Analysts with the Federal Reserve Bank of Dallas are keeping a wary eye on local housing.

NATALIE CAUDILL/DMN

D'Ann Petersen, an economist with the Dallas Fed, says that although Texas is outperforming other areas, she still sees the housing market here as weak.

So far, the home market in Dallas-Fort Worth has seen relatively small price declines, but there are concerns about the high number of foreclosures, said D'Ann Petersen, a business economist with the Dallas Fed.

"I would characterize the market as weak, although we still do seem to be outperforming many other parts of the country," Ms. Petersen said Monday at a meeting with The Dallas Morning News and a group of housing industry executives.

"We have seen some slight edging down – some downward pressure – on prices," Ms. Petersen said. "But it's nothing like we have seen on the national level or especially compared to places like Florida, California and Nevada."

The number of North Texas houses winding up in foreclosure – more than 19,000 in 2007 – is troubling, she said.

"Foreclosures for me are the wild card," Ms. Petersen said. "So far, it hasn't had a large impact on our inventories or home values."

Still, the number of homeowners defaulting on mortgages is expected to remain high this year.

"Delinquencies for subprime mortgages are spiking in Texas and the U.S. That's something to watch and worry about," she said.

Homebuilders and real estate agents aren't worried about mortgage rates. Indeed, some say it would be better if the Fed would stop slashing interest rates.

"Rates don't have to be any lower; they are already great," said Rockwall residential developer Rob Whittle.

Some potential buyers delay home purchases in hopes of more rate cuts from the Federal Reserve.

"I wish they would say we are done," said Virginia Cook, founder of a Dallas real estate sales firm. "Buyers keep thinking it is going to go down further.

"And people really do buy on interest rates."

Sales of new and pre-owned homes fell significantly in Dallas-Fort Worth last year compared with 2006.

"While this sounds pretty negative – the decline in sales and decline in building – if you look at national totals, Texas is still the No. 1 homebuilding state in the country despite all the pullback," Ms. Petersen said. "And Dallas-Fort Worth is right up there.

"Our closings compared to other metropolitan areas are still quite high," she said. "That's our demographics and employment base that is keeping that base of home sales still at a pretty high level compared to other areas."

She points out that Dallas-Fort Worth leads the country in population growth.

"And we are in the top three for job gains," Ms. Petersen said.

Despite the strong local economy, many potential homebuyers are delaying a move.

"People are sitting on the fence, waiting to see what is going to happen, very anxious," Ms. Petersen said.

Builders and real estate agents say that consumer reluctance is one of the biggest hurdles the housing industry faces. Buyers worry about the stability of home prices, said Mr. Whittle.

"People still want to buy because interest rates are so low," he said. "But if you convince me that prices are still going to drop, you've given them a reason not to sign a contract."

Denton County real estate agent Steve Allcorn said he's also hoping for a return to more traditional home lending standards.

"The reason that people are doing the zero down and taking the creative financing is because they've been told it's OK," Mr. Allcorn said. "It's OK for you to borrow more than you can afford."

Likewise, the homebuilding industry is returning to older standards.

"In Dallas-Fort Worth, every year we have produced more houses than we sold, and we have done that for five or six years," said Bruno Pasquinelli of Portrait Homes.

"We have got to get rid of all these extra communities and get our pricing power back in this market," he said. "There is just too much of everything."

Even with the national housing slowdown, local sales are good, said Ms. Cook.

"Sellers are much more realistic," she said. "They do listen to our opinions of home value now more than they did before.

"People, if they can't make money on their house, feel like they are cheated in some way."

Mr. Whittle said a few weeks ago at open houses he held for new homes, "people were lined up, and these were homes that were $850,000 to $1.5 million in Rockwall County."

Builders acknowledge that their industry is downsizing.

"Builders right now are feeling the pain," Ms. Petersen said. "They are having to make layoffs, their margins are razor-thin, costs are high and demand is low.

"This is a painful thing in the short term but a good thing in the long term."

Even with the shakeout in construction – starts down more than a third from the peak – membership in the Home Builders Association of Greater Dallas has remained stable, said executive vice president Robert Morris.

"I think the market will be back very strongly in six months," he said.