Austin Texas Real Estate Blog

Austin commercial real estate foreclosures in 2009 increased to more than double their 2008 levels, reflecting the effects of the recent nationwide real estate market difficulties. Austin suffered the highest rate of commercial foreclosures in the state of Texas, but other large metropolitan areas were significantly affected as well. This increase is attributed in part to large-scale layoffs in the manufacturing sector, which have created problems for a number of local industrial concerns. The commercial foreclosure trend is expected to continue throughout the first half of 2010, due to continuing economic woes; experts warn against overly optimistic expectations for the manufacturing and commercial sectors. Approximately $500 billion in commercial loans are expected to come due for refinancing in 2010, with as much as $800 billion more in 2010; this will likely spur additional periods of high foreclosure rates as businesses struggle to find financing in the current lending climate.

Industrial real estate properties were hardest hit, with a 400 percent increase in foreclosures over 2008. Retail shopping centers and vacant land also experienced a less dramatic rise in foreclosure rates. Some economic analysts see this as an opportunity for businesses to acquire additional space at bargain prices; with real estate prices in some areas at near-record lows, many companies that are currently renting space may be able to purchase property instead. This may actually spur an increase in commercial real estate sales during 2010 as businesses take advantage of the opportunity to expand their holdings at discount prices.

Commercial foreclosures represented about seven percent of foreclosures in the Austin area. One bright spot in the economic outlook for these properties is the increase in companies looking to expand into the Austin business market. Austin is an attractive location for commercial relocation due to its highly-trained labor force and resilient economic base. Most analysts in the area expect that corporate relocations and expansions will continue to increase in Austin, spurred in part by the lower cost of commercial real estate in the overall market.

Some analysts are worried about the increase in short sales.

A recent deluge of short sales is creating difficulties for home sellers and buyers alike according to most real estate analysts. Lenders are overwhelmed by the number of short sales requests and are taking far longer to process offers from willing buyers. This delay often causes buyers to withdraw their offers and contracts to fall through, necessitating the relisting of the home and further delays for anxious sellers. Banks and mortgage providers simply don’t have the staff in place to handle the increased volume of short sales, and further delays result when lenders must request necessary paperwork from investors and secondary lienholders.

Short sales occur when lenders agree to discount the remainder of a mortgage balance rather than foreclose on the property; the lending institution then puts the home on the market, and the bank collects the proceeds of the sale as payment in full for the outstanding debt. Because of recent market conditions, many homeowners have found themselves in serious financial difficulty; their home’s value has dipped, sometimes to less than the remaining mortgage debt. Typically the bank is willing to take the current appraised value of the home as full payment, even when this does not cover the entire amount of the mortgage. In some cases, however, lenders have been known to cancel contracts and raise the price of the property, sometimes to an unrealistic level. This is due in part to changes in the appraisal process, which have also led to serious underappraisals of properties in cities like Austin. The use of foreclosures as comparables is only one of the many deficiencies in the current system; in short sales especially, it can be difficult for lenders to obtain an accurate appraisal of the property’s true worth.

While Austin has seen fewer short sales than many other metropolitan areas, the continuing rise in short sales volume has some real estate experts worried. Short sales are expected to increase still more in response to the November 30, 2009 announcement of a federal program that provides financial incentives to sellers and lenders who avoid foreclosure through short sales. These transactions place an additional burden on all parties. Sellers must provide proof of economic hardship before their request for a short sale will be approved. Lenders must assume responsibility for paperwork relating to the sale of the home; buyers and real estate agents must be prepared for lengthy delays in processing and accepting offers and closing on the short sale property. The entire process takes much longer than traditional home sales, and can be further delayed if banks and buyers cannot agree on a mutually acceptable price.  While Austin’s real estate market remains comparatively stable, analysts are watching the situation closely to ensure that short sales do not drive down home prices in our area.

We watched the market plummet, and for the first time in so many decades, witnessed the fall of enormous banking systems and mortgage lenders. We have also seen an unprecedented taxpayer bail-out for the financial industry. As an example to their counterparts, the Federal Housing Administration has demonstrated the fundamental knowledge to modify and stabilize the real estate lending market. As a result of that knowledge, the Federal Housing Administration did not require the taxpayer bail-out that was necessary to the survival of the major banking systems and mortgage lending companies.

The Federal Housing Administration revealed their plan to amend credit policy to guard taxpayers and manage risk. The FHA will set precedence by employing a Chief Risk Officer. According to Commissioner Dave Stevens, the position will fulfill the critical task of relieving taxpayers of mortgage liability. Mortgage Brokers will address changes in appraisal requirements, underscore independent appraisers, and encourage geographic competency.

Homeowners’ continue to carry the financial burden in the current climate of a weak real-estate market. Mortgage Lenders offer a variety of products but have not been able to prevent homeowners from being forced into a mortgage that is now underwater. Contrary to most Mortgage Lenders, the Federal Housing Administration has remained in the black, and has maintained capital. The FHA has weathered the storm and elevated financial options for consumers.

The last three years have seen sharp decline in the housing prices. Many of the declines have bottomed out markets and some local areas simply fell to the bottom and found they could go lower. Finally prices seem to be stabilizing across the board. What is good for the home buyer is the prices have stabilized on the lower end of the housing range. To this end, home buyers are coming back to the market place. This draw is being encouraged by low mortgage interest rates and an 8 thousand dollar tax credit that will expire at the end of November.

Starting in May of 2009 the Office of Federal Housing Enterprise Oversight (OFHEO) began to announce a steady increase in home prices over the previous month. It started with .09% and has continued to grow from there. One of the hardest declines was felt along the pacific coast, and recently they registered on the index with an increase of 2.7%.

An added benefit to the additional home sales is the improved price. At this point, reflecting on data released by the Department of Housing and Urban Development and the US Census Bureau, the increase is only 3.6% as of June 2009. These same resources have also identified an increase of new home sales by 11% the same month. This shows the foundation to a successful recovery period, which the United States housing market, is finally reaching.

The recession has been official for several months, though many believe it began long before the government announced it. The first signs of a dwindling economy began in 2007, with a sharp increase in foreclosure rates nationwide. More recently, the shaky job market has added to the stress in the real estate market. As more Americans are losing their jobs, they become unable to keep up with monthly home payments. Between November of last year and January 31st, the amount of homes more than sixty days behind rose by 47%. Prime loans had a staggering increase of more than 69%, while non prime loans more than 60 days behind increased by 23%.
There have been many reasons given by homeowners for the missed payments, including medical issues and marital problems. More than 8% of homeowners stated that unemployment was the reason behind their issue. Those numbers will more than likely increase throughout 2009 as the economy is expected to worsen. February was particularly hard on the job market, and we will begin seeing the effects of those hundreds of thousands of people who were laid off within the next few months. So far, loan modifications have hardly dented the number of homes in need of assistance. Less than 9,000 modifications were reported in January, as opposed to over 1 million in delinquent status. It is not just residential real estate that has been affected, however. The nation’s second largest shopping mall owner has recently filed for bankruptcy. An estimated 30% of commercial loans are expected to become delinquent before the recession ends.

The job market will generally direct both the economy and the real estate market. If the jobs aren’t there, or are being taken away, consumers will continue to stay away from frivolous expenditures. With the economy as it is, more people are realizing it may be safer to rent than purchase a home. Those with excellent credit scores can benefit right now with low rates, but many are nervous about their own job situation. Until the economy is on more solid ground, foreclosures of both residential and commercial properties are expected to continue to rise.

The first real sign of our impending recession began in the national real estate market. Thousands of sub-prime loan holders began to fall behind or default completely as the job market became stressed. Since 2007, home prices have been on a steady decline nationwide. According to a recent report, the decline is beginning to slow down, but it is still there. It has now been 31 straight months on record indicating the falling prices. February 2008 showed a dip of 18.6% when compared to the same month in 2007, down from 19% recorded for January. There have been no rises in median home prices since 2006. Overall, the market has fallen by 30.7% since July 2006.

While this slowdown shows promise, experts refuse to get excited quite yet. With unemployment reaching higher levels, and not expected to jump up throughout this year, the real estate market will not really have a significant chance to rebound yet. Real estate analyst Mike Larson of Weiss Research states “it’s just a moderation in the monthly declines and it fits in with the pattern we’re seeing of things getting less bad.” There has been some slowing previously, but it had not led to any real stabilization. Most experts feel we are closing in on the bottom of the weak market, so this trend may be coming at a better time than the last.

Consumer confidence has also seemed to grow in the last couple of months. More people are looking into buying to take advantage of the great rates this recession and weak market has created. The ongoing credit crunch continues to inhibit many potential buyers from securing a loan, but that is not necessarily a bad thing. One of the largest factors in the real estate bubble burst was the non-traditional financing that allowed those with less than perfect credit to buy a home. When the payments increased, many were simply unable to keep up. Now, with more traditional lending practices back in full swing, those who purchase a home are more than likely able to afford it.

In 2006, there were 818 cases of mortgage fraud, with 213 indictments, 204 convictions, $388.9 million in restitution and $1.4 million recovered. In 2007, as the real estate industry fell into an ever-growing slump and mortgages became increasingly more difficult to obtain and maintain, the situation worsened.

On May 22 2008, the Federal Bureau of Investigations (FBI) reported it had investigated 1,204 mortgage fraud cases in the last fiscal year, which ended September 30, 2007. Through these pursuits, the Bureau was able to incur 321 indictments and $595.5 million in restitution, and recover $22 million. Those numbers will likely go up, as many investigations are still under way.

It is nice to imagine that when a country, an economy and a market experience a down time, so does everyone else. But that’s not the case for scam artists. They take advantage of the hard times, playing on prospective patsies’ desperation and need. They find victims easily as everyone, including you, likes to believe no deal is too good to be true and is quickly taken.

You must be on the lookout for fraud in your real estate dealings. Watch for misrepresentation of income/assets, forged documents, inflated appraisals and misrepresentation of a borrower’s assets. Don’t allow the frequency of fraud to rise yet again in 2009. Go to the respectable lenders and real estate professionals. They are just as if not more plentiful than the con artists waiting to disappear with your savings. They will help you complete your transaction, whether its securing a mortgage on your new home in Lost Creek or listing your property in Westfield so as to move downtown, legally, safely and smartly. You can find the best real estate agents right here, to help you wade through the muck left by the scammers.

These days, Fannie Mae and Freddie Mac are far from the two most popular kids in town. Groups on all sides of the political and ethnic spectrums have been criticizing them for designating entire geographic regions as declining, thus causing higher down payments for home buyers and little to no sales for home sellers. But it looks like Fannie and Freddie have been attempting to change that, since June 1 of last year.

At of the beginning of the month, Fannie and Freddie adjusted to the use of a uniform down payment nationwide, meaning each region will see the same rate regardless of whether it is declining or not. All applicants approved online will qualify for a 3 percent down payment program, and those who require manual approval will be applicable for a 5 percent plan. Mortgage payments continue to be determined by the borrower’s capacity and locale.

This is a definite move in the right direction for Fannie and Freddie, but it may be too little, too late. Private mortgage insurers will remain keenly aware of the areas previously marked as depressed and will refuse to touch those loans. Through the last year since this was put into place, the market has improved some, in different area’s, but not all. The hardest hit area’s still have problems with lenders accepting those loans.

So while Fannie and Freddie get an A for effort, they fail to help all area’s. The real estate world needs a nationwide plan everyone can agree to, so that currently dwindling markets have the opportunity to come back to life. After all, not every city is Austin. Not every city can succeed without the economy’s help. Sometimes, they need a little push.

One of the tested answers to the housing crisis was to make jumbo loans more accessible by allowing Fannie Mae and Freddie Mac to buy more expensive mortgages, ones that were higher than the conforming loans, which capped at $417,000, they had previously been restricted to. Once purchased, Fannie Mae and Freddie Mac could sell the jumbo loans on the secondary market. In theory, it would keep the market moving and prevent it from falling into an even deeper crisis. But theory is not reality, and it didn’t work as well as it should have. Why?

To begin with, the move, which should have paved the way for lower prices on larger loans, created more of a price gap, rather than less of one. Interest rates on jumbo loans were almost immediately a point to a point and a half higher than those on conforming loans, automatically making them more expensive. Secondary market buyers were wary to purchase the jumbo loans, and so prices remained high.

Moreover, Fannie Mae and Freddie Mac treat jumbo loans differently, because they are different. They come with their own risk factors, their own geographic limitations and their own types of homeowners. They can’t be lumped into the same category as conforming loans. That will only cause problems in both sectors. So what is to be done?

It’s too soon to tell. However, legislators met on May 22 to discuss the problem and many pointed out that the higher prices, which seemed monumental at the start of last year, are disappearing. Benefits are starting to appear. Adjustments to the legislation need to be considered in order for the new laws to work, but it may just be a matter of time before the small changes grow to meet the size of the loans they are stemming from.

In the last few years, new types of mortgages began to appear, such as the adjustable rate mortgage and the $0 down mortgage among them. Along with these changes, the restrictions became less enforced. Those who may have previously been unable to buy a home were now able to get approved. It seemed a great way to move people toward “The American Dream” faster than ever before. Unfortunately, it was this practice that played such a large part in today’s mortgage crisis. It became clear too late that those who received a mortgage based on new, looser restrictions could not afford them.

Over the past year, lenders have been making up for past mistakes by once again making it harder to receive a mortgage. On top of that, many mortgage insurers, who cover the lender in case of default, have also tightened up their standards. Restricted areas of the country require a higher down payment and a higher credit score to insure a mortgage, and more cities are added all the time. Another more recent change is the inclusion of all paperwork to even be considered for a loan. In the near past, many homeowners were able to receive a loan or have a refinance without showing documentation of income or job history. Today, don’t bother walking in the door without the most recent W-2s and proof of employment. With America’s lenders getting back on track, less people will be approved for home loans. Fortunately, when all standards are met and paperwork ready, they will know it is something they can afford.