Beige Book

Here's a few housing related entries from the recent Dallas Beige Book produced by the Dallas Fed:

"Overall home prices have held steady, but incentives on new homes are prevalent and contacts expect a price correction for entry level homes. There is also downward pressure on prices for many materials used in home construction. Office rents continue to rise, but contacts expect rental increases to ease as new supply keeps vacancies steady. Prices are up for some products used in nonresidential construction. Producers of ready mix report that they had no problems raising prices, but cement manufacturers say they may need to back down from a recent price increase."

"Homebuilders continue to lay off workers, but the labor market remains very tight for commercial construction."

"Softer demand for construction-related products caused many producers to revise down their outlook for the year. Sales to homebuilders continued to slow, and some commercial projects have been delayed because high construction costs have caused budgetary concerns. Extremely wet weather has disrupted building in the District, but contacts note that construction activity continues to be better here than in the nation. Inventory levels have increased for most products, and production has been cut back."

"Manufacturers of stone, clay and glass reported sales down 5 to 12 percent over the past six weeks. Fabricated metals producers say activity has been flat, but sales of primary metals have softened substantially for some firms. Lumber producers report demand is flat or up but say sales are below a year ago."

"Real estate contacts have revised down their outlook for both homes and apartments. Homes sales are below a year ago, and starts have slowed sharply. Rain may have affected sales, but contacts attribute the weakness mostly to tighter lending standards for lower income borrowers, less investor activity and a wait-and-see attitude among homebuyers. Most of the downturn has been for lower priced homes, but Dallas contacts report higher-priced markets also being affected. New home inventories dipped slightly but remain high. Apartment demand has been weaker than expected, except in Austin where demand and rents continued to rise. In some Dallas/Fort Worth suburbs, houses rent for less than apartments."

"Consumer lending remained somewhat softer than earlier this year. Contacts still report solid growth in commercial lending, and pricing on loans is very competitive. Banks and credit unions report no deterioration in credit quality. Deposits are still difficult to obtain."

More About DFW Sales and Foreclosures

Steve Brown reports that, "A midyear snapshot of the pre-owned home market shows that all but about a dozen neighborhoods had declines in sales."

"And median home sales prices so far this year were lower in 14 Dallas-Fort Worth residential areas, according to statistics from the North Texas Real Estate Information System."

"Statistics show that much of the sales decline this year has been at the bottom end of the market – homes priced at $190,000 or less."

"Housing analysts say that tougher mortgage standards this year are cutting as much as 20 percent of the buyers out of the market."


Steve also talks about rising foreclosures. "The number of homes facing foreclosure in North Texas was up 31 percent in the latest report."

"Some areas saw an even bigger spike. In Tarrant County, foreclosures were up 50 percent."

"Analysts don't see this trend stopping for more than a year, based on recent lending patterns."

"Indeed, home foreclosure postings are up by more than 15 percent so far in 2007 from last year."

"So far this year, almost 28,000 residential foreclosure postings have been recorded in the four-county area."

"The current jump in home foreclosures is due in large part to the use of subprime mortgages. Often those loans start out with low payments that leap higher after the buyer has been in the house for a year or more. Recent studies suggest that close to half of the home foreclosures in Texas have been subprime loans."

Tarrant County Foreclosures Hit New High

From the Star-Telegram, "Tarrant County homes posted for foreclosures reached a new high this month, rocketing to 1,348 homes slated for auction. The figures are according to Addison-based Foreclosure Listing Service."

"The four major counties of the Metroplex – Dallas, Tarrant, Denton and Collin counties – have a combined 3,870 postings this month. That’s a 31 percent increase from the 2,961 postings a year ago."

Ouch.

June DFW Inventory

Here's the months worth of DFW inventory in June (click on image):

DFW New Homes Sales Fall

From Steve at the DMN, "New-home sales were down more than 17 percent in the quarter ended June 30."

"Builders sold 9,774 homes in the just completed quarter - the lowest total in more than two years."

"Builders started only 8,568 single-family homes in the quarter - down almost 40 percent from construction levels a year earlier, according to statistics released Tuesday by housing Metrostudy Inc."

"With the cutback in construction, the number of unsold new homes on the market has declined. Just under 11,000 vacant new homes in the D-FW area were recorded in June."

"Counting what's under construction, there's about a 7-month supply of new homes on the market - down from 8 months a year ago."

New Homes for Lease

According to Steve Brown at the DMN, "As new home inventories hit their highest point in more than a decade, some sellers have chosen to rent their houses out. "

"The chance to lease a new home – often at less than what it would cost to buy – is catching the attention of renters."

"Housing analysts say there are likely to be even more rental homes hitting the market."

"During the last few years as the housing sector boomed, property investors bought up thousands of homes in Dallas and other big-city markets. Now, many of those properties are up for rent."


On an unrelated note from Steve, "The pace of apartment rental in Dallas-Fort Worth has ground nearly to a halt this year."

"And the dramatic slowdown in apartment demand in North Texas has left industry analysts scratching their heads."

"For the first half of 2007, net apartment leasing has added up to only about 300 units. Compare that with the more than 7,000 net apartments leased in the first six months of 2006."

"Mr. Willett blames a combination of homebuilder giveaways and for-rent homes for stealing the apartment market's thunder."

"Unless apartment demand recovers, developers could be headed for a train wreck with almost 13,000 units in the construction pipeline, according to M/PF YieldStar's latest estimate. "

"'This pattern isn't seen just in Dallas-Fort Worth,' Mr. Willett said. 'Atlanta looks like the most extreme example.'"

"Tenants moved out of almost 5,000 net rental units in the Atlanta area so far in 2007, he said."

Texas Hit Hard By Sub-Prime Loans

From the Morning News, "Now, Texas ranks third in the nation in the number of foreclosures, according to RealtyTrac. Homes posted for foreclosure in the Dallas-Fort Worth area rose nearly threefold between 2000 and 2006, according to Addison-based Foreclosure Listing Service Inc."

"Subprime mortgages, which helped fuel the surge in homeownership by providing loans to those who might not otherwise qualify, are now part of the problem. Such loans usually come with a higher interest rate – typically 3 percentage points higher or more – and often are adjustable, meaning their interest rate can adjust upward as overall rates rise, as is happening now. "

"In Texas, subprime loans make up 18 percent of mortgages, according to First American LoanPerformance, a San Francisco company that does research for the mortgage industry. But they accounted for about 45 percent of Texas foreclosures last year. "

"In Dallas, subprime loans make up 13 percent of the total, below the national average of 15 percent, according to First American. But the Dallas loans are more apt to run into trouble – about 16 percent of the subprime loans here had payments overdue by 60 days or more in April, compared with about 13 percent nationwide, says First American. "

"Across the nation, minority groups – particularly blacks and Hispanics – were more likely to rely on the lower credit hurdles of subprime mortgages to buy a home. More than 55 percent of housing loans taken out by blacks in the Dallas area in 2004 and 2005 were classified as subprime, according to federal data collected under the Home Mortgage Disclosure Act. The figure for Hispanics was 45 percent – three times the rate for whites. "