The foreclosure next door

Despite my status as an influential finance and housing economics writer, I’m not very different from many U.S. homeowners these days: my home has lost value versus my purchase price, and as of late I’m watching foreclosures spring up in my neighborhood. No, I don’t live in California. I live in an upscale community in Keller, Texas — a boomburb in the Dallas-Fort Worth metroplex that in 2009 was ranked by Money magazine as one of the top 10 “best places in America” to live. It’s still a great place to live, but even towns like Keller — rated as one of the nation’s richest cities by the American Community Survey — are now facing substantial challenges with a housing crisis that is more about a lack of jobs than anything else. As of this past week, the house next door to me is in foreclosure — and that, after watching a house five doors down enter into the same fate just a few months back. The effects of these foreclosures are already being felt throughout this block, and certainly within the rest of this high-end community of homes. For this writer — who has spent most of his career covering housing — this represents the first time I can say I will watch a property go through foreclosure start-to-finish from the comfort of my own back porch. An ‘oasis’ away from the nation’s housing crisis As the rest of the nation fell into financial crisis in 2006 and 2007, and California, Florida and Las Vegas watched homes enter into defaults at a massive clip, Keller seemed a relative oasis of calm far away from the storm. Residents here used to mull over neighborhood barbeques about what they were hearing about a housing market seemingly so distant from our own, and how it would never happen here. After all, prices had remained coherent in Keller during the ga-ga years of 2000-2005. Nobody had seen prices run up, and if anything prices remained mostly flat during that same timeframe. In fact, so many in our neighborhood — a newer community in the town — were from California and had sold out and left in 2005 and 2006, the town has unofficially taken the name ‘Kellerfornia’ among many residents that had relocated here. As proof, our house is far from the only one flying a University of Southern California flag on Saturday mornings in the fall (I’m a proud graduate of the university’s business school, and studied for my doctorate there as well). Back in 2005, when I chose to relocate my family here from Southern California, Keller was booming, and home builders were building — and home prices were far below the absurd levels my wife and I were looking at in towns like Irvine and Huntington Beach, California. Our home was one of hundreds of new homes built by Toll Brothers and Standard Pacific, in a community that — 5 years later — is still being built out. Median single family home prices in Keller have fallen from $220k in November of last year to $204k today, according to data provided to me from Altos Research. In the same time frame, inventories of properties for sale have soared. If you didn’t know any better, based on the charts above, you’d think we lived in a market inside California that had seen massive imbalances in supply and demand, the result of an unsustainable housing boom. ‘Honey, is that a foreclosure?’ It wasn’t until the neighborhood’s first foreclosure appeared on the market that real problems started to appear in our neighborhood. That house, five doors down from my own, was the result of the husband losing his job and being unable to afford his mortgage. One day, it was pretty clear that everybody had left the house behind. My wife came home from work and noted the property’s run-down condition and asked ‘honey, is that what a foreclosure looks like?” The answer was yes. When this former neighbor left, he took everything — because he was angry that the bank had refused him a loan modification that he felt he was entitled to. And I do mean everything: light fixtures, sinks, the dishwasher, electrical sockets, wood flooring — you name it, he took it with him. I remember seeing a U-Haul truck in front of the house for three days, wondering what was going on. Now we all know. I’ve heard from the agent listing the property that the bank has put $35k in repairs into the property, and will list it next week for $10 less per square foot than the already-thin comps our community has. Most residents in our tight-knit neighborhood tended to think this was a one-off case. After all, this former neighbor was more than a little eccentric in his approach to everything: he once ripped up his sodded lawn in favor of astro-turf so he wouldn’t have to water it. (And, ostensibly, because he needed to practice his putting.) But a month ago, the ‘one-off foreclosure’ theory was nixed. I noticed that the house next door to ours was in major disrepair: grass growing wildly, ant mounds throughout the front yard, trees knocked over by a recent wind storm, fences that simply were falling apart. Yet nobody appeared to ever be home — and these were neighbors we had shared meals with in the not-so-distant past. This past weekend, crews were out front mowing the lawn, and huge “FORECLOSURE” and “DO NOT TRESPASS” signs were taped to the front and back windows of the property. After making a few phone calls, I found out this property also was headed back to the bank, and would likely be listed for roughly $15 per square foot below what had been the general selling price for homes in the neighborhood. Stuck in the middle I spoke with an appraiser in our neighborhood recently, who noted that while these two foreclosures hadn’t yet entered into the price equation, two other ‘quiet’ short sales already have. I learned that two distressed homeowners sold their homes below what they had paid, but that the sales weren’t marked as a ‘short sale’ in the MLS, because the agent wanted to avoid the stigma of a short sale within our community. Stigma or not, the final selling price of these ‘quiet’ short sales impacts the rest of the community. Especially when there are only five resale comps in total to rely upon in our area (the rest being new sales). Residents who live within our community in Keller say these foreclosures and short sales aren’t a real issue in terms of resale prices, since very few of us have any intention of moving any time soon. We like the community we live in. But the pop-up of housing difficulties on our pristine shores here in ‘Kellerfornia’ are certainly an issue psychologically, if not financially. Refinancing has certainly become a more difficult challenge for most in our community, simply because the LTV ratios are now different and less favorable. Other neighbors who planned to put in a new pool, for example, in order to follow with a refi relative to the value they just would have added to their property, are finding such strategies now dead in the water. These are first-world problems, to be sure. But the fact that the nation’s foreclosure mess is popping up even in enclaves of America where it would least be expected ought to serve as a warning sign to our nation’s policymakers: mess with the workings of our nation’s housing markets at your own peril. The longer we drag this mess out, the further it will spread. Paul Jackson is the publisher of HousingWire and HousingWire.com. Follow him on Twitter: @pjackson