Texas Capital's Boom Abating, But Lending Remains Strong

Last year $636 billion in mortgage loans were made across the country, and more than one million Americans became new homeowners.

From Maine to California, lenders will all tell you that home loans are a local business. Whether you have a two-branch, one-county operation or a nationwide network of thousands of offices, understanding the market at your front door is key.

This article is the first in a weekly series that will examine a cross- section of metropolitan home markets throughout the United States, from the slow-moving behemoth New York City to fast-growing hot spots like Fort Lauderdale, Fla.

Austin has been touted as THE Texas boomtown of the nineties, but this may be the year the city comes back down to earth.

Expansion by technology companies provided the engine for growth in the housing market through this decade. Samsung, Motorola, Dell Computer Corp., and International Business Machines Corp. transferred thousands of employees to Austin, sparking a frenzy of new home construction, and driving up average home prices almost 30% in five years.

Sluggishness in the technology this year threatens to put an end to that. For the first time, some of those companies are announcing layoffs.

Job growth has fallen 2% since January, said D'ann Petersen, economist with the Federal Reserve.

"We're down 15% from this time last year as far as applications are concerned," said Keith Stewart, vice president of Sterling Capital Mortgage Co., formerly Charter Mortgage Co. Sterling is the fourth-largest local lender, with a market share of about 3.4%

The slowdown, though, is quite recent and will not show up in published data for closed loans for another month or two. Mr. Stewart said, however, that volume remains strong despite the slowdown. "It's still pretty good," he said. "It's just that we've had a pretty good run."

Mortgage lending is dominated by home builders in Austin: CH Mortgage Co., owned by the big builder Continental Homes, is the present market leader with 5.27%. CTX, the No. 3 Austin lender with a little over 4% of the market, is owned by Centex Corp., a big home builder.

The Texas capital remains a local market, with the big national lenders having relatively small presences. Prudential Home Mortgage was No. 6 in purchase loans through May, while Chase Manhattan, Norwest Mortgage, and North American Mortgage were in seventh, eighth, and ninth place respectively.

Lenders give a variety of reasons for the easier pace they've seen this year, including rising interest rates, a drop in the number of new people arriving in the area, layoffs that have chilled the move-up market, a surge in rental construction, and the drought-ridden summer.

Nonetheless, Austin is still very strong, according to the area's leading lenders. And they expect originations to remain strong for the rest of the year.

Leigh Ann McCoy, president and chief executive of Mission Mortgage Inc., emphasizes that Austin is home to state government and the massive University of Texas, both reliable providers of employment. "So we are not as volatile as other cities," she says.

But her husband, Mike, senior vice president in charge of loan production, concedes that the boom is beginning to weaken. "Year to date, we're up 38%, but we are looking at a slowdown now," he said.

David McMillan, manager of Pacific American Mortgage Co.'s only branch in Austin, also reported a slowdown. Pacific Southwest is the No. 6 lender in purchase mortgages. "We did $9.9 million last month but this month it'll be more like $8 million," Mr. McMillan says.

He cites as the culprits rising interest rates and a surge in multifamily construction that is deflecting people away from the purchase market, especially first-time buyers. "Austin in general is pushing apartments all over the place," Mr. McMillan said. On a single day in mid- August, a record 1,900 new units were announced, he added.

Then there's the weather. "In July and August, it gets really hot," said Ms. McCoy of Mission Mortgage. "We've got a drought, and so with no rain it's extra hot."

But James B. Nutter Jr., executive vice president of James B. Nutter & Co., shrugs off the weather angle. "Borrowers are just very savvy when it comes to interest rates," he said. Nutter has a big refinancing business - it's No. 6 in Austin in that category - that tends to be more rate- sensitive than purchase business.

Despite the rising rates, Nutter has fared well in refinancings. "Even when rates are not at 25- or 30-year lows, we can help the borrower who might have missed the boat a few years ago," Mr. Nutter said. "We try to provide service here."

Mr. Heffernan is a freelance writer based in Atlanta.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER