February 23, 2006

‘We Knew This Day Was Going To Come’ For SJV

The Modesto Bee reports on falling home prices. ” After six years of defying gravity, home prices dipped in January throughout the Northern San Joaquin Valley. Homes sold for a median $386,750 in Stanislaus County, which was about $5,250 less than the record set in December.”

“The decline is part of a statewide trend that began elsewhere in California several months ago. January’s median California home price was $452,000, down $6,000 from December. Sales prices dropped $20,000 in San Joaquin County to a median of $430,000. In Merced County, they dropped $23,750 to a median of $357,000. In Tuolumne County, they dropped $36,250 to a median of $298,750.”

“The region has been overdue for a price drop, according to realty experts. Median prices have been breaking records virtually every month since 1999, when the typical Stanislaus County home cost $122,000. ‘We knew this day was going to come,’ said (agent) Mary Prieto. She said she has lowered the asking price of some of her listings.”

“One home, in Modesto’s coveted La Loma neighborhood, went on the market in the summer with a $595,000 asking price. Prieto took over the listing in November, lowering the price to $549,996. Now it’s been reduced to $474,996, which Prieto thinks will attract buyers. ‘The sellers were asking top dollar when they first listed it. They wanted to try for a high price, like all sellers do,’ Prieto said. ‘We’re going to go through this adjustment period, with sellers getting out of denial mode and into the reality of the market now.’”

“Is a price downturn bad for real estate? Many experts say no. ‘The market is absolutely softening. But for the long haul, that’s good for everybody,’ said (broker) Ken David Elving. ‘We’re just settling down.’”

“Elving said investors, who were buying strictly with the intent to ‘flip’ houses for a quick profit, have gone away. That means buyers looking for family homes have more from which to choose.”

“‘A year ago, the pressure was on the buyer to make an offer immediately,’ recalled John Walton, a 28-year veteran agent. ‘Now buyers have plenty of choices, so they have time to pick the right home.’ Sellers, by contrast, now must make sure their homes are priced right and look good, said Jeannie Mazzanti. ‘They’re competing with other sellers now,’ said Mazzanti, an agent for 20 years. Sales of homes priced $450,000 to $650,000 ‘are very sluggish.’”




Industry Consolidation Amid Record Unaffordability

The NAHB reports on a new record. “Higher interest rates and rising home prices caused nationwide housing affordability to slip for a fourth consecutive quarter to its lowest level on record. ‘The latest HOI shows that only 41 percent of new and existing homes that were sold during the final quarter of 2005 were affordable to families earning the national median income,’ said David Pressly.”

“‘This is down from 43.2 percent of homes sold in the third quarter and 52 percent of homes sold in the final quarter of 2004.’”

“At the bottom of the affordability scale was Los Angeles-Long Beach-Glendale, Calif., where just 2.3 percent of homes sold in the fourth quarter were affordable to families earning the area’s median household income of $54,500. And as usual, the bottom of the affordability scale was dominated by large California cities, including Santa Ana-Anaheim-Irvine, San Diego-Carlsbad-San Marcos, and Stockton. New York-White Plains-Wayne, N.Y.-N.J. rounded out the list of the five least-affordable major housing markets.”

And the Orange County Register reports that some incomes are coming down. “Irvine-based BNC Mortgage, a lender specializing in home loans for consumers with impaired credit, plans to lay off 95 workers by March in two Irvine offices, according to state regulators.”

“BNC is the second mortgage subsidiary of New York’s Lehman Brothers Holdings Inc. to face job cuts in as many months as the lending industry reels from a drop in demand for home loans and higher interest rates. Last month, Littleton, Colo.-based Aurora Loan Services LLC said it will close its Irvine office by April 28. Nearly 100 local jobs will be eliminated when the Von Karman Avenue operations center closes.”

There are rumors of ‘massive’ layoffs at Option One, H&R Blocks’ lending arm, but this is all that’s known. “H&R Block Mortgage Corp. is closing its Trevose, Pa., office in a move that is expected to cause 97 layoffs, according to a notification the company sent to the Pennsylvania Bureau of Workforce Development.”

“The office will close April 24. Many of the employees, 44, are loan officers. H&R Block Mortgage Corp. is a wholly owned subsidiary of Option One Mortgage Corp. of Irvine, Calif.”

Update. “Option One and H&R Block Mortgage are consolidating a number of operations to better compete in the aggressive operating environment that has developed over the past year. These actions include consolidation of Option One branch offices and, within H&R Block Mortgage, the closing of small financial centers and consolidation of regional call centers. The actions will reduce staffing by about 600 positions.”

From Inman News. “As real estate industry layoffs continue and the toll mounts, some industry experts predict a toll of as much as 40 percent of existing jobs lost by the end of the year. ‘Reductions in the mortgage banking industry are somewhat due to the end of the refinancing boom,’ said (economist) Brian Carey. ‘You’re probably talking 25,000 to 50,000 jobs lost in the real estate finance industry in 2006.’”

“Because real estate brokerages are operated differently, that part of the real estate industry will be affected differently, Carey predicted. ‘I would look for a drop-off in their income,’ Carey said of real estate agents and brokers. ‘Their incomes will go down and a lot of them will turn to another line of work,’ Carey said.”

“According to the NAR, there are 1.2 million Realtors in the United States. ‘Let’s say there’s only room for half the Realtors. It could be 500,000, it could be 700,000,’ Dr. Delores Conway, at USC said. ‘In the margin you would have people moving out of the industry. I would be surprised if it was more than 30 or 40 percent.’ The director said that for real estate agents, ‘it’s not so much losing their jobs as changing their jobs.’”

“‘A friend of mine’s husband is a Realtor and he is going into auto sales,’ said Conway.”




Speculators ‘Dumping Houses’ In SE Valley: AZ

The Arizona Republic reports on another inventory record; maybe. “The number of single-family homes for sale in the Southeast Valley reached 11,521 last month, which, if not a record, is at least the highest number in recent years. The last time the Southeast Valley had listings in the 10,000 range was in late 2002 and early 2003, according to the Arizona Regional MLS.”

“Realtors and housing analysts believe the number of listings is high because investors have begun dumping houses, home sales are usually slow in the beginning of the year and people who wanted to move held off because it was so difficult to buy another home for about a year.”

“‘A lot of people were probably waiting to see what was happening with interest rates and home values. So they finally went ahead with their listings,’ said (realtor) Gayle Mylek in Gilbert. ‘And a lot probably thought they could get the high values.’”

“Robert Rucker, the MLS’s chief executive officer, said he couldn’t determine that 11,512 is a record because the data are not set up easily to compute that.”




More ‘Other Than Temporary’ MBS Losses At FBR

Wall Street is focused on a non-event. “‘The Rudman report does a very good job at laying bare the earnings-at-any-cost culture that had developed over many years at Fannie Mae,’ Treasury Undersecretary for Domestic Finance Randal Quarles said. The portfolio should be cut back to reduce risks to the U.S. financial system, he added.”

But this story has stayed out of the spotlight. “Investment bank Friedman, Billings, Ramsey Group Inc. said on it swung to a fourth-quarter loss, hurt by write-downs in its portfolio of mortgage securities. The company posted a fourth-quarter loss of $271.6 million, compared with earnings of $86.6 million a year earlier.”

“The mortgage-backed securities (MBS) and merchant banking portfolio write downs and losses realized during the fourth quarter of 2005 totaled $261.6 million. Included in that figure were: $180.1 million in write-downs, net of hedging gains, of mortgage-backed securities, $7.0 million of realized losses on sales of mortgage-backed securities, and $74.5 million recognized in the write-down of nine equity investments to reflect ‘other than temporary’ impairments in the firm’s merchant banking portfolio.”

“‘There is no question that 2005 was a difficult and disappointing year in many respects,’ said Eric F. Billings, CEO. The adverse interest rate climate contributed to the difficult environment for non-conforming mortgage lenders in the fourth quarter. The compression between funding costs and coupons in the non-conforming mortgage business continued until late in the year, leading to deteriorating sale prices for mortgage originators throughout the fourth quarter.”

“Nonetheless, the environment remains challenging in the gain-on-sale business. FNLC is taking the necessary steps to quickly return to profitability, including headcount reductions in many areas and other cost reductions throughout its origination business, while continuing to serve its broad base of mortgage brokers and retail customers. For the full year, FNLC originated a record $6.0 billion in mortgages, an increase of 81% over 2004.”




Pre-Conversion Deal Becomes ‘House of Cards’

A Boynton Beach condo conversion has this discount on craigslist. “Final days of the developer’s closeout special at our St. Andrews at Boynton Beach condo conversion. The developer needs to close out this project and will now pay your 1st year’s mortgage for you!. Buyer will also have the option of deducting the total developer contribution (the sum of the above mortgage payments) from the purchase price, or applying it towards closing costs and effectively eliminating them.”

And the Sun Sentinel reports on what a failing condo project looks like. “In 2004, Jackie Badome agreed to pay $360,000 for a two-bedroom condominium at Eden, a former apartment complex in Boca Raton. She put down 10 percent in cash for the condo that was supposed to be ready in March 2005. But the developer, Ceebraid, didn’t deliver, blaming a busy hurricane season for the delay. Ceebraid missed at least two more deadlines and now promises Badome can move in by September, except that construction on the job site stopped months ago.”

“This is an example of the struggles area developers face as the once-hot housing market slows down. Increasing costs of materials are leaving builders in the lurch, and lenders are becoming more restrictive as the condo market tightens.”

“‘It’s pretty disappointing,’ Badome, said. ‘You make life plans based on where you’re going to live, and this puts everything on hold. I’m sure I’m not the only one in this position.’ Badome, a real estate agent in Boca Raton, is one of an estimated 200 prospective owners at Eden wondering when, or if, the condo conversion will be finished.”

“Would-be buyers also are questioning the future of another Ceebraid project, Bocara, also in Boca. Ceebraid is facing construction liens and lawsuits, but Adam Schlesinger, a company vice president, insists that Ceebraid will resolve those and finish both Eden and Bocara.”

“A Ceebraid affiliate filed for Chapter 11 bankruptcy reorganization Feb. 10 in West Palm Beach. The filing is related to another of Ceebraid’s properties, Holiday Isle Resort in Islamorada, Schlesinger said.”

“Back at Eden, prospective buyers and real estate agents are fed up. ‘This may be a house of cards,” said (broker) Anthony Cutaia,. The Boca Raton real estate firm filed suit against Ceebraid, alleging the company failed to pay commissions for units sold at Eden.”

“As prices and interest rates rise and speculators leave the housing market, demand for condos is waning, said Jack McCabe, a Deerfield Beach real estate analyst. Condo conversions were especially hot during the past few years, but those deals have slowed as well, McCabe said. ‘It’s a complete opposite of the feeding-frenzy attitude just last year,’ he said.”

“Joe Bova, (a banker) in West Palm Beach, said federal regulators want lenders to be more careful in 2006. ‘The market is definitely softening; there’s no question about that,’ Bova said. ‘If there are 30,000 units coming, and only 15,000 units will be consumed, what’s going to happen to the other 15,000?’”

“Myra Rubenstein, a Boca Raton real estate agent, agreed to buy two condos at Eden as an investment and also has a client waiting to buy. Rubenstein said she and other agents are upset because Ceebraid’s delays jeopardize their credibility with clients. As a result, she’s shying away from preconstruction deals. ‘It’s put a bad taste in my mouth,’ Rubenstein said. ‘Why don’t they finish what they start?’”




Inventory Grows, Asking Prices Fall In Massachusetts

The Weston Town Crier has this report on the housing bubble in Massachusetts. “Inventory in Ashland has tripled from a year go with the median asking price coming down from $529,900 to $424,900, a 25 percent drop, the aftermath of a double-digit increase in the number of homes listed under $350,000.”

“In Framingham, double the number of properties listed under $350,000 compared to a year ago pulled the median asking price down from $459,900 to $439,900 from last year, less than a 5 percent decrease. More than double the inventory in Holliston, and four times the number of homes priced under $450,000, resulted in a 21 percent decrease in the median asking price, from $649,990 a year ago to $537,500 this week. In Hopkinton, where inventory is up 41 percent.”

“In Marlborough, a community where housing prices have traditionally been less than in surrounding towns, an 82 percent increase in the number of listings under $350,000 and a 91 percent increase in inventory, adjusted asking prices down by close to 2.5 percent.” “Asking prices in Newton remain stable as a 65 percent increase in inventory priced upwards of $800,000 balanced the few lower-priced listings. The median asking price is $945,000, down from $949,000 from a year ago.”

“An 80 percent increase in the number of homes on the market, coupled with a handful more of under $350,000 listings had little effect in Northborough. Prices there are down less than 4 percent, from $509,900 to $489,900.”

“Despite a 20 percent increase in inventory in Sudbury, the median listing price there is down about 5 percent from a year ago. The median asking price a year ago was $895,000 compared to $849,900 this week. An increase in homes priced under $400,000 in Waltham, coupled with a 44 percent increase in inventory, pulled the median asking price down 4 percent, from $479,900 a year ago to $459,900.”

“Double the number of listings in Wayland combined with a three-fold increase in listings priced under $450,000 reduced the median asking price by nearly 10 percent, from $775,000 a year ago to $699,000 this week. Median asking prices in Wellesley, a community where there is rarely a house listed for under $500,000, dropped nearly 22 percent this week compared to a year ago, the result of a 64 percent increase in inventory. The median list price a year ago was $1,577,975. Now, it’s $1,230,000.”

“The 57 percent increase in inventory in Westborough and a marked jump in the number of listings priced between $600,000 and $699,999 offset the surge in listings between $350,000 and $399,999 to keep asking prices just 1 percent lower than a year ago. Nearly triple the number of listings priced between $3 million and $4 million along with double the number of listings nudged the median asking price in Weston up 5 percent, from $1.995 million a year ago to $2.1 million this week.”




Toll Brothers ‘Now On The Other Side Of Speculative Slope’

The homebuilder Toll Brothers has some numbers out. “Toll Brothers, Inc., today reported that, for its first quarter ended January 31, 2006, net income rose 49% to $163.9 million; revenues rose 35% to $1.34 billion; first quarter-end backlog rose 22% to $5.95 billion; and signed contracts of $1.14 billion declined 21%, compared to FY 2005’s record first quarter results.”

“Robert I. Toll, CEO, stated: “In 2005, demand for new homes in many markets was propelled to unsustainable levels by speculative buying. We are now on the other side of that slope. Speculative demand has ceased and speculators are now putting their homes back on the market. The result has been more supply than demand in some regions.’”

“‘Markets such as metro Washington, D.C…will need to work through their excess supply before the imbalance once again tips in our favor. When that happens, we believe builders such as Toll Brothers, who control the largest share of well-located approved sites, should prosper.’”

“In terms of units, (signed) contracts fell to 1,544 homes from 2,173 last year.”