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Houston: Foreclosures level off, but city not in the clear

<i>Second-fastest-growing city rocked by glut of homes and tightening credit</i>

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Houston has long been known as an affordable Texas destination — a place where real estate dollars stretch hundreds of square feet further. With a median price of $160,000, homes there are about $70,000 less than the national median. New construction is holding prices down while a booming population has made Houston the country’s second-fastest-growing city.

But lower prices aren’t keeping homeowners out of trouble. In the last six months the housing market, particularly in lower-middle-class neighborhoods, where properties range between $80,000 and $140,000, has been rocked. Home foreclosures, combined with tightening of credit for borrowers, have been pushing prices down.

“In the 10 years I’ve been doing real estate, this is the slowest summer that I’ve seen,” said Kevin Riles, a Houston-based real estate agent with RE/MAX Upscale. “We’re still selling. It’s just a lot slower.”

While Miami and Southern California have been singled out for their foreclosure problems, markets like Texas have not been immune. Houston currently ranks No. 52 for foreclosures among the nation’s 100 largest metropolitan areas, according to RealtyTrac.

Presently there is about one filing for every 43 households in metro Houston, according to RealtyTrac. Foreclosures in Houston began rising last summer and have totaled about 2,000 a month since then. This increase is happening in conjunction with a rise in the national rate of foreclosures. Recent data suggests the number of homes facing foreclosure has declined by about 6 percent, but analysts caution that this doesn’t mean the city’s housing market is in the clear.

“The worst of the subprime fallout is yet to come,” said Michael Weaster, a real estate agent with Century 21 Excel in Houston.

This is partly because loans for homebuyers with less-than-perfect credit have become harder to get, and likely will become even tougher to obtain when Freddie Mac further tightens its lending restrictions this month. Sixteen percent of the city’s homebuyers used subprime mortgages in March, according to LoanPerformance, a California-based mortgage data collector. That’s down 1 percent from a year ago, but in line with the national average.

But it’s not just subprime borrowers suffering from the shift away from more liberal lending practices, according to brokers.

“I’ve seen people who just six months ago would have qualified for a mortgage [that are] no longer able to qualify,” said Riles. “People with high credit scores, not just subprime candidates. Lenders have tightened their underwriting guidelines so much that they’re keeping buyers from the market.”

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Some brokers see it as an opportunity for investors and would-be flippers to become landlords, purchasing homes and renting them to people who can’t qualify for loans. But competition for renters in America’s fourth-largest city is tough.

“The bad part about Houston is that there are so many multifamily communities that it’s never been a great rental market for the investor,” Weaster said.

The inventory of homes for sale is also growing. In June, the six-county area comprising the Houston Metropolitan Statistical Area had 6.2 months’ inventory available, up 14 percent from the previous year. A record number of homes — 52,718, 18.6 percent above June 2006 — were listed for sale.

Inventory in Houston is growing faster than in Washington, D.C., Minneapolis and Dallas, but slower than in Los Angeles, San Diego and Las Vegas.

“New homes are not selling,” said Weaster. “You’ve got a large influx of new products coming onto the market and no buyers for them.”

New home listings are outpacing sales in the Houston area, according to the Houston Association of Realtors. Still, builders are building, but at a slower pace. After five years of strong growth, the number of single-family building permits issued has declined. Single-family residential building permits are down 11 percent for the year compared to 2006, according to figures from the Real Estate Center at Texas A & M University.

Real estate analysts are also quick to point out that not all of the Houston housing market is in the doldrums. Homes priced above $140,000 are selling at a steady pace, particularly those priced at $400,000 or more.

In Houston, home prices are up 26 percent for the past five years and 6 percent for the year. Nationwide, home prices are up 54 percent for the past five years and 4.3 percent in the past year, according to the Office of Federal Housing Enterprise Oversight.

Optimists further believe that a number of Houston’s traits — like low housing costs, low unemployment, the arrival of thousands of immigrants and the benefits of high energy prices — should cushion its housing market.

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