The Name Game
If you plan to attend a parade or view fireworks on the Fourth, the most fitting locale in which to do so may be one of the nation' s numerous incorporated places with an Independence Day-related name. Texas has a Ben Franklin, Bunker Hill Village, Concord, Franklin, Independence, Jefferson, Lexington, Liberty, Liberty Hill, Old Glory, Saratoga, Washington and Yorktown.

Franklin is the most popular with 37 incorporated places nationwide. Four of these are in Pennsylvania. Franklin, Mass. is the largest with a population of 25,818.

Washington is second with 33 namesakes. Five are in Ohio. Washington, DC, is the largest with 567,094.

Liberty is the third most popular with 27, of which four are in Iowa. Liberty, Mo. (population 21,763) is the largest.

Jefferson has 26 named places. Ohio has four of them. Jefferson City, Mo. is the largest with 36,930.

Lexington ranks fifth with 19 locales. Kentucky and Ohio tie with two Lexington's each. Lexington-Fayette, Ky., is the largest with 237,612.

Other Independence Day-related named places include:

Adams (14) Concord (13) Independence (10) Hancock (6) Philadelphia (6) Bunker Hill (4) Freedom (4) Revere (3) Yorktown (3) Colonial (2) Patriot (1)

The proportion of the Hispanic population ages 25 and older with a high school diploma or better increased from 51 percent in 1987 to 55 percent in 1997. During the same period, those Hispanics who had some college education increased about 7 percent, from 22 to 29 percent. Those with a bachelor's degree increased from 8 to 10 percent.

According to a company survey, 66 percent of sunroom buyers are 40 years old or older and purchase a sunroom as a reward for their hard work. More than 63 percent have been in their homes an average of 14 years.

Existing Home Sales Up Slightly in May --
NAR Predicts Record-Breaking Year
Sales of existing single-family homes rose slightly in May after declining in April, the National Association of Realtors (NAR) said today. The seasonally adjusted annual rate of existing-home sales rose 1.0 percent in May to 4.82 million units. The 4.77 million units in April was 2.5 percent less than the record pace of 4.89 million set in March.

May's resale level was 15 percent more than the 4.19 million-unit rate recorded in May 1997.

NAR President R. Layne Morrill said this pattern shows the trend expected for the balance of 1998.

"After setting a record in March, we have been anticipating a slowdown with sales remaining at exceptionally strong levels," he said. "The market should fluctuate slightly with a gradual slowdown. However, the year should end with a new annual record for existing-home sales.

Currently, NAR projects 4.53 million existing-home sales for 1998. This represents a 7.5 percent increase from the record 4.22 million sales posted last year.

This year's heavy activity is fueled, in part, by increasing numbers of "nontraditional" households entering the market -- immigrants, singles and older homeowners trading down.

According to the "State of the Nation's Housing: 1998," a report released earlier this week from Harvard University's Joint Center for Housing Studies, increasing numbers of immigrants, minorities and singles, along with aging baby-boomers, will reshape the nation's housing market in the next decade.

The national median existing-home price was $130,500 in May, up 6 percent from May 1997.

Store Wars: Retail Styles Changing
By Mark G. Dotzour, chief economist, and Mimi Mize, graduate student

Just as fashion trends change on a continual basis, the retail real estate marketplace is constantly evolving. Here are some examples.

Convenience Discount Stores. These are big business once again. Dollar General, the fastest-growing U.S. retailer, plans to open as many as 500 stores this year alone. They establish small stores close to the center of town, targeting lower-income families with annual earnings of less than $25,000. Family Dollar is another rapidly growing competitor.

Wal-Mart's Response. In response to the success of the fast-growing convenience discounters, Wal-Mart has announced plans to test the appeal of much smaller stores, 40,000 square feet, compared to their standard size store of approximately 92,000 square feet. Prototypes are planned for Springdale, Sherwood and Bentonville, Arkansas. These stores will carry a limited selection of groceries, general merchandise and operate drive-through pharmacies. Wal-Mart is not, however, deserting the big store concept. They are opening 50 traditional discount stores, ten warehouse clubs and more than 100 supercenters nationally.

Changing Fashions. Casual attire is gaining popularity in the workplace. Cashing in on the trend, Nine West Group Inc. plans to convert their stores to "integrated accessory stores" by selling a new jewelry line, sunglasses, leather jackets and eventually clothes. The Limited Inc. also is restructuring. The company will close 200 under-performing stores in their women's apparel chains of The Limited, Lerner, Lane Bryant and Express. In addition, Limited Inc. will close the 118-store Cacique lingerie chain. "Brown shoes," leather hiking boots and walking shoes are becoming more popular with younger buyers who have traditionally driven the footwear market. This trend has reduced the demand for sneakers, and Nike has announced it will lay off 3.5 percent of its domestic workforce of 450 employees. Woolworth, a major player in the sneaker industry, has unveiled a new company name to escape its five-and-dime image. They will be called Venator Group.

Auto Superstores. Auto superstores are running into some consumer resistance, the greatest obstacle being the non-negotiable sticker price. A study by J.D. Power and Associates found customers like the fancy showrooms and customer service but not the higher prices. With 18 stores, CarMax has yet to post a year-end profit. However, they plan to operate as many as 80 stores by the end of 2001. AutoNation USA has 26 stores, with eight more to open this year. That is down from the 18 new stores planned originally. Driver's Mart Worldwide has 12 franchised stores.

Musical Instruments. The music business has officially entered the world of "big box retail" with two major players. Guitar Center, a Sunset Boulevard native since 1964, has 38 stores and proposes to open eight more this year. The stores are 12,000 to 15,000 square feet -- more than four times the size of an average music store. Their strategy is to take market share from the 6,500 mom-and-pop stores that have dominated the business for decades.

Movie Mergers. A proposed merger between Cineplex Odeon Corp. and Sony Corp.'s Loew's Theaters Exhibition Group may result in the closing of many under-performing theaters or those in overlapping locations. Prior to the merger, the two companies had plans to open some 480 screens in 31 locations in the next two years.

Mall Ownership Consolidations. TrizecHahn Corp. is selling 20 of its retail malls to Westfield Co. and Rouse Co. -- 13 and seven respectively. Retail property giants, like Westfield and Rouse, are consolidating the ownership of the nation's malls in an effort to increase returns through economies of scale. Another approach to increasing mall returns is to incorporate elements of entertainment and recreational sports. This is planned for Newark and Columbus, New Jersey, by the duo of Glimcher Realty Trust and Michael Ovitz, former Hollywood superagents.

For more information, go to http://www.nahb.com/most.html

Source: Remodeling magazine, 1997-98 Cost Versus Value Report.

Importance of Housing
Last week was National Homeownership Week sponsored by the National Partners in Homeownership, a mix of more than 65 national organizations, including the National Association of Realtors. According to the latest NAR statistics, here's how important housing is to the nation's economy.

	•	Existing home sales reached a record high in 1997 of 4.215 million units sold. Condominium and co-operative sales reached a pace of 558,000 units.
	•	The real estate industry accounts for some 8.9 million jobs.
	•	Approximately 52 percent of America's real estate value is in residential structures and land.
	•	Nearly two-thirds of all American households own their own home, putting the national homeownership rate at 65.7 percent -- an all-time high.
	•	Homeownership is highest (80.3 percent) among the age group 55-64 years old.
	•	Repeat buyers account for 55 percent of all home sales while first-time buyers account for 45 percent of all home sales.

Forest Landowners See 'Golden Age'
East Texas -- Political and marketing conditions have come together to make today a "Golden Age" for forest landowners, according to the vice president of Forest Landowners Associations. Dramatically increasing stumpage prices and lower taxes mean higher returns to forest landowners. "You are really in the driver's seat right now," says Steve Mewton, speaking to participants at the Texas A&M University Agricultural Research and Extension Center in Overton, Texas.

Rising stumpage prices have been the most influential factor in this Golden Age, he says. From 1988 to 1998, timber stumpage prices for softwood more than doubled while pulpwood stumpage prices dramatically increased as well. Likewise, hardwood timber prices have nearly doubled.

"This price rise is highly comparable with what's been happening in the stock market in the last ten years," Newton says.

A reduction in taxes -- primarily capital gains -- has helped fuel the hot market. Under revised capital gains tax laws, sales tax on timber sold between May 7, 1997, and July 28, 1997, were reduced from 28 to 20 percent. On sales between July 29, 1997, through December 31, 1997, taxes were similarly reduced but with an 18-month holding period. In the year 2001, the rate drops to 18 percent on capital assets held more than five years and acquired after the year 2000.

Newton warns the current good times for forest landowners could end quickly. As a rule, neither urban conservative nor urban liberal legislators understand modern forestry and could pass legislation restricting or penalizing forest landowners, he says.

Newton is aware of how quickly public opinion could turn against forest landowners over negative environmental events -- such as unnecessarily silted streams -- resulting from timber harvests.

"That's why it's so important for forest landowners to adhere to the best management practices. Only a few instances of poorly managed logging could lead to repressive legislation," he says.

Special Report: Rural Land Outlook
By Dr. Charles E. Gilliland, research economist

Because non-agricultural buyers dominate much of the Texas rural land market, rural land price trends directly parallel the non-farm economy. However, larger properties and remote rural land prices are more responsive to changes in the agricultural economy. Currently, farmers are devising new strategies to deal with governmental policies designed to end payments to farmers. Cotton farmers are switching to corn and other commodities with lower production costs and possibly higher profit margins.

Cash Transactions Galore
In 1997, Texas rural land buyers willing to invest $250,000 to $400,000 had plenty to choose from. Some large farms and ranches were subdivided into smaller tracts. Even some large, remote ranches were divided into sections (640 acres) for resale. Few of the sales involved borrowing as there were many cash transactions. When buyers needed money, however, they most often turned to the Farm Credit Bank.

Quality, Location Sought Most
Texas rural land buyers seek quality and location more than any other characteristics. However, as larger ranches are subdivided, strain on the infrastructure of surrounding communities increases. Demands for better schools and roads may follow.

Today's rural land buyer is most likely a merchant or other businessperson bringing cash from businesses that prospered in recent years. Many purchases involve a 1031 tax-free exchange. Buyers are not as concerned about mineral rights as they are availability of wildlife and the potential for establishing an effective game-management program.

Endangered Species Worries
Landowners see a series of legal and political problems ahead. Congress is struggling to renew the Endangered Species Act with its land-use restrictions more or less intact. Landowners and potential land buyers view these restrictions as a source of uncertainty and potential restriction to their use and enjoyment of the land.

Treaty Tempest
Potential EPA moves to extend their authority over agricultural operations has become a concern. The environmental treaty negotiated in Japan calls for a dramatic reduction in pollution. Some agricultural interests project this could impose severe cutbacks in agricultural use of fuel soon after the turn of the century. While current plans do not call for U.S. ratification of the treaty, agricultural leaders are worried.

Property Taxes
Property taxes continue as a major Texas issue. This growing concern may be the result of sizable boosts in tax rates as well as recomputed agricultural use values.

Water Wars
Water rights are a concern for many Texans. As plans for allocation and management of water in the Edwards Aquifer become clear, an active market for water rights is likely to surface. Observers have identified several transactions where water rights have been transferred without land. If this market continues, some irrigated land will become dry land as owners sell their water rights. In some locations, brush land values are approaching and exceeding non-irrigated cropland values because of strong demand for hunting and recreation. Consequently, owners of non-irrigated cropland may allow it to return to native brush.

Drought Distress
The specter of drought adds to the distress in the lower Rio Grande Valley irrigated land markets. The 1995 bout of dry conditions remains a grim reminder of the havoc nature can visit on farm and ranch lands. The dry conditions of 1995 may have left some areas especially vulnerable to drought.

Optimism Reigns
Despite the litany of concerns, observers of the Texas rural land market remain optimistic over prospects for higher land prices. For more information, see the upcoming July 1998 issue of Tierra Grande magazine from the Real Estate Center at Texas A&M University. Regional price data can be found on the Center's Web site at http://recenter.tamu.edu.

Median Land Values
The latest survey of rural land prices by the Real Estate Center at Texas A&M University shows rangeland prices averaging $75 per acre in the westernmost counties of the southwest Panhandle along the New Mexico border. The highest rangeland price reported was the $1,150 per acre value reported in the Highland Lakes market west of Austin.

Irrigated farmland values ranged from a low of $450 per acre around Houston to $1,150 per acre in the Rio Grande Plains in the Rio Grande Valley northwest of Brownsville.

Number of Texas Houses for Sale Down 10 Percent
So far in 1998, the number of Texas houses for sale through the state's 45 Multiple Listing Services (MLS) is 10 percent less than last year. The Galveston MLS reports the biggest decline, 30 percent. Arlington and Brownsville each report a 22 percent decline. Northeast Tarrant County is down 18 percent.

The only MLSs reporting more houses for sale in April 1998 than April 1997 were Abilene (+10 percent), Brazoria County (+4 percent), Lufkin (+11 percent), Paris (+3 percent), Tyler (+14 percent), Victoria (+3 percent) and Wichita Falls (+2 percent).

With more houses selling in April, and fewer homes available for sale, the housing market has tightened, resulting in houses selling faster.

Sales of Existing Homes Slide in April
The National Association of Realtors said today that existing U.S. single-family home sales declined in April from the previous month's record pace but remained "exceptionally strong." The seasonally adjusted annual rate of existing single-family home sales was 4.77 million units in April, down 2.5 percent from the all-time high resale rate of 4.89 million units reported in March. The April pace was 18.1 percent more than the 4.04 million units recorded in April 1997.

A decline in activity had been expected following the hectic activity in March -- the busiest month since NAR began tracking existing home sales in 1968.

The national median existing-home price for April was $128,200, an increase of 6.2 percent from April 1997 when the price was $120,700.

The national average commitment rate of a 30-year, conventional fixed-rate mortgage was 7.14 percent in April, compared to 7.13 percent in March and 8.14 percent in April last year.

Last year, average Texas payroll employment rose 4.2 percent from the previous year. That compares to a gain of only 2.3 percent for the nation as a whole.

Manufacturing employment in Texas increased 2.4 percent, compared to only 0.4 percent for the nation. All of the job gain came in durable goods -- those industries producing goods expected to last more than a year. Meanwhile, nondurable good production recorded a slight employment loss.

"Perhaps the greatest surprise," says Hazleton, "among the state's employment numbers is the strong rebound in the energy sector. Despite sagging oil prices, Texas mining employment rose 5.7 percent last year."

Hazleton notes the oil industry apparently survives because major technological improvements have lowered the cost of finding and producing petroleum and natural gas.

Above-average population growth, fed not only by natural increase (births minus deaths) but also by inmigration to many areas of the state, helped fuel solid job growth in construction (+5.1 percent), transportation and public utilities (+4.8 percent), trade (+3 percent), finance, insurance and real estate (+4.1 percent) and services (+7.3 percent.)

"The growth in services employment is particularly exceptional," says Hazleton, "because the nation in general had only a 3.5 percent rise in jobs in this sector."

Appellate cases are few because most complaints are handled internally by local boards of Realtors. A system of arbitration eliminates many controversies before they reach the courts.

Second, if litigation occurs, the case will not appear in a reporter system unless the case is appealed beyond the basic trial court level. In Texas, that is the district court. Because of time and expense, few controversies are appealed.

If the controversy is litigated and a substantial sum of money is at stake, the client most likely will not sue for a breach of the code of ethics. There are more lucrative avenues of recovery.

For more information, read Fambrough's "Canons of Professional Ethics and Conduct" in the next Letter of the Law.

The proposal allows landowners to annually dispose of as much as 2,000 pounds of non-commercial litter or other solid waste on their land without a permit. Among the limitations and requirements are that the disposal cannot cause a nuisance or endanger health or the environment.

On appeal, the oil company argued that when temporary damages are not economically feasible to rectify, they may be deemed permanent. Permanent damages are limited to the fair market value of the property.

The court agreed, reversed the judgment and sent the case back to the lower court.

Falling Interest Rates Raise TX House Prices, Sales
College Station -- Mortgage interest rates fell to a four-year low in the first quarter, spurring higher home prices and sales volume across Texas. "The average interest rate on loans closed in Texas during the first three months of 1998 was 7.1 percent," says Jack C. Harris, research economist with the Real Estate Center at Texas A&M University. "That's a one-half percentage point drop from the same period in 1997."

Largely because of lower rates, says Harris, the median price of a home sold through Texas Multiple Listing Services rose 5.7 percent to $92,500. Meanwhile, estimated median household income rose only 2.2 percent to $37,300.

The rise in prices largely off-set the effect of the lower rates on affordability," says Harris, who monitors the Texas Housing Affordability Index (THAI). "During the year, the THAI rose from 1.46 to 1.48."

An index of 1.48 means that the median household income was 48 percent higher than the amount needed to buy the median priced home (with a 20 percent cash down payment). It is estimated that 66 percent of the state's households have enough income to purchase the median-priced home.

"A strong surge in demand for homes fueled higher prices," says Harris. "The state's Realtor associations reported 32,000 home sales in the first quarter, an increase of 14 percent from one year ago. At the same time, the inventory of homes listed fell by 7.6 percent."

Last year, average Texas payroll employment rose 4.2 percent from the previous year. That compares to a gain of only 2.3 percent for the nation as a whole.

Manufacturing employment in Texas increased 2.4 percent, compared to only 0.4 percent for the nation. All of the job gain came in durable goods -- those industries producing goods expected to last more than a year. Meanwhile, nondurable good production recorded a slight employment loss.

"Perhaps the greatest surprise," says Hazleton, "among the state's employment numbers is the strong rebound in the energy sector. Despite sagging oil prices, Texas mining employment rose 5.7 percent last year."

Hazleton notes the oil industry apparently survives because major technological improvements have lowered the cost of finding and producing petroleum and natural gas.

Above-average population growth, fed not only by natural increase (births minus deaths) but also by inmigration to many areas of the state, helped fuel solid job growth in construction (+5.1 percent), transportation and public utilities (+4.8 percent), trade (+3 percent), finance, insurance and real estate (+4.1 percent) and services (+7.3 percent.)

"The growth in services employment is particularly exceptional," says Hazleton, "because the nation in general had only a 3.5 percent rise in jobs in this sector."

NAR Predicts Market to "Coast"
Washington DC -- Following record sales rates of existing homes during the first quarter, the housing market is expected to ease into a "more sustainable pace and mirror the national economy," according to the latest outlook from the National Association of Realtors (NAR). Housing market activity has been unprecedented and is now coasting along at extremely strong levels, says Dr. Fred Flick, NAR vice president of economic research.

"We expect a slight downward trend from record sales rates over the balance of the year. However, the current projected 4.37 million existing-home sales for 1998 will be 3.6 percent above last year's record of 4.22 million sales," says Flick.

To place this volume in perspective, Flick points to what is generally considered an economic threshold of 3.5 million existing-home sales. When there is a sustained volume of home resales at or more than 3.5 million, that level of housing activity provides an economic stimulus to other sectors of the economy. Consumers buy furniture, appliances, carpet, drapes and many other items and services connected with real estate transactions. NAR projects existing-home sales to stay above 4.22 million each year through the year 2000.

New home sales are expected to rise 3.1 percent in 1998 to 834,000 units, surpassing the previous record of 819,000 sales recorded in 1997. Housing starts should rise 2.6 percent to 1.52 million units, the highest number since 1987 when housing construction hit 1.62 million units.

NAR's forecast calls for the national median existing-home price to rise 3.7 percent in 1998 to $128,700, with the median new-home price increasing 6.5 percent to $154,200 this year.

Texas Home Sales Outpacing Last Year
Sales of existing Texas homes are running 14 percent ahead of last year. Data collected by the Real Estate Center at Texas A&M University show more than 32,000 homes sold through Multiple Listing Services (MLS) in major Texas cities.

Among the biggest gainers are the MLSs in:
  Brazoria County (+80 percent)
  Galveston (+51 percent)
  North NASA (+40 percent)
  Paris (+35 percent)
  Port Arthur (+31 percent)
  Brownsville, Fort Bend and Tyler (+29 percent)

Houston is leading the largest cities, running 28 percent ahead of 1997. Dallas and Austin are up 21 percent while Fort Worth is 16 percent higher. San Antonio is 12 percent ahead of last year.

Markets where fewer MLS home sales than last year have been recorded:
  McAllen (-33 percent)
  San Marcos (-12 percent)
  Sherman-Denison (-5 percent)
  Odessa-Midland and Palestine (-3 percent)
  Temple-Belton (-1 percent)

The complete MLS report of home sales in 1998 can be found in the May issue of TRENDS, a monthly statistical report from the Real Estate Center. The data also are available on the Center's Web site at http://recenter.tamu.edu/data/data.htm.

Median price declines were reported by Paris ($56,200 or -19 percent), San Marcos ($82,500 or -15 percent), Palestine ($53,000 or -9 percent), Montgomery County ($102,900 or -8 percent) and Port Arthur ($55,200 or -8 percent) and El Paso ($75,900 or -2 percent) and San Antonio ($82,500 or -2 percent).

NAR Reports Record Sales
Sales of existing single-family homes have risen to unexpectedly high levels, setting a new record in March, according to the National Association of Realtors (NAR). The seasonally adjusted annual rate of existing-home sales was 4.89 million units in March, 2.5 percent higher than the 4.77-million unit rate in February. That is the highest since NAR began tracking sales in 1968.

NAR President R. Layne Morrill describes homebuyer demand as "unprecedented." He says, "Sales were at extraordinary levels in February, and the momentum continued."

The national median existing-home price was $127,000 in March, an increase of 5.8 percent from the same month last year.

"The higher price results partly from more purchases of homes at the upper end of the price range," says Morrill.

NAR consulting economist John A. Tuccillo says the sales record results from a familiar set of economic conditions.

"As a nation, a lot of wealth has been created over the last few years. Combined with very good affordability conditions, high consumer confidence, low unemployment and growing demand from immigrants and minorities as well as tradeup buyers, all sectors of the housing market are doing exceptionally well. Although sales levels likely will taper off in the months ahead, the association is expecting a record 4.35 million existing-home sales this year, up 3.2 percent from the previous record of 4.22 million sales in 1997."

In the South, the home sales pace of 1.89 million units in March rose 1.6 percent from 1.86 million units in February and jumped 24.3 percent from March 1997. The median sales price of existing homes in the South was $111,700 -- 7.2 percent higher than a year ago.

Fannie Mae Slams Gate on Texas RAMs
The Federal National Mortgage Association (Fannie Mae) has decided to hold off entering the Texas reverse annuity market (RAM) until it is determined whether a RAM following their criteria can be offered legally in the state.

The problem arises from the long and detailed list of qualifications placed on RAMs by the constitutional amendment passed by voters in November. In some cases, these requirements force the lender to take on risks greater than those associated with RAMs made in other states.

For example, it is not clear if the lender can demand specific performance or repayment of the loan following death of the borrower. In addition, requirements -- such as the ban on credit line accounts funded by a RAM -- make the loans less appealing to borrowers as well. Such accounts are more popular than periodic payment plans, yet the accounts cannot be offered in Texas.

Until Fannie Mae begins to buy Texas RAMs, borrowers probably will be unable to find lenders willing to make them. For this to happen, the Texas Constitution will need further modification. It most likely will be several years before RAMs are a reality in Texas. In the meantime, those interested in seeing RAMs available in Texas might consider contacting their state legislator.

"The threshold question in landowner liability cases is the legal classification of the injured party," says Center attorney Judon Fambrough. " The status determines the duty owed by the landowner. Excluding children under the Attractive Nuisance Doctrine, three classifications exist under the common law -- trespasser, licensee and invitee.

Trespassers enter the property without the owner's express or implied permission or invitation. The owner must avoid injuring the trespasser in a willful or wanton manner or through gross negligence.

Licensees enter the property with the owner's express or implied permission. Licensees enter for their own convenience and not for the economic benefit of the owner. Social guests are an example. The owner is obligated to warn or make safe any known dangerous conditions that are not reasonably apparent.

Invitees enter the property with the owner's express or implied invitation for business reasons. Customers entering a store are invitees. The owner must warn or make safe any known dangerous conditions or any dangerous conditions that a reasonably careful inspection would reveal.

Liability for injuries rests on the party in possession and control of the premises. This may not be the owner. It could be the commercial lessee or management company. When criminal activity is involved, the party who controls or has the right and power to control the safety and security of the area is responsible.

NAR Expects Record Homes Sales
In its latest outlook for the economy and real estate, the National Association of Realtors (NAR) forecasts a new record for existing-home sales. Buoyed by low interest rates, high consumer confidence, low unemployment and a growing economy, sales of existing single-family home sales are expected to increase 3.2 percent to a total of 4.35 million units in 1998.

After setting new records in 1996 and 1997, existing-home sales were expected to cool off with the aging of the baby boom, and demand by first-time buyers was expected to ease. What was not expected was the growing number of singles, minorities and immigrants who are buying their first home, allowing existing owners to trade up to larger homes. This steady activity in the entry-level and trade-up markets has kept all sectors of the housing market consistently strong.

The NAR forecast calls for new home sales to rise 3.1 percent to 833,000 in 1998. Housing starts are projected to grow 2.7 percent to 1.52 million. Thirty-year, fixed mortgage rates should average 7 percent this year, says NAR, down from 7.6 percent in 1997.

Home prices are rising a little faster than historic norms, notes NAR. Traditionally, home prices increase at the rate of inflation, plus one or two percentage points. NAR projects the median existing-home price to rise 3.9 percent this year to $128,900, while new home prices are projected to increase 5.9 percent to a median of $153,200.

Outlook for Houston's Commercial Real Estate
by Dr. Mark G. Dotzour, chief economist, Real Estate Center
Barring any unexpected spread of the financial upheaval in the Asian markets, 1998 is most likely to shape up as a very good year for the commercial real estate market in Houston. There are several factors that have converged at the same time and created a strong interest in Houston commercial real estate investment and development. First, the U.S. economic expansion which began in March 1991, has continued for some 80 months. The longest post-war expansion (began in 1961) lasted 106 months. Consensus economic forecasts expect the economy to continue to grow this year but at a slower pace than last year. Consequently, continued job growth should continue to fuel demand for office, retail and industrial space in 1998.

Second, interest rates are expected to remain low. Although the economy is expanding rapidly, international competition and increasing worker productivity is keeping a lid on price increases. The producer price index, consumer price index and the price of gold all point to low inflation and low mortgage rates. Low interest rates make every commercial property look more attractive.

Third, continued expansion of securitized commercial mortgages is another factor that is lowering the cost of borrowing for many commercial investors. As this market continues to mature, the spread between commercial mortgage rates and U.S. Treasury securities has declined. This means the cost of mortgage money in the commercial markets has declined because investors now view pooled commercial mortgages as a relatively safe, fixed-income investment.

Fourth, the lengthy business expansion has allowed much of the vacant commercial product to be absorbed, and vacancy rates in all sectors of the Houston commercial market have been declining steadily during the past three years. The robust Houston economy has absorbed much of the vacant space, and rents have been increasing steadily at the same time.

Fifth, real estate investment trusts played a significant role in the Houston market in 1997. They are likely to continue to do so in 1998. Houston is currently viewed by some in the REIT industry as a more attractive market than Dallas because of the higher levels of new construction going on in the Metroplex. In the first half of 1997, REITs recorded a record 107 secondary equity offerings raising $9.6 billion and nine initial public offerings that raised $7.3 billion. The National Association of Investment Trusts estimates that more than 8 percent of all commercial property in the United States is now managed by REITs. REITs have recently outperformed the broader stock market in the third quarter, earning an 11 percent total return, compared to 7.49 percent for the S&P 500. This kind of superior investment is likely to encourage continued high levels of investment in REITs for 1998.

Views of the Economy
Today's "Texas Journal" section of the Wall Street Journal quotes two Real Estate Center reseachers regarding the state's economic concerns. Chief Economist Mark Dotzour contrasts commercial construction in the 1980s with today. Research Economist Charles Gilliland discusses the "glut of office space that undermines rents."

Arlington reports the biggest acceleration in home sales. The 79 days-to-sell in Arlington is 39 percent fewer than a year ago. Fort Bend County reports the second biggest decline -- 30 percent. Several areas have declines of 20 percent or greater. These include: Dallas (-20 percent), Galveston (-23 percent), Garland (-26 percent), Houston (-25 percent), Montgomery County (-20 percent), North NASA and Northeast Tarrant County (-21 percent each), Plano (-23 percent), Port Arthur (-22 percent) and Sherman-Denison (-20 percent).

Overall, Texas had 71,229 existing homes listed for sale through Multiple Listing Services at the end of February.

Data on Texas markets is maintained by Mark Baumann of the Real Estate Center staff. The latest statistics can be found on the Center's Web site at http://recenter.tamu.edu.