The decline of values
Orphaned developments victim of market forces
Retired Department of Defense employee Colin Walsh moved to Fort Worth and into a new home built by Wall Homes in July 2008 in the first phase of a budding high-end subdivision in north Fort Worth called Harmon Ranch.
Unfortunately, that’s where the niceties end.
Since that time, Wall Homes declared bankruptcy and the future of the subdivision is rocky at best as the vacant, now bank-owned lots remaining at Harmon Ranch have sat empty. The brick fence slated to surround the neighborhood hasn’t been built and the same goes for the planned community amenity center.
Walsh’s home value has dropped from the $279,000 he paid to a current appraisal of $250,000. And now Walsh – and the rest of his Harmon Ranch neighbors – is afraid that value may again be chinked.
North Richland Hills-based History Maker Homes has picked up a few of the lots inside Harmon Ranch, which is at the intersection of Heritage Place Parkway and Harmon Road in north Fort Worth, with plans to introduce the homebuilder’s Signature Series homes, ranging from 1,540 to 4,000 square feet and from $130,000 to $210,000 – in some cases half of what existing Harmon Ranch homeowners paid.
“Our values are already suffering, but now we’re looking at them bringing in homes that are way lower than our values,” said Harmon Ranch resident Todd Patek. “It’s going to drive down the values of our homes even more and that wasn’t what was sold to us when we bought here. They told us the developer was building an amenity center, a fence around the place and the homes were from the $180,000s. Some paid more than $300,000. Now it’s all we can do to make sure the vacant lots get mowed. We’re talking about 4-foot grass on these lots. The story just keeps getting worse … and we’re worried this could be the nail in the coffin for us.”
With hoardes of unfinished subdivisions dotting the far reaches of Fort Worth – especially far north and far south – Harmon Ranch is not the only neighborhood facing empty lots and falling home values. In fact, as more builders pick up deeply discounted lots in new subdivisions, Harmon Ranch’s predicament could become more commonplace, said Greater Fort Worth Association of Realtors President Kenneth Jones.
“[Homeowners] would just have to pray they have some good minimum standards in their deed restrictions. If they don’t, you could have a $100,000 Fox and Jacobs home next door to a $400,000 custom home,” he said.
A community’s deed restrictions, otherwise known as its Covenants, Conditions and Restrictions, or CC&R’s, dictates guidelines for future construction in a community. For example, a neighborhood’s CC&R could mandate no home smaller than 2,000 square feet can be built in that neighborhood, thus excluding builders that specialize in smaller homes.
In many neighborhoods, though, minimal CC&R’s were adopted. In Harmon Ranch’s case, Patek said the neighborhood’s deed restrictions say no home smaller than 1,350 square feet can be built – the minimal square footage per the city of Fort Worth.
IRR Residential Valuations Consultants Managing Director Scott Burdette recalled a similar situation happening now in the Deer Creek North subdivision in south Fort Worth, which originally featured D.R. Horton homes built in the $200,000 to $250,000 range.
“A builder came in and started putting in $100,000 homes and they meet deed restrictions, but they’re not the same type of house,” he said. “I would be [upset] if I lived there and they were building that home beside me … Before the peak we were building 50,000 homes a year and now we’re building less than 14,000, so there’s not that much going on regardless, but I can see this as a growing trend where everybody in a neighborhood thinks one type of home is being built there and low and behold, another product comes in entirely.”
More stumbling blocks
Beyond the possible initial impact a lower price-point home has on a higher-end neighborhood, Jones said homeowner panic can have an equally detrimental impact.
“If a homeowner is in a situation like this, they will do anything they can go get out of it,” he said. “And that affects values tremendously.”
Judith O. Smith, owner of Judith O. Smith Mortgage Group Inc., said it is always tragic when an incomplete subdivision’s lots go into foreclosure.
“Foreclosure is not a profit center for anybody. The bank is not a builder and they have to figure out a way out of the trap so the best option for them is to sell those lots,” she said. “And the price point that’s selling today is that first-time homebuyer, entry level. History Maker is a good, quality builder and they’ll go in and build and, sure, it’s going to hurt those homeowners there. But it’s a cycle and there’s just nothing you can do.”
Smith said there also will be an underlying impact on not only one’s chances of selling a home in such a neighborhood, but also one’s chances of getting refinanced.
“We beat the appraisers to death,” Smith said. “We’re looking for strong, strong appraisals that will hold their value for a while. So when they try to refinance, that refinance lender is going to need an appraisal and if comps are falling because of those new homes, that value might not be there to justify a refinance right now.”
A repeat of the 1980s
An example several local real estate professionals gave of a similar situation to that of Harmon Ranch is the Bellaire Park North neighborhood in the 1980s, when land went into receivership and Houston-based Perry Homes bought up several lots in the primarily custom home neighborhood and offered a lower price-point home to consumers.
“At the time, homeowners were so upset, but the builders had said ‘uncle’ and there was nothing else that could be done,” said Carol Van Hook, with Mira Vista Realtors. “But they’ve done fantastically well and today, it’s hard to tell which homes are Perry and which aren’t. But of course, they’re in the perfect location.”
Burdette said the location can definitely impact values.
“The gap between the products being built could impact values greater and I think location would matter,” Burdette said. “If you go look at Deer Creek North, it’s like a tale of two cities out there.”
Patek said that discrepancy at Harmon Ranch is the neighborhood’s worst fear.
However, Jeanne Conger, vice president of sales and marketing for History Maker Homes, said the History Maker products built in Harmon Ranch will include “design elements and architectural details that will meet or exceed the current architectural guidelines as set forth in the restrictive covenants for the community.”
“… We feel that building new homes in Harmon Ranch will bring stability and structure to an abandoned community,” Conger said.
Even so, Patek said his and his neighbor’s values will still be affected.
“We’re just stuck. We don’t have anywhere to turn,” he said. “We’ve tried reaching the HOA, but they’ve been really ineffective. They don’t have any money. And the developer is standing by the CC&R, which is not good enough. We have nowhere to turn.”
Repeated calls to Tia Singer at Singer Association Management, Harmon Ranch’s HOA management firm, as well as calls to Baruch Properties, the project’s developer, were not returned.
Mark Wood, partner at Howe/Wood and Co. real estate brokerage and development firm, said somewhere along the line, the “market said that price point at that subdivision wasn’t working,” at Harmon Ranch.
Wood’s partner, Mark Howe, agreed, adding that at Harmon Ranch specifically, the market will likely “find itself.”
“And when it does, it may not be at $290,000 and it may not be at $116,000, but whatever it is, the market will decide and essentially values there will start over,” Howe said.
Jones said his advice to any homeowner thinking of selling in today’s market is to re-evaluate and make sure they have to sell – and unfortunately, he said, that’s the same advice he would give to someone in Harmon Ranch’s situation.
“It goes against everything in me as far as private property rights, but maybe this is something the city needs to address when they’re awarding building permits,” Jones said of the vast difference in builders’ products within a neighborhood. “Because I absolutely believe in free enterprise and letting the market determine what’s going in there, but maybe this is a situation where the city should step up and say this product is not the same.”
