Wednesday, April 13, 2005

Dallas/Ft. Worth Inventory Is 22,000 Homes

The Dallas/Ft. Worth "metroplex" has never meet a bubble it didn't like. Even with foreclosure rates growing and inventory sky high, the builders keep going. The Business Journal, "According to Metrostudy, a housing tracking firm, 10,258 homes were started during the quarter, a 17 percent increase from the same quarter of 2004."

And the market they are after isn't in the "affordable" bracket. "Starts increased for homes in every price range except the under $125,000 range. The fastest growing segment for new starts was homes priced at more than $200,000. Starts for homes priced at more than $300,000 grew 33.6 percent."

The are selling lots of houses too, but not as fast as they start them. "Home closings also hit record levels for the quarter with 9,149."

"But even with record growth in home starts and closings, inventory of homes for sale at the end of the quarter was up 20 percent to 22,006 homes, Metrostudy said."

25 Comments:

At 5:57 PM, Anonymous BoyInTheBubble said...

There's been a lot of great info and discussion on this site, but if you think Dallas is overvalued you're barking up the wrong tree.

There are plenty of decent houses everywhere in D/FW available for $200K or less. You can find 2BR condos for around $100K. Just about any two-income couple, or single professional, can afford to buy. Put another way, $800K easily buys you into the nicest neighborhoods there, whereas it'll barely get you into a trailer park in the SF Bay. The economy there has remained stong through the recession and the job market is quite good.

Now, the supply there IS rapidly increasing, but if you know the Dallas area this is nothing new. I think the big reasons why there's no growth in the low end is that (1) there's already a ton of stock on the low end (especially counting rental complexes) (2) it's just not that profitable (3) nobody wants to live in a starter home for too long and (4) there's plenty of land on which to build bigger houses, unlike in much of CA.

Move a bit higher up the food chain and there are plenty of households with incomes of $70-100K that can afford $200-300K places with conventional mortgages.

Dallas is where California folks should be moving to, if they could only stand the politics :)

 
At 6:19 PM, Anonymous Anonymous said...

Actually, there is PLENTY of open space in California too. The green beans try to call it all a wetland but the big developers always get their projects done. If you ever come out to the Sacramento area or central valley and drive around for a while you'll see gigantic expanses of basically nothing or under-used old farmland for miles and miles and miles as far as the eye can see. There is also new building projects going in all over the place.

I liked the rest of your post though and agree that Dallas is about the least bubble-ish place I can imagine. The rents are actually higher than mortgages in that area.

On another note, please check out this link from an earlier post. It's dramatic stuff.:

At 5:20 AM, Russ Winter said...
YOY March sales in South Bay area of Calf, really slipping:

http://www.dqnews.com/ZIPSJMN.shtm

 
At 6:55 PM, Anonymous BoyInTheBubble said...

>>>Actually, there is PLENTY of open space in California too. The green beans try to call it all a wetland but the big developers always get their projects done. If you ever come out to the Sacramento area or central valley and drive around for a while you'll see gigantic expanses of basically nothing or under-used old farmland for miles and miles and miles as far as the eye can see. There is also new building projects going in all over the place.


Fair enough, but I had LA and SF in mind, and you don't see too much new construction on 1+ acre lots there like you see in Dallas. Also, Dallas has no physical obstructions (mountains, bodies of water) that limit where you can biuld in the first place.

I visited Death Valley a couple months back, and agree, there's a lot of empty land in California :)

 
At 7:07 PM, Blogger deb said...

There is not a lot of space in LA itself, but I think we will be affected by all the speculation and (in my humble opinion) overbuilding in places like Riverside, San Bernardino, and Palmdale. I seem to remember Riverside has the second highest rate of investor buyers in the nation, right after Vegas.

In '90-95 LA was really affected by the bust in Palmdale/Lancaster. They were practically giving houses away up there.

Those markets directly affect the LA city market.

 
At 7:22 PM, Blogger mspenelope said...

4/13/05
If my calculations are correct.....
property taxes, alone, on an $800K home are approx. 1,833.33
per month in Dallas, Texas (2.75%). Here in California an 800K home costs you $833.33 (1.25%) per month in prop. taxes.
I was trying to find out what the minimum wage is in Texas ....the best I could find is a little over $3 dollars. If that is correct ....California's minimum is twice as high than in Texas.
Even buying at the low end in Dallas Texas.... a house at 100K.... prop taxes are $229. a month.
No wonder Dallas Texas has so many properties/reo's for sale.

The day comes (for the people that haven't taken out all those fancy loans) when eventually they finish paying their mortgage. Prop taxes never go away...in fact they get higher! I'd rather have a higher priced home than a never ending....sky high property tax bill. People should take note of such incentives and move to places that aren't so tax happy. New Mexico sounds like a better recommendation when making suggestions as to where Californians should move. ;o )
BTW 2.75 percent is low....a lot of other cities in Texas are way over 3%....YIKES!!!! What the heck is wrong with that state anyhow?!!!

 
At 7:25 PM, Blogger Ben Jones said...

boyinthebubble,

I didn't say it is overvalued, I suggest they are building too many houses, which can depress prices.

I grew up in N. Texas and did a couple of years as a Real Estate major at UT Arlington from 84 to 87. I experienced the bust first hand.

Dallas has gotten up off its knees and rebuilt over and over, Houston is the same way. But they never learn either.

And those $150k houses; nobody would touch them at $35-50k before it was over.

Dallas has interesting politics, but its the traffic that drove me away. Thanks for commenting.

 
At 7:33 PM, Anonymous dryfly said...

I knew folks who lived in Houston in the 80s crash... they were $50-75K underwater on a house that would only sell for $125K... they originally bought it for over $200K... they didn't get free until the 90s sometime... almost lost it and all they owned twice...

Now the inventory is climing and the builders there are building more??? Who is buying them? Spec's or are they being bought as family homes? Does anyone know? I know folks in DFW and the economy isn't that hot... not after telcomm crashed...

 
At 7:33 PM, Blogger John Law said...

consumer reports say dallas is undervalued, and income is probably rising because of oil. but it seems like there may be a supply glut soon. those numbers seem high.

 
At 7:38 PM, Blogger Ben Jones said...

Ms. P,
(I was trying to find out what the minimum wage is in Texas)

I think its $5.86.

(Prop taxes never go away...in fact they get higher)

My mothers current property tax in TX is higher than her payments when they bought the home.

(a lot of other cities in Texas are way over 3% What the heck is wrong with that state anyhow?)

They finance the schools with the property tax, and the schools have become a porkbarrel and political football. In those situations, you really just rent the land from the government.

(New Mexico sounds like a better recommendation when making suggestions as to where Californians should move)

I agree and I have actually been on a quest for good, cheap land for years. Alaska, Arizona. New Mexico is cool but the economy in the cheap areas is kinda poor. I like northern Arizona at $100 to $400 an acre, but it gets cold! in the winter.

 
At 7:43 PM, Anonymous BoyInTheBubble said...

>>>YIKES!!!! What the heck is wrong with that state anyhow?!!!

This is easy: Texas has no state income tax, which is precisely why property taxes are so high.

Using your example, someone (single) living in a $100K house in Dallas probably makes about $30-35K and pays, as you claim, $229/month in property tax.

Move this person, his job and his house to CA, and he'd pay about $1200 in income tax and $1250 in property tax. Per month it's about the same, low $200s.

Problem is, you plop that $100K house down in CA and it would become a $250K or $500K or $700K house, depending on location. So you'd end up owing a lot MORE in property tax than if it were in Dallas.

I like Texas' way better. If I earn $100K a year I can adjust my level of taxation by buying a more or less expensive house. But CA's top income tax bracket is 9.3%, and hits at around $40K in salary... yee-ouch, nothing I can do about that.

 
At 7:51 PM, Blogger Ben Jones said...

(This is easy: Texas has no state income tax, which is precisely why property taxes are so high)

Don't forget, Californians can deduct their state income tax and Texans can't. I am no fan of an income tax but I don't understand why Texas has to put up with that. That adds up to billions straight out of their pockets.

 
At 8:01 PM, Blogger John Law said...

And those $150k houses; nobody would touch them at $35-50k before it was over.
____________________________

that's just it, houses may not look overvalued in some areas, but even warren buffet got caught holding stocks he thought weren't overvalued when he thought many stocks were. a price is just that- a few numbers. just like a stock that was trading at $100 is now at $15 may look cheap, so could a house. the stock could still get cut in half.

 
At 8:14 PM, Anonymous BoyInTheBubble said...

Fine, maybe house prices will come down in Dallas. But from an ability-to-pay standpoint (and an "ability to generate the necessary income" standpoint) Dallas is about as reasonable as it gets right now. Everything is big down there, but not the housing bubble this time around.

BTW, I've never lived in Texas (but travel there often) and am otherwise on the same side of the bubble argument as everyone else here.

 
At 8:38 PM, Anonymous Anonymous said...

Dallas and texas have a fine economic future ahead of them, in my opinion, once we get past the next recession. I'm not so sure about CA. I think CA and its big cities are all going to have to go bankrupt before the business climate improves significantly. It's going to be a long and painful process of restructuring there.

 
At 9:04 PM, Anonymous John Vosilla said...

>Now, the supply there IS rapidly increasing, but if you know the Dallas area this is nothing new. I think the big reasons why there's no growth in the low end is that (1) there's already a ton of stock on the low end (especially counting rental complexes) (2) it's just not that profitable (3) nobody wants to live in a starter home for too long and (4) there's plenty of land on which to build bigger houses, unlike in much of CA.<

You could have said the same thing for places like Orlando or Phoenix a couple of years ago too. I think the main difference is two drivers prevalent in Florida, Arizona and Vegas (1)influx of wealthy foreigners and (2) boomers cashing in their chips from the major northeast cities or California make it much more difficult for wealth creation in Dallas or Houston this cycle. My gut feeling is coming out of the next recession Texas is the place to be with the boom in natural resources and alternative energy as well as attracting the young and busniess due to having the lowest cost of living of all the major cities in the US.

 
At 10:15 PM, Blogger mspenelope said...

4/13/05
I knew someone was going to bring up the "Texas doesn't have state income tax" excuse.
That's not where the biggest hit is in our paycheck here in California. So, NO....state income tax is not going to make up for what they charge you in prop taxes.
Nevada and Florida offer cities where the prop taxes are WAY more reasonable than Texas. ... and they are state inc tax free as well.
AND AGAIN.....after one is finished paying off their mortgage and retires and doesn't have an income ....who cares that one doesn't have to pay income tax..... you still have to pay these ridiculously high property taxes. In addition income after retirement gets taxed at a much lower rate.
As Ben stated......cut and dry.....boils down to politics and the good old " porkbarrel!"
Ben...thanks for the answer to the minimum wage. I couldn't find it anywhere. If my calculations are correct.....$5.86 makes you approx.$1015.73 a month. Starting prop taxes of 233. a month are over 22% of ones income, pre tax. It might just be me...but I think that's insanely high....I can think of better ways to spend my money ...... :)

 
At 10:45 PM, Blogger John Law said...

(My gut feeling is coming out of the next recession Texas is the place to be with the boom in natural resources and alternative energy as well as attracting the young and busniess due to having the lowest cost of living of all the major cities in the US.)

yes!


and don't forget people, if this bubble bursts, you can bet that banks anywhere will have a tough time making loans. they might not want to anyways. they also may not have willing customers. so loans may be scarce, even if there is no bubble, prices still could come down.

 
At 6:46 AM, Anonymous Anonymous said...

Ben... don't know if you can find it but there's a pretty important story on the dow jones news wire... a housing broker for a major investment house just said that there's a "hidden" glut of inventory in the sector that they expect will work its way onto the market... and that basically, as we've been saying all along, this insane real estate market has been driven by artifical demand...

 
At 8:06 AM, Anonymous Anonymous said...

I'm guessing that Dallas demonstates the supply and demand relationship in housing:

1) As long as the market pays more than what it costs to build a house, builders will build, regardless of whether there is a bubble or not. In the long run builders and their endless supply of houses will bring all the markets back down to the traditional inflation rooted prices. This is a great stabilizer of housing prices.

2) All markets, sooner or later react to supply and demand. Demand in a lot of areas has been artificially created by speculation. It appears that Dallas had too much inventory to allow speculation to start and thus housing prices didn't bubble there.

Even though housing prices haven't appreciated there, one might expect housing prices to fall if builders keep supplying houses to the market.

The fact that builders keep building gives one an idea of what the true cost of building a house is these days.

In the long term, we can expect other markets to trend toward the Dallas prices.

 
At 11:53 AM, Anonymous John Vosilla said...

>In the long term, we can expect other markets to trend toward the Dallas prices<

That is a scary thought with homes in many areas at $200-500 psf and much of Dallas at $50-60 psf. I figured just a $100K drop in housing prices in the bubble markets would wipe out $4-5 trillion in equity. Anything much worse than that and we get a depression.

 
At 12:16 PM, Anonymous Anonymous said...

When supply catches up with "demand" and the speculation ceases, why would we expect housing in any area to be more expensive than it is in Dallas ? There is lots of land everywhere and builders still have good margins, even at Dallas prices. It is the miracle of never ending supply.

Yeah, the correction is going to be fierce and merciless.

 
At 12:17 PM, Blogger Ben Jones said...

(don't know if you can find it but there's a pretty important story on the dow jones news wire... a housing broker for a major investment house just said that there's a "hidden" glut of inventory ..as we've been saying all along, this insane real estate market has been driven by artifical demand)

Yeah, its Ramsey James Bank I think. I can't find a link, just parts of it on message boards. I didn't want to link to those cuz it would be cheesy. If you find a link. please post it.

Hasn't been hidden from us! Sometimes I wonder if Fed governors lurk on these boards.
Thanks.

 
At 12:18 PM, Anonymous Anonymous said...

The cost of building a house, other than the temporary inflation in labour, cement, lumber, etc. hasn't increased by much more than inflation. In fact, I'll argue that the cost for an equivalent house has fallen. By that, I mean that most of today's houses are much more luxurious and better built than houses from 30 years go.

 
At 12:19 PM, Blogger Ben Jones said...

(The fact that builders keep building gives one an idea of what the true cost of building a house is these days)

When I talk with a builder friend, he is kind of ashamed at how much a new home is marked up.

 
At 1:29 PM, Anonymous Anonymous said...

(When I talk with a builder friend, he is kind of ashamed at how much a new home is marked up.)

Margins have skyrocketed. Builders, especially the small ones watching their costs are making a fortune in all this. House building costs roughly track inflation and house prices are now about 40% above inflation.

I sat across from a builder a few weeks ago that told me his margins were 45% and all they did was hire trade companies.

The trade companies are making 50% themselves. The whole mark up is huge. Lets not forget the money the land developer is making.

The next time there is a housing boom, I'm going to be a builder !

Example: let say that a framing guy is paid $20/hr. He works for a framing campany that gets $50 for his work, for supplying a truck and maybe a foreman for the crew. Next, the "builder" hires a framing company to build their houses. They typically mark up the trade costs by about 50%. So the "cost" to the buyer for the $20 per hour framing guy is $75 !!! The "builder" also marks up the materials. You find this out really quick if you get a quote for someone to work on your house privately versus what a "builder" charges you for doing the work. It is absolutely sickening.

 

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