The Housing Bubble

Let’s clear this bloggers desk for the weekend. “The inventory of homes for sale in the Washington metropolitan area climbed to 28,200 last month, meaning that buyers had plenty to choose from, but that sellers had to sit and wait for offers. Last month’s inventory was huge compared to February 2005, when only 9,800 homes were on the market.”

“As a result, sellers are going to have compete on price, something they haven’t done in years. And sellers aren’t going to be asking as much to begin with because they are beginning to recognize the perennial truth that ‘price sells.’”

“So far this year, sales of North Texas homes priced below $120,000 have fallen about 13 percent. Sales of houses costing between $120,000 and $200,000 have grown 14 percent, and sales of higher-priced houses have shot up 20 percent and more. ‘There has been a flurry of people coming in from California and other higher-priced markets buying houses,’ said James Gaines, an economist with Texas A&M.”

“To move increased inventory, builders have raised the incentives they are offering on some home models. Going into 2006, builders had 8,751 unsold new homes in the D-FW area, an all-time high. ‘We will continue to have ample speculative construction, so I wouldn’t be surprised to see another round of discounting and incentives this summer in D-FW,’ Dallas-based housing consultant Ted Wilson said.”

The Wall Street Journal reports not all lenders are opposed to the new guidelines. “Bank trade groups and financial institutions blasted proposals by bank regulators to rein in unconventional mortgages that allow borrowers to afford more expensive housing, dismissing concerns about risk as overblown.”

“Meanwhile, a few consumer advocacy groups and small banks wrote letters applauding strict guidance. ‘It is very dangerous to use mortgage products that allow borrowers to buy homes more expensive than they can afford. Add this to a slowdown in the economy and the job market and we could have a serious recession,’ said David Stone, president of the Portales National Bank in New Mexico.”

Homebuilders are beefing up their credit lines. “Stephen Scarborough, CEO of Standard Pacific Corp. today announced Standard Pacific’s increase in its revolving credit facility capacity from $925 million to $1.1 billion through the exercise of the facility’s accordion feature. In addition, the Company proposes to issue a 5-year $100 million loan and a 7-year $200 million loan.”

“Toll Brothers, Inc. today announced the expansion and extension of its bank credit facility. The $1.8 billion unsecured facility, which matures in 2011 and replaces the Company’s existing $1.2 billion revolving credit facility, is comprised of a $1.5 billion revolving credit facility and a $300 million term loan. The credit facility has an accordion feature under which it can increase to a maximum of $2.7 billion.”

From the Post Star in New York. “Green grass and grizzly bears are not the only thing coming out of hibernation this spring. Local real estate offices have noticed a surge of home owners looking to sell in the past weeks, according to Nels Crisler, president of The Warren County Association of Realtors.”

“Crisler said part of the rise in properties may be due to many people being ‘cash poor,’ which means a person has money coming in but no savings for a down payment on a home. ‘We’re finding a lot of people are financing 90 to 100 percent of the homes they’re buying, which means higher mortgages. Again, it’s still too early to tell if it’s indicative of a buyer’s market. I’d be making millions if I could predict that.’”

The Sun Sentinel in Florida. “Q: What is going to happen to all these condo developments when the developers realize that they are not able to sell them? A: Experts predict developers would try to sell at below-market rates. In other cases, lenders would take back the properties. Some condo projects also could be canceled if developers can’t get financing.”

And the Las Vegas Sun. “For now Panorama Towers is surrounded by old industrial single-story warehouses. The closest restaurant is an In-N-Out Burger to the south of the development. It’s a neighborhood that had many industry observers doubting the project in the beginning. The variety in plans also led to some oddly shaped units, and in some cases interior bedrooms with no windows.”

“Sales have been helped by young celebrities, from Leonardo DiCaprio to Toby Maguire and most recently Pamela Anderson.”

“Las Vegan Jason Smylie, 24, purchased a 1,644-square-foot unit with a friend in the first tower for $650,000. That unit is now for sale, listed through Panorama’s resale program, for $1.5 million. Smylie said if the unit doesn’t sell, he may live in it instead. ‘It has a prime view of the Strip,’ he said. ‘I’m stoked.”

A pair of reports on Californian housing markets. “Housing prices in Nevada County dropped for the third month in a row in February. The median price of house and condominium title transfers recorded at the county Recorder’s office dropped to $459,000 in February, compared to $470,000 in January.”

“‘People are starting to lower their prices, and we need that,’ said Patti Moore, broker in Nevada City. ‘Things just got too out of hand.’”

“Nevada County Board of Realtors director Skip Lusk said, ‘From my perspective, there isn’t any trend yet. My sense is, as the market tightens up a bit..people who really want to sell their house will bring the price down.”

“While some sellers seem to be lowering their prices to appeal more to wary buyers, others are digging in their heels, real estate agents said. In many cases, the prices that homes fetched six months ago don’t square with many buyers’ perceptions of where the market is headed.”

“‘(Sellers) still think that, because the house across the street sold for $50,000 to $100,000 more than theirs, that theirs should be worth that, plus some,’ David Kerr, a Bay Area agent. ‘What’s happening is, it’s not happening.’”

And the Merced Sun Star follows up on the LA Times article. “Real estate is a driving force in Merced’s economy. Five of seven members of the City Council draw their livelihoods from it, four are licensed to sell homes, including the mayor.”

“It’s little wonder that an in-depth Los Angeles Times article spotlighting the city’s rapidly cooling housing market has made the rounds. ‘I think half the town has read it,’ said Mayor Ellie Wooten, a veteran real estate broker in Merced.”

“The article follows the city’s real estate market from the heady days of the past few years to the grinding slog of today. ‘It’s changed rapidly,’ said Wooten. ‘It boils down to supply and demand, and right now apparently we have an oversupply.’”

“But the city’s historic housing boom continues, in spite of slowing sales numbers. While many newly opened subdivisions sit empty, developers in Merced have 7,000 new houses in the works. Hundreds are expected to go on the market this spring. Councilwoman Michele Gabriault-Acosta said about 200 resale homes were on the market when she got her license to sell homes in July. The number has since grown to more than 600.”

“Gabriault-Acosta said she thinks too many homes on the market were overpriced.”

“Councilman Carl Pollard, who got his license to sell homes in August 2004, said the days of multiple offers above asking price are definitely gone. He said $30,000 and $40,000 breaks on homes are not uncommon. ‘Sellers are giving concessions, but if you look at the market, they’re still not moving property,’ he said.”

The Aspen Times has a rare report on that Colorado town. “Getting the straight poop on Aspen real estate from most brokers is impossible. Unable to get at the truth, I contacted my old friend Turner Hicks to shed light on the local real estate market.”

“Q: Do you think owning a house in Aspen is a good investment? Turner: No.”

“Q: Ah, could you be more specific? T: You can read as well as I can. The City of Aspen 2005 Cost of Living Index Study revealed that real estate in Aspen has appreciated by only about 2.5 percent annually for the past six years. That’s far below the national average of almost 12 percent per year over the same time period. Those trend lines haven’t inverted since the silver crash.”

“That report you cite; nobody gives it any weight. It’s obvious that our local governments don’t know anything about numbers, finance, or economics. The signs of a booming real estate market are everywhere. Those paltry appreciation figures can’t be correct. T: You’re right. Actual appreciation was likely less than reported. The city simply compared average home sales prices over the years. But, Aspenites are addicted to home improving. Those never-ending upgrades and remodels figure into a rising average for home prices, but their costs are not real appreciation.”

“Q: You talked then about how Aspen was no longer an unknown quantity, thus the speculative qualities of real estate here were crap. Aspen is becoming more like every other small city with its chain stores, traffic jams, and even the same types of crime emerging. Aspen was no longer setting trends, but began chasing them. Has anything changed in that regard?”

“T: No, those tendencies towards conformity continue. Listen to the town’s leaders; the common argument is that we have to do this, that and the other thing to compete with everyone else. And, like everywhere else, we are now designing and building homes that will only exacerbate our sluggishness.”

“R: For example? T: Well, there is a simple axiom in real estate: Land appreciates in value; sticks and stones and even gold-plated bathroom fixtures don’t. Manmade components of real estate lose value with each passing day. Even steadily escalating replacement costs (you know, inflation) are usually not enough to offset the natural deterioration and obsolescence of whatever is ‘in’ now.”

“Back when properties in Aspen were truly appreciating at astronomical rates, houses were relatively inexpensive in comparison with the cost of the land. That trend is completely haywire now. Like modern suburban development, most Aspen properties are comprised of houses built lot line to lot line that cost up to three times as much as the underlying land that they sit on.”

“In this scenario, even if the land appreciates at a brisk 10 percent a year, the entire property only increases one-quarter that much, or 2.5 percent. Factor in normal wear and tear on the buildings, and you can easily end up with a property worth less than it was the year before, even in a strong economy!”

“R: What about second homes? T: They’ll be the first to go since they are totally discretionary. I think a shift is already occurring and manifesting itself in the popularity of time shares. They are incredibly lousy investments, but people are willing to risk the smaller outlay at this point in the game. At the same time, this temporary manic rush into time shares inflates all local real estate prices to unsustainable levels.”

“R: So, are you predicting a crash, then? T: Well, I will say this: It’s more likely to occur when everyone at the party is intoxicated.”

The Las Vegas News Journal has some news on land prices. “Housing prices are flat, high-rise condo projects are canceling sales, and now land values have dropped by almost half in Las Vegas, local research firm Applied Analysis reported. The average price for an acre of vacant land in the valley was $376,200 in the fourth quarter, down 47 percent from the previous quarter and down 28 percent from the same quarter a year ago.”

“Several factors contributed to the decline in land prices, Brian Gordon said Wednesday. Foremost is the sale of 2,675 acres in North Las Vegas by the Bureau of Land Management. Olympia Group paid $639 million, or about $239,000 an acre, for the land.”

“Secondly, there was a shift in investment activity toward other Las Vegas Valley locales that have below-average pricing, Gordon said. ‘We saw significant investment in the north and northeast part of the valley that traditionally carry lower-than-average prices,’ he said.”

“Land prices that shot up by as much as 99 percent during the past 18 months are ‘clearly unsustainable,’ Gordon said. ‘The economics of land pricing, escalating development costs and modest increases in interest rates will not allow for average land valuations to reach well beyond the recent peak, at least not in the near term,’ he said.”

“Jeremy Aguero said parcels that have the ability to capitalize on density and develop ‘new urbanism’ projects will allow pricing levels to reach in excess of $1 million an acre. Creative, risk-taking developers will likely hold land values up early this year, while speculative investors are finding it difficult to ‘make the leap,’ he said.”

Carol Lloyd got an odd feeling at the recent real estate expo. “It is ecstasy. It is apoplexy. It is beyond believing and yet painfully familiar. It’s an aging real estate mogul who has found a second career as a trash-talking, self-help guru. Welcome to Woodstock for the equity generation, headlined by none other than our own national real estate idol, Donald Trump.”

“The Expos have gathered ever larger audiences, but San Francisco’s first Expo, which took place last weekend at the Moscone Center, was the best attended yet. The theme song for Donald’s keynote speech more or less sums up the Expo’s raison d’etre: ‘Money-money-money-money.’ The marketing billboards plastered with Donald’s smug mug up the ante with specific numbers: ‘One weekend can make you a millionaire.’”

“But as I wandered the halls, visiting workshops on tax evasion (er, I mean, avoidance) and the wonders of pre-foreclosure fortunes and flipping luxury homes to Florida condos (some are still available, get them while hot (not!)), one question kept nagging at me: Why now?”

“Real estate has always been a national obsession. In the six years since the Nasdaq imploded, it’s been floating the American economy. But why now in a moment when even the most maniacally optimistic of real estate agents is admitting that the market may be showing signs of decline? Why would over 61,000 people in one of the most overpriced housing markets in the world spend good money to learn about real estate investing?”

“The Learning Annex (press release) offered one possible explanation: ‘Real Estate in San Francisco is now the drug of choice.’ This metaphor, of course, suggests that it’s a dependence that has grown to be as unhealthful as it is irresistible. Perhaps we’re just hooked: We can’t stop ourselves from indulging even when we see signs that the party is over.”

“And perhaps the very success of the Expo is an ominous sign of the bubble popping, rather than a sign that the real estate boom is continuing.”

“As the saying goes, When your taxi driver starts giving you stock tips, you know it’s time to sell. Well, isn’t a convention of this sort simply a collection of all the stragglers to the real estate boom? When dancers have ‘fun’ inscribed over their gyrating bosoms, isn’t that a sign that the boom has reached its irrational peak?”

“As I sat in the front row and listened to Trump, who is paid $1.5 million for his talks, I couldn’t help but feel this frenetic carnival of high-flown cash-flow churn uncomfortably in my gut. Trump is nothing if not an expression of our ids. As he regaled the audience with his own shameless candor, ‘When I walked out here tonight I said to myself, it doesn’t f–ing matter!’ And as he dispensed hard-bitten business pointers (Be paranoid, get even and always, always get a prenuptial agreement). I felt the audience’s visceral appreciation of his willingness to articulate what they wanted to say but didn’t dare.”

“Perhaps it was the perfect embodiment of this cultural moment. The masses had gathered and together they were learning to look out for No. 1.”

The Washington Times reports on the DC housing bubble. “The Washington metropolitan area’s housing market cooled off during the latter half of 2005. For the first time since 1999, buyers began to be on equal footing with sellers. How much more will the market cool? Will home prices fall, or just stabilize?”

“Despite a growing job market, the supply of homes for sale has ballooned since August. Excessive supply can lead to a softening, or even decline, in home prices. ‘Prices have pretty much been flat for the last four months,’ (realtor) Michael Turk says. ‘Prices came down between June and November and have been stable since then. Some of the people who pulled out of the market last year have returned. Today they are getting the home they want, while last year they couldn’t.’”

“That has a lot to do with the supply of homes for sale. Buyers in February had 28,000 homes to choose from. Last February, there were only 9,800 homes for buyers to see.” “‘In March of last year, there were only 45 condos available in Alexandria,’ says Mr. Turk. ‘Now, there are 333 available. So buyers are finally getting what they want. The demand is still there, there’s just a lot more supply now.’”

“One tool used by competitive buyers is the escalation clause. When added to a purchase offer, the escalation clause automatically raises the buyer’s offer to beat other offers. In some cases last year, the winner of the home was the one with the highest cap in their escalation clause. However, as buyer competitiveness has softened, escalation clauses have become less common.”

“‘We are still seeing escalation clauses today. I’d say probably 1 in 10 offers contain one right now,’ says Dale Mattison, associate broker in the District. ‘Last year, we were seeing the clause in 5 out of 10 offers, and in 2004 I would say 9 in 10 buyers used an escalation clause.’”

“Buyers aren’t the only ones who change their strategy when a housing market slows. Sellers need to rethink their pricing plan. ‘The more sophisticated Realtors are telling sellers not to be aggressive like last year,’ Mr. Mattison says.”

“Many home buyers use pricing to decide which homes they want to see, but once they’re in your home, how it shows is what matters. ‘Sellers need to make sure the house shows well,’ says Mr. Mattison. ‘A year or two ago, you didn’t have to do anything to sell a property. You’d just open the door and it would sell regardless of how it looked. But we’ve spent the last six weeks getting my mother-in-law’s home ready so it will shine when it hits the market.’”

“And how do things look for buyers this year? Mr. Turk says, ‘Buyers should be able to negotiate most strongly in the condo market. This market will remain very, very flat and soft this year, so certain people should take advantage of the low interest rates and the abundant supply, and buy now.’”

Bloomberg reports on the housing bubble in the US. “Sales of new homes fell 10.5 percent in February, the biggest drop since 1995, and sales of existing homes slipped in five of the last six months, leaving a record 3 million unsold houses on the market. Sales will fall further this year and price gains will slow, predicts the NAR.”

“Signs of the cooling market aren’t hard to find on Bradford Street in Boston’s South End, where Victorian townhouses are listed for as much as $4.5 million. ‘Last year, houses were snapped up as soon as they were put on the market, so you never even saw a sign,’ says Kenneth Kinna, who owns a 10-room townhouse in the neighborhood. Now there are three ‘For Sale’ signs on his block.”

“The trend is most pronounced in affluent neighborhoods in the Northeast . Maryam Safai’s 5,000-square-foot, five-bedroom colonial in Mahwah, New Jersey, has been on the market for a year, even after three reductions in asking price. ‘I’m not going to give in to the market,’ says Safai, 44, a dentist. ‘I’m not selling below our current asking price’ of $1.69 million.”

“Buyers of houses in the $1 million to $4 million range are ‘particularly sensitive to interest rates because the monthly payments on houses in that range are substantial,’ says Anthony Hsieh, CEO of LendingTree.com. While damping price growth the most at the high end of the market and in the Northeast, rising rates have also reduced demand for riskier forms of financing and begun a shift of power from sellers back to buyers, economists and brokers say.”

“In Montgomery County, which includes the affluent Washington suburbs of Bethesda and Potomac, unsold homes were on the market an average 58 days in February, compared with 37 days a year earlier, according to Metropolitan Regional Information Systems Inc. The 3,030 homes for sale in the county in February were almost triple the 1,190 listed a year earlier.”

“Partly as a result of the Fed’s 15 consecutive increases in interest rates, adjustable-rate and interest-only loans, closely tied to short-term rates, are on the decline. Such loans were popular with buyers trying to stretch their dollars and with speculators seeking to minimize the cost of buying property for short-term profit.”

“‘That’s probably a good thing,’ says former Fed Governor Edward Gramlich, who left the Fed in August. ‘When you raise rates, and we knew what we were doing, one of the consequences is fewer people getting involved in riskier short-term mortgage products,’ says Gramlich.”

“Buyers are looking for more than peace of mind. They’re looking for a deal. ‘It’s switched to a buyer’s market,’ says Karen McCormack, (broker) in Boston’s Jamaica Plain neighborhood. ‘Homes are still selling, but the buyers have much more say in prices this year.’ On a Boston street, lined with a dozen ‘For Sale’ signs, McCormack is trying to sell a three-bedroom house listed at $535,000. She’s holding ‘commuter hours’ open houses on Monday nights to lure would-be buyers on their way home from work.”

“‘When the market was hot, we never would have had to do this,’ she says.”

Please post your weekend topic suggestions here!

Rich Toscano has this at the voiceofsandiego.org. “The ’spring rally’ has certainly been a fixture in recent years. And while 2005’s springtime price increase was more subdued, it nonetheless put the rest of the year to shame. According to DataQuick, the median single family home price rose over 4 percent between March and June of 2005, and then spent the rest of the year going nowhere.”

“Now that spring 2006 is upon us, can we expect home prices to start rising again? A major headwind facing the market is an imbalance between supply and demand that San Diego has not seen for quite a while. There are, simply put, an awful lot of homes for sale. According to ziprealty.com, San Diego county sports over 16,000 condos and single family homes listed for sale on the MLS.”

“This is an increase of 87 percent over the amount of homes for sale at this time last year. That’s not a typo. Last year’s spring rally began with a supply of inventory that was barely more than half of what it is now. Meanwhile, demand has waned despite the increasing availability of homes to choose from. DataQuick’s figures indicate that recent months have seen sales volume drops of between 20 and 30 percent compared to the same period a year ago.”

“There is an even bigger hurdle on the path towards higher home prices: adjustable mortgage rates. It’s been well-documented that San Diegans overwhelmingly prefer adjustable-rate mortgages (ARMs) to their fixed-rate brethren. Last year, 80 percent of all homebuyers chose ARMs.”

“The problem facing the market today is that ARM rates have risen substantially over the past year. At this time last year, the average rate on a 1-year ARM was 4.24 percent. Last week, the same mortgage averaged a rate of 5.41 percent.”

“Let’s say you are a potential homebuyer with a $2,000 budget for monthly mortgage payments. At last year’s ARM rate, you could have afforded to take out a mortgage for $407,000. Now let’s move forward one year. We’ll give you a 3 percent raise, to account for the yearly rise in incomes, and say that your monthly payment maximum is now $2,060. Despite the increased budget, at today’s prevailing ARM rate you can only afford a mortgage for $367,000.”

“All things being equal, then, today’s ARM borrowers can handle a home price of about 10 percent less than they could have at this time last year. As inventory grows and demand remains weak, mortgage rates are placing downward pressure on home prices. This is not exactly the fertile soil from which a meaningful spring rally could be expected to issue forth.”

More housing bubble reports from the UK. “House prices jumped 1.1 percent in March, taking the annual increase to its highest in almost a year. Nationwide said house prices were unlikely to keep growing at such a strong rate, as rising fuel bills and tax increases weighed on incomes and dampened demand.”

“‘Affordability continues to be squeezed as house prices rise further,’ Nationwide said in a statement. Official data on Wednesday suggested the housing market may cool in the coming months; approvals for home purchases, a leading indicator of house prices six months out, fell in February for the first time in over a year, while mortgage lending rose by much less than expected.”

“‘Even in a market with historically low interest rates..there is a limit to the proportion of income that borrowers will feel comfortable spending on their housing,’ Nationwide said.”

“Ireland’s rapid pace of house price growth has become a problem, the head of the country’s biggest mortgage lender said. ‘There’s a general acceptance now that house price growth is a problem,’ Denis Casey, CEO of a banking division told Reuters.”

“The Fitch Ratings Agency also said on Thursday that it expected house price growth to decelerate, pointing out that a continuing increase in supply would eventually outpace demand. Currently about 80,000 housing units a year are being built in Ireland, equal to 20 units per 1,000 inhabitants. That compares with an average of about five units per 1,000 in other European countries. Inward migration stands at about 30,000 people a year.”

“Nevertheless, having spoken with developers, permanent Casey said he expected builders to complete even more houses this year than the record 80,957 achieved in 2005: ‘I think we will top that this year.’”

“According to Fitch’s Atanasios Mitropoulos, the Irish market is vulnerable to interest rate gains because the majority of people have variable or short-term fixed rate mortgage products. ‘Vulnerability is high given the fact that interest rates are expected to increase,’ he said.”

And from the Scotsman. “Buildings expert Peter Wilson casts a critical eye over the scene laid out before him, a series of high-rise buildings on what has been trumpeted as a world-class waterfront. Wilson and others are warning promises of a waterfront to rival the best in the world may well instead deliver the ghetto of the future.”

“‘I get depressed by the quality of so much of what has been built,’ sighs the director of Napier University’s School of the Built Environment with a shake of his head. ‘Some looks as if it’s been made out of chewing gum and string. There are some good buildings around, but there are also many that are diabolically poor.’”

“This is not quite what we had been led to expect from the regeneration of a massive industrial landscape, optimistically dubbed the Forth Riviera and claimed to be the beginnings of a waterfront to rival the best in the world.”

“Wilson sighs again. ‘The developers talk a big show but they don’t understand what they are doing here. This area is being driven by property speculation, there just doesn’t seem to have been a coherent analysis of what is the biggest remaining site in Edinburgh.’”

“High-rise flats dominating the waterfront have been built first by developers keen to meet the demand for two-bedroom homes, he adds. However, there are now fears that the sheer number of properties, and prices starting at around £140,000 for a one-bedroom flat, may have saturated the market. ‘The developers may have overstretched themselves,’ Councillor Trevor Davies adds. ‘Some of the buildings are far too big.’”

“‘There’s lots of rhetoric comparison with Copenhagen and Barcelona, but no-one from abroad is making those comparisons, it’s only Waterfront Edinburgh who are saying that. What is happening to the waterfront is light years from Copenhagen, Hamburg and Barcelona,’ Wilson said.”

“Newhaven councillor Steve Cardownie warns failing to get it right at the waterfront will haunt us all for years to come. ‘What we do here has to be better than good because it has to last for generations. The responsibility to make the right decisions here is huge, future generations won’t forgive us if we make the wrong choices.’”

The mortgage industry is fighting reform. “Excess restrictions on such nontraditional home loans as interest-only and payment-option mortgages risk stifling the market, industry groups said. The Mortgage Bankers Association and America’s Community Bankers warned in separate letters that too many rules might restrict innovation.”

“‘The American consumer could suffer greatly from any guidance that imposes unduly restrictive standards on the use of these mortgage products,’ the industry group America’s Community Bankers said. ‘Such restrictions could result in lenders’ being less willing to offer alternative mortgage products and this would severely limit the flexibility in financing options that consumers enjoy today,’ the group added.”

“The Mortgage Bankers Association said lenders who took on too much mortgage risk will face market punishment in the form of price disadvantages. ‘The private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace,’ the mortgage lenders’ group said.”

“‘We believe that the types of mortgages that are the subject of the proposed guidance should be referred to as ‘alternative’ mortgages instead of ‘nontraditional’ mortgages,’ the community bank group said. ‘While it is the lender’s responsibility to provide borrowers with sufficient information for them to clearly understand the loan terms and associated risks, we do not believe it is appropriate or possible for the lender to identify or dictate the best mortgage product for individual consumers,’ the group said.”

“The community bank group said it appreciated regulators’ concerns that underwriting standards may have slipped at the same time as real estate markets in some areas are softening.”

“Julie Bush, an attorney with the FTC’s bureau of consumer protection, says these alternative mortgages have been around for a while, perhaps 50 years in the case of payment-option ARMs, but were used only by the wealthy. Nowadays they’re being sold as ‘affordability products’ to typical homeowners.”

The Early Show reported on a typical homeowner this morning. “With interest rates on the rise, and the housing market showing signs of a downturn, homeowners are starting to feel the squeeze. For many, the trouble started when the market was booming, and buyers flocked to interest-only loans in order to find their way into a bigger home.”

“Meghan and Vince Jordan recently moved in to their brand new dream home in Denver, but they have one big problem, they can’t get rid of their old one. ‘A year ago, we don’t think we would have been in this situation. We think our house probably would have sold,’ said Meghan Jordan.”

“Their home has been on the market since August, and so far they have dropped the price by $35,000. Now, the Jordans have taken a bridge loan to cover the costs of owning two homes. Even more nerve racking, they’ve taken out an interest-only loan, so for five years they are only paying interest. With rates on the rise, they are worried they took a bad risk.”

“‘That is the $90,000 question, what if (rates) don’t come down? You are going to see people with properties with rates that can potentially double,’ said Vince Jordan. The Jordans are highly leveraged, and their quandary is not unusual”

“First, a look at the risk that comes with an interest-only loan. If, for example, a borrower took an interest only loan of $200,000 in 2003, their monthly payment would have been around $667. After the first adjustment, those monthly payments could jump to $1,415 in 2006.”

“‘That’s why (interest-only loans) are right for some but wrong for a lot of people. That payment increase is not something the average American household can handle. The increase is a byproduct of two of things,’ Greg McBride said. ‘The initial interest rate of 4 percent when you borrowed the money now jumps to something over 7 percent. You also have to start paying back that principal. You could see another payment increase next year. After all, interest rates are still rising.’”

“McBride stresses the importance of cutting into the loan balance and starting to build up what he calls an equity cushion. ‘They were 100 percent leveraged,’ he said. ‘They need to start chipping away at the loan balance, building up an equity,’ which is so important because ‘if you have to sell suddenly, that’s what’s going to absorb your transaction cost.’”

“‘If you are the type that’s going to go out and run up additional credit card debt it’s best to leave that home equity untouched,’ he said. This means no home equity lines of credit to pay off credit card bills, no cash-out mortgage refinancing to pay for home improvements, and no tapping into home equity to pay for goodies like vacations. To do so would mean eroding your protection for when home prices decline.”

“‘You can’t bank on home appreciation to do your saving for you. It’s time to put the noisemakers and punch bowl away because the party is over on that end,’ said McBride.”

The Sun Sentinel reports on some worried real estate professionals. “The real estate industry would be ‘brought to its knees’ if homeowners aren’t allowed to take a property tax break with them when they move, Palm Beach County Property Appraiser Gary Nikolits said Wednesday. ‘We’re going to reach a point where people are not going to be able to afford to move,’ Nikolits said.”

“Nikolits also thinks portability should be restricted to a homeowner moving within the same county. Broward County Property Appraiser Lori Parrish agreed. ‘We could devastate a small community if it were to go statewide.’”

“Real estate agent Mike Kleinrichert, who attended Nikolits’ speech, said at least a third of his listings are from people who want to move out of Florida, in part because of rising property taxes here. ‘Portability would be a fantastic thing for our community,’ he said.”

From the Miami Herald. “Residential developers proclaimed last year the time had come to move Miami-Dade’s Urban Development Boundary to build new homes on hundreds of acres of land. But now the same developers are in headlong retreat. On Wednesday, developer Lucky Start became the third home builder in recent weeks to announce it is yanking its bid.”

“The three biggest residential projects are now out of the bidding. Lucky Start’s 193-acre Newest Kendall project was the latest, Shoma Homes withdrew in February and Adrian Development Group withdrew last week. ‘It’s a beautiful project, but the timing is not right,’ said Commission Chair Joe Martinez, who met with Lucky Start’s Fernandez this week. ‘Let them apply next cycle.’”

A reader sent in this press release. “Cane Island is D R Horton’s flagship development for 2006. The luxury condo resort community is centrally located on the south side of US 192, almost within sight of Walt Disney World and Celebration.”

“The developer reduced prices substantially a few weeks ago to try to get more contracts signed. The problem is that there are very few buyers around to take advantage of the reduced prices. In a further effort to get things moving in the face of a stagnant market, D R Horton has announced that they will increase co-operating broker commission for the next few days in the hope of getting brokers to push their buyers into action.”

“Hightower Realty followed the builder’s announcement with one of their own, they will add the full amount of the increased broker commission to their cashback offer. So buyers over the next few days will get $13,000 cashback on condos priced from $283,000. It is too early to say if the extended period of weakness in the Orlando property market that has followed the last two years of unprecedented price rises is past the worse.”

And a March report from that realtors website. “Any hope of an early return to a balanced market were firmly dashed by February’s statistics. The inventory of short term rental homes surged again to by far its highest level, bringing our in-house index well into the red zone for the first time.”

“The number of vacation homes added to the inventory increased by almost 15% as more owners decided the time was right to take the capital gain on their homes. Buyers, meanwhile, remained thin on the ground, with only half as many sales closing compared to the heady days of last summer.”

“Based on these figures it is difficult to see how a more balanced market could re-appear for several more months. Prices have already dropped by 6 or 7% from their peak of last summer, and it now looks as though my earlier guess that the market would bottom out at 10% down may be optimistic. An eventual drop of 15% from the peak is a real possibility now, still a long way above prices of even two years ago, but disappointing for sellers who were already getting ready to count their capital gains.”

“For buyers, of course, the latest statistics are much more comforting. Prices are already well off their peak, and there are some exceptional bargains where sellers are desperate to sell before things get worse. Now is the time to start looking seriously, although you don’t have to rush, as there will still be plenty of homes to choose from for several months at least.”