Real Estate agent Scott Deakins’ Golden Retriever Heath looking at Museum Tower
“It’s a damn, fine building!”
Yes, MetroTex Forecast 2014 was Friday, and I don’t think one contract was written across town as half the North Texas real estate community was at the Renaissance Hotel listening to Dr. Jim Gaines, Phil Crone, Tom Woliver, Dave Copenhaver, Bob Stimson, Jan True, and Jerry Bolz. Steve Brown was also there, and gave his gander as wrap-up of what he thought might be coming down the Dallas real estate turnpike. After he spoke –I’ll get to that in a minute — he was asked a series of questions by the audience, mostly real estate professionals. Well someone asked him a question that really made him squirm: “what do you think is going to happen to Museum Tower?”
Oh boy, talk about squirmy wormy. I was dying to hear his response. He answered, and I think it’s the first time I have heard something positive come forth out of a Dallas Morning News reporter’s mouth in regards to the city’s newest, tallest condominium high rise.
“I think it’s a beautiful building,” Steve started, accent on and drawing out the word “beautiful”, almost as if he were “ooooo-ing”.
Then he said, basically, that Museum Tower (the building) was not going anywhere, especially not with the police and firefighter’s pensions tied to it, that maybe there was a better chance of solving the Arab-Israeli crisis than the Nasher/Museum Tower battle, that he thinks one of two things will happen:
1)The parties will wear themselves out. (Boo.)
2)Something will happen to settle the controversy. (Yeah!)
Then he said something interesting, something none of the other “drama” media reports have mentioned in their constant bruising of MT: the Pension Fund is really not burning through money with the financing.
“They can hold on for awhile,” said Steve. “Have you been there? I was on the 20th floor and looking out, well, it’ s damn fine building. It’s an unfortunate situation, really.”
But it’s a damn fine building.
Steve Brown’s back, lower left, at Forecast 2014
What Steve said about our market: the notoriously “Debbie Downer” reporter was so upbeat I wondered if he had been taking Happy Pills during the beginning of the conference. Dallas and Denver are the only two U.S cities whose real estate values are now at pre-recession levels, he said. How do you like that? Both cities have caught up. He is concerned about inventory and lack thereof, something he never thought he’d ever see in North Texas. He is trying to keep up with change, and understand why young people are not buying houses. (Mine are.) Young peeps are renting, however, paying $1500 a month to live in 560 square foot apartments that lure young tenants with gussied up common rooms, exercise gyms, and pool areas.
“They are living in a closet,” said Steve. “But I guess the world has changed so much there is no expectation of a 30 year commitment.”
Issues to worry about, and this is a good one: Steve said that while our market was sparkling, incomes are flat, especially median incomes. So with double digit increases in home values, there has been no increase in (median) incomes to match that. I am convinced that the middle class is thinning out, while the wealthy are just raking it in.
The static income issue was a great point that few but Steve have made. Also, we were told earlier in the conference that Dallas is churning new jobs, many of them in the medical field. Well, I wonder how Obamacare will affect those jobs as it trims medical costs and white coats.
He said we should be happy Dallas real estate suffers not from the wild swings of places like California and Miami, but rather maintains an even stair-step upward value crawl of about 6% annually. There is a real honest-to-goodness housing shortage, he said: way fewer than 50,000 new homes have been built, but more than 50,000 people have moved here.
And a lot, he says, depends on what the clowns in D.C. do. The consumer always pulls back 30 to 60 days before an election, and one is coming up next year.
Either that was an oversimplification, or Steve was out of time. The health of the real estate market rests in D.C.’s schizophrenic hands. Jim Gaines had said earlier that Dodd-Frank still had more laws and rules to enact, only about one-third have been created.
One more thing: Steve said he’s been covering real estate for about 30 years, about as long as I have been investing. His recollection of the 1980’s, when he bought his home, was that homeowners walked on houses when they could buy the same one across the street for half price. My recollection was that government tax changes brought all that on and wiped real estate portfolios overnight.
In July 1978, Section 121 allowed for a $100,000 one-time exclusion in capital gains for sellers 55 years or older at the time of sale. In 1981, the Section 121 exclusion was increased from $100,000 to $125,000. Then in 1986, the Tax Reform Act of 1986 eliminated the tax deduction for interest paid on credit cards. As mortgage interest remained deductible, this encouraged the use of home equity through refinancing, second mortgages, and home equity lines of credit (HELOC) by consumers. In Texas, of course, this was prohibited until did not happen until 1997 and even today the total of all mortgage debt cannot exceed 80% of the total fair market value of the home.
Also, in the 1980’s, banks were deregulated and the Glass-Steagall Act, which separated commercial and investment banks, and limited interest rates and loans, was repealed. After this, banks introduced creative new lending products such as the adjustable rate mortgage. As you can see from the chart below, housing really did not rally here until 1996, a 12 year period. So you can see why those of us who lived through 18 percent interest rates and cratering home sales might be wary of what the government will think up next to mess everything up.