Dallas Housing Outlook 2014 Q3

Page 1

DALLAS HOUSING OUTLOOK Company Overview Consumer Insights Top Amenities by Generation The Truth About Mortgage Underwriting

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ConsumerInsights What Do You Call Home?

NATIONWIDE SAMPLE

Consumer research in the real estate world is often overlooked because it is difficult and expensive to conduct. However, understanding what home buyers value is critical, given the market climate and competitive field today. Our third annual Consumer Insights report couples our timely market research with qualitative findings from our proprietary “What Do You Call Home?” survey to provide better information on consumer marketing strategies for your communities.

2

Over 22,000 responses are collected across the nation annually. We have access to over 50,000 total responses in our past survey database.

PARTNERS

Builders, developers, and Zillow joined in the effort nationwide by sending an e-mail to their prospective shoppers.

E-MAIL SURVEY

Our survey includes over 100 questions and several hundred variables regarding shoppers’ opinions on their next home and community.


Insight Customized to Increase Your Bottom Line Consumer Insights is a “focus-forward� study so that real estate practitioners can use this information to make strategic decisions moving forward. The information can be customized to meet your needs.

GEOGRAPHIC

We understand that geography affects consumer preferences. Responses can roll up to a national or regional level or drill down to the MSA or submarket level.

PRICE POINT

We understand that affordability is different for each new home shopper. Respondents were asked their desired price point and payment in their next home; our report can be filtered accordingly.

GENERATIONS & LIFESTAGE

We understand that lifestage impacts purchasing behaviors. Reports are available specifically for 55+ and the millennial buyers.

Fantastic Insight On: HOME To learn more about how you can better develop your next community, marketing strategy, or new product design, please contact:

Kitchen Bathroom Private outdoor living Great space Architectural style Yard preferences Specifications & Technology

MOLLIE CARMICHAEL Principal

COMMUNITY

mcarmichael@realestateconsulting.com (949) 870-1214

Community amenities Lifestyle

INTERIOR STYLE

Interior style preferences Exterior style preferences Interior specifications Texture Color

ATTITUDES

How they live How they shop What they value

3


Consumer

Insights

Top Amenities Check out what 22,000 new home shoppers shared as the amenities they most wanted in their next community. Below are the top 25 preferences by generation. The major differences relate to the presence of children for the younger generations.

Boomers

Born 1946 to 1964

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Gen X

Born 1965 to 1979

Gen Y

Born 1980 to 2000

*

Grocery Store Close By

Grocery Store Close By

Grocery Store Close By

Restaurants Close By

Restaurants Close By

Restaurants Close By

Walking Trails

Walking Trails

Fitness Center

Fitness Center

Fitness Center

Walking Trails

Village Square

Recreational Center

Children’s Park

Shopping

Village Square

Shopping

Wi-Fi Internet Access in Public Areas

Shopping

Recreational Center

Community High-Speed Internet

Wi-Fi Internet Access in Public Areas

Recreational Center

Community High-Speed Internet

Community-Wide events

Shaded Areas

Shaded Areas

Children’s Park

Community High-Speed Internet

Organized On-Site Programming

Community-Wide events

Shaded Areas

Community Intranet with Events, Clubs, Bulletin Boards, etc

Organized On-Site Programming

Yoga/Pilates Studio

Running

Dog Park

Lake, Pond, Stream, and Water Elements, $50/Month

Community Intranet with Events, Clubs, Bulletin Boards, etc

Running

*

All three generations ranked Fitness Center and Walking Trails as top amenities above retail shopping.

Wi-Fi Internet Access in Public Areas

*

Wi-Fi Internet Access and a Community Intranet with Events, Clubs, etc. are more Village Square important to the Boomers than they are to Community-Wide events Gen X and Gen Y.

*

Community-Wide events rank above pools, parks, and other typical amenities. Events can be much less expensive too!

Children’s Water /Play Area

*

Look for our future trends in what consumers want in communities and homes by generation. We believe it starts with your consumers. 4

Today’s shoppers rated Service & Retail as the most important amenities for their next community purchase.

A Dog Park is among the top park choices. It scored highest for Gen Y, followed by the Boomers.


Consumer research in the real estate world is often overlooked because it is difficult and expensive to conduct. However, understanding what home buyers value is critical, given the market climate and competitive field today. Our third annual Consumer Insights report couples our timely market research with qualitative findings from our proprietary “What Do You Call Home?” survey to provide better information on consumer marketing strategies for your communities.

Gen X

Boomers

16 17

Gen Y

Born 1965 to 1979

Born 1946 to 1964

Born 1980 to 2000

Hiking Trails with Historical Markers of the Area

Tennis Courts

Live Music in the Park

Yoga/Pilates Studio

Sport Fields

Remote Guard Gate, $50/month

Sport Fields

Basketball Courts

Dog Park

Children’s Water/Play Area

Tennis Courts

Cycling

Hiking Trails with Historical Markers of the Area

Yoga/Pilates Studio

Open Space, $50/Month

Lake, Pond, Stream, and Water Elements, $50/Month

Hiking Trails with Historical Markers of the Area

22

Amphitheater Outdoors

Dog Park

23

Adult-only Pool (18+)

Cycling

Art Shows in the Park

Basketball Courts

Lake, Pond, Stream, and Water Elements, $50/Month

Library

Live Music in the Park

Live Music in the Park

18 19 20 21

24 25

WATER

ADVENTURE

NATURE

ARTS &

ENTERTAINMENT

PARKS

Organized On-Site Programming

*

Events and experiences, as a whole, rank above “hard amenities” like a pool.

Community Intranet with Events, Clubs, Bulletin Boards, etc

Movies in the Park

REC CENTER

EVENTS

SERVICE & RETAIL

SPECIAL AMENITIES

Let us help! We can help optimize your community and home design for better homes, better places, and better profit. Please contact Mollie Carmichael at mcarmichael@realestateconsulting.com or (949) 870-1214. WWW.REALESTATECONSULTING.COM

5


Analysis Dallas, TX Dallas Analysis* • Demand remains strong, as market experiences typical seasonal slowdown. New home traffic and sales activity in Dallas experienced the typical endof-summer slowdown due to vacations and the start of the school year. Builders have been in build-out mode at several communities, resulting in more spec construction to close out the communities and offset slower traffic and sales.

• Buyers still show a sense of urgency. Although traffic has been down recently, buyers in general realize that home prices and mortgage rates will climb in the coming year. Many homeowners have decided to purchase a new home sooner than later, particularly due to the ease of selling an existing home for the right price currently. Buyers are adjusting to the new market realities of higher prices and are more favorable toward buying right now. *Based on Sept 2014 Data

• Builders hold steady on prices. New home price increases have moderated sharply over the past few months across numerous product types and price points, with several communities holding prices steady over the summer. Year-to-date increases have averaged approximately 5%, significantly below last year’s double-digit pace. • Multi-generational and empty-nester housing demand on the rise. Multi-generational households have increased in Dallas over the past several years, and the growing number of empty-nest buyers has encouraged builders to offer more one-story plans than ever before. These homes are usually less than 3,000 square feet. Demand for this product type has been strong, and they have sold quite well over the past year. • Northern submarkets experience strongest expansion. Growth patterns still favor the submarkets in the northern suburbs, which are desirable for many reasons—including access to new jobs. Hillwood Communities’ newest master-planned community, Union Park, is breaking ground in Little Elm. The North Texas Tollway Authority has also recently announced a plan to extend the Dallas North Tollway further as a result of the building boom to the north. Locals believe that the Tollway may eventually reach all the way to the Oklahoma border.

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Paige Shipp Sr. Manager Consulting

Local insight was provided by Paige Shipp, Consulting. For further information, on our research please contact Paige at pshipp@realestateconsulting.com.


Market Trends Metro Analysis and Forecast* Housing Cycle Risk Index

HCRI Legend

Our HCRI is a 1–2 year leading indicator for home price appreciation/depreciation. Improving markets (rising prices and rising construction) make the market riskier and vice versa. *Based on a three-month trend

Demand

*Actual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Sept 2014

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About Us John Burns Real Estate Consulting (JBREC) helps executives make informed housing industry

decisions. Our passionate team of analysts and consultants from around the country helps our clients identify the best risk-adjusted investment opportunities. We are known for:

• Client focus. Our clients have personal access to our

team of market and industry experts. We also connect clients to opportunities for new business. We seek to continually innovate and improve our practices to make our clients’ lives easier.

Quick Stats Regularly Quoted in:

• Speed. We focus exclusively on housing and strive to

have the most current data at our fingertips. We are diligent, regularly out in the field, and tapped into industry leaders— resulting in great research and advice.

• Proprietary tools. We have created many tools to

provide unique and timely insight. They include a monthly survey of builder executives, several indices and forecasts, and a demand model by price range and household composition.

• Data quality. We create, collect and buy the best industry data available, enabling our analysts to evaluate market conditions clients apply that insight to their business planning.

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• Local knowledge. Our executives live in 11 of the major housing markets across the country.

3,000+

• Management expertise. Our team leaders have

followers

learned from multiple housing cycles.

• Trusted integrity. We do not recommend stock

investments or take contingency fees so it is clear we have no conflicting agendas.

8

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Our

Team

Access to Our Nationwide Team of Experts John Burns Real Estate Consulting takes great pride in our highly educated, resourceful and experienced team that includes practitioners with 25+ years of experience in both homebuilding and community development. As a research client, you gain access to our team across the nation to discuss market conditions, our current research and our forecasts.

Client Resources John Burns CEO

Rick Palacios Director of Research

Lisa Marquis Jackson Business Development

Steve Dutra Data Management

Regional Offices Sacramento, CA Dean Wehrli

Chicago, IL Lance Ramella

New England Jody Kahn

Irvine, CA Mollie Carmichael

Washington, DC Dan Fulton

San Diego, CA Pete Reeb

Atlanta, GA David Kalosis

Don Walker

Dallas, TX Ken Perlman

Paige Shipp

Boca Raton, FL Lesley Deutch

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The Truth about Mortgage Underwriting by Lisa Marquis Jackson, SVP The world is awash in inaccurate sound bites related to mortgage credit. We spoke with numerous industry executives and identified three truths that need to be clarified: 1. Low income buyers actually have it easy. Buyers with poor credit and low income are finding it quite easy to buy a home below the FHA limit. 2. Many affluent buyers find it very difficult. Automated underwriting prevents many highly qualified borrowers, especially affluent retirees, selfemployed, or commissioned salespeople from getting a mortgage because their income situation does not fit squarely in the credit box.

the rich. While the Dodd-Frank rules were written with good intent, let the truth be known, so more first-time buyers can take advantage of current programs to buy homes. Let the bankers use good judgment again, so more affluent buyers can get a mortgage. EASY MONEY THROUGH FHA FHA federally insures 95%+ loan-to-value (LTV) mortgage loans made to people with poor credit and low incomes.

3. Industry executives are unintentionally preventing a recovery. Mortgage industry executives lobbying for the good old days where FHA limits were higher, fees were lower, and documentation was easier need to stop whining because they look very unreasonable to regulators and politicians who are not sympathetic. Our purpose here is to shed some light on what is actually happening—because if there were clarity around this, we would have: 1. More entry-level home buyers. Many qualified people are not even shopping for a home because they presume they cannot get a mortgage. We provide several examples of easy qualification below. 2. More affluent home buyers. More good loans to very qualified buyers would be made if underwriters were allowed to use good business sense rather than fill in automated forms. As we did our research, we heard many stories of buyers reluctantly paying cash or deciding not to move at all and telling their friends who then also elect not to move. These include business owners, retirees, and commissioned salespeople. 3. More relocating home buyers. Many relocating employees are renting simply because they cannot provide historical pay stubs at their new employer. Given their track record of steady employment and desirability to multiple employers, does that make any sense? In the aftermath of the housing crisis, the reality is that we are lending aggressively to the poor and conservatively to 10

Here are three recently approved loans, all through FHA or VA: 1. Recent foreclosure. 96.5% loan on a $170,000 house to a couple with $36,000 in income, a foreclosure three years ago contributing to their 620 FICO score, and debt service equal to 55% of their gross income 2. 57% of income needed to pay debts. 96.5% loan on a $165,000 home to a couple with $38,000 in income, a 642 FICO score, and debt service equal to 57% of their gross income 3. Fixed income and disabled. 100% loan on a $160,000 home to someone permanently disabled with a 601 FICO score and a $34,000 fixed income TIGHT MONEY ABOVE FHA LIMITS Affluent commissioned salespeople, self-employed, newly employed, and retirees who don’t have steady paychecks have tremendous difficulty getting a mortgage because they either:


• report inconsistent income to the IRS, • cannot provide extended income history from a new employer, or • do not have sufficient current income to qualify but are trying to keep some cash in the bank or delay paying taxes on an IRA distribution. Here are six borrowers who were denied a mortgage: 1. 27% LTV. A couple with a 780 FICO score who wanted a $300K loan on a $1.1 million house and would have $300K in reserves after closing, but whose verifiable income was only 30% above the proposed mortgage payment. 2. 801 credit score. Newly retired couple with fantastic 801 credit score, $1 million in retirement accounts, and $400,000 in savings after they were going to put down $350,000 on a $550,000 home purchase, but whose Social Security income was less than double the proposed mortgage payment. 3. Affluent business owner. Owners of a small retail business who were turning the business over to their children to manage, with the intent of collecting dividend income; who had $500K in cash savings and wanted a 50% LTV. 4. Relocating borrower. A US citizen who has been working overseas takes a job in the US, has a 700 FICO, 20% down payment, and plenty of reserves, but cannot produce a W-2 because he does not exist in the country in which he was working and hasn’t started his new job yet. 5. New employee. A prospective borrower qualified in every way except she had only been in her current job for five months and had worked in the family business previously where she did not get a W-2. 6. Loan = 15% of applicant’s assets. A retiree who wanted a 50% LTV and had assets six times the proposed loan amount was turned down and eventually paid cash.

down, you were pretty much looking at an FHA loan. During this period, it’s fair to say that sales were being seriously impacted by 20%+. Slowly at first, and now more rapidly, things are changing. Credit requirements for 95% conventional financing are as low as 620, and MI companies have lowered premiums and relaxed guidelines. Banks have been peeling back overlays. You aren’t likely to get a conventional loan with a ratio above 45% anymore, but nor could you really get that back in the 90s either.” • Disposable income is more important than gross income. “Our industry needs to focus more on disposable income versus debt-to-income ratios, meaning a borrower who makes $2,200 a month with a 40% debt-to-income ratio is more risky than someone who makes $12,000 a month with a 50% debt to income ratio. The first borrower has very little cushion after income taxes, utilities, car insurance, food, etc. for emergencies. But the person making $12,000 a month would have much more left over after all of these other debts.” • Stated income should have its place. “There is a time and a place for Stated Income, not “No Doc” loans, but Stated Income loans. They were a great tool back in the 2000s that rarely went bad if they were used properly because the borrower had a lot of their own capital invested in the home.” • Income is the problem. “The challenge is not credit based, it’s income based. Home valuations have increased at a steeper trajectory than income. Also, the new buyer pool is saddled with student loans and other debt, which has really created the (disposable) income issue. I believe credit is much more accessible than the media/public portrays (in terms of credit scores, LTV’s, etc.) My opinion will remain our immediate challenge is income/debt/ DTI.” SUMMARY

MORTGAGE INDUSTRY VETS TELL IT LIKE IT IS

In conclusion, let’s:

We expect the borrowers and outcomes profiled above will be surprising to many. We also want to share the following sound bites from mortgage industry veterans to offer surprising clarity on other areas of debate:

• Get the word out that loans below the FHA limit are readily accessible, with monthly payments that are a great historical value in comparison to gross incomes.

• Loans today are easier than the 1990s. “For the average borrower, I believe it was more difficult to qualify for a mortgage in the 1990s.” • Huge improvements are being made in conforming loans. “For a while, if you didn’t have a credit score over 720 and you wanted a loan with less than 20%

• Let the bankers use manual underwriting in instances where they can document that the loan has a very low likelihood of losses.

Lisa Marquis Jackson, SVP (214) 389-9003 lmjackson@realestateconsulting.com 11


50

Top

Master-Planned Communities of 2013 2013

2012

YOY% ∆

Villages of Lake Sumter, LLC

3,419

2,851

20%

THE IRVINE RANCH1 Orange County, CA

The Irvine Company

1,444

1,434

1%

4

CINCO RANCH Katy, TX (Houston)

Newland Communities

854

982

-13%

5

MOUNTAIN'S EDGE Las Vegas, NV

Focus Property Group

841

948

-11%

10t

NOCATEE Ponte Vedra, FL (Jacksonville)

The PARC Group

838

508

65%

7

RIVERSTONE Houston, TX

Johnson Development Corp.

791

605

31%

6

PROVIDENCE Las Vegas, NV

Focus Property Group

726

760

-4%

3

THE WOODLANDS Houston, TX

The Woodlands Development Company

649

1,007

-36%

8

LAKEWOOD RANCH Sarasota, FL

Schroeder-Manatee Ranch, Inc.

618

573

8%

13

ALAMO RANCH2 San Antonio, TX

Galo Properties

600

500

20%

10t

STAPLETON Denver, CO

Forest City

570

508

12%

14

SUMMERLIN Las Vegas, NV

The Howard Hughes Corporation

566

471

20%

28

CROSS CREEK RANCH Houston, TX

Johnson Development Corp.

509

301

69%

16

LAKE NONA Orlando, FL

Tavistock Group

475

441

8%

2012

1

1

THE VILLAGES The Villages, FL (Central FL)

2

2

3 5 6 7 8 9 10 11 12 13 15

N/A

ALIANA Houston, TX

Aliana Development Company

464

304

53%

16

24

WOODFOREST Montgomery, TX (Houston)

Johnson Development Corp.

457

308

48%

14

Net Sales

Developer

2013

4

18

SIENNA PLANTATION Houston, TX

Johnson Development Corp.

445

387

15%

CANYON LAKES WEST Cypress, TX (Houston)

Land Tejas Companies

378

190

99%

18

N/A

19

15

BRAMBLETON Ashburn, VA (Washington)

Soave Enterprises

373

466

-20%

31

VALENCIA Los Angeles, CA

FivePoint Communities

372

282

32%

32t

FIRETHORNE Houston, TX

JDC/Firethorne

361

280

29%

N/A

RANCHO MISSION VIEJO

360

0

N/A

26

DAYBREAK Salt Lake City, UT

Kennecott Land

353

304

16%

50t

CANE BAY PLANTATION Charleston, SC

Gramling Brothers Real Estate & Dev.

341

214

59%

17

34

EAGLE SPRINGS Humble, TX (Houston)

Newland Communities

321

277

16%

20 21 22 23 24

25 

12

Project Name & Location

Rankings

Rank Increased

1

Rank Declined

2

San Juan Capistrano, CA Rancho Mission Viejo, LLC

Irvine includes Cypress Village, Portola Springs, Stonegate, Woodbury & Laguna Altura Estimate


Project Name & Location

Developer

47

CANYON HILLS Lake Elsinore, CA (Riverside)

27

N/A

CRYSTAL FALLS

28t

Rankings

2012

Pardee Homes

308

223

38%

The Lookout Development Group

305

176

73%

29t

VALENCIA RESERVE Palm Beach, FL

GL Homes

299

292

2%

19t

SHADOW CREEK RANCH Houston, TX

Shadow Creek Ranch Development

299

362

-17%

22

MOUNTAIN HOUSE Tracy, CA (Central Valley)

Shea Homes

290

333

-13%

29t

VISTANCIA Phoenix, AZ

Sunbelt/Shea Homes

266

292

-9%

37

THE MEADOWS Castle Rock, CO (Denver)

Castle Rock Development Company

263

250

5%

19t

FISHHAWK RANCH Lithia, FL (Tampa)

Newland Communities

256

362

-29%

34

N/A

STONE RIDGE

Van Metre Homes

254

171

49%

35

48

ESTRELLA Goodyear, AZ (Phoenix)

Newland Communities

252

222

14%

N/A

DURBIN CROSSING2 Jacksonville, FL

Durbin Crossing LLC/Durbin Crossing N. LLC

250

212

18%

40

TERAVISTA Round Rock, TX (Austin)

Newland Communities

249

238

5%

38

N/A

PAVILION PARK AT GREAT PARK Irvine, CA

Five Point Communities

245

0

N/A

39

39

HASTINGS FARMS Queens Creek, AZ (Phoenix)

William Lyon Homes

244

242

1%

40

N/A

ONE LOUDOUN Ashburn, VA (Washington, DC)

Miller & Smith/North American Seksui House, LLC

243

75

224%

41t

35t

ST. CHARLES St. Charles, MD (Washington, DC)

St. Charles Companies

241

271

-11%

41t

41

VERRADO Buckeye, AZ (Phoenix)

DMB

241

233

3%

43t

42

HERITAGE WAKE FOREST Wake Forest, NC (Raleigh)

Ammons Development Group

235

232

1%

43t

N/A

WESTRIDGE Dallas, TX

D.R. Horton

235

197

19%

45

35

ROSEDALE Azusa, CA (Los Angeles)

Brookfield/CDG/Starwood Capital

234

271

-14%

46t

N/A

WESTHEIMER LAKES Katy, TX (Houston)

Land Tejas Companies

230

159

45%

46t

N/A

RIVERSTONE Naples, FL

GL Homes

230

188

22%

48

38

THE BRIDGES Delray Beach, FL (West Palm)

GL Homes

225

245

-8%

N/A

OAKHURST AT KINGSWOOD Houston, TX

Friendswood Development

224

221

1%

HIGHLANDS RANCH2 Denver, CO

Shea Homes

220

507

-57%

30 31 32 33

28t

2013

26

2012

YOY% ∆

2013

Net Sales

37

36

   

49 

50

12

Leander, TX (Austin)

Aldie, VA (Washington, DC)

TOTAL

23,463

20,875

12%

SOURCE: John Burns Real Estate Consulting, LLC, January 2014

13


PAIGE SHIPP Senior Manager

(214) 389-9004

pshipp@realestateconsulting.com

With over 14 years of real estate and home building experience, Paige leads our Dallas consulting arm providing indepth knowledge of the Texas markets and business conditions. Her diverse experience includes land acquisition and development, land planning, home building, commercial real estate and residential sales. Prior to joining John Burns Real Estate Consulting, Paige served as a Project Director for Hines in Dallas-Fort Worth and Regional Vice-President of Land Acquisition and Development for Mercedes Homes. Additionally, she is a Licensed Broker in the State of Texas. Paige has been a PADI certified SCUBA diver since 2000 and her favorite destination is Bonaire. Though she has bravely explored the murky depths of the ocean at night and even dove with sting rays, Paige is still working up the courage to swim with sharks. EDUCATION Bachelor of Landscape Architecture from the University of Illinois AFFILIATIONS ULI - Full Member National Association of Realtors

14


MOLLIE CARMICHAEL Principal

(949) 870-1214

mcarmichael@realestateconsulting.com

Mollie Carmichael is a Principal at John Burns Real Estate Consulting. For over 25 years, Carmichael has helped companies increase profits dramatically by understanding the market and consumer first. She is passionate about guiding strategic planning decisions with consumer and market based methodologies in order to optimize financial results. Carmichael has led research efforts throughout the country on masterplan communities and individual neighborhood design where companies. In addition to managing various consulting assignments, Carmichael leads our firm’s Consumer Insights research to help our clients understand what consumers value in their homes and communities. She has led a national consumer survey for the last several years that has been launched to several million homeshoppers throughout the company. The survey effort is all about better understanding what consumers value and what they will pay for in their next community and home. It is the only survey of its kind today. Prior to joining the company, Carmichael served as a Vice President of Strategic Marketing for Lennar, Centex Homes, Pulte Homes/Del Webb and Vice President of Residential Product Planning at The Irvine Company, where she led strategic planning, target land acquisition strategies, acquisition and market study due diligence, consumer and product segmentation, quantitative and qualitative consumer research, competitive research, as well as tactical media planning, model and sales office merchandising. Carmichael has been quoted in various media publications including the Wall Street Journal, MSNBC, Reuters, Businessweek, and Professional Builder. She has been a speaker on Consumer Insights and innovative planning ideas throughout the country including PCBC, ULI, UBS, and other specific venues. AFFILIATIONS ULI – Community Development Council Building Industry Association 55+ Housing Council 15


Office Locations ATLANTA, GA 12600 Deerfield Parkway | Suite 100 Alpharetta, Georgia 30004 DIR: (770) 286-3493

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