January 9, 2008

Nobody Wants To Overpay In California

The San Mateo County Times reports from California. “Home sales continued to plummet and prices fell in many San Mateo County cities in December as the worst housing slump in more than 20 years deepened, a new report revealed Tuesday. With buyers being extra cautious, home sales declined 34 percent in December compared to December 2006, according to the County Association of Realtors.”

“‘Sales are almost coming to a grinding halt in some areas,’ said Denise Aquila, broker in San Carlos. ‘People are nervous. Nobody wants to overpay on a home, and many buyers are scared the bottom will come crashing down if they do buy.’”

“There’s a huge sales slowdown on the coast, in places like Half Moon Bay and Pacifica and points in between. There’s also a big sales decline in Daly City, San Bruno and South San Francisco.”

“Cities hit hardest with median price declines included Daly City, East Palo Alto, South San Francisco and San Bruno, where an increasing number of homes are going into foreclosure and banks are taking over properties.”

“The median price of a single-family home countywide in December fell to $875,000, down from $922,500 in November and just over $1 million in October.”

“A year or two ago, home sellers were in the driver’s seat. Two out of three of them received more than their asking price. Now, many are lucky to get 90 or 95 percent of their asking price, the report shows. Some get less than that.”

“‘The trend is increasing toward homes sitting for a longer time on the market,’ said Richard Calhoun, a real estate agent in Santa Clara. ‘This year is going to be a very lean year, and a lot of real estate agents will be leaving the industry.’”

“Calhoun hasn’t seen sales this poor since 1984, and doesn’t expect a recovery until 2009.”

“A growing number of homes are coming on the market, as ’some people are trying to cut their losses and get out,’ Aquila said.”

“In Redwood City, some homes that sold for $950,000 a year ago in mid-range neighborhoods like Woodside Plaza are going for $825,000 or $835,000, said broker Joe Rodden.”

“He added that homes that sold for between $600,000 and $700,000 in the Fair Oaks area of Redwood City are selling for 10 percent less.”

From ABC 7 News. “Three homebuilding executives appeared on KGO radio’s the Ronn Owens Show with an optimistic view on new home sales in the Bay Area.”

“‘Palo Alto, I’m talking about a million-dollar condo, 1,200 square feet in Palo Alto and we are selling 5 a month,’ said Vickie Nyland from Taylor Morrison Homes.”

“These builders agree now is the time to buy property, and new homes may be a better deal than a re-sale.”

“‘We have to sell homes. We are building the homes, we need to sell them, we can’t take them off the market as you may do in a re-sale situation so new homes are a bargain right now,’ said Nyland.”

“Cynthia Kroll is with the Fisher Center for Real Estate at UC Berkeley’s Haas School of Business. She’s less optimistic.”

“‘It probably will get worse before it gets better. And here are the reasons, there is less money out there for people to borrow, second people haven’t decided how to respond to it yet,’ said Kroll.”

The LA Times. “The landmark Sears, Roebuck & Co. building in East Los Angeles is back on the market after a final purchase agreement with popular boxer Oscar De La Hoya and his partners was not reached by year end, the owner said Tuesday.”

“De La Hoya’s team acknowledged plans last summer to acquire the 23-acre property for about $70 million and turn it into a housing and shopping complex.”

“Owner Mark Weinstein said the deal stalled after about six months of negotiations…and no down payment had been made by year-end. he said. ‘They want certainty in an uncertain world. I appreciate that, but I want to get the project started,’ he said.”

“Weinstein’s original plans for the building included 480 condominiums, 180 apartments and 750,000 square feet of stores and restaurants. Instead, he decided last year to sell the property.”

The North County Times. “Home prices in North County continued to slump in December as a credit crunch took a serious bite out of the upper end of the housing market, according to a new report by the North San Diego County Association of Realtors.”

“The median price of detached homes was $569,000, down 9 percent from the same month a year ago, and 3.4 percent less than November’s price. Even steeper was the fall in the median price of condos and detached homes combined: an 8 percent dive in one month, to $485,000.”

“Year-over-year sales numbers for local homes priced more than $1 million fell 39 percent to 88, according to the report.”

“Market participants said that one reason fewer expensive homes sold is that mortgage defaults have led banks to tighten their lending standards, especially on ‘jumbo’ loans that are increasingly difficult to obtain.”

“‘I’m seeing just about the same (number of applications). The problem is we can do a lot fewer of them,’ said Dave Hopkins, a senior loan officer with a brokerage firm based in Rancho Bernardo. ‘The programs are just not available any longer.’”

“While the median price fell 3.4 percent from November to December, the median price per square foot in North County declined 6.1 percent to $263, or 14.6 percent less than in November.”

“That could mean buyers were getting more house for their money or that larger, more expensive homes were not selling.”

“‘I believe that the price drop is even greater than the median prices are showing,’ said Dennis Smith, a Carlsbad-based real estate agent. ‘If your house is 3 percent larger and you’re getting a 3 percent drop in price, it’s a 6 percent drop in real prices.’”

“Smith said he thinks the county could be as much as 18 months away from seeing prices hit their lowest point. But he still thinks consumers should buy a home as long as they plan to stay for a long period.”

“‘This is the best time to buy within the last three years because prices are down from where they were three years ago,’ Smith said. ‘Is there still room for them to go down more? Definitely.’”

The Press Enterprise. “KB Home, the largest Inland home builder, said Tuesday its fourth-quarter loss swelled to nearly $773 million, reflecting the downsizing under way throughout the home building industry.”

“The Los Angeles-based builder’s losses stemmed from declining sales and revenues and the falling values of land where it won’t be able to build and homes that it hasn’t sold.”

“KB Home surpassed Lennar to take the No. 1 spot in the two-county region, although its sales dropped slightly from 1,753 homes in the previous 12 months and plummeted almost 45 percent from the same period two years earlier.”

“As part of a belt tightening, KB Home last year closed management divisions for San Bernardino and San Diego counties and consolidated five counties, San Bernardino, Riverside, Imperial, San Diego and Orange, into a single division based in Wildomar.”

“Steve Johnson, director of a Riverside real estate consultant, said public builders ‘can’t cut their overhead fast enough to cover the drop in sales.’”

The Merced Sun Star. “Back in August I wrote a long story about Merced’s foreclosure crisis. One man, Mark Gallegos sat in his living room and told me how he had taken out several home equity loans to start a new business, the business failed and he couldn’t make his mortgage payments.”

“He didn’t want people to feel sorry for him; he was just willing to set aside personal pride to put a human face on the story.”

“Recently I got to see how his story ended. I wrote a story a couple weeks ago about how the Kings View Work Experience Center is cleaning up foreclosed properties. When the manager told me to meet him at a house on S Street to see his team in action, I thought the address sounded familiar.”

“Bingo, it was the Gallegos house. Their house was sold at a public auction a couple months after I wrote about them, and they moved out shortly after.”

“They left behind two messages. In the driveway they spray-painted the dates they had lived there: 7/7/73 - 10/10/07 and the phrase ‘Gallegos Lived Here!.’”

‘In the kitchen they wrote a small piece of graffiti: ‘This house was loved and lost by the grace of God by the Gallegos family be kind to it.’ Yes, they shouldn’t have damaged the property, but if you were leaving your home of more than three decades, you might be tempted to leave behind some mark.”

The Daily Bulletin. “Unemployment is rising. There’s no sign of an end to the housing slump. Oil topped $100 a barrel briefly last week. None of those three items are good news for the overall economy.”

“But Cal State San Bernardino’s Institute of Applied Research says that locally at least, things aren’t getting any worse. They may even be getting a little better. The region’s purchasing managers index for December came in at 50.9 percent, a decline from November’s PMI of 53.1. But since the number is still above 50, it indicates that the manufacturing sector is continuing to grow.”

“The employment index of 47 marked the third consecutive month below 50 for that number. ‘Nationwide data seems to suggest that unemployment is growing,’ the IAR directors said. ‘Further, as has been the case for the last several month, purchasing managers remain pessimistic about the state of the local economy for the coming quarter.’”

“Indeed, only 16 percent of those surveyed expect the local economy to improve in the first quarter of 2008, while 38 percent are predicting it will get worse.”

“‘We’re definitely on recession watch here in Southern California,’ regional economist Jack Kyser said. ‘Who knows how long it will be before the housing market recovers? We’re also seeing the start of a general shakeout in retail, with a lot of stores being closed.’”

“‘A lot of stuff is sorting out,’ Kyser said. ‘We don’t know how long it will take, but when it’s done, things will get better.’”

If You’re A Buyer, You’re In The Admiral’s Seat

The Rocky Mountain News reports from Colorado. “The average price of a previously owned single-family home in the Denver area fell 2 percent last year, apparently the first time the area has seen a year- over-year decline. The median price also suffered the first year-over-year decline. ‘Yes, pricing is down on residential,’ said Gary Bauer, one of several people to complete a report on Tuesday. ‘But if you look at the tremendous numbers of foreclosures, the tightening credit and what is happening in other markets with really big problems, I’m very happy.’”

“The market for homes priced at more than $1 million had been strong during the past couple of years and the first half of 2007, but sales for expensive properties began to slow in the fall, according to data from Coldwell Banker Colorado.”

“There are 1,759 single-family homes priced at $1 million or more on the market, according to broker Jim Nussbaum. ‘Buyers are more picky,’ Nussbaum said. ‘You can’t be sloppy in your pricing.’”

“Ed Jalowsky, who recently launched Hottest Homes Realty, said the market is the best buying opportunity he has ever seen. ‘If you’re a buyer, you’re not in the captain’s seat, you’re in the admiral’s seat,’ Jalowsky said.”

“Jalowsky said he is getting ready to list a home in the Crestmoor neighborhood in east Denver for about $480,000. The home had sold in 2006 for $569,000, he said.”

“Broker Beverly Meade saw a foreclosed home near Sloan’s Lake advertised at $39,000, which last month sold for $43,000.”

“‘If you have money, it is a good time to buy,’ Meade said. ‘If you are in foreclosure, you are not in a position to benefit from today’s market. This market is not unlike the late ’80s in Denver. It’s a trippy time. There are some amazing deals out there.’”

The Gazette from Colorado. “There’s been plenty of doom and gloom in the housing market lately, but for those who are in a position to buy, the world is a happy place. Oh, yes, there most certainly is such a thing as a homebuyer in El Paso County.”

“Ent Federal Credit Union schedules a seminar for first-time homebuyers, and loan officer Tom Bechtel acknowledged that he’s seen larger crowds than the five people who showed up Saturday.”

“Bechtel was joined by Tony Deppe, a buyer/listing specialist. ‘There is a ton of inventory out there, and prices are at an all-time low,’ Deppe said. ‘It is an excellent time to buy a house.’”

The Fort Morgan Times from Colorado. “In the final analysis, Morgan County was hit hard by a stagnant home sales market, as was the rest of the country.”

“For a while, prices for Morgan County homes were increasing dramatically, but they are now falling. In fact, the problem for some people is that they agreed to pay a price higher than the property is worth now, said Colette Schilling, owner of Action Realty in Fort Morgan.”

“‘We’re finding it a challenging market,’ she said. ‘There is no doubt prices have dropped.’”

“Bruce Bass, a broker in Brush, takes a longer view, saying the company’s sales are down 28 percent since the housing bubble burst and that 2004 was the last good year, although sales have picked up some lately.”

“The real downturn is for investor sales. Many of the foreclosures were to investors and those still holding onto property are planning to hold properties and rent for a few years, Schilling said.”

“‘Price is the driving force right now,’ said Twyla Tiffany of Danford Realty in Fort Morgan.”

The Arizona Republic. “City administrators’ concerns unfolded as they turned to the first topic on the agenda: city budgets. The group had barely started eating when Queen Creek City Manager John Kross stood to ask how neighboring cities planned to balance their budget.”

“‘This is maybe not a lunchtime topic…(but) housing is in the tank,’ said Kross, emphasizing the local impact of a national housing crash that has created the largest inventory of unsold homes since World War II and caused some to predict the worst housing slump since the Great Depression.”

“‘We’re considering mothballing fairly significant capital projects,’ he said.”

“Phoenix City Manager Frank Fairbanks said Phoenix will meet within the next week to confirm budget projections but said he expects ’several hundred’ layoffs this spring to manage budget shortfalls.”

“Both single-family and multifamily housing construction will continue to be slow through 2008, according to predictions.”

“‘Obviously the credit crunch or financing is an issue, on top of which is the general economy,’ said Jay Butler, director of Realty Studies at Arizona State University’s Polytechnic campus.”

“The current slow market is because of tight financing and the response to the hypermarket that began in 2003. The market was overbuilt, Butler said.”

“‘We’re paying the price for having a good time,’ he said. ‘It’s like having a good time on New Year’s Eve so you pay the price on New Year’s Day.’”

The East Valley Tribune from Arizona. “Arizona’s mortgage industry was one of the hardest-hit in the country last year, with more than 2,000 jobs lost to company closures and layoffs.”

“The drop was spurred by massive layoffs at Countrywide Financial, American Home Mortgage Investment and Tuscon-based First Magnus Financial, the report states. Countrywide alone saw a net job loss of 11,665 last year, while bankrupt First Magnus lost 5,940 jobs.”

“The state had seen some of the highest home appreciation in the country, along with corresponding growth in lending, said MortgageDaily.com publisher Sam Garcia. So when the market turned, it suffered one of the largest tumbles in mortgage originations.”

“In 2006, Arizona lenders hired 3,791 people, compared with just 50 last year, he said. When business was good, lenders overstaffed and opened offices everywhere, said Bryan Madsen, a loan officer at AmeriFirst Financial in Mesa. Then, the big lenders came in and started hiring, he said.”

“Now, the existing-home market has slowed drastically, and many borrowers owe more than their homes are worth, eliminating refinance opportunities and slowing business.”

“‘We’re gridlocked right now,’ Madsen said.”

“The ones leaving haven’t established themselves in the community as reliable sources, said Elaine Paddy with Alliance Home Mortgage in Mesa. Some also haven’t adjusted their lifestyles and budgets to the smaller incomes they’re bringing in, Paddy said.”

“‘The industry has changed,’ she said. ‘Work harder, work smarter or find another job.’”

The Review Journal from Nevada. “The number of single-family homes listed for sale in Las Vegas dropped to 22,005 in December from 23,494 in November, the Greater Las Vegas Association of Realtors reported. Inventory is up 23.4 percent from December 2006.”

“The MLS showed 879 home sales in December, down 46.5 percent from the same month a year ago and the fourth straight month under 1,000 sales.”

“Condo and townhome listings increased 14 percent from a year ago to 5,508 in December.”

“Foreclosures have driven the single-family home median price down to $260,000, a 15.1 percent decline from a year ago. Median condo prices are down 5.1 percent to $185,000.”

“December’s statistics may not be a true reflection of the marketplace, association President Patty Kelley said. December is traditionally a slow month, she said, and a large number of homes are vacant and owned by investors, banks and other lenders who sold last month at deeply discounted prices.”

“‘More than one-fourth (228) of the homes had either been repossessed or were “short sales,’ Kelley said. ‘I believe that percentage may actually be closer to 40 percent of all home sales since banks are under enormous pressure to get these properties off their books.’”

“‘In any case, this has resulted in significant numbers of homes selling well below market value and appraised value, creating an artificially low median price,’ Kelley said.”

“The association reported 167 condo units sold in December, down 55.1 percent from a year ago.”

The Las Vegas Business Press. “There were 5,143 luxury condo units completed in the third quarter, including the $195 million, 428-unit Allure Las Vegas.”

“Meanwhile, there were roughly 14,388 units actively selling in the third quarter, with 12.3 percent being located along the Strip. Another 14,163 units are proposed for future development.”

“There have been 89 luxury condos sold year-to-date with a median price of $860,000, or $502 per square foot, Restrepo Consulting Group reports.”

“Reeling residential and subprime mortgage markets have increased the number of renters in the Las Vegas Valley. Potential home buyers required to come up with substantial down payments amid tightening credit are increasingly turning to high-end multifamily rentals, reports the Bentley Group, a local real estate advisory firm.”

“Yet, the 23,494 homes listed for sale last month have created a ’shadow’ rental market. Roughly 25 percent or more of those units are being used as rentals until the housing market rebounds.”

“Stagnant incomes have also aided the rental market. The median household income for Southern Nevada newcomers is $43,831, according to the 2007 Las Vegas Perspective.”

“Home sale list prices, meanwhile, averaged $306,000 in November, reports the Greater Las Vegas Association of Realtors, making the dream of home ownership elusive.”

“‘Although the residential market softened dramatically in 2007, household incomes and wages haven’t risen since 1990 when adjusted for inflation,’ said (consultant) John Restrepo.”

“A Boston-based investor recently bought the 18-year-old, 256-unit Martinique Bay Apartments in Henderson for $31.85 million, or $124,414 per unit. The 12.92-acre, 278,840 square-foot complex is mapped for condominiums. The sale price equals $114 per square foot.”

“‘While many continue to paint a ‘doom and gloom’ picture of the Las Vegas real estate market, fundamentals within the industry remain healthy,’ Bentley said.”

“There are 5,581 units on lease-up, 2,521 units under construction and 7,992 units planned for development, Bentley said. ‘Absorption entered positive territory for the first time since mid-2006, closing the third quarter of 2007 with 345 net move-ins,’ said Carl Sims, an apartment specialist.”

The Deseret News from Utah. “The Utah housing market is one of the strongest in the nation, and that trend is especially evident in Salt Lake City’s thriving condominium market. In the past year, the average sales-price increase in the 11 zip-code areas for Salt Lake City ranged from a modest 4 percent in the east-side Emigration Canyon area to a whopping 103 percent in the Foothill/Parleys area.”

“‘This kind of real estate was undervalued here for many years and a worthy alternative purchase for first-time buyers who can’t afford homes,’ said real estate agent Babs De Lay. But prices have increased so much now, she said, that ‘you take an area like Glendale or Rose Park, and you take a look at how much property values went up, affordable housing is really hard to find.’”

“De Lay said prices may increase even further as condo projects now under construction are completed this year and next year, including The Metro near Library Square and The Marmalade, which will compete with other high-end projects like the condos at The Gateway.”

“Wells Fargo economist Kelly Matthews said that an increasing number of Utahns are looking for an alternative to a family home in suburbia.”

“‘There is certainly a larger group of people not as worried about having a large family right away who recognize a long commute is just an impossibility,’ he said.”

“Carla Weise, economic development director of the Downtown Alliance, said the Salt Lake area is now attracting a hip, younger crowd who prefer the spoils of city life.”

“‘They like urban living, art, culture, entertainment, the night life,’ she said, ‘and being able to walk to a Jazz game, being able to walk to a restaurant or hop on TRAX and go up to a Utes game.’”

An Unusual Economic Situation

Some housing bubble news from Wall Street and Washington. Reuters, “Countrywide Financial Corp, the largest U.S. mortgage lender, said on Wednesday that foreclosures and late payments rose in December to the highest on record. In its monthly operating report, Countrywide said the foreclosure rate among the 9.03 million mortgages for which it collects and processes payments doubled to 1.44 percent from 0.70 percent a year earlier, and rose from November’s 1.28 percent.”

“The delinquency rate rose to 7.20 percent of unpaid balances from 4.60 percent a year earlier. December’s rates were the highest since 2002, the earliest period for which data are available.”

“In December…average daily mortgage loan applications fell 17 percent to $1.54 billion. Total lending fell 44 percent from $41.7 billion a year earlier, as subprime volume sank to $6 million from $3.74 billion.”

“The company is offering yields above 5 percent on some certificates of deposit and savings accounts to attract cash after credit markets seized up last year.”

The Orange County Register. “Folks shopping for a home loan are likely to face higher fees this year, especially if they have even a minor ding on their credit record.”

“Lenders already have raised their consumer prices to reflect fee increases they must pay to Fannie Mae, the largest U.S. funder of home loans, and Freddie Mac, beginning in March.”

“And for the first time Fannie and Freddie are charging higher fees on loans to borrowers with low to mid-range credit scores, known as FICO. Beginning March 1, the new fees will apply to anyone with a FICO under 680, if the loan is greater than 70 percent of the value of the home. That’s on top of the 0.25 percent fee.”

“Aaron Kopelson, in the Laguna Hills office of Loan Link Financial Services, which funds and brokers loans, said Fannie and Freddie have moved to ‘risk-based pricing’ for the first time. They are acting on rising delinquencies, he said.”

“UBS, a global financial company, said in a Jan. 2 report that roughly 40 percent of Alt-A loans made in 2006 and early 2007 could have qualified for sale to an agency like Fannie, while 26 percent of subprime loans could have qualified.”

“Now all such loans need to qualify or they won’t find funding, UBS said. To be sure, some lenders are making and holding a few riskier loans, experts say.”

“Raphael Bostic, associate director of USC’s Lusk Center for Real Estate, said fees hitting folks borrowing more than 70 percent of the value of a home seem rather ’strict’ and he would have expected the value to be set at 90 percent or more.”

“In an email, he wrote that the new rule suggests that Fannie and Freddie anticipate ’significant price declines’ for homes.”

The Connecticut Post. “In advance of its fourth-quarter earnings release, Webster Financial Corp. disclosed plans to cut costs and announced it will take a pre-tax provision of up to $62.4 million related to credit losses and discontinued businesses.”

“Of the funding, $40 million will increase the allowance for credit losses in ‘discontinued indirect residential construction and home equity loan portfolios,’ according to the news release.”

“‘We did some construction lending in Florida’ and had a national wholesale mortgage business, buying mortgages originated by others as a way to grow that part of the business, said spokesman Arthur House. ‘None of this is subprime’ lending, he said.”

“In the release, James C. Smith, Webster’s CEO, said the company has ‘identified, segregated and reserved against estimated losses,’ at a rate that reflects its view default and loss rates will ’significantly worsen from current levels.’”

From The Star. “Canadian credit-rating company DBRS Ltd. is swinging the axe, blaming the global credit crunch as it closes offices in Europe and cuts just over one-third of its workforce. The firm also cut support staff positions in Chicago, New York and its Toronto head office.”

“DBRS has been at the eye of the storm in Canada, where it was the only company to give its approval to asset-backed commercial paper issued by non-bank dealers. The $33 billion commercial paper market came to a halt in August as investors worried about possible links to risky U.S. subprime mortgages.”

The Vancouver Sun. “The U.S. housing crisis coupled with a Canadian dollar at par has taken a quarter-billion-dollar bite out of the value of Canada’s second-largest lumber company.”

“Vancouver-based Canfor Corp. announced that it can’t recover the carrying value of its mills and other assets, listed at $4.7 billion, from expected cash flows. It’s therefore writing down the value of those assets by $256 million.”

“‘Where the carrying value of assets is not expected to be recovered from future cash flows, they are written down to fair value,’ Canfor stated in a news release.”

“Canfor’s move in writing down the value of its mills is unusual for a lumber company but shows the depth of the financial crisis facing the industry, said Kevin Mason, analyst with Equity Research Associates.”

“The housing collapse has reduced the American appetite for lumber and prices have fallen to below break-even levels for Canadian producers. ‘The value of Canfor’s assets, especially if you look at it from the income they can produce, has definitely been impaired,’ Mason said. ‘This is not a surprise.’”

“He expects other companies may soon follow suit. ‘This does beg the question: How much more is out there? This could be a precursor to other lumber producers doing the same thing.”

“The $25-million corporate writedown includes $10.6 million clipped from value of Canfor’s cash investments in asset-backed commercial paper (ABCP). Canfor invested $85 million in ABCP which was exposed to the subprime mortgage fiasco in the U.S. created when high-risk buyers defaulted on their loans.”

“It is the second time Canfor has written down its investments in ABCP. It wrote the investment down by $6 million in the third quarter for a total writedown of $17 million, or 20 per cent.”

“Mason said it was foolish for a lumber company that is 100-per-cent exposed to the vagaries of the U.S. housing market to put its cash investments in the same market and invest with financial firms that could be hit by the subprime loan crisis.”

The Associated Press. “Residential homebuilder Brookfield Homes Corp. said Tuesday it will record a hefty charge in its fourth quarter due to impairments and write downs on its housing and land inventory.”

“Brookfield said due to ‘challenging market conditions,’ it had to lower its expectations for future revenue on its projects. Brookfield also said net new home orders for the fourth quarter dropped 50 percent due to the continued weakness in the housing market.”

From Trading Markets. “Based on the average of 33 active selling communities, the company’s sales rate during 2007 was about 0.4 sales per week per community, below the one sale a week which is considered a stable housing market, Brookfield said.”

“New home orders increased in Northern California while the Southern California market saw sharp declines. Orders in the San Diego, Riverside, Calif., and Washington, D.C., areas were also down.”

The Morning News. “As 2007 closed its doors so did several more Northwest Arkansas builders who sought debt relief by filing bankruptcy in recent weeks, leaving a dozen local banks to sort out $16.5 million in residential lots, finished and unfinished homes in Benton and Washington counties.”

“More than 70 building industry-related bankruptcies were filed in the Western District of Arkansas in 2007, according to court records. The builders recently filing bankruptcy had one thing in common — unsold residential property they could no longer afford to carry.”

“‘We are now seeing a second wave of bankruptcies, not unlike what happened a year ago when the market started its decline in July of 2006,’ said Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas’ Sam M. Walton School of Business.”

“Tim McMahon, was named ‘Northwest Arkansas’ Home Builder of the Year’ by CitiScapes Magazine in December. It was the same month he filed bankruptcy.”

“The federal bankruptcy schedule filings indicate McMahon owned 157 residential lots and 28 homes in Benton and Washington counties valued at $11.95 million. The outstanding loans on these properties total about $12.1 million.”

“Larry Pinkley, a Benton County builder for more than three decades, said tightened lending standards and too many unsold homes are pushing good builders out the business. ‘I hate to see quality builders close up shop, but it’s happening. When they can’t pay up and they can’t sell the property there really is no other solution,’ Pinkley said.”

“Pinkley said some builders are deeding back unsold properties to the lending banks in lieu of foreclosure. But because there is no public court filing in these cases, identifying the actual number of properties involved in this type of title reassignment is difficult at best.”

“A couple of large homes and a lot or two with little or no other income could bankrupt a builder in a matter of a few months, experts say.”

“While carrying costs vary from deal to deal, local banking experts said the standard benchmark for construction loans is roughly prime rate, give or take a percent. A $1 million construction loan made at last year’s prime rate of 8.25 percent could have monthly carrying costs of about $6,900 when fully funded.”

The LA Times. “Shares of KB Home plunged on Tuesday to a six-year low after the Los Angeles home builder reported a bigger-than-expected fiscal fourth-quarter loss of $773 million.”

“In a conference call with analysts Tuesday, KB Home CEO Jeffrey Mezger discounted any hope of a quick turnaround in the housing market, citing ‘oversupply, foreclosures, reduced affordability and declining consumer confidence.’”

“‘Current conditions are not improving enough to clear inventories,’ which stand at nine months for new homes nationwide, he said.”

“Mezger said the company’s customer mix was shifting. ‘We are definitely seeing a buyer viewing the home for lifestyle, intending to live in it for a while. The days of the flipper are gone,’ he said.”

The Boston Herald. “The residential real estate market is going through its worst investment period in 50 years - and it could get even rougher if the U.S. economy slows significantly in the coming year, Boston Federal Reserve president Eric Rosengren warned yesterday.”

“‘Let me be clear - this is an unusual economic situation and we cannot predict exactly what is going to happen,’ said Rosengren, an economist who studied the New England real estate crash in the early 1990s.”

“‘Since prices have declined substantially even in a relatively benign economic environment, one cannot discount the possibility that they could fall more rapidly should economic performance not remain strong in 2008,’ Rosengren said.”

No One Is Immune To What’s Going On

The Enquirer reports from Ohio. “Liberty Township, once billed as one of the region’s fastest-growing suburban communities, has seen a sharp decrease in new-home construction. In Hamilton Township in Warren County and Fairfield Township in Butler County, housing starts have been sliced in half or worse. In West Chester Township, a center of growth along the interstate corridor between Cincinnati and Dayton, housing permits plummeted from 434 in 2005 to 154 last year.”

‘”West Chester is not immune to what’s going on in the housing market. No one is,’ Trustee George Lang said. ‘We’re just as susceptible as any community in America.’”

“In Warren County, there has ‘absolutely’ been a slowdown in housing starts, County Commissioner Dave Young said. Housing starts have come to a standstill in pockets such as Clearcreek Township and South Lebanon, he said.”

“A huge supply of houses for sale in Butler County could be a big reason for the decrease, says Dan Hendricks, executive director of the Home Builders Association of Greater Cincinnati. ‘I can only assume that the higher inventory of homes in Liberty Township may have contributed to less housing starts last year,’ Hendricks said.”

“But the slowdown isn’t a crisis yet, said Liberty Township Trustee Pat Hiltman. ‘There’ll continue to be activity here; it just won’t be at the same feverish pace that it has been,’ Hiltman said. ‘If buyers are waiting for lower prices, now might be the time to jump into the market.’”

The Toledo Blade from Ohio. “With the area housing market mired in a slump for much of 2007, it was no surprise that home sales fell 13 percent in Lucas County and 10 percent in northwest Ohio last year, according to the Toledo Board of Realtors.”

“Available houses and condominiums remained almost too plentiful. Board officials said the local supply rose from just over 15 months’ worth of inventory to nearly 18 months’ inventory.”

“Mary Ann Coleman, treasurer of the local Realtor board and an agent, said people had trouble selling houses in certain locations where home values declined. ‘Some areas are doing quite well,’ she said. ‘Others are drastically slow.’”

The Indystar from Indiana. “After a year with sales of existing homes dropping about 10 percent, Indianapolis homeowners shouldn’t expect things to get better anytime soon.”

“A year-end report released Tuesday by F.C. Tucker Co. shows the Indianapolis area suffered its second year in a row of declining home sales after five consecutive years of record-breaking sales.”

“‘It’s a very competitive market,’ said H. James Litten, who heads Tucker’s residential division. ‘It’s definitely a buyer’s market. The inventory (of homes for sale) outruns absorption.’”

“Veteran broker Tom Mattingly said he would remember 2007 for being the toughest year for selling houses since 1981. ‘You see more buyers walk away from deals than ever before. Buyers are thinking, ‘Maybe I left some chicken on the bone. Maybe I paid too much.’”

“Mattingly said he is currently involved in a pending sale for $142,000 of a Northside home that sold last April for $175,000. ‘That’s pretty ugly,’ he said of the home’s plummeting price over just eight months. In this market, ‘You just have to get real creative’ to sell a house.”

The Beacon News from Illinois. “Realtors are not the only ones fighting for home buyers in a relatively stagnant housing market.”

“Some home builders in the Fox Valley are showing that they, too, have the sales pitch, charm and incentives it takes to lure buyers who have been scared away by mortgage rates and lagging sales on existing homes.”

“Selling off current inventory takes eye-popping incentives, over-the-top service and sales strategies not commonly used by home builders, those in the profession say.”

“Two weeks before Christmas, Louise Bouret, a sales consultant with Kimball Hill Homes, was throwing a holiday party for government officials, community members and business people — mainly of Sugar Grove — to highlight what is expected to be the crown jewel of this village: Settlers Ridge near routes 56 and 47.”

“But even with meats, cheeses, fruits, a vegetable and dip platter, and even hot cider to sip as visitors view model homes, the party didn’t go as expected. Out of about 175 invitations, about 10 guests showed.”

“At RA Faganel, a home builder in Batavia for 75 years, the strategies include handsome incentives like cathedral ceilings, upgraded cabinets and granite countertops, all within the base price. The included options have a value of $20,000 to $50,000.”

“Now might be the best time for builders to become vocal in the real-estate market. More and more, Realtors are leaving the profession as the number of Realtors was expected to drop at least 4 percent in 2007, according to the National Association of Realtors.”

“‘We no longer can pan our side of the fence,’ said Jim Janik, VP of sales and marketing at RA Faganel homes. ‘We need to cross over.’”

The Naperville Sun from Illinois. “Rick Klau was sure that lowering the price of his Naperville house by $26,000 would reel in a buyer.”

“Desperate to get out from under two mortgages, he had already rolled back the price from $489,000 to $425,000. After he told two interested buyers that he would drop the price again, to $399,000 on Jan. 1, he expected someone would seal the deal.”

“But neither buyer bit. ‘We didn’t even get a call back from either agent,’ said Klau.”

“After Google bought his company last year, Klau accepted an offer to transfer to San Ramon, Calif. Because he wanted to give his wife and their three children enough time to get settled before school began, he bought a house in San Ramon and put his Naperville house on the market June 1.”

“He wanted to sell the house as soon as possible, so he listed it for $10,000 to $15,000 below other homes in his subdivision. ‘The first news of a mortgage crisis really hit at the end of June,’ Klau said. ‘It was after that we noticed there wasn’t a lot of activity on the house.’”

“Klau began dropping the price and offered to cover the closing costs, but he is still the unwilling owner of two homes.”

“‘We bought the home in San Ramon for a lot more than I care to tell anybody,’ Klau said. ‘It is certainly a whole lot more than we are selling our home in Naperville for. We’re hoping we can find a price point that attracts buyers.’”

“The subprime mortgage crisis is the result of lenders giving loans to higher-risk borrowers with lower income or a weaker credit history over the past 10 years, said Eileen Landau, a real estate agent who has sold homes in Naperville for 30 years.”

“‘Lenders were very fast and loose,’ Landau said. ‘If you fogged a mirror, you got a loan.’”

“In December 2007, 853 Naperville homes were on the market, not including new homes. In December 2005, 546 homes were for sale. Landau said the current inventory of homes would take eight or nine months to sell. A year ago, it wasn’t unusual for a Naperville home to sell in 30 days.”

“Naperville residents who bought their homes three or four years ago and are now trying to sell are sustaining the greatest loss, said Susan Ganden of Re/Max of Naperville.”

“‘People who bought in a hot market three years ago paid top price for their home,’ Ganden said. ‘Now we have so many houses on the market, they can’t sell it for the price they paid for it.’”

The Gazette Extra from Wisconsin. “The number of foreclosures in Rock and Walworth counties has risen steeply over the last two years, indicating that the subprime mortgage mess afflicting most of the country has at least brushed southern Wisconsin.”

“‘You can’t attribute it all to one thing, but I think the major factor is subprime lending,’ said Janesville attorney Vicki Schleisner. ‘Most of the clients who walk through my door asked key questions like, ‘What will it cost a month?’ But they don’t think to ask what will it cost me a month in two or three years.’”

“Schleisner cited two examples: a monthly mortgage payment that started at less than $600 a month but mushroomed to $1,500 monthly in three years and an interest rate that started below 8 percent but could rise to almost 18 percent over the course of a few years.”

“‘It cuts both ways,’ Janesville attorney Jim Fowler said. ‘I suspect a lot of people didn’t fully appreciate the implications of a floating interest rate. They assumed their (houses’) value would continue to appreciate and they would be able to refinance.’”

The Pioneer Press from Minnesota. “Dozens of area homes are heading to the auction block this month, but this time, they’re not foreclosures - they’re brand-new construction. And builders are looking at discounts of up to 45 percent to move the merchandise.”

“Local contractors are sending some 200 newly built houses, townhomes and condos scattered across the greater Twin Cities to a public bidding block at the Minneapolis Convention Center Jan. 26 and 27.”

“Most were built on spec, meaning buyers hadn’t been lined up beforehand, and some were model homes that builders showed as samples, said Lisa Berry, a spokeswoman for the real-estate auction marketer promoting the event.”

“As of October, there were 3,548 new single-family houses and townhomes sitting finished and unsold in the 13-county metro area - down from a peak of 4,452 last August, according to MarketGraphics. There should probably be only about 2,400, given the level of closings of new homes, said MarketGraphics VP Todd Bjerstedt.”

“In addition, there are about 2,000 new condos, either finished or under construction, that have no buyers yet, according to Metrostudy.”

“Auctions are something of a mixed bag, Bjerstedt said. ‘If it gets inventory off the market, that’s good,’ he said. ‘I think the fear we have is, at what price?’”

“Deep discounts at real estate auctions add just that much more downward pressure on already sliding property values.”

“Berry, the spokeswoman for the auction marketer, would only say that the discounts would be ‘very steep.’ A local construction finance company with several properties in the auction estimated homes will sell for 25 percent to 45 percent off the original list prices.”

“‘We hand-picked the ones that would sell,’ Berry said.”

“Her company had hundreds more to choose from but couldn’t auction off homes from builders in bankruptcy or from those who owe their subcontractors too much, she said. Some properties they considered didn’t have clear titles.”

“The auction follows October’s mass foreclosure auction in Minneapolis where shoppers bid on more than 300 bank-repossessed homes. ”

“Unlike the October foreclosure auction, where there were set minimum bids for each property, 50 of the houses in this auction have no minimum bid or reserve amount set.”

From KARE 11 in Minnestoa. “Homes that originally listed for half-a-million are expected to sell at a significant discount. The homes are located all over the metro area are brand new, never been lived in, award winning and headed for auction.”

“‘It’s not business as usual, the way we were all doing business over the course of the last two, three four years it’s not working anymore,’ said Construction and Development Finance banker David Buelow.”

“Buelow teamed up with builders and contractors to auction off properties that have sat idle for months. ‘Work for free or lose money on it, we have on some projects,’ described builder Pete Lewis of Lewis Builders.”

“In his nearly three decades of building, he says he’s never seen the market come to a standstill like this. He’s making payments on homes that haven’t sold, he’s laid off his workers and has quit building.”

“‘In the last year we’ve done nothing, it’s just dried up, there’s so much inventory out there,’ Lewis said.”

“His 2007 Parade of Homes signs still sit in the front yards and now along side of them, signs that describe the upcoming Real Estate Auction in Minneapolis.”

“The discounted auction price will be a loss for the banker, the builder and the contractor. ‘Nobody’s ever lived in this house and it’s going to go, pretty cheap,’ said Berry.”

“If this auction business works it’s likely to stick around for a while, not only are there a lot of houses on the auction block, there are a lot of empty lots that are available and are next to hit the auction block.”

Bits Bucket And Craigslist Finds For January 9, 2008

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