Posted on 10/31/2007 4:14:59 PM PDT by Dubya
The good news in local real estate, according to a recent study, is that we don't have to worry about a housing bubble going flat. That's because Texas home prices never soared in the first place.
Not much of a silver lining, is it? And little consolation for people who hoped that rising home values would help with retirement or the kids' education.
It also raises a question: Why did we miss the bull run in housing?
Conventional wisdom holds that home builders just swamped this area with construction. Texas has few limits on development and plenty of available land, so it was a prime place for big builders to drive up volume and revenue.
But another factor behind our slow growth in prices will pain the average Joe: The other key costs of homeownership -- taxes, insurance and utilities -- are so high in Texas that they probably hurt values.
Which means we both make less on our homes and pay more to own and operate them than in most other parts of the country.
Boosters are always talking about how much house your money can buy here, and that's true enough. The me- dian home price in North Texas is 30 percent lower than the national average, and we must have as many McMansions and as much square feet per capita as anywhere.
But it's not all bargain city.
Property taxes and homeowners insurance are roughly double the national averages. And our electric bills are second only to Hawaii's because Texans use a lot of electricity and pay high rates for it.
We also spend more on gasoline than most other regions, given our long commutes and spread-out communities.
I'm not ready to declare Texas a high-cost state, but those expenses are significant and larger than many imagine.
Why have foreclosures in the area been rising at double-digit rates for the past five years? All of it can't be blamed on subprime lending and adjustable mortgages.
Those loans are bigger factors in the foreclosure boom in the West and Florida, where buyers had to stretch for high-priced homes.
The more common scenario in North Texas was renters who bought their first house, figuring they could handle the mortgage payment. But when taxes and insurance came due and energy prices spiked, they didn't have the cash to handle it.
Last year, Jim Gaines of Texas A&M found that increases in taxes, insurance and utilities could have a bigger impact on housing affordability than changes in interest rates.
That's counterintuitive, given that mortgage amounts are so large and buyers focus so much on getting a low interest rate. Turns out that they ought to be paying as much attention to operating costs.
Gaines used a hypothetical example of buying a $125,000 house. Monthly principal and interest total $637. He estimated that taxes ($313), utilities ($208) and insurance ($83) cost almost as much, accounting for 49 percent of the monthly housing expense.
If mortgage rates increased 1 percentage point, Gaines wrote, a home buyer would have to increase his income by 5.5 percent to qualify for the same house. But increases of 1 percentage point in taxes, insurance and utilities would require an 8 percent increase in income to keep the purchasing ratio in line.
Also, principal and interest are often fixed. Over time, inflation and increases in pay make those more manageable. But the other housing expenses are just as likely to climb faster than inflation and income.
"These costs are more variable and volatile -- and more potent -- than mortgage interest," said Mark Dotzour, chief economist at the Texas A&M Real Estate Center.
Texas has long attracted workers and companies from across the country in large part because costs are lower and the state has a good standard of living. Dotzour says our long-term competitiveness depends on maintaining that advantage -- and that hinges on keeping a lid on the other housing costs.
A recent report on housing prices by the PMI Group found that housing prices in California cities are five times more likely to decline in the next two years. That's because their values climbed so much this decade, and they're still expensive.
One reason that Texas cities scored well is they're still affordable. The company uses a proprietary index to describe the ease or difficulty of buying a home.
One problem: The index doesn't include the cost of taxes, insurance and utilities.
Leave those out, and Texas would be affordable indeed.
And who knows? Maybe prices would even take off.
TEXAS BARGAIN?
$156,500 Median house price in North Texas {+1}
$223,800 Median house price in U.S.
$3 Property tax rate per $100 of assessed value in 2005 in Texas
$1.50 Property tax rate per $100 of assessed value in 2005 in U.S.
$1,334 a year Homeowners insurance in Texas {+2}
$659 a year Homeowners insurance in U.S.
$131 a month Monthly electric bill in Texas {+3}
$89 a month Monthly electric bill in U.S.
Notes:
{+1} Median house prices are for second quarter 2007.
{+2} Property-tax rate is in largest city in each state.
Insurance is for all-risks coverage in 2004 for homes worth $150,000 to $174,999.
{+3} Electric bill is monthly average in 2005.
Sources: National Association of Realtors, Washington, D.C., office of the chief financial officer; National Association of Insurance Commissioners; Energy Information Administration
Which means we both make less on our homes and pay more to own and operate them than in most other parts of the country.
Another factor that I didn’t see in the article is the absence of state income taxes.
I believe Texas has the 2nd lowest per capita tax rate in the country (including property taxes)
“Last year, Jim Gaines of Texas A&M...”
My God, you are going to listen to Aggies now?
Bwahahahaha!
By the way, a rise in the foreclosure rate is only important when taken in the context of total percentage of home stock in foreclosure. The “rate” can go up by a big scary looking number without hurting things much at all if the actual percentage of home stock in foreclosure remains low.
That is not true in Dallas, at least: if you send your web server to a datacenter in Dallas, you will get a bill from Dallas based on the value of the server.
Texans are being swindled by the electric companies. Our bill in Sept. for a 1,600 Sq.Ft. home was $138, with a fuel adjustment surcharge of $92 added to it. You can buy a lot of natural gas for generation with that hefty extra charge. Imagine having that added to thousands of utility bills, and you know they are gouging the consumers.
Texas utility companies are one of the most effective lobbying groups in Austin, and that’s all that matters to the politicians. We really need to clean house next year.
I moved from Mississippi to Texas a few years ago. My car tag went from over $600 to over $50.
The big expense in Texas is school taxes. Of course, in Mississippi, you pay lower school taxes, but you have to pay private school tuition on top of that. In many parts of Texas, you can actually use the public schools.
I grew up in Wyoming. (no income tax) I now own a home in TX. (no income tax) Wyoming didn't have to screw their home owners to get things done. IMHO, Texas uses the "we don't have an income tax" excuse a little too much.
That's actually true. I adore my kids' school system.
But, if you're paying for a private school education, that *stops* when your kids graduate. In Texas, we pay as long as we own land. As hubby and I plan on staying here for life, that means our bill will go on for about 50 years instead of 18...
We don’t have state income taxes in Texas yet - but in a Houston suburb for a not expensive house we pay $400/month in school and property taxes, $100/month for MUD taxes (Municipal Utility District), $200/month for regular insurance, $150/month for mandatory wind insurance. Add to that up to $300/month for electricity in the really hot, humid time of the year, plus HOA dues that are pushing $100/month, a minimum monthly water bill of $60 - and all of this includes an allowance for the Homestead Exemption. The house payment is not big deal in and of itself, it’s all the other hands in the pot that make home ownership really tough for some.
“$3 Property tax rate per $100 of assessed value in 2005 in Texas”
This is incorrect, property taxes in and around DFW is plus or minus $1 per $100. Who pays $3 per $100? Austin?
What Datacenter is that? That pricing scheme is unheard of in CoLo business. You are charged for the rack space no the value of the server(which there is no way for them to know that).
The low rise in home values in Texas is exactly tied to to many housing options. We have plenty of housing and space to build more to meat the demand. Right now we have a little to much supply.
The low rise in home values in Texas is exactly tied to to many housing options. We have plenty of housing and space to build more to meat the demand. Right now we have a little to much supply.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.