 2002.

“Through the first three quarters of 2005, Texas ’ 6.3 percent increase in the median priced home was less than half of the 14.7 percent national increase,” Gaines said.

Home sales. An estimated 269,000 homes were sold by Texas Multiple Listing Services in 2005 — 34 percent more than three years earlier.

Home construction . Low interest rates and aggressive home loan financing continue to drive the state’s housing boom.

“Total 2005 single-family permits of some 166,500 represent an increase of about 10 percent over 2004,” said Gaines.

Housing supply . Experts at the Real Estate Center say there is no reason to anticipate a housing shortage that would drive prices up. Likewise, they do not expect an oversupply that would depress the market.

The 2005 estimated 5.6-month inventory of unsold existing Texas homes was only slightly less than the six-month inventory generally considered a balanced market.

Housing affordability . Overall, Texas ’ housing market continues to offer highly affordable homes without excessive price inflation. Price increases, sales and construction levels in 2006 will probably be equal to or slightly less than the 2005 rate.

Mortgage market conditions and general economic growth will determine the market for the remainder of the decade.

Commercial markets . More Texas cities are expected to embrace developments that use different combinations of retail, residential, office and even hotel space. At a time of skyrocketing fuel prices, this will save Texans transportation time and money.

Increasing construction costs are not expected to dampen new office development.

Land markets . Recreational buyers and investors are vying with farmers and ranchers for available acreage. Expectations of anemic returns in other investments have contributed to a thriving Texas land market.

The median price of an acre of Texas land during the first half of 2005 was $1,379 — 11 percent more than a year earlier. Meanwhile, the number of sales fell from 4,711 to 3,367, and the average size of a sold tract fell from 108 to 102 acres.

To learn more about the year ahead, log on to www.recenter.tamu.edu/1755.pdf and read “The State of Real Estate” a reprint from the January 2006 issue of Tierra Grande magazine, the Real Estate Center’s quarterly journal.

It seemed a bit warm in the house, so I decided to check the thermostat. It was set on 75 degrees, but the thermometer read 82, and the hot summer day was still young. That’s when I heard the unusual clanking noise coming from the outside air conditioning compressor unit.

I hoped the problem would be obvious and easy to fix — like a tree branch stuck in the fan blades. No such luck. Lots of noise and no cool air; I had to call the a/c people.

To make a long story short, the motor in the 30-year-old unit of my air conditioner was bad. And, of course, they don’t make that size motor any more. I could have a motor built especially for me for just under $1,000. New units begin at $3,000. What to do? I found the answer on the Internet.

A notice on the Nation’s Building News website says that a more stringent seasonal energy efficiency rating (SEER) goes into effect Jan. 23, 2006. The minimum rating for an air conditioner built this year is 10. Next year, it will be 13. In other words, new residential air conditioners and heat pumps will soon cost more.

The higher rating required by the Department of Energy raises the minimum allowed SEER by 30 percent. The current SEER has been in effect since 1992.

Estimates are that new units might go up $600 to $1,000 next year. Replacing my bad motor might get me through this summer, but considering that the air conditioner runs most of the year, some of those other 30-year-old parts could fail. We bought the new unit. It has a SEER of 14.

The new SEER 13 standard emerged from a long battle that began when it was first proposed in 2001 and ended when the U.S. Court of Appeals for the Second Circuit rejected efforts to lower the new standard to a SEER 12.

Most of the objection to the new standard comes from northern states where air conditioning is not needed much of the year.? According to the National Association of Home Builders, the energy savings there will never pay for the higher cost of the product, thus creating an undue burden on families striving to afford a home.

The association says that the energy efficiency increases will only be cost effective in very specific parts of the country. It notes that 75 percent of consumers purchasing a SEER 13 unit will never realize sufficient cost savings in energy consumption over the life of the product to offset its higher price.

Despite the objections, however, major equipment manufacturers decided in March 2005 to retool the industry rather than mount another challenge to the regulation.

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Every time I hear someone complain about the Texas heat, I ask them to think about how many people would be moving here if the weather was perfect. ?

We need the heat to keep out the weak. But the sizzling summers that Texans sweat over are exactly what some retirees from the Frost Belt are looking for.

Texas is the fifth most popular retirement destination among baby boomers willing to move when they retire, according to the 2005 Del Webb Baby Boomer Survey. Only Florida, Arizona, North Carolina and California rank higher.

And according to EscapeHomes, South Padre Island, Texas, is next to the top as the most researched town among people looking for vacation or second homes via the Internet. Escapehomes.com has a second home market index with information on home-buying trends and up-and-coming markets for real estate investors. Only Naples, Florida, had more people searching the Internet site.

According to the Del Webb study, a high percentage of baby boomers plan to move to another state upon retirement. The final destination will be decided based on a state’s cost of living, affordable housing and community lifestyle.

“It makes sense that more baby boomers are choosing Texas,” says Patrick Vedra, director of operations for Del Webb’s active adult community planned in Frisco, Texas. “Housing in Texas remains attractively priced as compared to any of the states traditionally thought of as the retirement destinations.”

Vedra says nearly half of those who’ve indicated an interest in Del Webb’s new community on the shores of Lake Lewisville come from outside Texas, primarily California, Arizona, Florida and Nevada.

More than half of those responding to the study say they plan to buy a new retirement home. Some 45 percent of respondents expect to move to another state after they retire. Among boomers willing to move at retirement, 66 percent of those ages 50 to 59 say they want a better community lifestyle. Fifty-four percent want a warmer climate, so that explains a lot of the interest in the Lone Star State.?

What do boomers want to do most when they retire? Travel. ? Others say they want to spend time with family or loved ones, exercise, volunteer, take up a hobby, learn some new skills and take classes or even go back to school.

According to the Del Webb survey, a high percentage of retirees use e-mail. Many use the Internet to research, shop and bank.

When it comes to selecting a home, these active adults want a laundry room, Internet access, study or office, a dine-in kitchen and covered porch.? Among boomers ages 50 to 59, 59 percent are attracted to age-restricted communities.

Have you ever wondered how subdivisions are named? I have. The Real Estate Center at Texas A&M University asked readers of its electronic newsletter to explain the thought process that goes into naming subdivisions.

While some developers have solid reasons for picking the names they do, others just go with “whatever sounds good.” A San Antonio builder-developer wouldn’t say how he picked the names for his subdivisions, but he compared the process with “coming up with a name for a new brand of soap.”

For many developers, selecting a subdivision name is serious business. It should be. After all, it must attract homebuyers without sounding too much like another nearby development.

Writing in the Galveston County Daily News , Sarah Viren notes that the developer of Saddle Creek Ranch in League City, Texas, decided to change the subdivision’s name when a competitor announced plans for Shadow Creek Ranch subdivision. After a brainstorming session, Victory Lakes was picked for the new name.

Of course, Victory Lakes had no lakes — until the developer created them. It isn’t uncommon for a developer to create features that highlight the subdivision’s name. John Lightfoot, developer of The Falls at Champion Forest in Spring, Texas, says there are “not many natural waterfalls in this part of Texas, so I built a 15-foot high, 1,500-gallon-per-minute waterfall.”

Lightfoot notes, however, that in general names come from existing natural features. The Orchard in Sugar Land, Texas, is being built around a tree orchard once owned by Imperial Sugar and will preserve more than 70 percent of the trees.

Local legends provide subdivision names. For example, there’s Sam Bass Trails in Round Rock. On the northwest side of Houston is a neighborhood called Ravensway. It’s near Cypress Creek, where Sam Houston’s army once camped. Houston was known as “The Raven.” Street names in the subdivision carry the theme further with Campsite Round, Scouts Lane, Rifleman Circle and others.

Themes are common in subdivision names. When there’s a prominent natural feature, such as a river, names are easy to come by — Riverforest, Riverwood and so forth. Brazoswood residential development south of Mineral Wells gets its name from the abundant oak trees and the site’s location near the Brazos River. Oakmont in Corinth, Texas, is hilly, with many varieties of oak trees.

Obviously, the names of family and friends are the source for other subdivision names. There’s Christopher’s Cove, Suzanne’s Court and Julie’s Walk. Michael Shelton, developer of MJ Ranch, proudly named the subdivision after his wife Mary Jo.

I’m sure their namesakes are very proud, even if the homeowners who live there don’t have a clue who Christopher, Suzanne, Julie and Mary Jo are.

In South Texas, John Holt, land development manager for CasaLinda Homes in McAllen, says subdivision names take into consideration the Hispanic demographic they are trying to sell to. Hence, his subdivisions have names like El Mileno, Grandora, Tesoro and Del Oro.

Galveston’s newest community, Evia, is named after Jose Antonio de Evia, a Spanish naval officer who mapped the Gulf coast, including the barrier island and bay now named Galveston.

“The man who discovered our beloved home deserves to be recognized,” said Kelley Sullivan with Evia.

In Celina north of Dallas, Charles E. Fitzgerald, president of Wilbow Corporation, planned a subdivision originally named Quail Hollow. When he learned that the seller was one of the founding families, Fitzgerald renamed the community Heritage of Celina. Streets in the subdivision are named for the area’s founding families.

“I think that subdivision names and street names should be chosen carefully and with serious thought,” says Clayton Husband, director of planning for the City of Burleson. “An elegant name can add intrinsic value to the property and the community.”

Husband cites Whittier Heights in Colleyville, Texas, as an example of how street names and planning are combined in an overall theme — the poetry of John Greenleaf Whittier. An adjacent subdivision has streets named after naturalists and conservationists, such as John Muir.

When it comes to naming subdivisions and streets, Thurman Blackburn of Austin takes the job seriously. “I consider it both an honor and a challenge,” Blackburn says.

For those who want the easy way out when naming a subdivision, there’s http://adrian.gimp.org/cgi-bin/sub.cgi . That website has a random subdivision-housing development-nursing home name generator. To come up with a subdivision name, just take one word from column one (examples: Pine, Oak, Cedar), add it to a word from column two (examples: Sunset, Country, Circle) and then one from column three (examples: Acres, Forest, Valley). There you have it — Pine Country Forest

Snowbirds Choosing to

Stay in the Old Nest

By David S. Jones

Texas A&M Real Estate Center

Over the past decade, Southern developers built numerous housing communities designed to attract active adults and seniors to the Sun Belt. The builders met with some success as older Americans traded snow shovels for year-round golf clubs. But now it appears that the flow of Snow Belt revenue may be melting away somewhat.

That news comes from Bill Parks, a Scottsdale, Ariz.-based market researcher and juror for the Best in Seniors Housing Awards Committee of the National Association of Home Builders (NAHB)

“Almost three-quarters of the active adult communities built in 2004 were in states outside the Sun Belt,” says Parks. “This is a trend that will continue to gain momentum.”

Parks notes that builders seem to be building small or midsize seniors’ communities in close-to-home locations. Also, apparently a growing number of older Americans want to live in communities closer to urban centers or that are connected to the surrounding community.

“Many active adults want to be near a town center in a community with a diverse product mix of condominiums, villas and single-family detached homes,” says Mark Stemen, president of K. Hovnanian Homes in Chantilly, Va. “The idea of leaving the active adult community to walk to shops and be involved in the greater community appeals to many of them.”

Among the hottest trends has been the demand for communities in mid- to high-rise buildings in dense urban settings.

“In the past, builders created communities that were far from the urban core,” says Richard Rosen, an architect in Silver Spring, Md., and chairman of the 2005 Best of Seniors Housing Awards Committee.

“Placing seniors in greenfield sites away from the city or even their former suburban neighborhoods doesn’t meet the needs of today’s buyers,” says Rosen. “They want to take advantage of the city’s offerings as well as maintain contact with family and friends, attend their places of worship and continue to work.”

Other trends in today’s diverse 50-year-old-plus buyers market include communities that embrace regional and ethnic traditions, capitalize on natural surroundings and incorporate universal designs — those that provide maximum accessibility for all people, regardless of their abilities or disabilities.

“Perhaps the most encouraging trend is the prevalence of universal design,” Rosen says. “Builders are including features like stepless entries, wider doorways and other features, not to mention providing more space in the kitchen and bath along with universal designed cabinets and fixtures. It appears that universal design is becoming part of the mainstream.”

According to experts from the NAHB Seniors Housing Council, active adult communities have evolved greatly over the last decade. While site-built, single-family attached and detached homes are still the preferred housing type, for-sale, age-qualified multifamily condominiums have emerged as a favorite among active adults.

I guess all this means there could be some good to come out of global warming. Less snow means many of those active adults who once had to come South for their fun in the sun can now live closer to their roots.

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The Second Home Trend

Runs Deep and Wide

By David S. Jones

Texas A&M Real Estate Center

Everybody connected with real estate knows that second homes are in big demand. I’ve written about the phenomenon before. But now comes word that second homes are a bigger factor in the current housing boom than was previously thought.
The incentives for buying a second (or third or fourth) home are the same as for buying the first — low interest rates, available mortgage financing and steadily increasing household income.
What motivates existing homeowners to buy a second home? Most are buying second homes to diversify their portfolios.
“This is now the most frequently cited motivation for purchasing a second home,” says Al Mansell, National Association of Realtors (NAR) president.
According to a new NAR study, 23 percent of all homes purchased in 2004 were for investment. Another 13 percent were vacation homes. Previous studies showed second-home purchases accounted for 5 to 6 percent of transactions.
“Because the typical second-home buyer is a baby boomer, it’s likely over the next decade that second-home sales will remain relatively high,” says David Lereah, NAR chief economist. “The boomers are still in their peak earning years and have both the wherewithal and the desire to purchase vacation homes and investment properties. This proves that housing continues to be a good investment.”
While 36 percent of buyers say they bought a second home to diversify investments, 37 percent seek rental income, 14 percent want a personal or family retreat, 6 percent plan to use the home for vacations and 5 percent just had extra money to spend.
The NAR study notes that the typical vacation-home buyer is 55 years old and earned $71,000 in 2003. Investment property buyers had a median age of 47 and earned $85,700 in 2003.
Twenty-seven percent of buyers say their second home will become their primary residence after retirement. Not surprisingly, 92 percent view their purchase as a good investment.
“Just as second homes are purchased for different reasons, the characteristics of the homes also vary,” says Paul Bishop, manager of real estate research for NAR. “Investment properties tend to be smaller and less expensive than vacation homes. Also, vacation homes are more often located in a resort community than are investment properties.”
According to the NAR study, 83 percent of vacation properties were detached, single-family homes with a median size of 1,290 square feet. Seventy-nine percent of investment properties also were single-family, detached homes; the median size was 1,700 square feet.
Many of those buying second homes as an investment obviously are happy with their purchase; 65 percent say they are likely to buy another such property within two years.

Texas Home Prices Are Mild Compared

To the Western States

By David J. Jones

Texas A&M Real Estate Center

If you think home prices are high where you live, then you must live in California or at least somewhere farther west than Texas. Out west is where home prices are high and rising fast.

In the last three months of 2004, a record number of U.S. metropolitan areas posted double-digit price appreciation. Sixty-two of 129 metropolitan statistical areas studied posted double-digit increases compared to only four that declined.

The national median existing home price was $187,500 in the fourth quarter — up 8.8 percent from a year earlier. The median price means half the homes sold for more and half sold for less.

According to the National Association of Realtors (NAR), prices are going up fastest in Las Vegas. The fourth quarter median price in Sin City was $281,400 or 47.3 percent more than 12 months earlier. Next is the Riverside-San Bernardino area of California at $322,400, up 34.7 percent from fourth quarter 2003. Third is the Palm Beach-Boca Raton-Delray Beach area of Florida at $338,800, up 34 percent.

The highest-median-home-price award goes (again) to the San Francisco Bay area with a median price of $656,700. Anaheim-Santa Ana (Orange County), Calif., is the second most expensive at $627,500. San Diego is third at $659,900.

Such prices make me wish I could jack up my College Station home and move it out West. According to the Real Estate Center at Texas A&M University, the median price for an existing Bryan-College house is around $132,500.

The latest data from the Center show Collin County in North Texas with the state’s highest existing home median price — $173,400. Austin is second at $153,200. Fort Bend County is a close third at $151,900.

Median prices for existing homes are lowest in Nacogdoches ($62,000), Port Arthur ($74,100) and Abilene ($74,200). The 2005 statewide median to date is $127,500.

NAR’s Chief Economist David Lereah said analysts looking for signs of weakness will be disappointed.

“In the handful of areas with price declines, none had previously experienced rapid price growth,” he said. “In fact, they were all lower-cost areas experiencing one or both of the conditions necessary for temporary price softness — local economic weakness, mainly in jobs, or a large supply of homes available in the local market.”

I used to wonder where all the people were coming from that are moving into the countless new subdivisions springing up like Johnson grass across the Texas landscape. Now I know. They must be Californians. After all, if they just sold an “average” house there, they could buy quite a spread here.

To see median price sales data for all Texas metropolitan areas, go to the Real Estate Center website at www.recenter.tamu.edu . Click on “data” and then on “home sales.”

Against All Odds:

Home Sales

Continue Climb

By David S. Jones

Texas A&M Real Estate Center

Surely you’ve heard about the current housing boom. It’s been in all the newspapers. What you may not have realized is that home sales have been setting record after record without any help from other segments of the economy. Many economists remain skeptical that the economy is truly on the road to recovery.

“Declining job numbers usually do not make fertile ground for home sales,” writes Real Estate Center Research Economist Dr. Jack C. Harris in the January issue of Tierra Grande magazine. “But the past few years have been home sales record breakers, with each year setting a new level for sales within the state’s Multiple Listing Services (MLS).

“With low down payment loans readily available and interest rates so low, many people have found they could buy a home with a lower monthly outlay than they would pay in rent. Consequently, the market has been largely impervious to the employment drop.”

Last year, the Center’s research staff put significance in the fact that home sales, which are not always seasonal, were breaking records — not by hitting new highs in peak months but by not falling so much in off months.

“The thought was that the trend might indicate a turn in the cycle,” Harris said. “However, with job creation back, housing markets are once again climbing to higher highs. There appears to be no end to this boom.”

Home sales set another record in 2004, largely because interest rates remained low.

“A continuation of low interest rates could indicate the economic recovery has failed,” Harris said, “and that would not be good news for housing markets. Sales depend on a supply of willing and able buyers. For that supply to be adequate, there must be jobs to attract new people to the state and to allow current residents the income necessary to form households.”

The recent housing boom has thrived largely by drawing buyers from rental and manufactured housing. Low interest rates, liberalized qualifying criteria and low cash down payment requirements have been instrumental in expanding the demand for homes.

“Sales at the low end of the price distribution trigger a chain of sales as existing homeowners move up to larger and more luxurious living quarters,” Harris said. “That multiplier effect could be sidelined if home builders target the entry-level market, which they often do when the demand for homeownership is strong. New home construction is growing at a rapid clip and threatens to steal market share from existing units.”

Experts at the Real Estate Center say that unless the recovery heats up seriously, it will be difficult to continue raising the bar on home sales. Interest rates will be higher, and the supply of renters who wish to buy their first homes is not likely to expand.

Considering that the number of homes sold through Texas MLSs in 2004 was twice that of 1992 (and three times the dollar volume), a moderate decline should not be too disappointing. Even with some decline, the housing market should continue to be robust.

Dr. Harris retired last week from the Real Estate Center at Texas A&M University after 25 years. Many of the enduring publications produced by the Center in that time have his byline. Many others were shaped by his expertise. I wish him well.

Technology Ahead:

Dialing for Dinner

By David S. Jones

Texas A&M Real Estate Center

Voila! That dish you prepared last night and popped in the oven before leaving for work is cooking and will be ready when your hungry family arrives home after work and school. There’s nothing like a home-cooked meal.

According to a new report from the Consumer Electronics Association (CEA), such telephone calls to home appliances will be commonplace across America and will happen sooner than you think. Hybrid white goods, or simply the smart kitchen, are listed in the CEA’s report on “Five Technologies to Watch.”

When it comes to food preparation, modern families want fast, delicious meals. With the help of evolving technology, the American kitchen is poised for the biggest evolution since the microwave.

According to CEA, here are some things that will soon be coming to a kitchen near you:

Some of the technology is old, such as barcode readers that “recognize” food in the fridge. But the big technology change is being made possible by broadband-equipped home networks that connect all of your kitchen’s appliances with every family member’s cell phone, pager, office computer or laptop.

It’s estimated that 35 million homes worldwide already have home networks. By 2008, that number will increase to 98 million.

The benefits of techno-kitchens are obvious (but I’ll spell them out anyway). Today’s family operates in a time-crunched environment. If cooking and kitchen chores can be made more efficient — and the food more edible — what’s wrong with that?

“Our research shows that many busy consumers still blame themselves when they cannot provide their families with home-cooked meals. Solving the food preparation dilemma would dramatically open up the market possibilities for us, especially since the kitchen is the command center of the home.” Says Henry Marcy V, Whirlpool Corp.’s vice president for corporate technology and electronics.

All I can say is that if the appliance manufacturers plan to bring smart-kitchen technology to my house, they had better bring lots of wire and techno-geeks. Like many American kitchens, mine will not go easily into the digital world.

The industry had better hope high-speed Internet services expand at a steady rate. If they don’t, consumers will loose interest fast. It’s one thing to buy a set of ginsu knives for three easy payments of $29.95 and quite another to invest your life savings in a computerized waffle iron that also makes stock market recommendations.

At least the appliance industry doesn’t have to worry about compatibility issues like the music and video industries have. You won’t have to worry whether or not your pager will talk to your can opener. It will.

The CEA says the industry faces an uphill battle. Many consumers are intimidated by new technologies, particularly when they are linked to yet another new technology, such as home networking. Consumers who can’t even set the clock on their microwave may not be easily convinced that they need a refrigerator to tell them the milk has gone bad.

The migration to the suburbs has hit a speed bump. Homebuyers are no longer willing to spend much of their work day traveling to and from work. In fact, a new survey puts a commute time of 45 minutes or less at the top of Americans’ housing wish list.

According to the 2004 American Community Survey (ACS) sponsored by the National Association of Realtors and Smart Growth America, a 45-minute-or-less commute is the leading factor in deciding where to live for 79 percent of Americans. Sidewalks and other places to walk are priorities for 72 percent.

Among those planning to buy a home in the next three years, 87 percent put a shorter commute at the top of their neighborhood selection process. When asked to select between two communities, six out of ten would-be homebuyers chose a neighborhood offering a shorter commute, sidewalks and other amenities over a sprawling community with larger lots. A large house on more than one acre is important to 57 percent of Americans.

Minorities and women are even more likely than other Americans to choose a walkable neighborhood. Fifty-nine percent of women, 57 percent of Hispanics and 78 percent of African-Americans selected close-in neighborhoods over communities with bigger lots and longer commutes.

“As communities around the country grow, they’re faced with the choice of where and what to build next,” says Don Chen, executive director of Smart Growth America. “In too many places, the choices are being made for them by a system of outmoded regulations that makes it hard to build great, affordable neighborhoods in the places where people need the house . . . “

The ACS survey says Americans place a high value on limiting their commute time. Even Texans complain about how long it takes to get to work. However, I’m not sure how many Texans agree with the survey’s observation that most Americans “. . . see improved public transportation and changing patterns of housing development as the solutions to longer commutes . . . ”

Most Texans I know will take two more lanes on the freeway over a bus ride any day. These survey numbers say something about the crowded conditions in many parts of the country. I suspect, however, that a survey of Texans only would be much different.

The ACS survey says, “Half of all Americans chose improving public transportation as the best option to solving long-term traffic problems.” Texans I know aren’t about to give up their vehicles.

And as far as mass transit goes, I offer the “successes” of mass transit in the bigger Texas cities as proof of the Texans love for the automobile. From what I’ve seen, developers aren’t having much difficulty selling properties “with acreage.”

Sure, Texas cities have their congestion around rush hour, but it’s nothing compared with other U.S. cities. A U.S. Census Bureau study gave the longest-commute trophy to New York City with an average of 38.4 minutes. Chicago was second with 32.7 minutes. In Texas, the longest-commute was in Houston at 25.6 minutes, and that tied for 15 th with San Jose, Calif. Dallas’ average commute was put at 25.3 minutes.

If you want to know how your city’s average commute time compares with the U.S. average, go to www.arbitron.com .

According to the Food Marketing Institute (FMI), in 2004 the average American family spends $90 on groceries per week. That’s an average of $38 per person per week.

Food and real estate are inseparable. Piggly Wiggly claims to have opened the first self-service grocery in 1916, but King Kullen Grocery Co. of New York says it opened the first supermarket 1930. Whatever. The fact is that if you eat, you support real estate.

Based on 2003 sales, Wal-Mart Supercenters are the largest supermarket chain in the United States. They have 1,427 stores and sales of $103.2 billion. The Kroger Co. has more than twice as many stores (3,313) but nearly half the sales ($53.6 billion). Albertson’s Inc. (2,315 stores; $35.7 billion) is third while Safeway Inc. (1,805 stores; $35.5 billion) is fourth.

Sam’s Club is seventh nationally in food sales (532 stores, $20.4 billion) , Winn-Dixie Stores Inc. is tenth (1,060 stores, $16.1 billion) and H.E. Butt Grocery Co. of San Antonio is 12 th with 299 stores and $12. 2 billion in sales.

Food-related real estate was in the local news recently with the opening of one of the state’s largest HEB grocery stores in Bryan’s Tejas Center. The 93,000-sf store bucks the nationwide trend of shrinking stores.

A release from the FMI just last week notes that the average size of a U.S. supermarket has decreased to 34,000 sf. That’s the first time in ten years that the size of new grocery stores has fallen to less than 40,000 sf.

An FMI report, Facts About Store Development 2004 , attributes the declining size of new stores to a tough economy and a highly competitive business environment. The report notes the robust growth in specialty groceries, such as natural-organic, ethnic and gourmet stores.

While new store construction is slow nationwide, 12.6 percent of grocers say they have at least one target market-focused store. Of these, 44 percent say they offer gourmet formats, with one-third targeting Hispanic or natural-organic formats.

What’s new in grocery stores this year? According to FMI, the most popular features are deli departments, fresh seafood, flora/plant shops, prepared foods for take-out, ethnic foods, pharmacies and in-store bakeries.

Nearly one in five new stores has a section of low-priced (dollar) items. Self-scanning checkout lanes can be found in nearly one-third of new supermarkets. Low-carb sections are in 12.2 percent of all new stores. New stores typically have a 1,000-sf wine sales area.

The next time you go shopping for the average $25-per-transaction in groceries, take some comfort in knowing that you, too, are helping feed, clothe and shelter millions of Americans — the 3.4 million supermarket employees and their families.

In 1978, I wrote on article called “To Sell the House, First Sell the School.” It was published in Real Estate Today , the magazine for the National Association of Realtors (NAR) . In it, I challenged real estate agents to do their homework because mounting evidence showed buyers put “good schools” at or near the top of their requirements when searching for a new home.

Today NAR’s website ( www.realtor.org ) has what’s called the “Field Guide to Schools and the Homebuying Decision.” There are articles on school quality and the homebuying decision. One discusses the impact of schools on property values. Another article echoes what I said in 1978 and offers tips to agents on “selling” schools. Lastly, there’s a list of websites offering information on school quality.

“Of all the local neighborhood amenities that can influence a buyer’s decision to purchase a home, proximity to good quality schools is one of the most influential,” notes the website. The NAR 2003 Profile of Home Buyers and Sellers lists “schools” as the deciding factor for 17 percent of homebuyers.

Since my article was written, there have been numerous studies attempting to measure which public school quality is most important to homebuyers. Is it expenditures per pupil, teacher –pupil ratios, teacher salary, student attendance rates, graduation rates, teacher experience, college-entrance exam results or something else?

A 2000 paper by Brian Smith in the Department of Economics at East Carolina University explored, “The Perceived Quality of Public Schools.” He writes, “The value of ‘good’ schools is reflected in prices for owner-occupied houses. The consensus is that the higher quality public schools attract potential buyers better than the lower quality schools do.”

Theodore M. Crone, vice president and head of the regional economics section of the research department of the Philadelphia Federal Reserve, says, “Most of these studies have found that after accounting for other neighborhood characteristics, the prices of similar houses are higher in school districts with higher expenditures per pupil.”

He notes that while some studies found no positive relationship between school expenditures and house prices, “the weight of the evidence is that homeowners do value school districts that spend more per pupil.”

Writing in Economic Review published by the Federal Reserve Bank of Dallas, Kathy Hayes said, “. . . some homebuyers are not only cognizant of differences in school quality but also have revealed their preferences for higher quality schools by paying a premium for their home. “ She suggested that policies that impact schools can have a significant influence on residential property values.

“Many researchers have found that property values are higher where school spending is higher,” says Hayes. “Other researchers have found a positive relationship between housing values and the test performance of students at the corresponding school.” She goes on to say that while test scores seem to influence property values, economists who study schools would not generally consider test scores as measures of school quality.

A veteran California appraiser says school districts are important to maintaining the resale value of your home. He notes that when a school district failed in its attempt to raise taxes, the quality of its schools waned and “those neighborhoods were less likely to see buyers choosing them.”

You don’t have to have children to be concerned about the quality of your local schools. That’s because a school district’s quality affects the resale value of homes. According to Steve Johnson of the Meyers Group in Irvine, Calif., a home’s price can appreciate as much as 8 percent a year if the house is in a “good” school district but will only appreciate 2 percent in an average district.

Has it been 40 years already? Four decades since I graduated from Texas A&M? I remember leaving college with dreams of someday making $10,000 a year (that’s what happens when you major in journalism). While that seems amazingly inadequate today, remember that the minimum wage in 1964 was $1 an hour, and the average annual salary less than $5,000. A gallon of milk was 95 cents, and regular gasoline was 30 cents a gallon.

Real estate has changed a lot in those 40 years, too. There were 64 million homes in the United States in 1964. Today there are 121 million. The homeownership rate today stands at a record 69 percent — 5 percent more than 40 years ago.
If we start listing all the new household products developed during the last four decades, the list gets long quickly. Life today is easier, more comfortable, more organized and safer than it was “back then.”
Tankless hot water heaters, zoned air conditioning, ovens that turn into refrigerators and washers and dryers that communicate via computer were unimaginable in the 1960s — even on the “Twilight Zone.”

In 1964, a new kind of insulation was introduced — fiberglass. That same year, another product was hailed as “the miracle laminate of the space age.” The New York World’s Fair featured it in the Formica House.
Forty years ago, homeowners were happy just to have their homes heated and cooled to a comfortable temperature. Today, that’s not good enough. Now we talk about the home’s indoor air quality — including humidity control, air purification and temperature. According to the National Council of the Housing Industry, more than 80 percent of today’s homeowners believe air quality is very important.
I recall when air conditioning was considered a luxury. Today we take it for granted. Of course, not everyone has a sophisticated climate control system in their home yet, but that day will come.
If you remember when fondue was “hip” and Tang was the latest drink sensation, then you also probably lived in a home with an avocado green kitchen and shag carpets. I did. Forty years later, kitchens feature stainless steel design, oversized islands and walk-in pantries.

The typical 1964 kitchen was isolated from the rest of the home and largely the domain of the stay-at-home mom. With both parents working today and children loaded with after-school activities, mealtime is the only time of the day families are together — if then. So the kitchen has expanded into the cooking, homework and bill-paying center open to the family room.
In 1964, many homes were single story; the average size was 1,470 square feet. The split-level ranch design was most popular. Today homes are larger (2,302 square feet average) even though households are smaller. Homes now have specialty areas such as home offices, gyms and media rooms.

The American Dream home looks different today than it did in 40 years ago. Considering the average price has jumped from $20,500 to $246,000, I’m really glad my salary didn’t level off at $10,000 per year.

Last Updated: January 15, 2008