DALLAS — In Houston, nearly 200,000 homes are vacant, about twice the average for cities of comparable size.
The sudden appearance of an extra 100,000 homes in three years results from record foreclosures in the wake of fallen energy prices and a Texas-sized building spree that turned sour.
The stockpile of repossessed property here has grown so big that it has created a chain reaction, fueling the recession that bred most of the vacancies in the first place.
The cycle is being played out in many other areas of the country, from Denver to Peoria to Miami. But nowhere is the problem more acute than in Dallas, Houston, Austin, San Antonio and other Texas cities.
They are burdened with the biggest real estate glut since the Depression. Texas homes that sold for $48 a square foot three years ago now go for $25 a square foot.
"It's very serious, very severe and unlike anything I've seen in my 25 years in the housing finance industry," said Michael A. Smilow, a vice president of the Federal National Mortgage Assn.--Fannie Mae--a government-chartered, privately run company that buys home loans and sells securities.
No one disputes the severity of the problem. No one disputes that an economic upswing is the long-term remedy, even though predictions of recovery rise and fall with oil prices.
What is disputed is how the U.S. government should sell the growing surplus of property it has inherited from debtors and from failed banks and savings and loans.
The list includes hundreds of thousands of repossessed homes, condominiums, shopping centers and business complexes-no one knows the exact number because no one in government has added them up.
The harder the government pushes to dispose of this inventory, the lower the prices will go and the less the original lenders will recover.
Investors from around the country who poured money into the state during its go-go years in the early and mid-1980s are watching anxiously, knowing the size of their losses depends on the outcome of the debate and its effect on the Texas economy.
"There's a dumping problem--there's all that property. You can't sell it all at the same time. If you do, the price gets close to zero," said Jay Janis, a California S&L executive and former chairman of the Federal Home Loan Bank Board, the federal agency that regulates S&Ls.
Said Sandra Flanigan, vice president and bank analyst at Paine Webber Inc. in Houston: "You cannot say it's just a Texas problem. Texas is not an isolated market. We're talking global markets. It's something that needs to be more directly addressed by Washington than it has been."
She added: "We don't think the real estate markets have bottomed. The question is, what does one do? The market's not strong enough to withstand a dumping."
Record foreclosures have turned half a dozen federal agencies into landlords, each with a separate, sometimes conflicting, policy for selling off or renting tens of thousands of properties.
A joke in Houston has it that the Federal Home Loan Bank Board ought to have a vote on the city council because the agency has become the city's biggest landlord.
Scores of S&Ls, banks and mortgage lenders across the country also have become landlords. To them, the government's policy--or lack of it--is no joke. They claim the sales strategy of the government is an uncoordinated free-for-all that is destroying real estate prices and undermining the efforts of private companies to dig themselves out.
William Isaac, a banking lawyer and former chairman of the Federal Deposit Insurance Corp., the federal agency that insures deposits at banks, warns that "banks around the country are going to end up paying for those problems if they're not handled properly."
Stuart A. McFarland, chief executive of SKL Holdings Corp. in Falls Church, Va., couldn't agree more. SKL is the company that emerged when a tax shelter company called Equity Programs Investment Corp. was reorganized in 1985 under Chapter 11 of the U.S. Bankruptcy Code.
It owns 17,000 repossessed homes, about 9,000 in Texas, and claims to be the largest manager of foreclosed properties in the nation.
"There will be a time as this death spiral continues that local municipalities will have trouble providing basic services as their tax base erodes," he said, explaining that as home values fall, so does the tax cities collect on them. That perpetuates the creation of what he calls "neutron bomb neighborhoods" or modern-day ghost towns.
Depends on Success
"The whole problem should be privatized because the government has no idea how to manage property, how to stabilize property or how to sell to tenants so sales are paced out over time," he said.
So much new foreclosed property is coming to institutions that are creditors of SKL that they hope to keep SKL alive as a jointly owned subsidiary after the bankruptcy plan is complete and earn a profit managing troubled real estate for themselves and others.