International homebuying activity goes downInternational homebuying activity goes downLuis TorresTorres

​​The National Association of Realtors recently reported that the sales of U.S. residential real estate to foreigners fell from $153 billion in 2017 to $121 billion in 2018, registering a 21 percent decline (Figure 1). Media outlets nationwide reported that the decline was due to Chinese buyers purchasing fewer U.S. homes. This is a small part of the story since Chinese purchases fell 4 percent by dollar volume and 0.4 percent by number of homes.

The main reason foreign pu​rchases fell considerably was the decline in purchases by Canada, Mexico, and the United Kingdom (Figure 2).

Purchases by Mexican buyers registered the biggest decline (55 percent by dollar volume and 29 percent by number of homes), followed by Canadian buyers (45 percent, 19 percent), and United Kingdom buyers (23 percent, 30 percent). Even India registered a decline of 8 percent by dollar volume and 12 percent by number of home purchases.

These five countries represent the majority of foreign purchases. In 2018, their market share dropped below 50 percent by dollar volume of sales.

So what happened? Why such a big decline?

The exchange rate played a role as an accumulated effect of depreciation of each country’s currency starting in 2016, but overall the exchange rates of these five countries appreciated with respect to the U.S. dollar from April 2017 to March 2018 when the survey was estimated (Figure 3).

The shortage of homes priced below $300,000 affected Canadian and Mexican buyers. The median price of homes purchased by Canadian and Mexican buyers during that period was $292,000 and $189,100, respectively. The uncertainty and headwinds surrounding international trade and immigration policy created a disincentive for people to purchase a home in the U.S.

The other thing to consider is that April 2016 to March 2017 (the previous year) was a peak year in dollar volume sales to buyers from those countries, especially Canada and Mexico, and sales have reverted back to historical trends. Country-specific factors are regulations on capital outflows implemented by the Chinese government, United Kingdom's BREXIT uncertainty, Canada's and Mexico's economic uncertainty about the outcome of NAFTA negotiations, and the slowing down of India’s economy in 2017.

Texas is the third major destination of international homebuyers, even with the decline of Mexican foreign buyers. International buyers purchased 24,012 homes in Texas from April 2017 to May 2018, representing 7 percent of the total sales in the state, a drop from 10 percent the previous year, with a market value around $15 billion.

​​​​​​​Foreign Buyer Home Purchases and World GDP Growth

Dollar Volume of Sales to Foreign Buyers from Top Five Countries 

Foreign Exchange Rate to One U.S. Dollar from Top Five Countries

Real estate agent's role changing from information broker to trusted advisorReal estate agent's role changing from information broker to trusted advisorDavid JonesJones, D.


What's the number one reason homebuyers and sellers select a particular real estate firm? According to the J.D. Power 2018 Home Buyer/Seller Satisfaction Survey released yesterday, it's “reputation."

Reputation matters most for 44 percent of first-time sellers and 39 percent for first-time buyers. Apparently, reputation outweighs personal recommendations and past experience with agents or salespeople.

Among repeat sellers and buyers, however, it's a slightly different story. For that group, reputation is second. Experience with agents or salespeople is the main reason repeat buyers and sellers go with a particular firm.

“Real estate firms are recognizing that their value proposition has shifted from that of information broker to trusted advisor; as a result, we're seeing increases in customer satisfaction in each of the segments of homebuyers and sellers," said Craig Martin, senior director of financial services at J.D. Power. “The challenge for these companies is to consistently demonstrate and communicate the value to current and potential customers ."

If a buyer or seller merely wants information, they can find it many places. A significant majority (88%) of homebuyers begin their search for a new home before selecting an agent.

When it comes to finding an agent, social media plays a big role. Nearly half (47 percent) of buyers and 55 percent of sellers indicate using social media to find agents, with the majority in each case saying they were “delighted" after doing so. Some buyers, mainly first-timers, are using social media to find their new home, as well.

Strong customer satisfaction builds loyalty and advocacy. Across customer segments, high levels of overall satisfaction with the firm is directly correlated with likelihood to use the firm again for a future transaction and recommend the firm to others. More than 50 percent of recommendations a customer makes result in new business for real estate companies.

Real estate agents play critical role of guiding customers through the process. Among both buyers and sellers, overall satisfaction scores are notably higher when agents provide timely responses to questions, keep customers informed of key points in the transaction, and share comparable properties.

For more information, see the J.D. Power press release.​​​​

The yield curve's predictive powersThe yield curve's predictive powersLuis TorresTorres
​​​​​​​​​As the U.S. economic expansion continues into its tenth year, questions about its end have surfaced. One hot topic being discussed by the media is the yield curve.

Why is there such an infatuation with the yield curve?

Before each of t​he last seven recessions, short-term interest rates rose above long-term rates (see figure), producing what economists call an inverted yield curve (for more on this, read "Is There Still a Message in the Inverted Yield Curve?"). In the past, the yield curve has been a good indicator to ​​​​predict recessions in the U.S. economy with a one-year lead.

Last week, Charles Evans, president of the Federal Reserve Bank of Chicago, said in a speech, ”The question now is what about a flattening curve? . . . Long-term interest rates have been going down over a very long period of time. Inflation has been coming down. This is a global phenomenon. More capital has been coming to the U.S. in the sense that emerging-market economies—people around the world who are wealthier are looking for safe places to invest. . . With lower long-term interest rates, and in a rising short-term environment, you’re going to naturally get a flattening yield curve.”

This reminds me of something former Federal Reserve Chairman Ben Bernanke said in March 2006: “I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come.”

Do you see any similarities?

Was the yield curve signal noticed in 2006? Yes, but it was discounted. At that time, many studies cited reasons why the flat, then negative, yield curve did not necessarily signal a recession. Reasons included low levels of interest rates, reductions in the term premium, and positive signs from other indicators. The issue with the inverted yield curve is that its long lead time—about a year before a recession—often makes it inconsistent with other indicators. For example, while the yield curve is negative, employment is still growing.

​The good news is that the yield curve hasn’t inverted yet and the economy is still registering positive momentum going forward. Even with the arguments of foreign capital flowing into the U.S. and lower long-run inflation expectations explaining why the yield curve has been flattening, maybe this time is different. We'll be waiting to see if the yield curve turns negative.

Ten-year bond rate minus three-month bill rate image
‘Ain’t no (Texas) mountain high enough’ ‘Ain’t no (Texas) mountain high enough’ David JonesJones, D.


​​​​A friend of mine from New York once told me, “Texas would be perfect if only it had mountains." I asked, “What do you think of when you think of mountains?"

“The Appalachians," she replied.

She was surprised when I told her Texas has 56 peaks higher than Mt. Mitchell (6,684 ft), the highest mountain in the Appalachians. In fact, Texas has 63 mountains more than a mile high (measured from sea level).

The next spring she traveled to far West Texas and returned a believer in Texas mountains.

She found some Texas peaks, but they were a long drive from Dallas. Of the 150 “most isolated major summits of the United States," three are in Texas.

Nine of the ten tallest Texas peaks (including El Capitan, above) are in Culberson County where elevation ranges from 2,900 to 8,751 ft. The latter elevation is the summit of Guadalupe Peak, the highest point in Texas.

Of course, when Texans talk about heading to the mountains, they probably are talking about the Colorado Rockies or the Sierra Blanca Mountains of New Mexico. One thing is for certain. They aren't talking about the Appalachians.

Ten Tallest Texas Mountain Peaks

Source: Wikipedia.

Shopping for rural property: Minerals, restrictive covenants, the environment, and taxesShopping for rural property: Minerals, restrictive covenants, the environment, and taxesCharles GillilandGilliland


This is part two of a two-part series designed to help Texans make better real estate decisions about purchasing rural land.

Mineral rights. Mineral ownership can be important for land buyers, especially when less than half the minerals transfer with the ownership. Mineral owners dominate over surface owners. This means a mineral owner, or the lessee, can enter the property to extract minerals without the landowner's permission.

Furthermore, if the current owner has an existing lease with a mineral producer, that lease remains in force even if the minerals transfer with the surface.

TAKEAWAY: Before buying rural property in Texas, always ask about mineral rights and potential mineral exploration.

Restrictive covenants. Some land titles contain restrictive covenants that constrain use. Restrictive covenants are sometimes called deed restrictions, and they typically attempt to ensure a minimum level of land use, such as requiring an owner build a home with specified minimum square footage.

TAKEAWAY: Most problems with restrictive covenants occur when a buyer is uninformed. Identify possible restrictions before the transaction is completed. Both buyer and seller should take them into account.

Environmental regulations. Environmental regulations may signal potential problems for landowners. Consequently, buyers should identify possible issues prior to closing the deal. Endangered species regulations or the presence of wetlands can limit land-use options. In addition, the presence of hazardous substances may create an onerous liability for anyone taking title to land.

Federal law protects designated endangered species and requires the preservation of their habitat. Owners of land inhabited by an endangered species will likely find severe restrictions on land use. In some cases, restrictions have halted most human activity in endangered species habitats.

TAKEAWAY: Be aware of existing endangered species habitats and know about threatened species that may acquire endangered status in the future.

Property taxes. The appraisal method used to determine taxes may affect price negotiations. In Texas, if the current owner is being taxed under the open-space provision, the liability for a potential rollback tax passes to the new owner.

Open –space treatment depends on establishing a record of past and continuing land use for agriculture or timber production. Providing wildlife habitat can qualify as an agricultural use. When land receives open-space treatment, property tax liability depends on agricultural-use value rather than market value.

Generally, open-space status results in a substantial tax reduction. In Texas, however, when land use changes, the tax code imposes an additional tax equal to the difference between taxes based on market value and taxes based on use value for the previous five years. Interest on the taxes is due, too.

Frequently open-space tax treatment creates no difficulties, but potential problems emerge when the seller has benefited from reduced taxes and a buyer adopts a nonqualifying land use soon after purchase.

TAKEAWAY: Changing land use triggers a rollback and imposes a tax lien plus interest on the land. The buyer typically assumes the added tax burden.

A 144-page book Buying Rural Land in Texas by Dr. Charles E. Gilliland is in its second printing and available from the Texas A&M University Press. Texas rural land data by region is available on the Real Estate Center's website.

Buyers unfamiliar with properties in their target area, property values, or the legal documents involved should gather facts and seek help from competent legal and rural real estate professionals. ​

Shopping for rural property: Location, property rights, leases, and undivided interestsShopping for rural property: Location, property rights, leases, and undivided interestsCharles GillilandGilliland


This is part one of a two-part series designed to help Texans make better real estate decisions about purchasing rural land.

Focus on specific locations. To find the r​ight property, make a list of desired property attributes. Clearly define the major land use you envision. Specify the physical characteristics needed to support that use. Soil types, topography, hydrology, access, and numerous other features determine the possible uses of a site.

TAKEAWAY: More than anything else, location defines a tract's appeal and potential.

Understand property rights. Property rights define legal control. Combined with property characteristics, property rights support the land's market value. Both property rights and characteristics have a critical influence on the choice of property and price negotiations.

Identify both physical attributes and detractions. View the property as if you intended to resell it. Consider if there's an attribute that would likely repel other potential buyers; something that's unimportant to you may be a problem when you try to sell it. For example, if a current seller has placed a conservation easement on the land, provisions in the agreement may cause potential buyers to look elsewhere.

Property rights issues encompass everything from verifying ownership to identifying easements and land-use restrictions.

TAKEAWAY: Because they specify the potential legal uses of the land, available property rights may be more important than physical features.

Lease provisions. Initially, existing grazing or farming leases may seem insignificant. Most run for short periods. Many are renewed annually. However, lease provisions may exert a decided influence on the purchase process when they specify a right-of-first-refusal.

You don't want to invest time and resources to locate and negotiate terms for a property if it turns out you just negotiated sale terms for an existing tenant.

TAKEAWAY: Consider passing on properties with a right-of-first-refusal clause, or at least investigate the tenant's appetite for the property.

Undivided interests. Difficulties can arise when several individuals own undivided interests. Undivided interests complicate the negotiation process, especially when not all owners want to sell.

TAKEAWAY: Although they do not automatically guarantee problems, undivided interests may present a negotiating challenge.

Buyers unfamiliar with properties in their target area, property values, or the legal documents involved should gather facts and seek help from competent legal and rural real estate professionals.

Editor's note. The 144-page book Buying Rural Land in Texas by Dr. Charles E. Gilliland is in its second printing and available from the Texas A&M University Press. Texas rural land data by region are available on the Real Estate Center's website.

Dr. Gilliland is the Center's land market expert and has been studying land prices since the 1980s. Known throughout the state as the man to go to if you have questions about Texas land, Dr. Gilliland was inducted into the Farm Credit Bank of Texas Hall of Honor in 2010 for his "significant contributions to agriculture."​

Quick points on Harvard's housing studyQuick points on Harvard's housing studyJosh RobersonRoberson
​​​​​Harvard’s Joint Center for Housing Studies released its 30th Annual State of the Nation Housing Report​ today​. Although their analysis is primarily national in scope, here are just a few key points and their relevance to the Texas housing market.​
  • Homeownership across the country is at a historic low. This has not been the case for Texas. While homeownership rates both nationally and in Texas (currently at around 64 and 62 percent, respectively) have been in decline since the Great Recession, Texas is far from its most recent low point—in the early ‘90s when homeownership dipped to the upper 50 percent range.

  • Immigrant households will play a larger role in growing housing demand. Texas is one of only a few larger states benefitting from positive net migration, which means more people are moving in than out. While much of this migration comes from households moving ​​from other states, that source has tapered down while international households continue to provide steady growth (see figure).

  • Lower-cost neighborhoods (those with homes priced at or below 75 percent of the median home price) in higher-priced metros (those with median home prices at or above $250,000) have realized the highest growth rates over the past five years. This is certainly the case within the Austin and Dallas metros. The map highlights a handful of Austin neighborhoods that fit this description. For more on Dallas housing prices, check out my recent article “Dallas’ Affordability Puzzle.”

  • Overall multifamily housing rent growth is cooling. Much of this is due to falling demand for higher-priced units while lower-priced units remain steady. Like the single-family market in Texas, inventory of lower-priced units is becoming scarcer with much of the new construction pipeline focused on the higher-priced market. For a wealth of information ab​out the apartment market near you, check out the multifamily resources under market research on our website​.​​​​

​​​Texas Net Migration

Austin neighborhoods
Youthful Texas weighs on homeownershipYouthful Texas weighs on homeownershipWesley MillerMiller

​​​​​​The newest report by Harvard University’s Joint Center for Housing Studies (JCHS) reflects on the evolution of the nation’s housing market over the past 30 years. While the quality of the housing stock improved, serious structural issues developed in the aftermath of the 2007 housing crash, such as the sluggish supply-side response and diverging incomes and home prices. These challenges similarly plague the Texas market and were discussed in a previous blog post, “Housing Bubble’s 10th Burst-Day.”

The JCHS study dives deeper into demographic trends that underlie housing demand. Aging baby boomers helped stabilize the U.S. homeownership rate around 64 percent after a decade-long decline. In fact, the 65-and-older age group was the only cohort with higher homeownership rates relative to 1987. As a result of steady domestic and international migration, Texas’ population mix is younger than the national average (Table 1). While this benefits the state’s economic dynamism, it also weighs on homeownership rates. The Lone Star State continually lags the nation by about 2 percent despite relative housing affordability.

2016 Population Distribution

The state’s diverse population presents a similar challenge as racial and ethnic homeownership disparities persist (Table 2). For example, Texans of Hispanic descent represented 31 percent of total housing units, but only 28 percent of those units were owner-occupied in 2016. The gap is even larger for black homeownership and has widened since the Great Recession. These imbalances conflict national consumer surveys on renters, which suggest the desire to own a home transcends racial boundaries.

Percent Owner-Occupied versus Percent Owned
The impacts of today’s housing hurdles, however, are widespread and stretch to all corners of the market. Rising home prices and rental rates are straining Americans’ budgets and living standards. If left unaddressed, diminishing housing affordability could reverberate through the economy and substantially hinder our well-being. With real income levels stubbornly stagnant, attention is directed toward reducing construction costs. The JCHS suggests improvements in federal policies to protect those most vulnerable while addressing the long-run structural issues. Whatever the solution, action is needed before housing affordability becomes a Texas-sized crisis.


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