February 14, 2006

“Even Declining Prices Remain Surreal’





Real Estate Market ‘Turned Quickly In December’: CEO

Some corporate news regarding the housing bubble. “MFA Mortgage Investments Inc., a mortgage real estate investment trust, said Tuesday it is postponing its fourth-quarter earnings release and conference call as its independent auditors need more time to complete their review. The release and call had been scheduled for Tuesday.”

“MFA is still working with its independent auditors to resolve a technical interpretation of Generally Accepted Accounting Principles (GAAP) applicable to the characterization of the ownership of certain of MFA’s MBS assets and their related repurchase financings.”

“(A) company that analyzes executive compensation for mutual funds and other large investors, called Bob Toll’s compensation excessive in relation to the company’s recent performance. It recommended that investors withhold their vote for Sa Toll Bros. independent director who sits on the compensation committee and is up for reelection this year.”

“Toll Bros.’ shares fell 47 cents yesterday to $29.35, its 52-week low, reflecting the slowing housing market and Toll Bros.’ weakening order book. The 52-week high price was $58.25. Shirley Westcott said that Toll Bros.’ practice of basing Bob Toll’s compensation on a percentage of profit was unusual and that the company had been ’sort of riding the real estate bubble.’”

“Cendant Corp. plans to cut costs at real estate brokerage company NRT Inc. by about $50 million this year through a cost-cutting strategy that includes office closures, Cendant chairman and CEO Henry Silverman said today.”

“‘To counter the impact of a slowdown at NRT we have put in place a cost-reduction program, which principally includes consolidating local offices in order to right-size NRT’s cost structure to be in line with reduced volumes,’ Silverman said.”

“The real estate market quickly turned in December, Silverman said, and the default rate or cancel rate of open contracts to purchase properties ’spiked by about 30 percent just in December alone.’ This cancellation rate was largely in markets where there have been reports of widespread real estate speculation, he said. ‘The flippers, the speculators, either have or are departing the market.’”

“Silverman blamed media reports about the real estate market, in part, for the change in market conditions. ‘We think to some extent that that is also a function of the media which is reporting on a daily basis that the real estate market is going over the cliff, that may have convinced buyers to become more cautious. Anecdotally we’re being told that,’ he said.”




Northern Virginia Home Prices, Sales Dip

The northern Virginia home sales numbers are available. “Although the number of single family homes and condos sold in January was down by almost 30% when compared to 2005, the average sales price did top the 2005 January average sales price by 10.3%. Active listings increased dramatically when comparing homes on the market in January 2005 versus January 2006, with a 392.5% increase.”

“Sales prices for the first month of 2006 in Greater Northern Virginia (including Prince William, Loudoun and Fauquier Counties) also followed an upward trend as did closer-in Northern Virginia region. The average sales price was up 15.22% from the January 2005 average of $417,395 to the January 2006 sales price average of $480,931.”

“Units sold were 10% below January 2005 levels with 2,298 units sold in January 2006. Active listings were up 300% when compared to the number of listings in January 2005.” “The average sales price for a home in Northern Virginia in 2005 was $532,825, which represented a 20.75% growth rate above 2004. A comparison of 2005 total units sold (29,235) to the 2004 units sold (32,828), shows a decrease of 10.95 % in 2005.”

But a check of the December numbers shows Januarys’ price dip. “Average sales prices continued to rise through December in Northern Virginia, despite a decrease in sales and sizeable increase in inventory. The average sales price rose to $552,621, a 16% increase over December 2004’s average of $476,941.”




‘Dose Of Reality’ Forces Price Drops In San Diego

The Union Tribune has this follow-up on San Diego home sales. “Home prices in San Diego County continued to cool off last month with a gain of 2.5 percent over January 2005 level. But new-home prices took the sharpest month-to-month dive ever recorded by DataQuick for the San Diego market, a loss that was not so much good news for homebuyers as it was a reflection of building-industry marketing practices.”

“The big drop in the new-home category pulled down the overall county median price to $490,000. That was $26,000 lower than December and $28,000 below the all-time high in November. The January median for new housing came in at $435,000, a record $104,500 less than in December and $22,000 less than in January 2005. The month-over-month decline represented a near-record 19.5 percent drop, the biggest since July 1997’s 24 percent change.”

“John Karevoll said the drop probably reflects two factors: the typical rush by big builders to close sales of new homes in December, before the start of the new year, which is followed by a lull in January; and the continuing sales of low-cost condo conversions.”

“Eastern Chula Vista’s ZIP code 91913, which includes parts of Eastlake and Otay Ranch, was one of several areas that best showed January’s erratic market performance. There, on the resale side compared with January 2005, the median price for single-family homes rose 12.1 percent to $656,000 on 22 sales while the median price for condos dropped 9.5 percent to $405,000 on 13 sales.”

“But in new housing, the median price for the area dropped a whopping 48.6 percent, plummeting from $725,500 last year to $373,250 this year. The precipitous drop in new home prices..appeared to be influenced by a large condo conversion project that recently began sales in Otay Ranch.”

“Several other ZIP codes also registered significant declines in home values, but the reason could not be linked to the impact of a single project. In the La Mesa-Mount Helix area, for example, the median price for single-family resale homes fell 9.4 percent, from $526,350 a year ago January to $477,000 last month. Real estate agents suggest that the drop in prices reflects a dose of reality that sellers in the area are forced to face.”

“‘Prices were higher than what they should have been,’ said La Mesa agent Carol Bostwick. ‘But now I’m seeing properties sitting on the market for 60 days and price reductions from $30,000 to $70,000. It may be that people are saying, ‘I want to get what my neighbor got two years ago’ for their house.’”

“Scripps Ranch showed an even larger year-over-year price decline of 14 percent to stand at $705,000, down from $820,000 a year earlier. Real estate agent Charmaine Vance believes that Scripps Ranch, which has benefited from a large runup in prices, may be facing stiff competition from newly constructed subdivisions nearby in the Interstate 15 corridor. She offered an example of a 34-year-old four-bedroom Scripps Ranch home that was listed for sale last May for $759,000. Today, it remains on the market despite a price reduction of more than $100,000.”

“‘I think all the buyers are waiting for the bubble to burst,’ she said.”

“The San Diego Association of Realtors said the number of active listings as of yesterday stood at 14,847, compared with 8,500 in February 2005.”

“Roni Telmosse, last year’s association president said her agents are warning sellers to plan on a four-month period from listing to close of escrow, but only if the home is priced right, is in good condition and is in a desirable place. ‘If it’s unrealistically priced or it’s a condition issue, it’s quite likely going to take longer,’ she said.”




A ‘Lot Of Trouble’ With New Home ‘Glut’ In Arkansas

The Morning News has a rare update on the housing boom in Arkansas. “Home buyers will get bargains, and sellers may get less than they ask as the supply of single-family homes outstrips demand, according to a quarterly real estate report. The report said ‘there are economic imbalances developing in the residential real estate market,’ and ‘increases in supply are outpacing the growth in demand.’”

“Benton and Washington counties had 1,518 completed but unoccupied new homes in the fourth quarter of the report, which covers September through November. That’s an 87 percent increase from the 812 completed but unoccupied homes available in September through November 2004.”

“Kathy Deck, researcher at the University of Arkansas, said the area still is growing at a steady pace of 1,000 new residents each month and there is no slowdown in job growth. However, Deck said the home supply is increasing so rapidly that people can’t buy and move into homes at the rate homes are finished. ‘This is a time where extreme caution is necessary,’ Deck said.”

“Deck said home builders may get squeezed and have to reduce prices to sell homes in a competitive market.”"The oversupply of single-family homes may continue. There were 16,765 lots in subdivisions under construction in September through November and an additional 19,321 residential lots that have preliminary approval from local planning commissions and city councils. That translates into 36,086 lots, or enough for more than eight years at current population growth rates, Deck said.”

“‘The supply is so far out there that if demand slackens a little bit, there could be a lot of people in a lot of trouble,’ Deck said.”

“Deck said banks need to be careful about lending money for more new subdivisions or single-family homes. ‘If banks are out there giving money to everybody in the world who wants to build anything, it is really a dangerous time to the market,’ Deck said.”

“(Realtor) George Faucette said many builders and investors from outside the area have moved in and invested in subdivisions, as Northwest Arkansas hit all the Top 10 lists of best places to live and fastest-growing places in the country. ‘It’s not like a bubble has been pricked, but sellers are going to have to be more conscious about how they address a buyer,’ Faucette said.”




‘Payment Shock Risk Growing’: Fitch

Fitch Ratings has this release. “Beneath the strong performance of U.S. subprime interest-only (IO) mortgages in recent years may lie substantial payment shock to borrowers as the housing climate continues to cool and refinancing becomes more difficult.”

“‘The payment increase for an IO at the rate reset is high even if rates do not rise, and is mostly due to the rate reset with only a small portion comprising principal amortization,’ said Suzanne Mistretta. ‘Because subprime IOs have high margins and low initial rates, the payment increase from the rate reset could range from 40% to over 50%, and the high margins assure that the initial rate cap, which hovers around 3%, is reached.’”

The sector is the subject of a new report. “Many U.S. homeowners with adjustable rate mortgages are in store for a serious financial burden when their loans reset, but the losses from any defaults are unlikely to weigh much on the mortgage industry as some analysts fear, according to a study released on Tuesday.”

“The report by the real estate information service estimated there may be up to $110 billion in losses as homeowners with the riskiest adjustable rate mortgages, especially mortgages with so-called teaser rates under 4 percent, default to escape the cost of rising rates.”

“Those are the people that mail in their keys,’ said Christopher Cagan, the information service’s research director. ‘Some of these people don’t have much of a downpayment so they don’t have much to lose.’ Cagan estimated 1.4 million of 7.7 million adjustable rate mortgages sold in 2004 and 2005 will be at risk of default.”

“If households with those mortgages were to default, the financial fallout would be limited, according to Cagan.”

Peter Millers’ take at Realty Times. “HUD’s 2007 Budget Summary (is) a document which ought to make a lot of people take notice. ‘Congress recognizes that today’s high cost loans negatively impact consumers, communities, and the economy. To address the problem, Congress is considering legislation to regulate these types of loans and the lenders who originate them.’”

“HUD, in a few years, will be able to cite the quote above as evidence showing it was aware of the toxic loans available today. But HUD does not regulate lenders. At the federal level, that’s a job for other departments, offices and agencies.”

“Ask yourself: Why is it that only hardworking subprime borrowers are impacted when ‘mortgage payments escalate or balloon notes become payable’? Why have federal banking regulators allowed, and continue to allow, the origination of loans which clearly represent a looming national debacle?”

“This is not a problem that can be ignored by those who own their homes free and clear. This is not something that does not impact those who have financed with dull, boring self-amortizing loans that required something down. In either case, guess what will happen to the value of your home if nearby properties are dumped on the market or foreclosed?”

“If it’s true that ‘Congress recognizes that today’s high cost loans negatively impact consumers, communities, and the economy,’ then why hasn’t Congress or the executive branch done something meaningful to resolve the problem?”




Look For ‘Compromise’ In S. Oregon Home Prices

A television station has this update on southern Oregons’ housing market. “Two to three years of explosive growth in the Southern Oregon real estate market seems to be cooling off. Sales of new homes are down 22 percent compared to this time last year. Overall, home sales in our area are down 38 percent.”

“You don’t have to travel far in the Rogue Valley to see new homes being built and lots of homes for sale. The number of homes for sale in Jackson County is up 97 percent compared to this time last year but home sales are down by nearly 40 percent.”

“But experts, like appraiser Roy Wright, say not to worry. ‘We’re going back to where we were 5 years ago where it’s still a good real estate market. Homes are still selling, they’re just not selling at the rate they’ve been selling for the last two to three years.’”

“Now this still isn’t an easy market for first time homebuyers to get into. That’s because according to Roy Wright, the average wage earned in this area is simply too low compared to the housing prices.”

“As for purchasing a new home, Roy Wright says now is a good time. ‘This is definitely the time to buy because you can cut a deal. Anybody who wants to sell knows they’re going to have to compromise.’”

“Mark Wickman, a local homebuilder, says the cooling off trend has not affected his business. ‘We’re not changing our construction schedule for this year. We’re gonna keep on going at the pace we go.’”