Texas Housing Insight
By James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson
June 2018 Summary
Texas housing sales fell 3.2 percent as activity slowed, especially in the $200,000-$300,000 price range. Housing demand, however, remained particularly strong amid the state’s continued economic expansion. Developers accelerated supply-side activity but struggled to match demand. The rate of single-family housing construction significantly lags pre-recessionary peak levels. Homebuilders continued to grapple with increased land, labor, and lumber costs, as well as increased regulations. A flood of new listings across the price spectrum (except for those below $200,000) provided marginal, yet necessary, relief to inventories after stalling last year. While the pause in sales activity moderated price pressures, housing affordability worsened across the state. Overall, the housing market fundamentals were unchanged in Texas, characterized by lagging supply and robust demand.
Supply*
The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, reached its highest level since 2008 as construction employment and wages elevated. This momentum should continue through the summer as the Texas Residential Construction Leading Index (RCLI) extended its upward climb amid gains in single-family housing starts and weighted building permits.
In response to housing shortages (primarily for homes priced under $300,000), Texas developers increased supply activity at the earliest stage of the construction cycle. The inventory of vacant developed lots (VDLs) rose 1 percent quarter over quarter (QOQ) in the Texas Urban Triangle, led mostly by 3.3 percent growth in Dallas-Fort Worth (DFW). The VDL inventory flattened in Houston and San Antonio and fell 10.9 percent year to date (YTD) in Austin.
Despite the overall uptick in lot development, single-family housing construction permits (unweighted) fell 1.8 percent in the second quarter, slowing YTD growth to 2.2 percent. Texas remained the national leader with 11,132 nonseasonally adjusted permits issued, accounting for 16 percent of the national total. Houston topped the metropolitan rankings, issuing 3,681 permits, followed by Dallas-Fort Worth at 3,295. Permit activity fell by more than 5 percent QOQ in both of the major metros. Austin held fifth place with 1,726 monthly permits after a 13.7 percent second-quarter increase. The San Antonio MSA, which has 358,000 more residents than Austin, issued just 759 permits.
Total Texas housing starts inched closer to pre-recessionary levels after stepping back in May. Single-family housing starts surged in the major metros, recording double-digit growth YTD across the board. In addition, multifamily investment continued to pour into the North Texas market.
Despite upward trending VDLs and housing starts, single-family private construction values fell 3.7 percent in the second quarter. Construction values dropped 6.9 and 5.4 percent QOQ in DFW and San Antonio, respectively, followed by Houston at 0.1 percent. On the other hand, Austin posted a 2.7 percent quarterly increase, pushing YTD growth above 4 percent.
The Texas months of inventory (MOI) remained constrained but posted its fourth consecutive uptick to 3.7 months. Around six months of inventory is considered a balanced housing market. The recent pause in sales activity and a flood of new MLS listings provided marginal relief to inventory constraints. Housing market imbalances, however, are far from over as demand outpaced the rate of single-family residential development. The recent inventory improvements occurred primarily for homes priced above $300,000 where supply is more stable. In the $200,000-$300,000 price range, the MOI held at 3.1 months, while the MOI for homes priced below $200,000 sank to an all-time low of 2.7 months.
The wave of new listings lifted the MOI across the major metros. Fort Worth maintained the lowest MOI at 2.4 months but reached its highest point in over two and a half years. Austin and Dallas hit YTD highs at 2.6 and 2.9 months, respectively, followed by San Antonio at 3.4 months. Houston was the exception, where steady sales volumes pressured the MOI down to 3.8 months after a three-month increase.
Demand
Housing sales fell 3.2 percent in June, pulling the YTD total down 1.9 percent. The softening occurred primarily for homes priced below $300,000, which accounted for two-thirds of sales through Multiple Listing Services (MLS). Sales on homes priced below $200,000 have slid since 2013, but the $200,000-$300,000 price range flourished until this year’s plateau.
This same price cohort hindered the markets in Austin, Dallas, and Fort Worth, where housing affordability declined substantially over the past year. Through the first six months of 2018, total housing sales dropped 9.2 percent in Austin, 5.7 percent in Dallas, and 4.1 percent in Fort Worth. Most of the North Texas decline, however, occurred in the resale market. New-home sales in the second quarter jumped 7.3 percent in DFW, approaching a decade-high. Austin’s new-home sales ticked down 1.2 percent QOQ but hovered closest to pre-recessionary levels. Total sales calmed in San Antonio after reaching record levels in May. In Houston, total sales increased 2.2 percent YTD amid a second-quarter boom in the new-home market.
Despite the pause in closed listings, Texas’ economic expansion bolstered housing demand. The average days on market(DOM) sank below 56 days for the first time since 2015. Austin, Houston, and San Antonio faced similar demand conditions with DOM at 53, 54, and 56 days, respectively. The Dallas DOM fell under 42 days after inching up over the past year, while Fort Worth homes flew off the market at an average of just 38 days.
Statewide, homes priced from $200,000 to $300,000 averaged 50 days on the market, corroborating that housing shortages, not demand, are hindering the market. Demand spilled into this price range as homebuyers struggled to find options priced below $200,000. The bottom price cohort (below $200,000) accounted for the largest proportion of sales through an MLS at 34 percent. In 2011, more than 72 percent of sales fell in this price range. Demand also heightened on the upper-end of the market (above $500,000) where the DOM reached a record low 78 days.
Concerns regarding international trade pulled investments into safe assets, offsetting robust economic data and weighing on interest rates after they reached multiyear highs in May. The ten-year U.S. Treasury bond yield ticked down 7 basis points to 2.91 percent, despite the Federal Reserve’s 25-basis-point increase in the federal funds rate. The Federal Home Loan Mortgage Corporation’s 30-year fixed-rate balanced below 4.6 percent after an eight-month climb. Despite the recent run, mortgage rates have held historically low since the Great Recession.
Prices
Texas builders reduced home sizes to combat rising land, labor, and lumber costs. The median square footage (sf) of new homes sold through an MLS fell to 2,283 sf, the smallest since 2011. Smaller homes for sale, combined with upticks in inventory, calmed home price appreciation. The Texas median home price fell to a six-month low below $229,000. The median price per square foot (ppsf), however, rose for the 13th consecutive month to a record high $115.53.
Austin led the state with a median price above $306,000, despite having a median square footage of just 2,187 sf for new homes—the lowest of any major Texas metro. As a result, the median ppsf increased $3.84 this year alone to $153.63. Dallas’ median price ($281,348) and ppsf ($131.45) flattened on the year as new-home square footage continued a yearlong slide. A similar phenomenon occurred in Houston, holding the median price and ppsf around $230,000 and $108.35, respectively. Fort Worth’s shift towards smaller homes was even more drastic, pushing the median ppsf above $119.25. Rampant demand and pronounced shortages, however, more than offset the adjustment as the median price increased 8 percent year over year to $233,475. San Antonio maintained the lowest median price of the major metros at $220,100, but its ppsf rose to $113.84.
Despite softening price pressures, the Texas Housing Affordability Index sank below 1.50 in the second quarter, the lowest level since the housing crisis. The index indicated that a Texas family earning the median income could no longer afford homes priced 50 percent above the median sale price. For much of the past decade, Texans enjoyed the capability of affording homes priced nearly twice that of the median. The Dallas index settled at 1.39, the lowest of the major metros, followed by Austin at 1.40. Fort Worth had the largest decline in affordability, matching Houston at 1.63. In San Antonio, the affordability index sank six points to 1.50 in the second quarter.
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*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.
Original article: https://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight
Texas Has Fresh Take on Affordable Housing
Texas Has Fresh Take on Affordable Housing
Developers in Houston and San Antonio are thinking outside the traditional apartment box when it comes to affordable housing options. With home ownership and multi-use options, these developers are making the rest of the country stand up and take another look at Texas.
Midtown Condos Offer Houstonians Downtown Option
Surge Homes has taken over the corner of Isabella and Main streets in Midtown, and will be introducing its mid-rise condos to Houstonians in December 2019. Priced from $150,000 to $600,000, the 208 units offer everything from efficiency lofts to penthouses, all with private garage parking inside the gated complex. But, with a walkability score of 84 out of 100 points, Midtown acolytes may not even need their cars to get around; the METRORail stops just across the street.
All of the units feature fully customizable interior designs, an interior courtyard, fitness center, pool, and owners’ lounge with televisions and a full kitchen for entertaining. It’s a model that Surge first perfected with its development of Parc at Midtown, Upper Richton, and Museum BLVD.
Refurbishing the Heart of San Antonio
Dougherty Mortgage LLC is also leading the way in affordable urban housing in Texas. The company just secured Fannie Mae financing for its 84-unit Balcones Lofts project in Balcones Heights. The unit feature one to three bedrooms in a contemporary design with modern amenities, as well as a fitness center and mixed-use retail space, all in a pet-friendly package.
Affordability is starting to take on new meaning in an urban environment, and the rest of the country would do well to keep an eye on Texas developers who are change leaders when it comes to well-priced design in the heart of the city.
Original article: http://www.classamgmt.com/texas-affordable-housing/
Best Practices To Follow for Peak Rental Portfolio Performances
Written by Michael Blank
In my Bigger Pockets article “3 Key Lessons for Avoiding The Dark Side of Passive Income” I make the case that no investment is or truly should be passive. The same goes for managing your rental or apartment building portfolio. While you don’t need to be involved on a day-to-day basis, you need to establish a rhythm of reviewing the numbers from your property manager and making adjustments accordingly.
I have investors in my deals and so there is a certain amount of reporting that I do for them. I provide them with adhoc updates if there’s something unusual going on. But normally I will give them a quarterly report with a Profit & Loss statement along with any distributions.
When you don’t have investors, you tend to pay less attention (trust me, I know), and this is not good. You should ALWAYS pay attention to your investment, even if you don’t have investors to report to.
Here are the best practices to follow on a weekly, monthly, quarterly and annual basis to make sure your building is performing to plan and maximizing your profits.
Weekly Activities
Proactively Fill Vacancies
You need to know what’s going on with your income. Which units are vacant? When will they be rent-ready? How many viewings were there? How many applications were received? Do you need to adjust the rent or offer incentives?
Review Delinquencies
You want to know which tenants are behind on their payments. Find out from the manager why they’re behind and if legal action is necessary. I’ve found that the right combination is prompt legal action while proactively communicating.
Understand All Bills Paid
You want to understand exactly what bills your property manager paid last week. What was it for, and for which unit? Was it necessary? Could it have been avoided? Could it have been done cheaper?
You want a record of EVERY bill the property manager paid, how much, who the vendor was, a description of the expense, and for what unit. It’s not uncommon for someone else’s bill to show up in your records. Errors are easily made, but no one but you will catch them.
Bulk trash has been a real issue in Washington, DC, for example. This is where your tenants and neighbors throw out larger items that don’t fit into your trash bin. For the last year, the city has been enforcing bulk trash with hefty fines. As a result, my property manager leased a truck to go by each of their properties to pick up any bulk trash to avoid the fines. This is a great service, but each time they pick up any bulk trash, they charge me $65. In the last couple of months, I’ve had about 3 pick-ups per week!
Because I noticed these escalating costs in my weekly review, I was able to address the issue with the property manager. We decided to upgrade to a larger trash bin to see if that would cut down on the amount of bulk trash. We’ll see if it works, but the point is that you’re catching issues as soon as possible so you can make adjustments quickly.
Call Your Property Manager
I’ve found that a short weekly call with your property manager is key to staying involved with the property. Many of the key metrics you need should be available from the property manager’s online management website. Review those first, and then follow up with a regular phone call to ask questions and discuss any issues.
Monthly Activities
Create the Profit & Loss Report
Once per month I create the Profit & Loss statement for that month. The income and expense numbers should not be new to you since you’ve been reviewing them every week. The monthly P&L report shows you trends and lets you see how you’re performing to your projections.
Review Work Orders
Once a month I also review the work orders. I specifically look for two things: (1) Are there any units that are costing more than others? If so, why and what can we do about it? And (2) How long does it take to close out work orders? Establish an acceptable baseline with your manager and then track this metric. Work orders that don’t get addressed on a timely basis can result in unwanted turnover.
Once Per Quarter
Make Distributions
Once per quarter I pay myself and my investors. You already have the P&L report done from your monthly activity. The only other thing you have to do is create a cash flow and bank balance report: see what you have in the bank account, deduct any bills that are due in the next couple of months (like real estate taxes or larger repairs). Keep a reserve (this will vary, but you always want a reserve in the account!). Whatever is left is money you can distribute.
Analyze Turnovers
If we’ve turned over any units in the past quarter, I want to understand why they turned over and if there’s anything we could have done differently to avoid it. I ask my property manager to talk with the tenant to find out why they’re moving out.
If you feel you’re having an issue with turnover, one thing you can also do is to mail a questionnaire to each of the tenants with a self-addressed, stamped envelope to get feedback from them. What do they like about living at the property? What do they feel you could do better?
Once Per Year
Review All Contracts
Once per year I review all of my contracts, such as insurance, trash, landscaping, snow removal, and common area cleaning. I may bid out some or all of these contracts to see if I can save any money.
Complete Your End-of-Year Report
Again, even if you don’t have investors in your deal, I think it’s critical that you develop the discipline to actually write an end-of-year report. Include the annual P&L with the monthly numbers as well as your budgeted P&L. If the actual numbers were significantly different from your projections, explain why. What can you do differently in the next year?
Create the Budget for Next Year
Based on the past year’s performance and the changes you want to make, create the Pro Forma for the next year. Get your property manager’s input and get them to commit to it. Then track your actual performance as you repeat the cycle of review and adjustment.
Conclusion
It’s a mistake to let your property manager do whatever they want without ANY oversight from you. Interact with them frequently and review the key metrics regularly, as I described in this article. If you do, you can make adjustments promptly and ensure you’re on track to maximize your property’s value.
This article originally posted on http://www.themichaelblank.com/
The Anatomy of the Millennial Renter
Our friends at SmartMove conducted research on younger renters and put together an infographic on the Anatomy of a Millennial Renter. The study discusses millennial renter’s values, priorities, characteristics and rental property preferences.
The study findings can be helpful for landlords who are renting to this generation. For instance, 60% of millennials chose to rent. They also generally prefer to move into apartment buildings. The majority of millennials surveyed cited rental property affordability as the primary reason for renting, likely due to financial constraints such as slow wage growth and large student debt. While deferring home-ownership until later, millennials are comfortable now with renting now because it appeals to their desire for flexibility and convenience.
The Pew institute cited that Millennials are the largest generation in America. FICO reported that millennials tend to have shorter credit histories and more delinquencies than other age groups. And, over 1/4th of millennials credit scored in the 300-579 score range. With so many millennials in the rental market, Landlords should continue to mitigate rental risks and exercise good tenant screening practices.
Original article: https://www.rentometer.com/articles/the-anatomy-of-the-millennial-renter
Are Property Management Companies Worth the Cost? Costs, Pros & Cons
By Martin Dasko
Purchasing a property and renting it out to tenants can provide a healthy income stream to willing investors for a very long time. But no matter what kind of property you purchase – commercial or residential, single-family or multi-unit – hassles and headaches are inevitable. Lots of patience and hard work go into finding the right tenants, maintaining the property, and acting responsibly as a landlord.
Unless owning and managing rental properties is a full-time job for you, or you want it to be, consider a property management firm to streamline your landlord duties. But before you sign with one, be sure to fully consider the pros and cons of managing your own property versus delegating tasks to a dedicated management firm.
What a Property Management Firm Does
The responsibilities that come along with property management include screening the credit histories and backgrounds of applicants, drawing up leases and processing rent payments, maintaining tax and legal records, and dealing with maintenance issues and complaints that crop up. Depending on the size of your property, these tasks alone can constitute more than a full-time job.
Every landlord has to decide whether the tasks required of property management are better suited to a dedicated firm or handled first-hand. The first thing to consider is whether you have the time and expertise to manage your own property. Are you comfortable doing basic handyman tasks (or do you know someone dependable who is)? Do you know a reliable electrician and plumber who offer same-day service? Do you mind being on call 24/7 to handle issues that inevitably arise? Are you comfortable confronting tenants over complaints or late payments? Or would you rather spend the money to free up your time by delegating these and other responsibilities?
While hiring a property management firm can eliminate after-hours phone calls and mitigate day-to-day hassles, nothing ever fully relieves you of management responsibilities as long as you own the property. Some maintenance issues (such as determining whether to repair an old dishwasher or replace it with a new one) are sure to require you to assess the situation and determine how to proceed. Additionally, certain tenant problems (such as eviction) will need your attention.
If you’re looking for a firm to take every single worry off your shoulders, you’re going to be disappointed – but if you want assistance lightening the load, a good property management firm provides a range of valuable services.
Dealing With Tenants
A big part of what any property management firm (or hands-on landlord) does is deal with tenants on a day-to-day basis. Responsibilities include advertising open units, interviewing and screening prospective tenants, drawing up leases, handling move-ins and move-outs, dealing with complaints, collecting rent, handling late payments and, in the worst scenarios, managing evictions. Property management firms should have a familiarity with legal aspects of the landlord/tenant relationship – and that includes understanding the rights of each party and how to proceed legally in the event of a problem.
Paperwork
For some, one of the best aspects of hiring a property management firm is that it handles a good deal of the necessary paperwork. A firm can relieve you of finding and screening tenants, checking credit reports, conducting background checks, drawing up lease agreements, and billing and accounting for monthly rent. Also, if you offer subsidized housing, you know that a fair amount of additional paperwork is required to be maintained.
If you only have one or two rental properties with long-term tenants, dealing with paperwork shouldn’t take more than a few hours each month, nor should it occupy more than one drawer of a filing cabinet. However, if you own an entire building with a high turnover rate, that volume and time commitment can add up quickly.
Of course, even with the help of a management firm, you’re still responsible for maintaining a record of documents relating to taxes, insurance, and mortgage bills – not to mention receipts from the property management firm itself. However, the reduction of paperwork can be worth the fees charged.
Repairs and Maintenance
If your building has a new roof and a new water heater, it’s a reasonable assumption that you won’t be called upon for repairs as frequently as you would for an older property with older features. If the roof and plumbing are old, the baseboards are peeling, and the physical structure of the unit has seen better days, you could face frequent calls and expensive repair bills.
As a landlord, you don’t just own a house or building – you also likely own the land it’s sitting on. In addition to the repair and maintenance of buildings and individual units, you need to devote some resources to making sure the land is attractive and well-maintained. That can mean planting and keeping flowerbeds, repairing pathways, mowing lawns, and installing grass sprinkler systems, among other duties.
You may authorize the management company to handle repairs under a certain dollar amount at its discretion, but you’ll still need to authorized bigger, costlier repairs. Your decision as to whether to hire a management firm hinges on just how involved you want to be, and how immediately available you want to make yourself to your tenants.
The Cost of a Management Firm
While cost is a primary concern in contracting with a firm to manage your property, it’s not the only thing to consider.
Cost
Although prices vary from firm to firm and depend largely on the area of the country you’re in, you can expect to pay a residential property management firm anywhere from 8% to 12% of the monthly rental rate, according to All Property Management. However, ManageMyProperty.com puts that figure at 4% to 12% “based on the number of properties you need managed, the number of units in each property, the location and condition of the property, and most importantly, what services are included for that fee.” It also cites property type as a big determining factor. In addition, you may be charged a fee of 80% to 100% of one month’s rent for “tenant procurement,” according to real estate agent Eric Lansing, commenting on Zillow.
Structure
Not all pricing structures are the same. Some companies may charge a flat per-month rate – which again varies according to area, duties performed, and the total value of the rental – while others charge a percentage rate, as noted above. Price can also fluctuate depending on the size and number of properties you own. For example, if you own several apartment buildings, you may get a “bulk” discount that a person with a single home or apartment might not receive.
Term
Typically, a landlord signs an agreement with a property management firm for a certain length of time – 12 or 24 months, for example – with an option to renew. Contracts can be drawn up so that they automatically renew if neither party takes action opposing it. Termination clauses allow for early termination if the property management firm is in breach of the contract in any way.
Services Included
Make certain you establish exactly what maintenance services are included with your fees. It may be that when something needs repair, certain labor costs are included with your monthly flat rate or percentage charge (for example, changing out lighting switch plates and replacing faucet handles) while others are billed individually (such as replacing broken windows and installing new sinks).
Regardless, everything should be clearly stated in your contract. Keep in mind that these fees may require you to increase your rental rate, which could make finding – and keeping – tenants more difficult.
And remember, property management fees can be negotiable. Depending on how much you’re willing to pay, you may be able to get a lower price by sacrificing certain services and handling them on your own.
Final Word
If you’re turning a primary residence into a rental property, be sure to consult with your insurance provider to make sure your policy is adequate. You need landlord insurance that can cover you appropriately in the event of fire, vandalism, flood, or any other mishap. And remember that even though you’re delegating tasks to an outside company, the responsibility as owner ultimately belongs to you. In fact, contracts with property management firms typically stipulate that if lawsuits are brought based on the manager’s work, the owner pays all legal fees and any related damages. So, choose who you do business with wisely, and always keep an eye on things – no matter how removed you’d like to be.
Have you considered hiring a property management company?
Original article: http://www.moneycrashers.com/property-management-companies-worth-cost/
