Schnurman: North Texas housing market is still troubled

We averted one crisis last week, after the government pledged to keep the mortgage money flowing at Fannie Mae and Freddie Mac. But that doesn’t reverse the plight of the housing sector, which continues to tumble even in North Texas.

Our housing trends look a lot like our local economy: We’re much worse off in the important measures — home sales, starts and foreclosures — yet we’re still doing better than much of the country at large.

In North Texas, new-home sales dropped 27 percent in the 12 months ended in June, says research firm Metrostudy. Nationwide, new-home sales fell 40 percent from May 2007 to May 2008.

Year-over-year home prices fell 15 percent in April for a group of 20 large metro areas, according to the S&P/Case-Shiller index. In the same period, Dallas prices declined 3.4 percent.

Whether you see these metrics as a glass half-full or a glass half-empty, they’re not expected to improve anytime soon. Inventories of new and existing homes are higher than usual, and North Texas has more than 90,000 vacant, developed lots ready for building — a 42-month backlog.

The Fannie-Freddie bailout was essential for buyers, but there are other reasons people aren’t buying homes.

Loans are available, which is paramount. But the push for tighter lending, under way for almost a year, will continue to build. Borrowers face higher costs unless their credit is top-notch, and many lenders demand bigger down payments, sometimes more than 10 percent.

Last week, FHA loans added a credit-score provision for the first time. It will tie loan rates and costs to a borrower’s credit history.

These are necessary adjustments in mortgage lending, but they squeeze everybody at a difficult time, when the market is falling. And Texas has some particular vulnerability.

Credit scores and income are lower than average in the state, and subprime lending was a key factor in the local housing buildup. David Brown of Metrostudy says that subprime loans accounted for about a quarter of mortgages in North Texas in 2006.

That funding source has dried up now, locking out plenty of prospective buyers. The entry-level market has been hit the hardest: Sales of new homes under $200,000 dropped 43 percent in the second quarter, Brown said, compared with a 7 percent drop for homes priced between $500,000 and $700,000.

"I tell people that they have to get back to the basics," says Judith Smith, who’s been in the mortgage business since 1969 and has run her own shop since 1992. "They have to save a down payment, they have to be responsible, and they must have a track record to get a home."

That was always the case, until five or six years ago, when easy credit became the rule. Now we see how subprime loans — and soaring defaults — can threaten the financial industry, home building and even the global economy.

Ron Formby, a builder who says this era is not nearly as bad for Dallas-Fort Worth as the late 1980s, doesn’t blame tougher lending standards for the drop in sales.

"I deal with first-time buyers and first-time move-ups, so credit has always been an issue," says the president of Antares Homes in Arlington.

He expects his sales will rise this year and says that his buyers are turning to FHA loans, as they did in decades past. It was only during the roaring 2000s that new financing schemes became a popular choice for his customers, including subprime loans with no down payments.

While the credit squeeze hurts, many say the biggest factor in the housing downturn is buyer psychology. In California and Florida, that translates into fears that prices will keep falling, and the buyer will soon be underwater, owing more than the home is worth. In Texas, there’s probably more concern about job security and rising costs for gasoline, food and electricity. Together, they make it a riskier time to buy.

Don’t dismiss psychology as a soft factor. In a June survey of 2,000 Realtors nationwide, almost a quarter reported that prospective buyers postponed their decisions, preferring to wait for prices to fall further.

Only 6 percent cited problems with getting a mortgage.

An unnamed agent from Fort Worth added this comment to her response: "Had the best year in over 25 years in 2007, and my husband also had a terrific year as a builder. Oil is helping the local economy." Go Barnett Shale! But for most consumers and home builders, confidence is near record lows. And the local sales numbers are down by double digits.

The current level of home building, on a pace of about 32,000 homes annually, is about the same as in 2000. That’s a more sustainable rate, says research economist Jim Gaines of the Texas A&M Real Estate Center.

The boom years should be viewed not as a housing bubble, he says, because prices didn’t soar here. In Texas, it was a credit bubble or a transaction bubble, with easy lending being responsible for the surge in building. Unlike other markets, buyers weren’t just betting on rising prices.

Gaines says the housing sector won’t bottom out for another year or so, and then it faces a slow recovery.

Speaking to a room full of home builders, Gaines asked them what they were if they weren’t building houses.

"A remodeler," one guy quipped. Like many other businesses these days, they’re in survival mode.