TEXAS HOUSING INSIGHT Free and packed with numbers supporting unbiased monthly discussion of the Lone Star State’s residential supply, demand, and prices.
TEXAS HOUSING INSIGHT JAMES P. GAINES
CHIEF ECONOMIST
WESLEY MILLER RESEARCH ASSOCIATE
BAILEY CUADRA RESEARCH INTERN
LUIS B. TORRES
RESEARCH ECONOMIST TECHNICAL REPORT
2 1 2 0
M A R C H 2 018
TR
Photo by Houston IABC
Read and subscribe to the Center’s most popular report at www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight From left: Wesley Miller, James P. Gaines, Luis B. Torres, and Bailey Cuadra.
iii
TIERRA GRANDE
Visit us online at
www.recenter.tamu.edu
Director, GARY W. MALER Chief Economist, JAMES P. GAINES Senior Editor, DAVID S. JONES Managing Editor, BRYAN POPE Associate Editor, KAMMY BAUMANN Communications Specialist, HAYLEY RIEDER Art Director, ROBERT P. BEALS II Graphic Specialist/Photographer, JP BEATO III Graphic Designer, ALDEN DeMOSS Circulation Manager, MARK BAUMANN Lithography, RR DONNELLEY, HOUSTON
APRIL 2018
VOLUME 25, NUMBER 2 ™
TIERRA GRANDE JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY
20 Ebb and Flow
A Geographic Look at Houston’s Stormy History
Recent history suggests that flooding is the new norm in Houston, a city with an extensive network of bayous, lakes, and other waterways. Research provides clues to what will happen— and in which neighborhoods—the next time a catastrophic storm strikes. BY JOSHUA G. ROBERSON
ADVISORY COMMITTEE: Doug Jennings, Fort Worth, chairman; Besa Martin, Boerne, vice chairman; Mario A. Arriaga, Conroe; Russell Cain, Port Lavaca; Alvin Collins, Andrews; Jacquelyn K. Hawkins, Austin; Walter F. “Ted” Nelson, Houston; Doug Roberts, Austin; C. Clark Welder, San Antonio; and Jan Fite-Miller, Dallas, ex-officio repre senting 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. 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. Nothing in this publication should be construed as legal or tax advice. For specific advice, consult an attorney and/or a tax professional. PHOTOGRAPHY/ILLUSTRATIONS: Real Estate Center files, pp. 1, 2–3, 10–11, 20–21, 22; Robert Beals II, pp. 4, 5; JP Beato III, pp. 14–15, 17, 18, 19; courtesy of Ed Wolff, p. 24; Alden DeMoss, p. 25. © 2018, Real Estate Center. All rights reserved.
2 Imperfect Storm
Harris County averaged 40 inches of rain from Hurricane Harvey, nearly a year’s worth of rainfall. But if you think the storm’s deluge and ensuing floods hurt all Houston neighborhoods equally, think again. A recent Center study finds that lower-income neighborhoods were hit the hardest. BY LUIS B. TORRES AND WESLEY MILLER
6 Bulls in the Oil Patch
Rebounding Energy Boosts Land Market Texas land markets may have gotten off to a rocky start in 2017, but by the end of the year many regions were seeing significant improvements in land prices. The reason? Oil. BY CHARLES E. GILLILAND AND TIAN SU
10 Getting Back on Track ON THE COVER Bob Hall Pier at Padre Balli Park, Corpus Christi
PHOTOGRAPHER JP Beato III
APRIL 2018
When Will Texas Housing Recover? The dot-com bubble burst. The Great Recession. Since 1990, Texas’ housing market has had more ups and downs than passengers on the New Texas Giant at Six Flags. Well, buckle up, because the latest Real Estate Center projections indicate the market is on the upswing. BY ALI ANARI
14
Still Sparkling After Harvey More than a third of Corpus Christi households reported home damage after Hurricane Harvey made landfall. Eight months later, many residents there are still piecing their lives back together. The area’s overall housing market fared better, escaping the storm relatively unscathed. BY HAROLD D. HUNT AND CLARE LOSEY
26 Sign Here . . . From There New Online Notarization Law
Forget spending your lunch hour driving across town to get real estate documents notarized. Beginning July 1, a new Texas law removes the hassle by allowing notaries public to assist you online. And don’t worry, the law includes measures to help ensure security. BY RUSTY ADAMS
1
Residential
By Luis B. Torres and Wesley Miller Hurricane Harvey poured 40-plus inches of rain across the city of Houston, paralyzing economic activity for nearly a week. The rain and ensuing floods damaged an estimated $80 billion worth of assets along Texas’ Gulf Coast, making it the costliest storm in state history. The Federal Emergency Management Agency (FEMA) reported more than 161,000 homes damaged in the Houston Metropolitan Statistical Area. Of those, 24 percent were uninhabitable for at least 30 days. Alarmingly, 83 percent of Houstonians had no flood insurance based on estimates from the Institute for Regional Forecasting at the University of Houston, augmenting the financial difficulties in the recovery process. Harvey’s occurrence marked the third consecutive year of a multibillion-dollar storm in Houston, prompting reevaluations and reviews of flood infrastructure, urban planning, and building regulations. Change may be necessary to withstand future storms without inhibiting economic growth as businesses reassess
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the desirability to locate or remain in Houston. Understanding the current city structure and how it developed helps local leaders enact new policies. Identifying vulnerable regions, as well as the underlying causes of that vulnerability, is paramount to Houston’s future prosperity.
Disproportionate Damage While flooding stretched across Houston, the destruction was unevenly distributed (Map 1, pg. 4). Geographically, the northeast suffered disproportionately, followed by the region south of downtown. The most concentrated destruction occurred in two contiguous ZIP codes (77078 and 77028), where around 70 percent of homes incurred damages (see table, pg. 5). Both regions (which comprise the communities of East Houston, Houston Gardens, and Settagast) contain stretches of Halls Bayou, which flows into Greens Bayou on the eastern edge of 77078. The next most-damaged ZIP codes (77026 and 77044) TIERRA GRANDE
Only four of the 30 least-damaged ZIP codes earned below the median income level. However, wealthy regions were not immune to Harvey’s wrath. More than a quarter of homes reported damage in Bellaire (77401), an independent city within Houston’s boundaries where income levels ranked in the top 5 percent. Two ZIP codes surrounding George Bush Park (77079 and 77094) suffered similarly and ranked in the top 10 percent. In general, the proportion of homes damaged by Hurricane Harvey was negatively associated with income levels (Figure 1), but the nature of the relationship is unclear. Income explained only a tenth of the variation in proportional damages. The unexplained variation suggests several other factors determined the distribution of Harvey’s destruction. These determinants could include proximity to bayous or reservoirs, urban density, and varying flood control infrastructures.
Harvey’s Temporary Housing Shock
were also in northeastern Houston or on Halls Bayou (77037), where about half of the housing stock reported damage. Adding to the devastation, the most damaged regions also had the lowest incomes. Four of the most-damaged ZIP codes ranked in the bottom tenth income percentile for Houston based on average income per tax return in 2015 (Map 2, pg. 5). In fact, residents in only one of the ten most-damaged ZIP codes (77044) earned above the median income level of $53,657. Despite its economic advantage, this area was particularly vulnerable to flooding from Lake Houston, Sheldon Lake, and Greens Bayou. APRIL 2018
Percent of Homes Damaged
D
espite Harvey’s historic magnitude, the storm provided only a momentary shock to the Houston housing market. Housing sales plummeted 25 percent year over year when Harvey landed in August but quickly rebounded to their year-long, flat trend. Single-family building permits fell 22 percent before approaching record levels as builders responded to the damaged housing stock. The combination of decreased supply and displaced residents elevated home prices, a trend likely to continue amid skilled-labor shortages in the construction industry. The storm had little effect on homes in active developments, straining predominantly the existing home stock. Resale listings sank 6 percent between August and September, pulling the months inventory down to 3.3 months. On the demand side, the average days on market for resale homes increased three straight months following Harvey, reflecting a decreased appetite for existing home purchases. However, the supply shock outweighed sluggish demand, Figure 1. Income vs. Damage pushing the median resale price 80 to a record high of $222,761 in January 2018. 70 Movements in the existing home market are increasingly 60 important for low-income areas 50 where new home construction is less common. Four of the 40 five most-damaged ZIP codes, which happen to be low-income 30 areas, have had minimal sales 20 activity since 2011 (Figure 2, pg. 4), averaging between five 10 and seven sales per month. The income outlier (77044) observed 0 a healthier volume at 56 sales 0 100 200 300 400 500 600 Income in Dollars (Thousands) per month but reached a peak Sources: Federal Emergency Management Agency, Internal Revenue earlier in 2017. Service, and the U.S. Census Bureau
3
Map 1. Proportion of Houston Homes Damaged 77380
77355
77357
77389
77386
77375 77377
77484
77388
77447
77069
77067 77065
77064
77095
77449
77094 77450
77407
Under 16% 16% - 21% 77471 21% - 34% 34% - 72%
77079
77080
77338
77066
77346
77038
77039
77055
77044
77050
77018
77093 77016
77076 77022
77008
77078 77049
77028
77009 77026
77007
77024
77532
77037
77088
77092
77396
77032
77060
77091
77043
77406
77086
77040
77041 77084
77441
77535
77336
77345
77014
77433
77494
77339
77073 77068 77090 77070
77493
77373
77379
77429
77423
77365
77020
77013
77562 77521
77530 77015
77029 77002 77056 77019 77003 77520 77057 77011 77006 77027 77547 77063 77098 77082 77004 77023 77012 77005 77081 77506 77036 77030 77503 77401 77072 77021 77536 77083 77025 77074 77571 77087 77017 77054 77502 77096 77099 77033 77587 77051 77061 7703177071 77035 77498 77504 77505 77045 77507 77477 77085 77048 77075 77034 77478 77047 77059 77489 77089 77053 77586 77062 77479 77581 77058 77077
77042
77459 77469
77545
77584
77565
77598 77578
77546
77573
Sources: Federal Emergency Management Agency and U.S. Census Bureau
T
he five ZIP codes all posted seasonally adjusted sales price appreciation (see table). Since 2011, growth in the median declines in August, illusprice per square foot (PSF) more trating Harvey’s initial than doubled in three of the Figure 2. Monthly Home Sales negative impact. However, the afflicted regions (77026, 77028, 20 70 contraction coincided with obviand 77078) and rose 59 percent 18 ous downward trends that began in 77036, outpacing Houston’s 45 60 in late 2016, resembling Houspercent growth overall. ZIP code 16 ton’s overall stagnant sales activ77044 was the exception given its 50 14 ity over the past year. ZIP code above-average sales volume, with 77026 12 77078, which incurred the most 32 percent growth in median PSF 77028 40 damage, maintained stable sales over the seven-year period. 77037 10 before and after Harvey, given 77078 30 Potential Impact 8 a demand resurgence in 2017. 77044 (Right Axis) of New Policies However, demand generally 6 20 weakened in the low-income, The highest proportion of hous4 east-side communities following ing damage occurred northeast 10 the storm. of downtown in economically 2 Despite stagnant sales activdisadvantaged neighborhoods. 0 0 ity and low-income levels, home These regions consist primarily 2011 2012 2013 2014 2015 2016 2017 price appreciation in these ZIP of existing homes, suggesting Note: Data are seasonally adjusted and detrended. codes outpaced overall Houston that new building regulations Source: Real Estate Center at Texas A&M University
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TIERRA GRANDE
Map 2. Average Income in Houston’s Most Damaged ZIP Codes 77380
77355
77357
77389
77386
77375 77377
77484
77388
77447
77069
77535
77336
77345
77067 77065
77064
77095
77086
77084 77043 77094
77441
77079
77407 77406
77039
77080
77092
77018
77055
77076
77093 77016
77022
77008
77024
77078 77049
77028
77009 77026
77007
77044
77050
77037
77532
77020
77013
77562 77530
77521
77015
77029 77002 77056 77019 77003 77520 77057 77011 77006 77547 77027 77063 77098 77082 77004 77023 77012 77005 77081 77506 77036 77030 77503 77401 77072 77021 77536 77083 77025 77074 77571 77087 77017 77054 77502 77096 77099 77033 77587 77051 77061 77031 77035 77498 77504 77505 77071 77045 77507 77477 77085 77048 77075 77034 77478 77047 77059 77489 77089 77053 77586 77062 77479 77581 77058 77077
77450
77038
77091
77449
77346
77396
77032
77060
77088
77040
77041
77338
77066
77014
77433
77494
77339
77073 77068 77090 77070
77493
77373
77379
77429
77423
77365
77042
$26,000 - $35,000 $35,000 - $48,000 77471$48,000 - $100,000 $100,000+
77459
77545
77469
77584
77565
77598 77578
77546
77573
Source: Internal Revenue Service
may have little impact on the most vulnerable areas. Residents there may have an increasingly difficult time financing housing modifications, such as physically elevating homes to comply with proposed building codes. Additionally, rapid
home price appreciation heightens financial burdens for these residents as rising property taxes further strain disposable income levels. Note: Monthly data are seasonally adjusted.
Most Damaged ZIP Codes
ZIP Code
Proportional Damage (Percent)
Average Income
2011 Median Price PSF
2017 Median Price PSF
Price PSF Growth (Percent)
77078 77028 77037 77026 77044 Houston
71 70 50 49 48 18
$28,167 $26,809 $31,579 $26,165 $73,589 $85,517
$28.49 $20.72 $51.51 $24.21 $70.93 $72.08
$65.22 $58.49 $81.77 $49.73 $93.72 $104.38
129 182 59 105 32 45
Note: Proportional damages represent the number of valid disaster-assistance applications for housing divided by the number of total housing units. Income levels are estimated as the average income per tax return for each ZIP code in 2015. The price per square foot (PSF) values represent annual averages, with 2017 averaged through October. Houston price PSF values are estimated using the MSA geography. The remaining Houston series are aggregated from individual ZIP code data. Sources: Federal Emergency Management Agency, Internal Revenue Service, the U.S. Census Bureau, and Real Estate Center at Texas A&M University APRIL 2018
Dr. Torres (ltorres@mays.tamu.edu) is a research economist and Wesley Miller (wamiller@tamu.edu) a research associate with the Real Estate Center at Texas A&M University.
THE TAKEAWAY Hurricane Harvey disproportionately affected northeast Houston where income levels are among the city’s lowest. The immediate impact temporarily shocked housing sales and left supplyand-demand measures relatively unchanged.
5
Land Markets
Bulls in the Oil Patch Rebounding Energy Boosts Land Market By Charles E. Gilliland and Tian Su
Remember collapsing oil prices followed by dwindling land prices in energydominated regions? Well, forget about all of that. The last half of 2017 saw remarkable reversals in several areas where unusual activity appeared to originate with bullish players in the oil patch.
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TIERRA GRANDE
Land Market Regions
1 4
3 7
2
5 1 Panhandle and South Plains 2 Far West Texas 3 West Texas
6
4 Northeast Texas 5 Gulf Coast-Brazos Bottom 6 South Texas
South Texas and Gulf Coast-Brazos Bottom Closely following suit, South Texas (Region 6), hammered with declining prices from fourth quarter 2015 through third quarter 2016, posted moderate price gains in 2017 until the fourth quarter, which had a strong 12.1 percent increase (Figure 2). All of this accompanied a strong boost in the number of sales as well.
APRIL 2018
600
Nominal
400 200
Real or Deflated
0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
Figure 2. South Texas (Region 6) 4,000 Dollars per Acre
Specifically, early in the summer, companies supplying sand for fracking operations in the Permian Basin quietly began acquiring ranchland that is poor in productivity but rich in previously worthless sand to establish sand-mining operations. Those purchases sent overall Trans-Pecos regional land prices soaring in an area where previous drilling-related acquisitions had already had an impact on price levels. As oil exceeded $60 per barrel, land prices rose dramatically in the second quarter, ratcheted up in the third quarter, and blasted off in the fourth quarter with a 32.5 percent price increase. Results for Far West Texas (Region 2) provide evidence of this remarkable spurt in activity (Figure 1).
Dollars per Acre
7 Austin-Waco-Hill Country
Far West Texas
Figure 1. Far West Texas (Region 2)
800
Nominal
3,000 2,000 1,000
Real or Deflated
0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
7
Figure 3. Gulf Coast-Brazos Bottom (Region 5)
Dollars per Acre
6,000 5,000
Nominal
4,000 3,000 2,000 Real or Deflated
1,000 0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
Figure 4. Northeast Texas (Region 4)
Dollars per Acre
4,000 Nominal
3,000
1,000
Real or Deflated 2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
Figure 5. Panhandle and South Plains (Region 1) 1,200 1,000 Dollars per Acre
Northeast Texas Prices in remaining regions continued positive trends, remained little changed, or shifted toward declines related to apparent weakening conditions in cropland markets. Markets in Northeast Texas (Region 4) weighed in with a healthy 6.7 percent price increase (Figure 4). Rising sales volumes and total dollar volume indicated strong fundamentals continued to drive sales throughout this area.
Panhandle and South Plains
2,000
0 2005
Nominal
800 600
Real or Deflated
400 200 0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
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While no specific energy-related motivations emerged among observers, perhaps stabilizing oil prices contributed to this sizeable increase. In addition, the Gulf Coast-Brazos Bottom (Region 5), home to energy capital Houston, reversed a trend toward negative prices and posted a respectable 5.2 percent increase (Figure 3). This price increase came despite devastation from Hurricane Harvey. However, transaction volume dropped by 11.6 percent, perhaps in response to the hurricane. On balance, these energyrich regions may have benefited from rising oil prices.
At the opposite end, weak commodity prices appear to have taken a toll on land prices in the Panhandle and South Plains (Region 1) with a 6.3 percent drop from fourth quarter 2016 (Figure 5). Despite continued inconsistency, markets managed to rise after a substantial retreat for most of 2015 following the sustained drop in cotton and corn prices. However, the upward movement seesawed from quarter to quarter. After posting a negative result in first quarter 2017, buyers drove prices higher in the second and third quarters. The fourth quarter decline of 6.3 percent lowered prices below second quarter 2016 levels. That drop may signal the onset of a long-anticipated correction or merely be another of the fluctuations seen in this regional market.
West Texas West Texas (Region 3), somewhat dependent on cropland but not participating in the oil play, posted two consecutive quarters of declining prices (Figure 6). Overall, prices fell by 3.8 percent in the fourth quarter, dropping to early 2016 levels. However, both sales volume and total dollar volume increased, hinting that the weakness may have passed.
TIERRA GRANDE
Figure 6. West Texas (Region 3)
Dollars per Acre
1,600
Austin-Waco-Hill Country (Region 7) continued to struggle, posting a 1.1 percent decline after modest declines in the second and third quarters (Figure 7). Prices settled near 2015 year-end levels with a strong upturn in both sales volume and total dollar volume. Strengthening urban economies promise to reverse this weakness, but the area has not yet recovered.
Nominal
1,200 800 400
Statewide Trends
Real or Deflated
0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
Dollars per Acre
Figure 7. Austin-Waco-Hill Country (Region 7) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2005
Nominal
Real or Deflated 2008
2011
Austin-Waco-Hill Country
2014
2017
Source: Real Estate Center at Texas A&M University
After weak second and third quarter price growth, statewide land markets posted a surprisingly strong fourth quarter buoyed by the rebounding activity in the energy sector (Figure 8). At $2,644 per acre, Texas land prices surged 4.5 percent from fourth quarter 2016 levels. Those results represented the strongest growth since 2014. At 6,272 reported sales, transaction volume also outpaced 2016 results by 727 sales, a 13 percent increase. This upturn in volume coincided with a total dollar volume of $1.217 billion, up 27 percent from $954.7 million in 2016. Overall, Texas land markets continued to thrive; however, market improvements depended heavily on regional energy-related developments. For the latest rural land data updates, see www.recenter. tamu.edu/data/rural-land. Dr. Gilliland (c-gilliland@tamu.edu) is a research economist and Su a research intern with the Real Estate Center at Texas A&M University.
THE TAKEAWAY
Dollars per Acre
3,000
Figure 8. Texas Rural Land Prices
2,500 Nominal
2,000 1,500
While land market activity varied from region to region in 2017, transaction volume and total dollar volume for the state as a whole outpaced 2016. Rebounding activity in the state’s energy sector helped boost overall land market conditions.
1,000 Real or Deflated
500 0 2005
2008
2011
2014
2017
Source: Real Estate Center at Texas A&M University
APRIL 2018
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Residential
Getting Back on Track
i l l W T e n xas H e h W ousing By Ali Anari
A
60
Figure 1. Texas Home Sales Growth Rate Cycles, Actual and Filtered Growth Rate
Growth Rate Filtered
40 Percent
new Real Estate Center study finds Texas housing markets are in the final stages of a recovery that began in the aftermath of the Great Recession (GR). In the absence of a major shock to the U.S. and Texas economies, the state’s major housing market indicators are projected to move toward their long-term, steadystate average growth rates.
20 0
Texas Housing Cycles
Percent
–20 Texas housing market time series data used for this study run from January 1990 to December –40 2017. Figure 1 presents time series of annual 1990 1994 1998 2002 2006 2010 2014 2017 growth rates of home sales in Texas together with Source: Real Estate Center at Texas A&M University the filtered home sales growth rates. Patterns or trends in the unfiltered growth rate series (blue line) Figure 2. Texas Home Sales Growth Rate Cycles are difficult to discern. By contrast, cyclical move15 ments in the filtered growth rate series (black line) 10 are easier to recognize. Projections Figure 2 shows three distinct periods of home 5 sales growth rates between 1990 and 2017. The first period coincided with the longest period of 0 U.S. economic expansion, lasting 132 months –5 from March 1990 to March 2001 and ending in the Growth Rate bursting of the dot-com bubble. The second period Average Growth Rate –10 occurred in the aftermath of the dot-com bubble and ended in the GR. Currently, the state’s housing –15 markets are in their third cycle, which began in the 1990 1995 2000 2005 2010 2015 2020 2025 2030 aftermath of the GR. Recovery from the GR was Source: Real Estate Center at Texas A&M University
10
TIERRA GRANDE
Figure 3. Texas Average Home Price Growth Rate Cycles
8
Projections
Percent
6
? r e v Re co
4 2
Growth Rate Average Price Growth Rate
0 –2 1990
1995
2000
2005
2010
2015
2020
2025
2030
Source: Real Estate Center at Texas A&M University
Figure 4. Texas Months Inventory and Unemployment Rate
16
Projections
12
8
8
7
4
6
0
Months
Percent
Unemployment Rate (left axis) Months Inventory (right axis)
5 4 1990
1995
2000
2005
2010
2015
2020
2025
2030
Source: Real Estate Center at Texas A&M University
Figure 5. Home Sales Growth Rate Cycles for Houston, Dallas-Fort Worth
Percent
20 Houston Dallas-Fort Worth engineered by the Federal Reserve reducing interest rates to historically low levels. Projections 10 The state’s home sales growth rate cycle began its post-GR recovery in October 2008, peaked at 12.4 percent in February 2013, and since then has 0 cooled off with slower growth rates, falling to 3.9 percent in December 2017. That is below the aver–10 age growth rate of 5.1 percent from January 1990 to December 2017 (Figure 2). This indicates an upward trend toward the long-term growth rate of –20 5.1 percent after bottoming out in 2019. 1990 1995 2000 2005 2010 2015 2020 2025 2030 he Texas average home price growth rate Note: Broken lines represent each city’s average growth rate. Source: Real Estate Center at Texas A&M University cycle (Figure 3) shows similar economic expansions and declines for the state’s housing markets from 1990 to 2017. The state’s post-GR home price than 13 months of housing inventory in the early ’90s in the growth rate recovery peaked at 7.2 percent in December 2013 aftermath of the state’s real estate market collapse in the late and decreased to 4.4 percent in December 2017, lower than ’80s. A long downward trend reduced the state’s months inventhe 4.5 percent average growth rate for the period from January tory to a historically low level of 4.1 months in December 2017. 1990 to December 2017. The model for projecting home price However, months inventory is likely to begin trending upward. growth rates indicates fluctuation around the 4.5 percent longHousing Cycles of Major Texas Metros term growth rate beginning in 2018. Houston-The Woodlands-Sugar Land, Dallas-Fort WorthMonths inventory (the number of homes on market divided Arlington, San Antonio-New Braunfels, and Austin-Round by average monthly sales) summarizes the relative strengths Rock account for more than two-thirds of the state’s gross of the supply-and-demand sides of local housing markets and domestic product, income, and employment. The Center’s measures how fast homes are sold. The research found close housing cycle analysis compared Houston and Dallas, which comovements between months inventory and the state’s accounted for about 25 and 29 percent of the state’s economy, unemployment rates (Figure 4). There was a correlation coefficient of 0.67 between filtered months inventory and unemploy- respectively, and San Antonio and Austin, each accounting for about 8 percent. ment rate for 1990–2017 and 0.77 for 2000–17. Texas had more
T
APRIL 2018
11
Figure 6. Home Sales Growth Rate Cycles for San Antonio, Austin 30
San Antonio
Austin
20
Projections
Percent
10 0
–10 –20 1990
1995
2000
2005
2010
2015
2020
2025
2030
Note: Broken lines represent each city’s average growth rate. Source: Real Estate Center at Texas A&M University
Figure 7. Average Home Price Growth Rate Cycles for Houston, Dallas-Fort Worth
10
Houston
Dallas-Fort Worth
8
Projections
Percent
6 4
A
2 0
–2 1990
H
ome sales growth rate cycles for Houston and Dallas moved in tandem from 1997 to 2013. They began diverging in 2014 because of the impact of falling oil prices on Houston’s economy (Figure 5). Like the state’s home sales growth rate cycle, Houston’s and Dallas’ cycles reached their post-GR peaks of more than 13 percent in February 2013 and since then have trended downward. Since 2015, Houston’s growth rate has been smaller than the long-term average growth rate of 4.3 percent, but it is projected to bottom out in 2018 and trend toward its long-term average. Dallas’ growth rate is currently lower than the long-term average growth rate of 5.8 percent. It is projected to bottom out in 2018 and trend toward the long-term average. San Antonio’s and Austin’s home sales growth rate cycles were similar from 1998 to 2010, then they diverged (Figure 6). San Antonio reached its post-GR peak of 12.5 percent in August 2013. After that, rates fell and in 2017 were less than their long-term average growth rate of 7.7. Austin’s 15.9 percent peak in November 2012 was also followed by decreasing rates. They fell to less than their 7.1 percent long-term average growth rate in 2015. Home sales growth rates in both metros are projected to trend upward toward their long-term average growth rates after 2018. verage home price growth rate cycles for Houston and Dallas displayed close comovements from 1996 to 2014 (Figure 7). Since their 8.3 percent post-GR peak in November 2013, Houston’s home price growth rates have declined, falling to 1.9 percent in December 2017. The metro’s long-term average growth rate is 4.7 percent. By contrast, Dallas’ post-GR peak has remained steady
1995
2000
2005
2010
2015
2020
2025
2030
Note: Broken lines represent each city’s average growth rate. Source: Real Estate Center at Texas A&M University
Understanding Business Cycles
M
arket economies move in cycles, or periods of expansion and growth followed by periods of contraction and decline. These ups and downs of economies and markets have beneficial and detrimental impacts on almost all denizens of market economies, especially when economic fluctuations are severe, such as during the Great Depression and Great Recession (GR). Over the past two centuries, the study of business cycles has been vital to understanding and, hopefully, minimizing their impact. Through its research, the Real Estate Center has produced techniques that can help market participants better understand business cycles and movements of markets and plan their production and investment programs.
12
How’s the Market? Participants in any market at any time need to know the current state of that market cycle. This is especially important with real estate market cycles. Most production and investment decisions in real estate markets involve substantial resources of capital and manpower, and real estate investments normally have long payback periods. The longer the payback period, the greater the risks.
Business Cycle Lessons Business cycle analysis is one of the most challenging areas of economic theory and practice because no two business cycles are similar in duration and amplitude. Each has its own cause or causes. For instance, the dot-com bubble caused the 2001 recession, and credit expansion resulted in the GR.
More than 20 theories of business cycles have been proposed to explain past cycles in industrialized countries. The theory of mean reversion in markets has proven most useful in understanding and forecasting business cycles. According to this theory, economic indicators, or their growth rates, tend toward their average magnitudes over longer terms. In shorter terms, economic and market variables may deviate from their long-term average values, but market forces or government policy actions force them to return to their long-term trends. The mean-reversion theory has also produced a number of useful econometric methods for measuring cycles, the speed of reverting to long-term averages, and forecasting business cycles. TIERRA GRANDE
Dr. Anari (m-anari@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.
San Antonio
Austin
Projections
12 Percent
S
Figure 8. Average Home Price Growth Rate Cycles for San Antonio, Austin
16
8 4 0 1990
1995
2000
2005
2010
2015
2020
Houston
Dallas-Fort Worth
16
Projections
12 8 4 0 1990
1995
2000
2005
2010
2015
2020
2025
2030
Source: Real Estate Center at Texas A&M University
Figure 10. Months Inventory for San Antonio, Austin
20
San Antonio
Austin
Projections
Months
An understanding of real estate market cycles can help market participants make more informed production and investment decisions. The Real Estate Center’s recent study shows housing markets are in the final stages of a recovery that began after the Great Recession.
2030
Figure 9. Months Inventory for Houston, Dallas-Fort Worth
20
15
THE TAKEAWAY
2025
Note: Broken lines represent each city’s average growth rate. Source: Real Estate Center at Texas A&M University
Months
at close to 8 percent, well above its long-term average of 4.1 percent. Dallas’ growth rates were smaller than Houston’s from 1996 to 2014, and the city’s current higher growth rates may reflect offsetting of those lower rates. an Antonio and Austin had similar home price growth rate patterns during and after the GR (Figure 8). San Antonio reached its post-GR peak of 5.9 percent in April 2014 while Austin reached its peak of 7.7 percent three months later. Since then, growth rates have decreased in both metros falling below the longterm growth rates of 4.5 percent for San Antonio and 5.9 percent for Austin. Both areas’ growth rates are projected to move upward toward their long-term averages after 2019. Houston’s months inventory fell to a historically low 2.9 months in December 2014. Since then it has trended upward, reaching four months in December 2017, and is projected to exceed four months after 2018 (Figure 9). Dallas’ inventory fell to a historically low 2.2 months in July 2016 and has since trended slightly upward. It is projected to exceed four months after 2021. San Antonio’s months inventory has trended downward in cycles from close to 20 months in 1990 to a historically low 3.3 months in December 2017. It is projected to trend upward (Figure 10). Austin’s months inventory reached its trough of 2.2 months in February 2015 and has since trended upward. It is projected to climb to around five months.
10 5 0 1990
1995
2000
2005
2010
2015
2020
2025
2030
Source: Real Estate Center at Texas A&M University
Data and Methods of Analysis
F
or its analysis of Texas housing market cycles, the Real Estate Center has compiled a number of historical time series of housing market indicators for the state and its metropolitan markets. The most important and widely used indicators are number of homes sold, average and median prices of homes sold, listings, and months inventory. The Center looked at monthly sales, average prices, and months inventory
APRIL 2018
for Texas, Houston, Dallas-Fort Worth, San Antonio, and Austin. These housing indicators are statistically tested to determine whether they are mean-reverting. If price levels do not display meanreversion, then their annual growth rates are computed and tested for mean-reversion. This study found mean-reversion in growth rates of home sales, average home prices, and months inventory for Texas and its four
major metros. These time series are contaminated by errors in measurement, shocks, and irregularities. To purge these deviations we used the Hodrick-Prescott filter and Holt-Winters smoothing methods to discover smoother cycles and long-term trends. The filtered and unfiltered market indicators are then used to construct and estimate mean-reverting models of the indicators for projections of indicators.
13
Residential
AFTER HARVEY
14
TIERRA GRANDE
By Harold D. Hunt and Clare Losey
Hurricane Harvey devastated the Texas coast and left billions of dollars in damage in its wake. Both residential and commercial properties weathered substantial damage, resulting in the temporary or permanent displacement of households and businesses. APRIL 2018
15
Corpus Christi Metropolitan Area 181
Bee
INTERSTATE
Owner-occupancy rates are 75 percent in Aransas County, 57 percent in Nueces County, and 68 percent in San Patricio County. In Aransas County, 68 percent of registrants were in owner-occupied households. In Nueces and San Patricio Counties, owner-occupied households represent 55 and 64 percent of all households that registered for disaster assistance. Historically, owner-occupied households have relied on private insurance more than governmental assistance.
35
Refugio
37
San Patricio
44
77
Nueces
Aransas
Damage to Owner-Occupied Households
Corpus Christi
Among units registered to owner-occupied households, damage is approximately $79 million in the Corpus Christi MSA. This is an average of $1,595 per ownerGulf of Mexico occupied household that registered for Housing Assistance. However, the damage sustained by owner-occuKleberg pied households varies greatly by county. 77 Aransas County, home to Rockport, had upward of $66 million in damage to owner-occupied units. This resulted in $3,997 in damage per household that registered for y January 22, 2018, approximately 86,000 houseHousing Assistance. Meanwhile, Nueces County, home to Corholds within the Corpus Christi Metropolitan pus Christi, and San Patricio County reported approximately Statistical Area (MSA) had registered for Individual $36 million and $26 million in damage to owner-occupied Assistance from the Federal Emergency Management units, respectively. This equates to $956 and $1,630 in home Agency (FEMA) because of Hurricane Harvey. That damage per owner-occupied household that registered for represents 53 percent of all 160,922 households accordHousing Assistance. (The sum of the damage sustained by indiing to 2016 Census data. The overwhelming majority of vidual counties amounts to more than the damage sustained by these registrants—around 71.5 percent—reported some the MSA due to overlap in ZIP codes between counties.) home damage (Table 1). That means approximately 38 nsurprisingly, the three ZIP codes with the greatest dollar percent of total households in the metro sustained home amount of damage to owner-occupied units are in Arandamage from Harvey. sas County. ZIP codes 78336 (Aransas Pass), 78373 (Port Disparities in Assistance Registration Aransas), and 78382 (Rockport) had $13 million, $10 million, and $34 million, respectively, in damage to owner-occupied The proportion of FEMA registrants reporting home units. This equates to $3,795, $5,480, and $4,275 in damage damage varies across the MSA’s three counties—Aranper owner-occupied household that registered for Housing sas, Nueces, and San Patricio. Registrants in Aransas Assistance. The proportion of owner-occupied households that County sustained the biggest share of home damage reported damage and the dollar amount of damage reported by (89.7 percent), followed by San Patricio and Nueces FEMA suggests that Aransas County should have reported the Counties at 76.2 and 67 percent, respectively (Table 1). greatest impact on its housing market. Based on percentage of The difference in the proportion of registrant homes damaged across counties suggests that, within the MSA, homes damaged, the storm was most destructive in Aransas County and less populated areas to the northeast (Table 1). Aransas County received the greatest physical impact from Harvey. By that standard, Aransas County should Post-Harvey Housing Activity have recorded the greatest effect on its housing market. Housing activity was analyzed within four geographies—the A higher percentage of owner-occupied households Corpus Christi MSA and Aransas, Nueces, and San Patricio (58.6 percent) than renter-occupied households regCounties. New and existing single-family homes, condominiistered for FEMA Housing Assistance in the Corpus ums, and townhomes were considered in this analysis. HousChristi MSA. Owner-occupied households make up 60 ing activity in the MSA indicates the effect of Harvey on the percent of all MSA households.
B
U
Table 1. Housing Counts by MSA and County Corpus Christi MSA
Aransas County
Nueces County
San Patricio County
Owner-occupied units
96,553
7,143
73,535
15,875
Renter-occupied units
64,369
2,409
54,598
7,362
160,922
9,552
128,133
23,237
71.5
89.7
67.0
76.2
Total housing units Percent of homes damaged by Harvey*
*Percentages of registrants for FEMA Individual Assistance who sustained home damage, not percentages of total housing units in each geography. Sources: 2016 American Community Survey and Real Estate Center at Texas A&M University
16
TIERRA GRANDE
overall housing market. Housing activity in the individual counties allows for comparison between counties. he number of home sales (closed listings) and the median sales price per square foot (PSF) are used to estimate Harvey’s impact on the housing market (Figures 1 and 2 show historical trends since 2011). Sales are impacted by the ability and desire of households to purchase a home within a given market as well as the overall movement of households into, within, and out of the market. In the wake of Hurricane Harvey, some current homeowners may be more inclined to sell their home. Prospective homebuyers may also delay home purchases. Homebuyers may fear the potential for another hurricane as well as a decline in economic activity that could negatively impact prices. These indicate the number of home sales should decrease in the aftermath of Harvey, while the homes that do sell may be underpriced. The median sales price PSF is shaped by market conditions, homebuyer preference, and the available inventory. When combined with an increase in available inventory, homebuyers would likely expect to purchase for less. As a result, the median sales price PSF should have declined in the wake of Harvey. Harvey made landfall on August 25, 2017, and affected housing activity for the remainder of the month. Housing data for the entire month is included in this analysis. Year-over-year (YOY) changes in home sales and median sales price PSF are displayed in Tables 2 and 3, respectively.
T
600
Figure 1. Closed Listings (Seasonally Adjusted)
500 400 300 200 100 0 2011
2012 2013 2014 2015 Corpus Christi MSA Nueces County
2016 2017 2018 San Patricio County Aransas County
Source: Real Estate Center at Texas A&M University
180
Figure 2. Median Close Price Per Square Foot (Seasonally Adjusted)
160 140 120 100 80
Corpus Christi MSA: Little Impact on Home Prices
60
The YOY change in the number of home sales has been largely negative since Hurricane Harvey (with the exception of October at 4.8 percent). September had the largest drop at –29.9 percent. The YOY change in median sales price PSF, which had remained positive from January 2012 through August 2017 (68
40 2011
2012 2013 2014 2015 Corpus Christi MSA Nueces County
2016 2017 2018 San Patricio County Aransas County
Source: Real Estate Center at Texas A&M University
THE FORMER PELICAN CLUB seafood restaurant was one of many Port Aransas buildings demolished by Harvey’s 130-mph winds. March 2018 FEMA reports show 2,200 small business administration loans totaling nearly $89.7 million have been approved in Nueces County in the wake of Harvey.
17
APRIL 2018
17
REBUILDING CONTINUES IN PORT ARANSAS and other Coastal Bend communities months after Hurricane Harvey made landfall near Rockport. Thirty-eight percent of households in Corpus Christi sustained home damage from the storm. As of March 2018, FEMA had paid more than $173.5 million to survivors in Nueces County alone.
–21.1 percent. Homebuyers purchasing since Harvey appear to have scored homes at depressed prices. Given the amount of physical damage to properties in Aransas County, it is not surprising that housing activity slowed, as potential buyers may remain hesitant to purchase a home. Of the four geographies in this analysis, Aransas County’s home sales and prices were most affected by Hurricane Harvey.
consecutive months), has dipped into negative territory since September. Despite highly volatile declines in the YOY change in the number of home sales since the hurricane, the YOY change in median sales price PSF has stabilized. Although significantly fewer homes were purchased after Harvey, the YOY change in median sales price PSF has declined only slightly. Overall, Harvey had little impact on home prices in the Corpus Christi MSA.
Nueces County: Least Affected by Harvey The majority of households within the MSA lie in Nueces County, which includes Corpus Christi. As a result, housing activity for Nueces County mimics that of the Corpus Christi MSA. The YOY change in home sales measured positive in October but has remained largely negative. The YOY change in the median sales price PSF has generally trended negative but only slightly. Because Nueces County sustained the least amount of home damage of counties in the MSA, it is not surprising that its housing market has shown the least effect from Harvey.
Aransas County: Home Sales, Prices Affected Most
T
he YOY change in home sales dipped significantly since Harvey, dropping more than 76 percent in September. Typically, there are few monthly home sales in Aransas County. Home sales totaled 627 in 2016. This means even a small change in monthly home sales can greatly affect the YOY statistics. The YOY change in the median sales price PSF has declined since Harvey. While initially positive in August at 9.9 percent, October had the biggest drop at
San Patricio County: Little Change in Sales Price PSF Similar to Aransas County, few monthly home sales occur in San Patricio County. This translates into high volatility in the YOY change in number of home sales, as depicted by the 51.8
Table 2. Year-Over-Year Change in 2017 Home Sales (Seasonally Adjusted) Corpus Christi MSA (Percent)
Aransas County (Percent)
Nueces County (Percent)
August
–13.1
–25.8
–13.1
0.0
September
–29.9
–76.2
–19.3
–51.8
4.8
–62.0
14.7
13.6
–12.2
–32.4
–4.0
–33.8
October November
San Patricio County (Percent)
Source: Real Estate Center at Texas A&M University
Table 3. Year-Over-Year Change in 2017 Median Sales Price PSF (Seasonally Adjusted) Corpus Christi MSA (Percent) August
Aransas County (Percent)
Nueces County (Percent)
San Patricio County (Percent)
0.3
9.9
–1.4
5.3
September
–0.2
–0.2
1.7
–2.0
October
–3.9
–21.1
–2.0
0.1
November
–3.1
–9.4
–4.0
0.0
Source: Real Estate Center at Texas A&M University
18 18
TIERRA GRANDE
percent dip in September. Despite dramatic declines in the YOY change in the number of home sales, the YOY change in the median sales price PSF has remained relatively flat. While fewer home sales have occurred since Harvey, homebuyers may have largely purchased homes that were undamaged by the storm. This would explain the lack of movement in median sales price PSF.
Minimal Housing Impact Overall While homebuying activity generally fell following Hurricane Harvey, the median sales price PSF has remained relatively unchanged YOY in all four geographies except Aransas County.
Before and After Home Sales
R
epeat sales data provide another means for analyzing the effect of Harvey on housing activity. Data on home sales that occurred after Harvey were isolated from data on sales of the respective homes that occurred prior to Harvey. The ratio of sales price to original list price serves as a measure of housing market strength (Table 4). The ratio was calculated for homes sold before Harvey and compared with the corresponding ratio for homes sold after Harvey.
Table 4. Ratio of Close Price to Original List Price Before Harvey
After Harvey
Aransas County
0.89
0.85
Nueces County
0.95
0.93
San Patricio County
0.96
0.93
Corpus Christi MSA
0.94
0.93
Across all four geographies, the ratio of sales price to original list price is slightly smaller after Harvey than before. This implies the difference between sales price and original list price is wider for homes sold after Harvey. In essence, price discounts are greater for homes sold after Harvey than for homes sold before. The biggest difference in the ratios before and after Harvey lies in Aransas County. This suggests that Harvey had the greatest effect on Aransas County’s housing market. The smallest difference falls in the MSA. However, the difference in the ratios between geographies is slight. It is possible that sellers, anticipating less homebuying activity in the wake of Harvey, adjusted original list prices downward. This would artificially inflate the after-Harvey ratios. However, overall, Harvey appears to have had minimal impact on home sales prices. Harvey’s damage to people’s lives and belongings should not be ignored. Many households suffered significant personal loss. But the data show that the Corpus Christi area’s overall housing market emerged from the storm relatively unscathed. Dr. Hunt (hhunt@tamu.edu) is a research economist and Losey a research intern with the Real Estate Center at Texas A&M University.
THE TAKEAWAY Within the Corpus Christi MSA, about 86,000 households have registered for help from FEMA since Hurricane Harvey. Around 71.5 percent of those reported home damage from the storm. Although homebuying activity fell after the storm, prices have remained mostly unchanged in the MSA, except in Aransas County, where prices showed a more significant drop.
Source: Real Estate Center at Texas A&M University
HOME SALES THROUGHOUT THE COASTAL BEND, including in Aransas Pass (far left) and along Ocean Drive in Corpus Christi (left), dropped following Hurricane Harvey. Home prices, however, generally remained stable. The exception was Aransas County, where price per square foot fell 21 percent in October 2017.
APRIL 2018
19 19
Residential
Ebb and F
20
TIERRA GRANDE
Flow
A Geographic Look at Houston’s Stormy History By Joshua G. Roberson
G
eographically, the Houston-The Woodlands-Sugar Land Metropolitan Statistical Area is one of the largest metropolitan areas in the nation. Despite fluctuations in the oil market, it is also one of the most densely populated metros with steady household growth. When Hurricane Harvey hit the Texas Gulf Coast in late August and unleashed unprecedented levels of rain in a short time, Houston received the bulk of property damage due to its size. Total damage estimates are anticipated to rival other catastrophic hurricanes such as Sandy and Katrina. Short- and long-term economic losses could be severe. How will this storm and its torrential flooding affect area home sales? While it is still too early to judge the storm’s total longterm impact, Houston has a long history of storms and floods to guide expectations. Using the Data Relevance Project (a research agreement with the Texas Association of Realtors), the Real Estate Center took a top-down geographic approach to Harvey’s impact on Houston’s housing market. The Center analyzed housing sales throughout the metro and individual counties, neighborhoods near major waterways, and one particular area that has been hit hard numerous times by recent floods. The goal was to help model possible outcomes for similar markets impacted by Harvey. The Houston metro comprises Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller Counties.
MONTGOMERY WALLER AUSTIN
HARRIS
LIBERTY
CHAMBERS
FORT BEND GALVESTON BRAZORIA
APRIL 2018
21
HOUSTON’S PROXIMITY TO LAKES, rivers, and bayous— not to mention the Gulf—made neighborhoods such as this one near George Bush Park, upstream of Buffalo Bayou, especially vulnerable to flooding following Hurricane Harvey.
Before the Storm
B
y August Houston home sales were on track to exceed 2016, which already was an impressive year compared with the prior one. Second-quarter year-to-date (YTD) sales totaled 41,287 in 2017 versus 38,753 in 2016. July was another good month for sales with 7,695 homes sold, a 2.6 percent year-over-year (YOY) increase (Figure 1). The region’s sales momentum halted in August, dropping 24.6 percent. Even though Harvey hit Houston in late August, overall sales volume fell drastically compared with both July 2017 and August 2016. The sales drop permeated the region as the city’s attention shifted to disaster response. Among the
Figure 1. Houston Metro Q3 Monthly Home Sales and YOY Percentage Change 3.4%
8,000
8.0% –10.4% 2.6%
–2.4%
3.1% –1.6% 3.5%
7,000 24.6%
6,000
July
2015
August 2016
September
2017
Sources: Texas Realtor Data Relevance Project and Real Estate Center at Texas A&M University
22
Houston-Area Year-Over-Year Third-Quarter Home Sales 2016 Q3
2017 Q3
YOY (Percent)
74 967 156 3,202 1,731 13,674 113 2,757 103
80 921 163 2,910 1,583 12,432 127 2,823 115
8.1 –4.8 4.5 –9.1 –8.6 –9.1 12.4 2.4 11.6
569 475 98 594 727
462 367 80 494 586
–18.8 –22.7 –18.4 –16.8 –19.4
Counties Austin Brazoria Chambers Fort Bend Galveston Harris Liberty Montgomery Waller
Bayous/Waterways
5,000 4,000
hardest-hit counties were Fort Bend, Galveston, and Harris— three of the metro’s most populated counties, and those closest to the coast (see table). Rather than continue August’s sales plummet, September home sales actually improved, ending the month 3.5 percent ahead YOY with 7,209 sales. However, because title companies
Brays Bayou Buffalo Bayou Cedar Bayou Spring Creek/Willow Creek White Oak Bayou
Sources: Texas Realtor Data Relevance Project and Real Estate Center at Texas A&M University TIERRA GRANDE
and local banks had to cease operations at the end of August, holdover August sales carried forward into September, possibly contributing to the bounce back. Overall, third-quarter sales fell to 21,154, down more than 7 percent from 22,777 in 2016.
Down on the Bayou
H
ouston is near numerous bodies of water. Lake Houston is to the northeast and the Trinity River and Galveston Bay is to the southeast. The region includes a vast array of bayous, giving Houston the nickname “Bayou City.” Many of the bayous and waterways—including Brays Bayou, Buffalo Bayou, Spring Creek, Willow Creek, and White Oak Bayou—are adjacent to the region’s most densely populated areas. Unfortunately, many homes in these areas fell victim to Harvey’s massive flooding. While flooding along Houston’s bayous wasn’t unheard of before the storm, Harvey’s record-setting rainfall greatly magnified the reach and magnitude of flooding into neighboring residential areas. Home sales in neighborhoods near major bayous and creeks were impacted the heaviest in terms of sales volume. The metro dipped around 7 percent in third-quarter sales, but areas within one mile of these waterways fell between 16 and 22 percent (see table).
Case Study: A Closer Look at Meyerland
Houston Bayou Network INTERSTATE
69
INTERSTATE
45
Greens Halls
White Oak
8
INTERSTATE
610 INTERSTATE
10
INTERSTATE
Hunting
Buffalo
10
59
Brays 610 Flooding has become more problematic for Houston as commercial and residential development has expanded Sims MEYERLAND and drainage areas have diminished. In recent years, catastrophic flooding has almost become the new norm. 45 Meyerland, southwest of downtown Houston and 8 near one of the city’s major bayous, has had more than Clear its share of flooding in recent years. The 2015 Memorial Day flood was followed by the April 2016 Tax Day flood and, in 2017, Hurricane Harvey. The Center analyzed the short- and long-term impact repeat floodFigure 2. Single-Family Home Sales Volume ing had on sales volume, price per square foot (PSF), (Seasonally Adjusted) and days on market since the start of the decade in Meyerland Harris County the general Meyerland area. As a reference point, 4,500 Memorial Day Flood Harris County was used to compare the study area Tax Day Flood Hurricane Harvey with the overall market trend. Note that larger markets with more activity 110 4,000 tend to have less month-to-month variation than smaller markets, making trends trickier to identify in smaller markets. The blue lines in the figures 90 illustrate these trends. 3,500 At the start of the decade, Harris County home sales were on the rise largely because of rising oil prices, but growth began to stall in 2014 shortly 70 3,000 after oil prices fell (Figure 2). In Meyerland, sales volume began declining in 2014 and was still Memorial Day Flood Tax Day Flood declining when the Memorial Day flooding hit in Hurricane Harvey May 2015. Meyerland had a decent May, with sales 50 2,500 volume matching that of May 2014, but then sales 2012 2014 2016 2012 2014 2016 2018 dipped in June. Harris County had a few months of Note: Black lines represent actual monthly levels. Blue lines represent the trend. Sources: Texas Realtor Data Relevance Project and Real Estate Center at Texas A&M University positive sales growth to start off the summer. Both INTERSTATE
INTERSTATE
APRIL 2018
2018
23
MEYERLAND, NEAR BRAYS BAYOU, has weathered a flood each of the past three years. Even so, home sales and days on market there have trended with those of Harris County over the long term.
markets had a considerable drop about five to six months after renovations came online and boosted prices. After April 2016, the Memorial Day flood before almost immediately bouncing there was no obvious shock to prices like the year before, but back. price PSF began to fall. Price drops accelerated following HurIn the months that followed the Tax Day floods almost a ricane Harvey, at least in the short run. year later, home sales increased. Just like in May 2015, the two Because Meyerland and Harris County are different markets, to three months after the flood showed little, if any, decline in home price behavior varies between the two. At the time of sales. This time Meyerland had another delayed shock to sales publication, homes in Meyerland averaged $150 PSF while Harwhile Harris County did not. ris County averaged slightly above $100 PSF. The price differurricane Harvey had a more drastic immediate impact ences could help explain why Meyerland price levels flattened, on sales in both Meyerland and Houston. By Decempossibly at a natural price ceiling, while Harris County levels ber, Meyerland sales soared with their highest volume continued rising. since 2013. Harris County also bounced back to Figure 3. Single-Family Home Median Price PSF continue its gradual positive trend. (Seasonally Adjusted) Like sales, price PSF in Harris County began Meyerland Harris County to rise exponentially with the rise in oil prices. Hurricane Harvey Home prices continued to rise after 2014 but at Tax Day Flood $100 Memorial Day Flood a slower pace. In Meyerland, median price PSF started to peak in 2014 (Figure 3). $175 Shortly after the Memorial Day flood, a noticeable shock in prices occurred, but prices bounced $90 back before the Tax Day flood. The immediate price drop may be explained by sellers who $150 simply wanted out of the area and were willing to $80 accept a price discount. A similar trend occurred in Meyerland shortly after Tropical Storm Allison. According to Meyerland resident and Beth $125 Wolff Realtors President Ed Wolff, “Many of those $70 Tax Day Flood initial sellers were long-time residents who had Hurricane Harvey built enough equity over time to then accept Memorial Day Flood lower offers.� 2012 2014 2016 2018 2012 2014 2016 2018 Wolff said prices increased sharply several Note: Black lines represent actual monthly levels. Blue lines represent the trend. months later as properties with major post-flood Sources: Texas Realtor Data Relevance Project and Real Estate Center at Texas A&M University
H
24
TIERRA GRANDE
FOR SOME HOUSTON HOMEOWNERS devastated by Harvey, rebuild efforts have included measures to protect homes from future flooding. This Meyerland home is now elevated about five feet on concrete supports.
Figure 4. Single-Family Home Days on Market (Seasonally Adjusted)
Meyerland 70 60
Memorial Day Flood Hurricane Harvey Tax Day Flood
50 40
Harris County
70 60 50 40
Memorial Day Flood Hurricane Harvey Tax Day Flood
major flooding event. Sales and days on market for Meyerland, on the other hand, rose and fell with the county. The big difference at the local market level is the magnitude of short-term shocks.
Houston Still Strong
F
actors such as relative location, broader supply-and-demand trends, and the regional economy can have overriding effects on local 30 20 market conditons. This may have helped keep Meyerland’s housing market relatively on track with 20 10 the county trend. Some of the storm’s effects will take several months to materialize. Some markets 2012 2014 2016 2018 2012 2014 2016 2018 may have a longer recovery period than in the past Note: Black lines represent actual monthly levels. Blue lines represent the trend. Sources: Texas Realtor Data Relevance Project and Real Estate Center at Texas A&M University because of the greater magnitude of damage. Even so, Houston’s housing market still looks strong. Finally, the Center looked at days on market to compare For more on this story, listen to episode 381 of the Real Estate the total home marketing period between Harris County Red Zone podcast at http://txrec.io/Podcast381. For a general and Meyerland. As expected with rapid rising home sales, days year-end summary of Houston housing, read “Houston Housing: on market quickly diminished before 2014 (Figure 4). Days on Weathering a Challenging Year” at recenter.tamu.edu. market in Harris County climbed at a moderate pace. MeyerRoberson (jroberson@mays.tamu.edu) is a senior data analyst with the Real land displayed a similar pattern except there was a noticeable Estate Center at Texas A&M University. rise a few months after the Memorial Day flood. In April 2016, when the Tax Day flood occurred, the upward trend began to THE TAKEAWAY stabilize. In the months immediately following Harvey, days on market fell to their lowest levels since 2015. While it’s still too early to determine Hurricane Harvey’s While both the Memorial Day and Tax Day floods were long-term impact on Houston’s housing market, the city’s devastating to Meyerland, those floods had a mixed impact on history of flooding provides clues on what to expect. overall housing in Harris County. Ultimately, with the excepNeighborhoods near bayous and waterways suffered severe tion of price PSF, Meyerland shared the same overall trends as flood damage, but, overall, the housing market emerged the county over the long term. Median price PSF in Meyerland from the storm in relatively good shape. started to diverge from the county in May 2015 after the first 30
APRIL 2018
25
Legal Issues
New Online Notarization Law By Rusty Adams
Advances in technology have already significantly changed the way many real estate transactions are conducted in Texas. Electronic documents and signatures, once seen only in James Bond movies along with telephone wristwatches, have become a reality. Many contracts, addenda, and disclosures are now signed electronically, as are many lending and closing documents. Some counties even accept electronic recordings of recordable documents. 26
TIERRA GRANDE
signer’s identity, signature, and reasons for signing are genuine. In most transactions, this is the only role the notary plays. Once the document is notarized, others rely on the notary’s seal and signature as indicators that the signed document is genuine. On some occasions, signatures and notarial acts are disputed, and signers, witnesses, and notaries are called to testify about the documents and signatures.
What Does a Notary Do? Among the public, there is considerable confusion over what exactly it is that a notary public (often simply called a notary) does. A notary is an officer commissioned by the state to perform certain legal functions. The most common of these are taking acknowledgements of documents, administering oaths, and taking depositions. A notary’s seal attached to the document attests to the genuineness of the document. The seal is prima facie proof that the notary, as a disinterested party, has notified the signer of the document’s importance, and the signer has declared to the notary that the APRIL 2018
Responsibilities of Online Notaries
Most laws governing notaries public are set forth in the Texas Government Code, Chapter 406, Subchapter A. The new law, most of which is now codified in Chapter 406, Subchapter C, creates a separate class of notary public. That is, there are now “regular notaries” (Subchapter A) and “online notaries” (Subchapter C). Any Texas notary must be a resident of Texas, at least 18 years old, and must not have been convicted of a felony or crime involving moral turpitude. Texas notaries do not automatically become online notaries, and they may become (or remain) regular notaries without
Online notaries are authorized to perform the same in-person notarial acts as regular notaries. They can also perform those acts online. Online notarizations must be conducted by two-way video and audio conference technology that satisfies the standards set by the secretary of state. To make sure signers are who they say they are, the statute charges the secretary of state with developing and maintaining standards for such technology, including standards for credential analysis and identity proofing. The online notary may accept an electronic signature from a signer whether the signer is located in Texas or out of state. In doing so, the notary must verify the signer’s identity. As with a regular notary, signers not personally known by the notary must present government-
seeking appointment as online notaries. Becoming an online notary requires a separate electronic application. The applicant must be a regular notary already (or a regular notary applicant).
issued identification containing the signer’s photograph and signature, such as a driver’s license or passport. The credential must go through a credential analysis and identity-proofing process to
Becoming an Online Notary
Until now, though, documents required to be notarized injected inconvenience and delay into an otherwise routine transaction. A new development in Texas law will allow Texans—and others—to complete notarized documents without even taking off their Dearfoams. H.B. 1217, which takes effect July 1, 2018, introduces online notarization to Texas.
In addition to meeting all of the requirements to be appointed as a regular notary, applicants must provide an email address and further certify they will comply with the standards developed by the secretary of state for online notaries.
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confirm the validity of the credential and the identity of the signer. These processes will be provided by a third party as approved by the secretary of state. An online notary must take reasonable steps to ensure the
reasonable steps to ensure any registered device used to create an electronic signature is current and has not been revoked or terminated by the device’s issuing or registering authority. The online notary’s electronic signature, seal, and records must be kept secure and under the online notary’s exclusive control. The online notary’s electronic signature and seal must be attached to the electronic notarial certificate of the electronic docuWhile the nature of the Texas notaries public cannot give A notary’s seal indicates a ment in a manner that office varies widely by legal advice, draft legal documents, disinterested state official was may be independently time and place, the notary or otherwise practice law. In satisfied that: verified and is tamper• a document was genuine, public was recognized in Mexico and some other countries, proof. • the signer is who he/she England prior to the Norman a notario publico is a legal profesSo, if your real estate purports to be, and Conquest of 1066. The term sional who can perform many professional asks you • the signer signed it willnotary originated in ancient functions that can be performed to open your email, ingly and for the purposes Rome; however, the office only by a licensed attorney in read and electronically expressed in the document. may date back to scribes in Texas. To prevent confusion, it is sign the attachment, A notary’s seal does not the time of Hammurabi, king illegal for a Texas notary to use and return it with make a document any more or of Babylon (c. 1810-1750 notario publico when advertising your electronically less legally binding. B.C.). or offering notary services. notarized signature (on a federal holiday, no integrity, security, and authenticless), he’s not flashing back to his records and for protecting the ity of online notarizations and previous career in international backup from unauthorized use. keep a secure electronic record of espionage. He’s just keeping up Records of online notarizations the electronic documents in each with the times. must be maintained for at least five online notarization. This record years, whereas a regular notary’s Adams (radams@mays.tamu.edu) is a must include the date and time; record must be kept for three years member of the State Bar of Texas and a the type, title, or description of the or until the notary’s commission research attorney for the Real Estate Center document or proceeding; the type expires, whichever is longer. at Texas A&M University. Nothing in of notarial act performed; the name Online notaries are subject to this publication should be construed as and address of each participant; and additional requirements designed to legal advice. For specific advice, consult an the evidence of identity presented ensure accuracy and protect against attorney. to the notary. fraud. An online notary must take one important additional requirement. The electronic record must include a recording of any video and audio conference that is the basis for satisfactory evidence of identity. An online notary is responsible for maintaining a backup of these
As a Matter of Fact
The notary may charge the same fees as a regular notary plus an additional $25 online notary charge. The fee must be included in the record. These electronic records are essentially the same as the written record required to be kept in the notary’s record book, but there is
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THE TAKEAWAY Beginning July 1, 2018, a new state law allows many functions of a notary public to be conducted online. Notaries who are approved to carry out their functions online must adhere to standards set by the state to verify identity and credentials, ensure the security of online notarizations, and maintain secure electronic records. TIERRA GRANDE
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