June 24, 2006

‘Nothing Is Immune’

The Santa Rosa Press Democrat has this update from California. “Sebastopol and Russian River area home prices are at opposite ends of Sonoma County’s housing market, yet both have seen dips in recent months. Homes are staying on the market longer as buyers seek the best deals and sellers face pressure to cut prices.”

“‘You have to take notice of it. Nothing is immune,’ said agent Barbara Young. Young has a new listing in Sebastopol priced about $20,000 below what she would have recommended a year ago.”

“‘The market is softening everywhere in the North Bay. There’s a certain degree of resistance. That is often a very healthy thing to keep markets in balance,’ said (broker) Jeff Morford in Guerneville, the heart of the Russian River.”

“So far this year, sales of existing single-family homes in the Sebastopol area are down nearly 15 percent from a year ago. Russian River home sales are down 41 percent. Countywide, sales are off 20 percent from last year’s pace, according to the monthly Press Democrat housing report provided by Coldwell Banker. The county’s inventory of homes on the market has soared to a 10-year high.”

“Sebastopol median resale prices dipped below last year’s in each of the past three months, with May’s median coming in at $734,500. The Russian River median resale price dipped two of the past three months compared with a year ago and was $397,000 in May. The countywide median was $603,000 for the month, a percent higher than a year ago but down from a peak of $619,000 last August.”

“Kathleen Carr recognized she needed to price her Sebastopol home based on what’s selling in today’s market and not what it might have been worth a year ago. Carr is confident she will get $729,000 for her 1,700-square-foot, three-bedroom home on a sunny acre surrounded by redwoods.”

“Carr’s home might have sold for $750,000 last summer, said Young, her agent. ‘I thought about selling last summer because I realized it was around the peak, but I just wasn’t ready,’ she said.”

“Both Sebastopol and Russian River remain attractive to families seeking homes and buyers from out of the area looking for vacation residences. With declining sales and leveling prices, agents and sellers are counting on the west county’s attractiveness for buyers to sustain demand.”

“‘People that have money have a wonderful area that they can come to. And it’s close enough to San Francisco and the peninsula that they can get away for the weekends,’ Young said.”




‘Squeezed From Both Sides’ As ‘Criteria’ Tightens

Several readers posted on lending standards. “I would like to hear opinions on the impact of the eternally ‘upcoming’ tightening of the Fed lending standards. What are the key new stardards/rules, will they actually be enforced, and most importantly, could this be the nail in the coffin?”

One replied, “They are doing it slow. Kind of like a heroin addict going to a methadone clinic. You don’t want to see an entire culture of FBs go cold turkey.”

Another said, “Sales are plummeting at mortgage companies. They’re not about to turn away any deal that walks through the door, no matter how stupid or risky. As long as the seconday market keeps buying the risky loans, they’ll still be selling them. The only thing that will tighten the market is for Fannie, Freddie, and the like to tighten.”

One asked about the securities. “Will the foreign investors holding our loans have anything to say about the delay in the tightening of lending standards?”

The Rocky Mountain News. “Colorado continues to bear the unwelcome distinction of having the highest foreclosure rate in the nation, according to a national report. ‘I would think we would have had to be leading the nation for at least a year, maybe two years,’ said Ed Jalowsky, (who) sells many homes in some stage of foreclosure.”

“‘The sad part is that it is not letting up, and it is not going to let up,’ he added. ‘It’s only going to get worse.’”

“Jalowsky and others say that lax lending standards have contributed to the large number of foreclosures. Lenders are now tightening their criteria.”

“For example, lenders are making it more difficult for several low-income families to pool money to buy homes and for people with bad credit records to get loans, according to brokers. Also, it is becoming more difficult for buyers to avoid paying down payments through gift programs.”

“Those changes are good long-term, Jalowsky said, because they were among the primary reasons the foreclosure rate is so high.”

“But short-term, it means there will be fewer entry-level buyers at a time when the supply of unsold homes in the Denver area is at record levels, Jalowsky said. ‘The market is getting squeezed from both sides now,’ he said.”

“Economist Patty Silverstein said said rising interest rates are hammering some people who locked in adjustable-rate mortgages and interest only loans and now are seeing their monthly payments rising by hundreds of dollars. ‘A lot of people took advantage of record-low interest rates by getting into the housing market before they were ready or buying too much house,’ Silverstein said.”




Are There Moral Implications For Selling At The Top?

Several readers suggested a topic on selling a home. “Are there any moral implications for selling your home at the top to someone who can’t afford it? Are there any moral implications for selling your home at the top to someone who can afford it?”

“Did you warn the person you sold your house to about the housing bubble or the disadvantages of too much leverage? My scenario is not that the buyer is not some flipper, but is a younger couple with kids who were scared by the rising costs of RE and bought.”

A reply, “It is your duty to sell to the least qualified buyer. Why wouldn’t you want to be the smartest person at the table?”

Another, “The very fact that you are willing to sell a house for X number of dollars shows that you believe X dollars is worth more than the house, any analysis beyond this is the responsibility of the buyer.’

A perspective from Australia, “Why do you need to know? In 5 transactions outside my own family, I’ve only once met the people I’ve either bought from or sold to. Things might be different in the US, but in Australia the Real Estate Agents make sure the sellers are absent when they conduct open houses.”

“The one time I did meet the buyers. Now this was in 1992, which was in my (correct) opinion indeed a market peak in my area. So did I feel guilty? Not at all; the young couple were burningly eager to buy in that specific area for family reasons, and had in fact been outbid at above my selling price twice in the previous fortnight.”

Another looked at the time-frame. “I don’t know how to answer this. I would have felt HORRIBLE to sell to an underqualified buyer in 2003 when I really felt the market was going to collapse. I would have cost them two years of incredible gains. So was I moral or not?”

“As a buyer I really don’t think it’s the seller’s right to know anything about me except whether my offer is legit or not. As a seller I don’t want to know anything but can the person keep the contract.”

“I’m a bleeding heart who paid too much for my last two houses because I wanted to help out the sellers. And I know that if a young couple like the one described tried to buy a house from me now I would try to discourage them, just for sound financial reasons if nothing else.”

“There’s no easy answer. I’m not sure it’s even legal to refuse to sell to a qualified buyer no matter how moral the reasons. On the other hand, if I owned a house right now it would be priced to move and even 10% below comps someone is going to get screwed somehow. Guess that makes me a happy renter!”

Another points to the anonymity, “Maybe why we have ‘arm’s-length transactions,’ Has a particularly ugly ring to it now, don’t you think? Is anyone in charge? Does anyone really care? You do, I do, my wife does, most of us on this blog do. Must we mandate education in home economics or finance in high school? Maybe not a bad place to start.”

Another said, “How many of us in a selling position nowadays would ask that the squirrels be cared for, right to approve paint colors, etc.? Presently, IMHO, sellers are lucky to get out at a reasonable price including roof and carpet or flooring allowances, and covering closing costs. If they were a young couple with kids, I’d probably advise them to rent for a while.”

One had a short answer, “For peace of mind, let them know you are selling because, ‘in your opinion,’ prices are heading south…from that point, it’s their responsibility.”




Florida Home Sellers ‘Go For Quicker Results’

The News Press reports on auctions in Florida. “Dan Mahaney estimates he got three calls from Florida residents last year. Now, he’s getting at least 15 calls a week from people desperate to sell their Sunshine State real estate. ‘Fort Myers is really picking up,’ he said, as is the rest of the state.”

“Mahaney is an operating partner and works as an auctioneer and broker. ‘It’s an accelerated way of selling real estate,’ Mahaney said. ‘As you see the market slow, people are forced to go for quicker results.”

“‘People are looking for the quickest way out,’ he said. One investor recently sold a home in Fort Myers for less than he bought it for. ‘He just wanted to get rid of it and stop the bleeding,’ he said. In addition to lots of interest from Southwest Florida home sellers, he’s gotten a lot of calls from people in the Tampa Bay area as well as the Panhandle and Miami. He said he expects to double the number of Florida homes auctioned soon.”

The Herald Tribune. “Home builders nationwide are ‘taking a page from Detroit’s playbook,’ offering cash equivalents to ‘move merchandise,’ said (economist) Paul Kasriel. Nowhere is that more evident right at this moment than with Miami-based Lennar/US Home, which has..discounts ranging from $20,000 to $157,000 for homes in developments stretching from northern Manatee County to North Port.”

“Take the four-bedroom, two-bath near the Manatee River: it is offered at $120,000 off the $499,900 house, more than a 24 percent cut in the price. Or the Chatham in North Port, with $157,000 off the $656,900 four-bedroom, three-bath house, likewise a 24 percent drop.”

“The price-cutting gives consumers an unusual look at the kind of profits some builders have enjoyed. Many of the high-end custom builders are finding sales off 50 percent, but are riding it out with backlog orders and the profits they made during the recent record market.”

“But inventory builders like Lennar/US Home, particularly those that answer to public stockholders, need to keep homes moving to keep cash flowing. Discounting is normal, says Michael Carliner, an economist with the National Association of Home Builders, ‘but in Florida what we’re seeing is beyond normal.’”

“In some markets, but not in Southwest Florida yet, Lennar/US Home is offering new buyers some assurance that their price is protected, meaning if the company sells a similar home nearby for a considerable discount, it would compensate that new buyer for the difference in prices. ‘It’s definitely a sign of distress in the home building sector,’ Kasriel said.”

“The fear of a sudden ‘paper loss’ has caused some buyers to try to wait out the market until it gives back some of the margin to entice buyers to take the plunge.”

“‘NO DOWN PAYMENT! NO CLOSING COSTS! NO KIDDING!!’ goes the pitch from Morrison Homes, which is trying to move new houses in Manatee and Sarasota counties. Tammy Lynch, Morrison’s Sarasota division president, says that some buyers with credit scores as low as 580 can get financing. Besides the financing package, Morrison is throwing in at least $25,000 more in savings on a $350,000 home.”

“To Kasriel, the seller is saying, effectively, ‘You can rent this house with an option to buy’ for $1 and if it does not work out, ‘Give the keys to the lender on your way out.’”