McAllen's real estate market still sluggish

McALLEN — Buying a house in the Rio Grande Valley will be much harder by this summer — and it’s not easy now.

Buyers have until April 30 to sign a contract to qualify for the homebuyer tax credit, up to $8,000 for first-time buyers and up to $6,500 for repeat buyers.

Home sales plummeted again in January after a late-year bump in 2009, banks are still reluctant to fund mortgages, and with the federal government set to make it more difficult to obtain one of the most popular loans in the Valley, there’s no reprieve from slow sales in sight.

“Of course last year was down for all of us. Everyone in real estate, if they were honest, would say that,” said Eva-Jean Radle, a McAllen Realtor. “There’s nothing so far that is showing me that (this year) is going to be any different. Hopefully — maybe — we’ll be surprised.”

The biggest problem for Realtors is twofold — though their troubles are many more. First, consumers simply aren’t buying homes right now the way they once did. Joblessness is at a high — in McAllen unemployment is at 12.2 percent. Second, the few home buyers out there can’t get loans, Realtors said.

“There’s still some conventional loans being done,” Radle said. “Most everything is FHA.”

And that’s another conundrum. The Federal Housing Administration will tighten lending requirements this summer for the mortgages it insures. Among the new measures is one requiring borrowers with credit scores below 580 to make a down payment of 10 percent.

The new standards could shock the Valley’s real estate market, where the majority of new loans are now FHA insured, Radle said.

All of this will make finding financing even more difficult, said Robert Calvillo, executive director of Affordable Homes of South Texas.

Affordable Homes, a nonprofit that builds and finances homes for qualified low-income families, has seen its popularity grow as the real estate market crumbled. The group said it has also become one of the most prolific builders of homes in the area, constructing some 89 houses in 2009, a telling indication of how much the construction market and real estate have collapsed.

Hidalgo County’s real estate market hit rock bottom in November 2008 and then went on an upswing that ended in summer 2009 with another downturn. That was followed by a boost in sales in November 2009 that Realtors and Jim Gaines, a researcher with the Real Estate Center at Texas A&M University, have attributed to the new home-buyer tax credit.

The McAllen housing market registered a bump in sales as buyers rushed to take advantage of the credit when it was first set to expire in November, according to the Real Estate Center.

“Toward the end, people kind of woke up and said, ‘If I’m going to do something, I need to do it now,’” said Charles Marina, a Realtor with First American Realty.

The credit has since been extended and expanded to include people who have owned their current home for five years.

Then sales fell off again. In January 137 homes were sold, about the same as January 2010, according to data from the center.

Realtor Hector Cavazos said he has been selling homes by avoiding the banks.

Most of his sales have been owner-financed, in which the current owner of a home provides the financing for the buyer. The old owner can take the house back as collateral if the new owner doesn’t pay his monthly mortgage, just like a traditional bank mortgage.

The loans usually come with an interest rate that increases to double digits after five years, Cavazos said. The loans are designed for home buyers with bad credit who expect that they can repair the credit and then refinance the home or pay off the loan before the interest rate goes up.

If the loans are used responsibly, the homes can help first-time owners with bad credit or limited credit. But if used poorly and not paid off or refinanced before the interest rates goes up, a homeowner could wind up underwater and unable to make his mortgage payment.

Unlike with subprime lending, most of these loans are going to borrowers with high incomes but who have bad credit or no credit — mostly Mexican nationals, Cavazos said.

“I will always recommend going to the mortgage company first — the best loans, the cheapest rates,” Cavazos said. “If you’ve got cash and a good amount of cash, you can handle (the balloon mortgages.)”

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Sean Gaffney covers business, the economy and general assignments for The Monitor. He can be reached at (956) 683-4434.