DFW Real Estate faces a long road back

by traviss on October 12, 2011

By Mitchell Schnurman

mschnurman@star-telegram.com

In September, for the third month in a row, home sales rose by double digits in North Texas. That’s good to hear, but let’s hope it’s just the start of a long climb, not the new normal.

While September sales were 14 percent higher than a year ago, they were also 8.5 percent lower than in September 2009, according to local data from the Texas A&M Real Estate Center.

Blame the swings on federal tax credits, which swelled home sales for a while and then depressed them after the incentives expired. A year ago, September sales plunged here, so it was an easy comparison this time, with analysts expecting a double-digit rise.

Take a longer view, however, and the trend remains discouraging. Sales through the first nine months of 2011 are down 3 percent, with high-priced sectors providing the only real bright spot. The trailing one-year average for home sales in Fort Worth is running at 656 per month, down from more than 1,000 in 2007, economist Jim Gaines said. That activity level resembles 2004, he added, even though population has continued to grow.

Statewide, monthly home sales for August were higher than in ’09 and ’10. But before then, you have to go back to 2002 to get as low as the present.

“We’re doing better, but we’re not nearly where we ought to be,” said Gaines, of the A&M center.

This slow recovery is especially frustrating because it can’t all be blamed on the economy. Texas and the Dallas-Fort Worth area continue to generate job growth, albeit at a slower pace than in many years. Nonfarm employment in Texas is back to its pre-recession high, and it’s close to that in the Metroplex.

Other factors are depressing residential real estate, including tougher mortgage standards and a dramatic shift in confidence about homeownership. Forced sales from foreclosures continue to be a drag, too, running at close to double the historical norm.

Job growth is having an impact on the housing market — but in rentals, not sales. Gaines said apartment occupancy rates are rising, along with monthly rents. Statewide, large multi-family building has been strong for more than a year, according to data from Texas A&M.

Five years ago, before real estate crashed, most homeowners and buyers didn’t believe that home prices could fall. Now it’s as if they don’t believe the asset value can rise, and that perception is reinforced by frequent reports on declining home prices. “When the pendulum swings, it swings to extremes,” Gaines said.

Those who get past the confidence issue — both in the housing market and in their own job situation — still have to land a mortgage. That’s tough, unless prospective buyers have strong credit and a healthy down payment. The home appraisal must also measure up as expected, which is difficult in markets with declining prices and a shortage of comparable sales.

Nationwide, 18 percent of contracts to buy a home were canceled in August, twice the percentage of one year earlier, according to the National Association of Realtors. If lenders returned to normal underwriting, the group said, home sales would be up to 20 percent higher.

Even extra-low interest rates aren’t doing the trick. This month, 30-year mortgage rates dipped below 4 percent, which may be the lowest ever. Yet mortgage applications fell 4.3 percent last week, said the Mortgage Bankers Association.

“Anyone who’s expecting a housing boom again isn’t paying attention,” said Ted Wilson, principal at Residential Strategies in Dallas. “This is going to be very gradual.” Wilson’s firm tracks home starts and confers with builders regularly. He said they’re pleased that the market has been showing some consistency, rather than rising or falling sharply. Starts have been totaling about 3,500 per quarter in North Texas, which is less than a third of the peak four years ago.

Existing-home sales have been strongest in the higher end of the market, according to local data. Through last month, sales of homes priced between $400,000 and $700,000 rose by 10 percent to 18 percent. Nearly every sector between $100,000 and $200,000 had a decline in sales, with many falling by double-digits.

Wilson estimates that the area has about 11,000 forced sales from foreclosures annually. Work off that inventory, and that would help change attitudes and boost results. “The market is getting more predictable,” he said, “and consumers should like it that way.” Builders, too, even if it’s not as fast as they’d like.

Read more: http://www.star-telegram.com/2011/10/11/3437421/dfw-real-estate-faces-a-long-road.html#ixzz1aa6OSeC0

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