Summer 2010 Newsletter: Volume 21, Issue 3
WEATHER-HOT, MARKET-HOTTER!
August, 2010 will mark the start of our 30th year in business! In all that time I have never seen a stronger HOME rental market. The reason HOME is all caps is because older apartments and condos (not allowing signage) are still very hard to lease. It's very sad when you represent an owner of an older apartment community, and everything else is leasing, but the never ending rule of North Texas is people lease new! Over 68% of apartments give at least one month free rent, while leases on home offers are often higher than the ask price. As the market competes, Dallas remains the #1 new construction apartment market in the US. New home starts are up 50% this year from the first 6 months of 2009. So once again we will dilute the current supply for housing and curve downward, eternally downward and once again be overbuilt. But Dallas/Ft. Worth leads the nation in population growth so now you know why we look good enough on paper to finance these un-needed real estate deals. Inventories of pre-owned homes for sale are up 11% from a year ago indicating
that many are still trying to sell their homes (again). All this while home sales dropped by 3% in June. I imagine many of my owners trying to sell will be forced to put their properties back for rent if their efforts to find a buyer fail.
One of my former clients is a freelance writer and author of a recent NY Times editorial about Dallas. He cited the following facts about our area:
- more per capita shopping centers than anywhere else in the US
- the country's lowest consumer credit quality (risk score)
- average debt per Dallas resident is the second highest in the country
Despite the strong leasing market, D/FW still remains a strong eviction market- 20% of tenants skip.
| Activity Statistics Dallas/Ft. Worth Market |
|
|---|---|
| Previously owned homes sold in D/FW | April +27% May +18% June -3% |
| YTD Median Sales Prices | +2% about half the national average |
| New Apartment Construction | Dallas leads the nation with 7,200 |
| Average days leasing a home | 50 days 76 Days to sell |
| New Home Sales in D/FW | +12% in the first half of 2010 |
| Distressed Home Sales | 30% of all homes being sold |
| National office vacancy rate | 17.4% highest since 1993! |
Stocks Were Bad
The first half of 2010 was the worst first half start for stocks since 2002. The S & P 500 index fell 11.9% during the quarter as $1.6 trillion in shareholder wealth evaporated. Overall, for the first half of 2010 the S & P is down 7.6%. It hasn't been this bad since post 9/11. The NASDAQ dropped 17.3% since the start of the year, and even as of this writing Apple hasn't even hit $300/share despite its delivery of two of the greatest products ever introduced; the I-Pad and the I-Phone 4. Debt in the US and throughout Europe as well as the sluggish economy have many bull market promoters simply on the sideline. It is truly sad when my staff looks at their retirement account balances, and they are worth less than last quarter.
Get There First Updates
This past quarter, I have spoken at property management conferences in Sydney, Australia, Northern California and throughout the Southwest. I tell the same story about debt, overbuilding and the difficult time any economy will have when it continues to provide new housing product in an already over supplied marketplace. Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first quarter of 2010. They own more houses than there are in the city of Seattle. 
My experience so far with the $8,000 tax refund for first time home buyers has required me to foreclose on almost every buyer because they took the $8,000, and instead of paying it to the mortgagee they leveraged for more toys for their over leveraged home. One buyer I financed told me his father used the $8,000 on drugs and dates and ended up in jail as we took his home back last month. I am eternally reminded that you cannot expect the average American consumer to know what the right thing to do with a free $8,000 check is. All I want is for people to stop buying and to keep leasing and renewing leases. So far the government has about $150 billion invested in Fannie Mae and Freddie Mac; an investment that will yield 60% on the dollar when they finally realize they have to sell all this real estate.
On the commercial side, DFW has a 26% vacancy rate, the highest in 6 years. Foreclosures for residential property is up more than 10% from last year, and we thought this was the year of our recovery. 6.3% of US mortgage holders are three or more months behind on their mortgages. Only 5.9% of Texans are delinquent while 8.9% of Californians are this late.
More than 20% of the foreclosed homes in the DFW are foreclosed with a balance exceeding the current value of the home further proving that equity was never part of the purchase equation. Whatever happened to 20% down? It's estimated that 15% of DFW homeowners with mortgages owe more than their house is worth. Nobody is at fault, but this is very difficult for you when the rent stops coming in (20% experience this). All I can say is to be sure to maintain eviction protection on all your rentals with GTF and use it every month to motivate payment. I do this every month, it gets their attention and works.
City compliance inspections and registrations have kept Rick in our service department and our entire staff extremely busy. Between the section 8 inspections, the city inspections, the city registrations we are less in the management business and more in the government compliance business. Every one of these programs is just (in my opinion) another opportunity to create revenue, and we will do our best to have a front seat at every class or workshop to best understand your requirements. As many homes now get multiple offers, if you have a vacancy, please leave your cell phone on and near you. We now have an international calling feature so wherever an owner is in the world we are happy to contact you and present a prospective tenant to you. It's called Get There First for a reason!
INDUSTRY TRENDS
Occupancy remains the key to profit or added loss as a landlord. As renewals come due, it is imperative to make it as attractive as possible to retain occupancy and not force tenants to shop around. Reduced rental supply definitely helps with the renewal process as does the elimination of the $8,000 tax refund, but keeping the rent stable is the most attractive thing to offer your tenant. As much as our clients want to lose less by raising rents, many tenants see this as an opportunity to drive the area, read the paper, and negotiate a better deal elsewhere. Though rentals are on the rebound, it is only the newer, high end sector that attracts strong demand. The saddest part of the "great market" story is the holder of older real estate that simply goes out of style. DFW still has a 9% vacancy factor, nearly twice the desired rate you want. In 30 years I have never known North Texas as a "normal market," and the daily challenges we face only make our property management careers more exciting. All of us want to do a better job for you and things are not always easy, especially in the delicate response needed to make all repairs and enforcing lease compliance. I often compare my job to that of a boxing referee where the two opponents, both beat up the referee. If I thought this job was getting easier I wouldn't spend so much time giving statistics supporting property management. Thank you for the past 30 years, and I look forward to 30 more with each of you.
Mark H. Kreditor, MPM
Broker
