Dallas homeowners are between a rock and a hard place.

The city is adding jobs, yet real estate is softening.

According to the Department of Labor, Dallas/Fort Worth added 66,800 jobs between April '07 and April '08, the second largest gain of any MSA in the U.S. Abut 47,400 of those jobs were in Dallas.

Yet, in May, only 5,088 homes were sold in Dallas, a 14.0 percent decrease over last year. The median price was $164,700, a 0.1 percent decrease.

The city is moving into a buyer's market with 6.7-months inventory on hand.

The question is why? How can real estate be worth less in a city that's adding jobs?

In its Beige Book report, the Dallas Fed said the following: "Partly reflecting reduced credit availability at nonbank lenders, loan demand at banks is growing faster than deposits, and banks have tightened standards to increase interest-rate spreads."

Banks know that fewer loans mean that the risks to the marketplace are higher, creating a self-fulfilling prophecy - a riskier market in which to buy homes.

Explains Mike Eli of Homesmartreports.com, "Value is based on three things: price, trend and risk factors. Risks are rising in Dallas because of hidden undercurrents, like foreclosure activity."

"The real estate community focus is on sales data," he says, "but there's a lot of mortgage fraud manipulation and that's part of what led to the big refinance boom and loans not performing. You get an element that will try to buy people out at those prices and lenders dump inventories. That drives prices down and as equity erodes, foreclosures go up."

In other words, if banks are dealing with foreclosures, they're looking for other ways to reduce risk yet still make money. The only way to do that in the short term is to increase their interest-rate spreads by making it harder for borrowers to get approved for a loan. If there are any credit blemishes, the borrower pays a higher interest rate.

Even in Dallas.

"There is a silver lining," says Eli. Dallas' risk number is almost a 15, out of a possible 100. That's an extremely low risk, considering Detroit's risk assessment is in the 40s.

Published: July 1, 2008

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