Autumn 2010 Newsletter: Volume 21, Issue 4
ONE STEP FORWARD, TWO BACK!
If you have a vacancy in this market, times are bad, and if you have a timely renter paying rent, times are good. As the monthly momentum of consumer demand for leasing sways wildly, it is difficult to comment on the strength of this overall market. What we do know is new construction rents very well and older properties suffer. This translates for an individual investor to mean that maintaining your rental to its highest standard is the secret to long term occupancy. Unlike any market in the country, North Texas renters want to rent nice properties at all rent levels. I personally own a portfolio of what would be considered B or C quality rentals, and I've kept my homes leased and my renters happy by always treating them like A quality rentals. There is no more likely course for failure (extended vacancy or non performing renter) than to defer maintenance or not do a 100% make ready. Defective quality make readies yield defective quality renters. North Texas has lost 140,000 jobs since the start of the recession, but we've added back 30,000 jobs in the past year indicating the worst may be over. I still believe the majority of jobs added in our market may not be where your tenants find work.
In last Sunday's New York Times "Week in Review" section there was an article about real estate in Dallas. In the article I was very vocal about the lack of sales price reporting used in our market. Texas is one of the only states that does not require accurate sales price disclosure, removing many of the foreclosure sales from statistics buyers might use in a purchase decision. Buyers often overpay. The article is on our web site, www.gtfrealty.com, please read it.
Dallas/Ft. Worth Market
|Previously owned homes sold in D/FW||Jul -29%
|YTD Home Sales||-3%|
|YTD Average price trend||+4%|
|Days to sell Home
To sell a Condo
Lease a Home
|77 days average
97 days average
47 days or more
|Unsold Homes for sale in N Texas||+17% increase from a year ago|
|New Home Sales appear to be very strong again!||+3% in the 3rd Quarter. Home starts are -19%|
|Rental Occupancy||91.5% very high Rent +6% in new apartment units|
Stocks are always exciting for the 4th Quarter
Third quarter stock market trends were strong when compared to the past few years. The DOW rose 3.45%, the S & P increased by 2.34% and the NASDAQ was up 4.38%. Earnings reports seem to steer the market's future, but there is a fragile floor to market sensitivity. As I write this newsletter, Apple earnings announced a few hours ago were up 70% and sales up 67%, and the stock is down 20 points in after hours trading. Trying to figure out this market is very challenging. What an income investor does know is obtaining sustainable safe returns is very challenging. Hopefully dividend cuts are behind us and increases coming soon.
North Texas foreclosures will easily top 60,000 this year, and in markets like Plano, Rockwall, Rowlett, and Mesquite, between 10% and 45% of all home sales are foreclosures. Because of Texas law, most of these sales will not appear to the public so a large portion of market sales are missing for potential buyers to use in their purchase decision. 80% of Texas filings are for homes under $200,000, so I have genuine concern when potential buyers tell me of a great deal they just bought and want us to manage. More than 5% of D/FW home loans are 90 days or more behind in their mortgage payments. More than a third of the homes for sale have had a price cut, and the average cut is 9%. This is good compared to the national average price cut which is 26%. Currently there is a 15% increase in the number of homes for sale in North Texas, and we have a 7.4 month supply of homes; way too high for a normal market to carry.
Employment is still the #1 factor for our local economy to strengthen, and though our unemployment rate is 1% lower than the national average, we still lose dozens of tenants each month to unemployment and eviction. Nearly 20% of all tenants fail to fulfill their leases, and on an annual basis, we file about 500 evictions. Most tenants cure the evictions by paying, and using the court as a motivator works better than anything else you can do. Almost every owner uses their eviction protection coverage, and not a month goes by that I do not file an eviction on one of my personal tenants in order to get them to prioritize "this creditor named Kreditor." I encourage any of you that lack eviction protection coverage to invest 25 cents a day and have it to increase compliance from your renters.
Many of you will receive your tax bill this month, and if your appraised value did not decrease, I encourage you to petition the value at the appraisal office. Most firms only charge if they are able to get a reduction and most of our clients have had success using John Hirschy at 972-304-0909.
At the end of June it was reported that the average Dallas area adult carried consumer loan balances of $26,209. There is younger population in North Texas, and many do not carry health insurance which is a leading factor in lowering credit scores when medical bills go unpaid. Nationwide 50 million Americans are on Medicaid and 40 million get food stamps!
It is estimated that the bailing out of FNMA and FMAC will cost taxpayers $389 billion. I believe the widespread movement to homeownership of many unqualified tenants over the past decade has contributed greatly to our economic challenges. I'm hopeful stronger lending regulation will slow the movement to home ownership by your tenants and increase rents and renewals. The US homeownership rate stands at 66.9% and many of us in the rental business would prefer a rate around 55%. Many front page articles, including Time magazine’s article entitled "Rethinking Homeownership", has gotten your tenants thinking twice about buying. Texas has the second lowest median age in the country, and many generation Y consumers are showing less interest in homeownership than their parents. All this is good but will take years to work.
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Texas is in better shape than most of the nation but if you have a vacancy you have no rental income. Occupancy remains paramount in fighting this recession, and in this past quarter we have seen more properties offer free rent and other specials. A tenant without a job is an eviction waiting to happen, but many tenants simply budget poorly in this consumer driven economy of "leveraged enjoyment". Once a week I teach a 20th Century Music history class, and as I teach about the decades of the 20th century through music and lyric, I realize that the best years of America might have been when we were not highly leveraged and led a more simple life. The upcoming election may change some of the direction we seem to be going, but who knows any more what is really the right solution.
All I do know is I go to work everyday and try to do the best job I can for my clients. This past month started our 30th year in business, and I thank every client, many whom have been with us since the 80's, for the confidence you have placed in our company. Change is always hard for me to embrace, and this past year's software conversion was a real eye opener of what is possible through ACH funding and electronic reporting. I hope you have enjoyed the faster delivery as much as I have. Ari@gtfrealty.com or at ext 4 can always answer any questions you may have about a statement. I look forward to the next 30 years together.
Mark H. Kreditor, MPM