Business - Danielle DiMartino
Dallas housing isn't hot enough to appreciate
10:49 AM EDT on Tuesday, May 23, 2006
At 18,551, foreclosures in the Dallas area are up 12 percent through June over last year. They're fast approaching the record highs hit during the real estate bust of the late 1980s. Though the rest of the nation is nowhere near as fraught with the problem, delinquencies are on the rise and foreclosures are on the horizon in many cooling markets. Foreclosures, of course, hurt sellers' chances at getting the best possible price for their homes. If you're a seller who is being affected by just such a scenario, don't wallow in frustration — aim your anger due west. A five-year interest-only loan can make sense when home price appreciation is in the double digits, as was typical of West Coast markets. And if such appreciation can be expected to continue, maybe even that 40-year mortgage is appropriate. If that kind of price growth is guaranteed, it might just make sense to take out a loan that allows owners to skip payments and let the loan balances grow. If the mortgage becomes too onerous, homeowners in hot markets can simply sell their way out from under the payment's weight and no one is worse off for the experience. Federal Reserve Chairman Ben Bernanke said as much last Thursday: "We are not saying you shouldn't make these loans. What we are saying is that they need to be done the right way." Little appreciation The wrong way, on the other hand, is in markets with little in the way of home price appreciation. "In California, the issue was different, because there was double-digit appreciation," said George Roddy, president of Addison-based Foreclosure Listing Service, which compiles local foreclosure data. "In the Dallas area, we're talking 4 to 5 percent." Similar tales of woe can be heard in other cooler markets where inappropriate lending practices have already come home to roost. "It doesn't take a rocket scientist to figure out that with some of these loans you'd better be prepared to stay in the house for a couple of years just to break even," Mr. Roddy said. Tick, tick, tick With home sales falling across the nation, home price appreciation slowing, inventories building, delinquencies rising and mortgage rates on the uptick, it's only a matter of time before many homeowners realize they've signed off on a ticking time bomb. "The problem is people wait too long. By the time people figure they can't handle higher payments, it's too late," Mr. Roddy said. "Some do nothing for so long, they end up 10 or more payments behind and having to let the house go to foreclosure." The alternative to doing nothing is approaching your lender at the first whiff of trouble. You'll quickly discover the last thing the people who should have never made you the loan in the first place want is to pay for their sins by having to take the house back.
