August 31, 2007

A Very Exposed Time To Buy

It’s Friday desk clearing time for this blogger. “When it comes to the slump in new homes, Myrtle Beach is getting hit much harder than any other metro area in the state. But, if you’re not a contractor or trying to sell your home, that news is really pretty good. The president of the Horry-Georgetown Home Builders Association said the Grand Strand housing market is just leveling out, after some big companies built homes like crazy for a couple of years.”

“‘Some of the bigger tract people did overbuild, but at the same time, the prognosis was really good,’ said Ralph Bussey. ‘So whether they knew it was being overbuilt or not, that’s not for me to say.’”

“The housing market appears to be in a free fall. Bill Henegar, a Blount County, TN home builder said, ‘We’re certainly seeing it here — the market is just flooded. Unfortunately, many of the people struggling with homes right now have interest-only and adjustable-rate loans. Many of those people should have never been given those loans in the first place.’”

“In Buffalo, NY, Carol Brent, staff attorney of Legal Services for the Elderly, says there are now 23,000 vacant homes, many of them emptied by foreclosure procedures.”

“James Kragenbring, senior investment officer at Advantus Capital Management, says the volume of subprime loans now being made is tiny compared with last year. And lenders are finding it tough to find buyers for the new loans in the secondary market. ‘To me, that makes the subprime market virtually nonexistent,’ he says. ‘It’s clear that in the future there will be different loan products and less leverage on the individual property.’”

“For the past two years, Pott County, KS, homeowners have seen property values jump between 20 and 25 percent or more. ‘I don’t think we’re going to see 20 percent increases like we have in the past,’ said appraiser Lois Schlegel. ‘Sale prices have been coming down. It’s not going to be such a crazy market like it’s been the last couple of years. I don’t think the bottom’s going to drop out.’”

“Consumers with a FICO score in the 640 range that once qualified for 100 percent financing and a decent interest rate will see that rate go up a quarter of a percent or so, said Mark Teteris, CEO of a residential mortgage lender in Bloomington, MN. Such borrowers should also expect to scrape together a down payment of at least 5 percent, he said.”

“Even if TopLine didn’t sell the loans and maintained an in-house portfolio of loans, general manager Mary Wetterlin said she doesn’t think she’d feel comfortable using her members’ money to fund loans that GSEs have decided aren’t desirable.”

“‘We just can’t help people, even if we wanted to,’ Wetterlin said. ‘I feel like I am sounding like Ebenezer Scrooge. On the one hand I don’t want to see these neighborhoods blow up and end up (with) rows of foreclosed homes. But it’s a struggle.’”

“As mainland firms close their mortgage companies, their local operations in Honolulu are left scrambling to find new financial backers for their loans.”

“Donald Lau, president-elect of the Hawaii Association of Mortgage Bankers, said there was no cause for panic here in the state.’I don’t think Hawaii is going to see a lot of foreclosures. In general, people with loans outstanding won’t be impacted as long as they make their payments and have jobs,’ said Lau.”

“Seattle-area home appreciation continued its long slide back to reality in June, according to data released Tuesday. Tim Hug and David Hofmann, who sold their San Francisco condo and closed on a Queen Anne townhouse in June, said the local market definitely was strong compared with the Bay Area’s.”

“‘We got out just in time,’ Hofmann said, noting that other sellers were having a harder time in San Francisco.”

“Coming from San Francisco, they expected Seattle to be more of a bargain, Hug said. ‘Seattle’s getting up there.’”

“Both Utah County and the state are leading the nation with double-digit gains in home prices, but those days may be numbered. According to Utah County Realtors, the number of homes available for purchase and under contract listing is up 51 percent to 5,182 units in July from a year ago, an all-time high since the group began tracking home values in 1995.”

“‘But we’ve definitely moved away from the sellers’ market,’ said Kevin Call, executive VP of the Utah County Association of Realtors. ‘We don’t have enough affordable inventory under the $250,000 price range. We expect that if the trend continues, there will be more price negotiation for homes over $400,000.’”

“Construction cranes and the shells of new buildings dot the downtown Austin skyline. But from Miami to Las Vegas, a real-estate slump has been dashing developers’ dreams.”

“Could downtown, where developers have more than 1,400 luxury condos under construction and nearly 3,200 planned for the next few years, end up with too many units and too few buyers? From 2000 to 2007, developers built 50 condos in downtown Austin priced at or above $1 million. About 40 sold, roughly six sales a year.”

“Three projects breaking ground this year, however, will add 567 luxury units by 2009 or 2010, many of them around $1 million. Currently, 72 condos are on the resale market downtown, with an average price of $691,000. Of those, eight are under contract, and 15 have sold in the past two months.”

“‘Today is just a very exposed time to buy a condominium unit and not expect to have the prices go down,’ said Jack Hazzard, who formed the Ontra Companies in the 1980s to dispose of distressed properties that were repossessed by more than 200 banks and savings and loans. As mortgage rates go up, ‘prices must come down, and the market could be affected dramatically.’”

“Sheridan Glen, a broker-manager of a residential and commercial brokerage firm, said it’s shortsighted to think a condo glut can’t happen in Austin. ‘You’re not insulated. Nobody is.’”

“Q: I’m sad to say that I’ve just canceled my daily delivery of the Sun-Sentinel after 21 years of loyal readership. It was a difficult decision for me as it was a pleasant morning ritual for me to read the news over a cup of tea. I realized that your newspaper has caused me great anxiety with your sensationalized version of the local news.”

“Can we put any more negative press on the front page about the housing market? Is it your business writer’s objective to send people off the edge and make buyers even more reluctant to buy? Does he froth at the mouth waiting for the monthly statistics to be released? What is the purpose of his venom-spewing articles taking over half the front page?”

“A: We always hate to hear of a cancellation, but I’m convinced the best way for all of us to deal with the current housing crisis is to stay well informed.”

“Everybody is impacted by this story. It is one of a number of pocketbook issues that affect readers directly, and they have an enormous appetite for information. So stories about the slump — just as stories a year ago about the red-hot housing market — are and will continue to be front page news.”

There Isn’t Permission For People To Buy In California

The Sacramento Business Journal reports from California. “Rather than drop prices to entice buyers in less time, John Leonard slashed prices on 22 new homes he built in West Sacramento to sell them in a day — he hopes in less than an hour. He’s hired a public auction company to sell homes in his River’s Side at Washington Square project quickly.”

“‘There isn’t permission for people to buy a house. People’s peers, parents and family won’t let them feel good about buying. Everyone says, ‘Wait a little longer and the prices will come down,’ Leonard said. ‘The housing market turning put me in a tight spot. I’m proud of the project. I just wish I wasn’t where I am in it.’”

“‘The market is very difficult right now. People’s inclination to buy is diminishing,’ said David Mogavero, architect on River’s Side. This is the first project Mogavero has done that hasn’t sold out during construction.”

“‘The market was way overheated, and it was driving demand’ several years ago, he said. Now, the market is still in a period of adjustment.”

The Sacramento Bee. “Sacramento city leaders have pulled back their offer to loan $10 million to fund construction of a downtown condominium high-rise.”

“Craig Nassi, the Denver-based developer behind the 39-story Aura tower, lost the city’s commitment after he failed to secure all of his private financing by the end of last month.”

“Sacramento Assistant City Manager John Dangberg said the city still supports Aura, but that it ‘has no further commitments at this time’ to the project. ‘We understand that it’s a very challenged market right now,’ Dangberg said.”

“Nassi said in an e-mail…he blamed the delay on ‘capital markets (that) have been paralyzed by the subprime fallout and the unknown of secondary market pricing.’”

“A rivalry began more than two years ago when Nassi proposed Aura three blocks from a project local developer John Saca wanted to build on Capitol Mall between Third and Fourth streets. That plan called for twin 53-story buildings featuring about 800 condominiums.”

“Each developer went all out for prospective buyers with dueling showrooms, sales parties and publicity stunts. In the end, Saca’s project busted its budget and collapsed earlier this year.”

“Irvine-based Real Estate Disposition Group, which auctioned 107 bank-repossessed houses in Sacramento on June 24, is returning to town Saturday, Sept. 22. It’s putting 22 new houses in West Sacramento on the auction block.”

“Being auctioned are three-story homes in an urban infill project called the River’s Side at Washington Square. Sales prices have been in the high $300,000s to lower $400,000s. Opening bids start at $249,000. The 25-home project opened models late last year, and also got nice reviews, but sales have been slower there, according to data from Hanley Wood.”

From Roseville & Rocklin Today. “According to the California Association of Realtors the number of households who can afford to buy and entry level home in the State increased to 24 percent at the end of the second quarter this year. Considering what has been happening in our Sacramento market the increase of only 1 percent from a year ago was surprising.”

“I checked the latest inventory of available homes and was not surprised to see there are still more homes coming on the market. As of the week ending August 27th, inventory stood at 18,844, up 185 from a week ago and 2.1 percent in the last month. In the past six months inventory has increased a staggering 40.9 percent.”

“This week alone I have had three inquiries from potential clients asking me to help them with a ’short sale.’ All three are homeowners who would like to stay in their houses but can’t afford to make the payments on homes that are worth less than what they owe.”

“At the same time, I met with a prospective buyer yesterday who has decided to sit on the fence a bit longer because he believes he can buy cheaper next year.”

The Press Telegram. “The first phase of CityPlace Lofts at Fourth Street and Elm Avenue is complete and more new downtown residents are already moved in. The lofts, between Long Beach Boulevard and Elm, offer prices starting from $399,990 up to about $700,000 and sizes from 1,092 square feet to 2,085 square feet.”

“The developer dropped the asking prices on the lofts by about 10 percent off the original price. ‘They took into consideration the market, and the fact that Long Beach is very competitive,’ said Debbie Tucker, superintendent of the project.”

The Union Tribune. “Declining consumer confidence and a deteriorating job market pushed San Diego County’s economic outlook lower for the fourth month in a row, according to a report released yesterday by the Burnham-Moores Center for Real Estate at the University of San Diego.”

“‘The slow housing market remains the main influence, with fewer home sales, more foreclosures, job losses in real estate-related sectors, and lower spending as home equity declines,’ said USD economist Alan Gin, who compiles the index.”

“The index slid from 137.3 in June to 136.9 in July, its lowest point since January 2004. The county’s index fell in July for the 15th time in 16 months, a string of declines broken only by a slight uptick in March.”

“There were 37 percent fewer residential units authorized by building permits last month than in July 2006, according to the Construction Industry Research Board.”

“‘Residential construction has really been in a slump since August 2005,’ Gin said.”

From Scripps Howard News Service. “Similar to the down market of the late 1980s, home sellers must now compete not only with builders, but with foreclosures, thanks to all those subprime loans you’ve been hearing about.”

“”Earle Gibson, a real estate broker in California wine country likens her high-priced turf, which includes Napa, Sonoma and Marin counties, to a high noon stare-down between home sellers and prospective buyers, each of whom can afford to wait for the other to blink.”

“Now the power meetings are between listing agents and their anxious sellers on how to flag the attention of agents representing qualified buyers.”

“Gibson says foreclosure trustee sale notices run three full pages a day in the local newspaper. ‘In Vallejo right now, there is an inventory of well over 1,000 single-family homes and maybe 10 closings per week, while each week we add probably 20 new listings to the market,’ she says. ‘Everybody’s hurting. It’s like, who’s the lucky agent this week?’”

A Synchronized Boom And Bust

Some housing bubble news from Washington and the Wall Street Journal. “President Bush, looking for ways to respond to the subprime-mortgage crisis, will outline a series of policy changes and recommendations today to help borrowers avoid default, senior administration officials said. ‘The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes,’ a senior administration official said. ‘We’re not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner.’”

From Bloomberg. “President George W. Bush today pledged to help people with risky subprime mortgages keep their homes and tighten safeguards against predatory lending, while rejecting a bailout for ’speculators.’”

“‘I plan to help homeowners, the government’s got a role to play,’ Bush said. ‘But it’s not the government’s job to bail out speculators or those who made the decision to buy a home they couldn’t afford.’”

From MarketWatch. “Not everyone is keen on helping borrowers who got themselves into trouble by taking out risky loans that are about to ‘reset’ and sock them with higher payments.’

“Even Barney Frank, who chairs the House Financial Services Committee agrees. ‘You can’t just give people a free ride,’ he told the New York Times this week.”

“Housing has clearly become a political issue. But support for straightforward bailouts thus far appears to be limited to private observers, while politicians are suggesting more modest steps.”

“Even with reforms, some borrowers could be left out in the cold, says Alec Crawford, mortgage-backed securities strategist at RBS Greenwich Capital. In a note, he said that the FHA is apparently only considering breaks for borrowers with so-called ‘5/1′ and ‘7/1′ adjustable-rate mortgages, not ‘2/28′ subprime loans.”

“‘Any change of the type we expect would probably have a small impact on the subprime market,’ Crawford wrote.”

“There would also be political consequences if the White House didn’t act, argues analyst Richard Bove. Still, a bailout or expensive measures rammed through by either party might be unpopular with taxpayers who had no role in other peoples’ decisions to take out risky mortgages.”

The New York Times. “Ben S. Bernanke, chairman of the Federal Reserve Board, declared on Friday that the central bank ’stands ready to take additional actions as needed’ to prevent the chaos in mortgage markets from derailing the broader economy.”

“‘Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the rest of the economy,’ Mr. Bernanke told listeners at the Federal Reserve’s annual symposium.”

“Mr. Bernanke walked a very tight line between trying to reassure financial markets and locking the Federal Reserve into a rescue effort that could prove either unwarranted or unwise over the longer term.”

“‘It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions,’ he said.”

From Newsday. “A crisis-ridden mortgage industry maybe hoping for a bailout, but local experts awaiting President George Bush’s proposals to aid homeowners struggling to pay their loans say that that’s an unlikely scenario.”

“‘I don’t think that’s in the cards and I don’t think that’s a good idea because then it would validate some of the lending practices we’ve seen,’ said Pearl Kamer, economist for the Long Island Association.”

“Kamer said she expects the volatility in the credit markets continue for two or three months but said that there will be a return to traditional lending standards and an increased confidence on the part of lenders that borrowers will be able to repay their loans.”

“‘I don’t think we should ever return to the excesses in mortgage lending that we’ve seen over the past two years,’ she said. ‘It’s a dangerous phenomenon in a globally linked economy.’”

From Reuters. “While innovations in mortgage finance expanded home ownership around the world, they also sowed the seeds of the current U.S. subprime mortgage crisis, economists told a Federal Reserve conference on Friday.”

“‘Recent events suggest that … a revolution has produced a terror,’ professors Richard Green and Susan Wachter said in a paper presented at a conference organized by the Kansas City Federal Reserve Bank.”

“Green and Wachter said advances in computer technology, use of capital markets to funds mortgages, and low worldwide interest rates created favorable conditions for mortgage finance. Lower and more flexible borrowing costs, they said, helped spur housing demand and contributed to rising home values.”

“But the sophistication of some financial tools lulled investors into misjudging risks, the authors said.”

“‘The creation of structured finance for mortgage credit risk abetted the rise of the subprime market. For a time, capital markets seemed to have an appetite for almost any kind of risk, so long as it received sufficiently large yield in exchange,’ Green and Wachter wrote.”

“Green and Wachter said investors’ care-free attitude toward risks of subprime mortgages and the housing market defies explanation and may have further inflated the housing bubble.”

“‘When investors mis-price risk, the result is the artificial inflation of housing prices. The pricing boom of 2006 was likely in part due to this unsustainable credit boom,’ the authors wrote.”

From USA Today. “Mortgage brokers are leaving the business in droves as the crisis in subprime mortgages leads to fewer products to sell, tighter lending standards and a backlash from lenders who blame them for the meltdown.”

“Brokers don’t lend money, but they match home buyers with lenders in 58% of all home loans.”

“Darrell Sexton shuttered his Indianapolis brokerage, The Money Station, at the end of last year after sales plummeted from $5.2 million to under $1 million in three years. While Sexton’s firm also was a lender, much of the decline was in his subprime brokerage business.”

“Sexton says he had to put his own 7,000-square-foot house up for sale, though it has languished because of the housing downturn. He’s looking for a sales job in another industry.” “‘You begin to question your self-worth,’ he says.”

“Compounding the stress is that some lenders and lawmakers blame the crisis on aggressive brokers who they say pushed mortgages that customers didn’t understand or couldn’t afford. Brokers can earn higher commissions by steering borrowers to loans with higher interest rates.”

“‘Who made this mess? The short-term folks,’ John Robbins, who chairs the Mortgage Bankers Association, said in a May speech.”

“Brokers concede there are some bad actors but say they’re just peddling loans that lenders develop. ‘It’s like blaming the corner grocer for lung cancer because they sell cigarettes,’ says broker Marc Savitt of Martinsburg, W.Va.”

“The German state of Saxony’s Finance Minister Horst Metz will resign after state-owned Landesbank Sachsen Girozentrale got 17.3 billion euros ($23.7 billion) in emergency funds related to investments in U.S. subprime loans.”

“Metz will leave office Sept. 30, Finance Ministry spokesman Burkhard Beyer said in a telephone interview today. SachsenLB agreed to a takeover by LBBW, Germany’s largest state-owned bank, on Aug. 26 after its Dublin-based units couldn’t sell short-term debt on fears that bad U.S. mortgage investment would hurt their ability to repay.”

From Marketplace. “Scott Jagow: The credit rating agencies are taking a lot of flak for this subprime mess. Wall Street, Congress, other countries wanna know what in the world they were thinking giving their top ratings to garbage mortgages. Some heads are starting to roll.”

“Standard & Poor’s President Kathleen Corbet has stepped down. The official line is ‘pursue other opportunities’ but speculation says this may be just the beginning of the subprime fallout for credit rating companies.”

From “People in the real estate industry like to say that housing markets are local. When prices were rising, many argued that there wouldn’t be a real nationwide housing slump, or bursting bubble, because when prices fall in some neighborhoods, they rise in others.”

“This time, though, things are different, especially in larger metro areas.”

“Bill Cheney, chief economist for John Hancock Financial Services, agrees that housing markets are local. ‘But what’s so remarkable about this cycle is that we’ve had this synchronized boom and bust across so much of the country,’ Cheney says.”

“‘Almost all the big metro areas saw prices run up. And almost all of them have seen prices come down now,’ he said.”

A Buyer’s Market Without Buyers In Florida

The Wall Street Journal reports on Florida. “Investors played a big role in pumping up home prices during the housing boom. Now, they account for an outsize proportion of loan defaults, mortgage bankers and builders say. Sazzad Khandakar is among the nation’s distressed home investors. In early 2005, he bought a $410,000 condominium and a $390,000 newly built single-family home, both in Orlando, Fla.”

“‘Everybody around me bought an investment home in Florida,’ Mr. Khandakar said. ‘Florida was all over the news; my friends were doing it….I didn’t want to miss out.’”

“He planned to keep the condo as a second home and sell the detached house for a quick profit. For the condo, Mr. Khandakar made a 10% down payment, but he borrowed 100% of the cost of the house, assuming that its rapid price appreciation would soon provide him with equity.”

“Instead, prices began falling, and he has been unable to sell the home or find a tenant. Now, Mr. Khandakar said, he is behind on both loans. ‘My credit is shot for the next six or seven years,’ he said, and he has run through $100,000 of retirement savings. ‘It will take me another five to 10 years to recover that,’ he added.”

“Many home builders say they tried to rein in sales to investors. Dom Cecere, chief financial officer of KB Home said…many investors bought anyway. ‘People do infiltrate whether you like it or not,’ he said.”

“‘For a while it went their way, they bought two or three homes and continued to roll the dice,’ said Mr. Cecere. ‘But that goes the other way when the prices go down.’”

“In the end, some investors may have made money by flipping a series of houses, and lost out only on their last investment, which they couldn’t sell before the market collapsed, Mr. Cecere said.”

The Orlando Sentinel. “Realtors say the market has become even more frustrating in recent weeks, though, as lenders have tightened credit standards, making it tougher for everyone to get a home loan, regardless of income.”

“It is particularly tough now for first-time home-buyers at the lower end of the price scale and for borrowers looking for ‘jumbo’ loans of more than $417,000, said Roseann Lutz, broker agent (who) specializes in the Four Corners area west of Walt Disney World.”

“‘Those are the ones they had the most trouble with,’ she said. ‘The biggest challenge is getting a buyer qualified for a loan,’ because lenders are now ‘being particular about who they give loans to.’”

“Aside from that, she said, many potential home buyers are still on the sidelines, not even looking at homes, while would-be home sellers continue to flood the market with properties, seemingly oblivious to the slowdown and hoping to cash in on the past five years’ worth of paper gains.”

“‘For every one sale we make, we’re getting 12 listings,’ Lutz said. ‘It’s just been really, really hard.’”

“Home builders are slashing prices on new properties because of the record slump in that market, and many existing-home sellers who have equity to work with are having to slash their asking prices, too, in an attempt to attract interest.”

“So far, Lutz said, the late-summer market is stagnant despite all that. ‘The phone is just not ringing.’”

The Herald Tribune. “Paradise Development Group hoped to ride the region’s frenzied condo wave to the edge of downtown Sarasota when it bought the offices of the Kirk Pinkerton law firm in August 2005.”

“Paradise envisioned a $35 million mix of retail space and more than two dozen high-end residences, priced at about $1 million each. Two years later, and after the collapse of the area’s condominium market, Paradise has pulled the plug and is offering the building for sale.”

“Similar scenes are playing out throughout the region and Florida: Developers who had hoped to capitalize on low interest rates and perceived demand are having to reconfigure, stall or abandon projects altogether. In Sarasota alone, roughly a dozen condo developments have either been shelved, revamped or put back on the market.”

“‘It’s simple. Our market is in a coma,’ said Debra Garrett, an agent in Sarasota. ‘There are too many condos, not enough buyers, and too many speculators. We’re seeing a correction now from overinflated prices, caused because people thought price increases would never stop — and they did stop.’”

“‘It was a knee-jerk reaction around the country,’ said John Harshman, president of a leading Sarasota commercial real estate brokerage firm. ‘From 2002 to 2005, developers looked at practically every site downtown and around it as a residential site.’”

“When Jeff Bacon opened the Drexel Heritage Store in Sarasota two years ago, business could not have been better. Customers were feeling rich on real estate and were buying the exclusive line to redecorate their homes.”

“But after six months, Bacon noticed a distinct change. Sales were starting to slide. Early on, he blamed the back-to-back hyperactive hurricane seasons. But as real estate continued its long slide, Bacon found his sales following the same disturbing line.”

“After long-suffering Realtors, the business people who are perhaps smarting most from plummeting home sales, furniture stores might be the next best litmus test for the fortunes of the real estate market.”

“Furniture sales in Florida have tumbled far off their housing-boom highs: sales statewide climbed 27 percent, from $9 billion in 2003-04 to $11.5 billion in 2005-06. By summer 2006, they were down 16 percent from that peak.”

“‘It’s bad across the board,’ says Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers. ‘It’s severe, it’s long and it’s not going away anytime soon. As a business cycle, we’re living with the boom-bust part of that market.’”

“Lennar Corp., the big Miami home builder that reported a $255 million loss in the most recent quarter, has trimmed more than 60 additional positions from its Southwest Florida division, bringing it to its pre-housing-boom levels, an executive said.”

“The cuts this week included Rob Allegra, the division president of Lennar Sarasota/Manatee, who has been the face of the home builder locally for more than a decade.”

“The problems at Lennar reflect the general housing market malaise. Other big builders in Southwest Florida have been cutting staffs, but experts said that companies with national exposure have been hit harder.”

“‘The home building inventory readjustment is mostly at the lower end because of all the extra sub-prime homes and all the speculative homes sold in the $250,000 to $400,000 price range, and I think it will affect the national builders more than the local builders,’ said Pat Neal, president of Lakewood Ranch-based Neal Communities.”

“‘Market conditions have eroded so much over the past six months that we are now focused on limiting the loss for the year,’ said CEO Stuart Miller, adding later that uncertain conditions made him ’suspect that we will not know that a recovery is coming until it is upon us.’”

“Vultures have been circling over the slumping Southwest Florida real estate market for a while, but few have descended to snatch properties from increasingly desperate builders and developers — until now.”

“Documents obtained by the Herald-Tribune show that Joseph L. Long, a little-known, New Jersey-based real estate investor, is negotiating with about 60 area developers and builders to buy 1,500 homes and condos at a 30 percent discount to their current list prices.”

“If Long, who has never done anything of this magnitude before, is successful in lining up the $700 million needed to pull off the deal — a very big if — it could have market-shaking consequences.”

“‘I’m extremely skeptical about a guy with no track record who doesn’t have financing in place,’ said George Huhn, a Venice real estate agent and foreclosure specialist. ‘If he thinks he’s going to get money from a hedge fund, I’ve got news for him: The liquidity out there is zero. The mortgage crisis has taken all the liquidity out of the market, and no one is sure what is going to happen.’”

“Huhn added that the smart money, the real vulture money, is waiting for banks to seize properties from developers and builders.”

“‘They don’t want to buy property for 70 cents on the dollar,’ Huhn said. ‘They want to buy for 25 to 30 cents on the dollar. They really want to feed on the dead carcass,’ Huhn said.”

The Scripps Howard News Service. “America’s housing market has gone from robust to just plain bust in the past 18 months. These are the times that try the skills of real estate professionals, says Jim Crawford, a real estate coach in Atlanta.”

“‘It’s a buyer’s market without buyers,’ he says. ‘Of the top 40 markets, 36 are down. In Atlanta at this time of year, we should have a maximum of 52,000 homes for sale; we have 114,000. What’s happened is, if you can’t sell in Chicago, you can’t buy in Atlanta. If you can’t sell in Boston, you can’t buy in Florida.’”

Bits Bucket And Craigslist Finds For August 31, 2007

Please post off-topic ideas, links and Craigslist finds here.

Labor Day Weekend Topic Suggesions

As is tradition, this blogger will take Labor Day off. So topic suggestions will run through the holiday. Post housing bubble pics at:

August 30, 2007

The Real Estate Heyday Is A Past-Tense Phenomenon

The Mercury News reports from California. “The housing meltdown and resulting credit crunch have unleashed new calamities on consumers, loan companies and home builders on an almost-daily basis. ‘Customers are looking for loans that no longer exist,’ said Christopher George, president of San Ramon-based CMG Financial Services, a mortgage vendor. ‘A year ago they would have qualified for loans. Now they no longer qualify.’”

“Amer Faraz, VP of Fremont-based Green Valley Funding, said his company is…doing about 10 percent of the loan volume it did a year ago, Faraz said. ‘This is brutal,’ Faraz said of the current market conditions. ‘Our company is in a building that had 15 mortgage companies last year. Now we’re the only one left.’”

The Malibu Times. “While Malibu has its share of property owned by people who ‘don’t even need a mortgage,’ there is plenty of vacant land, smaller homes and condos that are being foreclosed upon, said a source, who is a real estate investor and did not want to be identified.”

“‘Typically, foreclosures will be auctioned at a price well below market norm, so there’s a lot of bidding,’ Kyle Speer, a trustee sale auctioneer who overseas auctions of L.A. County homes at the Norwalk Superior Court, said. ‘But with the number of foreclosures going up, I’m seeing lots of houses whose bid price is higher than its real equity, so no one’s bidding on them.’”

“‘Probably 80 percent of foreclosures coming up for auction these days go to REO,’ Speer said. ‘There are still properties that have good equity, but if REOs flood the market, I think housing prices are going to go down.’”

“‘The REOs we’re seeing are due to a lot of people who took out their loans in ‘05 and ‘06 when the market was high and who can’t make the rising mortgage payments. There’s not a lot of equity there and the bank’s have less investment capital,’ Speer said. ‘So I predict that we’ll see a rise in foreclosures, which will ultimately make property values go down.’”

The LA Times. “It’s not just sub-prime borrowers who are having trouble getting affordable home loans. Creditworthy borrowers are getting hammered if they want mortgages with payment options or the ‘jumbo’ loans used routinely in Southern California and other high-priced home markets.”

“Rancho Palos Verdes marketing consultant Steve Ammons discovered the new jumbo reality after he began shopping for a mortgage on a Manhattan Beach home that he and his daughter own and rent out.”

“Ammons and his daughter have credit scores of 750 to 760, he said Wednesday, making them prime borrowers. What’s more, the house is worth an estimated $1.6 million and has a current $650,000 mortgage, so there is plenty of equity to serve as a cushion for the lender.”

“Ammons is looking for a 30-year, fixed-rate mortgage, but with a twist, the option to pay only the interest on the loan during the first 10 years. Such loans have been widely used by landlords seeking to maximize their cash flows. Ammons said a jumbo loan with an interest-only option that he took out just last year on another rental property had an interest rate of 5.5%.”

“But the story was different this time: A loan officer at Washington Mutual Inc. quoted him a rate of 9.75%, saying that the lender ‘had to charge such high rates so that they could sell off the loans,’ said Ammons, who has since put off refinancing.”

“‘It’s rough out there,’ said Doug Duncan, chief economist for the Mortgage Bankers Assn.”

“This week, borrowers were paying a full percentage point more for jumbos than for smaller loans, said Laguna Niguel mortgage broker Jeff Lazerson. In the sub-prime market for people with poor credit, fixed-rate mortgages that were in the 7% to 8% range six months ago can still be had, but only at 9% to 11%, Lazerson said.”

“And anyone with a credit score under 620 ‘is now automatically sub-prime,’ he said.”

“In June, 15 of the 20 U.S. markets tracked by the S&P/Case-Schiller index fell, including declines of 4.1% in the Los Angeles region, 7.3% in San Diego and 4% in San Francisco. In Southern California, the residential real estate market is skewed somewhat by stronger demand for higher-priced homes.”

“‘We’re getting different pictures as to how dire things are,’ said Raphael Bostic, an economist and USC professor. ‘I think the general picture says that things aren’t great, but that the sky hasn’t fallen in quite yet, certainly not in Southern California.’”

“‘These short-term fluctuations, while significant, won’t touch people on a day-to-day basis,’ Bostic said. ‘For the average homeowner, if you’re not looking to sell, try as much as you can to not think about this stuff.’”

From MSNBC. “After years of double-digit returns, sellers are apparently having a hard time adjusting to the market’s new pricing realities.”

“‘They haven’t got it yet,’ said John Young, a homebuilder in southern California. ‘We’ve had such nice equity run-ups, and you get accustomed to that. I think most sellers haven’t got the idea that to really sell their house they’re going to have adjust their price down.’”

“Young says his cancellations are running about 40 percent — double normal levels. Young, who builds mostly entry level homes in Riverside and San Bernardino Counties, says it will be at least another 12-18 months before the market recovers.”

“‘We think its going to take all of next year,’ he said. ‘And we think we’ll see some normalcy in the supply demand mechanism in the first or second quarter of 2009. That’s my best guess.’”

The Daily Bulletin. “Housing starts in the Inland Empire have plummeted in 2007 and are down nearly 50 percent for the year to date. Numbers released this week by the CBIA show the San Bernardino-Riverside-Ontario area as the hardest-hit in the state, with just 12,274 starts for the first seven months of the year compared with 24,451 for the same period in 2006.”

“That’s a 49.8 percent decline, and it has been getting steeper. In July, local housing starts were off 55.4 percent from the same month in 2006.”

“Economist Eduardo Martinez said demand in the region had basically ’stopped in its tracks.’”

“‘For the last two or three years, you had these new financial products - adjustable- rate mortgages, no-document loans - that became commodities,’ he said. ‘They were bundled and sold on Wall Street, and the market didn’t have enough sense to assess their real value. It was like driving a car on souped-up gas. Once you burn through that …’”

“With record levels of housing available, Martinez said, supply has outstripped demand. ‘When that happens, you either have to increase demand or eliminate supply,’ he said. ‘They can’t pull these houses off the market, so they have to slash prices to sell them.’”

“Statewide, single-family permits were down 35 percent for the first seven months of the year and multifamily starts were off 23 percent. Alan Nevin, chief economist of the CBIA, said the relatively minimal decline on the multifamily side was due to a shift from condominiums to rental properties in several major projects.”

From ABC News. “Joe Morse has bought a 40-foot motor home that he plans to drive across America over the next several years. But Morse hasn’t been able to take off on his grand tour because he hasn’t been able to sell his house in Cerritos, Calif.”

“‘I had hoped the house would sell almost immediately,’ said Morse, who retired in April. But his open house drew few visitors, and there have been no bids in the two months it has been for sale.”

“‘Now I may have to take it off the market and wait until spring,’ he said. ‘It’s frustrating, because I’d like to get on the road.’”

“Phillip Cook, a certified financial planner in Torrance, Calif., who has worked with Morse, said that anyone developing a financial plan has to consider that there are ups and downs to the economy, including the housing market.”

“‘Real estate has its cycles just like everything else,’ he said. ‘After the kind of run-up we’ve had … people think it won’t slow down, won’t go down. But it does.’”

The Voice of San Diego. “This decade, the city of Chula Vista caught a bad case of housing fever. With sparkly new neighborhoods, and more where that came from, appearing as if from thin air, the city partied.”

“But now, with many of its sprawling suburban neighborhoods caught in the vortex of foreclosure, with unsold homes piling up, and with home prices dropping, it’s as clear in Chula Vista as it is in much of the county that the real estate heyday, and its accompanying spending power, is a past-tense phenomenon.”

“‘It’s pretty bleak,’ said Maria Kachadoorian, finance director for the city of Chula Vista. ‘The reality of the market as it is today is … we’re hit a little harder than most. The biggest shift is that the assumptions of growth clearly can’t be there.’”

“Lew Feldman, chairman of the Los Angeles office of law firm Goodwin Procter, likened the phenomenon to the state’s reaction to the dot-com boom. ‘It’s like Gray Davis, when he assumed that the dot-com boom would continue and spent 30, 40 percent more from the state dollars than were coming in for state income,’ he said. ‘It’s like anything — what goes up, must come down.’”

“Kachadoorian called the tapering of the sales tax revenue the ‘domino effect’ from the real estate slowdown and the increasing numbers of homes in foreclosure, and from the delay in opening State Route 125. ‘If you can’t afford to save your house, you can’t afford to go out and buy furniture,’ she said.”

“Tom Haynes, fiscal and policy analyst for the city of San Diego, said more than a slowdown in property tax revenues, he’s concerned about the ’spillover impacts’ of the housing downturn on the economies of the city of San Diego and the rest of the county.”

“Job growth in real estate, construction, finance and retail like furniture and home furnishings is slowing, he said. The ‘wealth effect’ that stemmed from skyrocketing home values has vanished, tightening the spending of some homeowners, he said.”

“‘When we start seeing disposable incomes decrease, that’s kind of a scary situation,’ he said.”

“‘I’d say they’ve been extremely cavalier in ignoring the warning signs in San Diego and they’ve been spending like drunken sailors,’ said local political consultant Scott Barnett. ‘They could become San Diego South here.’”

A Lot Less Room For Error In Today’s Market

The Rocky Mountain News reports from Colorado. “Colorado is on pace to see a 25 percent increase in foreclosure filings this year, with 19,460 being filed in the first six months of the year, according to a Colorado Division of Housing report released today. Zachary Urban, administrator of the Colorado Foreclosure Hotline, said there’s been no dropoff in hotline activity. ‘What concerns us the most, though, is that there is an increasing number of properties going to sale at auction,’ Urban said.”

“‘There are still plenty of adjustable-rate mortgages set to readjust, and there is plenty of inventory on the market. If you can’t make your payments, and you need to sell your house, odds are that you won’t be able to sell it quickly or easily. That’s certainly part of what’s driving the foreclosure numbers we’re seeing along the Front Range,’ said Kathi Williams, director of the Colorado Division of Housing.”

The Sun News from New Mexico. “Fewer homes sold in July than a year ago in Las Cruces. Homes, new and previously owned, are still selling at a decent clip in Las Cruces, but certainly not as fast or in the same numbers as years past.”

“C.J. Pierce of Steinborn Realty…said, there is a lot less room for error in today’s market. Houses will sit ‘if you have the wrong price, in the wrong place in a competitive market.’”

“Stacey Melzer has had her house on the market in Las Cruces for more than six months. ‘I did not think it would take this long (to sell),’ she said.”

“‘There are a lot of homes on the market giving buyers more to choose from so it’s made it more difficult to commit to a purchase,’ said Las Cruces real estate agent Karen Trujillo.”

“Real estate agent Annette West reported that 173 homes sold in July. That is off significantly from last year’s pace. West reported that 246 homes sold in July of 2006. West pointed out that the overall average price is down from $212,921 in July 2006 to $199,872.51 in July 2007.”

“Louis Sauceda, owner of the Official Mortgage Team of New Mexico in Las Cruces, said that adjustable-rate mortgages and no-down-payment loans have gone away. ‘We’re back to mortgage lending 101,’ he said. ‘People who have good credit and good jobs and incomes can still get loans.’”

The Casa Grande Valley Newspapers from Arizona. “New homes still are being built, though not at the same pace as a year or two ago. ‘(The boom of 2005 and early 2006) was almost like the perfect storm. It was bound to slow down,’ says Rick Miller, director of planning and development for the city of Casa Grande.”

“Maricopa has seen the biggest drop-off, recording just 208 sales in July at an average price of under $230,000. That’s the lowest for any month in the new city in the last two years. Early 2006 saw two months with sales of more than 500 homes, and the average purchase price during a month was as high as $281,000 in May 2006.”

“Figures from the Western Pinal Association of Realtors, which includes home resales in most of western Pinal County, show a similar trend. The most disturbing numbers, especially for anyone thinking of selling a home, are those for average time on the market.”

“Also discouraging is the fact that the average sales price on the homes that sold this June was $168,300, but the average price of the homes listed was $217,500. The average sales price was $169,200 for all of 2006, the culmination of a spike in prices for existing homes. The average selling price was $150,100 in 2005 and $112,200 in 2004.”

“If you intend to sell an existing home, even if it’s the almost-new one you bought just a year or two ago, you’ll need patience. Lots of patience. And don’t even dream of selling it for the price it would have fetched a couple of years ago - even if you paid that price for it yourself.”

The Arizona Daily Star. “Looking on the bright side of the market slowdown is getting tougher for local real estate agents. As financial problems increase for mortgage lenders across the country and lending standards tighten, several Tucson agents said they expect the number of buyers probably will shrink too.”

“‘The market’s really scary right now,’ said Pamela Young, an agent for the past 10 years. ‘There’s a lot of agents who don’t even come to the office anymore.’”

“The collapse of Tucson-based First Magnus Financial Corp., formerly the nation’s second-largest privately held mortgage lender, is inspiring some particularly strong misgivings in the local market, agents said.”

“‘I think people are really, really holding off right now, and partially because they don’t know if they can get a loan,’ said Luke Adams, an agent who deals with a lot of first-time buyers.”

“‘They have to have a good job, good credit and cash,’ said Eric Schrader, owner of Century 21 First American. ‘If they have two out of three of those categories, we can still do a deal. The lenders were just giving people loans who had no business getting loans.’”

The Explorer News from Arizona. “For First Magnus employees the news wouldn’t have been such a shock if the company had not announced just days before that everything was OK.”

“‘We’d been told a week before that our company was fine and we were going to weather the storm and come out even better,’ Brian Leahy recalled. ‘And a week later, ‘Oh, by the way we’re declaring bankruptcy and you don’t have jobs as of tomorrow.’ We didn’t think it was going to happen.’”

“Back when houses were selling in record volume and at record prices..the rush was on to get rich, and many sought the bounty of opportunities the mortgage industry promised. ‘People used to get dressed up to go to the bank (for a loan),’ said Mark Lilly, a broker with Pusch Ridge Home Loans. ‘Now you go to a restaurant and the bartender hands you a card and says he’s a (mortgage) broker.’”

“Lilly, who has been in the mortgage and real estate business in Tucson for 25 years, said the rapid increase in property values people experienced in the heat of the housing boom was unprecedented. His customers who had bought homes in Rancho Vistoso were able to double the worth of their investments in less than four years.”

“‘They made $10,000 in equity every month just sitting there,’ Lilly said. But now there are more price reductions than new listings on the MLS, Lilly said.”

“The national housing boom, which began roughly around 2001, sent the real estate market into a frenzy. Historically low interest rates only fueled the craze. ‘If you fogged a spoon, you didn’t need any money down and you didn’t need any assets (to buy a house),’ Lilly said.”

“The construction market is already having trouble with an abundance of supply, said Roger Yohem, VP of the Southern Arizona Home Builders Association. ‘We’re looking at an inventory problem,’ Yohem said. ‘There’s too much supply out there for demand.’”

“For instance, during the first seven months of 2007, there were 6,368 permits issued for new homes. During that same span in 2007, there were 3,620 new home permits issued, according to numbers from Bright Future Business Consultants.”

“‘Before the problem with the mortgage problem popped up, the communities were down 40 to 50 percent anyway,’ Yohem said.”

The Tucson Citizen from Arizona. “Thousands of former employees of First Magnus Financial Corp., which closed Aug. 16, will not get paid before other creditors, a bankruptcy judge said Wednesday.”

“‘They can stand in line with everyone else,’ said Judge James M. Marlar, who is presiding over the case.”

“Marlar questioned First Magnus’ plans to keep on retainer…members of a Miami law firm handling the bankruptcy case and a consulting firm an estimated $75,000 per month to handle administrative aspects of the process.”

“First Magnus Chief Counsel Doug Lemke argued that the in-house lawyers and other staff will ensure that the liquidation is handled by mortgage industry experts. If First Magnus simply drops everything and walks away, the assets, which include thousands of loans that will have to be sold, could lose value before they are sold, he said.”

The Gazette Journal from Nevada. “No official Northern Nevada figures for July were available Monday, but Dennis Wilson, president of the Reno-Sparks Association of Realtors, said last month’s sales and median prices of existing homes are expected to be essentially unchanged from June.”

“‘A lot of people have pulled their houses off the market. Others are simply waiting,’ Wilson said.”

“The nationwide median price of an existing home has now fallen every month for a year, not seen in Realtor records in nearly 40 years. That reflects the geographic magnitude of the housing slump, said Brian Kaiser, analyst at the University of Nevada, Reno.”

“‘It gives you a sense of how widespread this whole market correction has been,’ he said. ‘We’re probably in for another year of declining prices and longer times on the market. This is probably going to stick around for a while. I think most people are hunkered down for the rest of this year and the first half of next year until things shake out.’”

“A couple of years ago, median existing home prices in some areas of Reno were rising 30 percent to 40 percent amid the region’s white-hot real estate market. ‘It was such a dramatic upswing in prices, it was not sustainable,’ Kaiser said.”

“And even with the median sales price in Reno falling 12.1 percent in the second quarter of this year from a year earlier, it’s not catastrophic, Kaiser said. ‘Reno’s in a unique position that the rest of its economy is solid.’”

“‘My experience with sellers is if you price your home according to the market, the time on market will be less,’ Wilson said.”

Speculators And Home Builders A Volatile Combination

Some housing bubble news from Wall Street and Washington. “Flippers and other speculators investing in single-family homes helped drive up prices in many hot housing markets during the boom. Now they’re contributing heavily to mortgage delinquencies in several of those markets. ‘Defaults are on the rise in most parts of the country, but…it is not always the case of a homeowner losing his or her home,’ Doug Duncan, the Mortgage Bankers Association’s chief economist, said in a statement, ‘but [it's] often the case of an investor gambling on a continued increase in home values and losing that gamble.’”

From MarketWatch. “California, Nevada, Arizona and Florida were among the states with the fastest home-price appreciation over the last five years, Duncan noted.”

“‘This rapid price appreciation attracted both speculators and home builders, a volatile combination that lead to an oversupply of homes that was beyond the capacity of the local populations to support,’ he said. ‘When this oversupply became apparent and prices began to fall, many of these investors simply walked away from their mortgages.’”

“Freddie Mac’s second-quarter net income slipped 45%, primarily due to a higher provision for credit losses and mark-to-market losses on credit-related items, the mortgage giant reported Thursday.”

“‘On the credit front, we are seeing weakening,’ said CEO Richard Syron in the company’s press release.”

From Dow Jones Newswire. “Freddie Mac shares fell after the home-mortgage financier took a $320 million loss on new mortgages.”

“Freddie Mac, which is recovering from a massive accounting scandal, also predicted that third-quarter results would reflect credit-market related stress for its guarantee-related obligations.”

“Freddie also said its exposure to subprime mortgages had grown from the end of 2006. The company said its investments of non-agency mortgage-related securities backed by subprime loans rose to $125 billion at the end of June compared with $119 billion at the end of 2006.”

The Associated Press. “H&R Block Inc. on Thursday cast new doubt on the pending sale of its troubled mortgage lending arm. ‘The mortgage origination market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s,’ Mark Ernst, CEO, told analysts.”

“The company said Option One and two small non-mortgage businesses that are being dismantled lost $192.8 million.”

“H&R Block has already slashed its Option One work force by more than half. The company announced Thursday it has stopped approving any new loans that don’t comply with Fannie Mae and Freddie Mac requirements, limiting loan originations to $200 million a month, beginning in September. Last year, the company originated $27.1 billion in loans.”

From Bloomberg. “Basis Capital Fund Management Ltd., the Australian investment company, sought bankruptcy protection for its second-biggest hedge fund.”

“The Sydney-based company’s petition to liquidate the Basis Yield Alpha Fund stokes concern that the rout in the U.S. subprime market will lead other hedge funds to report losses when they disclose August valuations to investors next week, said James Chirnside, chief investment officer at Asia Pacific Asset Management in Sydney.”

“‘We will see some blood,’ said Chirnside, who oversees $70 million of funds of hedge funds. ‘The contagion spread and was at its worst by the middle of August.’”

“Basis Capital… had more than $1 billion in assets as recently as May. Losses at the Yield Alpha Fund could exceed 80 percent, according to the petition filed yesterday.”

“‘We are not quite sure what assets are in the fund,’ said Sydney- based said Paul Billingham, a liquidator for the Basis fund at accounting firm Grant Thornton. ‘There were a number of counterparties that secured the assets and the value of those was changing.’”

From Reuters. “New evidence of damage wrought by the U.S. mortgage sector surfaced in the United States and Europe on Wednesday while banks demanded a record amount of cash at a euro zone money market auction.”

“Cheyne Finance, a structured investment vehicle (SIV) managed by hedge fund Cheyne Capital Management, said it was seeking to restructure after being forced to start selling assets to pay down debt.”

“Standard & Poor’s downgraded Cheyne Finance sharply. Just two weeks ago, the agency said ratings on SIVs, including the Cheyne vehicles, were weathering turmoil caused by defaults on U.S. subprime mortgage lending.”

“‘The only thing that is certain is that more uncertainties in the direction of asset prices and volatility are on their way,’ Bank Julius Baer said in a report.”

“U.K. lenders responsible for 12 percent of the nation’s mortgages are tightening standards for loans on house purchases, withdrawing offers and raising the cost for borrowers with less than perfect credit.”

“‘There are some lenders who have pulled their current product range and not announced any new ones,’ said Ray Boulger, senior technical manager at Britain’s biggest online mortgage broker. ‘Others have put up rates until they get little or no business.’”

“In the U.K., so-called subprime lending to homebuyers with a shaky credit history accounts for about 6 percent of the market, half the level of the U.S., according to the London-based Council of Mortgage Lenders.”

“‘Subprime lending has been of a higher quality in the U.K.,’ said Kelvin Davidson, a property economist. ‘But the problems don’t really emerge until the market starts to turn down.’”

The Birmingham Post. “More than £2,000 was knocked off the price of an average house in the Midlands last month amid growing signs of a property slowdown.”

“Charles Smailes, chairman of the board of the National Federation of Property Professionals, thought this was the beginning of a stagnation in prices which would run into 2008.”

“He said: ‘The slowdown is entirely predictable after the seven interest rates we have had. If the average mortgage is over £100,000, every interest rate increase has added £16 per month. When that happens seven times, it begins to bite.’”

“Mr Smailes thought the slowdown was a good thing and would allow time for incomes to catch up with house prices. ‘It’s the best thing that could happen to the market; the level of increases we have seen since 2000 have been totally unsustainable.’”

“Only six weeks ago London’s financial hub seemed headed for another round of hefty bonus payouts from a bumper first half of transactions. But a global financial downturn has dampened the mood.”

“Bankers and traders who splurge on fast cars, vacation homes and luxury yachts with the extra cash each year may be forced to scale back their spending plans as the U.S. subprime turmoil and credit squeeze have brought dealflow to a grinding halt.”

“‘Banks are having significant increases in their costs. They can’t access liquidity as cheaply as before,’ said Jonathan Said, a senior economist at the Centre for Economics and Business Research. ‘The first costs that you take off are bonuses.’”

“One senior London-based banker said he was not expecting a dramatic fall in bonuses because of the strong first half. ‘I am reasonably relaxed about that from a European point of view,’ he said. ‘We all get paid too much anyway.’”

“The U.S. Federal Reserve is not rushing to cut benchmark interest rates because it wants to break investors of the view that the central bank is there to bail them out, an article in the Wall Street Journal said on Thursday.”

“‘Officials acknowledge the perception of bailing out investors exists and if allowed to grow, could erode the credibility they need for keeping inflation low and encourage lax attitudes toward risk,’ the article said. ‘They hope that taking time to weigh the economy’s need for rate cuts will help discourage investors from thinking Fed officials are overly concerned with falling asset prices.’”

The Tribune. “Indymac Bank has hired more than 600 former American Home Mortgage Investment Corp. employees who were recently let go by that company. Tuesday’s move comes just five weeks after Indymac announced the layoff of 400 workers, roughly 4 percent of its then-total work force of 9,200, in the face of an increasingly tough mortgage market.”

“At that time, Indymac CEO Michael W. Perry said industry loan volumes and profit margins were under pressure. Perry said Indymac’s challenges have come from a credit cycle with unprecedented liquidity in the capital markets.”

“‘You had excess lending capacity from the 2003 refi boom and you had a strong economy with pent-up housing demand, which created a housing boom,’ he said. ‘And that housing boom caused consumers - including a lot of consumers who speculated like they did on stocks - lenders, rating agencies and investors to become too aggressive.’”

The Bradenton Herald. “Since the beginning of 2007, National Association of Home Builders’ chief economist David Seiders has lowered his expectations for the housing market four times. ‘The reason for the revisions is all because of the new eruptions on the mortgage side,’ Seiders said.”

“In a teleconference Tuesday, Seiders said a recent Home Builders survey found that 62 percent of the builders who responded are feeling the crunch of tighter lending practices. That number is up from just 33 percent in March. He predicts it could take until 2011 to see a full recovery.”

“After the unsustainable boom of 2003, 2004 and 2005, prices started to return to normal. Seiders and many other economists found hope in the market’s stabilization. Then the mortgage meltdowns began.”

“‘It looked like things were stabilizing the middle of this year, but I’m sure we’ll see another decline,’ Seiders said. ‘It’s an overreaction to the subprime market that triggered other issues. Consumers feel tremendous uncertainty.’”

“He also said that while prices have tumbled in many markets, they still have a way to go until they get to a mark where individuals with good credit can get a more traditional mortgage without a skewed income-to-debt ratio. He predicts price appreciation across the nation may not start until sometime in 2009.”

“‘The reality is we did have a lot of overaggressive lending during the boom,’ Seiders said.”

People Generally Feel Real Estate Is Overpriced

The Ellsworth American reports from Maine. “Sales of single family houses in Hancock County dropped 19 percent for the first six months of this year compared to the same period last year, according to the Maine Real Estate Information System. ‘House sales are definitely off,’ said Danny Sargent, president of Sargent Real Estate. ‘I have more inventory now in this office than I can ever remember and a lot of listings still coming on the market. The listings just continue to come in. Price-wise you’ve got to be very competitive.’”

“Derek Hayes, VP of business banking for Bar Harbor Bank & Trust said, ‘It’s really a buyer’s market.’ The area saw ‘really rapid appreciation for a few years,’ but now prices are declining, said Hayes.”

The Concord Monitor from New Hampshire. “Al Wait’s Contoocook home has been sitting on the market for 10 of the last 15 months, and it hasn’t sold yet. He started listing the three-bedroom, 1,600-square-foot home on Park Avenue at $299,500, and has dropped the price by more than $20,000.”

“‘I’m trapped. I can’t afford to live here, but I can’t go away,’ Wait said.”

“Wait’s home is one of about 90 single-family homes in Hopkinton and Contoocook currently on the market, according to the MLS, a figure area Realtors say is unusually high. ‘We’ve had double to triple our normal inventory for the last 12 months,’ said Judy Hampe, broker in Concord.”

“‘People are hesitant about investing, and generally feel real estate is overpriced,’ said Hopkinton Realtor Mary French. ‘A lot of buyers are hoping real estate will come down. Nowhere is housing flying off the market.’”

The Nashau Telegraph from New Hampshire. “Foreclosures are on the rise in New Hampshire. And the percentage increases look scary: Hillsborough County is on track to nearly double last year’s numbers and quadruple the year before.”

“Home values dipped again this year and houses are staying on the market a bit longer, according to the latest statistics from the New Hampshire Association of Realtors.”

“There were 353 foreclosures in Hillsborough County through Aug. 14 of this year, according to Registrar of Deeds Judith MacDonald. If that pace keeps up, foreclosures in the county could reach an all-time high of 500 by year’s end.”

“By comparison, last year there were fewer than 300 – all year. In 2005, there were 101. In 2004, there were 73. ‘I’ve been here for 27 years and I’ve never seen it like this,’ MacDonald said. ‘The future, to say the least, is bleak.’”.

The Hartford Courant from Connecticut. “In the latest sign that the nationwide credit crunch is worsening, lenders are saying no to borrowers who want no-money-down mortgages. ‘If someone walks in today with an A-plus credit history and a $200,000 salary but no money for a down payment, I can’t help them anymore,’ said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, Conn.”

“The company was notified by its lender earlier this month that the lender no longer will cover no-money-down loans.”

“‘There is a credit squeeze occurring,’ said Michael Sheahan, director of mortgage banking at Webster Bank, one of Connecticut’s largest banks. ‘There is less money available for less credit-worthy borrowers or those providing less documentation on their loan.’”

“‘Our industry is changing by the hour,’” said Dan Rosenfeld, VP of a mortgage company based in Avon, Conn. ‘My screen flashes all day long, ‘No longer available.’ Lenders are really tightening their standards.’”

“Katie and Allan Chipps locked into a no-money-down mortgage through Sanborn in mid-August, on the last day they were offered. Securing that loan allowed the couple to submit a competitive offer on a new house they are buying in West Hartford, they said, without having to add a contingency clause to sell their current home first.”

“Katie Chipps said once the couple sells their current house they will use the profit to pay down the second mortgage or to pay other bills.”

“‘We would not have been able to make a competitive offer on a home without this mortgage product,’ she said. ‘It gives us flexibility in pricing our home and in using the proceeds from that sale.’”

From Hartford Business in Connecticut. “Sales statistics compiled by The Warren Group show condominium sales in Hartford County dropping 16.4 percent for the first six months of 2007. For the month of June, sales dropped a staggering 21.1 percent.”

“‘What we were going through in 2005, during the height of the craziness, was a crazy, elevated, goofy market,’ said Beth DiLoreto, with Prudential Realty Connecticut’s Wethersfield office. ‘That wasn’t normal, this is normal. I believe this is just a correction and not a time to panic.’”

“One explanation for the odd trends is that there isn’t so much an onslaught of individual condos being put on the market, as there are former apartments being converted to condos, asserts Christina Brine, with ERA Broder Group Real Estate in West Hartford.”

“‘The problem is that we had a bunch of condo conversions that flooded the market,’ Brine said. Some of those former rental units are too small to be attractive as ownership units. So they sit unsold, and unreasonably depress the market statistics.”

“‘Sellers are going to eventually have to bite the bullet on some of these condominiums,’ said Brine. ‘The sellers are still stuck in a year or two ago.’”

“Brine noted that the hype surrounding the impending retirement of baby boomers contributed to the condominium explosion that has not yet come to its expected fruition.”

“‘There was all this talk and so many articles about the baby boomers retiring to the city and to condos to be near their grandchildren,’ said Brine. ‘There’s a lot on the verge of happening in the city but it just hasn’t happened yet.’”

The Boston Herald from Massachusetts. “The foreclosure epidemic shows no signs of peaking yet in Massachusetts, with the number of homeowners unable to make mortgage payments soaring again in July, a new report shows.”

“Petitions to foreclose filed by lenders in court shot up 66.5 percent in July compared to the same period last year, the 18th straight monthly increase, according to the Warren Group, publisher of Banker & Tradesman.”

“‘July held more of the same for Massachusetts homeowners,’ said Timothy Warren, CEO of the Warren Group, in a statement. ‘More people are having trouble paying their mortgages, likely because rates on many are resetting, and more of those people who get into trouble are having a hard time getting out.’”

The Gloucester Daily Times from Massachusetts. “Thirty-three condos at Pond View Village that couldn’t be sold at full price and were pulled from a crumbling market earlier this year will be discounted and offered for sale again this fall, the owner-developer and the representative of major private lenders said yesterday.”

“With the markdowns, Joseph Flatley, CEO of the investment corporation, said he expected the consortium, including Bank of America, ‘to take significant losses.’ ‘We’re going to take a hit on this and it’s going to be substantial,’ he said.”

“‘We’ve never had a loss in our 17 years - this is the first,’ he added.”

“Flatley’s company will decide the new, discounted price for the 33 units, whose sale was projected to provide much of the cash flow to repay the loans. The units were offered at an average price of $289,000 before they were pulled from the market.”

“Buyers will benefit from his consortium’s losses, Flatley said. ‘You sell it for what you can,’ he said. ‘We’ll have to reduce the prices significantly.’”

“Under the work-force concept promoted by Gov. Deval Patrick, employers help their workers buy homes. Tina Brooks, undersecretary of housing and economic development, who received Flatley’s bailout proposal in June, disagreed. She said the work-force proposal for Gloucester was vague.”

“Brooks also questioned the need for work-force housing on Cape Ann. ‘Gloucester is not exactly a high-cost market,’ she said. ‘I’m not sure what the hurdle is for workers.’”

“‘My take,’ said Sen. Bruce Tarr, ‘is it’s a terrific project caught in a market collapse. Now all parties are trying to make it fit into the requirements and get it sold.’”

Bits Bucket And Craigslist Finds For August 30, 2007

Please post off-topic ideas, links and Craigslist finds here.

August 29, 2007

Everybody Is Waiting For A Better Opportunity In California

Reuters reports on California. “Sheila Hill is no closer to making a down payment on a house than she was a year ago, when she began shopping in the San Diego area, even though prices on some of the single-family homes she has seen have fallen $200,000. ‘It’s kind of an awkward time right now to be a buyer,’ Hill said. ‘I have the credit, but with the market slipping down so much it’s hard to know when to jump in.’”

“‘They are terrified to purchase a home and have it decline in value,’ said Steve Johnson, director of the Southern California region for Metrostudy. ‘We haven’t seen this kind of buyer apathy in regards to committing to real estate in 15 years.’”

“Prospective buyers like Hill and Chanette Duplessis, would rather sit on the sidelines for now.”

“‘I’m a little hesitant to jump right in immediately, because I think that prices are still going to go down,’ said Duplessis, who has been paying $2,600 a month in rent since she sold her last home in the city of Inglewood near Los Angeles a year and a half ago.”

“‘I’m not at this point too anxious,’ she said. ‘You know why rich people are rich? Because they shop around.’”

The Orange County Register. “Mike Borja has witnessed diminishing house prices first-hand since putting his home up for sale this summer. While he had to lower the price by almost $50,000 to adjust to the market, he says he can still make a fair profit on the home he bought for $276,000 in 1999.”

“‘I appraised my home last year and it was worth $552,000,’ Borja says of the three-bedroom condo in Terracina, one of Rancho’s newest communities. ‘I’m now selling it for $519,000.’”

“Borja is not alone in wanting to sell his home before it further depreciates. Of the 12,723 owner-occupied homes in town, according to the 2000 U.S. Census, about 365 of them are on the market, according to Rancho Realtor Laurene Davis. The median home price in Rancho is $594,500.”

The North County Times. “The pace of home building in Riverside County, the epicenter of California’s recent housing boom, has slowed to less than half what it was a year ago, a report released Monday by the California Building Industry Association shows.”

“‘We’ve been on this trend for a number of months,’ said Borre Winckel, executive director for the Riverside County Chapter of the Building Industry Association of Southern California. ‘We’ve been trending fully 50 percent below last year.’”

“Winckel said area residents can expect that trend to continue through 2008, accompanied by a moderate decline in home values.”

“Analysts say many buyers of existing homes are refusing to make purchases unless sellers offer steep discounts, and sellers are refusing to budge on prices, in the hopes of getting what their neighbors did at the height of the boom. ‘We have this curious phenomenon, where everybody is waiting for a better opportunity,’ Winckel said.”

“Winckel said the downturn is concerning because home building accounts for about one-third of Riverside County jobs, either directly through construction or indirectly through sales of appliances, lawn mowers and other items used in the home.”

“Winckel said builders also are concerned about their livelihood. ‘We’re not looking to go from bust to boom again; we’re just looking to get back into the business,’ he said.”

“Winckel urged potential buyers to…take advantage of the swelling inventories of for-sale signs in neighborhoods all over the county. Economist Robert Campbell predicted most buyers won’t. ‘We’re in a hurricane right now. The leading edge of the hurricane is hitting us with full force,’ he said. ‘You think people are going to jump back into this market after what’s happened the last year and a half? No way.’”

The Daily News. “Foreclosures soared an annual 246.8 percent in the greater San Fernando Valley during July as trouble with adjustable rate loans continues to mount, a university research center said Tuesday.”

“‘This is an ominous sign,’ said Daniel Blake, director of the Economic Research Center at California State University, Northridge. ‘There are a lot of possible (loan) resets out there, and we don’t know the extent of them.’”

“In all, 263 homeowners lost their properties last month. In July 2006 just 47 homeowners from Glendale to Calabasas lost their homes. At the current rate, foreclosures alone could account for 4,700 homes on the market next year.”

“‘That could bring enough housing on the market to upset the price stability we’ve seen here,’ Blake said of the market from Glendale to Calabasas.”

“Jim Link, executive VP of the Van Nuys-based Southland Regional Association of Realtors, said that it may even bring a buying opportunity because prices have yet to fall by a large amount.”

“‘Roughly 20 percent of the market (sales) being REOS (foreclosures) I think … would definitely have an impact on prices,’ he said.”

“Malaise continued in other markets, too, including the Santa Clarita Valley. Sales of previously owned single family homes fell 18 percent to 194 transactions. And the median price declined 5.8 percent to $570,000. Condo sales fell an annual 32 percent to 83 properties and the median price slipped 4 percent to $359,000.”

The LA Times. “More than 100 houses a day are being foreclosed on in Southern California, up from 13 a day last year. That’s still a relative handful for such a populous area, but even the optimists predict that the problem will soon get much worse.”

“In a Los Angeles cul-de-sac off Coldwater Canyon Drive near Beverly Hills, there’s a foreclosed house that should be empty and isn’t. The mansion in question was bought by a man in early 2005 for $1.4 million. By last fall he was gone and the property was in foreclosure.”

“Authorities and real estate agents say similar problems arose during the wave of foreclosures in the 1990s, when houses stayed empty for months.”

“Chris Ragsdale, the Los Angeles Police Department’s senior lead officer for Westwood and Bel-Air, recalled one case from the end of that era in Pacific Palisades. The squatters changed the locks, turned on the electricity and brought in furniture. When the agent trying to sell the place showed up, they maintained that they had a lease.”

“‘If you know what you’re doing, you can get six months in a place with a kick-ass view,’ Ragsdale said.”

The Bakersfield Californian. “Once-prominent real estate salesman David Crisp last week received two new default notices on the Stockdale Highway offices he bought in April and was named in a lawsuit demanding repayment of more than $160,000.”

“More than 85 local properties associated with the former Crisp & Cole Real Estate company have defaulted since the beginning of the year, according to an ongoing Californian tally.”

“Also last week, Chicago Title Company filed a lawsuit against Crisp, his wife and Crisp, Cole & Associates. The lawsuit seeks more than $160,917, alleging Crisp failed to repay a line of credit on a property he bought at 1215 L St.”

“Crisp bought the home, took out a $149,500 line of credit from Wells Fargo Bank and gifted a 99 percent interest in the property to Crisp, Cole & Associates before selling on November 10, 2006, according to the lawsuit. Crisp received $235,000 in proceeds from the sale.”

The El Dorado Hills Telegraph. “Folsom and El Dorado Hills are located in the ninth worst market - the Sacramento metropolitan area - for home foreclosures nationwide, but they’ve been spared the carnage somewhat.”

“Sacramento County saw 3,840 notices of default filed between April and June 2007, a 184 percent jump compared with the same quarter in 2006, reported DataQuick. El Dorado County, with 222 notices filed, saw a slightly smaller increase of 158 percent.”

“Jim Foster, who works with JM Morgan Funding in Folsom and lives in El Dorado Hills, said neither area was as hard hit as regions like Elk Grove, Lincoln, and South Sacramento.”

“Like any game, Foster said the market is psychologically driven. ‘Even if you’re scraping by making a payment, if the house you bought for $500,000 is now worth $600,000, you have more invested,’ he said. ‘You’re going to find a way to make it work. But when (the value) goes down, frankly people just divorce themselves from the house and walk.’”

“El Dorado Hills is a slightly different animal, Foster said. On his own street, Powers Drive, Foster has watched foreclosures on at least two $1 million-plus homes in the past six months.”

“EDH took a more industry-specific hit than Folsom. ‘A lot of these people were dialed into real estate as mortgage brokers or builders and this industry has taken a big hit,’ he said. ‘Some are making one-tenth the money they made before.’”

“‘When foreclosures do occur in Folsom, they’re mostly among younger couples who financed their house with no payment down and adjustable-rate mortgages, the phenomenon that’s rendered fast-growing areas like Elk Grove rife with lost homes.”

“Interest rates went up, payments went up, and with the lack of appreciation the market is seeing, homeowners no longer have the equity to pull out of their house to make payments,’ explained Tom Pellegrini, of Norcal Foreclosure Services in Folsom.”

“Foster knows of two or three Folsom couples in their 20’s who allowed the bank to foreclose on their homes, opting to rent instead.”

“‘They weren’t even behind on their mortgage,’ Foster said. ‘They just figured they could rent a house for half the payment, and twice the square footage.’”