“There are always periods of excess. Everyone in the industry could see what was happening. The rules of the whole housing industry have changed,” said Tony Dona, founder of Thackeray Partners, a real estate private equity fund.
The end result: Around 43,000 homes in the Dallas-Fort Worth area were foreclosed on last month. This is an increase of nearly 10 percent from 2006, the Foreclosure Listing Service reports.
Dona said there were two insanely dangerous things going on before the crash. “Firstly, floating rate mortgages, and secondly, not requiring purchasers to put money down for funds borrowed.”
These two factors allowed people to purchase homes who they would have otherwise been unable to do so. Now that interest rates have increased, these borrowers are unable to pay their mortgages. They simply cannot afford to keep their homes.
Aside from granting sub-prime mortgages, banks also began “securing” their loans. Lenders sold the loans they made to others all over the world. A town in Norway now has a budget crisis because borrowers in the United States defaulted on loans, Dona said. In previous housing crashes, borrowers and lenders knew one another. Today, lenders are halfway around the world.
Some people are drawing comparisons between today’s home foreclosures and the real estate crash of the late 1980s. Experts believe this is not the case.
“The ’80s crash was a direct result of job loss. In this go-around, salaries haven’t decreased or disappeared, but mortgage prices have increased,” said Chuck Dannis, an SMU real estate professor.
In fact, unemployment rates in the Dallas-Fort Worth area are about a half of a percent lower than the rest of Texas and a percent lower than the nation, according to the Bureau of Labor Statistics. Nearly 50,000 jobs have been created in the Dallas-Fort Worth area.
Cities all over the United States are feeling the backlash of the sub-prime mortgage fallout, but experts believe Dallas is in better shape than many other places.
“In places like California, Arizona, Boston and Washington D.C., home prices are inflated, but that is not the problem here in Dallas,” said Dannis.
Since the sub-prime mortgage bubble had to break sometime, Dallas should remain in good shape after the market corrects itself, Dona believes.
Others think rapid condominium development in Uptown, Victory Park and Downtown may pose a threat to the already weakened real estate market.
“There has been a demand for condos because people could buy them for the same amount they could rent. If lawmakers tighten up the mortgage standards, there won’t be anyone to absorb condos being built,” said Ben Brown, a real estate contractor and developer based in Fort Worth.
For now, properties are continuing to sell in the area. This is contingent upon continuing job growth, said Michael Wein, a real-estate agent for Mustang Realty Group.
Homeowners who were forced to default on their mortgages will also be able to spurn growth in the rental market. This should help the increasing condominium market.
“Rental housing is already a pretty healthy market, and now [people whose homes were foreclosed on] will again become renters,” said Dona.
The Federal Reserve has repeatedly cut interest rates in the past month in an effort to decrease the amount of foreclosures.
“There’s about another two to six months of pain, but as long as there is job growth in Dallas-Fort Worth, we should be alright,” said Dannis.
