By Troy Corman, www.t2realestate.com
I had the pleasure of hearing Texas ATM Real Estate Center economist Dr. Mark Dotzour speak about the Texas real estate market at a live event last night sponsored by the Texas real estate investor group, Lifestyles Unlimited. I'll generally paraphrase and try to hit the highlights of what Dr. Dotzour sees for the Texas economy, and in particular, the Texas real estate markets going forward.
In all, Dr. Dotzour was very bullish on Texas and our real estate market. One of the most vivid examples is this - imagine Texas having another Dallas-Fort Worth metro-plex, another Houston, another Austin, another San Antonio and another Corpus Christi by the year 2030 - about 18 years from right now! If the demographic experts are correct, expect the Texas population to increase by 30,000,000 by 2030. That's a lot of folks that are going to need roofs over their heads.
That's one of the reasons Dr. Dotzour thinks we're going to have a lot of pent-up demand for home ownership as soon as Washington gets their act together. In fact, he thinks the economy is "spring-loaded", and as soon as Washington takes the right steps, our economic recovery could really rocket to the upside.
Dr. Dotzour also touched on inflation quite a bit. He thinks the gold bugs are continuing to buy gold because they believe Washington and Ben Bernanke will continue to print money. That's why he likes rental real estate as a hedge, because regardless of the value of the dollar, folks will always need a place to live. If the dollar is greatly devalued, it takes more dollars to buy or rent real estate, yet landlords who already own real estate have locked-in mortgages at lower values.
Gold is much more volatile than real estate because it's a speculative commodity. As soon as correct policies begin coming out of Washington, gold prices could drop like a rock - just like they did in the 1980s when Paul Volker raised interest rates.
The commercial real estate, and to some extent, the residential real estate market is still clogged up with bad loans. The problem is the FDIC doesn't have the money to rescue banks on a wholesale level, so banks are slow to foreclose, because once they foreclose, they're required to have more capital to offset the bad loan. Many are still in the extend-and-pretend phase, and this is choking off commercial real estate lending.
There's been talk of Fannie Mae and Freddie Mac buying up bad mortgages from banks and taking over homes. It's not clear whether the government wants to be America's landlord or what their thinking is on that idea. It's also quite clear that the government has done little to accommodate real estate investors. A couple of simple solutions offered by Dr. Dotzour to clean up the real estate mess: 1) Allow investors to double the velocity of appreciation to 15 years instead of 27.5 years and; 2) Allow investors who buy and hold real estate for 5 years to pay no capital gains taxes on profits. This drew quite a bit of applause from the crowd.
Finally, Dr. Dotzour is bullish on Texas and thinks there's a window of opportunity to buy now and be ahead of the curve when the real estate markets get moving again. In fact, he said the state bird of Texas, is the construction crane!