Hot Property

Bryan Richey, the regional administrator for the Bureau of Labor Statistics, recently uttered the most unsettling truth of the 1970’s: Inflation, he said in so many words, has become a self-fulfilling prophecy. The faith we have in the inevitability of higher prices tomorrow has forced us to buy out of fear today; and because we buy, the prices do go up tomorrow.

Nowhere is this circle more vicious than in the residential housing market. Prices are way, way up, but so are demand and sales. A house that sold for $68,000 last winter sold for $85,000 this winter – an increase of 25 percent. Despite the fact that banks are running out of money and assessing outrageous point charges for what little they’re willing to lend, people are still lining up on Saturday morning to spend $100,000 for three bedrooms, two baths, and a roof that probably needs to be replaced.

People are paying ridiculous prices for houses because inflation also means appreciation. Anyone who’s willing to bite the bullet by dropping $35,000 down knows what he’s getting in return: Nearly 100 percent appreciation on the home in three to five years. A house in Dallas is the single best dollar-for-dollar investment you can make – if you can get the financing. And financing, as everyone who’s perused the Sunday classifieds knows, is no small problem.



In March, Dallas Federal Savings had a lending limit of $50,000 on conventional home loans; additionally, you must have been a customer of Dallas Federal before November 1 of last year. You needed 25 percent down just to get in the door.

Interest rates on home loans in Dallas hover just below 10 percent, held there by the state’s usury law. Meanwhile, capital flows to states where it will draw a better return. The private mortgage company of Lomas and Nettleton has simply stopped making loans. “All the money we’re used to getting each month-and we get buckets full,” says President Jim Wooten, “is going into Oklahoma and Arizona and places like that, where the interest rates on conventional residential loans are 10.5 to 11 percent. Of the 753 investors we represent-and they love the economy in Dallas – none will give us money at 10 percent.”

In the first two months of 1978, $147 million was lent in Dallas for home purchases by 61 lenders, according to DRESCO, publishers of a comprehensive residential sales and mortgage report based on county deed records. For the same period this year, only $122 million was lent by 48 lenders. That’s a 17 percent decline in lending activity. But the amount of money actually spent on homes in Dallas is up: The Greater Dallas Board of Realtors reports a $29-million increase – 32 percent – in home sales in the first two months of 1979 over the previous year.

These figures show that more and more of the money in the local housing market is coming from out of town: A lot of people are moving to Dallas from other parts of the country as their companies set up headquarters here. Many of these people arrive armed with heavy cash for house down payments – $35,000 off the sale of their long-time home in, say, New Jersey. Joy Henenberg, an agent with Henry S. Miller, sold 22 houses in 1978 (worth well over $1 million); eight of them were to out-of-towners. In January of this year, she sold five houses, four of them for the original asking price, two of them for cash.

With demand like that, housing prices really aren’t so surprising. And in a time of dwindling mortgage money, the demand is fueled by anxiety about buying before it’s too late. Mrs. Henenberg recently sold a North Dallas home for $74,500 before it was even listed. “These people just called me at home one night at a quarter to twelve and then brought me a contract. They put $40,000 down and got a mortgage for $34,500.”

How do you get a mortgage? First, check your own bank to see what’s available. At other banks, you might be summarily refused because you’re not a customer. (“It’s a semi-justifiable form of rationing,” says Joel Williams III, executive vice president of Texas Federal Savings). Second, check with other savings and loan institutions and the mortgage companies. Then take out a piece of paper and figure the real cost to you, the buyer, of obtaining a mortgage through a certain lender. You need to do this because many of the lenders have made up for the 10 percent interest ceiling by adding points – that confusing increment of fees tacked on by the lending institution at closing. A point is simply one percent of the total loan amount; from the buyer’s point of view, it is interest money paid up-front for the right to sign a mortgage.

Points can be expensive. For example, Guardian Mortgage Company recently offered mortgages up to $100,000 at 9 7/8 – four and one-half points to the buyer, one point to the seller. That means that at closing, the buyer forks over $3375 on a $75,000 mortgage, the seller $750 – just to consummate the sale. That isn’t interest according to the state usury statute, but it amounts to the same thing. In this case, the buyer pays in one lump the equivalent of four years of mortgage interest at 11 percent. Points vs. interest has become such a controversial matter that many lending institutions have stopped charging them. Lomas and Nettleton, for example, says points have not been fully explored in the courts and should be considered a potential liability.



An increasingly popular way to arrange financing is directly with the seller. Known as the “second lien,” or “second loan,” the idea is for the seller to float the mortgage or a portion of it. This method is especially useful when you require a big mortgage. You can split the burden between a bank and the seller, or have the seller finance the entire deal. The seller simply plays banker and the two of you negotiate the terms (although the seller, like the banks, is bound by a 10 percent interest ceiling). Last year, for a $300,000 house on Loop 12 near Inwood Road, a buyer put up $30,000 earnest money, followed with another $70,000, and at closing paid $40,000. The remainder he agreed to pay to the seller within one year at 9 percent interest. This clearly was a person who would have no trouble getting a loan. But by the same token, this buyer paid a lower interest rate than he would have on a conventional mortgage and the seller made money on the interest.

The advantages of the second loan method are obvious. But the disadvantages are numerous: Both the buyer and the seller must take the time – and probably their lawyers’ too – to set up a contract with acceptable terms. The seller must take the risk and assume the burden of keeping the buyer up on his payments. And most important, the seller doesn’t get his money at once – like you did only weeks before when you made $35,000 from the sale of your house. The only immediate option open to the seller in this situation is to turn around and sell the note to someone else who would take responsibility but not pay full face value. In deciding what kind of reduction, or “discount,” to take, the seller must ponder the economics of inflation and whether it is better to take $15,000 cash today on a $25,000 note than it is to get $25,000-plus-interest spread over, say, 20 years.

The character of financing is changing with the housing market. A trying blend of patience and creativity is required if your expectations are to be fulfilled. If you’re interested in buying a newly built house, prospects of getting a mortgage are probably better, depending upon your builder. Many builders have prior commitments from savings and loan associations, Williams says, and those banks are willing to assist in making loans to home buyers because the builder can’t finance his debt without selling the homes.



Whatever your predilections for independence may be, do not sniff at buying a house through a real estate agent. Many of the larger firms in Dallas have paid points to lenders in order to reserve huge chunks of mortgage money for their home buyers. The fact is, while you may fail to get a mortgage on your own, you might get one with an agent. “I haven’t struck out yet,” says Mrs. Henenberg. “Of course, I screen my clients very well. They’ve got to be able to pay.”

Joel Williams of Texas Federal Savings is pessimistic about the assistance even agents can offer as the seasonal demand for houses goes up and the loan money simply evaporates. “May and June are the crunch times,” he says, “and that’s when you’re gonna see Ebby (Halliday) and Virginia (Cook) start screaming.”

Mrs. Cook is cool for now. “A home is a man’s castle,” she says. “He will find a way.”



But how can you really know when a house is a good value? “Market demand is everything,” says Ley Jaynes III, an independent appraiser who wryly mentions an $80,000 Park Cities house for which “I wouldn’t give you $40,000. . .but then my personal opinion of value has little to do with my professional one.” When Jaynes does an appraisal, he first calculates what it would cost to replace the house today on the same lot with the same materials. Then he looks at the going prices in the neighborhood, otherwise known as the “market” approach. The recent sales prices of “comparable” homes are researched. The prices of the “comparable” house that sold down the street will have a lot more to do with an appraisal – and therefore a reasonable list price – than the age of the plumbing.

And if there is one factor that dominates the market approach, it is location. Citing a decrepit, poorly built home selling for $120,000 in the Park Cities, Mrs. Henenberg says, “you’ll get three times the house in North Dallas.” Of course, you won’t be living in the Park Cities. For if living in Highland or University Park is a priority, then price is almost always backed up by market value.

“I know one house in University Park off Preston Road behind the golf course,” Jaynes says, “and it sold in March of 1975 for $125,000. It has three small bedrooms, two baths, and very small closets. It is high-gabled and 1930s in style. That house would easily take $250,000 now. But if you could afford a $250,000 house, you wouldn’t buy it! If you’re interested in luxury living, you’d need to do a lot to it – add on, enlarge the closets, and so forth.”

Why, then, will someone pay for it? “Location,” he says flatly. Mrs. Henenberg has a theory about what really makes the value of a house. “It’s three things, really,” she says. “Location, location, and location.”

When areas become more popular, the prices go up with demand. The area in North Dallas north of Loop 12 was “out of fashion” five years ago, says Jaynes. “There were all these hopeless brick rectangles, just over 2000 square feet each, with two bedrooms and two baths. It was not a strong market. The prices were $40,000 to $50,000. Then it turned around. Here were these nice little houses that needed a little work and the location was good. Now that area, from Hillcrest to the Tollway, is high demand and very competitive.”

But the vagaries of the market when it comes to value can perplex even the most experienced appraisers. Take the north/ south boundary created by Midway. On either side of the road, the land and the houses are the same. The city services are the same, all the school zones are within the Dallas Independent School District. The air is the same. But the prices are consistently higher east of Midway.

This spring there were two roughly comparable homes for sale on the same street. One was just east of Midway, the other slightly west. They are both one-story brick, four-bedroom houses. The house east of Midway has a pool and the other does not (at best, this would account for a $10,000 differential). The house east of Midway is 15 years old; the other is 12. The house east of Midway does not have a separate dining room or utility room; the other does. The house east of Midway has a smaller kitchen than the other one. The price of the house east of Midway was $149,500; the price of the one west of the border was $103,000.

Which is the better value?

If restoration is your idea of value, financing it requires as close a look as purchase loans.

Lakewood Bank and Trust in East Dallas has stopped making restoration loans to purchasers of old houses. In Oak Cliff, however, loans are still available on a rationing basis similar to the terms of home purchase mortgages, according to Don Dean of Oak Cliff Bank and Trust Company.

In any case, there are some generallyagreed-upon basics for making a gooddecision when buying a house. The mostimportant rule is psychological: Don’tlose your cool. “It’s always somethingemotional,” Jaynes says. “People willfind something about that house. If youget hooked on a particular facet of thehouse, you’re not flexible enough to makea judgment.”