This was the topic I had to sputter on Wednesday morning at the East Dallas M.L.S. meeting over at Lubys on Mockingbird. And here I am with my two favorite BUSHES — that’s Bud Bush of Dave Perry Miller and his cousin, David Bush, who hosted Wednesday’s event. First we downed coffee, then I gave my take on our market and what the re-election of President Obama might mean. Happy to expand that discussion here, since I had about 5 hours to prepare!
The U.S. faces some serious fiscal issues, as we know, thank God we are in Texas. Neither candidate really addressed housing policy during the campaign, with the exception of Mitt Romney who said, during I believe the first debate, that Dodd-Frank had to be repealed or re-worked. I think the voter’s choice on Tuesday means housing will ultimately get more unattainable, borrowing will get more expensive, and the banks will continue to play Ebenezer Scrooge when it comes to lending.
It was a financial crisis caused by a housing bubble that nearly creamed us in 2007 and all but guaranteed John McCain’s demise… well, that and Sarah Palin. And let’s face it, we still hate wall Street. About the only thing President Obama did was bring us the first-time homebuyer credit, which drove up the deficit at a cost of $16.2 billion but did help some homebuyers, whcih in turn helped some agents. That was the blip of good real estate news we had in 2009/2010 — remember?
President Obama’s victory means that Federal Reserve Chairman Ben Bernanke will likely stick around, and the Fed will keep interest rates low. Like I told someone the other day: as long as the economy is crappy, interest rates will be low. Wall Street wasn’t happy about his/the election. But low interest rates make for good government sound bites because while interest rates are low, banks are still pretty tight with lending. If you are self-employed, forget borrowing even a loaf of bread!
That this administration loves high-density living is no secret. It just so happens developers have been building apartments in Dallas as fast as you can pound a nail with a hammer. We are gearing up for more population growth, something I believe Hurricane Sandy will spur. I digress: one of my FaceBook friends in New York waited two hours for gas today and there was none. Mayor Bloomberg has called for gas rationing.
The market: within the loop, our’s is doing just fine, thank you, our biggest dilemma is inventory. Sales were up 79 percent from a year ago in North Dallas, 71 percent in northeast Dallas and 59 percent higher in Far North Dallas and Coppell. Bud Bush tells me DPM’s Frisco office is INSANE with closings. Of course, some homes are selling even before they hit the MLS. In California, I am hearing that 25% of inventory is selling before ever being listed — we think it’s only 8 to 10% of our market here, and definitely in the higher end. People are leasing more and do not mind shelling out thousands per month for the “freedom of leasing”, as they call it.
Soon, as home prices go up, and the cost of renting gets higher, those homes will come back on the market IF the banks lend money. And the lessees will see it’s cheaper to buy than lease, as long as they can get a loan.
The improvement of the housing market in the last few months, which was minute, may have helped get the incumbent off the hook. Outside of Texas, prices are recovering, not rising, in many cities, still sucking bad air in some INCLUDING Chicago, Detroit and Atlanta. Of course foreclosures are declining because investors are buying foreclosures. They are clearing faster in the non-judicial states, people are working (though the unemployment rate is still abnormally high) and banks are focusing on short-sales or modifications, if owners cannot refinance. In North Texas, home foreclosure filings have dropped by 10 percent this year to the lowest level in more than a decade, this according to Addison-based Foreclosure Listing Service. Yes, lowest in a DECADE!
Now, that the election is over, the President will have no real incentive to introduce new foreclosure prevention programs, and many tell me those he introduced last term failed or delayed the inevitable clearing out process.
One of the biggest pickles is what to do about Fannie Mae and Freddie Mac, the two big government sponsors of loans on modestly priced homes — that’s anything under $417,000 in Dallas/Fort Worth. Already the two are tightening up lending requirements — and we wonder why everyone is renting? Consider this:
And on top of everything else, an expert noted that the company will also likely begin asking self-employed borrowers for more tax information in the future, the report said. Now, Fannie Mae will need to see two years of tax returns for both them and their businesses to verify their income. This change may be related to a software update the company applied to its underwriting program.
There was lots of talk about ending the mortgage deduction on your income tax, which only affects folks who itemize and turn in those 500 page returns. It costs the government about 90 billion a year. Let me rephrase that: the mortgage tax deduction that saves us our tax dollars helps us retain 90 billion of our dollars a year. The progressives say reduce or eliminate the mortgage interest deduction and use that $90 billion for rental assistance for the poor. Some say the Obama victory guarantees the continued existence of the mortgage interest deduction in its current form. I’m not so sure: last month when I attended the Metrotex Forecast 2013, NAR tax expert Linda Goold said spending cuts are in our future no matter who wins, though she thought they would have been more drastic under a Romney presidency. The expiring Bush tax cuts will put the top tax rates at 39.6%, lowest rates up to 14%, capital gains up to 20%, dividends tax rate up to 39.6% of ordinary income, limits on itemized deductions and phase-out of personal exemptions. The think-tankers think Americans invest too much in real estate, and something’s got to give. Which is more important: real estate, personal savings or health insurance? Though Goold assured us the NAR would fight tooth and nail to keep the mortgage deduction, I suspect it will be limited to one home. Bottom line: an Obama presidency will not prioritize entitlement reform, and Congress may continue kicking the budget can down the road.
As I said earlier, Romney realized the ambiguity of the Dodd-Frank Act and its Consumer Financial Protection Bureau. Mark Calabria thinks attention will shift to Dodd-Frank’s Qualified Residential Mortgage and Qualified Mortgage definitions, those uber tight credit regulations that are holding back lending. ‘Twould be nice to see them softened, but then if the policy wonks think we invest in too much housing, they may decide to “protect borrowers from themselves.”
I still think Wall Streets dabble in credit default swaps and slicing/dicing of mortgages hurt more than the bad loans made, or a combination thereof was lethal.
If the housing market continues to grow, it will do so in healthy markets where there are jobs and plenty of well-heeled buyers: New York, San Fran, Washington D.C., Hawaii, Miami (these areas have tons of foreign buyers), Texas. Phoenix is doing well because home prices there got so low they couldn’t fall any more. And it will do so because of a lack of inventory — right now we have a 3 to 4 month supply in North Texas, and it shows. Listings were down by 18% this October compared to last October, which is why home prices are up by over 8%.
We seem to be in the right place at the right time in Dallas real estate.
But! New Years is going to be a *itch. We may have no mountains in Dallas, but remember the ”fiscal cliff”: The fiscal cliff is a series of tax increases and spending cuts that will kick in unless U.S. lawmakers come up with an alternative plan to reduce the federal deficit by $1.2 trillion as required by the Budget Control Act of 2011. These start right after Christmas, on Jan. 2 and are to be split evenly between defense spending and domestic spending. This drastic move is called “sequestration.”
Happy New Years everyone!
Congress, those jovial folks, are supposed to work through these cuts and tax increases, and I hope they do. Standard & Poor’s has said there’s a 20 to 25 percent chance the U.S. economy will go into a double-dip recession if Congress fails to save us from the fiscal cliff. This means trouble for anyone getting any sort of a check from the government. I don’t know about you, but I’ve got a tenant on Social Security! And S&P’s deputy chief economist said such a scenario could cause home prices to tumble to a record low of 40 percent below peak 2006 prices, or about ten percent less than they are now.
As usual, those with the cash and powder keg stashed away will make out like bandits and become our landlords. Stay tuned.