Sunday, June 04, 2006

North Texans Buying With Heart, Not Head

A pair of reports provide an update on the foreclosure situation in Texas. "If the foreclosure statistics in North Texas are any guide, we don't have to worry about a housing bubble. But that doesn't mean we're immune to hard times in real estate. More than 3,200 Metroplex homes were posted for Tuesday's foreclosure auctions. That's 13 percent more than a year ago, and more than twice as many as June 2002."

"The number of distressed properties has been climbing at double-digit rates, and North Texas added more foreclosures in April than any metropolitan area in the nation. Many experts project that local foreclosures will continue to increase. Interest rates are rising, property taxes and insurance are up sharply, and aggressive loans have put more home buyers at risk, especially as adjustable mortgages reset."

"And unlike other parts of the country, there hasn't been enough price appreciation to bail out overextended borrowers. When Texans try to refinance their loans to take out cash or get lower adjustable mortgages, many discover that they don't have much equity to tap. Some would even have to bring cash to the table to close a deal."

"'A lot of people did this creative financing three or four years ago, and it's starting to catch up with them,' says Jim Brown, a title company executive who has been tracking Tarrant County foreclosures for 35 years. 'It's going to continue to get worse, at least for the next 12 months.'"

"Rockwall County, often cited as one of the nation's fastest-growing counties, had the highest foreclosure rate; one for every 136 households. Rockwall, east of Dallas, had a 35 percent increase in April foreclosures."

"Homeowners already feel it, even if they're not among those who have financial trouble. In Dale Erwin's subdivision in west Fort Worth, he says that seven of the 220 homes are in some stage of foreclosure. And that puts a damper on home prices. His real-estate firm sells foreclosed properties, so he knows the fallout. His home was built in 2000 for $119,000, and he believes that it was worth $140,000 two years ago."

"'Today, if I could get $130,000, I'd be lucky,' Erwin says. 'The homes haven't depreciated in value, but the foreclosures are having an effect.'"

"John Baen, a real-estate professor at the University of North Texas, still believes that the local market will get worse before it gets better. He calls the current condition a perfect storm for the industry. Home inventories and foreclosures are climbing, adding to the supply. And interest rates and other living expenses are rising, while salaries are flat."

"'Right now is as good as the real-estate market is going to be this year,' Baen says. 'Come this fall, it's going to get real cold, unless we have an influx of people into D-FW.'"

And from Wichita Falls. "Buying with the heart, not the head, is how one financial adviser explained Texas' lead among all states in the number of home foreclosures. Wichita Falls is no exception to the trend."

"Monday's Times Record News listed 52 foreclosures filed in Wichita County May 22-28. Linda Barbosa with the county clerk's office said workers there have noticed a definite increase in filings over the past year or so."

"'A lot of people are getting into more house than they can afford,' said Gail Cunningham, VP of Consumer Credit Counseling Service of Dallas. She said counselors in her company's Wichita Falls office have seen more consumers coming to them with problems paying their mortgages. She also blamed what she called 'exotic' mortgages, and she pointed out that families with adjustable rate mortgages are seeing their monthly payments increase as interest rates climb."

"Attorney Billy Elder said many of the foreclosures he handles as trustee result from owner-financing deals. He said home sellers who can't easily find buyers often turn to owner financing as a last resort. They often sell to people with troubled credit histories, he said. He said often the property comes back to haunt the seller."

"Elder said he's noticed the number of foreclosures go up over the past six months, and he blames it in part on different attitudes among buyers. 'People just don't feel the moral obligation to pay their debts like they once did,' he said."


At 2:22 PM, Blogger Ben Jones said...

'seven of the 220 homes are in some stage of foreclosure. And that puts a damper on home prices.'

This comes up a lot; how many foreclosures does it take to bring down prices. This guy deals in foreclosures and lives there, and he feels he's taken an 8% price cut on a 3% default rate.

At 7:32 PM, Blogger Chip said...

Based on nothing but an understanding of statistics, probabilities and simple math -- that sounds about right. When three houses in a 200-house neighborhood sell for substantially below previous comps for the same size/etc., I'd think future appraisals would include the ~8% drop. I certainly would lower my offers by more than that, as a buyer.

At 4:27 AM, Blogger wmbz said...

'People just don't feel the moral obligation to pay their debts like they once did,' he said."

Sad but very true, IMO.


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