Paul Volcker

Get ready for the media freak out. Besides a re-hash of last night’s Republican debates — the most substantive thus far, in my opinion — everyone is talking about an expected interest rate hike today from the Fed. I had two media calls yesterday asking me if I thought a rise in interest rates might hurt or slow our blazing Dallas real estate market.

Nearly everyone believes the Fed is going to raise interest rates for the first time since June 2006. If so, the federal funds rate — which is the wholesale rate banks charge each other for overnight loans — will tick up a quarter percentage point from near zero.

Only one-quarter of a point. But experts say that may begin a chain reaction that leads to higher rates in 2016.

Jonathan Miller

My favorite New York-based Real Estate guru Jonathan Miller looks at why have rates been so low for so long — basically a cruddy economy and slow job growth? And he asks, is it really time to raise them?

Looking at the charts it seems like no, though it would be nice to have banks pay us some money for keeping our money in their banks. Right now, the rates banks pay savers are so insignificant, it almost makes no financial sense to have large sums in the bank. That’s one reason why real estate investment has been so strong.

Secondly, a quarter of a percent is nothing. I remember Paul Volker’s days of 18% interest rates. It was like paying an HOA fee on top of your mortgage. He was trying to wrestle inflation, which was feverish. Then, people were buying houses to make money on them. Today, they are buying houses (or investing in the stock market) because you cannot make money saving it in the bank.

Which makes me wonder if a more significant rate hike would cool the market a bit.

Also, I wonder if Millennials, who have no experience with higher interest rates, might be scared off by a significant rate increase. Remember, this is the generation that, like their grandparents, doesn’t like debt.

What do you think? Would an interest rate hike hurt your real estate search or your business if you are in the business?

Dallas Breakdown for Diff Family Types

Breakdown of Monthly Income Required to Live as a Human in Dallas According to the Economic Policy Institute

By Jon Anderson
Columnist

Candy and I have been opinionating back and forth on low-income citizens and how their access to safe and affordable housing is a means to promote economic upwards mobility. After all, if the poor are less poor, they will live richer lives (by any definition) and contribute more to society.

Unlike the rich who sequester money in intangible investments or various savings schemes, when the poor have more money, they spend it – because they need to. This creates a cycle that reverberates throughout the larger economy. If the poor buy more, manufacturers must make more which means hiring more people which in turn creates more people with money to spend, and so on, and so on. It’s exactly like the recession when governments were screaming for money because tax revenues took such a hit. Once people were put back to work, tax revenues rose, and in some states like Texas, overflowed.

In fact, recessions in general would be rarer and less dramatic if companies were forced to keep workers on the payroll or if unemployment benefits paid close to salary levels. As it is, recessions create a domino effect where one company dumps workers and then its suppliers dump workers because they’re not getting orders – and on and on. Call it trickle-back economics.

Personally, I spent nearly three years unemployed during the telecom meltdown that sent 500,000 skilled workers out on the streets early in the millennium. Desperate, I was open to anything and willing to uproot my life and leave my partner for any job. In the end, I was required to move to another state which led to the dissolution of my relationship. And compared to many, I was lucky.

For part of that time, I collected unemployment benefits that paid me the maximum $1,600 per month, a tiny fraction of my former salary. (Let me tell you, swallowing my pride and taking unemployment was one of the hardest things I’ve done – even though I’d paid into it for years. It felt like a stigmatizing failure.) All that check did was slow the eventual evaporation of a three-year “emergency fund.” I tell you this because $1,600 per month is more than the minimum wage in America and it was crippling even with a free place to live and extensive savings. Before you groan, this column isn’t about the battle for living wages, it’s about documenting and understanding how much it takes to live as a human being in Dallas. (Spoiler alert: it’s not the current minimum wage.)

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Case Shiller December 2014

 

Case-Shiller’s recent Dec.2014 report shows home prices inching even further skyward, with an increase of 7.5 percent year-over-year, topping the national average of 4.5 percent by a healthy margin. Shrinking inventory is to blame, but one must wonder if supply will ever catch up at this rate.

“As long as we have a tight sellers’ market, it’s going to be in that area,” said Dr. James Gaines, an economist at the Real Estate Center at Texas A&M University in this story by Steve Brown. “The good news is it’s not 12 or 15 percent.

“We can live with this for a while.”

But really, can we?

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Home For Sale Sign Dallas

Maybe so, or maybe the market is just taking a breather while the summer heat is on before it grows legs again. According to Standard & Poor’s/Case-Shiller’s Home Price Index, Dallas has seen the smallest increase in home prices since August of last year. Still, prices are growing, at an albeit slower rate. In fact, all of the MSAs Case-Shiller surveys saw growth from April to May of this year, even beleaguered Detroit.

Regionally, home prices increased 8.6 percent in Dallas from May 2013 to May 2014, and between April and May of this year, the increase was 1.3 percent. That’s a decrease from March to April 2014, during which Dallas saw a 1.6 percent price growth. Nationally, housing prices are up 9.4 percent from May 2013, with a flat month-over-month HPI.

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The Beat Condos Ext

Modern and affordable, Buzz Lofts in the southern Dallas neighborhood of The Cedars are a popular choice for those who want loft living south of downtown Dallas.

Condos are hot and getting hotter, according to the Texas Condominium Mid-Year Sales Report from the Texas Association of Realtors. Statewide, condo sales rose an average of 10.5 percent year-over-year between the months of January and May of 2014. In San Antonio condo sales were up 18 percent, followed by Austin at 14 percent, Houston at 6 percent and Dallas at 4 percent.

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New-Homes-in-Frisco-Texas-Lawler-Park

“In the fall, Texas Realtors usually start to catch their breath as the summer selling season draws to a close, but not this year,” said Shad Bogany, chairman of the Texas Association of Realtors. “Demand for Texas homes remains strong, keeping buyers and sellers in the market, and Texas Realtors, busy.”

We couldn’t have said it better ourselves, Shad. It’s true — while spring and summer are typically the more brisk seasons for selling homes, the phones are still ringing off the hook for a lot of North Texas Realtors. Why? Because of job growth bringing in so many new households, with sales volume in the third quarter of 2013 matching that of the second quarter, and incredibly low inventory according to the third quarter edition of the Texas Quarterly Housing Report released today by the Texas Association of Realtors.

jim_gaines“The inventory of homes in Texas is at historically low levels,” said Jim Gaines, PhD., an economist with the Real Estate Center at Texas A&M University (left). “To have only 4 months of inventory in a market as large as Texas is remarkable. Of the 47 markets included in the report, 10 have less than 3 months of inventory and that includes several large markets, such as Austin and Dallas.”

Less than three months of inventory, people! Just jaw-dropping, isn’t it? We just can’t build them fast enough. Not only that, but housing prices are growing, too, increasing during the third quarter of 2013 as it did in the second. Median home prices increased 10 percent year-over-year to $177,100. Average prices increased 11.06 percent YOY, too, to $230,474.

Gaines continued, “Sales volume in Texas had been increasing for some time, but the price increases have been constrained by foreclosures and other distressed sales. Now, we’ve seen more than a year-and-a-half of price increases that outpace the average rate of appreciation in Texas, which is around 4.5 percent per year. This quarter’s annual double-digit price increase was more than twice that pace. Taken together, it’s clear that high demand for Texas homes is translating into higher prices for home sellers.”

The Texas Quarterly Housing Report also stated that 80,105 single-family homes were sold in Texas in the third quarter of 2013, which is 18.97 percent more than Q3 2012 and “the highest volume of homes sold in Texas since the Texas Association of Realtors began issuing the report in 2009.”

Sure, these reports show statewide trends, but we’re hearing a lot of the same from Dallas-area Realtors. What’s your report from Q3?