THE OUTLOOK
Californians Spy Gold
In Texas Real Estate
By ILAN BRAT
Staff Reporter of THE WALL STREET JOURNAL
August 8, 2005
DALLAS -- 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.
PRICE CHECK
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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.
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