December 25, 2007

We Need Some Bargains In The Real Estate Market

It’s holiday desk clearing time for this blogger. “Skyline Pines East, the hilltop development project planned for the southern edge of Rapid City, South Dakota, will include four condominium towers standing seven stories tall. The 196-unit project will offer great views of Rapid City and the plains. Meanwhile, planning continues for the Rushmont Building, a 17-story condominium tower in downtown Rapid City. It will offer great views of downtown.”

“That’s a lot of high-end housing. Can this market support it? Bob Drew, the Realtor marketing Skyline Pines East, said there are a number of Midwestern farmers selling their farms and moving to the Black Hills. ‘And they’re bringing their wealth this way,’ he said. In addition, Rapid City is attracting California transplants.”

“As in many communities around the country, foreclosures in Attleboro shot off the charts in 2007, more than doubling during the first 10 months of the year. Last Tuesday, the Fed answered much criticism and calls for action by cracking down on shady lending practices.”

“U.S. Rep. Barney Frank said Bernanke’s announcement is further proof of two things: that the Fed is ‘not a strong advocate for consumers: and two, there is no Santa Claus. People who are surprised by the one are presumably surprised by the other.’”

“‘The Fed has done too little, too late,’ said Kathleen Day, a spokeswoman for (a) center which promotes home ownership and works to curtail predatory lending. ‘We don’t think it is strong enough to protect people in the future, and does nothing to help people left holding the bag now.’”

“Homes are still being built in Champaign County, but builders have become more careful and conservative in picking their projects. Chris Creek, president of Creek Development, said the market for new mid-priced houses and condominiums is ailing.”

“‘I don’t think we’ve been this low in probably 17 years or so. We’re significantly down from any year in the past decade, and we’ve cut our prices 8 to 10 percent,’ said Creek, who is developing condos in Urbana.”

“Creek said that in the fall of 2005, he felt ‘too many people were doing too many crazy things.’ When a banker asked him how many lots were presold in a subdivision he was developing, he said 60. ‘I thought to myself, ‘This is beyond a good time. There’s something wrong here.’”

“Central Europe’s real estate market is relatively safe from the global credit crisis, the Royal Institution of Chartered Surveyors believes. ‘[Central and Eastern Europe] is certainly better insulated from risks of a major shock than other parts of Europe,’ the group’s chief economist, Simon Rubinsohn, told a real estate conference in Budapest.”

“Otis Spencer, of Heitman, which manages about $20 billion in real estate investments worldwide, said there was some pessimism over commercial assets but that he saw no sign of that on the residential side.”

“‘Banks are very eager to lend … a 100 percent mortgage, so there’s quite a dichotomy there,’ Otis said.”

“A single-family detached house has long been the ideal dream for Canadian homebuyers. But, in case you couldn’t already tell by all the construction cranes dotting Toronto’s ever more crowded skyline, 2007 has become the year of the condo.”

“Historically, from one-quarter to one-third of all new homes sold were condos, said Stephen Dupuis, CEO of the Building Industry and Land Development Association. With condos taking the lead in November, making up 52 per cent of all new homes sold (and) with one month left to go, builders expect that ratio to stay above 50 per cent to close 2007.”

“‘When condo sales were 45 per cent of the market last year, we thought we’d never see another year like that,’ Dupuis said.”

“‘New condos are selling like hotcakes, it’s as simple as that,’ said association president Bob Finnigan.”

“Several small Norwegian towns near the Arctic Circle have been plunged into financial crisis after making huge losses with investments linked to US subprime housing loans, Norway’s finance ministry said on Thursday.”

“‘This is a sad and very dramatic case … The municipalities in question now face huge uncovered losses of a yet unknown amount,’ finance ministry state secretary Ole Morten Geving told AFP. ‘The way the investments were handled merits sharp criticism.’”

“Following the brokerage’s bankruptcy, the government called on the 78 Norwegian banks that make up the Terra Group, to assume their ‘moral responsibility’ and help the investor towns. The banks however said on Thursday they had no plans to bail them out.”

“The Norwegian government has meanwhile indicated it will not rescue the towns. ‘The towns have also committed errors, for which they must take the consequences,’ Geving said, adding that ‘the state cannot be a security net.’”

“Bear Stearns CEO James Cayne has denied reports in The Wall Street Journal that he smokes dope. He’d be better off saying he does. How else can one explain loaning billions of dollars to millions of deadbeats? Already, banks around the world have written down more than $100 billion in bad mortgages.”

“Anthony Accetta, a former federal prosecutor who works as a private fraud investigator in Denver, has seen this coming. He said he went to Wall Street’s biggest firms with a pitch, only to find that they did not care how their money was loaned, as long as they could keep bundling the loans into mortgage-backed securities and pass them off to investors.”

“‘I was trying to sell these firms quality-control programs, and they laughed at me,’ he said. ‘This is not a gamble that went wrong. This is not an accident. This is fraud, and I want it prosecuted.’”

“‘We are obviously upset with our 2007 results,’ Cayne said in a statement. He’s so upset that he passed on his bonus, which totaled $40 million last year. As bad a sign as this is — a Wall Street guy saying no to a bonus? — the mortgage meltdown has only just begun.”

“The subprime mortgage mess has turned into a grinch, sneaking around Wall Street taking hefty bonus envelopes out of stockings and from underneath Christmas trees. ‘We’re looking for a 30 percent decrease [in the bonus pool] for this year,’ said Frank Braconi, chief economist in New York City Comptroller’s Office.”

“Braconi said that drop translates into $10 billion less in Wall Street’s pay envelopes this year compared to last.”

“Doug Lovely at Mann Mortgage said he wonders which came first in the housing crisis: Did the big banks make these loose loans to accommodate the rapidly rising real estate market? Or did the overheated real estate market come about because the financing tools were available?”

“As for the ‘can’t understand ‘em’ collateralized mortgage-based securities, Lovely said he is getting good laugh mileage with a quote he heard on CNBC: ‘Why do we have to think up all of these complicated new ways of losing money when the old ones still work so well?’”

“The collapse of the plan to create a $75bn ’superfund’ is embarrassing for the US Treasury, which backed the scheme, but is not likely to have big implications for financial markets, analysts and former officials said.”

“People involved in the supersiv fund said the decision to pull the offer reflected a lack of interest, which become clear last week as banks announced deals which led to injections of capital, giving them greater capacity to absorb assets on balance sheet.”

“‘The vehicle is not needed at this time,’ Bank of America, Citigroup and JP Morgan Chase said in a joint statement.”

“Nowadays, it’s impossible to watch the 1946 holiday movie ‘It’s a Wonderful Life’ and not feel a twinge of respect for Henry F. Potter, the villainous banker played by Lionel Barrymore. Potter was not above drawing the last drop of blood, but at least borrowers knew whom to hate. And if they were late paying, they knew where to crawl.”

“That’s not necessarily the case today. Mortgage companies often ship the loans to Wall Street, which repackages them into securities sold around the globe.”

“So if you’re a borrower in trouble, and your loan is diced up into some mortgage-backed security, you’d be hard-pressed to find a lender’s ear. How’s your Chinese?”

“Fewer residents owned their home in Pottersville, but that nightmare town had some things over today’s Greenspan City. Pottersville didn’t have block after block of boarded-up houses lost to foreclosure, as is currently seen in many American communities.”

“Former Fed Chairman Alan Greenspan had cheered on the housing bubble that raised home prices to ridiculous levels. And despite the warnings, he ignored the recklessness and downright cons that would inevitably push mortgage market into crisis.”

“The weak borrowers who couldn’t get a mortgage from the sourpuss Potter — and probably not Bailey — were better off than the moderns lured by the happy dancing figures. The latter were sucked into paying inflated house prices and fleeced by stiff fees and punishing interest rates. Then they lost their homes.”

“Which is less attractive, Pottersville or Greenspan City? It’s a real tossup.”

“Do you wonder how Dallas-Fort Worth home sales prices continue to go up in the face of the nationwide housing slowdown? The truth is they probably aren’t. It’s a statistical glitch that’s making it look like home prices are growing in North Texas when they probably are falling.”

“The area-wide Dallas-Fort Worth numbers that the Realtors are quoting aren’t actual home values – they are medians and averages of total sales. This year, as mortgage standards have tightened, the number of families buying first-time, lower-cost homes has fallen sharply.”

“Realtor price breakdowns show that sales of homes priced between $100,000 and $200,000 are down 10 percent to 16 percent. Don’t be fooled by a numbers game that makes it look like our housing values are going up. Just ask someone trying to sell.”

“As the holidays come panting to our doorstep and the home becomes ground zero for our sugar plum dreams and nightmares, I’ve been thinking about all the ways real estate influences our experience of this time of year.”

“So this year I went in search of real estate-related gifts for all kinds of loved ones.”

“For the beleaguered homeowner who is about to list their home, nothing beats burying a saint in the backyard. St. Joseph, the patron saint of carpentry, has become famous for his uncanny ability to smooth sales and maximize profits.”

“Got family or friends who find themselves upside down? Consider gifting them a copy of ‘The Survival Guide to Foreclosure.’”

“Good news for you: It’s free! Bad news for your loved one: The author happens to be a foreclosure investor, so he may stalk your friend or family member and try to buy their house out from under them!”

“The mortgage payments that were agreed to cannot not be met. Duh!”

“Let me see - I will have these expenses plus this mortgage payment with this low initial interest rate which I can easily meet. BUT wait, on ‘X’ date the interest rate goes up and the mortgage payment will be ‘Y’ amount. Can I still afford to buy the house? Even a caveman can, so surely a high school dropout should be able to figure that out!”

“You say the problem was the mortgage company and their fine print? Wrong, but one of my proposed laws would require ALL fine print to be in equal or larger type size than the company name in all ads. Ever try to read the fine print on a Ditech ad?”

“I say these individuals made their own problems, so let them work them out. Keep government out of free enterprise, and let the foreclosures roll.”

“We need some bargains in the real estate market.”

“Philip Wise wants to take Habitat for Humanity to the next level. Ironically, the downturn in housing may provide the means to get it there.”

“The former real estate executive and longtime visionary of Dallas Habitat says the housing industry slump provides an unprecedented opportunity for the nation’s largest nonprofit builder to shelter more poor families.”

“‘We can now acquire raw land, prepared lots and possibly finished homes from builders, investors and lenders cheaper than any time in the previous seven or eight years,’ says Mr. Wise.”

“‘Larger public homebuilders have already written down or walked away from $16 billion in land, completed lots and finished homes,’ says Mr. Wise, adding that some lots can be purchased at 40 percent of the homebuilder’s cost. Think of it as a 60 percent off sale.”

There’s No Sense Of Urgency Whatsoever

The Daily Press reports from Virginia. “When the developers of City Center at Oyster Point were putting together condo plans a few years ago, builders could pre-sell half the units before they were done. Now the first 54 condos will go on sale at The Point at City Center in January amid a very uncertain market where pre-selling a condo is a miracle.”

“The City Center developers are confident in their product and the long-term trends, but they are holding off on a planned 18-story condominium tower called The Meridian as credit markets have fizzled.”

“The desire for Peninsula buyers to move into condos rather than buy a home or rent will be severely tested in 2008. The second half of the year has brought a growing deterioration in both median price and number sold, and a new slate of supply will be joining the City Center condos on the Peninsula next year.”

“‘Most people feel we’re going to have to struggle through another tough three to six months,’ said William Hudgins, the president of the development arm at Harvey Lindsay, one of City Center’s developers.”

“The slowing condo sales market prompted Beco Asset Management’s request to turn 168 of the 254 condos into high-end apartments in the Windy Knolls subdivision in Denbigh.”

“The city of Newport News is fighting the request. City Council members chided the developer for wanting to change a plan that was already approved, and nearby residents raised the specter of public housing — despite the fact that the condos would sell for up to $300,000.”

“Jeff Miller, Beco’s director of development, is even more pessimistic about the 2008 market than Hudgins. ‘I don’t see the condo market recovering this coming year,’ said Miller. ‘At best, it’ll be 2009.’”

The Virginia Pilot. “It seemed like the perfect opportunity: a home mortgage lender that required no proof of income, wealth or employment from its borrowers. For Cary McEntee and his company, CM Development, Long Beach Mortgage’s ‘no doc’ loans made it much easier to tap other people’s credit to buy houses.”

“It was 2004, and soon other national subprime lenders were vying for the company’s business. CM Development and its investors received more than $19 million in loans from more than 20 banks over the next 2-1/2 years.”

“But by March of this year, more than half of the roughly 250 properties controlled by the company sat vacant and efforts to renovate many had stalled. The company has since been forced into bankruptcy.”

“McEntee has testified that the company falsified about 80 percent of these documents. CM Development’s case highlights a lesser-known problem: Subprime loans made housing fraud a whole lot easier.”

“Earlier this year, a Fitch study of subprime mortgagebacked securities found that roughly a quarter of recent subprime loans were some type of fraud. Other experts say the international credit rating agency’s findings are low, and estimate cases of fraud at closer to 50 percent.”

“As the real estate market heated up and house values appreciated, the company resold its properties repeatedly between investors - squeezing out more equity and taking on larger loans each time. This continued even though most of these borrowers were not equipped to shoulder so much debt.”

“One investor, for example, couldn’t afford to buy a home for himself but qualified for nearly $350,000 in loans through the company. A 28-year-old teacher received $722,000 in mortgages on five properties. Two brothers qualified for more than $4.5 million in loans on more than 50 properties, many of which were uninhabitable.”

“And a CM Development employee received nearly $700,000 in mortgages while in the Virginia Beach jail on drug charges.”

“‘The two words everyone forgot was ‘due diligence,’ said Anthony Sanders, professor of finance at Arizona State University. ‘And now, as soon as the party’s over, you say, ‘Gosh, I wish we’d been monitoring this all along.’ There’s going to be hell to pay.’”

“McEntee said the banks weren’t particularly concerned about the specifics of the company’s sales. ‘They didn’t care where the money came from,’ he testified at a federal bankruptcy hearing last month. ‘There was such a big push on for the money, they were doing whatever they could to sell those loans.’”

The Herald Mail from Maryland. “It had been a year and four months since Gary and Maggie Schweitzer put their house near Hagerstown up for sale, and they were ready for a break. So they packed the car and headed toward the mountains of New Mexico, where they had long hoped to retire.”

“Late morning on the third day, their cell phone rang. It was their Realtor calling with incredible news: Two offers had come in, simultaneously! ‘It was very unexpected, certainly,’ said Gary Schweitzer.”

“Pumped by easy loans, and big city builders and commuters discovering rural communities, area land and house prices had risen rapidly since 2000. But in 2005, a stall kicked in as loan interest rates suddenly jumped, credit standards tightened, (and) foreclosure became a household word.”

“Settlement prices in Washington County have fallen from $248,904 for the average home in November 2006 to $207,827 last month, according to Metropolitan Regional Information Systems Inc.”

“When they listed the house at $380,000 in late June 2006, they knew the timing wasn’t the best. ‘We figured selling it would take several months — certainly by October, I thought,’ Gary said.”

“But by October, even after several showings, there were no offers, he said. So, working with Realtor SuZanne Glocker, they cut the price by $10,000. Still, nothing.”

“As Christmas neared, ‘we were still optimistic,” he said. The months passed and the couple dropped the price repeatedly, but the only offer - about $270,000 — ‘was so lowball that we didn’t even respond,’ he said.”

“‘…So, I think, hopes began to fade in late spring or early summer.’ The asking price was $330,000 in late October.”

“The leading offer came from Tim and Ursula Mauro, a young couple who have two children and were renting a townhouse in Frederick, Md. Ursula Mauro thought Realtor Eric Verdi was lost when he turned into Brightwood Acres East and she saw the big lots and big houses.”

“‘I was like, ‘We can’t afford anything in this neighborhood,’ she recalled. ‘Like, ‘Did he make a wrong turn?’”

“Verdi knew what he was doing. Housing prices have been falling since reaching record heights two years ago.”

“The Mauros made an offer. The Schweitzers faxed a counteroffer from New Mexico and, within a week, they had a deal: The price was reduced to $319,600 and the Schweitzers would pay more than $9,000 in closing costs, Verdi said.”

“The contract, signed Dec. 7, gave the Schweitzers $70,000 less than they’d originally been asking, but they were truly delighted, Gary Schweitzer said. It will enable them to build their dream retirement home next spring.”

“‘We love the West, and if there’s a price to be paid for that, then, certainly, yes, we’re willing to pay that,’ he said. ‘Plus, it looks like things (in real estate) will certainly get worse for the near term.’”

From The Record in New Jersey. “While builders can make profits of 20 percent or more during good times, that’s far from a sure thing these days. Demand for new homes has dropped…tighter mortgage lending standards have locked many would-be buyers out of the market. Other potential buyers, seeing the market slowdown, are waiting for deals.”

“Many developers, including Hovnanian, Pulte and Tarragon Corp., continue to offer discounts or incentives, such as help with a buyer’s closing costs or monthly condo fees.”

“There have been dramatic price cuts. In Norwood, a subdivision of three new houses went on the market earlier this year for $1.2 million to $1.4 million. Two of the three sold for more than $300,000 off the original asking price; the third is on the market for more than $400,000 off the initial price.”

“‘There are great deals out there, in my opinion,’ said real estate agent Ann Murad in Woodcliff Lake. ‘It’s definitely a buyers’ market.’”

“Still, many potential buyers aren’t taking the bait yet. Many believe that prices may have further to fall; or, at the very least, that they won’t rise much for a while.”

“‘Now, there’s so much supply that buyers are saying, ‘It’s a nice house, I really like it, but I don’t know, I’ll wait and see,’ said Richie Wells, president of the Builders and Remodelers Association of Northern New Jersey.”

“‘There’s no sense of urgency whatsoever,’ said Murad. ‘That’s the new market right now.’”

“Tarragon is repositioning two residential buildings in Hoboken, from condos to rentals, said Tarragon President William J. Rosato.”

“Tarragon also is trying to get creative with marketing. The company recently allowed an art gallery to host a reception and art show in one of its model units at a new, 16-story condo building in Edgewater.”

“‘It’s a way to bring people to the building,’ Rosato said.”

“How much would a buyer pay for a new house in Ramsey, with three bedrooms, 3½ bathrooms, a stone facade and high-end finishes such as crown molding and stainless steel appliances?”

“Mike Karvellas, who built the house, used to think the answer was $759,000. But after the house sat on the market for months, Karvellas cut the price again and again. He finally sold it for $659,000, a price that wiped out his profit. But at least he will no longer be burdened by the property’s carrying costs, such as taxes and loan interest, of more than $5,800 a month.”

“‘I’d rather get rid of it and get out from underneath my investment,’ Karvellas said.”

Bits Bucket And Craigslist Finds For December 25, 2007

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