Autumn 2008 Newsletter: Volume 19, Issue 4
CHALLENGING TIMES FOR ALL...
This was a very hard quarter for most of you. Just as the national financial housing crisis spread to the stock market, people stopped moving. Our local rental volume slowed down each month of this quarter as tenants got scared about making commitments. The only growing market of renters are those recently foreclosed on. But a great sign of hope appeared in September: after 20 consecutive months of declining home sales, we seem to have hit bottom and turned around. The 2% increase in home sales when compared to a year ago is a very positive sign that prices may not need to drop much more to spur activity. Increased home sales has a negative effect on the rental market and just this past month over 20 residents moved because they had bought homes. It is amazing to me that anyone reading a newspaper would take the risk of ownership, but the American dream is still very much alive for our tenants. Even the Wall Street Journal writes articles entitled "Not Everyone Should Own a Home." If the housing market was the Titanic, D/FW is in the best position to survive long enough to weather this storm. Values are stabilizing and inventories are shrinking. It could be much worse.
The imbalances that created this market condition are still with us, only now transaction volume on leasing seems to have slowed. So the only solution to quick occupancy or retention when nothing else works is to lower rent and increase the shape of property. Unfortunately, this appears to be the best formula to lose the least amount of money if you have a vacancy and are competing with other new rentals. Occupancy and timely rent are the key first steps.
| Activity Statistics Dallas/Ft. Worth Market |
|
|---|---|
| Previously owned homes sold in D/FW | Jul 2008 -16% Aug 2008 -18% Sep 2008 +2% |
| YTD Home Sales | -12% |
| YTD Median price trend | -2% |
| Average days selling a home | 81, 95 for a condo 46 or more to lease |
| New Home Sales Office Leasing |
-33% so far in 2008 -30% so far in 2008 |
| Home Foreclosures 2008 | 50,000 up 35% Only 40% actually become vacant |
| Rental occupancy Apts. Being Built |
93% 20,585 |
3rd Q: WORST SINCE THE GREAT DEPRESSION
At the end of the 3rd Q, the Dow was down 18% and the NASDAQ down 21%. Since Oct 1st the market has gone down nearly twice that amount but changes everyday. Many mortgage stocks such as Freddie Mac and Fannie Mae were down over 90% year to date thus far. The markets are unstable but the commitment of the bailout effort will eventually settle things down as we brace for an extended recession. The problem with any cure is one action has another reaction, so stabilization looks easier than it actually will be. The only bright light is investment grade muni bonds which yield tax free at higher yields than seen in years.
Get There First Updates
Through the third quarter of 2008, national real estate values dropped 16.3%, but in North Texas values were only down 2.5%. I still believe there is a future for "quality real estate that cannot be replaced." I always tell investors to buy ocean views since they are not moving the sea and to avoid areas with never ending land to develop. 
The national US debt is now $9.671 trillion and the annual interest alone is $500 billion. Our new president, whoever he may be, will have his hands full, and reducing home ownership occupancy is not on their agenda. In the past 10 years alone, home ownership in this country has gone from 65 to 69%. Now the American dream has
become the foreclosure nightmare, and yet our tenants still want to terminate their leases to buy homes! There is nothing more I can do in my professional statements to the market than to support home rentals as a viable housing option. Everyone should not own a home despite what the politicians have tried to force feed us on and the public has eaten up like poison. I feel we should not expect help from this recovery package in getting us more renters for our properties even though I personally believe this is the root of the problem. For many years your tenants have vacated your rentals to buy homes with nothing down, and now they are having problems with their payments. It is obvious help is on its way from the government, so we will not be getting these homeowners back on our rent rolls.
Last month our nation lost 159,000 jobs. Locally North Texas employment remains strong, and in fact it is the fuel of our local economy. Some local city ordinances have tried to make it illegal for landlords to rent to illegal aliens, which is a large component of our housing rental market. Other cities have set up very specific inspection criteria whereby landlords are fined if their exteriors are not impeccable. More ordinances are being enforced preventing rentals to those accused of, but not convicted of crimes. We are dealing with and educating ourselves on these new local laws as they begin to affect you, but they are all designed to make tenants better qualified. My opinion is that our market cannot support more government intervention regulating who you lease to, and this is all more time and money you might lose when investing in North Texas real estate. The worst are in the Irving and Farmers Branch areas.
Just 24 months ago nearly 25% of all home sales in North Texas were sold to investors. This number is shrinking and now only 5% of foreclosed homes are being sold to investors indicating recent softness in investor confidence in this area. A better explanation might also be the lack of available investor financing. Locally we are told there are 100,000 vacant lots ready for homes to be built, but that there is no demand for new housing starts. More than two dozen cities have a 5 year supply of vacant lots to build on. The average American has $117,951 in debt , 13 credit cards and 40% carry balances on these cards. In 1957 42% of American households had no debt, in 2004 the number was down to 24%. I’m waiting for a candidate to introduce to their party platform the reduction of household debt to be as important as being "green."
Industry Trends
Clearly the trend is one of family survival and there are less and less transactions in most areas of North Texas real estate. You would think there would be more people renting homes, but it costs much more to rent a home and have an up front deposit than to buy a house with nothing down. Because of this slowing, Dallas area home listings for sale were down 15% and this is a very positive trend to the needed adjustment in this market.
GTF completed the creation of our two new web sites separating what owners see and what tenants see. This will make it much easier for us to move to the very top of the keyword internet search engines which is very important to get your listings marketed. We have opened our web site up for credit card transactions so owners and tenants can pay on line if they need to.
In these very challenging times more and more people just have no money and will actually do all they can to stay in your home without paying rent. We strongly recommend hedging your bet by filing evictions as early in the month as possible and to subscribe to eviction protection so you never have to pay for court costs. Tenants who can stop evictions and pay rent are never put out of your home but far too many are just buying time and have no capacity to pay. It is our intention to retain occupancy but filing the eviction early is always best.
Mark H. Kreditor, MPM
Broker
