Haves, have-nots split housing market

Smaller mortgages falling to foreclosures as high-end sales climb

11:20 PM CST on Friday, January 20, 2006

By BRENDAN M. CASE, STEVE BROWN and IEVA M. AUGSTUMS / The Dallas Morning News

In a healthy local housing market, a sign of trouble has appeared: More people are losing their homes to foreclosure than at any time since the Texas real estate bust of the 1980s.

The causes run from bad luck to bad financial decisions: job loss, divorce, a health crisis, skyrocketing energy bills, out-of-control credit card debt, or a mortgage payment that turned out to be unaffordable.

But there also seems to be a sharpening contrast between real estate markets at either end of the economic ladder.

As residential foreclosures jumped 30 percent from a year ago in North Texas, the average mortgage on foreclosed houses fell to $129,000, compared with almost $146,000 a year ago.

Meanwhile, home sales set records last year, with a strong 20 percent increase in sales of homes priced over $400,000. But there was a 4 percent decrease in sales of homes priced below $110,000.

"What we're seeing develop in the marketplace is the haves and the have-nots," said Craig Jarrell, who heads up the Dallas operations of Pulaski Mortgage Co.

"Either you've got money and you've got a job and you're buying a new house and you're rocking along," he said. "Or you're underwater and can't buy a new house, and can't afford the one you're in and you're going into foreclosure."

Newer mortgages, too

That's not the whole picture, of course. The foreclosure hammer also recently fell on an Addison home valued at $1.5 million, a North Dallas house valued at nearly $870,000 and a Coppell property worth about $430,000.

But Connie Zetterlund, a Coldwell Banker Residential agent who specializes in foreclosed property sales, says she's noticed increasing signs of trouble at lower-priced properties.

"The price ranges are a little lower than last year," she said. "There are a ton of foreclosures out there right now."

That's not the only trend. Ms. Zetterlund has also noticed more trouble among newer mortgages, the ones acquired after the economic downturn earlier this decade.

"I'm seeing a lot of properties bought in 2004 and already going to foreclosure," she said.

In a fix

Consumer Credit Counseling Service of Greater Dallas has seen an influx of people coming in with housing concerns.

"With the low interest rate, people are biting off more than they can chew," said Gail Cunningham, the company's vice president of business relations. "They've been extended a loan that really eats up a significant part of their income."

Even some mortgage lenders, worried about rising foreclosures, warn would-be homebuyers against borrowing too much.

"People a lot of times are getting themselves way overextended, and they're taking some nontraditional products," said Gary Akright, a mortgage broker in Dallas with Dominion Mortgage Corp.

One reason is the range of newfangled products such as interest-only mortgages and certain kinds of adjustable rate mortgages. Designed to hold down costs in the early years, payments on such loans can rise sharply later.

Proponents of such mortgages say they help homebuyers in places where home values are rising quickly, or people who plan to live in a home for just a few years.

But think hard about future costs before taking out a mortgage, says Bonnie Peterson, the director of education and marketing at Consumer Credit Counseling Service of North Central Texas, which serves Collin County.

Ms. Peterson, who is having a house built in Princeton, recently went through the mortgage application process and found that lenders were eager to provide her with more money than she wanted to borrow.

"I was qualified for more, but I didn't think I could afford it," she said. "I want to have enough money to live the life I want to live."

More than half the potential foreclosure victims Ms. Peterson sees at work are able to save their homes, especially when they seek financial advice early, she says.

"A lot of people don't want to talk to anyone, or they wait too long," she said.

Bankruptcy option

Another option is bankruptcy, even though a new law that took effect last year made bankruptcy proceedings more onerous. Filing a Chapter 13 bankruptcy gives debtors up to 60 months to repay some or all of their debts. It stops the foreclosure process and gives debtors a way to make their payments.

"If they want to keep their home, bankruptcy is the way to go," said Richard Venable, a consumer bankruptcy lawyer in Bedford.

The last time home local foreclosures were so high was during the "Oil Patch" recession of the late 1980s and early 1990s.

The good news is that today's foreclosures make up a much smaller percentage of the overall housing market because the residential base in North Texas has more than doubled.

Areawide problem

Another difference: Back then, home defaults were often clustered in specific neighborhoods. These days, they're all over.

George Roddy, whose Foreclosure Listing Service Inc. has tracked North Texas foreclosures for more than 20 years, said, "I remember there were subdivisions in the late 1980s that had huge numbers of foreclosures.

"Today we are not seeing that, and it's so spread out that it doesn't focus on a subdivision or neighborhood," he said.

And while in the '80s most people owed more than what their houses were worth, the latest stats show that foreclosed homeowners have at least some equity.

In the last foreclosure boom, lenders dumped houses and it wasn't uncommon to see property values fall by 30 or 40 percent in a neighborhood, Mr. Roddy said.

Now, some real estate investors are looking at the Dallas-Fort Worth area as a place where bargains can be had for lender sales. So far, however, lenders are seeking top dollar for such homes, even if that means keeping them on the market longer, realtors say.

"We certainly haven't seen the value loss like we had in the 1980s," Mr. Roddy said. "But if the foreclosure numbers hold up like we've seen for February, it could be pretty scary."
BY THE NUMBERS

Data from current foreclosure postings in the Dallas-Fort Worth area
DALLAS COUNTY

Average original loan: $90,822

Average age of loan: five years

Average size of house: 1,616 square feet

Average age of house: 30 years

Average tax value of house: $113,475
DENTON COUNTY

Average original loan: $118,378

Average age of loan: three years

Average size of house 1,922 square feet

Average age of house: 13 years

Average tax value of house: $136,400
COLLIN COUNTY

Average original loan: $129,800

Average age of loan: three years

Average size of house: 1,938 square feet

Average age of house: 13 years

Average tax value of house: $146,282
TARRANT COUNTY

Average original loan: $93,448

Average age of loan: four years

Average size of house: 1,667 square feet

Average age of house: 25 years

Average tax value of house: $102,845

SOURCE: Foreclosure Listing Service

Housing troubles expected

Investor pullout will lead to dip in sales in '06, economists say

09:27 AM CST on Thursday, January 12, 2006

By STEVE BROWN / The Dallas Morning News

ORLANDO, Fla. – An investor pullout from the housing sector this year could spell trouble for many U.S. markets.

High-priced home markets and condominiums will be the hardest-hit by an anticipated slowdown in investment activity, the country's top housing analysts said Wednesday.

"We expect housing activity to drop about 8 percent this year – it's primarily because of the investors' slowing purchases," said David Berson, chief economist with mortgage company Fannie Mae.

Mr. Berson and other housing economists were in Orlando this week for the National Association of Home Builders' annual conference and exposition.

All the economists are predicting a dip in home sales in 2006, caused mostly by a decline in investment activity.

"We can't find a period when the investor share of home sales has been higher than in the last year," Mr. Berson said. "In the fourth quarter, it looked like investors were starting to step back."

That's bad news for such cities as Las Vegas, Phoenix, Orlando, Miami and San Diego, where investors account for more than 25 percent of the home purchases.

Nationwide, investor and second-home purchases total at least 20 percent of the market.

Investors also account for a big chunk of condominium sales in cities nationwide, including the Dallas area.

"I've been suggesting that we be careful not to oversupply the condominium market," said National Association of Home Builders' chief economist Dave Seiders.

"Once the investor activity declines, we may be looking at some pretty soft conditions there."

In both the condo and single-family home sectors, the fear is that investors will choose to sell properties or decide not to go through with purchases they've signed up for, the analysts say.

That could lead to oversupply and dropping prices.

"That's the big downside risk to the housing market this year," Mr. Seiders said. "The question is how many units in that hidden inventory will actually come on the market."

The National Association of Home Builders is betting that home starts will drop by around 6 percent this year.

Mortgage rates are expected to rise to an average of 6.6 percent.

And economists are predicting much slower growth in nationwide home price gains in 2006.

"I can't see how we can maintain double-digit house price growth nationwide like we have enjoyed," said Frank Nothaft, chief economist with mortgage giant Freddie Mac.

The drop in investment will take some hot air out of values.

"Investment activity introduced more speculative fervor in valuation of homes and could have pushed home values higher than can be supported," Mr. Nothaft said.

Impact of the investment slowdown will depend on the percentage of such buyers in each market, Mr. Berson said.

"It appears the condo market is slowing considerably," he said. "It's no surprise because that's the type of housing investors most favor – there is no lawn to mow and you don't have to shovel the snow.

"The condo market will almost certainly perform worse than the single-family market," he said. "The single-family market may not move down by much at all."

Dallas housing analyst Mike Puls said he sees speculative buyers leave the local condo market.

"The investors are gone – they are back in the stock market," Mr. Puls said. "That's 30 to 50 percent of the deals."

Investors are leaving the housing market for a variety of reasons, the analysts said.

"Investor demand for housing is more volatile," Mr. Berson said. "Is it the stock market instead, maybe? Maybe it's gold. Maybe it's oil."

Speculative buyers may also cash out of overheated markets in favor of lower-price cities.

"I've heard about some of the investor activity making its way to Texas," Mr. Seiders said. "Price performance in Texas has been relatively slow, and there is some expectation it will accelerate. I don't think that's a good bet to make."

Economists see Texas cities as among the most stable housing markets.

"Texas is one of the better markets in the country," Mr. Berson said. "While many markets are cooling, Texas is picking up."