Prices Falling Because Of ‘Inundation Of Homes For Sale’
The Carrollton Leader Star reports from Texas. “Although the sale of homes in the area is rising, local realtors are telling a different story than the numbers. The market is flooded with existing homes, but new home developments have made it hard for realtors to turn a home quickly.”
“‘Today’s buyers are not buying anything like they use to, they have so many choices,’ said Luella Blaylock, (realtor) in Carrollton.”
“Blaylock said developers have offered up to $20,000 worth of free upgrades, something a realtor can’t give on an existing home. New home prices were falling because of the inundation of existing homes for sale. People move and the house will sit there until a price between the seller and buyer is agreed upon.”
“‘The numbers look good, but the homes are sitting there,’ Blaylock said.” “The market in Flower Mound is experiencing some of the same symptoms as Carrollton. ‘I wouldn’t say the prices are falling. There isn’t any appreciation right now, but I haven’t seen any appreciation in the last six months,’ said Jack Hurst, a 20-year real estate veteran.”
From My San Antonio. “Nearly 850 Bexar County residents lost their homes to foreclosure Tuesday, the third-highest monthly total in more than a decade. The slew of foreclosures is reminiscent of the late 1980s when oil busted and the San Antonio real estate market crashed.”
“‘Lenders are making riskier loans,’ said Jim Gaines, research economist with the Texas A&M Real Estate Center. ‘Some of that risk is coming home to roost.’”
“People who buy a home with no down payment and who roll closing costs into their mortgage loan seem especially vulnerable to foreclosure. These ‘upside-down’ loans make up only about 1 percent of all mortgage loans in San Antonio, according to a mortgage research firm.”
“But in the first half of 2006, they made up 16 percent of the Bexar County foreclosure market. George Roddy, president of Foreclosure Listing Service, said interest rates on adjustable-rate mortgages, known as ARMs, are resetting at higher levels now, sometimes doubling monthly mortgage payments. And consumers have had a harder time getting bankruptcy protection.”
“In 1996, 3,894 Bexar County homes were sold at the foreclosure auction. So far this year, 6,510 homes have sold at auction.”
“Gregg Stanley, owner of a San Antonio-based foreclosure listing service, said the rise in local property values has helped many families avoid foreclosure. ‘They can sell and be OK if they do it quickly enough,’ he said.”
“Without the rise in property values, Stanley said, foreclosures would be double or triple the current levels.”
“In the late 1980s and early 1990s, people typically lost their homes to foreclosure because of an economic downturn that led to layoffs. ‘This isn’t the ’80s,’ Gaines said. ‘In the state of Texas we’ve had a lot of people buying homes in the last two or three years on easy credit terms. Lenders are pushing mortgages out the door.’”
“Gaines said people who never thought they could become homeowners have been able to get into the market and, for the most part, hang onto their homes. ‘Was it a good thing or a bad thing? I don’t know where you draw the line,’ Gaines said. ‘These were people who were giving it a shot who were never able to give it a shot before.’”
Rolling the closing costs into the mortgage? Ouch! That’s worse than financing the seller’s “free car included with home purchase” over 30 years.
And yet these clowns are on the radio all day touting no closing cost loans. There is no such thing.
http://www.lenoxhomeloans.net/
I live in San Diego and I can’t tell you how many of those radio commercials I hear each day…it’s no wonder there are so many FBs and GFs here.
Of course there is a such thing. But the trick question becomes what is the rate.
The rooster thinks the sun rises because he crows. Prices are just plain old everyday ordinary falling. There is no “because.” Alright there’s dozens of “becauses.” The stupid realtors are even drinking their own kool-aid. The word on the street is that they are refusing listings. I’ll bet they are thinking to limit the supply that way. What they don’t know is that there are so many real estate agents on the edge that the correct model is not an ogliopoly but a tragedy of the commons.
Robert,
It’s possible that realtors are refusing listings to limit supply. I think it’s more likely that listings being refused have stubborn owners with inflated expectations.
If you were a realtor, would you take an overpriced listing with little chance of selling?
If I was a good realtor I’d discourage these wishing price listings but I’m not the only realtor. The wishing seller (as opposed to willing seller) can shop for an agent.
Then there’s a new twist. For the last 10 years there’s never been the current problem; people who CANNOT sell. They don’t have enough money. This is the evil reverse side of the no money down coin. I can fully imagine the prospective seller going to the realtor and presenting the balance, the 2nd, the defered upkeep, and being told they need more money in the bank before the listing is possible. Realtor imagined advice; “Look, go home, fix everything as cheaply as you can. Save money, buy down the CCards and roll the 2nd into a new transferable fixed note. Then when you are ready, say in the spring, we’ll hope the market is better.”
“say in the spring, we’ll hope the market is better.”
Spring will be panick mode and blood in the streets.
We are still far from panic. The analogy is surfing. Some of us had a good ride and kicked out. Others have milked the ride. There’s still other people on their boards and the curl is closing out. These people are in the shallow shoals and don’t have the time to paddle out to the safe deep water when the big waves roll in. Panic is going to be ugly. You won’t be able to tear your eyes away. Stuff people never imagined until it happens. Get back to me when the arsonists hired by a desperate flopper torch the wrong house and kill a family.
Robert posts “We are still far from panic.”
Great Post and this in Ca. is spot on! We are just now begining to feel the flame. For the holdouts here…. the toothpaste is out of the tube and nothing can be done about it.
the dot.com crash of march 2005 had an unexpected 1 day drop of over 500 points on the Dow. The Real Estate market of 2006 has the same feel.
If there are no qualified buyers, if all the flippers are cash poor, and sellers are facing arm resets, job transfers, layoffs, divorce, and are just plain running out of money…CRASH! BOOM! BAH!
“Panic is going to be ugly. You won’t be able to tear your eyes away.”
TV News footage of a reporter getting attacked by a housing scam artist may provide indication of what’s to come…
Good point robert. As a buyer entering a transaction you could theoretically consider yourself underwater as soon as you buy the house. If you use a realtor at 5% you would have to get the price you paid for the house plus the 5% just to break even.If you plan on being there for awhile you will do alright. In a downward market you are taking a big risk if you plan on being there for a short period.With no money or equity people are simply screwed.
yes, and this is BEFORE all the major RE related job losses come, and BEFORE the economy slows and all the other 2nd round effect job losses come. Warning warning…intruder alert intruder alert….got that intrude….knock knock knock
Danger Will Robonson, danger!
I’m confused. Doesn’t Texas have oil and gas. Isn’t that the one industry that is doing amazing right now? Why are there so many foreclosures in Texas. Please explain.
‘In the state of Texas we’ve had a lot of people buying homes in the last two or three years on easy credit terms. Lenders are pushing mortgages out the door.’
As many have said, in a way a housing mania is a credit mania. They haven’t only been making interest only loans on the coasts.
I think the reason why people in Texas (and other places which haven’t had massive appreciation like CA) have a lot of foreclosures is because everyone wanted to “get in on” the lower interest rates and refinanced. During that refinance, they probably should have just reduced the number of years on their loan with the same payment so they would outright own their home, but when the loan office told them that they can get an ARM or I/O and save several hundred $ per month, they went for that instead. Remember that a lot of people in America don’t have any savings and when they saw when they refinanced and took equity out of their homes, they would have a lot of money which they never had before. I mean people’s wages haven’t been going up as we’re all on the FED “core rate” which excludes all things people actually live on (food, energy) but not things which are cheaply imported from other places (plasma TVs, cars, etc).
So they did a cash out of equity not really thinking that what they just did was increase the amount of money they owed on the house and reloaded their credit cards which were maxed out before - it was a fast way to “clean the slate”. With their credit cards cleared and they supposively making smaller payments on their houses because of the ARMs, they had a lot more disposable income which ends up buying Hummers, BMWs, boats, plasma TVs, new granite countertops, etc. They loaded their credit cards with a lot of debt, buying stuff they didn’t need before the new money came in. For a lot of people, they probably did this several time and got “addicted” to the cheap credit. Now that the housing values have not gone up and that the interest rates are now higher, that they can’t pay off and now with the ARM reset, they are in deep trouble. You can’t refinance anymore to pay for your addiction so you end up in foreclosure.
I might be wrong, but that’s my 2 cents worth.
Dan
Just because there’s oil and gas in your state doesn’t mean you yourself are rolling in money. Look at Louisiana next door… perhaps even higher per-capita oil+gas production than Texas, and it’s no beacon of prosperity, is it?
And even if you are one who has a good job with lots of overtime in the booming oil industry, that also doesn’t mean that you won’t turn around and “overbuy” a huge house with lots of add-ons, and put it on a 3/1 ARM just to stretch your buying power even more.
Now if everyone in Texas would just stay living in their doublewides and not get these high-falutin’ ideas about faux-colonial mansions with spas and granite counters, we wouldn’t have these problems, would we?
A couple of reasons
1) It’s fairly easy to foreclose in Texas when compared to other states. True, in Texas Bankruptcy, you can keep your house under a homestead exemption. However, if you’re not nimble enough or can’t demonstrate that you can pay the mortgage after bankruptcy (due to unemployment, divorce, etc..), the foreclosure process moves very quickly. A bank can foreclose in about 120 days if everything moves just right and the bank is pushy.
2) We have not had the price appreciation that many other states have had - so, people whom are in trouble or have maxed out their home equity cannot sell as easily as say California (in times past).
We do have a lot of builders pushing the zero down / zero move in loans. I see them all over the place here in Austin. I kinda question the 1% figure that is mentioned in the San Antonia article. In Austin, about 40% of our first time buyers use the “zero down” loan programs. I am not sure home many people roll in closing costs as well but I would assume a lot of people do.
“I’m confused. Doesn’t Texas have oil and gas. Isn’t that the one industry that is doing amazing right now? Why are there so many foreclosures in Texas. Please explain. ”
Sure they have oil and gas. But their oil wells peaked in 1970. It’s a proven fact. Did you think Texas oil is an endless supply?
Tx does not have a lot of oil fields now. That does not prevent Houston to be the oil/gas capital of the country. The gulf is where the oil is.
I am in Houton - there are many poor people here like everywhere else. Yes, oil/gas is great for Houston, which sees robust growth in recent 10, 20 years. Housing sales is in historically high in Houston. That said, not everyone is in oil/gas and oil/gas is not that big in San Antonio or Dallas.
Lots of oil here…
Chevron Reports Major Oil Field Find
A vast pool miles below the Gulf of Mexico could total 11% of what the U.S. produces. Skeptics note the uncertainty factor, and the cost.
http://tinyurl.com/ewdlb
Only a small percentage of Dallas area jobs are directly in oil and gas. There’s a huge service, retail and warehousing industry, as well as construction trades. EVERYBODY bought a house there in the past few years because prices were cheap and going up. My nephew, a first-year junior high school teacher, was able to afford a relatively new 2500sf 3 BR in the far north ‘burbs. Now he’s stuck with it and can’t sell it after four months when he got a better position in Oklahoma.
(As many have said, in a way a housing mania is a credit mania. They haven’t only been making interest only loans on the coasts.)
Amazing. A strong economy unlike the Midwest. And reasonable prices unlike the coasts. And still, rising inventory and foreclosures.
Well, they do like to build in Texas.
IMO, a little too much in and around San Antonio. They have been on a 10 year construction spree from north of Austin to Bandera. I think once the money stops, many people will regret the sprawl.
I had a bunch of feverent Austin defenders last week flodding my board explaining to me why Austin is different. As you might expect they had no problem predicting San Antonio was toast but that Austin was the capitol and cosmopolitan and well… different.
Bubble denial is particularly rampant in Austin. In just the downtown hi-rise market alone- if all the planned projects are built, 18 of the 30 tallest buildings in Austin by 2009 will have been constructed in the previous 3 years. Crazy!!
They did the same thing in the last boom. It has really been going on since the mid nineties.
I’ve seen the same thing even in Amarillo. “We’re different here, strong job growth, no bubble, prices never going down mentality” is rampant. The bubble has been less pronounced here compared to other areas, but the amount of building has still been ridiculous with prices far beyond our median income. Things may be starting to unravel, though, as our one “Ultra hi-end Austin wannabe” development has gone nowhere with about half of the completed homes sitting for sale, several incomplete homes, and a complete halt in construction.
Austin may be on a different cycle, but it is not “different”. In fact, it had one of the worst crashes in 1985-90 (a bit earlier than the other crashes). The property taxes there are outrageous as well. They tripled over the last 10 years on my old house in Pemberton Heights.
We already do…regret the sprawl. Increasingly, we are seeing lots cleared and then the owners realize they can’t afford building a house that requires big bucks for the foundation (Hill Country situation). Major “duh” moment. Also, construction begins on McMansion…then stops. Infrastructure can’t support proposed mega subdivisions spewing out the traffic. It’s a sad mess…..it’s NOT different here.
I’ve been scoping out the orange county home market and was just low balling to see what the response would be. There is a home that I am interested in which is of course way overpriced at $1.5 mil and this is the exact email response I received from the ziprealty rep. Check out the grammar and desperation…
Builder’s construction loan has expired needs to refinance. but if we submit offer today may be able to hold off from the refinance. If he does a refinace that means it will cost probably $10,0000 or more in cost for him to do so. which would eat into the profit and cause less reduction for you if you still are serious.
Time is of the essence,
In Flordia (and probably everywhere else, too), you can find out the terms of the mortgage on a property from public records.
A lot of land was sold with 2 to 7 year i/o mortgages known as “lot loans”. At the end of the period, you owe the entire principal.
Of course, everyone thought they’d pay the interest and then Get Rich at the end before the loan was due.
You can compare listings to the loan information you can look up (online, in orange county, and lake county FL), to see just how desparate some people are. Form your “low balls” accordingly!
However, since a lot of these people have no savings, they can’t even afford to sell it for $10K less than what they owe. They simply have to turn it over to the lender. (In many cases, the “lender” was the guy who bought the land and carved it into 5-acre lots. He’d love to get his land back after collecting interest for a few years and sell it all over again….)
Robert, in regard to your “He’d love to get his land back after collecting interest for a few years and sell it all over again….) “. That is what I have thought about a lot of these “developers” pushing land in places like Tennessee (the Eric Estrada commercials). They buy a chunk of land, carve it up into small parcels, then make it easy for out of state “investors” to buy with little or no down. They may even fly you out to see the property for free and then finance you themselves. The idiot buyer pays month after month for the raw land which just sits there, pays the taxes on it, and then when they default, the developer still owns it. What a great gig!
I have been watching the orange county real estate market and was basically low balling a particular over priced home priced at $1.5 mil and this is the email I received from the zip realty agent. Notice the grammar and desperation…
Builder’s construction loan has expired needs to refinance. but if we submit offer today may be able to hold off from the refinance. If he does a refinace that means it will cost probably $10,0000 or more in cost for him to do so. which would eat into the profit and cause less reduction for you if you still are serious.
Time is of the essence,
oh, that’s rich!
Hmmm… they took the houses that the builder was using to rip off home buyers after I posted the real estate twits comments.
Translation:
My comission is at risk. Pay more now because the builder needs the money (and I need the money). If you don’t the price will fall.
“Without the rise in property values, Stanley said, foreclosures would be double or triple the current levels.”
And now those homes stop appreciating and the HELOC tap is turned off. In another thread it was noted that HELOC’s have a 7% default rate (That must be a typo…). But if it is a typo, it doesn’t matter.
HELOC’s will be harder to get as:
1. Appraisals will be scrutinized more
2. The secondary market is requiring more credit worthyness.
The foreclosures have yet to start.
Folks, this is the warm up act until 2Q2007.
Neil
The rate cited is delinquency, not default. You are delinquent when you have 1 late payment, until you make it right.
When compared to credit card delinquency 2-3% you see the enormity of the problem and the cluelessness of the average greater fool in recent years.
I have no doubt that many of them think that by spring they’ll be able to refi their troubles away.
Oops, my bad. Still 7% delequency is very high.
I agree that many *think* they can refi their troubles away. Do we also agree that many will not qualify for that new loan?
7% ? of all heloc’s or just one state or bank
please clarify
All, nationwide, reported by Moody’s, no slouch firm.
ROTFL!
No slouch firm… what a dry way of noting their huge impact in the financial marketplace.
It’s funny how even a year ago before many of us bloggers talked about the bubble popping, Texas was considered undervalued. The most undervalued was College Station. I knew of one Californian who bought a big McMansion in Texas last year in the Dallas / Ft Worth area. The boom caused by the equity locusts from California must have lasted for months, not even a year, and now there is talk of an oversupply of houses there. I expect an announcement in a couple of years that Texas Real Estate prices are even more undervalued than they were in 2004/2005.
You’re right, there was a lot of discussion about Texas (especially Austin) being undervalued. There is one thing to consider about Texas in home prices - the property taxes are very high. We do not have a state income tax, so the property taxes are higher. That makes the overall mortgage payment higher. Overall, considering the large taxes, we have a balanced market.
In most areas including Austin, there is plenty of land surrounding the City. In Austin, we have large farming areas on three sides, so there is plenty of land to develop. So, there is always a “cooling factor” on home prices in the suburbs. The inner City has seen a run up in prices. But the run up does not rival other more bubbly markets such as San Francisco.
However, like Arizona, that has not stopped the speculators. It’s been estimated that about 1/3 of our housing demand is speculators. People from California are buying property like mad. We have real estate agents whom market only to people from California or Arizona. They hold seminars in Phoenix and Tucson bragging about the next new thing. The prices have not risen substantially yet, but if there is more speculator activity, then I am sure we’ll start to see some movement similar to Arizonia. A huge run up in prices, followed by a huge run up in development, and then lot and lots of empty houses and lots and lot of disappointed people. Right now, we are permitting subdivisions like mad – and yet, these “paper lots” are purchased as soon as they are approved. So, the overbuilding process has probably started. Its pretty easy and quick to permit a lot so, there are a lot of developers rushing their plans in ready to sell to the next “fish” as soon as the City stamps approved on the plans.
Carrolton and other Dallas farther-ring suburbs are so incredibly open there is no way that they can run out of land. I remember driving out there when I lived in Dallas and marvelling at how strip malls where surrounded by empty grassland. And they were building every which way as early as 2001.
The Dallas suburbs had an oversupply issue before the Californians came. That kept the prices low. The undervalued nonsense came from people that did not understand the market.
My take is that the price is likely to be stagnant or depreciating a bit in Tx depending on the job conditions of the city. I think Dallas and San Antonio tend to be weaker than Austin and Houston.
There used to be lots of IT in Dallas and Austin, now that’s mostly cooled off. But Dallas is bigger than Austin, and Austin has more ‘fixtures’, so Austin should fare better than Dallas. San Antonio is a lot less vibrant than the other 3, and it is drier. It’ll be going serious downslope had the Californians not come.
Texas also has a big ‘newness’ factor that affects home prices. I bought a weekend place in Austin 2 yrs. ago. Even then, home prices had fallen a little at the original Lake Travis planned development (most homes from mid-late 1970s). Newer homes were going up, even though most of them were 15-45 minutes further from downtown Austin.
The market is flooded with existing homes, but new home developments have made it hard for realtors to turn a home quickly.”
And not only that, but in most cases existing homes are better quality than what’s being built.
New construction comes with:
1. HOAs and restrictive CC&Rs (Want to be fined for putting up a flag? Or perhaps you want to decorate your house on Purim instead of Christmas?)
2. Zero lot lines
3. Slab construction, instead of a crawlspace so you can get under your house and FIX THINGS
etc.
Sigh - with all the talk of a recession, yet with possbile vultures coming in and maybe jacking up the prices, it’s just getting to be a pita to think about buying a house. Guess I’ll wait a gew moe months and see where we’re headed.
Never posted here before but have been enjoying comments for some time. Like many, I have been watching financial fools the last few years throw their future away on “live in the moment” mentality. I only hope that they don’t take the rest of the financial ship down with them.
I hope that many of us folks that have been patient and trying to make prudent financial decisions can find the best raft to ride out the storm.
It’s that entrepreneurial spirit and risk taking mentality that drove us to this. No skills required. Just innovate.
People move and the house will sit there until a price between the seller and buyer is agreed upon.”
No!–is that REALLY the way it works? This realtor must be a MENSA candidate, for sure.
“‘I wouldn’t say the prices are falling. There isn’t any appreciation right now, but I haven’t seen any appreciation in the last six months,’ said Jack Hurst, a 20-year real estate veteran.”
What prices is he talking about? You might have list prices staying constant and nothing selling, while market values are meanwhile in an unobserved free fall. The problem is that the market value of a home in a declining market lies somewhere between what a seller believes his home is worth, and the most a willing buyer would pay for it, given the sudden dimming of appreciation prospects, not to mention the risk of catching a falling knife. Hence it is possible to have periods in a declining market when there are virtually no comparable sales, and the market value is anyone’s guess, provided the guess is lower than the seller’s list price.