March 20, 2006

Californian Speculators Buying Texoma Houses ‘Like Crazy’

The Herald Democrat found some speculators are now buying in north Texas. “There’s nothing like owning a house, that is until the air conditioner goes south or the water heater explodes or the government decides to raise property taxes to beautify the waste disposal plant. For all the benefits of home ownership, some real, others overstated, some people just don’t want the hassle.”

“Pam Harper, office manager and agent with a Sherman realtor estate company, helps newcomers to the area find housing. ‘The rental market must be pretty lucrative, because we have a lot of people, investors buying houses to fix up and use for rentals.’”

“‘Denison doesn’t have a lot of apartments, but there are usually houses for rent. The ones I manage run from $450 to $900 a month. The $450 is a 700 square foot, one-bedroom, one-bath duplex. On the upper end would be a three bedroom, two bath, two car garage, 1,900 square foot house. I see the market peaking in Denison around that range,’ said Norman Gordon.”

“Sharon Broiles, a Sherman Realtor, says she lists properties ranging from $250, for an efficiency duplex, to $1,300 for newer home in a modern subdivision. ‘The hardest thing on the property is the moving in, moving out. That takes a toll on the property. Most of the time, they’ll be responsible for the yard,’ she said.”

“Right now, Broiles says most of her properties in Denison are rented. That’s the result, at least in part, of the arrival of the Ruiz food processing plant.”

“Single family, mid-priced homes are the fastest selling real estate in Texoma according to local Realtors. Mack Broiles, a Sherman Realtor, said he has seen a significant increase in sales in Sherman. ‘People are buying houses like crazy,’ he said.”

“He said people from all over the country are expressing interest in Grayson County. He has had several people from California purchase homes ’sight unseen.’ Joy Jordan, also a Sherman Realtor, confirmed Broiles’ account of interest from investors in California.”

“Both said there is plenty of available housing on the market right now. ‘We have a six month supply of homes,’ Broiles said.”

“For the time being, Texoma is still somewhat insulated from the boom boom energy that drives the rental markets in Dallas and the surrounding areas, but like everything else associated with the big city, those pressures are just down the road and coming fast.”




Financial Markets Wise-Up To The Housing Bubble

Here are some reports from financial markets on the housing sector. “The three-year hot streak experienced by real estate investment trust stocks may be nearing an end, two Wall Street analysts said on Monday. Merrill Lynch analyst Steve Sakwa said REITs trade at 23 times forward adjusted funds from operations compared with their three-year average of 12.4 time AFFO.”

“‘While short-term momentum may push the REITs higher, we are becoming increasingly concerned about the valuations as most metrics continue to move to all-time highs,’ Sakwa wrote. Other similarities include building sales by noted investor Boston Properties Inc. The office REIT slowed development in the late 1980, as the U.S. real-estate market headed into a depression.”

“The discovery of huge hidden losses at General Motors’s finance arm have raised fresh fears of bankruptcy at the world’s biggest carmaker, sending tremors through the credit derivatives markets. The struggling group asked for a filing delay after admitting to an extra $2bn in accounting errors at its finance arm GMAC, raising total losses last year to $10.6bn. The news triggered a sharp spike in the cost of default insurance on GMAC’s bonds, rising 75 basis points overnight.”

“Timothy Geithner, president of the New York Federal Reserve, warned in a recent speech that the $300,000bn derivatives market had raced ahead of the infrastructure needed to support it. ‘They have not ended the tendency of markets to occasional periods of mania and panic. They have not eliminated the possibility of failure of a major financial intermediary. And they cannot fully insulate the broader financial community from the effects of such a failure,’ he said. A ’significant’ proportion of total trades do not even match up, he said.”

“A Florida real estate investment company has bought a North Raleigh apartment complex with plans to convert the units to condominiums. It is a popular strategy in bigger markets, but one that is expected to trail off as long-term interests rise. ‘Lenders and the equity sources are pretty much gone because interest rates are rising and I don’t know how many months of press about the housing bubble,’ said Jason Nettles of the brokerage that represented the sale. ‘Those guys don’t want to lend with the risk of it winding up an apartment deal. It’s hard to finance a deal in Florida now, much less Raleigh. In Florida, unless you’re on the water, it’s almost impossible.”

“Despite robust wood consumption at housing construction sites throughout North America—spurred by abnormally mild weather conditions in various regions, lumber prices eased in February. March sales have continued to weaken. Richard Egelton, chief economist at BMO Financial Group in Toronto expects transaction prices to trend lower in 2006 and 2007, as North American housing construction cools.”

From TheStreet.com. “The hot Phoenix area housing market is seeing slowing sales and a dramatic spike in housing inventories, according to a research report from Raymond James. Sales of existing single-family homes and condos fell 24% year over year in February, and listings increased 939% in the same period, analyst Rick Murray wrote. ‘As prices have stagnated since August, inventory levels have continued to grow, as we suspect an increasing number of speculators are placing their homes on the market,’ Murray wrote.”

“‘It is clear speculators have headed for the exists in Phoenix. Given the increase in mortgage rates recently, it would seem as if this market will continue to face increasingly more challenging conditions, especially in light of the enormous surge in inventory,’ Murray says.”




‘Speculative Market Drying Up Rapidly’ In Connecticut

The Hartford Courant provides an update on the housing bubble in Connecticut. “With just days to go before the official start of the spring housing market, typically the busiest three months of the year for home sales, buyers, sellers and agents in the Hartford region are adjusting to a noticeably slower market than just one year ago.”

“Negotiations are getting tougher. Multiple offers are rare. Bids thousands of dollars above the asking price are gone. And pricing a house for sale has become more difficult, and far more important, in this market where the number of available homes has increased dramatically in the past 12 months.”

“Dozens of real estate agents across the Hartford region said they are advising sellers that their homes could stay on the market longer than in the past few years, on average about three months longer. They also are cautioning sellers not to price their homes significantly above last year’s prices.”

“Susie Hatch, an agent in West Hartford. said that although inventory levels have increased, to 4,063 houses in the region in January, a 30 percent rise from one year ago, they have not reached worrisome levels. ‘If it’s the 1st of May and we haven’t started knocking down some of that inventory then we will have reasons to be concerned,’ she said.”

“About a half-dozen potential buyers who toured open houses in the Farmington Valley recently said they are not impressed by the current inventory because the homes need too much updating and are still priced too high. ‘We haven’t walked into a house yet that we thought was in good shape for the price,’ said Amy Sanford of Colchester.”

“Tom Abbate, a real estate agent in Middletown pointed to a recent client who had worked with another agency to list a four-bedroom Middletown home for $390,000. The price was reduced multiple times until it reached $345,000 and it still didn’t sell. Abbate recently re-listed the property for $309,000 and had more than a dozen showings in two weeks.”

“‘Last year I told clients that if they were unsure where to price their house, go higher rather than lower,’ Abbate said. ‘Now they can no longer do that. The huge price gains we saw are gone and if you overprice your house today, it is going to sit and sit and sit.’”

“The slowdown in the region’s housing market is being mirrored in other cities across the country, such as New York City, and is even more dramatic in places such as Boston and San Diego.”

“‘Homes that are competitively priced are still getting traffic and still selling. For those [builders] who thought they could keep increasing their prices, they aren’t selling or certainly not moving as fast,’ said William Ferrigno, president of the Home Builders Association of Connecticut. Builders understand that the big double-digit price increases are gone and that their homes have to be priced to sell,’ Ferrigno said.”

“‘The speculative market is drying up rapidly, and investment properties are also slowing,’ said (broker) Curt Clemens Sr., in Hartford. ‘I’m telling my sellers to price closer to market value based on a good market study and they will get action.’”




‘We Could Be Wrong’ About Home Prices: Fed Pres.

A Federal Reserve official is speaking this morning. “One of the greatest risks to the U.S. economy is a possible sharp slowdown in the housing market, said Boston Federal Reserve President Cathy Minehan. Speaking to the New England Realtors Conference on Monday, Minehan said, ‘The resulting rising stock of unsold new homes will likely bring about a modest decline in construction, probably accompanied by a gradual flattening of house prices,’ Minehan said.”

“‘As construction of new homes slows and the pace of growth in housing wealth eases, economic activity will be restrained. The question is ‘How much?’”

“The Fed’s forecast assumes a flattening of home prices and a decline in construction, leading to a slight softening in economic growth. The Fed sees economic growth of 3.5% this year. ‘Clearly, however, we could be wrong on the magnitudes,’ she said’. ‘Real estate prices could actually decline.’”

“While a slowdown in household wealth creation could damp consumer spending, some consumers could be hurt more than others, especially highly leveraged borrowers who’ve taken out interest-only loans. ‘There is no doubt that some potential exists for consumer hardship,’ she said. ‘I am concerned about the impact on some consumers of mortgages that become too costly, and the possible implications for lenders and markets,’ she said. ‘However, at this point, I do not view this as likely to be a major issue,’ in New England at least.”

The USA Today had this related report. “With the allure of easy money, thousands of Americans flocked to jobs in the real estate industry during the boom years. ‘You saw it, there were dollar signs in their eyes,’ recalls Nick Vayonis, a former real estate agent in Los Angeles.”

“He left the business a year ago, just in time, he says. ‘I could see the ebb and flow. It wasn’t going to be like that forever,’ says Vayonis, 40, who just opened a coffee shop in Canton, Ga., near Atlanta with his wife, also a former agent.”

“As the housing market slows, there will likely be a lot of stories of people who are bailing out of their real estate jobs and other professions related to housing, appraisers, mortgage brokers and home construction workers, and many not by choice. Almost four out of every 10 jobs created in the past four years were in housing-related fields. At the end of last year, a record 9.8% of U.S. workers were employed in the real estate industry.”

“Many companies are already seeing some business evaporate. Last month, Washington Mutual said it would close 10 mortgage processing centers and fire 2,500 employees. In November, mortgage company Ameriquest handed out 1,500 pink slips. The housing industry is braced for more belt-tightening. ‘At best, people should prepare for no pay increase and no bonus, something they have been getting a lot of. At worst, they should be thinking they may need to change occupations,’ says (economist) Mark Zandi.”

“While it’s painful for those involved, Zandi calls the slowing in housing ‘a necessary adjustment.’ The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced. ‘Housing has been flying high, and it’s now coming back down to earth,’ he says.”

“Your income ‘is very unpredictable,’ says Janice Hofferber, who left her job as a Wall Street stock analyst in 2003 and tried her hand as an agent in Bay Head, N.J. She quit last September. It was no easier in the mortgage loan business, says Toney Goucher, who closed his restaurant in Arkansas and became a mortgage broker in 2002. Last summer, the market started drying up. ‘It seemed like every month, we had another interest rate hike, and it got harder and harder to find clients,’ recalls Goucher.’

“Goucher threw in the towel and put on an apron. He opened a Fat Toney’s barbecue restaurant in January. Goucher says he has already gotten a couple of calls from mortgage brokers he knew in Kansas asking about possible franchise opportunities for his barbecue restaurant. ‘They say, ‘You’re lucky you got out.’”




‘Clear Downward Trends Have Emerged’: FNM CEO

Paul Muolo has the latest on the mortgage business. “The phrase “mortgage REIT” has been synonymous with Friedman Billings Ramsey, the investment banking firm that has taken many of these non-prime mortgage lenders public (or has tried to). But now, thanks to a flat yield curve and declining production volumes, many mortgage REITs are suffering as are their shareholders. One joke making the rounds is that things are so bad for REITs right now that FBR’s Eric Billings (the ‘B’ in FBR) may have to enter the witness protection program.”

“On Monday the House Financial Services Committee held its hearing on the long awaited ‘Rudman Report.’ Sen. Warren Rudman (retired) told the committee that Fannie Mae officials ‘manipulated’ accounting rules so they could meet earnings goals (and maximize bonuses) in 1998. Most of the 20 or so elected officials attending the hearing seemed outraged by the behavior of (now former) Fannie executives.”

“I’ve read about half the report and plan on working my way through it in the weeks ahead. From time to time I’ll bring you some neat tidbits from it. Here’s one: an allegation was made that Fannie tracked 20 to 25 employees at the company who ‘can do political harm’ to it. One employee is mentioned as being ‘associated’ with a ‘prominent’ politician. The allegation, though, was not substantiated.”

And Bloomberg has this report on the sector. “The U.S. Federal Reserve’s fight against inflation is taking a bite out of one of Wall Street’s biggest money-makers: the $6.5 trillion market for packaging millions of home loans into tradable bonds.”

“Executives at Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. said revenue from mortgage bonds in the U.S. is dropping as rising interest rates depress home sales. Lehman, the fourth-biggest U.S. securities firm, is cutting almost 200 jobs at two home-lending units in California. Bear Stearns Cos. Chief Financial Officer Sam Molinaro said that he sees ‘weakness’ for new mortgages across the industry.”

“Since June, home sales fell 10 percent. The drop in sales cut the supply of home loans, which securities firms use to make the bonds, by 65 percent from the 2003 peaks. Average U.S. home prices are stagnating after rising for five straight years. They declined 3 percent to $261,000 in January from an all-time high of $269,000 in August.”

“‘We expect home sales to drop by 8 percent in 2006,’ because investor demand is falling and homes are too expensive for some first-time home buyers, said Daniel Mudd, CEO of Fannie Mae, the largest U.S. provider of mortgage financing. ‘There are clear downward trends that have emerged.’”

“‘We are coming into a challenging part of the cycle,’ said Kevin White, who helps oversee New York-based Lehman’s mortgage-bond group. ‘That’s good for us in the long run because 10 of our competitors will have closed up shop.’”

“Wall Street firms also are facing increased competition from Fannie Mae and Freddie Mac, the nation’s two biggest providers of mortgage financing, which plan to increase their buying and packaging of home loans that don’t conform to insurability standards. Those include loans to people with low credit scores and mortgages to borrowers with good credit but with little documentation of their income.”

“One of (Lehmans) units, Aurora Loan Services LLC, filed a notice in January with California’s Employment Development Department saying it plans to close an office in Irvine, California, with 92 employees. Another subsidiary, BNC Mortgage Inc., also based in Irvine, filed separate notices that it’s dismissing 95 employees.”




‘The Boom Days Are Past’ In Florida

More reports on Floridas housing bubble. “Don’t tell (Palm Beach developer) Steve Kelton about trouble in the bubble, the housing bubble, that is. ‘When the media harps on the bubble bursting and how bad the market is, that causes a Mexican standoff,’ said Kelton. ‘Developers aren’t selling for less, because they can’t,’ he says, ‘but people reading the newspapers are thinking, ‘Oh, developers are going to drop prices soon,’ so they don’t buy.’”

“Kelton is partner in a new three-building townhouse development in Delray. ‘The townhouses don’t concern me,’ Kelton said of the sales potential. ‘Now, if you were talking to me about high-rises…’”

“The reasons for the drop in home sales, according to real estate agents: Residents are staying put to avoid paying ever-increasing housing taxes and insurance costs, and many are downsizing or moving north to find a better value. Some people, such as West Kendall resident Adriana Ayala-Diaz, are waiting for prices to dip.”

“‘If not, I’m moving either to Orlando or North Carolina,’ she said. ‘The prices were ridiculous,’ she said. The shift in the market is slowly showing. Tenzer Realty figures show: In the West Kendall area, they sold 136 single family homes in the first three months of this year, a 20 percent drop from the same time frame last year.”

And the Sun Herald has the second part of this series. “Real estate agents, builders, investors and lenders all seem to agree that realty prices are leveling out in North Port. The boom days of last summer are past. The round table participants concurred that sellers need to forget the exorbitant sales prices of last year and focus on more realistic prices.”

“(Realtor) Arthur Broslat offered, ‘We’ll get this market going again as soon as people’s expectations become realistic. People are expecting too much from the sale of their homes. They tell me, ‘I could have sold it last July for that amount,’ but I tell them that was last July, and you missed it.’”

“Ted Allen said that builders find North Port a good place to invest. ‘As Chair of the Planning & Zoning Committee, it seems like all we are doing is approving new homes. Big developers like DiVosta and Centex are overwhelming the market.’ He said a lot of people want to buy in North Port, but they are having trouble selling their present homes.”

“(Developer) Tony Linton added that given the number of properties available now, investors have time to wait for the slow time to pass. ‘But homeowners who have to sell now will have to readjust their expectations.’”

“One nagging issue is the job market. ‘How can you staff Wal-Mart when the people making $9 an hour could never afford to buy a house here?’ asked Broslat. ‘Unless we get better jobs here, we’ll end up selling real estate to each other and suing each other. And working at Wal-Mart and delivering pizzas.’”