May 11, 2007

It’s The New Reality Of Real Estate

It’s Friday desk clearing time for this blogger. “One million dollars will buy you a lot of real estate in Warren County, New York. Would you prefer to spend such money on a condominium in downtown Glens Falls? Yes, you read that right. Someone willing to spend that much usually gets a bonafide mansion for the money.”

“Glens Falls Realtor Ginny McBride asked a caller to repeat Levinsky’s top asking price two or three times. ‘You mean almost a million?’ she asked. ‘In Glens Falls?’”

“Pete Swaufield, executive officer at the Realtors Association of the Fox Valley (Illinois), said sales had ’slowed considerably.’ ‘Now, instead of sellers dealing with three bidders and 15 days on the market, sellers are looking at trying to find one bidder in 90 days,’ he said.”

“Swaufield noted that the market only appears slow relative to the robust sales racked up in 2005 and much of 2006. ‘I deal with agents who have never seen a down market,’ said Swaufield. ‘This is a cyclical market, and right now, we’re in a little bit of the down.’”

“Rosanne Lynch tried to sell her home, first listing with a Web-based For Sale By Owner program, and then listing with a real estate agent. She even cut the asking price.”

“But after six months and no offers, she opted to pull the house from the market. ‘I’ve got to decide what I want to do now,’ she said. ‘The market’s flat, and I don’t know what I can do about it.’”

“It’s the new reality of real estate. Mississippi leads the nation in the number of people behind on their house notes. Prices are being reduced in some cases and foreclosures are adding up. ‘We have a subprime market collapse.’ According to Quentin Whitwell, Executive Director of the Mississippi Mortgage Bankers Association. Whitwell adds, ‘It’’s painful, there is no doubt about it.’”

“According to Kelly Hogue, an auctioneer, ‘They tell me (realtors) they have so many listings they are out of signs.’”

“The marketing boss for Norway’s largest brokerage chain, told newspaper Dagens Næringsliv on Tuesday that it’s taking almost twice as long to sell properties now than it did in January. ‘Time on the market is a good indicator of how housing prices will develop,’ Rune Garborg of DnB NOR said.”

“Several flats in the popular Majorstuen district of Oslo have also been advertised repeatedly in recent weeks, clearly because they haven’t sold.”

“Housing loan defaults were rising, said bankers. This is because many borrowers, who buy houses as an investment, have started defaulting following the hikes in interest rates.”

“‘Mortgage default is rising for the category which borrows to fund a second home or buys property as an investment,’ said U.S. Bhargava, chief general manager, Punjab National Bank.”

“The fact that the property market in the province of Malaga is slowing down has already been backed up by a number of statistics. The President of the School of Real Estate Agents, Cayetano Rengel, pointed out that the slump in property sales is becoming more and more noticeable and that this affects the new properties more because there are more of them on the market.”

“Rengel points out that now the real estate boom, which defied logic with exorbitant prices, is over. ‘Foreign investment has stopped,’ Rengel explains.”

“Soaring house prices are driving public-sector professionals out of the city, say those in the know. ‘Pportable professionals’ are beginning to leave the province behind, and it’s a problem affecting portions of the public sector, said University of Calgary economist Frank Atkins.”

“‘It’s just pure economics, when things are hot in one area, people come here and it’s really great,, Atkins said. ‘Then it gets really expensive and some people cash in their chips and move to another region.’”

“Don’t look now, but a downtown condo project is in financial trouble. On Sunday, BankEast published a foreclosure notice in connection with a planned Commerce Lofts project.”

“Developer William Cole Smith, a East Tennessee State University graduate, said the condo market hasn’t softened and he could easily sell all of the Commerce units but has decided to go in a different direction. He gave few details but said that the building is ‘going to be a different type of project.’”

“The housing market in Cheyenne, the capital of Wyoming, took off during the real estate boom and is only now showing slight signs of slowing. ‘We have not had a down year for the past five years,” says agent Bill Lewis.”

“Recently, though, Lewis says, homes for sale have been staying on the market a little longer, and some sellers are having to cut their asking prices a bit.”

“The number of homes on the market at the end of April was up 17.6 percent compared to the year before. The Houston Association of Realtors attributes the increase to the time of the year, as more people list their homes for sale in spring. But if the for-sale inventory continues to rise faster than sales, it could push down prices.”

“Sixteen percent of the April home sales were properties that had been foreclosed on. They were up 87 percent over the previous April.”

“Miles Marks of Performance Realty expects the problem to worsen. He’s already seen his properties stay on the market longer. ‘The foreclosures are just going to go ballistic here in a while,’ he said.”




Every Day Is Like Halloween In California

The Recordnet reports from California. “After some hope that existing-home sales were on the rise, the market slowed again last month, leaving some brokers and agents expecting a long downturn. The median sales price also slipped for the third consecutive month in April. ‘Dead’ was how Mike Collins, of Century 21 Collins, Stockton, described to market these days. ‘It’s just not coming back. This might be as bad as I’ve seen it.’”

“He said his agents reported maybe six lookers stopping by to check out any of the dozen open houses over the weekend. He suspects that many would-be buyers still believe home prices are still sinking.”

“Vanda Martin, real-estate agent (in) Stockton, said homes are still selling, if sellers are willing to start out low or cut asking prices. ‘The consensus about the market right now is it’s all about the price,’ she said. ‘It’s not a bad market, but there are just overpriced listings right now.’”

The Sacramento Bee. “First it was houses. Now it’s cars. The sales decline was particularly bad in California and Florida, two states feeling the worst of the housing downturn. That was no coincidence.”

“‘Suddenly your homes aren’t selling; the last thing you’re going to do is go out and buy another truck,’ said Ron Pinelli, president of a market research firm.”

“‘Nobody can pull money out of their houses so nobody has the cash to buy a new car,’ said economist Chris Thornberg. ‘That was the game.’ Thornberg said there’s evidence the economy is tailing off. ‘Consumers have finally run out of steam,’ he said.”

The Merced Sun Star. “Skyrocketing foreclosures, dropping home prices and plunging real estate sales are a ‘major concern’ for Merced’s economy, according to a new report. Of the six Central Valley counties analyzed in the report, Merced stands out as the area hit hardest by the housing slowdown.”

“Economist Lon Hatamiya said the high number of homeowners with subprime mortgages is likely a major contributor to Merced’s extreme downturn. ‘The predominance of subprime lending is coming home to roost in the Central Valley and it’s starting to be a point of concern that we have to watch very closely,’ Hatamiya said.”

“In February, Hatamiya and fellow economist Tapan Munroe presented their 2007 predictions for Merced’s economy. They stopped short then of calling the housing slowdown a ‘bust,’ instead referring to it as a ’souffle with the air slowly leaking out.’ Hatamiya still stands by that assertion.”

“‘In certain parts of the state, we’re seeing a depressed market, especially in the Central Valley,’ Hatamiya said. ‘Statewide, prices have gone up so I’d hate to characterize it as a bust. It’s more of a correction.’”

“Merced’s median home price stood at $302,750 in March, down from $372,500 in March 2006, according to figures from DataQuick. Merced…sales dipped by 127.3 percent compared with February. 2007.”

“With sales in a slump, building activity has nearly come to a halt, according to data from the city’s building department. So far this year, residential builders have pulled 83 permits in the city of Merced, compared with 369 during the same period last year.”

The Fresno Bee. “Prices continued to fall in Fresno, where the median price of a new house declined 3.6% from February to $307,490. That was a 9.6% dip from March 2006.”

“Housing analyst Patrick Duffy said some builders are still saddled with large numbers of unsold homes. Stricter credit standards and the diminishing use of 100% financing and stated income loans also are cutting into sales.”

“‘Depending upon the location and price range, a tighter lending environment … is impacting 10% to 30% of sales,’ Duffy said.”

“Bakersfield reported transactions were off 46.7% from March 2006. Hanford and Madera…were off 24.5% and 39.3% respectively from year-previous numbers. New-home sales in Visalia fell 38.2% for the year.”

“After five years of robust sales, the area, said said Steve Lutton, regional VP of Lennar Homes, has slid into a deep slump. ‘Every day is like Halloween,’ he said. ‘It’s scary out there.’”

The San Bernardino Sun. “Not many people were buying new homes in March, and those who were generally got pretty good deals. That’s the word from the California Building Industry Association, which released its March 2007 sales and price reports.”

“Statewide, sales were off 37 percent in March from a year ago. The median price of a new home sold in California in March was $449,227, slightly less than a year ago.”

“The Inland Empire has a large amount of inventory on hand, putting sellers in a tougher position. ‘Builders aren’t in the same position they were in the 1990s, when supply got way ahead of demand,’ said Jack Kyser, chief economist with the L.A. County Economic Development Corp. ‘They were better about building to order this time, but they still got a little ahead of themselves.’”

“With a large amount of inventory on the market, and entry-level loans much more difficult to get, the market is certainly somewhat stagnant.”

“‘I don’t think we will see the market start to sort itself out until 2008,’ Redlands-based regional economist John Husing said. ‘There is too much inventory on the market right now and we’re still waiting to see what happens with some of these foreclosures.’”

The Daily Press. “Sales of single-family homes in the Victor Valley slipped in April as prices remained relatively stable. Closings fell compared to the previous month and year, dropping 19.6 percent from March and plunging 47.1 percent lower than in April 2006, according to data from Century 21 Rose Real Estate.”

“‘Sellers still are not willing to reduce prices,’ said Dana Gordon, a broker in Hesperia.”

“The combination of stable prices and falling sales resulted in a dramatic increase in unsold inventory, which ended the month 50.9 percent higher than in April of 2006.”

“‘We saw fewer sales last month because buyers are still waiting for the market to hit the mystical bottom,’ said Gordon. ‘If you want to sell quickly, you might consider knocking 10 percent off the price,’ he added.”

From Reuters. “Twice a day, would-be real estate moguls gather on the local courthouse steps for the latest can’t-miss opportunity in California’s land rush: the foreclosure auction. Veterans and ‘newbies’ crowd around auctioneer Gary Oberdalhoff as he lists a property whose owners couldn’t pay the mortgage, one of thousands to go on the block in this sprawling, arid region 50 miles east of Los Angeles.”

“‘Do I have any opening bids?’ Oberdalhoff asks. It might be a scene straight out of the Great Depression, if you ignore the Bluetooth wireless headsets.”

“During the first three months of the year, 1 in 68 houses in the Inland Empire was in default or foreclosure, a rate surpassed only by Detroit and Las Vegas, according to RealtyTrac.”

“‘This is ground zero; this is where it’s all happening,’ says Juan Cruz. Cruz has his eye on a four-bedroom house in nearby Corona offered at $131,000. That figure represents the unpaid balance on the previous homeowner’s foreclosed mortgage.”

“When the bidding starts, Cruz has plenty of competition. The speculators bid steadily in hundred-dollar increments. Twenty minutes later the house is sold to a heavyset man for $286,000.”

“That’s less than it would have fetched last year. But veteran home buyers have grown more cautious as the market has cooled.”

“More houses are on the market now than at any time in the past eight years, according to the Multi-Region MLS database. At the current pace it would take more than 13 months to sell them all, compared with 7 months at this time last year.”

“Bargains are scarce on the auction block these days. Houses purchased in the last two years are often saddled with steep mortgages that can exceed the house’s market value. Sales are down from last year and prices have risen less than 1 percent, according to DataQuick.”

“‘Now your house has to be underpriced and spectacular to sell,’ says foreclosure investor David Schultheiss.”




A Significant Deterioration Continues

Some housing bubble news from Wall Street and Washington. “More evidence of a continued housing market slump arrived Thursday morning, when Bensalem-based Orleans Homebuilders Inc. reported a loss of $51.9 million for the quarter ending March 31. Revenue fell 38 percent from last year’s third quarter.”

“‘Although we did experience some strengthening in new orders through February, March did fall short of our expectations and the trend has continued into April, where our new orders were also disappointing,’ CEO Jeffrey P. Orleans said.”

“The loss was blamed on abandoned project write-offs and other conditions. Chief accounting officer Jim Thompson added profit margins narrowed because Orleans used sales incentives to drive new home orders.”

“‘We took $47.3 million in charges against inventory, which was substantially against land,’ added Michael T. Vesey, Orleans’ chief operating officer. ‘We also took a pre-tax charge of $10.7 million for abandoned projects, representing the write-off of about 1,300 lots.’”

“Avatar Holdings Inc. today reported…the dollar volume of housing contracts signed during the first quarter of 2007 declined by 76% compared to the first quarter of 2006. The number of contracts signed declined by 67%, compared to the first quarter of 2006.”

“The decline in contracts signed for the first quarter of 2007 compared to the first quarter of 2006 reflects the accelerated weakening of the market for new residences in the geographic areas where our developments are located. Avatar Holdings Inc. is primarily engaged in real estate operations in Florida and Arizona.”

“A significant deterioration in our markets continues. The number of investor-owned units for sale, the current tightening of mortgage underwriting standards, the availability of significant discounts and incentives, the difficulty of potential purchasers in selling their existing homes and the significant amount of standing inventory continue to adversely affect both the number of homes we have been able to sell and the prices at which we are able to sell them.”

The Dallas News. “One of North Texas’ top 20 homebuilders has sold out to a fast-growing competitor. Newmark Homes, which started more than 600 houses with its affiliates in the Dallas-Fort Worth area last year, is selling most of its D-FW assets to Arlington-based Wall Homes.”

“The acquisition was made at a substantial discount, company founder Steve Wall said. Newmark’s parent company said the sale of the D-FW assets is expected to generate a pre-tax loss of $11.7 million.”

“The purchase could signal the start of a contraction in the homebuilding business at a time when sales are slumping. ‘We are at the beginning of a lot of changes in this building market right now,’ said Dallas housing analyst Ted Wilson. ‘There will probably be more consolidations.’”

The Journal Now. “Home builder Centex Corp. said yesterday that it is cutting jobs in the Triad as it restructures its work force in the area. Centex does not plan to make additional investments in the market at this time, said Eric Bruner, a spokesman for the company.”

The Associated Press. “Pope & Talbot Inc., a maker of lumber products, said Thursday its first-quarter loss more than doubled as lumber prices fell sharply in response to the U.S. housing slump.”

From Reuters. “Impac Mortgage Holdings Inc., a specialist in mortgages whose risk levels rank between prime and subprime loans, reported a first-quarter loss, hurt by a mark-to-market loss in the fair value of derivatives. The Irvine, California-based company posted a net loss of $121.7 million.”

“NovaStar Financial Inc. said Thursday its first-quarter earnings doubled, but the residential mortgage lender posted a loss excluding an accounting gain related to a change in its corporate structure.”

“Stripping out the one-time gain, the company lost $39.8 million. The company made the move anticipating accounting issues related to a sharp increase in mortgage defaults and foreclosures among customers with poor credit that will reduce taxable income in the next five years.”

The Financial Times. “American International Group on Thursday said it expected to face costs of $128m linked to subprime mortgages in the first indication of the price US federal banking regulators could extract from the industry for past aggressive lending practices.”

“AIG has not been one of the biggest subprime lenders and has steered clear of the most aggressive mortgages, which suggests the hit for the industry leaders could be much larger.”

“Banks are taking more risks with their property lending so buyers of European and U.S. commercial mortgage-backed securities should beware, even though property markets are healthy, Moody’s Investor Service said.”

“In the U.S. market’s five worst-performing years, 31 percent of CMBS issues with 70-80 percent loan-to-value ratios experienced credit events such as defaults or restructurings, Tad Philipp, a managing director of Moody’s in the United States, said.”

“It was fanciful to expect the continuation of sub-1 percent delinquency rates and annual real estate capital growth of 10 percent, he said. ‘We’re not going back to reckless construction but we do have to be careful about how we look at the last 10 years,’ he said, explaining Moody’s preemptive decision this month to tighten up its ratings criteria to give bond holders extra protection.”

“Philipp said it was ‘better to get a flu jab when the body was healthy’ but cited growing signs of lax lending in the United States. Among these was a rise in loan-to-value ratios to more than 110 percent from just over 90 percent in 2003 and a growing share of interest-only lending.”

“‘There is a growing difference between underwriters’ and Moody’s measure of value,’ Philipp said.”

From Bloomberg. “Former Federal Reserve chairman Alan Greenspan said he sees a 2-to-1 chance that the U.S. will avoid a recession even as the economy slows. ‘At the moment, I still say as I said before, by algebraic implications, the odds are 2 to 1 we won’t have a recession,’ Greenspan said today, according to a recording of his comments.”

“‘There is no doubt there is a slowdown going on in the U.S.,’ Greenspan said. ‘We are clearly having troubles in the capital investment area, as well as potentially in the consumption area and obviously housing being a significant drag.’”

The Chicago Tribune. “Consumers are spent. Retail sales tumbled a record 2.4 percent in April from a year earlier, according to the International Council of Shopping Centers’ preliminary tally of 53 retail chain stores; the worst performance since the trade group began tracking sales in 1970.”

“‘We expected a slowdown in 2007 but not to the degree we’re seeing,’ said Michael Niemira, the group’s chief economist in New York. ‘Anything that is home-related is really hurting.’”

“‘With the direction it’s going, I’m not sure there’s any immediate light at the end of the tunnel,’ said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates in Atlanta. ‘It’s going to be rough sledding for a few months until the whole psychology about housing prices and housing sales and mortgages starts to stabilize.’”

“The crisis that has swept the U.S. subprime mortgage industry may come down to a simple, three-digit number, multiplied by millions. Lenders in the midst of an unprecedented U.S. housing boom pared borrowing requirements to a minimum, a single number, known as a ‘FICO score,’ that was supposed to reflect the borrower’s ability to repay a mortgage.”

“A credit score and a written, unchecked statement of income have often been enough to get a loan. ‘The combination killed the goose,’ said Bill Dallas, CEO of Ownit Mortgage Solutions, a failed subprime lender.”

“Boosting scores has become a booming industry. Deborah Vasile, a Cape Coral, Florida, mortgage processor who went through a recent business bankruptcy, said her credit score rose more than 100 points after she paid about $500 to Credit Repair Today of Tampa, Florida.”

“Elizabeth Warren, a professor at Harvard Law School, said she questions how an entire industry can be based on claims of quick fixes for a person’s creditworthiness. ‘If credit repair can help someone alter a FICO score for people that can pay a fee, doesn’t that say that a FICO score is not a very reliable indication of a person’s financial status?’ she said.”

“Lenders today might take a lesson from failed underwriters that may have ignored the details at their own peril. Executives from mortgage lender New Century Financial Corp. cited FICO scores to demonstrate the quality of their mortgage loan portfolio.”

“On May 4, 2006, for example, New Century told investors and analysts its average FICO score was 633 at the end of the first quarter of 2006, up from 600 in 2003. ‘Credit performance is better than historical experience and has exceeded our expectations,’ the company’s slide presentation said.”

“Eleven months later, New Century filed for bankruptcy protection.”




What Made Sense Yesterday Doesn’t Make Sense Today

The Orlando Sentinel reports from Florida. “The last bit of good news vanished from Orlando’s gloomy home market last month, when the median price of the houses and condos sold by local Realtors fell from a year earlier for the first time in more than five years. Meanwhile, existing-home sales by Orlando Regional Realtor Association members were down more than 40 percent from a year ago, the inventory of homes listed hit a new high of 24,435.”

“‘It’s probably the slowest I’ve ever seen,’ said Earl Roberts, an agent in Longwood, who has been selling part time in Central Florida since 1970. ‘Everybody is having trouble.’”

“Caron Loveless and her husband are caught in that ‘buyer’s market’as they try to sell their MetroWest home, listed now for 11 months and counting. The couple bought a house in the Dr. Phillips area after finding a buyer for their MetroWest place, but the sale fell through when the buyer backed out.”

“‘Our heads are spinning,’ Caron Loveless said. ‘It’s a mystery to be in this situation. We’re carrying two mortgages, two pools, two pool cleaners, two exterminators and two of everything you need to keep a house going and looking good.’”

“Their agent, Ellie Musgrave, said the couple have done everything they can to sell the home, including cutting the asking price a number of times, from $489,000 to $415,000.”

“‘Buyers, unless they are relocating, are just not very motivated. You see that a lot,’Musgrave said. But homeowners are finally lowering their asking prices and their expectations, she added.”

“Craig Russo, director of strategic marketing for Pulte in Orlando, said that about 31 percent of all Realtor listings in the Orlando area involve sellers who are ‘not motivated,’ a figure that inflates the inventory total and has a dampening effect psychologically on prospective buyers.”

“Roberts, a retired teacher and longtime sales agent in Seminole County, said he’s getting ready to put his own Tuscawilla home on the market. ‘It’s time for me to get out of the state,’ he said.”

“Orlando, Tampa and Florida’s west coast have received an ‘F’ from the nation’s largest luxury-home builder as sales continue to slump.”

“Robert Toll, CEO of Toll Brothers Inc., said Wednesday during a conference call that the increased number of ‘F’ grades he gave to the company’s markets implied that business was slipping.”

From Florida Today. “Last year was no picnic for many builders, who saw profits shrink, as many housing markets slumped. Even Lennar relied on aggressive discounting and other incentives to boost its numbers, Professional Builder Senior Business Editor Bill Lurz said.”

“‘They took it to greater extremes than anyone else,’ Lurz said about Lennar.”

“‘It’s still going to be a pretty tough year,’ said Keith Buescher, president of Suntree-based Mercedes Homes. ‘We haven’t seen a lot of improvement.’”

“Builders have been adjusting to the new realities of the real estate market. Lennar, for instance, is focusing on building more homes with smaller floor plans and less square-footage to bring prices down to a level that more people can afford, or are willing to pay, in certain markets like Brevard County, said Laureen Ramsey, president of Lennar’s Space Coast Division.”

“‘What made sense yesterday doesn’t make sense today,’ Ramsey said.”

The Sun Sentinel. “Two South Florida builders underscored the severity of the housing woes Thursday, releasing first-quarter earnings that give little hope for a rebound in 2007.”

“Both TOUSA Inc. of Hollywood and Levitt Corp. of Fort Lauderdale offered gloomy short-term forecasts and wouldn’t predict when conditions might improve.”

“‘The wilder the party, the longer the hangover,’ said Per Gunnar Berglund, senior economist for Moody’s Economy.com.”

“TOUSA said it’s concerned that housing inventory appears to be rising in most of its markets. Sales in March and April were disappointing and conditions could linger for the foreseeable future. The company builds in Florida and nine other 10 states.”

“‘The spring selling season is now two-thirds complete and to date it has been uninspiring,’ CEO Antonio Mon said on a conference call Thursday. ‘Florida was probably the last market in the country to be hit by the housing downturn, so it could very well be one of the last ones to emerge from the downturn.’”

The Wall Street Journal. “In the latest fallout from the housing market’s decline, disputes are breaking out between builders and buyers who signed contracts for new homes and condos when the market was hot, and now want to get out of them.”

“Florida, a magnet for housing speculators in the boom, is ground zero for such disputes. The state long has been a boon to housing attorneys, some of whom are now filing lawsuits against developers.”

“One lawyer recently took out an ad in a Palm Beach newspaper reading: ‘Do you want your money back? Your contract for purchase of a new house or condominium may be illegal…To see if you are entitled to a refund, call us for a free consultation.’”

“Dennis Freeman, an attorney in Aventura, Fla., recently settled (a) case in which the developer agreed to return a $266,000 deposit to a condo buyer who claimed that the size of the pool deck and gym were smaller than the developer promised. Mr. Freeman said he was surprised by the settlement. ‘To me, it’s a reach,’ he said.”

The Tampa Tribune. “A residential real estate lender is laying off 177 local employees as it prepares for corporate extinction.”

“Subprime lender New Century Financial Corp. is closing nearly all its remaining operations and laying off ‘most remaining personnel,’ including workers in Tampa, as it prepares to sell its assets and go out of business, spokeswoman Laura Oberhelman said Thursday afternoon.”

“Employees in New Century’s Tampa office mostly were involved in selling loans to borrowers.”




Bits Bucket And Craigslist Finds For May 11, 2007

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