Californians Spy Gold
In Texas Real Estate
By Ilan Brat
From The Wall Street Journal Online
The Californians are coming.
After scoring big gains at home, and then in
Phoenix and Las Vegas, California real-estate investors are arriving in the
Lone Star state betting that Texas' tepid home market is finally about to turn
around.
In recent years, out-of-towners have been buying
office buildings and other commercial property in Texas. Now, a small but
increasing number of investors is snatching up new and
previously owned homes in Austin and Dallas for bargain prices
compared with those in sizzling West Coast markets.
Some investors see potential for hefty price
appreciation in select neighborhoods, while others view the state's major
metropolitan areas as a haven for their investment dollars. And though their
arrival signals that Texas' fortunes may be
improving, it may also be an acknowledgement that the heady years of
skyrocketing home values along the West Coast may be ending. The best new
prospect out there may be slow but steady growth in Texas.
From the inside, Texas doesn't seem like
inviting ground for residential investment. Job growth is crawling along at
1.2%, below the national rate. The state economy is still smarting from the
2001 recession. And the abundance of land provides ample room for growth, which
tends to damp prices. While median home prices nationwide have climbed 32% from
2000 to 2004, prices in Dallas were up just 13%, according
to the National Association of Realtors. Meanwhile, prices skyrocketed 98% in Anaheim, Calif.
So while a new four-bedroom house can be had for
$150,000 on the expanding outskirts of Dallas, the fifth-largest
metropolitan area in the country, that price has barely budged in recent years.
In the first quarter of 2005, Texas homes appreciated at
3.77%, the lowest rate in the nation, according to the Office of Federal
Housing Enterprise Oversight.
The state's population boom won't help much,
either, says Jim Gaines, a research economist at Texas A&M
Real Estate Center. Many of the newcomers are immigrants whose cheap labor is
helping hold down building costs and whose wages don't support higher home
prices anyway.
To outsiders, however, Texas looks ripe for
investment. "As a real-estate investor, you look for things that have just started to turn around, not for things that are
booming," says Bruce Norris, president of the Norris Group, a real-estate
investment firm in Riverside, Calif. Mr. Norris accurately
predicted in 1997 that California housing prices would
double by 2005. Now he is staking a new claim on the Dallas-Forth Worth area. In
September, he is taking a group of 50 California investors on a
home-buying spree here. Dallas is "perfectly poised"
for a takeoff in the next five years, he says.
Five years ago, the Dallas economy, like much of Texas, hit the skids as
technology companies slashed employment here. Home prices stagnated in most
communities and even fell in northern suburbs where many of the unemployed tech
workers lived. The result: Foreclosure listings skyrocketed. In the first eight
months of 2005, 21,119 homes were listed for foreclosure, up 58% from the same
period in 2002, according to the Dallas-based Foreclosure Listing Service Inc.
Mr. Norris and other investors believe
foreclosures, which have risen only 4% from last year, are peaking, which makes
it the perfect time to buy. They are banking on the Texas economy pulling out of
its slump as the low cost of living here and bargain real estate attracts more
businesses and people to the state, stimulating more growth.
Already, there are signs of that happening as
people flee from inflated prices elsewhere. Consider the U-Haul gauge. U-Haul
International Inc., the moving-truck company, has so many more trucks going to
Dallas than leaving it that it charges more than twice as much for a one-way
trip from Anaheim, Calif., to Dallas than for a trip going the opposite way.
Investors see that as one indicator of increasing housing demand, which they
believe will buoy prices.
A couple of years ago, Richard Brazil moved his
family from Camarillo, Calif., into a new five-bedroom
home in a Dallas suburb. The
3,000-square-foot house was more than twice as big, and cost less than a third
of the value of his home in Calif. "Getting off the plane and seeing a
house that big and that new, it just blew my mind. The price is like 10 times
cheaper than California," he says.
Mr. Brazil invested in two more
rental homes in nearby cities. He still commutes to California for work, but he says
soon he will settle down in Dallas, relying on his
investments here to help fund his twilight years.
"Dallas is basically my
retirement," Mr. Brazil says.
Email your comments to rjeditor@dowjones.com.
-- August 08, 2005
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