August 31, 2006

‘Hanging On In Hopes Of Averting A Loss’ In California

The Pasadena Star reports from California. “When economists start talking about cycles, it’s a good bet they’re talking about a downturn. That was the message Michael Carney delivered Wednesday when the Real Estate Research Council of Southern California held its quarterly luncheon at Cal Poly Pomona.”

“There are strong signs of slowing in the residential market, particularly on the demand side. ‘There was a strong, unanticipated decline in demand in the second quarter of 2006,’ Carney said. ‘Home sales are way down, and although prices were still up, the rate of increase has fallen a lot.’”

“‘The level of inventory on the market right now is the highest it has been since 1990,’ Carney said. ‘Why is that? Why are we seeing such a big decline in demand?’”

“In San Diego County, which has 42 percent of the u nsold inventory in the Southland, 80 percent of the inventory is condominiums and attached units. Las Vegas, Miami and Chicago also are having trouble with unsold condos, Carney pointed out. ‘I believe we will see housing prices level off or possibly edge forward a little,’ he said. ‘Do I think they will actually collapse? Well, not anytime soon.’”

“Silicon Valley executives are more upbeat about the local economy than their peers elsewhere in the Bay Area. But they are slightly less eager to hire than they were three months ago, according to the quarterly survey by the Bay Area Council. And their mood, along with that of Bay Area executives generally, seems to have soured a bit.”

“‘We’re getting some mixed signals,’ said Steven Buster, CEO of the Mechanics Bank, based in Richmond, which participated in the study. Although many Bay Area businesses are making money and some are hiring, ‘the worry in our industry is mainly real estate,’ he said. ‘Foreclosures are at an all-time high right now.’”

The Tribune. “While flipping does not make up a significant part of the homes sold in San Luis Obispo County, those buyers who did try to make a quick buck ran into trouble. More than 68 percent of county homeowners who flipped their houses during the second quarter lost money, and the median loss was $15,900.”

“‘There’s been a significant pullback in activity by flippers,” said Mike Ela, former president of DataQuick. ‘Flippers are changing their quick-flip mentality. They may be hanging on a little longer in hopes of averting a loss.’”

The Record Net. “A new survey of ‘flipping’ indicates that the levels of investors in the local and California real estate markets have shriveled from a year ago. In the second quarter, 2 percent of the sales in San Joaquin County were of existing homes that had been owned for six months or less, down by almost two-thirds from 5.1 percent in the second quarter in 2005.”

“The county had enjoyed a surge in home valuations from 2000 through last fall, but the sales market turned soft beginning at that time, with home prices throughout much of the county sliding last month to the first year-to-year sales price decline seen in years. Real estate brokers and agents attribute this largely to a continuous month-to-month jump in the number of homes for sale in the county since last spring.”

“Chris Apostolopoulos, KB Home president of the Central Valley division, said investors have indeed dropped out of the area’s sales market, which is now in a cyclical ‘correction.’ But he thinks that’s a good thing.”

The Santa Cruz Sentinel. “Buy a house. Get a car, free. That’s the deal being offered by green developer Clarum Homes. ‘Some of the people who were buying had a hard time selling their current homes,’ said agent Dana Sales. ‘We’re trying to attract people with the ability to go ahead and make that purchase without that contingent sale.’”

“Linda Haines, associate broker in Watsonville, said there’s no question the real estate market has softened from a year ago. A report showed 50 percent more homes, 1,355, were on the market, than the previous year and the number of sales during the month plunged to the lowest level in more than a decade.”

“‘A year ago sellers didn’t have to do much. That time has since gone,’ Haines said.”

“A homeowner paying a mortgage in a house they’re living in generally has more breathing room than developers with construction loans to cover. ‘It’s a buyer’s market,’ Haines said. ‘But certainly there’s no need for sellers to panic.’”

‘Housing Market In A Period Of Transition’: Canada

The Calgary Sun has this report from Canada. “The bubble watch is on in Calgary. According to a report released by TD Economics today, the city could be experiencing a housing bubble. ‘The market is so overheated at the moment and new home supply so tight that a bubble may be forming, or could easily develop,’ said TD’s Housing Bubble Watch. ‘The speed of the rise in prices is troubling and cannot be sustained.’”

“‘There is no question that the recent dramatic price gains in Calgary and Vancouver are unsustainable and that these urban centres are vulnerable to significant moderation, including the possibility of a pullback in prices,’ said the report. ‘If prices continue to rise at a close to 40-percent rate, affordability will quickly become a problem and fear of being priced out of the market may encourage hasty decisions,’ the study said.”

From CBC News. “On the whole, housing activity in Central and Atlantic Canada has cooled down without a price correction, but the Western cities are ‘flashing warnings signs,’ the bank said. On Thursday, Statistics Canada cited the cooling housing market as one of the reasons why economic growth slowed to an annualized rate of two per cent in the April-to-June quarter.”

“‘The dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth,’ author Craig Alexander said.”

The Globe and Mail. “‘There is no disputing that Canadian housing markets have been booming in recent years with extremely high levels of starts, sales and price gains in many markets,’ economists Craig Alexander and Steve Chan said. ‘However, TD Economics has consistently argued that Canada’s real estate markets have generally lacked the degree of speculation that dominated past boom-bust cycles and the excesses have been far less than those evident than in the United States.’”

Inman News. “Monthly increases in sales activity in July in Nova Scotia and Prince Edward Island were more than offset by fewer transactions in all other provinces, particularly in Alberta, Ontario, and British Columbia, the Canadian Real Estate Association reported. A seasonally adjusted total of 39,319 homes were sold via MLS in July 2006.”

“Seasonally adjusted new MLS listings reached 67,292 units in July. This represents the second highest monthly level on record for new listings, and the highest level in more than 15 years, the association reported.”

“‘The national residential market is now more balanced than it has been at any point in the past five years due to a marked increase in new listings in Alberta, and the return to more normal levels of sales activity in British Columbia and Alberta,’ according to the announcement.”

“‘Transactions continue to return to more normal levels of activity and new listings are still rising, so the resale housing market remains in a period of transition,’ said Gregory Klump, chief economist for the association.”

The Province from British Columbia. “There are finally some clouds on the horizon for B.C.’s high-flying economy, courtesy of a stumbling U.S. economy, Jock Finlayson, of the B.C. Business Council said yesterday. U.S. consumer confidence slumped in August to its lowest level this year, according to the U.S. Conference Board.”

“Finlayson said if the downturn gets ugly, it will hit the B.C. economy and may force a rethink on economic growth here. ‘It is the single-biggest risk out there for our economy,’ he said. ‘It will depend on just how long and protracted this downturn is.’”

“‘We are already seeing the impact on the lumber market, with significant price drops from the deteriorating housing market in the U.S.,’ he said.”

“The CanadaWest Foundation’s latest B.C. Economic report..says the economy is ‘in very good shape’ and growth will be bolstered by strong construction activity. But it also takes note of the faltering U.S. housing market and says the forestry sector will face a ‘very challenging” time along with tourism that faces the challenges of high gasoline prices, a strong Canadian dollar and tougher border restriction for U.S. visitors.’”

‘Some Deals No Longer Make Business Sense’

Some housing bubble reports from Wall Street and Washington. “H&R Block is due out with its quarterly earnings report today. Bob Moon: The higher that home prices climbed in recent years, the riskier the loans became for some mortgage lenders. Now, with adjustable rates going up and a growing number of borrowers failing to make their payments, H&R Block is being forced to write off a loss of $102 million.”

“Christopher Thornberg ‘We’re at the beginning of the breaking real estate bubble, we’re not at the end, we’re not near the bottom. We have a ways to go.’”

“Thornberg expects a shakeout for the mortgage industry, but he can’t predict which companies might be most vulnerable. ‘To some extent, this is going to be one of those things where we’re just going to have to let the smoke clear to find out where the bombs have landed,’ he said. Thornberg has little sympathy for companies that he says have long been riding high on such high-risk loans.”

The “The hard landing of real estate has only begun to be felt, as the downturn is still less than a year old and new housing starts have dropped by only about 15% from their fall 2005 peak.”

“In past down cycles, the duration of the downturn has been between 25 and 52 months, and in terms of unit declines has averaged approximately 52% from peak to trough. So, stated simply, the worst is yet to come for housing.”

Gary Shilling at Forbes. “The housing bubble is deflating rapidly. I expect at least a 20% decline in median single-family house prices nationwide, and that number may be way understated.”

“A bursting of the bubble would force many homeowners to curb their outlays in order to close the gaps between their income and spending growth. That is, unless another source of money can bridge the gap between consumer incomes and outlays, just as house appreciation seamlessly took over when stocks nosedived. What could that big new source of money be?”

The Boston Globe. “Rising incomes should support the US economy even as the housing market slows and consumers lose the boost they were getting from home equity, Federal Reserve chairman Ben Bernanke said.”

“‘The rapid pace of house price appreciation in recent years likely contributed to the decline in the saving rate,’ he said. ‘Similarly, the cooling of the housing market and associated reduction in capital gains on housing will probably provide some upward impetus to the saving rate.’”

From Bloomberg. “European Central Bank President Jean- Claude Trichet signaled the bank will increase interest rates in October, saying economic growth and inflation will exceed its previous forecasts.”

“‘Strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained,’ Trichet said. The ECB said it expects inflation to stay ‘elevated.’”

CNN Money. “A year ago, with the real estate market booming and stocks at or near all-time highs, executives at the 12 major homebuilders were quick to cash out, selling just over 6.5 million shares of their stock as a group, pocketing just over $500 million in proceeds.”

“But homebuilder executives have held onto their shares this summer, while their value has continued to fall. ‘This definitely tells me insiders are relative more bullish than a lot of investors in these stocks. But that being said, we’re not seeing any buying. If they really wanted to show the faith, they could be buying shares,’ said Jonathan Moreland, director of research at a service that tracks insider stock activity.”

From USA Today. “As sales slow and inventories jump, large publicly traded home builders are trimming landholdings or renegotiating deals, according to earnings reports and industry officials.”

“The development illustrates the fact that some previous land deals done at the height of the housing boom no longer make business sense. It also reflects the fact that builders see the slower market as giving them leverage to force sellers to cut prices.”

“‘Land sellers are at a disadvantage right now, and some, because of the way they’re financed, can’t really hold on and wait for the market to normalize,’ says Mackey O’Donnell, CEO of the largest land-acquisition firm in California. Builders tell O’Donnell they are seeing up to 10% to 20% reductions in land prices from recent highs. As large builders reduce their holdings.”

“Toll Bros. said in its third-quarter earnings report last week that it now owns or controls about 82,900 lots, compared with 91,200 at end of the second quarter. ‘Those deals that are not at the extremely profitable end of the spectrum are being looked at again,’ says Kira McCarron, for Toll Bros., adding that if they don’t add up and ‘can’t be renegotiated, then they would be dropped.’”

Market ‘Tipping Towards Buyers’ In New York

Inman News has this on New York. “Sales of existing single-family homes in New York fell by double digits between July 2005 and July 2006, according to preliminary single-family sales data accumulated by the New York State Association of Realtors.” “There were 9,392 sales recorded statewide in July, a decrease of 11.3 percent from the 10,681 homes sold in July 2005, according to the preliminary data. Last month’s sales total was down 7.6 percent from June’s level of 10,166 sales.”

“The statewide median selling price rose 3.7 percent in July to $269,700, compared with the $260,000 median recorded in July 2005. The July 2006 median price, however, was down by 3.3 percent compared to the previous month.”

“‘There is no ‘housing bubble’ bursting in New York state,’ said Charles M. Staro, NYSAR chief executive officer. ‘The data through July 31 simply show the expected softening of sales and slowing in median sales price increases after several years of exceptional growth. After years of a hot sellers’ market, we are seeing a return to balance, if not a tipping toward buyers as sales prices level.’”

The Providence Journal from Rhode Island. “The recent downturn in condominium sales statewide doesn’t concern the developers of three luxury condo towers in downtown Providence. Intercontinental Real Estate Corp., The Procaccianti Group and BlueChip Properties are in the midst of constructing 426 high-end condos that are priced between $400,000 and $2.5 million each.”

“All three developers said this week that interest from buyers has remained strong and they are confident condos in the complexes will continue to sell. ‘I’m not worried about [the market] at all,’ said (developer) Nicholas Iselin with Boston’s Intercontinental Real Estate, which is putting up two towers next to the Providence train station that will contain 193 condos.”

“Buyers have already signed purchase-and-sale agreements on eight of the units, said Iselin, and in total, 33 are under reservation. While that’s down from the 80 units under reservation last year, he said, the developer doesn’t see it as a problem.” “‘There’s not a huge incentive to jump off the sidelines and I think people can afford to have a wait-and-see attitude. And that’s fine,’ said Iselin.”

“Condominium sales across the state were off significantly during the second quarter of the year, dropping 22.6 percent compared with the second quarter of 2005, according to the Rhode Island Association of Realtors.”

“For BlueChip Properties, about 19 of the 130 condos it is under agreement, said Jerry O’Connor, development director for the project. ‘There’s been a traditional summer slowdown, but we’re happy where we are on sales,’ he said.”

‘The Air Is Now Full Of Talk Of A Bust’

MSNBC has this report on exotic loans. “‘Joe’ is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments. In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an ‘option ARM.’ The unpaid interest was tacked onto the principal, creating ‘negative amortization.’”

“He initially thought his salary would rise along with his home’s value. But when a lost deal closed the company and ‘For Sale’ signs popped up, and stayed up, in his neighborhood, a now-unemployed Joe is wondering how he will afford those higher payments when his rates adjust.”

“Joe is not an atypical homebuyer in the Bay Area or other now-bursting bubble markets across the country. Nearly half of the homebuyers and thirty percent of people refinancing mortgages in California chose interest-only loans last year.”

“Now these cheap mortgages that fueled the real-estate boom are beginning to hurt the homeowners they once helped. Higher interest rates and the end of honeymoon periods for too-good-to-be-true teaser rates are increasingly causing payment shock for borrowers.”

“‘Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006,’ said Frank Nothaft, chief economist with Freddie Mac. ‘A significant number of homeowners will face some adjustments.’ In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said.”

The Wall Street Journal. “Looking back at past housing booms, the first sign of the end is when a goodly share of buyers stop making offers and eventually stop looking, seeming to just disappear. In the spring of 1987, during another U.S. housing-market boom that was starting to lose speed, Nora Moran, president of the Greater Boston real estate board, said ’someone blew a whistle that only dogs and buyers heard.’”

“Across America today, it is as if the whistle has again been blown. Why is this happening so suddenly? The market spoiler was in place some two years ago. At that time, we felt that the spectacular price increases could not be justified. The psychology of that time could not continue indefinitely, and indeed it has not.”

“Talk is part of what changes the mood and actions of buyers, and the air is now full of talk of a bust. The covers of the New Yorker, the Economist, The Wall Street Journal and virtually every news magazine and newspaper in America has heralded the bursting of the ‘housing bubble.’”

“New construction, initiated in response to high home prices, has reached unprecedented levels, and new houses are still hitting the market just as demand is dropping. But the housing construction boom can’t go on forever.”

“Beyond all these factors there is the simple psychology of expectations that is part of any speculative boom. These expectations can turn suddenly when alert home buyers get the sense that something might be amiss. Americans haven’t changed their basic views on housing as a great long-term investment. Not yet, at least. That won’t happen unless there is a protracted housing price decline.”

“Buyers do not want to pay prices that are significantly higher than a year ago. Buyers are waiting and low-balling. Sellers want to get a price increase of the kind they’ve observed in the recent past. The result is that fewer agreements are reached, and sales fall.”

“As always, the future is uncertain. Many of the underpinnings of the boom are still strong, and the soft-landing scenario so widely promoted by economists and industry leaders is a possibility. But that possibility is not enough to give great comfort to all those who worry today about the housing market.”

“Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out.”

Bits Bucket And Craigslist Finds For August 31, 2006

Please post off topic ideas, links and Craigslist finds here!

August 30, 2006

‘Buyers Are Not Willing To Take Risks’ In California

The LA Times reports from California. “KB Home has started pruning its land portfolio in Southern California, a byproduct of a slumping housing market that is forcing big builders to reevaluate their property holdings. The Westwood-based builder said Tuesday that it had sold its 49% stake in the massive Anaverde master-planned community in the Antelope Valley.”

“With demand for new homes declining, major builders are under pressure from Wall Street to justify their ownership of land that isn’t already primed for building and that doesn’t have a prospective buyer lined up. ‘Under current market conditions we are focusing our attention on our core business, which is home building,’ said KB spokeswoman Caroline Shaw. ‘The sale of our interest in Anaverde furthers that objective.’”

“Some analysts also worry that builders could be forced to write down the value of their land if they can’t unload it, or if land values start to decline.”

“Like other Southland locales, the high desert has seen home sales drop dramatically. In the first six months of 2006, new-home sales in the Antelope Valley fell to 1,307, down 41% from the 2,222 sold in the year-earlier period. Yet builders obtained permits to add 11,851 additional houses, up from 8,478 the year before.”

“Less demand for new homes mirrors the soft demand for land in the area, said Michel Faris, a land broker (who) specializes in Antelope Valley real estate. ‘A lot of the market is psychological,’ he said. ‘Buyers are not willing to take risks now, whether with raw land or finished lots.’”

The North County Times. “A report showed a dramatic slowdown in residential construction, both in Riverside County and across California, as builders continued to eye large numbers of unsold homes. Builders received permits to build 2,051 houses and 106 apartment and condominium units in Riverside County last month, according to the California Building Industry Association. Compared to July 2005, that represents a drop of 37 percent, the largest such decline in at least five years.”

“Across California, builders started 11,121 new houses, condominiums and apartment units, a 43 percent decline from 2005, according to the group.”

“Builders have put up hundreds of houses in Temecula’s Wolf Creek neighborhood in the last two years; when the houses didn’t sell as fast as expected, Temecula Valley Unified School District responded by postponing the opening of nearby Temecula Luiseno Elementary School.”

“Dave Gallaher, facilities manager for the district, said it is adding fewer students each school year than in the year before. ‘We’ve seen recently that (annual increase) drop to 2,000 from 3,400, which is a dramatic drop,’ Gallaher said.”

The Union Tribune in San Diego. “The runaway home prices and building boom of recent years put lots of money in the pockets of real estate agents, loan officers and construction workers. If there is a real estate slowdown, which many experts say has already begun, San Diego may be disproportionally hurt.”

“Already hit hard is construction worker Sergio Curiel. Curiel hasn’t worked for a month. ‘Income is really bad right now,’ Curiel said. ‘I’m living day by day, check by check.’”

“Local real estate agents are incensed after code-enforcement officers collected more than 100 open-house signs and threw them in the trash behind City Hall. Real estate agents say that without the ability to post clear signs directing potential buyers to open houses, properties will languish unsold in an already tough real estate market.”

“Escondido real estate agents and sellers say they saw proof Sunday of how important their signs were, reporting that attendance at open houses was much lighter than usual.”

“Donna Davis wondered why only one person showed up for a viewing of a single-family home in north Escondido. At the end of the disappointing day, she realized her four signs were gone. Davis said she later found them and about 150 others in a garbage bin outside City Hall. Code-enforcement officers told her to leave them because the city would be liable if she got hurt in the bin, she said.”

“Real estate agents said Councilman Ed Gallo, who is an agent himself, warned them about the code crackdown at a Realtors association meeting last month, and that they tried to comply. Gallo said they planned to meet next week to try to resolve the real estate agents’ concerns.”

“‘I’m hoping to come to terms and make sure everyone’s happy,’ Gallo said. ‘We don’t want to shackle one of the city’s major industries.’”

“Agents all over the county are facing a sluggish market, with about one-third fewer homes sold last month than in the same period the year before.

‘On The Back Side Of The Cycle’ In Nevada

The Review Journal reports from Las Vegas. “Dennis Smith, president of Home Builders Research, counted 2,869 recorded new home sales in July, compared with 3,071 sales in the same month a year ago. The slowdown is really being felt on the resale side, Smith said. Sales of existing homes in July totaled 3,512, down from 5,361 a year ago. For the year, resales have slid 22 percent to 26,817.”

“Real estate professionals point to a record inventory of 20,273 homes on the market as the reason why homes aren’t selling as quickly and prices are being reduced in many neighborhoods. ‘Can the housing market get much worse? Yes,’ Smith said. ‘Will it? Probably.’”

“SalesTraq President Larry Murphy said the ‘traditional new construction segment’ of the market, excluding apartment conversions and high-rise condos, showed a median price of $335,315, up 5.5 percent from a year ago. ‘It would be prudent to point out that these prices do not include the many incentives that are being offered by most builders,’ he said.”

“Values of the inducements will vary and the focus has changed from decorating upgrades and closing costs to financing, Smith said. Some of the larger builders are offering interest rate ‘buydowns.’”

“If an average value of 6 percent on the incentive packages were reflected in the price, the median for July would be in the range of $318,000, or less than 1 percent increase, Smith said. He speculated that the incentive factor is probably much higher, so ‘net’ median prices are at or below what they were a year ago.”

“‘Basically, the market is on the back side of the cycle,’ said Josh Seime, regional manager for Metrostudy. ‘When you start seeing a buildup of inventory, you know it’s going to get competitive.’”

“Detached production is declining as builders look to reduce their inventory, Seime said. Housing starts fell to 6,834 in the quarter, compared with 7,061 in the same period a year ago.”

The Nevada Appeal. “Incline Village’s predominant second-home market this summer felt the aftershock of slumping job and real estate markets in Southern California, the Bay Area and Southern and Northern Nevada.”

“A slowing job market (statewide, California added just 900 jobs last month; its recent average has been 17,400 per month), combined with recent hikes in interest, have led to a basin-wide real estate slowdown.”

“The proof may be in the numbers. From January to August 2005 348 homes, condos and PUDs sold in Incline. At press time, only 180 homes, condos and PUDs have sold thus far in 2006. ‘The numbers you see are off about 50 percent, which is actually an improvement from a month ago, so we’ll see, the real story will be after September and October,’ (broker) Chris Plastiras said.”

“Many Incline Realtors said this summer’s swoon and uncertain future to follow is a picture that is highly interpretive and speculative. Three things seem certain however: It’s not 2003 anymore. The ‘condo boom’ is over, for now; and there are more than 400 homes, condos and PUD (free-standing homes with lots collectively owned) properties on the market, the most in the past half-decade.”

‘Sinking Money Into A Depreciating Asset’ A ‘Real Fear’

Some housing bubble reports from Wall Street and Washington. “Shares of homebuilders declined in midday trading Wednesday, led by Hovnanian Enterprises Inc., after JPMorgan issued a note on the builder raising questions about stock options practices and forecasting weaker earnings per share growth.”

“Merrill Lynch issued a bearish note on the homebuilding sector, predicting a slowdown already under way will get worse before it gets better. ‘We are neutral on the homebuilders because fundamentals are still too strong to call a bottom,’ Merrill analysts wrote. ‘In short, housing starts remain too high, margins are declining and rate cuts will provide little benefit from here.’”

“The Mortgage Bankers Association today released its Weekly Mortgage Applications Survey for the week ending August 25. On an unadjusted basis, the Index decreased 2.3 percent compared with the previous week and was down 22.4 percent compared with the same week one year earlier.”

“More subprime borrowers are defaulting in the early months of their home loans, a trend that has led to greater fear among investors and lenders of rising delinquencies and losses.”

“‘If those borrowers are finding themselves in trouble very early on, it may give lenders an indication that the underwriting criteria or quality control are not sufficiently tight,’ says Damien Weldon, at LoanPerformance. Based on the year-to-date data, Weldon says early payment defaults on subprime mortgages are expected to increase this year.”

“The secondary market, where lenders sell the new loans, could also see more pressure from rising delinquencies. Merrill Lynch analyst Kenneth Bruce wrote in a recent report commenting on H&R Block’s announcement that ‘if the fixed-income market anticipates further losses, it could begin to pressure spreads on lower rated bonds, thus undermining whole-loan pricing.’”

“Citigroup, Bank of America, and JPMorgan Chase are among the biggest losers in the bond market, where the largest U.S. banks’ borrowing costs are the highest in three years. ‘We’re probably at the top of the mountain for loan quality, and it’s going to start falling pretty soon,’ said James Hannan, who oversees $3 billion in fixed-income securities.”

“Higher borrowing rates have contributed to shrinking lending margins, a measure of profitability for banks. S&P said this month that those margins were at their lowest since 1991.”

“Federal Reserve Bank of Dallas President Richard Fisher said inflation has been running higher than he’d like to see, and said the central bank must make sure price pressure remained contained. ‘Our current inflation indicators are not presently as well behaved as I would like them to be,’ Fisher said.”

“He counted himself as unworried by the slowing housing sector. ‘The declines are moving housing markets from very high and unsustainable levels toward more normal levels, unwinding some speculative activity,’ Fisher said. He added ‘not all the consequences of the unwinding of a bull market in housing are bad.’ Fisher explained ‘as prices cool off, we may finally begin the long process of allowing income to catch up with housing costs.”

The Washington Post. “In the latest sign of the cooling home sales market, a luxury home builder in Rockville has begun resorting to the kind of tactic usually reserved for screaming electronics discounters, the Lowest Price Guarantee..from the time a customer signs to 45 days before settlement. The thinking goes, jittery buyers shelling out $500,000 to more than $1 million for one of the builder’s single-family houses can rest assured that they’re not sinking money into a depreciating asset.”

“‘That’s a very real fear,’ said John J. Lavery, for the home builder. ‘Obviously, there’s been a big correction in the market. Our view is that it’s the lowest point in the market cycle now.’”

“Builders offer such enticements because they are reluctant to upset previous buyers by cutting their base prices. But in some places around the country, builders have begun cutting those prices, too. Mid-Atlantic has not reduced its base home offering price, but it has increased incentives to as much as $55,000.”

“Lorenzo Wooten Jr. said that even in his Prince George’s County neighborhood, he has noticed more houses on the market and longer sales times. Wooten and his wife, Courtney, signed a contract last month to buy a $1.2 million house in Woodmore North. ‘I feel pretty comfortable where the Washington, D.C., market is,’ said Wooten, 33, a regional manager for Fannie Mae. ‘I really don’t think that they would have offered this price guarantee if the prices weren’t fairly priced currently.’”

Housing Market ‘Chill’ Taking Toll

The St Petersburg Times reports on the consumer survey. “Floridians’ confidence in the economy plunged this month to its lowest level in 13 years, University of Florida economists said Tuesday. The chill in the housing market, higher interest rates and fuel prices appear to be taking their toll. National confidence numbers also fell in August, but not as much as they did in Florida.”

“The Florida Consumer Confidence Index fell 11 points to 76, while the national index went from 107 to 99.6.”

“Chris McCarty, director of survey research at the University of Florida thinks the changed outlook for housing is at least partly responsible. ‘Florida is in a position to really be affected by a decline in housing,’ McCarty said.”

“‘There are a lot of overvalued markets in Florida, and there are a lot of risky loans, some of which are going to readjust right about now,’ he said. ‘Also, a lot of employment increases over the last few years have been related to housing.’ When projects get canceled or put on hold, that has a direct impact on jobs and a secondary impact on sales of appliances and furniture, he said.”

“‘The feedback I get from people when they cancel their appointments at the last minute is that they’re broke,’ said (hairstylist) Valerie Bohr in Largo. ‘Just this week I had two people tell me they got electric bills over $400. People can’t afford to come in and get their hair done if they’re working to pay an electric bill like that.’”

“The Florida survey showed the biggest drop in confidence was among working-age people. They feel a pinch from rising interest rates on credit cards and home-equity loans. ‘We’ve got an adjustable-rate home-equity loan, and every time the prime rate goes up, our payment goes up,’ said Mike Della Penna, a flooring contractor in Land O’Lakes. He said he and his wife continue to pay more than required because they’ve set a target for paying off the debt.”

“‘But there may be a squeeze on some people whose incomes are marginal,’ he said.”

“Homeowners who have been using their home equity as a piggy bank find their borrowing power is no longer growing now that property appreciation has come to a standstill. ‘A lot of people unfortunately built that into their personal finances,’ said Stan Close, of Riverview, a banker. ‘That probably is a key contributor to people not feeling as good about their wealth.’”

From Reuters. “Costco Wholesale Corp on Wednesday warned of lower-than-expected quarterly profit because of disappointing gross margins. ‘This could be an early sign that the higher-income consumer is finally starting to feel a bit of a pinch,’ said Anthony Chukumba, an analyst with Morningstar.”

“Those higher-income shoppers have proved resilient in the face of steep energy prices over the past year, but as the housing market slows, Wall Street has been worried that upscale retailers would start to suffer.”

“‘The company could begin to suffer from a decline in higher-margin discretionary spending due to slowing economic growth and a deceleration in the housing market, causing a less favorable sales mix and pressuring margins,’ Lazard Capital Markets analyst Todd Slater wrote.”

From Bloomberg. “‘The tide is going out for all retailers at the moment,’ said Christian Holland, who helps manage about $1 billion in London. ‘Unless you’ve been on Mars, everyone’s aware that the housing market is rolling over, and that does have obvious implications on the consumer’s ability to prop up spending,’ Holland said.”

‘A Badly Timed Fit Of Happy Talk’

The Boston Herald looks at home sales reporting. “A bad storm is brewing in the once high-flying real estate market, and the Boston area, is right in the eye of it. For many hapless home sellers, desperately scrambling to find living, breathing buyers, this tempest appeared to come on as quickly as a Gulf Coast hurricane. Or did it?”

“The monthly home sales reports put out by the Massachusetts Association of Realtors for years have been the main indicator of the health of the Bay State’s real estate market. And as recently as last fall, the trade group was crowing about near-record sales.”

“However..a steady decline in home sales across the state began in the spring of 2005 and has been building steam ever since, data released by the Boston-based Warren Group shows.”

“Year-over-year declines in home sales of roughly 10 percent or more began in April 2005 and continued steadily, hitting nearly 14 percent in October and nearly 27 percent in July. Meanwhile, median home prices peaked at $364,000 as early as June 2005 and began dropping steadily after that.”

“By last summer, let alone last fall, anyone following the Warren Group data would have been well aware of the real estate storm clouds on the horizon. Yet, except for a few experts and insiders, no one was.”

“As the real estate market began to turn sour last year, MAR was still the main source of statistics for most news outlets. And the Realtors group saw more evidence for optimism than concern.”

“No increase was too modest to celebrate. A 0.5 percent increase in single-family home sales in September. Roll out the barrels. ‘Sales of single-family homes remain strong last month, climbing to their second highest level on record for the month of September in state history,’ the group touted in a section of its Web site called ‘talking points.’”

“That was a badly timed fit of happy talk. Since October, the market’s downhill trajectory has been too steep for anyone to ignore, with prices, not just the number of sales, falling.”

“But there are no apologies from David Wluka, MAR’s president. And Wluka further contends that MAR has always offered a sober appraisal of the market.”

“Not everyone is convinced of that, though, including Wellesley College’s Chip Case, one of the nation’s top experts on the residential real estate market. ‘They (Realtors) have a stake in high (home sales) volume,’ Case said. ‘They care if people are trading. They have a huge stake in optimism. When optimism goes away, people don’t spend money on big-ticket items.’”

The Worcester Telegram. “Foreclosure actions initiated against Massachusetts homeowners rose 56 percent in July, to 1,348, compared with the same month a year ago. For the 12 months ended July 31, foreclosures statewide were up 43.5 percent, to 14,552, with Barnstable, Bristol and Suffolk counties posting the biggest increases.”

The Sun Chronicle. “North Attleboro recorded 61 foreclosure cases in July, up 118 percent from July 2005. ‘The vise grip of rising interest rates and soaring energy costs are squeezing thousands of Massachusetts property owners out of their homes,’ said Jeremy Shapiro, presidentof ‘The dramatic increase in foreclosure filings is symptomatic of our slumping housing market and tightening economy.’”

Bits Bucket And Craigslist Finds For August 30, 2006

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