Tip Johnston, owner of CENTURY 21 Johnston Company, has been in real estate for over 30 years and is a member of the Board of Realtors in McAllen, Harlingen and Brownsville-South Padre Island. He talked with VBR’s editor about the unprecedented, unnerving real estate market including REOs, the property held by lending institutions.
Q What is going on with the housing market in the Valley?
A The real estate market has never gone through a time like this with record-low interest rates, high inventory, low demand and government intervention at same time. We’ve been fortunate in the Valley that we haven’t suffered like Arizona, Florida, or California where prices were much higher and inventories were huge. Our smaller local banks generally don’t have the huge real estate inventories that mortgage banks and national banks do. Overall, Texas is in much better condition than other states and starting to stabilize. Valley home sales (units) in 2011 were up 12% from 2010 and the inventory of unsold homes has gone down slightly.
Q But has the Valley been immune from the crisis?
A Four months ago, I pulled information on home sales from three Valley MLS (multiple listing services) data bases. Between 50 and 60 percent of the home sold had been in some form of foreclosure or were bank-owned. In most cases, Valley foreclosures have been spread across numerous neighborhoods. Between 2000 and 2006, Valley real estate was growing in value by about five to eight percent a year. Since then, I would say across the board we have had about a 20 to 25 percent decrease in residential value.
Q Why is the market still in turmoil?
A There are between four and five million homes that are six months to two years delinquent that haven’t been foreclosed on by lenders. Large lending institutions don’t want the expense of inventory; they don’t want to own houses. If they were to foreclose on everything with delinquencies, they would torpedo all the property values in those neighborhoods with a large number of delinquencies, maybe even putting good mortgages underwater. This policy keeps the market from crashing to the bottom, but it also drags out the agony with the steady trickle of foreclosed homes onto the market.
Q Is anyone taking advantage of the housing collapse?
A Serious buyers are in the marketplace. Last year, 28 percent of homes sold were bought by individual and investors paying cash for a house. They used their cash because they were not getting a good return on their money in banks or stocks. They wanted an investment that paid off through rental income and appreciation in value. Here and around the country, people are buying homes and fixing them up to rent or re-sell and renting them. We have several investors who buy sound homes in good neighborhoods in distress situations, where the houses need only cosmetic upgrades like flooring or paint. They look for a payoff in seven to ten years from cash flow. If you have to finance, it’s a different story. Once prices begin to stabilize, the deals available today will not be there.
Q What is the status of foreclosed homes in the local market?
A Our office alone listed 70 HUD homes last year. Other Valley agencies did about the same, totaling maybe 300 to 400 homes. I expect that to be the same in 2012. This is just one source of the REO inventory. Most of the HUD sales are to owner occupants at prices slightly below the FHA appraisal.
For more on this Q&A with Tip Johnston, pick up a copy of the February edition of Valley Business Report, on news stands now, or visit the “Current & Past Issues” tab on this Web site.