Credit Rules Relaxed For New Home Buyers

New construction permits fell 30% in 2008

Local builders and realtors say residential real estate is currently a “buyer’s market,” but the high volume of foreclosures over the last year and a half has made getting a home loan, especially for first-time buyers, next to impossible.
Still, with federal tax rebates on the way and real estate still booming in the south, Texas and Williamson County haven’t been hit as hard as other areas of the nation.

Taylor City Manager Jim Dunaway has seen the number of building permits for new residential properties drop sharply in Taylor since last year, though commercial real estate seems to be doing well.

“We’ve had Mariachis, Bar None Grill, Giant Appliance all come into town,” Dunaway said. “There’s not quite as drastic a change as we have on the residential side this year compared to last year.”

The Community Development department tracks these rates over the city’s fiscal year with new home permits, according to Community Development Director Bob van Til.

During the last fiscal year, October 2007 to September 2008, the city wrote 56 residential building permits. The 2008-2009 year is half over, and the city has written only 8 so far. Two years ago, during the 2006-2007 fiscal year, the city saw 80 new homes go up.

“We still have a pretty robust market in the renovations end,” van Til said. “You have to get a permit to renovate your home, whether it’s electrical, plumbing, structural or environmental. That’s actually down, too, but it’s what’s keeping us mostly busy.”

The economy itself is directly to blame, according to both van Til and Dunaway. Banks are reverting their loan policies back to the way they were years ago, when Dunaway bought his first home with 5 percent down.

“When my parents bought their (home), it was 20 percent down,” he said. “People are going back to more conventional-style home loans.”

According to Brasfield Real Estate co-owner Donna Brasfield, homebuyers must now have a credit score of 620 — a good credit rating — or higher to get a home loan and must put 3.5 percent down.

Last year, homebuyers could easily get a “zero down” deal with credit scores in the 500s, Brasfield said. But there is a way around perfect credit.

“First-time homebuyers can use a USDA loan, where your income has to be below a certain amount,” Brasfield said. “For a family of four, I believe it’s about $58,000 a year.”

In addition, the stimulus bill recently signed by President Barack Obama will allow homebuyers to earn a tax credit of $8,000 with the purchase of their house, provided they stay in the same residence for three years.

But these monetary votes of confidence in the buyer aren’t contributing to Williamson County sellers dropping their prices to attract prospects.

“Inventory is way down,” Marketing Director of the Williamson County Association of REALTORS Mike Burton said. “Round Rock is down 20 percent on homes out there for sale. I think people are apprehensive about putting anything out for sale right now. They’re waiting for a better time.”

In Taylor, however, inventory is up though some sellers are forced to negotiate to a near loss, Brasfield said.

“For those sellers who have moved out and relocated, their house is vacant and they want to sell,” Brasfield said. “So they will negotiate.”

From the homeowner’s perspective, it is still the wiser option to buy and renovate an older home in the current market than to build a brand-new one, according to Brasfield. Building materials have become more expensive, leading to a higher cost per foot for a new house, which can give the buyer limited options.

“I would think it much easier to buy a resale home than to build a home today, just because of cost,” Brasfield said.

An option pursued by some building companies, in light of the higher expense of materials, is downsizing the size of homes they offer, without sacrificing quality.

“We’re still continuing to see a demand, but now, just based on the economy, we’re looking more at what (the buyer) needs rather than over-purchasing,” KB Home Spokeswoman Cara Kane said. “And we’ve seen the sizes of homes change.”

Now, builders are focusing on a wider variety of styles, models, materials and sizes, so sellers can offer “something for everyone.”

KB Home is the builder responsible for the Summerfield residential subdivision in Taylor, where business in new homes is still going strong, according to Kane. The business has made a few adjustments, but buyers keep knocking on their door.

“Our community in Taylor continues to develop really well,” Kane said.

Kane said there are advantages to buying new, including current energy efficiency standards, which can save buyers up to 30 percent on their utility bills. Older homes do not offer this advantage and can be costly to repair, she said.

However, sellers, whether builders or their competitors, resale and foreclosed, agencies agree on one thing — to stay alive in a bear market takes tenacity.

“In real estate, you have to stay in it whether it’s good or bad,” Brasfield said. “If you’re going to stay in it, stay in it for the long haul.”

And according to Burton, while realtors in other states “think that the sky is falling,” and it is harder to get a home loan now than it was a year ago, Central Texas is “still one of the best places for real estate in the country.”