Tierra Grande - October 2017

Photo by Houston IABC

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TIERRA GRANDE

OCTOBER 2017

VOLUME 24, NUMBER 4 ™

TIERRA GRANDE

Visit us online at

www.recenter.tamu.edu

JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY

Director, GARY W. MALER Chief Economist, JAMES P. GAINES Senior Editor, DAVID S. JONES Managing Editor, NANCY MCQUISTION Associate Editor, BRYAN POPE Associate Editor, KAMMY BAUMANN Art Director, ROBERT P. BEALS II Graphic Specialist/Photographer, JP BEATO III Graphic Designer, ALDEN DeMOSS Circulation Manager, MARK BAUMANN Lithography, RR DONNELLEY, HOUSTON

ADVISORY COMMITTEE: Doug Roberts, Austin, chairman; Doug Jennings, Fort Worth, vice chairman; Mario A. Arriaga, Conroe; Russell Cain, Port Lavaca; Alvin Collins, Andrews; Jacquelyn K. Hawkins, Austin; Besa Martin, Boerne; Walter F. “Ted” Nelson, Houston; C. Clark Welder, San Antonio; and Bill Jones, Temple, ex-officio representing the Texas Real Estate Commission.

TIERRA GRANDE ™ (ISSN 1070-0234) is published quarterly by the Real Estate Center at Texas A&M University, College Station, Texas 77843-2115.

Telephone: 979-845-2031.

14 This Old Loft

VIEWS EXPRESSED are those of the authors and do not imply endorsement by the Real Estate Center, Mays Business School, or Texas A&M University. The Texas A&M University System serves people of all ages, regardless of socioeconomic level, race, color, sex, religion, disability, or national origin.

Downtown Living in Small Town Texas Larger cities have embraced New Urbanist concepts for years, but now towns such as Paris, Sulphur Springs, San Marcos, and Tyler are revitalizing their downtowns, too.

BY HAROLD D. HUNT

PHOTOGRAPHY/ILLUSTRATIONS: JP Beato III, pp. 1, 4–5, 14–15, 17, 18, 19; Real Estate Center files, pp. 2–3, 20, 22, 23; Robert Beals II, pp. 6–7, 9, 10. © 2017, Real Estate Center. All rights reserved.

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More Regulations, More Days to Close In Dallas and Houston, one measurable impact of the Dodd-Frank Act is that the amount of time needed to process a closing represents 40 percent of the total time needed to sell a home.

BY ALI ANARI AND GERALD KLASSEN

6 New Tool in the Toolbox

Some families pass down property through wills. But if money is scarce, the process is more informal, resulting in land titles that are not clear. The transfer on death deed was created with the do-it-yourself estate planner in mind.

BY RUSTY ADAMS ON THE COVER Black-bellied whistling ducks, Wellborn

PHOTOGRAPHER Jon Hunter

OCTOBER 2017

9 Still Affordable

The Center’s latest Texas Housing Affordability Index reveals that as a whole, Texas’ housing remains more affordable than the nation’s. But that trend is weakening in the major metros.

BY JAMES P. GAINES AND CLARE LOSEY

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Whistling Past the Graveyard Cemeteries in Texas Most people don’t think much about cemeteries. But if you own property that includes a cemetery—even an old, abandoned one—you have responsibilities under the law you may not be aware of.

BY RUSTY ADAMS

24 Oil Change

Fueling Housing and Land Prices?

Do oil prices influence housing and land prices?

Center research found an evolving relationship between the three.

BY VALERIE GROSSMAN, ENRIQUE MARTÍNEZ-GARCÍA, YONGZHI SUN, AND LUIS B. TORRES

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Residential

By Ali Anari and Gerald Klassen

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Given the importance of mortgage loans for Texas real estate markets and the state’s banking industry, the Real Estate Center embarked on a research program to investigate the impact of the Dodd-Frank Act on the time it takes to sell a home. The Center leveraged its long-term time series data to investigate the length of time to complete home sale transactions in Texas after an offer is accepted.

Center researchers studied the impact of the Wall Street Reform and Consumer Protection Act on the length of time to sell homes and close transactions in Texas’ two largest metropolitan housing markets, Houston-The Woodlands-Sugar Land (Houston) and Dallas-Fort Worth-Arlington (Dallas). The research found that:

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• The length of time to sell homes in the two metro areas has trended downward in the aftermath of the recovery from the Great Recession (GR).

• The length of time to process home sale transactions after an offer is accepted has trended upward.

• Consequently, the percentage of time devoted to closing transactions has been trending upward to the extent that processing the transaction accounts for more than 40 percent of the time needed to sell a home.

Dodd-Frank Act Effects Every U.S. economic recession has ended in a blame game between proponents and opponents of more or less government TIERRA GRANDE

understand what they were being offered by predatory lenders.

As Hubert Humphrey said, “To err is human, to blame is politics.” In the immediate aftermath, advocates for more government intervention emerged victorious in the GR blame game. In response to widespread calls to learn from past mistakes, the administration passed the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) in 2010. he 3,500-plus pages of rules targeted changes to all parts of the U.S. financial system to “promote the financial stability of the United States.” An important part of the act was devoted to regulating mortgage loans on the presumption that loose mortgage loans were the real culprit behind the GR. The Mortgage Reform and Anti-Predatory Lending Act section of the Dodd-Frank Act has more than 200 pages of regulations to “assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive.”

To fulfill these objectives, the act sets minimum standards for mortgage originators, appraisals, escrow accounts, title agents, and other players in the mortgage field. It prohibits “mortgage originators from steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to repay.”

To manage new loan regulations, the act created the Consumer Financial Protection Bureau (CFPB) to “promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.” Since its creation, the CFPB has been busy issuing rules making the Dodd-Frank Act an ongoing work-in-progress. Lenders and borrowers now need to spend more time being aware of the latest rulings of CFPB to update their knowledge of mortgage lending regulations.

The key words in the act are “the ability to repay.” The burden of verifying the ability of the borrower to repay the mortgage loan is on the lenders, who are now required to check and document the borrowers’ current employment, current assets and income, credit history, monthly mortgage payments and related payments (taxes, insurance expenses), other debts, and borrowers’ debt-to-income ratios. Lenders should also determine how much income borrowers have left to pay for their living expenses after all housing costs are deducted from their incomes. ince the passage of Dodd-Frank, there has been an ongoing debate between its advocates and opponents.

Advocates argue that new mortgage regulations have prevented another nationwide mortgage default. Critics argue that the act and regulations have limited access to mortgage loans, particularly to first-time homebuyers and new retirees, resulting in fewer home sales. Banks spend millions of dollars to comply with the regulations. Compliance costs are especially important for small community banks. The increased costs have forced many of them to merge with larger banks or exit the mortgage lending business.

The debate regarding the impact of Dodd-Frank on finance and real estate markets has spurred research programs to quantify the impact of the act and empirically test the validity of various claims and counterclaims.

In a typical transaction, the time from offer acceptance to closing represents the time needed to prepare required documents, process the buyer’s mortgage application, and comply

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intervention and regulation. Among a long list of culprits blamed for nearly eight million foreclosed homes and the GR of 2007–09, subprime mortgage lending was the most prominent. Advocates for less government intervention blamed government policies that overexpanded homeownership, Federal Reserve policies that engineered artificially low interest rates, and government-sponsored entities (Fannie Mae and Freddie Mac) that subsidized risky loans.

Proponents of more government intervention blamed greedy bankers seeking quick profits, rating agencies (Moody’s, Standard and Poor’s, Fitch) colluding with bankers to defraud investors by giving misleading ratings to risky mortgage-related securities, and borrowers who didn’t OCTOBER 2017

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with regulations. Obviously, the more regulations and documentation, the more time needed to complete a homebuying transaction. But how long?

Regulations and Days-to-Close The Center compiled monthly computations of days-on-market (DOM), days-to-close (DTC), and days-to-sell (DTS) for the two largest Texas metropolitan areas, Houston and Dallas, to test whether increased regulation has lengthened homebuying transactions in Texas. The two metros normally account for more than 55 percent of homes sold in Texas. DOM represents the number of days a house has been on the market from when Figure 1. Days-on-Market for Single-Family Homes Sold in Houston Metropolitan Area

100

Days

90 80 70

Days-on-Market

60

Days-on-Market Trend

50 40

2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

Figure 2. Days-to-Close for Single-Family Homes Sold in Houston Metropolitan Area

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Days-to-Close

Days

40

Days-to-Close Trend

36 32 28

2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

140

40 Percent

Days

36

100

60

32

Days-to-Sell

28

Days-to-Sell Trend 2003 2004

2006

2008

2010

Source: Real Estate Center at Texas A&M University

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Figure 4. Percentage of Time to Process Home Sales Transactions in Houston Metropolitan Area 44

Figure 3. Days-to-Sell for Single-Family Homes Sold in Houston Metropolitan Area

120

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it was listed for sale until an offer is accepted by the seller through a signed purchase agreement. DTC reflects the number of days from the offer acceptance date until the transaction closed. DTS is the sum of DOM and DTC. The monthly data run from January 2003 to December 2016. he blue line in Figure 1 shows the number of DOM for single-family homes in Houston and includes short-term fluctuations and seasonality. The red line represents the long-term trend in DOM extracted using the Hodrick-Prescott filter. The trend shows decreasing DOM before the GR of 2007– 09 from 83 days in January 2003 to 80 days in November 2006.

This was followed by an increase to 84 days during the GR and finally trending downward during the local economic recovery after the GR to 55 days in December 2016.

The number of DTC following the offer acceptance on single-family homes in Houston trended downward before the GR, decreasing to 31 days in February 2006, then trended upward, reaching 37 days in May 2012 and 38 days in December 2016 (Figure 2). Compared with the pre-GR era, Houston’s homebuyers now need to wait one additional week to get the key for their purchased home.

The time series of DTS trended downward before the GR, decreasing to 111 days in September 2006, then trended upward to 119 days in March 2011 followed by a steep downward trend, falling to 89 days in September 2015 and ending at 91 days in December 2016 (Figure 3).

The percentage of time spent closing (mortgage application, appraisal, inspections, completing paperwork in compliance with Dodd-Frank regulations) after the offer is accepted can be calculated by dividing DTC by total DTS. The percentage of time spent closing the transaction in Houston was less than 28 percent before 2009. Since then it has risen, reaching 42 percent in December 2016 (Figure 4).

DOM for Dallas rose from 70 days in January 2003 to 82 days in September 2010. It fell during the local economic recovery after the GR to 34 days in December 2016 (Figure 5).

2012

2014

2016

24

2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

TIERRA GRANDE

Days-to-Close Trend

32 28 24

2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

Figure 7. Days-to-Sell for Single-Family Homes Sold in Dallas Metropolitan Area

140

Figure 5. Days-on-Market for Single-Family Homes Sold in Dallas Metropolitan Area

Days

100 Days-to-Sell

80 60

Days-to-Sell Trend 2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

Figure 8. Percentage of Time to Process Home Sales Transactions in Dallas Metropolitan Area 55 50 45

Percent

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aybe waiting one more week to close a homebuying transaction is not important for some buyers, but if it is important, gathering documents showing incomes, expenses, credit history, and so on can help homebuyers minimize the days needed to close.

So what does this all mean? First, it is clear that the regulations introduced with Dodd-Frank have had a measurable impact on time taken to close a home purchase. The extra safety checks created to protect buyers and prevent another financial crisis have extended the time for transactions in Dallas and Houston to close by one week.

Second, the significant decline in DOM in Dallas and Houston reflects the urgent shortage of housing supply in Texas.

While the national economy struggled to recover after the GR, the Texas economy expanded strongly, creating new jobs and attracting millions of new residents to the state.

The Dodd-Frank regulations also tightened lending conditions for builders and construction loans, leading to lower supplies of new homes. The net result is a historically low housing

40 35 30 25

2003 2004

2006

2008

2010

2012

2014

2016

Source: Real Estate Center at Texas A&M University

inventory and rapidly rising prices, threatening the affordability of housing in Texas.

Dr. Anari (m-anari@tamu.edu) is a research economist and Klassen (gklassen @mays.tamu.edu) a research data scientist with the Real Estate Center at Texas A&M University.

80 Days

Days-to-Close

36

120

Mortgage Borrowers Be Prepared

100

Figure 6. Days-to-Close for Single-Family Homes Sold in Dallas Metropolitan Area

40

Days

The DTC for Dallas trended downward before the GR, decreasing to 30 days in October 2007. Then it turned upward, reaching 36 days in December 2016, a 20 percent increase in time (Figure 6). Compared with the pre-GR era, Dallas homebuyers now also wait one more week to close on their purchased homes.

Dallas’ DTS was trending upward before the GR, reaching 115 days in December 2010. Since then it has decreased, reaching 71 days in December 2016 (Figure 7).

The percentage of time spent closing the transaction in Dallas was less than 30 percent before 2011. In December 2016, it reached more than 50 percent—so, shorter absolute days but longer percentage of time in closing. Favorable market conditions shortened the DOM, but regulations lengthened the DTC (Figure 8).

60 40 20

THE TAKEAWAY

Days-on-Market Days-on-Market Trend 2003 2004

2006

2008

2010

Source: Real Estate Center at Texas A&M University

OCTOBER 2017

2012

2014

2016

Center research reveals that Dodd-Frank regulations extend the time from acceptance to closing by one week.

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Legal Issues

By Rusty Adams

Who will get the house when I’m gone?

It’s a thought many have, but may not like to face. Many people avoid it altogether, at least until they are gone, and then the question remains.

Many Texans—particularly low-income Texans—pass real estate informally for generations, resulting in land titles that are a mess. The problem eventually shows up.

The owners may need to prove their title to qualify for property tax benefits, or there may be a dispute about ownership that arises after one family member has paid property taxes for many years. After floods and hurricanes, FEMA benefits can’t be paid due to unclear titles.

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In 2015, the legislature addressed this by passing the Texas Real Property Transfer on Death Act, (Chapter 114 of the Estates Code). In 2017, the legislature made some modifications to the law and to the statutory forms. These acts put a new tool in the do-it-yourself estate planner’s toolbox—the transfer on death deed (TODD).

How a TODD Works

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efore we talk about what it is, let’s talk about what it’s not. Prior to passage of the act, there were a couple of similar tools: a deed reserving a life estate, and a special revocable deed reserving a life estate (commonly called an enhanced life estate deed or a Lady Bird deed).

These deeds still exist and are in the toolbox. The biggest issue with them is that the person who receives the deed (the remainderman) gets a vested, although nonpossessory, future interest (called a remainder). In a Lady Bird deed, the remainder is subject to divestment (see What is a Remainder? p. 8). When these deeds are used, the “owner” actually only owns a life estate, and may not unilaterally mortgage, lease, or sell the property (except in the case of the Lady Bird deed). Another problem is that those deeds must be delivered to the grantee. Often, the grantor does not want to tell TIERRA GRANDE

the grantee, so the deed sits in a drawer and never becomes effective.

Here’s how the new tool works. Using a TODD, an individual (called a transferor) may transfer that individual’s interest in real property to one or more designated beneficiaries effective at the transferor’s death. Note that the terminology is different from other deeds, which use the terms grantor and grantee. The deed is a nontestamentary instrument, which basically means that it is not a will and does not have to comply with all the laws that apply to wills. It requires the same mental capacity required to make a contract (which is greater than that required to make a will), but less than a will in terms of written formalities. It works a lot like a beneficiary designation on a bank account, retirement plan, or insurance policy. It is revocable, even if the deed itself, or another instrument, says otherwise.

The TODD must be in writing, signed by the transferor in front of a notary, identify the designated beneficiary, contain a legal description of the property, state that the transfer of an interest in real property to the designated beneficiary is to occur at the transferor’s death, and be recorded in the deed records in the county clerk’s office of the county where the real property is located. No notice, delivery, or acceptance is required. No consideration is required. A transferor may designate one or more beneficiaries to hold the property concurrently, and may designate primary and alternate beneficiaries.

During the transferor’s life, his rights are not affected. A transferor or any other owner may still use the property how he wishes, and may sell, lease, or mortgage the property. A TODD does not create any legal or equitable interest in favor of the designated beneficiary, and does not subject the property to claims or process of a creditor of the designated beneficiary.

If the property is sold during the transferor’s lifetime, the buyer’s interest is not affected; it is as if the TODD never existed, and the designated beneficiary does not get the property or any interest in it. The only requirement in selling the property is that a valid deed must be recorded in the deed records in the same county where the TODD is recorded.

A TODD does not affect homestead rights or ad valorem tax exemptions. It does not affect the transferor’s or the designated beneficiary’s eligibility for any form of public assistance, subject to applicable federal law. It does not invoke statutory real estate notice or disclosure requirements, and does not trigger a “due on sale” or similar clause. A TODD transfers property without covenant of warranty of title, even if the deed says otherwise. A designated beneficiary may disclaim all or a part of his interest.

Revoking a TODD A TODD may be revoked in several ways. First, a subsequent TODD may revoke the previous one in whole or in part, expressly or by inconsistency (that is, the same property is transferred to a different beneficiary). Second, an instrument OCTOBER 2017

of revocation may expressly revoke the TODD, in whole or in part. In either case, the instrument must be acknowledged by the transferor after the acknowledgment of the deed being revoked, and must be recorded in the county where the deed being revoked is recorded. f there is more than one transferor, revocation by one transferor does not affect the deed as to the interest of another transferor who does not revoke. If a TODD is made by joint owners with right of survivorship, it may only be revoked by all of the living joint owners. If a transferor and a designated beneficiary are married to each other, a final judgment of divorce revokes the TODD as to that designated beneficiary only, and only if notice of the judgment is recorded in the deed records of the county where the TODD is recorded before the transferor’s death. A TODD may not be revoked or superseded by a will.

If a valid TODD is executed and recorded, never revoked, and the transferor dies still owning the property, what happens? If the designated beneficiary survives the transferor by 120 hours, the property is transferred to the designated beneficiary. If two or more designated beneficiaries are to receive concurrent interests in the property, they receive it in equal and undivided shares with no right of survivorship.

If a beneficiary dies before the death of the transferor (or before the 120 hours have passed), that beneficiary’s share lapses and passes as described in Subchapter D, Chapter 255 of the Estates Code, which includes rules for failed devises in wills. The new forms in the amended statute allow a transferor to make elections with respect to how these interests pass. If the transferor owns the property as a joint owner with right of survivorship and he dies, the survivor (not the designated beneficiary) takes his interest. If a transferor is the Fun Fact last surviving joint owner, the egend has it that President property goes to Lyndon B. Johnson used a the designated “Lady Bird deed” to transfer beneficiary upon his death. property to his wife upon his death.

Of course, the The legend is wrong. The “invenlast surviving tor” of the “Lady Bird deed” used joint owner a hypothetical illustration to show may revoke the how it worked. The characters TODD if he wishes. Unlike in the illustration included “Lady some of the other Bird,” and the name stuck. provisions, all of the rules in this paragraph may be changed by contrary provisions in the TODD or other law.

Beneficiaries take the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor’s death. They do not get the property free and clear. For purposes of lien priority, the TODD is deemed to have been recorded at the transferor’s death, regardless of when it was actually recorded. It is a good practice to record a certified copy of the transferor’s death certificate in the property records of the county where the TODD is recorded.

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What is a Remainder?

If there is debt secured by the property, the personal n English, this means that representative of the even though the person estate gives notice to who receives the deed does the secured creditor, and the creditor not actually possess the land may elect to have until the grantor dies, he does the claim treated as actually own an interest in a matured secured the land now (a remainder). claim or a preferred debt and lien. If In a traditional deed reserving treated as a matured a life estate, the remainder is secured claim, the indefeasibly vested, meanbeneficiaries may pay ing it is owned by the grantee the debt, or the propfrom that day forward, foreverty may be sold to pay the debt, with the ermore, amen. As a practical beneficiaries receivmatter, the land may not be ing any remaining sold or mortgaged without proceeds. If the prothe consent of the remainderceeds are not enough, man. In a Lady Bird deed, the the deficiency is paid from other assets in vested remainder is subject to the estate, if possible. divestment, meaning that the If treated as a preremainder may be taken away ferred debt and lien, if the grantor decides to sell the debt remains a preferred lien against the land or revoke the deed. A the property, but TODD does not create these the creditor may not interests. make any further claim against other estate assets. To the extent the estate is insufficient to satisfy a claim against the estate, expenses of administration, estate taxes, allowances in lieu of exempt property, or family allowance, the representative may enforce that liability against the property transferred by the TODD. Otherwise, property transferred by a TODD is not considered part of the probate estate for any reason, including the Medicaid Estate Recovery Program. bove, I referred to the do-it-yourself estate planner.

The TODD is obviously meant for people who wish to avoid hiring an attorney for estate planning. The statute even comes with forms and instructions for how to use them.

But a tool in the hands of an unskilled craftsman can be a dangerous thing, due to the limitations of the tool itself, and the limitations of the person using it. I’m a lawyer, not a carpenter. I could probably build a house, but you probably wouldn’t want to live there.

As with most new statutes, there are some unanswered questions and potential pitfalls to avoid. Here are some of them.

• The forms must be filled out correctly to obtain the desired result.

• A valid legal description is required. Do not assume that what you have is a valid legal description.

• An agent or attorney-in-fact is the person designated in a power of attorney. An agent or attorney-in-fact may not create a TODD by use of the power of attorney. The

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person making the TODD must actually make it himself.

The statute does not say whether an agent may sell, lease, or encumber the property, or cancel the TODD. Absent a prohibition on doing so, he probably may. Other deeds, including deeds reserving a life estate and Lady Bird deeds, may be made by an agent, so there may be better alternatives if capacity is an issue.

• Sale of the property voids the TODD. The deed of the sale is valid as a transfer whether recorded or not, but it must be recorded prior to the transferor’s death to void the TODD. What happens if it is not recorded?

• Many people do not realize that they may only convey the interest they own, and many wrongfully think they own the entire interest in the property.

• Title insurance companies may have additional underwriting requirements.

• Many people erroneously believe that tearing up a deed revokes it. It is a recorded document, and the proper procedure must be followed to revoke it.

• There is no warranty of title. Because there is no warranty of title, a designated beneficiary may not be insured under the existing title policy. Other deeds, including deeds reserving a life estate and Lady Bird deeds, may contain warranties of title, so there may be better alternatives if warranty of title is an issue.

• The statute does not say whether a transferor may give the property to a class of beneficiaries, such as, “all of my children who survive me.”

• A TODD signed by a married individual only operates on that individual’s interest. Many married couples believe their property automatically passes to their spouse when they die.

This is not true, and couples should plan accordingly.

• A later will does not revoke or supersede a TODD. • If you want different survival requirements, you must so specify in the TODD. Otherwise, if your designated beneficiary only lives six days longer than you, your property may end up going to someone else.

• TODDs executed and acknowledged prior to September 1, 2017, are governed by the law as it existed before the 2017 amendments.

• This is the big one. You still need a will in order to avoid intestacy as to other property, or in case the beneficiaries die first.

The transfer on death deed was designed to help people of modest means pass their real estate with a clear title without the assistance of a lawyer, and it will probably do so. However, as with any legal matter, it is advisable to consult a lawyer who is knowledgeable about TODDs and how to use them.

Adams (radams@mays.tamu.edu) is a member of the State Bar of Texas and a research attorney for the Real Estate Center at Texas A&M University.

THE TAKEAWAY A transfer on death deed was created to help people of modest means pass on their real estate with a clear title and without using a lawyer. However, a lawyer can help you avoid potential pitfalls.

TIERRA GRANDE

Texas Economy

Still Affordable

By James P. Gaines and Clare Losey

The widening gap between home price and household income has recently sparked concerns over housing affordability. The majority of homebuyers depend on mortgage debt ďŹ nancing to purchase a home and must earn sufďŹ cient incomes to qualify for a loan. While affordability has decreased for both the nation and the state since the end of the housing crash, Texas and its major metro areas remain affordable to most homebuyers.

OCTOBER 2017

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AFFORDABILITY DECLINES as the down payment declines because the monthly mortgage payment is higher.

Calculating Affordability

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ousing affordability indexes measure the ability of a family (or household) earning the median family (or household) income to qualify for the median-priced home, given a set of financing assumptions.

The Real Estate Center’s Texas Housing Affordability Index (THAI) calculates housing affordability for families, as opposed to households, using income figures from the Department of Housing and Urban Development and the Federal Financial Institutions Examination Council. The index covers the nation, the state, each MSA, and selected counties.

The THAI is the ratio of median family income to the required income to qualify for a mortgage loan to buy the median-priced house. Required qualifying income is a function of the required monthly mortgage payment and the lender-stipulated qualifying ratio (required qualifying income = required monthly payment/qualifying ratio × 12). The required monthly payment is based on an 80 percent, 30-year mortgage for the median-priced home at the effective mortgage interest rate obtained from the Federal Housing Finance Agency. The qualifying ratio

is the lender’s stipulated ratio of the monthly mortgage payment to monthly income.

The THAI qualifying ratio of 25 percent indicates the monthly mortgage payment cannot exceed 25 percent of the borrower’s monthly income. Because the index does not account for homeownership costs other than mortgage principal and interest, it uses a lower qualifying ratio than might be applied to total monthly housing costs. If additional costs of homeownership, such as taxes, insurance, and utilities were included,

required qualifying income exceeds median family income, the index value falls below 1.00. This indicates that a family earning the median income would not qualify for the median-priced home.

When the required qualifying income falls below median family income, the index value exceeds 1.00. This means a family earning the median income would qualify for the median-priced home (see Table 1).

By assuming a 20 percent down payment, the index likely overestimates actual affordability. Government-created home finance programs allow homebuyers, particularly firsttime homebuyers, to purchase a home with a reduced down payment. For example, the minimum down payment for a Federal Housing Administration (FHA) loan is 3.5 percent. A lower down payment increases the required monthly payment, which consequently results in a higher required qualifying income.

For example, to purchase a $150,000 home with an 80 percent, 30-year loan at 4.25 percent, the monthly mortgage payment would be $590.33, and the required qualifying income would be $28,336. To purchase the same home with a 96.5 percent loan, the monthly mortgage payment and required

A THAI value of 1.00 means the required income to qualify for the median-priced home is equal to the median family income.

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the lender-stipulated qualifying ratio would increase, typically to around 35 or 40 percent or more.

A THAI index value of 1.00 means the required income to qualify for the median-priced home is equal to the median family income. When the

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Table 1. Texas Housing Affordability Index, 2016 Geography

2011

2012

2013

2014

2015

2016

Abilene Amarillo

2.14 2.23

2.37 2.39

2.32 2.38

2.03 2.27

2.13 2.11

2.11 2.20

Austin-Round Rock

1.99

2.09

1.82

1.66

1.61

1.54

Beaumont-Port Arthur

2.40

2.60

2.30

2.20

2.38

2.29

Bexar County

2.11

2.34

2.15

1.90

1.97

1.90

Brazoria County

2.34

2.80

2.52

2.29

2.23

2.06

Brownsville-Harlingen

1.68

1.80

1.84

1.63

1.58

1.63

College Station-Bryan

1.93

2.13

1.88

1.82

1.84

1.60

Collin County

2.67

2.78

2.36

2.11

2.03

1.92

Corpus Christi

1.94

2.09

1.86

1.63

1.79

1.74

Dallas-Plano-Irving

2.19

2.30

1.92

1.72

1.67

1.58

Dallas County

2.68

2.63

2.13

1.98

1.90

1.77

Denton County

2.41

2.74

2.37

2.13

2.01

1.92

El Paso

1.57

1.70

1.64

1.69

1.83

1.74

El Paso County

1.67

1.83

1.76

1.78

1.92

1.87

Fort Bend County

2.28

2.55

2.17

1.95

1.99

2.00

Fort Worth-Arlington

2.61

2.79

2.35

2.15

2.18

1.99

Galveston County

2.17

2.60

2.36

2.23

2.22

2.05

Harris County

2.49

2.57

2.23

2.06

2.07

1.91

Houston-The Woodlands-Sugar Land

2.17

2.28

2.00

1.77

1.81

1.77

Kerrville (Kerr County)

1.84

1.93

1.89

1.82

1.82

1.61

Killeen-Temple

2.24

2.35

2.51

2.35

2.30

2.31

Laredo

1.56

1.62

1.59

1.41

1.50

1.52

Longview

2.09

2.34

2.13

2.08

2.15

2.16

Lubbock

2.35

2.60

2.48

2.35

2.22

2.24

Lufkin (Angelina County)

2.58

2.23

2.19

2.06

2.12

2.05

McAllen-Edinburg-Mission

1.58

1.80

1.86

1.56

1.63

1.63

Midland

1.81

1.82

1.61

1.51

1.65

2.07

Montgomery County

2.20

2.43

2.13

1.95

2.01

1.93

Nacogdoches County

2.07

1.84

1.98

1.76

1.94

1.98

Tarrant County

2.75

2.96

2.50

2.39

2.32

2.11

Odessa

2.08

2.11

1.79

1.83

2.04

2.04

Palestine (Anderson County)

3.21

3.12

3.28

3.13

2.90

2.85

Paris (Lamar County)

2.97

2.97

2.96

2.75

2.68

2.51

San Angelo

2.22

2.39

2.08

1.87

2.07

2.03

San Antonio-New Braunfels

1.98

2.12

1.96

1.73

1.78

1.70

San Marcos (Hays County)

2.11

2.45

2.13

1.98

1.88

1.85

Sherman-Denison

3.36

3.51

3.07

2.66

2.65

2.17

Texarkana

2.35

2.68

2.61

2.44

2.25

2.39

Travis County

1.76

1.89

1.64

1.50

1.46

1.40

Tyler

2.04

2.18

2.30

1.77

1.93

2.03

Victoria

2.12

2.10

1.99

1.72

1.98

1.90

Waco

2.20

2.36

2.13

2.02

2.08

1.81

Wichita Falls

2.77

3.00

2.83

2.64

3.15

2.78

Texas

2.04

2.15

1.93

1.74

1.76

1.66

United States

1.91

1.99

1.73

1.56

1.56

1.51

Source: Real Estate Center at Texas A&M University OCTOBER 2017

qualifying income would increase to $712.08 and $34,180. In other words, a higher required qualifying income relative to median family income decreases housing affordability.

The increase in the required qualifying income as the down payment decreases is shown in Table 2 of the online version of this report at www.recenter.tamu. edu. In 2016, a family needed to earn $50,406 to qualify for an 80 percent loan, $56,707 to qualify for a 90 percent loan, $59,857 to qualify for a 95 percent loan, and $60,803 to qualify for a 96.5 percent loan in the Austin-Round Rock MSA. The median family income is $77,800.

The lower the down payment, the closer the required qualifying income to the median family income. All calculations assume a 30-year loan at the effective mortgage interest rate and a 25 percent qualifying ratio.

A 10 percentage point decline in the down payment (from 20 to 10 percent) results in a 12.5 percent increase in the required qualifying income. A 5 percentage point decline in the down payment (from 10 to 5 percent) results in a 5.6 percent increase in the required qualifying income, while a 1.5 percentage point decline in the down payment (from 5 to 3.5 percent) results in a 1.6 percent increase in the required qualifying income. As the down payment decreases, the required income to qualify for the same median-priced home increases. he THAI for each down payment is shown in Table 3 (online).

Affordability declines as the down payment declines. In 2016, for the Austin-Round Rock MSA, the THAI measured 1.54 for a 20 percent down payment, 1.37 for a 10 percent down payment, 1.30 for a 5 percent down payment, and 1.28 for a 3.5 percent down payment.

Furthermore, a lower down payment may result in additional charges and fees to the homebuyer, such as private mortgage insurance. Lenders may also raise mortgage interest rates to compensate for the risks associated with lower down payments. This would increase the required qualifying income and reduce housing affordability.

T

11

Changes in the qualifying ratio, or front-end debt-to-income (DTI) ratio, also affect the required income to qualify for a mortgage loan. (The front-end DTI ratio considers debts arising solely from homeownership, such as the monthly mortgage payment, whereas the backend DTI considers other household debts, such as credit cards and student loans.) As the qualifying ratio increases, the required qualifying income decreases (Table 4 online). This is because the

family can spend a higher percentage of monthly income on the mortgage payment. Currently, the front-end DTI ratio for FHA loans is 31 percent; however, the lender can authorize a higher ratio subject to approval from the FHA. Table 5 (online) shows the increase in affordability as the qualifying ratio increases.

Historical Perspective In 2016, the statewide THAI was 1.66.

Given the financing assumptions, a

Figure 1. Texas Housing Affordability Index 2.50 2.00 1.50

T

1.00 0.50

Texas

0.00 2006

2008

U.S. 2010

2012

2014

2016 2017

Sources: Real Estate Center at Texas A&M University and National Association of Realtors

Figure 2. Median Home Price Dollars (Thousands)

300 250 200 150 100 50 0 2006

Texas 2008

U.S. 2010

2012

2014

2016 2017

Sources: Real Estate Center at Texas A&M University and National Association of Realtors

Figure 3. Mortgage Interest Rate 8

Percent

6 4 2 0 2006

Texas 2008

U.S. 2010

2012

2014

Sources: Real Estate Center at Texas A&M University and Federal Housing Finance Agency

12

family that earned the median income in 2016 made 66 percent more than was necessary to qualify for the medianpriced home. In contrast, the index for the U.S. was 1.51, making Texas slightly more affordable than the nation.

The THAI indicates Texas has routinely outperformed the U.S. in terms of housing affordability (Figure 1). However, the gap between the two indexes has narrowed since the recovery from the housing crash.

After peaking at the end of 2012, housing affordability for both Texas and the U.S. diminished. By the end of 2012, the index for Texas was 22 percent above its 2006–12 average, while the index for the U.S. was 30 percent above its average.

By the end of 2016, the indexes for Texas and the U.S. were 8 and 16 percent below their respective 2013–16 averages. he nationwide increase in affordability from 2008 to 2012 can be attributed to the decline in home prices and mortgage interest rates (Figures 2 and 3). In Texas, home prices remained fairly stagnant until an uptick in 2012. Falling mortgage interest rates and growth in median family income contributed to higher affordability from 2008 to 2012 (Figure 4).

The decline in statewide housing affordability since 2013 stems from the rise in median home prices and slower growth in median family income. Meanwhile, interest rates have not fluctuated significantly since 2012. The median home price in Texas increased dramatically—nearly 34 percent—from 2012 to 2016. The national median home price increased slightly less—nearly 33 percent.

All Texas MSAs were more affordable than the United States in 2016. Wichita Falls had the highest level of affordability due to a low median home price ($114,700) relative to median family income ($57,400). Laredo exhibited the lowest level of affordability as a result of the low median family income ($43,900).

Of the five major markets, Fort WorthArlington was the most affordable with an index of 1.99 (the DFW metro area is separated into two markets, DallasPlano-Irving and Fort Worth-Arlington).

Austin was the least affordable of the five major markets with an index of 1.54 in 2016. The median home price for the Austin MSA ($280,000) was the highest

2016 2017

TIERRA GRANDE

among all the MSAs in 2016. The index for Travis County measured 1.40 in 2016, indicating lower housing affordability compared with the nation. Travis County was the only area with an index lower than that of the U.S. in 2016.

Figure 4. Median Family Income Dollars (Thousands)

70

Mortgage Interest Rates Implications

A

ffordability may continue to decline in the near future. An anticipated rise in mortgage interest rates will increase the required monthly payment, and, as a result, the required qualifying income. Goldman Sachs, for example, predicted mortgage interest rates will rise to 5.5 percent by 2019.

A $200,000 home with an 80 percent, 30-year loan at 6.69 percent (the annual rate for Texas in 2006) required a monthly mortgage payment of $1,031.65.

The homebuyer needed to earn an annual income of $49,519 to qualify for a loan.

In this scenario, the price-to-income ratio was 4.04 ($200,000/$49,519). As the price-to-income ratio increases, the gap between median home price and required qualifying income also widens. Affordability increases as required qualifying income decreases relative to the home price. In essence, a higher ratio implies that buyers can purchase more housing relative to income.

The monthly mortgage payment to purchase the same $200,000 home at a rate of 5.5 percent decreases to $908.46. The homebuyer would need to earn an annual income of $43,606 to qualify for a loan, setting the price-to-income ratio at 4.59.

To purchase the same $200,000 home at the statewide 3.85 percent rate for 2016, the monthly mortgage payment is $750.09, while the required qualifying income is $36,004. The price-to-income ratio measures 5.55. A nearly 3 percent drop in the interest rate resulted in a 27 percent decline in the required qualifying income for an 80 percent loan.

Price-to-Income Ratio The price-to-income ratio can also be computed using median household income rather than required qualifying income. Median household income captures housing affordability for all households, as opposed to only families.

In this instance, a lower price-toincome ratio is favorable, as it indicates OCTOBER 2017

65 60 55 50

Texas

45 40 2006

2008

U.S.

2010

2012

2014

2016 2017

Sources: Real Estate Center at Texas A&M University and Department of Housing and Urban Development

Figure 5. Median Home Price as a Multiple of Median Household Income 5.00 4.50 4.00 3.50 3.00 2.50 2.00 2006

Texas 2008

U.S. 2010

2012

2014

2016

Sources: Real Estate Center at Texas A&M University, National Association of Realtors, and U.S. Census Bureau

a household earning the median income should have sufficient income to qualify for the median-priced home. Households should generally be able to qualify for a home priced between 3.0 and 3.5 times their annual income. A ratio above 4.0 suggests that home prices are teetering toward a level that cannot be supported by the median household income. rior to the housing crash, the price-to-income ratio for the U.S. hovered above 4.5, before dropping precipitously during the height of the crash (Figure 5). After rebounding in 2013, the ratio has crept upward. By the end of 2016, the ratio for the U.S. was 4.09. Significant growth in median home price coupled with slow growth in median household income contribute to the larger ratio. From 2006 to 2016, the national median household income grew, on average, nearly 2 percent per year.

The average price-to-income ratio from the beginning of 2006 to the end

P

of 2016 measures 3.80 for the U.S. and significantly less for Texas at 3.18. Since 2006, the ratio for Texas has remained below that of the U.S. but the gap between the two has narrowed in recent years.

The price-to-income ratio for Texas hovered around 3.0 prior to the recession as well as in the years immediately following. Since mid-2012, the ratio has exceeded 3.0 and has hovered around 3.5 since mid-2014. By the end of 2016, the ratio measured 3.77.

Dr. Gaines (jpgaines@tamu.edu) is chief economist and Losey a research assistant with the Real Estate Center at Texas A&M University.

THE TAKEAWAY Housing affordability for both Texas and the U.S. has declined since the end of 2012. Texas remains more affordable than the nation; however, affordability in some of the state’s major metros is weakening.

13

Residential

14

TIERRA GRANDE

An old way of life is becoming cool again. Across the country, the popularity of compact cityscapes where people actually walk, interact, and enjoy a more intimate “vibe� is returning. A 2015 survey by the National Association of Realtors and Portland State University found that when deciding where to live, 79 percent of Americans in the 50 largest metropolitan areas wanted to be within an easy walk of places and things to do in their community.

OCTOBER 2017

15

Pockets of redevelopment within the state’s five major metros have been implementing this “New Urbanism” theme for quite some time. However, smaller Texas cities have not seen the same level of revitalization occurring in their downtowns.

With help from technology, a growing number of empty nesters, and millennials, a small-town revival is gathering steam. More Texas cities are discovering they can offer something unique and appealing to folks wanting to live in their downtowns. More entrepreneurial millennials are discovering they can live and work in any town that has fast internet connections and Amazon delivery.

One distinctive type of real estate many smaller cities offer is older buildings with genuine architectural character. Although they have their challenges, some of these buildings are being converted into oneof-a-kind residential lofts. This article focuses on a few Texas cities that have successfully drawn residents back downtown to experience loft living.

Whittling Down the List

S

ince not every small town in Texas could be contacted, the starting point for discovering successful downtown revivals was the presence of postsecondary educational facilities. Technical schools, junior colleges, colleges, or universities are located in about 100 Texas cities. The assumption was made that even a small number of college-age students should improve the odds of locating cities with vibrant downtowns.

Austin, Dallas, Fort Worth, Houston, and San Antonio, as well as any cities directly connected to them, were removed from consideration. Of the more than 50 cities that remained, all were contacted about their level of downtown residential activity. They were also asked whether any of their old downtown buildings had been converted into loft apartments.

The majority of these cities had not yet experienced sufficient revitalization to bring any meaningful

residential activity back downtown. Based on indepth phone conversations with city officials, chambers of commerce, and local real estate professionals, seven cities were chosen to visit.

The cities were Commerce, Denison, Denton, Paris, San Marcos, Tyler, and Waco. Sulphur Springs was later added based on an extensive New Urbaniststyle makeover of its downtown, even though it has no postsecondary educational facilities.

Who Chooses Loft Living?

T

he conversations revealed students were not the primary demographic for renovated downtown lofts. Dylan Simon, an urbanist and investment sales advisor at Colliers International in Seattle, confirms the logic behind this. Simon sees a distinction between “first-move” and “second-move” locations for renters.

First-move locations are where new residential renters tend to land initially. This group generally clusters around housing that is well advertised and can be found with a web browser or smartphone.

Easy commutes are desirable, which correlate with the increased popularity of new high-amenity campus housing targeting today’s more particular students.

Postsecondary facilities in most cities under discussion were not within walking distance to downtown, ruling out easy commutes to campuses.

San Marcos and Denton were exceptions, leading to much higher student populations frequenting those downtowns.

Second-move locations are primarily driven by a deeper understanding of the city and its neighborhoods. When these older, more informed residents relocate, they tend to gravitate toward places where the activities, character, lifestyle, and scale match their individual needs and wants at that point in their life. They are also looking for authenticity.

“I’ve found that folks don’t like what I call Disney downtowns,” says Beverly Abell, City of Tyler

Loft City Demographics

City/State Texas Waco Denton Tyler San Marcos Paris Denison Sulphur Springs Commerce

2016

2011–15

Population

Annual Median HH Income

2011–15 Median Age

2011–15 % Age 20–34

2011–15 % Age 55–74

2011–15

2010

2000

2010

2000

2010

% Both Groups

% of 1 & 2 Person HH

% Renter Occ. Units 2000

% Renter Occ. Units 2010

% OwnerOcc. Units 2000

% OwnerOcc. Units 2010

Change 2000–10

Change 2000–10

27,862,596

$53,207

34.1

21.9

17.4

39.3

54.5

36.2

36.3

0.1

63.8

63.7

–0.1

134,432 133,808 104,798 61,980 25,005 23,654 16,162 9,091

$33,147 $49,100 $42,840 $28,923 $32,025 $37,403 $38,000 $21,836

28.7 28.4 32.9 23.5 37.4 39.5 35.2 24.2

27.3 32.9 25.0 47.8 20.9 18.5 21.7 33.9

14.9 14.6 17.9 9.1 21.3 22.4 18.9 15.5

42.2 47.5 42.9 56.9 42.2 40.9 40.6 49.4

61.0 62.5 63.4 67.1 64.2 62.6 61.1 66.2

53.6 58.1 43.8 69.8 45.7 33.7 39.7 59.8

53.7 53.6 47.0 73.7 48.2 35.7 42.8 62.7

0.1 –4.5 3.2 3.9 2.5 2.0 3.1 2.9

46.4 41.9 56.2 30.2 54.3 66.3 60.3 40.2

46.3 46.4 53.0 26.3 51.8 64.3 57.2 37.3

–0.1 4.5 –3.2 –3.9 –2.5 –2.0 –3.1 –2.9

$21,836 $49,100

23.5 39.5

18.5 47.8

9.1 22.4

40.6 56.9

61.0 67.1

33.7 69.8

35.7 73.7

–4.5 3.9

30.2 66.3

26.3 64.3

–3.9 4.5

Cities Only Minimum Maximum

Source: 2010 U.S. Census and 2016 American Community Survey

16

TIERRA GRANDE

LOFT APARTMENTS on the square in Sulphur Springs (pp. 14–15), across from the Hopkins County Courthouse, put renters in the middle of small-town activities. In Waco (this spread), 714 Lofts has a courtyard for tenants, along with a bit of charm from the previous lives of the property, including a “hobbit hole” door and remnants of a former façade.

Main Street Department leader. “Cities develop over decades, and buildings with different architectural styles are acceptable to residents downtown as long as their makeovers are well done and in context with the other buildings.”

Abell admits that some of the nicest downtowns in Texas were “preserved by mid-century poverty” because less-prosperous cities didn’t destroy the early 1900s features of their older buildings with 1950s and ’60s renovations. ithin the eight cities visited for this study, landlords reported that young professionals were the primary tenants occupying downtown loft conversions. Empty-nesters came in a distant second.

Although some downtown residents owned their own space, or even the whole building, the vast majority of loft-dwellers were renters. The exception was Waco, which has three downtown loft condo buildings. Local real estate professionals stated many

W

OCTOBER 2017

of these are second homes, with some having sold for more than $200 per square foot.

Building Characteristics Loft conversions were found in residential-only and mixed-use buildings. In the case of mixed-use properties, residential units upstairs, in combination with a retail or commercial use on the ground floor, were most common. However, loft tenants seemed to prefer that the retail and commercial businesses they frequent be near, as opposed to actually in, their buildings.

Total downtown residents living in renovated loft conversions charging market rents numbered less than 100 in each of the cities visited. This count excludes any new downtown residential construction or government-subsidized housing. Denton and Waco were the only cities with significant new downtown apartment construction.

Loft rental rates generally ranged from $0.75 to $1.25 per square foot per month, with the average

17

THE BEHRENS LOFTS IN WACO includes 57 residential loft apartments and is within walking distance of downtown restaurants and the riverwalk (this page, top). In Sulphur Springs (this page, bottom), loft apartments are above a restaurant on the town square. The Praetorian Building in Waco (facing page) has multiple floors of lofts, many of which are second homes for residents.

being about $1. However, some rents exceeded this range on the high end in Waco and the low end in Denison. Tenants generally paid for their own electricity.

The typical loft was much larger than the typical new apartment in these cities. Loft size averaged 900 to 1,000 square feet, although some were much larger.

The demand for loft residential space far exceeded the demand for commercial space in almost all cities visited. Few landlords reported loft vacancies, and some had waiting lists for lofts.

Demographic Data Insights

C

ensus data illustrate selected demographics of the eight cities and the State of Texas (see table). The 20- to 34-year-old age bracket was chosen to represent young professionals. The 55- to 74-year-old bracket includes emptynesters.

Young professionals are included in the millennial generation. The age of millennials is not as well defined as are baby boomers. However, estimates most often place millennials between the ages of 18 and 37.

A case could be made for emptynesters being younger than age 55.

An assumption was made that the wave of adult children moving back in with parents during the Great Recession has forced a delay in older households attaining empty-nester status.

Census data reveal cities with successful loft conversions can be quite small, with Commerce being the smallest at 9,091 residents. Annual median household incomes vary widely. The highest income of $49,100, found in Denton, was still below the state median of $53,207.

Denison reported the highest median age (39.5) and the lowest percentage of people aged 20 to 34 (18.5 percent). Alternatively, San Marcos reported the lowest median age (23.5) and the highest percentage of people aged 20 to 34 (47.8 percent).

This finding is not surprising. Texas State University’s enrollment exceeds 38,000. College students as a percentage of city size is about three times larger in San Marcos than in Denison.

All eight cities have a higher percentage of one- or two-person households than the state average, ranging tightly between 61 and 67 percent. However, more variation shows up in the percentage of renter-

18

occupied units in both 2000 and 2010. Only Denison comes in under the state average in both decades, while San Marcos records the highest percentages of renters. inally, seven cities reported an increase in the percentage of renter-occupied housing units between 2000 and 2010, with the exception of Denton. Denton’s reduction could be due to a significant increase in new on-campus housing constructed during that time. This would have had the effect of pulling students out of privately owned off-campus housing and into “group quarters,” a classification excluded from a city’s census count.

F

Constraints to Downtown Vitality Downtown redevelopments always have their challenges. Parking is an important issue in virtually all of the cities visited. In a tradeoff, Sulphur Springs TIERRA GRANDE

actually removed parking spaces in their courthouse square to create an interactive water feature and greenspace. Tyler built a 384-space parking garage downtown; several other cities are considering them.

“A parking garage just outside the perimeter of downtown would be a real benefit for us in several ways,” says Donna Dow, main street director for the City of Denison. “It would lower vehicle traffic downtown and get patrons to walk past our shops and businesses instead of just driving by them.”

The speed and flow of traffic downtown is another challenge. Several cities replaced stoplights with stop signs, slowing vehicle traffic and giving pedestrians more time to make a leisurely street crossing.

Because of this, vehicles in a hurry to get through downtown tend to avoid it.

Tired building facades and streetscapes were a concern to most cities.

“Tyler has used public art extensively along our streetscapes,” says Abell. “But you have to be careful with trees that block views. You want to be able to see what’s coming up farther down the street.”

Most of the cities offered some type of support or grants for street and façade improvements.

Several cities had implemented a Tax Increment Reinvestment Zone (TIRZ) to help raise funds. The Houston-Galveston Area Council has published a guide titled Bringing Back Main Street with an extensive list of funding tools and government programs at the website: http://www.h-gac.com/ OCTOBER 2017

bringing-back-main-street/documents/BringingBack-Main-Street-May-2015.pdf. ne of the most difficult challenges to downtown revitalization is the number of vacant old buildings held by investors or long-time owners who have no desire to renovate them. Many are waiting for others to improve downtowns so they can reap the value increases at no cost.

Several city officials noted that absentee owners were often the most difficult to motivate because the property may have come to them through an estate. They pay low taxes to hold it, and they bear “no visual shame” by not living in the city where the building is located.

Finally, financing the renovation of an old building in poor condition is extremely difficult.

Traditional mortgage loans are not available. Loans that are offered usually have short terms and cover only a small part of the total cost to rehab a building.

Those who would speak said the original purchase price of old downtown buildings ranged from $1 to $50 per square foot. Condition and timing in the life cycle of a city’s downtown revitalization were the two most important factors in price paid.

After the initial purchase, additional tens of thousands of dollars were needed to bring the buildings’ electrical, plumbing, and structural problems up to code.

Loft owners agreed that many more renovations would occur if adequate financing with longer terms were available.

O

Changing Mindsets In the end, much of downtown revival hinges on awareness.

“You would be surprised at the number of people who live in Tyler who haven’t been downtown in years,” says Abell. “There is no silver bullet that’s going to magically transform a downtown. It’s pretty much one storefront, five jobs, and a $50,000 investment at a time.”

Dr. Hunt (hhunt@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

THE TAKEAWAY Almost all small towns in Texas would want to revitalize their downtowns. Lofts can play an important role in reviving neglected old buildings that have historical interest and character.

19

Legal Issues

Whistling PAST THE Graveyard Cemeteries in Texas

By Rusty Adams 20

TIERRA GRANDE

It was a graveyard of the old-fashioned Western kind. It was on a hill, about a mile and a half from the village. It had a crazy board fence around it, which leaned inward in places, and outward the rest of the time, but stood upright nowhere. Grass and weeds grew rank over the whole cemetery. All the old graves were sunken in, there was not a tombstone on the place; round-topped, worm-eaten boards staggered over the graves, leaning for support and finding none. “Sacred to the memory of” So-and-So had been painted on them once, but it could no longer have been read, on the most of them, now, even if there had been light.

–Mark Twain, The Adventures of Tom Sawyer

F

rom the West Texas desert and the Llano Estacado, across the prairies and throughout the Piney Woods, Texas is dotted with cemeteries. Some are relatively new, while some bear witness to the pioneers who tamed the wild Texas frontier.

Some are in good order, frequently visited, and neatly kept.

The living visit to honor the memories of their loved ones and of forebears known only through family stories. They contemplate what their lives must have been like and what life is about.

Others, the mourners having become occupied with the business of life, or having long ago joined the mourned under the sod, lie in disrepair or vandalized, with markers and stones knocked over, rotting, broken, or illegible.

Each stone tells a story. These burial grounds are important to the families of the deceased and are significant historical resources. But they also may become obstacles to a landowner who wants to use or develop land with a cemetery on it.

Cemetery Governance Cemeteries can be public or private and can be established by a city, county, corporation, perpetual-care cemetery corporation, community, neighborhood, church, other organization, or no organization at all. The larger, more well organized cemeteries have little effect on most real property owners. Therefore, this discussion primarily concerns small, rural cemeteries for which there is no functioning cemetery organization.

Both Benjamin Franklin and William Gladstone stated, to paraphrase, that how a society cares for its cemeteries says a lot about the quality of its people. Likewise, Texas courts have pronounced a strong public policy in favor of preserving cemeteries out of respect for the dead. Because of this, land used for

OCTOBER 2017

cemetery purposes enjoys a somewhat special status in Texas.

Once land is dedicated as a cemetery, the property is taken “from the realm of commerce” and “it is no longer a subjectmatter of conveyance or inheritance so as to interfere with the use and possession to which it has been devoted” (Smallwood v. Midfield Oil Co., 89 S.W.2d 1086).

In other words, even someone who owns a cemetery is limited in its use. It is always subject to its dedication, unless that dedication is removed. It is exempt from taxation and condemnation by eminent domain. Liens do not attach to it, and it is exempt from the claims of creditors. It may not be sold on execution or applied in payment of debts due from individual owners and plots. It is subject to certain rights of visitation, and may not be removed at the whim of the owner. It has been held that the owner “holds the title to some extent in trust for the benefit of those entitled to burial in it” (Houston Oil Company of Texas v. Williams, 57 S.W.2d 380).

All of these statements are true even if the cemetery is not reserved in the deed or chain of title. The simple presence of grave markers may be notice to an owner that a tract is a cemetery. Although laws exist regarding the establishment and operation of cemeteries and cemetery organizations, the only thing required to dedicate land as a cemetery is actual use for burial. Once dedicated, the property must be used exclusively for cemetery purposes until the dedication is removed by court order or until the cemetery is enjoined or abated as a nuisance.

New Statutory Definitions The 85th Texas Legislature has added or changed definitions of some important terms that heretofore were provided by rule or by case law. An “abandoned cemetery” is a cemetery, regardless of whether it appears on a map or in deed records,

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that is not owned or operated by a cemetery organization, does not have another person legally responsible for its care, and is not maintained by any person. If an abandoned cemetery does not appear on a map or deed records, but is evidenced by the presence of marked or unmarked graves, it is an “unknown cemetery.” An “unverified cemetery” is a location having some evidence of interment but in which the presence of one or more unmarked graves has not been verified. This verification must be made by a cemetery keeper, licensed funeral director, medical examiner, coroner, professional archeologist, or the Texas Historical Commission. The 85th Legislature also made some changes to other statutory provisions. The changes are reflected in this article, and are effective September 1, 2017.

Discovery and Access

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ersons who own land with a cemetery on it, or discover an abandoned, unknown, or unverified cemetery on it, have certain responsibilities under the law. First, the landowner may not simply destroy it. Destroying or defacing graves, their markers, or other cemetery elements could result in civil and criminal penalties. Second, the landowner must allow reasonable access to any person who wishes to visit a cemetery or private burial grounds for which no public ingress or egress is available.

The rules governing access are set forth in Section 711.041 of the Texas Health & Safety Code, as well as administrative rules made by the Texas Funeral Service Commission. The commission may enforce the rules regarding access by an administrative order, but written agreements are encouraged.

Such written agreements may be reached by informal negotiations or by mediation.

Reasonable access means reasonable ingress and egress for the purpose of visiting the grounds. The landowner may designate the routes of reasonable ingress and egress and reasonable hours of availability. Between 8 a.m. and 5 p.m. on any day of the week, or hours set by written agreement, are generally considered reasonable. If visitors want to visit at any other time (which also must be reasonable), they may do so by providing written notice to the landowner at least 14 days ahead of time.

Visitors may visit only for purposes usually associated with cemetery visits, which include visitation, ornamentation, and protection of graves from desecration. Whether the landowner must permit any new burials to be made appears to depend on the original dedication terms and existing plot conveyances, if any. Under the new statutes, a landowner is not required to allow access to an unverified cemetery. It appears that the Legislature intended to except only those cemeteries whose existence could not be confirmed, rather than cemeteries which might contain both marked and unmarked (but unverified) graves. That’s not what the new statute says, though. Under the definitions, such a cemetery might still meet the definition of an unverified cemetery.

Third, any person, including a landowner, who finds an unknown or abandoned cemetery must file notice with the county clerk as provided by the Texas Health & Safety Code (Section 711.011). The notice must also be mailed to the landowner on record with the county appraisal district. A person who discovers an unverified cemetery must file notice with the Texas Historical Commission on a form provided by the commission, with similar notice to the landowner on record with the appraisal district. The landowner is given thirty days for response or comment. The Texas Historical Commission must determine whether the cemetery exists or not, and make the appropriate filing (Section 711.0111).

In counties with a population greater than 525,000, a landowner may not maintain or locate a feed pen for hogs, cattle, or horses, a slaughter pen, or a slaughterhouse within 500 feet of a cemetery. mprovements may not be constructed in a manner that would disturb the cemetery until the human remains are removed under the appropriate orders. Obtaining those orders can be difficult, so some landowners choose to develop around it or pursue other creative alternatives. The Ayres Cemetery in Fort Worth is in the middle of a motel parking lot, while the Thompson Cemetery sits near the tenth tee at Hawks Creek Golf Club in Westworth Village. Although the town of Boonville no longer exists, its cemetery has been transformed into a historical park in Bryan. The neighborhood where I grew up contains a small lot used as a baseball park. We lost many a ball to the South Family Cemetery, which sits in center field. Some landowners may wish to seek designation of the plot as a Texas Historic Cemetery through the Texas Historical Commission.

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Petition to Remove Dedication Landowners who believe the cemetery simply must go may petition the district court to remove the dedication under Health and Safety Code Section 711.010, which applies specifically to owners of property containing abandoned, unknown or unverified cemeteries.

Notice must be given as set forth in Section 711.004. In addition, notice must be

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PEOPLE WHO OWN PROPERTY with a cemetery on it, or discover a seemingly abandoned cemetery, must follow Texas law, which mandates that it may not be destroyed or grave markers defaced.

given to the Texas Historical Commission and the county historical commission. The historical commissions may intervene if they deem it necessary to protect the cemetery as a historical resource.

If the court finds it in the public interest, it will remove the dedication and order removal of the remains to a perpetualcare cemetery or a municipal or county cemetery. If consent cannot be obtained from plot owners and certain relatives of the decedents to remove remains, the landowner may seek permission from the district court to provide for the removal (Section 711.004). Notices must be given to plot owners, certain relatives of the decedents, the cemetery organization, or if there is none, the Texas Historical Commission. A disinterment permit must also be obtained from the state registrar of vital statistics. Compliance regarding the removal of remains is required (Section 711.004). The courts have provided little guidance as to what “in the public interest” means. The only court opinion dealing with the statute did not reach the question because it held that the cemetery in question was neither unknown nor abandoned.

As another alternative for the landowner, Section 711.007 allows a district court to abate the cemetery as a nuisance and enjoin its continuance if it is maintained, located, or used in violation of the general provisions relating to cemeteries in Chapters 711 or 712, Health and Safety Code, or if it is neglected so that it is offensive to the inhabitants of the surrounding section. If the district court does so, it will determine whether the nuisance must be abated by repair and restoration or by removal of the cemetery. The court will decide the party or parties liable for the costs associated with the abatement.

The statute authorizes certain people to bring such an action, including certain officials and the owner of a residence

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located in or near the municipality in which the cemetery is located or in the area proscribed for the location of a cemetery

by Section 711.008. That section prohibits new cemeteries from being established or operated in or within a certain distance of the boundaries of municipalities. Notice must be given to the state and county historical commission in this type of action. hat’s considered a nuisance? We don’t know for sure, but we know what it is not. A cemetery is not a nuisance per se, but it may become a nuisance from its location or manner of use. Mere proximity is not enough.

Unpleasant feelings about cemeteries, funerals, or death are not enough. Reduced property value is not enough.

Note that the statute says owner of a residence. This might mean that an owner of land—but not a residence—may not bring an abatement proceeding. However, such an owner may be able to petition for removal of the dedication as an adjacent landowner under Section 711.036. That section provides a way for the owner of land adjacent to a cemetery for which there is no cemetery organization or governing body to petition for removal. This section somewhat mirrors Section 711.010 in that the court will order removal upon a finding that it is in the public interest. Similar notices are also required.

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Adams (radams@mays.tamu.edu) is a member of the State Bar of Texas and a research attorney for the Real Estate Center at Texas A&M University.

THE TAKEAWAY Laws and statutes govern cemeteries whether they are public or private. Cemeteries on private property are protected and cannot simply be removed to meet the owner’s needs.

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Texas Economy

OIL CHANGE FUELING HOUSING AND LAND PRICES?

By Valerie Grossman, Enrique Martínez-García, Yongzhi Sun, and Luis B. Torres

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he link between oil prices and real estate market activTexas is the nation’s top oil and natural ity is felt in both the short term and long term due to gas producer, so oil price fluctuations demand and supply factors. Real estate markets as well as land prices are affected by the increase in household disposhave a considerable impact on the able income when oil and natural gas prices fall on a persistent state’s economy. The 2014 oil bust basis. Persistent low oil prices are at least mildly positive had widespread negative effects on for most areas as they tend to boost consumption of non-oilderivative goods and services in the short-run. In Texas, the different sectors and regions of the downside risks are concentrated in regions with a large portion Texas economy, including real estate of their employment base in the energy industry.

Texas gains from high oil prices in the long term, as seen markets. Low oil prices impacted home after the 2007–08 recession when the state’s housing market prices as income and employment outperformed the nation’s. The expanding energy sector led to employment and income growth. Texas’ recent notegrowth declined. Some oil-sensitive both worthy performance in the real estate market highlights the areas—such as Houston, Odessa, role played by the energy industry and the significance of the and Victoria—registered a significant relationship between housing and land markets. slowdown in housing demand as can be Far-Reaching Effects prices impact Texas real estate through both supply and seen by the resulting increase in months Oil demand channels. The supply-side effects relate in no small of housing inventory (see table). part to land purchases and land prices. Higher oil prices

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Single-Family Homes—Months of Inventory Selected Metropolitan Statistical Areas (MSAs) in Texas contribute to an overall expansion of the state’s economy, as buyers compete for land for agriculture, recreation, and development. This affects the availability and price of land for new home construction. In addition, when oil prices rise, investment and employment by the energy sector tends to rise as well, causing an increase in income and an upsurge in housing demand. Labor supply is also affected because some laborers choose to work in the energy industry at higher wages, resulting in fewer workers to build houses and an increase in home construction costs. il price changes produce non-negligible demand-side effects as well. For instance, if oil prices fall, so do gasoline prices and more generally transportation costs, and short-term consumption may increase as a result.

Consumers may use a portion of their gas savings to upgrade their living standards, boosting housing demand. However, for Texas’ energy-concentrated regions, the economic benefits of an oil price increase driving employment up far outweigh the short-lived demand drag from higher oil prices.

Oil prices can have a substitution effect on housing demand as well when oil price fluctuations lead to relative energy and transportation cost changes. When this occurs, consumers can

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Region

Oil Boom End 2014

Oil Bust 2015–16

Boom-Bust (Percent)

Largest MSAs Austin DFW Houston

1.98 2.14 2.31

1.97 1.84 3.19

-0.5 -14.0 38.1

San Antonio

3.48

3.12

-10.3

Brownsville El Paso Laredo

9.83 7.39 4.64

8.30 6.02 4.94

-15.6 -18.5 6.5

McAllen

9.14

8.85

-3.2

Midland Odessa Longview

3.36 2.51 7.58

3.27 4.47 7.96

-2.7 78.1 5.0

Tyler

4.39

3.93

-10.5

Corpus Christi

4.88

4.87

-0.2

Victoria

3.61

4.69

29.9

Border MSAs

Upstream Energy

Downstream Energy

Note: Average single-family months of inventory for 2014–15.

Source: Real Estate Center at Texas A&M University

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choose to buy less expensive goods instead and seek more affordable locations and housing arrangements. This may explain the impact oil prices have above and beyond their effect on discretionary disposable income, even after taking into account the concurrent effects of oil prices coming through the cost of land and long-term interest rates.

Figure 1. Texas House and Land Prices 160 140 120

(Index 1975Q1=100) House Prices Land Prices

100 80 60 40 1976 1981 1986 1991 1996 2001 2006 2011 2016 Note: Inflation adjusted using U.S. personal consumption expenditures deflator.

Sources: Freddie Mac, Real Estate Center at Texas A&M University, U.S. Bureau of Economic Analysis, FRED, and authors’ calculations.

280 240 200

Figure 2. Texas House-to-Land Price Ratio and Oil Prices (Index 1975Q1=100) House-to-Land Price Ratio WTI Oil Price

160 120

Absent urban land price data, rural land prices provide a quantifiable measure of the opportunity cost of turning rural land into urban development. Rural land prices provide valuable insight on how costly it is at any given point to expand the urban housing supply by opening up rural land to urban development.

Since 1975, pronounced changes in land prices relative to house prices occurred (Figure 1). Both collapsed in the 1980s as oil prices fell. Texas fell into a recession as a result. House and land prices recovered in the early 2000s as oil prices rose.

The concurrent oil boom helped the state weather the 2007–08 financial recession. As oil prices rise and fall, so do land prices, which in turn affect the cost of new home construction. This suggests the importance of land as a key supply-side factor in pushing house prices up. xamining the house-to-land price ratio compared to oil prices (Figure 2), there is an inverse relationship to oil prices at the turning points when oil prices rise or fall markedly. The house-to-land price ratio remained largely immune to the oil crises of the 1970s. However, when oil prices abruptly fell in 1986, housing prices decreased at a much slower rate than land prices due to the higher sensitivity of land prices to oil price changes. This caused the ratio to increase. The contrary occurred in the 2000s. As oil prices rapidly increased, land prices increased at a faster pace than housing prices, causing the house-to-land price ratio to decline.

This suggests that oil price fluctuations have a stronger effect on land prices than on housing prices.

E

Declining Long-Term Interest Rates

80 40 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Note: West Texas Intermediate (WTI) inflation adjusted using U.S. personal consumption expenditures deflator.

Sources: Freddie Mac, Real Estate Center at Texas A&M University, U.S. Bureau of Economic Analysis, FRED, and authors’ calculations.

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Land Prices’ Relation to Oil

Oil prices spill over to house and land prices through their effects on household disposable income. Other national and global factors, such as long-term interest rates, which affect mortgage and interest rates on commercial loans, alter both the supply of and demand for Texas housing as well. Rising oil prices could lead to increased inflation expectations and cause interest rates to rise. The opposite is true when oil prices fall.

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Before and After Fracking

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fter the 1980s oil crash, the Texas economy became more diversified. In 2011, fracking technology led to the shale oil boom in the Permian and Eagle Ford. This made Texas an even more significant driver of U.S. oil production because oil production increased from 1.4 million barrels per day in 2011 to 3.2 million barrels per day in 2016. Data shows that technological advancement in the use of oil since the 1970s has resulted in sustained and sizeable energy-efficiency gains. This mitigates the demand-side effects of oil price shocks, potentially making the impact of oil supply shocks due to shale oil excavation more significant for Texas.

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Figure 3. Texas House and Land Price to Income Ratio (Index 1975Q1=100)

120 100 80 60 40

House Price-to-Income Ratio Land Price-to-Income Ratio

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0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Note: West Texas Intermediate (WTI) inflation adjusted using U.S. personal consumption expenditures deflator. To estimate Texas personal disposable income, we use imputed quarterly current personal taxes that are consistent with the state annual numbers but reflect the patterns of the state’s personal income relative to the U.S. and also the quarterly U.S. personal taxes.

Sources: Freddie Mac, Real Estate Center at Texas A&M University, U.S. Bureau of Economic Analysis, FRED, and authors’ calculations.

Figure 4. Oil Prices and U.S. Long-Term Interest Rates (Index 1975Q1=100, Annualized)

WTI Oil Price

300 250 200

U.S. Long-Term Interest Rates WTI Oil Price

10 8 6

150

4

100

2

50

0

0 –2 1976 1981 1986 1991 1996 2001 2006 2011 2016

U.S. Long-Term Interest Rates

The house price-to-income ratio in Texas fell significantly in the early 1980s and has remained largely flat afterwards as income rose at a higher rate than house prices, at least until 2012 (Figure 3). The land price-to-income ratio rapidly increased in the early 2000s when oil prices started to rise, lifting land prices higher until the 2007–08 recession.

The decline in long-term interest rates has positive effects on Texas housing markets as low interest rates lead to lower mortgage rates and lower credit costs for commercial loans to develop lots, boosting both housing supply and demand. The long-run Texas house price-to-income ratio is notably influenced by the relationship between land prices and long-term interest rates as well.

The fall in oil prices in the early 1980s led to a substantial collapse in land prices, but the effect on house prices was somewhat mitigated. Disposable income growth remained fairly stable in the 1980s even as the Texas economy went through two recessions. This caused house price declines that helped lower the house price-to-income ratio.

In the late 1980s and early 1990s, house and land prices continued to fall, but the combination of falling long-term interest rates, stable and low oil prices, and stalwart growth in disposable income allowed them to reach a trough and sustain house and land prices. Interestingly, oil prices and U.S. longterm interest rates diverged after the mid-2000s as oil prices increased while long-term interest rates fell (Figure 4).

Note: West Texas Intermediate (WTI) inflation adjusted using U.S. personal consumption expenditures deflator. U.S. long-term interest rates inflation adjusted using ten-year CPI inflation expectations.

Sources: Freddie Mac, Real Estate Center at Texas A&M University, U.S. Bureau of Economic Analysis, FRED, and authors’ calculations.

When natural gas fracking production increased in the Barnett Shale at the start of the 2000s, the house price-to-income ratio remained largely stable while the land price-to-income ratio started to increase (Figure 3). From 2000–08, declining

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Data and Research Methodology This analysis covers 1Q1975 to 2Q2016. All series are inflation-adjusted using the seasonally adjusted quarterly U.S. personal consumption expenditures deflator from the U.S. Bureau of Economic Analysis—obtained from the St. Louis Fed’s FRED database—and indexed in units to 1Q1975=1. reddie Mac’s house price indexes were used to derive the real house price series. The monthly indexes from Freddie Mac are not seasonally adjusted by the source, so they were converted to quarterly frequency by simple averaging and seasonally adjusted with the standard Census X12/X13 procedure.

The real land price indexes were calculated by the Real Estate Center at Texas A&M University. The quarterly nominal rural land price series are expressed in dollars per acre and seasonally adjusted by the Center using a simple fourquarter moving average.

The real oil price series is based on the U.S. Energy Information Administration and Dow Jones & Company’s data on West Texas Intermediate (WTI) — Cushing, Oklahoma — crude oil spot prices (dollars per barrel) obtained from the St. Louis Fed’s FRED database. The nonseasonally adjusted series is reported at monthly frequency and converted to quarterly frequency with simple averaging. All remaining seasonality is removed by implementing the standard Census X12/X13 procedure for the quarterly nominal oil price series.

To construct the real long-term interest rate, the nominal long-term rate was used, which is the ten-year Treasury constant maturity rate (yield in percent per annum) from the Board of Governors of the Federal Reserve System (H.15 Selected Interest Rates) obtained through the St. Louis Fed’s FRED database. The daily time series is not seasonally adjusted by the source—the data were converted from daily to quarterly frequency by simple averaging without requiring any seasonal adjustment. The real U.S. long-term interest rate is straightforward to construct based on Fisher’s equation by netting out a consistent survey-based measure of long-term inflation expectations. he long-term inflation expectations data is the forecast of the annual average rate of headline CPI inflation over the next ten years from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters (SPF) extended with linearly interpolated Blue Chip Economic Indicators survey data prior to 4Q1991 back to 4Q1983 (which is also provided by the Philadelphia Fed’s SPF). We use the monthly FRB/US-model series ZPI10 produced by the Board of Governors transformed to quarterly frequency (by simple averaging) to complete our long-term inflation expectations series back to 1Q1975.

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real interest rates, rising oil prices, and especially upward pressures on land prices were partly due to an increase in the price of commodities. Robust growth in disposable income kept the house price-to-income ratio stable as housing prices rose at a slower rate than both income and land prices. After the 2007–08 financial recession and as the shale oil boom in the Permian and Eagle Ford geared up, house and land price increases outpaced disposable income, raising both house- and particularly land-price-to-income ratios during the recovery and subsequent expansion.

An Evolving Relationship

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il prices are an important factor determining the opportunity cost attached to converting rural land for urban development. They affect land availability and land prices. They also have an influence on disposable income through demand-side effects and their impact on oil production. In Texas, the shale oil boom in the 2000s appears to have played a major role in shaping the relationship of oil prices to land and house prices.

All of this occurred against a backdrop of a large fall in oil prices in 2014. In the years following the oil bust, housing prices have accelerated while income and land prices have flattened in a low-oil-price environment. A more diversified Texas economy allows housing demand to remain strong even when the state’s economy has to contend with low oil prices.

However, the low-oil-price period since 2014 also suggests that the relationship between oil prices and housing prices continues to evolve.

House prices registered higher growth than income and continued to increase even with the large drop in oil prices in 2014. Housing supply constraints caused by lack of developed lots, tight labor conditions, and limited development loans apparently could be altering the relationship between housing and oil prices. Texas’ lower dependence on the upstream energy industry, as well as those housing supply constraints, seem to have contributed to modify the relationship between housing prices and oil prices as well.

Grossman (valerie.grossman@dal.frb.org) is web content manager in the Research Department of the Federal Reserve Bank of Dallas; Dr. MartínezGarcía (enrique.martinez-garcia@dal.frb.org) is a senior research economist and advisor with the Federal Reserve Bank of Dallas; Sun (yongzhis@tamu. edu) is a Texas A&M University Ph.D. graduate student in Economics; and Dr. Torres (ltorres@mays.tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

THE TAKEAWAY Even with the recent oil boom and bust, oil prices don’t explain everything happening with housing and land prices.

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