Real Estate Market Information

Real Estate Market Information

Written by Laurie Roberts Friday, 27 June 2008

Local real estate market remains strong

Suburbia faces slightly higher foreclosure rates

The Austin metropolitan area has experienced a rise in foreclosures, but the local real estate market remains relatively strong as one of the healthiest in the nation. Austin did not experience the inflation of home prices from 2005 to 2007, as seen in other areas of the country. In addition, builders did not overbuild, lender practices were more conservative, and there was a smaller percentage of adjustable, sub-prime loans.

But as land and home prices within Austin have risen, builders and would-be homeowners have moved to the suburbs to find affordable land and home prices. In the past couple of years, suburban areas have been experiencing higher foreclosure rates than Austin. According to nationwide foreclosure tracking service Realty Trac, Round Rock experienced an increase from 38 recorded bank-owned properties from January through April 2007 to 123 in the same period in 2008. In Pflugerville, the increase for the same period was from 39 recorded bank foreclosures to 54. In both areas, the majority of the homes foreclosed upon were built in 2003 or later. Understanding the life cycle of a suburban, new home neighborhood helps explain the higher proportion of foreclosures in these areas.

According to the Austin Board of REALTORS, 2,700 Austin-area homes sold in the first four months of 2008. Lender-recorded foreclosures represented only 5.5 percent of the total sold transactions reported. Suburban areas and newer homes are hardest hit. The owners have had less time in their homes to accrue equity and often purchased them with little or no down payment. They are also often times competing with builders who are offering incentives to close the deal. Unfortunately, this is just the nature of new neighborhood development.

Economists and real estate agents predict that the local forecast is good over the next three to five years. The Central Texas population and number of new jobs is increasing, and so will the number of new homes.

Life Cycle of a Neighborhood

Stage 1: Initial sales — Builder has a model home and most homes are to-be-built. The purchaser chooses a lot, a floor plan, and upgrades. Prices are set by the builder and are rarely negotiated. All the sales in the neighborhood are builder homes. In the example neighborhoods, price range is geared to the first time home buyer who routinely puts little, if any, money down and finances the maximum amount, including closing costs.

Stage 2. Resales — The builder continues to build, but a few resales start to occur in the area based on job transfers or personal life changes. Resales often receive a lower overall price per square foot and experience a longer time to sell than the new homes because the sellers are competing with the builder. The builder has a pristine model, perhaps a few “specs” on the ground for a more rapid move in, complete selection of interiors and exteriors, and, often, very favorable financing.

Stage 3. Foreclosures — Unless there is very rapid area-wide inflation of values, resales continue to lag behind the builder who is starting to finish out the neighborhood. Those homeowners who have to move or sell may still owe more than the property is worth, and choose foreclosure because they literally cannot afford to sell. Others may have ARMS that are adjusting to higher rates and they cannot afford the payment and/or cannot sell for what they owe on the mortgage.

Stage 4. Two-way street — The neighborhood will either stabilize in value or deepen in severe loss of value.

Value decrease — A decrease in value occurs when owners who cannot sell become Landlords, and the number of rentals in the area increases. Continuing decrease in values results in more foreclosures, at lower values.

Value stabilize — The neighborhood stabilizes when new homes are no longer competing with the resales. The neighborhood looks and feels more “settled” and predictable. Values steady and, following the overall market, begin to stabilize.

Information provided by Laurie Roberts, President, Members Home Advisor, UFCU Real Estate Services, LLC, University Federal Credit Union. Contact her at 997-4601.

Homes sold in April — Austin 1,981

Foreclosures	78759	78750	78758	78729	78727
Auction	126	112	144	133	266
Bank owned	111	69	120	170	413

Source: Realty Trac Information is deemed reliable but not guaranteed.