As foreclosures rise, has the Greater Austin housing market finally peaked?

Realtor Barrett Raven was showing one of his clients a duplex off of Cameron Road. Matthew Weilbacher was interested in buying one of the units, maybe the entire duplex, but he was wrestling with how to make use of the home’s oddly sloping backyard. Weilbacher peered over the neighbor’s fence and decided he could build a deck to cover up the grassy slope.

This home was one of several properties Raven and Weilbacher toured on an outing around North Central Austin. Raven said his clients tend to lock in their offers pretty quickly.

“For me, I would say on average, my clients find a home within three to five trips of looking,” Raven said. “So I would say on average, people see nine to 15 houses before they finally choose one.”

Raven said he isn’t feeling the effects of a recent change playing out in the Austin area. Compared to this time last year, foreclosures in the Austin-Round Rock metro area have increased by 29 percent, according to a report out this month from the California-based research firm ATTOM Data Solutions. The group’s senior vice president, Daren Blomquist, explained.

“This isn’t another crisis, so to speak, but we are seeing some loosening of credit that is introducing more risk, and there is this increase in the number of people falling into foreclosure,” Blomquist said.

But if foreclosures are up, why aren’t more real estate agents or homebuyers feeling the effects? Eldon Rude, principal of the Austin-based 360 Real Estate Analytics, said none of the economic factors that give us a read on the housing market are showing significant slowdowns. If we had a wave of foreclosures on the horizon, he said, it would be more obviously reflected in market data.

“As long as we continue to have relatively strong employment growth and people continue to move here, when they move here, they’re going to live somewhere, whether (they rent) an apartment or purchase a previously owned home or a new home,” Rude said. “And so that cycle continues to be pretty strong in Austin.”

When the raw numbers are drilled down, just 69 foreclosures across the area account for that 29 percent increase.

“If the numbers are very low, a small increase in that number might show a large percentage increase, so that might be what’s going on with those numbers,” Rude said.

Rude said if we take a broader look at the first three quarters of 2016, compared to the same time frame this year, we see less than a 1 percent increase in foreclosures. He thinks that provides a better picture of what’s happening in the market.

Putting aside that year-over-year increase, the report also notes a spike in a certain type of foreclosure – what’s known as a Federal Housing Administration loan.

Doug Scott, a mortgage banker of over 30 years, explained that FHA loans are a government-guaranteed mortgage. The federal program was initiated in the 1930s.

“It’s morphed over time into its present form today, where it is really designed to help first-time homebuyers get into their first home, with a relatively small amount of a down payment,” Scott said. “Right now, the minimum down payment is 3.5 percent of the purchase price.”

The report from ATTOM says Austin is seeing an “11-year high” in FHA foreclosures stemming from loans taken out in 2014. But again, looking at the raw numbers, that 11-year high equals just 13 FHA loans in foreclosure. Scott said the increase does not signal an impending slowdown of the local housing market. He said FHA loans are a less popular form of financing in Austin than in other cities, so they don’t necessarily indicate what’s to come for the overall market.

“There are aspects of it that are still very, very good for first-time homebuyers, but over the course of the last few years, there have been alternative sources of financing that have become even more popular,” he said.

Compared to the rest of the country, Scott said Central Texas was somewhat insulated from the worst effects of the 2008 housing crisis, thanks to its diverse economy. Fast-forward to today, and on the front lines of the housing market, people aren’t feeling the pinch of rising foreclosures.

Raven said foreclosed homes can be hard to come by in the Austin area, even if he goes looking for them.

“Clients will (tell) me all the time, ‘Oh, we’re interested in a foreclosure,’ because they just think that means, ‘We can get a great deal!’” Raven said. “And I’m just like, ‘Well, good luck!’ I mean, there are hardly any foreclosures in Austin to choose from.”

Photo by respres made available through a Creative Commons license.

This story was produced as part of the Austin Monitor’s reporting partnership with KUT.

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