The Housing Bubble

The News Press reports from California. “August was a tough month for home sales in Santa Barbara County as problems in the mortgage industry took their toll. From the South Coast to the North County, sales fell almost 20 percent. Lompoc Valley was hit hardest, with home sales plummeting by 22 percent last month compared to August last year. Yet the median price was down only about 6 percent to $417,000, the local Association of Realtors reported.”

“In Santa Maria, sales declined by 13 percent last month, and the median dipped nearly 10 percent to $374,900. Home sales in the Santa Ynez Valley fell 5 percent, with the median also declining by 13 percent to $800,000.”

“Sales across the county have been blindsided by the sharp reduction in the type of mortgage loans available, especially those that targeted borrowers with shaky to poor credit. ‘An industry that has become accustomed to rules that allowed nearly anyone to receive a loan now must turn customers away,’ according to the latest report from the Goleta-based California Economic Forecast.”

“Local economist Mark Schniepp, director of the California Economic Forecast, recently predicted that the South Coast ‘housing recession’ is about at the midway point, or ‘in the top of the fourth inning.’”

“Unlike the real estate crisis of the 1990s, the main factors for a deep recession are absent now, Mr. Schniepp said, even with the problems in the subprime market and its impact on credit.”

“In the 1990s, the county lost thousands of jobs from the mass exodus of aerospace firms, there was a national recession, inflation was much higher than what it is now and there was an oversupply of homes, Mr. Schniepp explained.”

“But the forecast is for South Coast home prices to dip between 10 percent to 15 percent from where they are now until the recovery expected in 2009. The forecast is more gloomy for the North County, the area that accounts for more than 80 percent of all the defaults and foreclosures countywide.”

The Orange County Register. “A surge in office construction combined with sweeping layoffs at mortgage companies lead to both higher office vacancy and higher rents in O.C. in the third quarter.”

“The county’s office vacancy rate hit 10.53 percent at the end of last month, the highest in nearly three years, reports Voit Commercial Brokerage.”

“Developers have finished work on 3.5 million square feet of offices so far this year with another 1 million coming in Q4, says Jerry Holdner, VP of market research with Voit.”

“‘Concessions may begin to increase in the short run in the forms of limited free rent, reduced parking fees, relocation funds and tenant improvement allowances, as new inventory becomes available,’ he said.”

“As for mortgage companies, they occupy about 4 million square feet of office space in the county, or roughly 4 percent of larger buildings. The total is down 30 percent from 6 million in mid 2005, he said.”

The Daily Bulletin. “With home prices generally lower than in Los Angeles, an abundance of available land and a growing population, the Inland Empire has for the past few years been a kind of developer’s paradise. But the faltering housing market is having a powerful effect on some of the area’s most anticipated projects.”

“Local housing starts were down 45 percent for the first eight months of the year compared to the same period in 2006, and several housing developments are either going by the wayside or slowing their pace.”

“‘The decline in the market is across the board,’ said Steve Johnson, Southern California director of the market-research firm Metrostudy.”

“One local builder, Young Homes, spent hundreds of thousands of dollars planning a development of more than 720 homes on Rialto’s south end. Just a few months later, however, Young Homes sold the land to an industrial developer for $92 million.”

“‘There’s not a piece of land I wouldn’t sell,’ Young Homes Chairman and CEO Reggie King said in August.”

“Buildings the company once filled with employees are now sitting empty, or nearly so.”

“Off the 15 Freeway, 2,100 homes were supposed to be built as part of the Rosena Ranch community, along with a school, clubhouse, water treatment facilities, parks and roads. Now, with less than 100 homes built at the site, county planning officials say as soon as homes under construction are finished, work will stop indefinitely.”

“Sales have slowed at Shady Trails, a 1,100-home Lewis community in northern Fontana. ‘It’s about the same place that the Preserve is. We’re happy with our sales against the soft market. Obviously, if it was a better market, we’d be happier,’ said Leon Swails, Lewis’ chief operating officer.”

“Never bet against the house, unless it asks you to. The housing market is in such bad shape that one home builder is even helping investors bet its stock will drop.”

“That’s not a misprint - it’s exactly what Standard Pacific Corp. added as a sweetener to attract buyers for a $100 million convertible bond offering. Like most in the industry, the California-based builder has been hit hard by the real-estate prices collapse; enabling bond buyers to short its stock was the trick it needed to raise cash.”

“‘With market conditions like they are right now, they must think this is their best approach,’ said credit analyst Matthew Wilcox. ‘That will give them liquidity if they need it.’”

“The unfolding reality is that things are far worse than even the most bearish housing industry watchers had anticipated. It’s like peeling an onion that’s rotten to the core.”

“The Irvine-based company has commitments coming due in the next year, including a $150 million unsecured bond issue that must be repaid. But raising cash is not easy for home builders now, said Dennis McGettigan, a partner at the investment bank Gordian Group LLC.”

“That helps explain the home builder’s announcement Monday that it would end its dividend program, which will conserve $10 million a year in cash.”

“The offering ‘can be interpreted as an attempt to manage liquidity at the expense of shareholder value,’ according to McGettigan.”

The Press Telegram. “More real estate agents are turning to a higher power to help them through the market downturn - so if your agent says, ‘Say hello to my little friend,’ don’t freak out, it’s only St. Joseph.”

“Stephanie Leon stands in the front yard of a small home that its owners are trying to move in a short sell to avoid foreclosure. Leon digs a hole in the front yard about half a foot deep, then plants a figurine of St. Joseph, which she buries head down in the hole.”

“‘A week after burying the St. Joseph, the home had its first offer in two years,’ Leon said.”

“The Los Alamitos agent took over the listing for the home in August. She dropped the listing price to $420,000 from $502,000. Leon credits the first offer with pricing the home reasonably - and burying the St. Joseph statue.”

“With the market woes growing and home sales being fewer and further between, more and more people are turning to the practice that last saw popularity during the real estate bubble in the early 1990s.”

“Phil Cates, who sells St. Joseph kits for a living, said sales have picked up ‘dramatically’ in the last year. On one recent day his firm sold 640 kits.”

“‘At around May it really started accelerating, and now every week it’s going up,’ Cates said. ‘In the last 30 days this is by far the largest amount of (one month) sales we’ve ever had.’”

“Real estate veteran Colleen Badagliacco has taken note of the return of the St. Joseph tradition. ‘I’ve noticed that from my travels around the state that a number of (real estate) associations have stocked these St. Joseph statues,’ she said, adding it’s her belief that they are little more than an ‘interesting little myth, and a conversation starter.’”

“‘I think correct pricing, conditions and marketing will carry the day,’ she said.”

“But, she added, the St. Josephs may make for ‘a good opener with the seller - to let them know you’re going to do everything humanly, and heavenly, possible to find the right buyer.’”

The Chicago Tribune reports from Illinois. “Most anybody in the mortgage business will tell you that August was a month that will live in infamy. How bad was it? A survey of mortgage brokers suggests that one in three consumers who recently signed purchase contracts canceled in August, up from just 4 percent three years ago, according to the research firm that conducted the survey for Inside Mortgage Finance.”

“‘Our office had four sales in one week that failed to close because the seller didn’t have the cash,’ said the real estate agent, who declined to be identified because she feared office repercussions.”

“The sellers couldn’t come up with the money?”

“The problem seems to start, she said, with those formerly easy-to-snatch mortgages that cover 95 or 100 percent, or more, of the purchase price.”

“My real estate agent acquaintance grabs a settlement sheet from a recent transaction on a home that cost just under $600,000. Reeling off a few of the line items, she notes…numerous charges drove the closing costs to about $3,400.”

“And that didn’t include the pro-rated property taxes for which the seller was liable and which weren’t covered by the escrow account. Then, ahem, there’s the commission.”

“‘If you’re listing a house for $410,000 and the mortgage is $390,000, you’ve got a problem,’ she said, in a bit of an understatement.”

“‘They’re probably people who have borrowed the equity out of their houses,’ said John O’Brien, chairman of the Illinois Real Estate Lawyers Association. ‘Some people don’t understand that a home-equity loan is a lien against the house and it has to be paid back at closing.’”

“Or, he said, they may have been among the legions of borrowers with hefty loans who have come to find, gulp, that those promises of home prices appreciating in perpetuity have turned out not to be true.”

“‘All those fees, they don’t seem so big when you’re looking at a $50,000 check coming your way,’ my friend said, her voice trailing away. ‘But when you’ve spent all your equity on a new car …’”

The Springfield Business Journal from Missouri. “As of Sept. 26, Greene County has seen more than 500 home foreclosures, according to records maintained by the Recorder of Deeds office. After just nine months, the county is poised to surpass last year’s total of 513 foreclosures.”

“‘You get people that were able to afford these homes on these interest-only ARMs, and on $100,000, you’re talking a couple hundred bucks a month (when the interest rate increases),’ said said Bart Evans, director of residential lending for Great Southern. ‘That’s a lot. This is a monthly payment society.’”

The Des Moines Register from Iowa. “Builders like Tom Gratias, Keith Butz and others say dozens of new homes are empty in the Des Moines area. The buildup in inventory means homes are staying on the market longer. Gratias estimates that his homes are on the market twice as long as they were at the peak of the market in 2005.”

“Butz, president of the Home Builders Association of Iowa, acknowledges that some builders are leaving the market - some switching to other kinds of construction such as commercial, others through bankruptcy.”

“‘Some builders are finding other things to do in life,’ said Butz.”

“Lenders filed lawsuits this fall seeking to foreclose against some big residential players, including Oaks Development, which promotes itself as the state’s largest land developer. Oaks attorney Jerrold Wanek has said lenders are panicked because of ‘a perceived’ decline in land values.”

“David Vollmar, executive secretary of the Home Builders Association of Greater Des Moines, said the exit of some builders is a natural shakeout. ‘When the market was booming, every guy with a saw in his truck called himself a builder,’ Vollmar said.”

“Butz said he expects a return to a normal market similar to 2002, the year before the big housing run-up that peaked in 2005. Five years ago, the value of housing sat at $461.9 million with nearly 3,200 homes constructed. Two years ago, building skyrocketed to $860.1 million in value, with nearly 5,100 homes constructed.”

The Business Journal from Indiana. “For most of this decade, the Indianapolis residential real estate market enjoyed a very good run. But now it’s muddling through the doldrums just like the rest of the country, and builders are pulling out all the stops to avoid getting stuck with inventory.”

“‘There are just not a lot of people out there looking,’ said Jeff Kontor, VP of sales, Indianapolis-based Brenwick Development. ‘So far as numbers are concerned, whether it’s for lots or homes, it’s definitely down right now.’”

“Not surprisingly, selling new homes in Indianapolis has suddenly become a dicier proposition. Especially since so many builders have chosen to crowd into one price point.”

“‘Seventy-five percent of this market is for homes between $100,000 and $200,000,’ said Dax Meredith, who directs the Indianapolis office of American Metrostudy Corp. ‘So that makes for a very, very crowded field.’”

“‘Part of the problem is that people cannot sell their existing homes,’ Kontor said. ‘They may want to move, but they can’t sell.’”

“Alan Goldsticker, president of Ryland Homes of Indiana, said the bottom line is that pretty much everyone who wants to drive a hard bargain for a new home must first endure the trials of selling the old one. In other words, before buyers can benefit from the down market, they must first put themselves at its mercy.”

“Goldsticker said that while the current bust may signal the end of the recent banner years for builders, it’s not the end of the world. No slump ever is.”

“‘I’m in my twenty-fifth year with Ryland and this is my third downturn,’ he said. ‘If you get too fat during the upturns, that means you have to take off a lot more weight during the slow times. And I don’t like that.’”

The Journal Sentinel from Wisconsin. “Housing’s forecast: cloudy with intermittent storms, increasing chance of sunniness in a year.”

“‘Slump’ is a fair description of what we’re seeing,’ said Nigel Gault, a managing director at a financial and informational services firm. ‘Whether it’s a crash depends on which part of the country you’re in,’ he said in an online session.”

“Three market bubbles - home price appreciation, speculative building and risky mortgages- formed during the 2001-’05 boom. Now, they have popped, said Gault’s colleague, Jim Diffley.”

“Price bubbles were confined to several lightning-growth areas - notably Florida, Arizona, California and Nevada - but overbuilding and bad loans ‘were distributed pretty much across the nation,’ Diffley said.”

“New houses in Metro Milwaukee have been growing bigger and more luxurious all decade, said Matt Moroney, executive director of the builders association.”

“‘Our average price has gone up 57% since 2000 from $195,902 to $307,000,’ excluding land and improvements, he said. ‘I think we’ll see that average price come down, as builders put a greater emphasis on affordability.’”

“A few builders are rethinking model layouts and subdivision configurations to allow for lower-priced housing, Moroney said.”

Some housing bubble news from Wall Street and Washington. Bloomberg, “UBS AG, Europe’s biggest bank, reported a third-quarter loss, ousted two top executives and announced 1,500 job cuts after writing down the value of fixed- income securities by more than 4 billion Swiss francs ($3.4 billion). UBS will report ’substantial losses’ in the fixed-income, rates and currencies division of its investment bank, mostly on securities backed by U.S. subprime residential mortgages, the bank said.”

“The deterioration in that market in August ‘was more sudden and more severe than in recent history,’ UBS said.”

The Associated Press. “Citigroup Inc. estimated Monday that its third-quarter profit will drop 60 percent, as the nation’s largest bank took losses of more than $3 billion after writing down securities backed by underperforming mortgages and loans tied to corporate buyouts.”

“The bank also said its profit would be dampened after boosting loan loss reserves by about $2 billion.”

From Marketplace. “Banking analyst Dick Bove with Punk Ziegel says the worst isn’t over: Dick Bove: ‘I think that Citigroup, Bank of America, JP Morgan, Wachovia, as well all the big brokers and Merrill Lynch are gonna be taking write-offs of this nature for a while.’”

The Chicago Tribune. “Allstate Corp. has about $5 billion in subprime investments in its portfolio, a stake that has been weighing on shares of the nation’s No. 2 home and auto insurer and compelling its managers to spend time assuaging investor worries about a topic far removed from selling property and casualty coverage and financial products.”

“During his presentation, Chief Financial Officer Dan Hale addressed what he called the ‘topic du jour,’ the subprime mortgage securities market.”

“As of June 30, Allstate had $4.8 billion in subprime residential mortgage-backed securities. All are investment grade, and 73 percent have AAA ratings. It also has $1.2 billion in Alt-A securities. All are investment grade, and 92 percent have AAA ratings. Alt-A mortgages serve home buyers who are slightly better credit risks.”

“But calming the nerves of one investor during the question-and-answer session required more than Allstate citing a Moody’s report. ‘I would hope that’s not the only study by Moody’s that you’re depending on to gain comfort in your position in those securities,’ the audience member said. ‘I would take it that you’ve gotten some details from somebody a little bit more in tune to the topic versus a rating agency whose credibility is undoubtedly under pressure now.’”

“Analyst Harry Fong noted in a Sept. 5 report that Allstate was confident about its subprime portfolio. But ‘they do admit that a AAA rating for subprime mortgages is not the same as AAA rating elsewhere,’ Fong wrote.”

From Fortune. “Three years after scraping together $100,000 to bootstrap a maker of athletic clothing, Ryan Oliver wanted expansion capital. He looked where thousands of entrepreneurs have found a ready source of funding, in the value his house.”

“Applying for a $25,000 home-equity loan, he figured he was a shoo-in. shoo-in. His credit score was 750 out of a possible 850, and his house was appraised for $650,000, leaving him about $100,000 in untapped equity.”

“But three banks - Great Florida, Wachovia, and Washington Mutual - shot him down without specifying why. ‘It’s almost like they’d created new formulas,’ says Oliver.”

“Britain’s housing market faces ‘very substantial’ risks as consumers are failing to save enough and have too much debt, said Morgan Stanley chief U.K. economist David Miles.”

“‘The risks in the U.K. are probably more severe than probably in other countries’ in Europe, Miles, who has advised the British Treasury on the property market, said at a conference in London today. ‘The U.K. is at one end of the spectrum of where the risks lie,’ and there are ‘very substantial risks’ facing the housing market, he said.”

“‘The U.K. housing market is heavily dependent on expectations for valuations,’ Miles said. ‘Expectations are volatile and optimism is a fragile creature. I’m relatively pessimistic about the outlook.’”

“While a shortage of homes available for sale has supported prices, this will ‘absolutely not’ prevent a drop in home values in the future, Miles said. Higher borrowing costs, record outstanding debts of 1.4 trillion pounds ($2.9 trillion) and low savings rates may all weigh on the property market, he said.”

From Reuters. “Housing equity withdrawal fell to 10.001 billion pounds in the second quarter of this year from 13.06 billion in the first three months, the Bank of England said on Monday.”

“That took housing equity withdrawal as a percentage of post tax income down to 4.5 percent in the second quarter from 6.0 percent in Q1.”

National Mortgage News. “Last week, we reported how loan brokers were getting blamed for the nation’s current mortgage mess. I received a ton of e-mails, several with epithets aimed at consumer advocate Bruce Marks of Neighborhood Assistance Corp. of America who before Congress likened brokers to a pest commonly found in several Jersey City apartments that I rented in my youth.”

“This e-mail response from ‘Lennie’ shall serve as a rebuttal to Mr. Marks’ comments: ‘In 14 years I never, nor anyone that has worked for me, crossed the line of illegal activities to get a paycheck and when those crazy ass investors came out with things like the stupid interest-only (loan) I refused to sell them and anyone that wanted one I told them no and if they went elsewhere to get it I’d say call me when you see what you got into. This type of program was stupid and greedy created by investors not brokers.’”

“When you have lemons, make lemonade. Countrywide Home Loans — whose subprime servicing portfolio has a delinquency rate north of 20% — also has $188 million in foreclosed real estate on its books. (At the end of December that figure was just $27 million.)”

“Over the past month I’ve talked to a few now-job-seeking mortgage executives who are putting together business plans to invest in delinquent loans or start lending shops to fund the purchase of REO…”

“NetBank, a $2.5 billion thrift that two years ago ranked among the top 50 residential lenders in the U.S., has gone bust. The Office of Thrift Supervision took them over on Friday.”

“This comes from an industry veteran who recently found an old e-mail from a friend and passed it on. It concerns the failure of New Century Financial Corp., once the nation’s top subprime wholesaler. When New Century filed for bankruptcy protection the friend quipped: ‘All the Lamborghini dealers in Orange County flew their flags at half-mast.’”

“And now for some good news, well sort of. According to Friedman Billings Ramsey, 89.9% of subprime loans funded in 2007 were still current as of June 30.”

“Bill Gross, manager of the world’s biggest bond fund, said falling home prices will be the main driver of U.S. monetary policy for ’several years,’ and repeated his forecast the Federal Reserve will lower the federal funds rate to at least 3.75 percent in the coming 12 months.”

“‘The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market’ by their holders, Gross wrote.”

“Events that may delay rate cuts this year, Gross wrote, include ‘false hopes of a housing bottom, fears of a dollar crisis, or misinterpreted one month’s signs of employment gains and faux economic strength.’”

“The fate of the world economy hinges on what happens to house prices in America and that may not be a good thing, former Federal Reserve chairman Alan Greenspan said on Monday.”

“Greenspan maintained the global economy was just as linked as ever, disagreeing that there had been a decoupling between the fate of the U.S. economy and that of the rest of the world. ‘The critical variable in this judgement is the price of homes in the United States,’ said Greenspan, who ran the U.S. central bank for more than 18 years until he stepped down in 2006.”

“House prices in the United States will continue to decline as new sales are still barely denting the supply overhang, former Federal Reserve Chairman Alan Greenspan said on Monday.”

“Greenspan said…speculative fever must be allowed to run its course to enable a full recovery. ‘As in similar situations of inventory excess, I would expect home price declines to continue until the rate of inventory liquidation reaches its peak,’ Greenspan told an audience at Reuters in London.”

“‘There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners,’ Greenspan said. ‘All that I conclude is that the process of inventory adjustment has just started and we have a long way to go before residential housing and mortgage markets stabilize in the U.S.’”

Newsday reports from New York. “To give an idea of the state of the home builders’ business these days, Ira Tane has switched from Model A to Model B. The big difference is that not only is Model B smaller, 2,000 square feet smaller, but the lower price means it’s the one selling nowadays in Long Island’s new-home market.”

“‘I would like to build that 5,000-square-foot house, but my business sense tells me that I am going to be better off building a smaller house for less money and leaving potential profit on the table just to be able to move forward. I can’t retire on one house,’ said Tane, founder of Benchmark Home Builders in Huntington Station.”

“What’s happened in the new-home construction industry parallels the recent slowdowns in the real estate and lending markets. To take advantage of the hot market, some builders invested in McMansions.”

“‘Building a five-bedroom home that’s 5,000 square feet, you make a lot more money than a two-bedroom town house that’s 1,200 square feet,’ said Jim Morgo, Suffolk County commissioner for economic development and workforce housing.”

“Until last year, Contempri Homes president Dominick Pedulla Jr. was chasing land for sale. Now, the Malverne company is getting calls from builders and real estate agents trying to dump land to him because they don’t want to risk constructing a home no one will buy.”

“‘People are going to have to lose money to get out of these properties,’ he predicted.”

“East Meadow-based businessman Steve Klar’s offer of a free, new Mercedes-Benz with a new house didn’t work as well as he’d thought it would. So many potential buyers come back for repeat visits with the same news — ‘I’d buy it in a minute if I could just sell my house,’ they’d tell him.”

“‘The sink is blocked,’ Klar said, ‘and we need Drano.’”

“It’s not going to be easy riding the change in fortune. ‘When people have been eating caviar for a long time,’ Morgo said, ‘it’s hard for them to get used to beans.’”

The New York Times. “Although the wave of foreclosures is national in scope, no borough in New York has been harder hit than Queens. The Johnson sisters thought they were safe; their father paid off the house before he died in 1995. But hard times began five years later, when their mother, who had only limited health insurance, took out a loan on the house to help pay for her double-bypass surgery.”

“She died the next year, and three years ago, in 2004, Lisa Johnson decided to refinance the mortgage. To this day, she does not understand exactly what happened, but somehow the refinanced mortgage ended up costing the family $2,700 a month.”

“The sisters could not handle the payments. They defaulted on the mortgage last fall. ‘Sometimes,’ Lisa Johnson said ruefully, ‘ignorance can get you in a lot of trouble.’”

The Boston Herald from Massachusetts. “Many Boston homeowners now facing foreclosure bought their properties less than a year ago, a Herald review found, raising questions as to the legitimacy of many of those sales. About 1,770 Boston residents were handed foreclosure notices by their lender over the past year.”

“More than a third of those homeowners received notices just months after buying their homes, statistics compiled by local housing researcher John Anderson show.”

“‘One of the complaints that is increasingly prevalent is that so-called straw buyers engage in fraudulent transactions designed, in one form or another, to strip equity from a property,’ said Amie Breton, a spokeswoman for Attorney General Martha Coakley.”

“‘These mortgages were bad even before the ink dried on the mortgage application,’ Anderson said.”

“Jennifer Stone is one of those buyers, claiming she was duped into taking out an expensive, high-interest mortgage she couldn’t afford to pay. She is now facing foreclosure after buying a $480,000 two-family home last spring in Dorchester.”

“She decided to drop out of the Section 8 rental subsidy program and become a homeowner after attending a seminar at a Dorchester church. But Stone’s dream turned bitter the day of the closing, when she was told the $2,500-a-month payment she and her partner were promised, turned out instead to be close to $4,000.”

“‘It’s kind of like feeling you have lost everything,’ Stone said.”

The Herald Mail from Pennsylvania. “The land rush that began in 2002, when the number of residential lots approved nearly doubled to 2,116, slowed dramatically this year as the housing market cooled nationally.”

“What customers want to buy also has shifted with the changing market. ‘With the market conditions, we’re trying to find a price point that will sell,’ developer L. Ray Rachuba said. (He) talked about basic, starter houses as being a forgotten market.”

“Rachuba cut lot prices in half in the Antietam Commons development in southern Franklin County’s Washington Township. He also bought Mill Creek Acres in Chambersburg from Ryan Homes, dropped the asking price of each house $40,000 and offered closing assistance.”

“Developers accustomed to getting 18 percent to 20 percent profit now are looking at 7 percent or 8 percent, Rachuba said.”

“‘I’m just as guilty as anyone for overpaying for land and trying to maximize (a return),’ he said. ‘We forgot, I guess, that pull for a 350- or 400-thousand-dollar house is only so strong.’”

The Asbury Park Press from New Jersey. “There are signs of life at Hawkins Ridge, a Kara Homes development in Jackson. (At) several other former Kara Homes developments, now owned by Maplewood, which bought Kara out of bankruptcy..the new company is injecting more than $90 million in operating and construction cash into the projects.”

“Maplewood is willing to take into account the deposits that were given to Kara, essentially discounting a house, said Lakewood developer Glen Fishman, one of the investors of Maplewood. Maplewood does not have access to the deposits given to Kara, money that, unless it was bonded, is gone. In many cases, the deposits represented 10 percent of a home’s purchase price.”

“‘We are giving these homeowners who endured a tremendous amount of pain in this bankruptcy basically a 10 percent discount on a house,’ Fishman said.”

“Janak Goyal said he is moving forward on his contract to buy a $1.3 million home at Buckley Estates in Marlboro. He had given a $210,000 deposit to Kara, an amount that Maplewood will assume, and had expected to move in in September 2005.”

“‘I have no choice,’ Goyal said. ‘If you don’t sign, you are an unsecured creditor and you get 9 cents on the dollar.’”

“But some work performed by Kara, which he didn’t like, won’t be changed, he said. Plus, he still has to pay the same price for the house, even though he won’t be able to sell his current home for the same price had he sold it in 2005, when the market was healthier, Goyal said.”

“‘I am losing anyway,’ he said.”

The Baltimore Sun from Maryland. “Samantha Stoney bought her house in Canton for a lot less than the sellers had originally hoped to get, but the good deal didn’t end with the $243,000 price. They covered most of her closing costs, too, a $10,000 incentive.”

“Originally listed at $300,000…the $10,000 toward closing costs ‘really made a big difference,’ she said. ‘I didn’t have to negotiate anything,’ said Stoney. ‘I probably wouldn’t even have asked for quite that much.’”

“In effect, the sellers received $233,000. But that’s not what got recorded in the home sales statistics.”

“Amid a deepening housing slump, givebacks have become increasingly common, even expected as a matter of course here and nationwide, economists and real estate agents say. And because they’re unmeasured, they mask an erosion in housing prices.”

“These discounts are so widespread that some economists think that prices in the Baltimore area - up about 2 percent so far this year, according to official numbers - have really declined.”

“‘They’ve probably been falling since late last year or early this year,’ said economist Mark Zandi.”

“Local real estate agents say homeowner givebacks are typically worth 2 percent to 5 percent of the home’s selling price, significant cash. Five percent of a $400,000 home is $20,000. Some homebuilders, meanwhile, are advertising incentives of up to $100,000.”

“And it doesn’t look as if sellers will be able to stop soon. In the Baltimore metro area, the number of unsold homes on the multiple listing service hit its highest level on record last month, just over 20,000.”

“Sales were down 17 percent from last August - and nearly 40 percent from August 2005, the end of the housing boom.”

“Builders are offering incentives, said Metrostudy’s Kenneth Wenhold, to compete against all the older homes for sale and to grab a bigger piece of the new-home market while the grabbing’s good. ‘What they’re basically doing is slitting the other builders’ throats in an attempt to capture market share,’ Wenhold said.”

“At Ovation, a luxury condo project in Columbia, Ryland is covering a year’s worth of pricey condo fees. To bring attention to its Church Hill Hunt community in Queen Anne’s County, it promises buyers help in selling their current homes.”

“‘The people making money in real estate today are not the ones selling it; they’re the ones buying it,’ said Earl Robinson, VP of sales and marketing with Ryland, who estimated the value of the company’s incentives at ‘upwards of $100,000′ in some communities.”

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