The number of new foreclosures filed in Austin in the first half of this year was down by 31 percent during the first half of 2013, according to a new report.
There were 203 foreclosures in early-to-mid 2014 compared to nearly 300 last year, according to a recent report by the nonprofit Woodstock Institute.
While this looks to be a sign of good news in Austin’s housing market, the reality is that few in Austin — from homeowners to local property developers — are actually benefitting from it.
There is still major credit recovery that needs to happen before a legitimately-strong market for homes in Austin, among actual homeowners, begins to develop, says Wayne Beals of Oak Park-based Beals Verdin and Company.
“There are challenges for people to get a mortgage,” said Beals, who’s a realtor with the company. “If you’re unemployed or underemployed, you can’t buy a home. If you short-sold your home in the last 2-3 years, Fannie Mae and Freddie Mac won’t give you a mortgage. So, even if you’re financially able, you’re going to have to rent for a couple of years until you can buy a home again. If you were foreclosed on, or went through bankruptcy, you would have to wait for 2-7 years, depending on who the mortgagor is, to be able to get another mortgage.”
The median sale price for all property types in Austin is $75,000. While that’s a lot less than the peak of $200,000 in January 2009, it’s significantly higher than the $46,000 low-point in October 2009, according to data by Midwest Real Estate Data LLC (MERD).
The number of months it would take for all of Austin’s listed homes to sale, according to MERD, recently fell to a six-year low of 4.8 months, down from a recessionary-high of 21 months back in February 2009. The real estate website Redfin notes that the average is 4-5 months — the lower the number of months, the more the market is dominated by buyers as opposed to sellers.
This rose-tinted reality, however, comes with an important caveat, warns Beals, whose data came from MERD.
“The problem in Austin is that most of the homes offered for sale between 2009 and today have been bank-owned (foreclosed),” he said. “And because the only properties going on the market are those that are damaged, the average sale price drops to a level that is very low, and people who want to sell a home in move-in condition have to fight this trend of declining price.”
In Austin, large institutional investors, such as hedge funds and real estate investment trusts, are buying up distressed properties in bulk at bargain prices. After rehabbing them, the hope is to rent them out at a profit, a substantial portion of which probably coming from Section 8 renters — The federal low-income housing program is administered by the Chicago Housing Authority (CHA).
The large investors have an incentive to create and perpetuate the perception that homes are worth a lot less than they are in order to buy them at the lowest possible prices, and often with cash. The whole process, between the moment an investor makes an offer and closes on a sale, takes a few months. That’s a lot quicker, and less convoluted, than it would be if the investor were an individual or a mom-and-pop operation.
Beals said that he has individual clients who would love to buy distressed properties in Austin, but the obstacles are often insurmountable.
For one, banks won’t issue mortgages on homes that are damaged beyond a certain point. And for those homes that are in relatively good condition, the seller isn’t willing to sale at a price that the bank is willing to finance.
But not all investors are in it for a quick and predictable profit, according to Beals. Many investors take meaningful risks in blighted neighborhoods, he said — risks that practically no other entity is willing, or has the capacity, to take.
“If nobody redevelops these properties, then we have a situation where the neighborhood will never recover,” Beals said.
Michael Romain is founder and editor of TheVillageFreePress.org