Housing Doom

There was a funny article in yesterday’s Austin Statesman about local foreclosures: [Although I don't think it was meant to be funny.]

Foreclosures in the four-county Austin metro area are up 42 percent from a year ago, according to the latest figures from Foreclosure Listing Service, an Addison company that tracks foreclosures.

Postings for the July 1 auction show a 39 percent jump in Travis County, 48 percent in Williamson, 27 percent in Hays and 61 percent in Bastrop.

OK, that part wasn’t so funny.  Here’s where I started laughing:

Central Texas is in better shape than many other areas of the country, where foreclosures have been sharply rising for months and real estate sales are in a deep slump.

But George Roddy, president of Foreclosure Listing Service, said local postings "are at the high end of the foreclosure cycle."

The Austin area has less exposure to subprime mortgages, which are behind high foreclosure rates in other cities. Another factor is adjustable-rate loans that are resetting to higher rates, resulting in bigger mortgage payments that homeowners can’t handle.

We were just told sales were down 47%, then told that Austin doesn’t have sharply rising foreclosures like other areas?  The article doesn’t report the sales numbers that show Austin is not in a "deep slump", but here are May’s figures courtesy the Austin Real Estate Scene:

The Month in Review for May 2008

Units (homes for Sale): (compared to May 2007)

• New listings were up 26%.
• Pendings were down 67%.
• Solds Units decreased by 28%.

Maybe down 28% is just "slump" instead of "deep slump".

In spite of Roddy’s comment about "high end of the foreclosure cycle," it’s unlikely foreclosures are trending down anytime soon:

Austin-area foreclosure postings

July ‘08 July ‘07 % change

Travis 39%

Williamson 48%

Hays 27%

Bastrop 61%

Austin metro 42%

I’m glad it’s not my job to try and put a positive spin on this mess.  I find a huge disconnect between these numbers and "Don’t worry, be happy."

Despite the Austin Statesman’s best attempt to put a positive spin on the local market, the Central Texas housing market is in trouble:

Sales of Central Texas homes fell 10 percent in January, the seventh month in a row that year-over-year sales dropped. But prices rose, and Austin’s market is in better shape than the nation overall.

The 1,321 sales last month were a two-year low, based on data from the Austin Board of Realtors. . The median price rose 7 percent to $187,000, contrary to a national trend of falling prices.

Nationally, homes sales fell 22.4 percent in January, and the median price was down 5 percent, according to the National Association of Realtors. And the market is glutted, with 3.7 million homes for sale. That’s up almost 20 percent in the past year. At current rates, it would take more than 10 months to sell everything.

The number of Central Texas homes on the market increased by 24 percent to 8,727 active listings, a 41/2 month supply.

With so much for sale and fewer buyers, it’s taking almost three months to sell a house.

Prices rising with sales falling is a typical pattern we have seen in other declining markets.  As prices become less affordable, first time buyers drop out, raising the median when "same house" appreciation has disappeared. For January in Central Texas:

The sales drop is sharpest for homes priced lower than $150,000. But sales rose for homes between $170,000 and $179,000 and between $250,000 and $500,000.

 Local agents are playing down the excess inventory:

With mortgage rates below 6 percent, the overall local market is good for buyers, said David Davidson, a broker at RE/Max Heart of Texas. "They have a good selection, and they can negotiate a little bit."

With builders cutting back on home starts, he said, buyers who might have bought a new home may turn to the resale market, helping "absorb that extra inventory rather quickly."

The reality is that starts are down because the homebuilders have a lot of inventory on the market already– homebuilders have been cutting prices and offering incentives in an attempt to move the backlog.

Read the rest of this entry »