I've always been amazed at the comparitively low prices in Houston, Dallas, San Antonio and even Austin (although that one is rising). Here's a report from the #1 most undervalued market in a recent study - College Station.
Even the flippers haven't got prices up by selling to each other.
So what is it about Texas real estate that keeps is in the doldrums?
When economists in Cleveland and Boston recently ran the numbers, they concluded that houses in this college town were a huge bargain.
The analysis by National City Corp., a Cleveland banking concern, and Global Insight Inc., a Boston consulting firm, ranked the adjacent towns of Bryan and College Station -- home of Texas A&M University -- as the most "undervalued" housing market in the country in this year's first quarter. So, as the real-estate market cools along the East and West Coasts, are savvy investors racing here to buy every house in sight?
On a recent afternoon, there was little sign of a stampede.
Janet Higgins, a veteran real-estate broker here, drives a visitor past a four-bedroom home custom-built seven years ago, with marble floors and a "gourmet" kitchen. It is on sale for about $420,000, down from $440,000 last year. "It's a wonderful house," Mrs. Higgins sighs. "It's got all the whistles and bells." But she says it is tough competing with new homes on the edge of town. A few hundred feet away, she points to another mini-mansion: "This house they almost gave away."
June 16, 2006
Why does Texas real estate suck?
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39 comments:
yes, Texas real estate does suck. For guys that think they can't get burned by real estate busts, I give this example. 50 y.o. divorcee renting a room with four other single males working as a medical assistant years after loosing all of his savings and basically his shirt after getting burnt by the last Texas RE bust.
Now we have Las Vegas comparing themselves to Houston, you know the end is near for Vegas.
I hate Vegas, greedy, slippery, scumbags, I wish I could short the city down to 0.
Well National City Corporation would certainly be the ones to listen to about real estate seeing how they have made such brilliant investments up to date. Their keen insight into the world of property finance has led them to lend in places like Ohio, Illinois, Indiana, Kentucky, Michigan, and Pennsylvania and those properties have really taken off.
Maybe investors haven't gone in to Texas because of the very strict State laws governing lending. there's very little you can do with a property to get rich. For example, it wasn't until just recently that you could do a 2nd mortgage or line of credit. there's also a 12 day rescission period for closing. I'm not a resident there (I work for a lender in Ca) but maybe an HP resident can confirm this.
I lived in Hell, err, I mean Houston, for a year. Giant bugs, humidity, traffic, crime, and sprawl. Yes, it's a real paradise on Earth.
My brother lives in Dallas and it's ditto everything above. Now I'm sure there are some nice parts of TX, but the places where most people live and work are hell-holes. Add to that the highest insurance rates in the country and it's not too hard to see why RE prices are depressed.
Don't forget the property taxes. They prevent land speculation in this way.
Texas ie having a land shortage. It takes all day to drive across the state and it is nearly all developed.
Two things keep real estate in Texas cheap.
1. Huge amounts of undeveloped land. If prices go up, you just go out a little bit farther out and build it yourself.
2. Property taxes. The property taxes on my 1400 square foot home in dallas were $7,000 last year. I moved to florida and the taxes on a 2400 square foot home are about $2,300.
For everyone who hasn't been to the cities of Dallas, Houston, Austin, these cities are fantastic. Very large, very culturally diverse and lots to do. Most people who experience the crappy parts of these cities are only experiencing the suburbs. I live in Florida now and I'm bored off my ass with the slow paced back woods attitude of the entire state.
Living in Austin I can say that the biggest "negative" to real estate appreciation is property taxes. Own a million dollar home in Arizona? Maybe, if fully assessed and not in a historic district (where you get 50% off tax on personal residence) $10,000 a year. Austin? $30,000 a year if fully assessed! Most people can't afford taxes that can be higher than a mortgage so it reduces speculative appreciation. The average $300,000 home can cost $7800 a year (with homestead exemption of 20%) so any so called "low price" can add at least $100,000 somewhere else to have the same costs so a $300,000 home really is $400,000 for mortgage costs.
Insurance? Higher? Not for me. Better coverage on our cars and house for a lot less, at least 20%, over Phoenix.
You don't think every state has awful places to live? Try Bullhead city Az, Blythe Ca, Bakersfield Ca, Sacramento Ca, just about any place in Central Florida or the panhandle, can you say anything about Mississippi or Alabama? And just about every state if you leave the BIG cities. This site isn't about bashing places to live, one man's paradise another mans......" but realistic valuation of cost and value of homes across America.
We all know (and yes, not everyone would buy or live in all places) that if you could buy the exact same home in La Jolla as Phoenix for the exact same price La Jolla would win out for value but that is why a house costs more in La Jolla in the first place, location, location, location and supply and demand.
I may think a house cheap in Taylor Texas but to live there? NOT! Only 28 miles to downtown Austin but miles away in ambience, charm and attitude. I may also love Monterey California but to pay a mil for a shack to see the ocean to me isn't worth the cost either even if I could manage the payment.
And yes, until just recently one couldn't borrow against their equity past 80% loan to value and there is a lot of land to build on across the state. In Austin prices are high because of high environmental costs, desirability, regulatory rules but even there you can see the distribution by area. Anything near the Edwards Aquifer or Barton Springs in the Hill Country side of Austin (also some of the prettiest parts) low density and strict regulations and high cost of land even though there is just as much land to the west as the east. Go to the North or East away from the environmentally sensitive areas and lots of growth and cheap houses. Nine miles SW of downtown, expensive, nine miles east, cheap! On the east you can buy 3,000 sq ft for $195,000, on the west side double to triple that cost.
Taxes though are the problem. Regressive and needs to be corrected. If the state imposed an income tax and reduced property taxes to the national average say 1% of value instead of upwards of 3% (and a little more in the city) Texas would suffer the same price appreciation as many other parts of the country. Either way you're screwed. You can pay less for the house but your costs won't go down. If I were still in Phoenix I could pay $400,000 more for a house and my costs would be the same for the house I bought here for half the price. The only advangtage? The same quality house might cost another $200,000 on top of that and I would have to endure 115 degree summers and no TREES!
Hey, anon (who hates Vegas), you could short STN. They own all the local market casinos. There stock price was at $80 before the dow fell recently. They rode that up from $15 in 2002 after the housing boom started. I've been predicting that stock to plummet after the local HELOC well dries up and there are no more paychecks to play "paycheck poker" with.
Anonymous said "I lived in Hell, err, I mean Houston, for a year. Giant bugs, humidity, traffic, crime, and sprawl. Yes, it's a real paradise on Earth."
You don't go to Houston to live. You go to Houston to work. You live there because you have a decent job (of which there are many) and you can afford to live there, and plus there's enough to do to keep you from going crazy. I know, because I did exactly that. Is it a great town? Maybe yes, maybe no, all in the eye of the beholder.
But: taxes are high, lending laws are stiff, and land itself is fairly cheap, so that helps keep prices down.
One great feature of California Real Estate is the locking in of the assessed value!!!
When prices drop dramatically buying at the discounted prices will also cause the assessed values on those properties to change.
VERY GOOD for the next upswing!!!
I am a recent transplant to texas, and agree with the previous posters about the problems. What I don't understand, is why the california investors descended upon new mexico in such droves, and not texas, when texas is so much nicer.
New mexico is like arizona, with additional cold winters, and brutal wind/sand storms.
I think texas is paradise compared to that. The only reason to rent in texas, is to be in a really good school system. Then, renting is much cheaper, than buying a house. Other places, you may as well just buy.
Short answer: lack of land use controls. See the studies done by Glaeser at Harvard and you'll see that the single greatest factor driving prices above replacement cost in a region is how extensively land use regulation has taken hold in the area.
Why would supply and demand get so far out of whack to cause long run prices to increase behind the cost of construction plus profits, were it not for the government stopping people from building and buying houses demanded. The best economics I've read says there is no reason.
texas real estate sucks for one reason. most people want to be somewhere else. the speculators always swoop in on the new new new thing. dallas and houston would seem like obvious choices, but the smart money is not there.
and to the austin-transplant-from-phoenix, dude, get over yourself. you obviously hate phoenix, but you must be a complete tool to not have realized it is hot here in the summer. you can have austin. nice place obviously for you. but please, get over your issue with phoenix and arizona. yawn.
Someone correct me if I'm wrong, but I thought Austin was much hotter in the summer due to the humidity.
"What I don't understand, is why the california investors descended upon new mexico in such droves, and not texas, when texas is so much nicer."
That's easy -- In NM the average density of assholes per square mile is about 1/10 of what you find anywher in TX. And the bullshit per square foot is unmeasurable in NM. In TX it's miles deep in some places.
Texas has all the negatives of Mississippi without any historic mansions, charm, elegance (Natchez), or landscape beauty. Plus the politics are even more whacko, if you can believe it.
The property insurance rates are the HIGHEST in the nation (per value), and the taxes are some of the higher.
Have you ever driven through west Texas. Decidedly charm free.
If you'd rather go $1 million in debt for a McMansion in Sacramento, then be my guest. LOL
I have to add my two cents because ya'll are talkin' about a subject I cannot ignore. I was born in Natchez, MS, and I lived in several MS towns until 1976, when I moved to Dallas. There were many reasons I chose Dallas, but two of them stick out. (1) Yes, it's hot, but the humidity is so much lower than in MS. Rainy, overcast days constantly plague MS, making the blue skies of Dallas attractive. (2)Yes, Dallas does have tons of cultural attractions, while nearly all of MS is a lot closer to the rural persuasion.
Before ya'll dismiss the state of MS, I want to say a few things in its favor, too. The mottos of TX are "anything for a buck" and "develop, develop, develop". If you can tolerate the rain and rednecks, MS offers a lot. Your drive to work could be a lot shorter and more pleasant. If you think houses are cheap in TX, try MS. In most places, you can actually live out in the country without urban sprawl intruding in your space a couple of years after you moved there. That's my two cents, one for TX and one for MS. I wouldn't live anywhere else.
Some of the comments are from people who have never spent time in Texas. Keep trying to convince yourself that your local bubble prices are justified because Texas is a terrible place.
I've spent summers in Phoenix and Texas, and Phoenix was much more suffocating.
Our property taxes were just lowered. We have no state income tax, so if your income is high and your assessed value low, you can save a lot of money. There is no bubble here because of the tax issue, low credit scores (TX is a debtors paradise) and fewer restrictions on development.
I live in the suburbs of Dallas, and I am happy. It is a good place to raise a family. We have great restaraunts and shopping, sports events always going on, lots of parks and bike trails, a Y within walking distance and no crime to speak of. Museums, zoos, symphony hall, sports arenas, etc. are all within 45 mins driving time, or we can take the light rail to most. Fort Worth is just an hour away, with more world class museums, zoos and concert halls (all that oil money didn't go to waste). If you can't find something to do here every night, you aren't trying. Plus, people in Dallas are some of the best looking anywhere in the country.
We have at least 6 months of great weather a year. Mountain views and ocean breezes can't be worth sacrificing your financial and personal freedom. We have traveled more places in the world than any of our friends in LA or NYC. Why? Because we can easily afford it, and we still save most of our income while my friends on the coasts are living paycheck to paycheck. Salaries here are as good as just about anywhere and work is easy to find.
Keep kidding yourself that your prices are high and ours are low because everyone wants to live where you are and no one wants to live in Texas. I meet new transplants every day. Where are they all from? Nine times out of ten, it's one of those coastal or desert paradise towns that everyone is dying to move to.
What's not to love about warm weather and the Dallas Cowboys? I like to visit in September when it is cooling off in Virginia, but still 103 in Dallas.
Texas rocks, but I must say getting work there is no non-issue. It may be just so separated from the rest of the country, that people "circle the wagons" against outsiders so to speak. Or maybe I have just seen better days in my self-marketing. Not sure, but no place with a shortage of work is going to support its real estate values.
On the East Coast, communities really have to compete for labor, and labor can shop with its feet easily from Boston, New York, DC, and back. Maybe it is a better sellers market over here.
It some down to one factor: high property taxes.
It some down to one factor: high property taxes.
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Try this guy, he is a former REALTOR and is on the attack big time. Stop the Good Ole Boy concept, stop high commission fees, stop high closing cost.
see these two websites at:
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Lived in Houston, TX (until 3 months ago) for 12 years due to job. Housing is extremely affordable, but there is little to do there for recreation. There are few museums, most of the cultural events offered are small affairs, the malls offer primarily the same stores, and most of the restaurants offer TexMex. Cities offer little and the weather is bad. The traffic lights are not synchronized, there's no real Metro system, and people die every year there on the highways due to lack of drainage. Our family deliberated and decided that it was worth spending 4X the amount for a house in Maryland in order to benefit personally and culturally from having access to cities like Washington, DC and New York and to be able to enjoy better schools and have more diverse choices.
most places suck, actually. I lived in Eugene Oregon, full of 60 year old hippies.. yuck..Poetland Oregon sucks.. expensive and too many pc people.. the weather in Oregon is chilly, damp, rainy, depressing.. I have lived in several states and actually enjoyed most of them in some way, but really, most places suck.
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