June 29, 2009

Bits Bucket For June 30, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm. <a href=”http://www.youtube.com/watch?v=vCEkP8XKuJk” target=”_blank”>Part One</a>, <a href=”http://www.youtube.com/watch?v=1wXMhdNIML4&feature=related” target=”_blank”>Part Two</a>, <a href=”http://www.youtube.com/watch?v=slheh_E92tM&feature=related” target=”_blank”>Part Three</a>, <a href=”http://www.youtube.com/watch?v=4lIg3KoAIJ0&feature=related” target=”_blank”>Part Four</a>and <a href=”http://www.youtube.com/watch?v=s_GufVJfExE&feature=related” target=”_blank”>Part Five</a>.

An Unsustainable Trajectory In California

The Daily Breeze reports from California. “The median price of all South Bay homes sold last month was $513,000, down 12.3 percent from the same month a year earlier, according to a report released by the California Association of Realtors. For strictly single-family home resales, May’s statewide volume was up 35.2 percent over the same period a year earlier.

“In the beach cities, the median dropped only 5.8 percent to $801,000. Redondo Beach saw a 14.8 percent drop in its median to $617,500. The South Bay’s median price drop was far milder than that of Los Angeles County, which saw an annual decline of 30.1 percent to $299,000 in May. The city of Los Angeles saw an even more severe plunge of 45.4 percent to $280,000.”

“‘Buyers are beginning to realize that the combination of favorable home prices, historically low mortgage rates and first-time homebuyer tax credits, may not align again for many years,’ CAR President James Liptak said in a statement.”

“Local home prices continued their slide in May, amid the recession and ongoing job losses.”

“At her first job interview in two months on Friday, unemployed Shellie Langley approached questions about her work history and her knowledge of wine with nervous excitement. Her potential employer is the soon-to-open Tin Roof Bistro in Manhattan Beach, a casual American restaurant in the Manhattan Village shopping center.”

“‘I really need a job so, so bad,’ Langley told her interviewer. ‘I’m completely open for all shifts. I’m looking to be a server but will be a hostess, cashier, anything.’”

“For Langley, who lost her job as a secretary earlier this year when the small company she worked for downsized, the Tin Roof was an oasis in a desert of non-hiring restaurants. ‘It’s been awful. Everywhere I’ve been, they say, `We’re not hiring,’ said Langley, who lives in Hawthorne with her two children. ‘It’s been devastating. I had to let a car go. I’m just on the verge of bankruptcy. I need a job so I can stay in my home.’”

The LA Downtown News. “While the Related Companies’ $3 billion plan to transform Grand Avenue remains on hold, the New York-based developer has more quietly made a significant play in Little Tokyo’s luxury rental market. In 2005, Related obtained city approval to construct a $250 million, market-rate housing community on the site, but subsequently sold two of the Block 8 plots to developers the Kor Group and K. Hovnanian.”

“In turn, those developers separately sold their pieces to AvalonBay Communities Inc., which plans to build another six-story rental project, called Matsu, at the southwest corner of Los Angeles and Second streets. Meanwhile, Related is holding on to the parcel on the northeast corner of the block until the economy recovers, said Related of California President Bill Witte.”

“Lloyd Lee, a 31-year-old real estate loan specialist, and his wife relocated from Las Vegas into a sixth-floor, one-bedroom unit at Sakura Crossing. ‘We were looking for the right combination of security, price, location, amenities and service,’ said Lee. ‘We looked at literally every decent place in Downtown as well as Pasadena and this was the best place to go with.’”

“While Sakura Crossing Project Manager Rick Westberg said that Related is not advertising any rent reductions or other economy-sensitive deals, Lee said his unit at Sakura Crossing is less than $1,700 per month. He would not reveal his exact rent, however, because ‘They might be mad at me for telling you, because I got a really good deal.’”

The Desert Sun. “Riverside County faces economic head winds over the next two years, with another surge in foreclosure activity, minimal employment growth and marginal appreciation in home values, keeping the county’s tax coffers lean, according to a report given to the Board of Supervisors. ‘We’re being battered here very badly,’ Supervisor Bob Buster said in response to the 47-page economic forecast authored by researchers at Cal State Fullerton.”

“Researchers said the Inland Empire’s housing boom put the area ‘in an unsustainable trajectory,’ leading to artificially high median home prices that barely one-fifth of the region’s residents could afford using conventional loan products. The market peaked in 2006, when the median home price in Riverside County reached $415,000. Since then, prices have dropped 60 percent, squashing demand for new construction, the researchers said.”

“‘The Riverside County economy has plunged into an even deeper recession than the national economy,’ the report states. ‘The collapse in the housing market and in housing activity is one of the main factors behind the sharp deterioration of the county’s economy.’”

“The number of California hotels involved in a foreclosure action or in default has risen 125 percent in the past 60 days. Those properties already lost to foreclosure have largely been in the counties of San Bernardino, Riverside and San Diego.”

“Alan Reay, president of Atlas Hospitality Group, said Atlas saw signs the hotel industry may be affected by the housing crisis in California about 18 months ago, and has compiled data over the past year on troubled hotel properties. Initially, foreclosure action was taken against independent hotels, the hotel brokerage and consulting firm noted. Most were boutique motels in secondary markets.”

“‘Only in the last 60 days have we seen a massive run-up,’ Reay said. ‘I think hoteliers are getting to the point of not seeing light at the end of the tunnel, and they’re starting to throw in the towel.’”

“Earlier in June, Sunstone Hotel Investors Inc. disclosed its intent to forfeit the W San Diego to lenders after efforts to reach a compromise on the hotel’s $65 million securitized mortgage failed. Sunstone, a real-estate investment trust, bought the W in 2006 for $96 million, just before the economy slumped.”

“‘It’s the first publicly traded company to take that move,’ Reay said. ‘It’s the tip of the iceberg,” he added. ‘No market or brand is immune in this downturn.’”

From Bloomberg. “Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. There’s little chance the turnover will increase enough this year to end the housing recession, said Andres Carbacho- Burgos, an economist with Moody’s Economy.com.”

“‘We have a lousy job market and an excess of around 1 million extra homes that has to be worked off,’ he said in an interview. ‘The housing market is not going to hit bottom before mid-2010.’”

“If the cost of money doesn’t put consumers off, loan officers’ new strictness may keep them out of the market, said Grant Stern, a mortgage broker in Miami Beach, Florida. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more cash on hand, among other things, the Fed said. ”

“‘Six years ago, standards were pretty permissive, and two years ago all you needed was a pulse,’ Stern said in an interview. ‘Nowadays, even people who have reserves that equal amount of the loan are getting rejected.’”

“Driving through Riverside, California, Bruce Norris pointed to a half-dozen empty houses with ‘For Sale’ signs stuck in untended lawns that he said investors might buy if banks would just extend some credit. ‘People today look at us as the enemy,’ said Norris, head of Riverside-based Norris Group, which purchases and renovates homes to rent or sell. ‘That’s a big problem for housing because if we can’t get the financing we need, a lot of these properties are going to sit vacant.’”

The Times Herald. “The Vallejo area was the first in Northern California hit by the recession and it will be the last to recover, according to an economic think tank’s latest forecast. The University of the Pacific’s Business Forecasting Center’s most recent report predicts Vallejo won’t recover to its pre-recession jobs level for about five years, or until the second quarter of 2014. Merced and Sacramento, predicted to be the second last to recover, won’t do so until near the end of 2013, the report reveals.”

“San Francisco and San Jose, on the other hand, will be the first Northern California metro areas to recover — in mid-2012 — a full two years before Vallejo, center director Jeff Michael said. Like most think tanks, the center has not always been right about its predictions. It predicted significant growth in the Vallejo area, for instance, which never materialized, presumably because of the recession.”

“‘Vallejo’s employment was the first to peak, in the first half of 2006, and began a slow decline after that,’ Michael said. ‘Predicted growth just sort of stopped in ‘04.’”

From CBS News. “The value of most Americans’ single biggest investment - their home - continues to fall. And their second biggest - their retirement nest egg - has also taken a hit. Since the bear market began in November, more than $2 trillion in 401(k) savings has evaporated.”

“CBS News business correspondent Anthony Mason reports. Sam and Myrna Cadelinia were hoping to raise a glass to retirement five years from now. But, Sam says, ‘That’s all changed.’”

“Sam owns a San Francisco real estate business and his nest egg has been eaten away by the recession. Retirement portfolio down 25 percent while business has virtually stopped for his company. Now he doesn’t know how to invest what money they still have.”

“‘Not all is lost. Our lives are just evolving differently,’ he said.”

The Mercury News. “Your home equity has sunk and your mortgage is underwater. But if you’re drowning in Silicon Valley’s housing market, Santa Clara County Assessor Larry Stone may have a little relief for you. Almost one in four county homeowners are being notified that their plunging property values entitle them to a temporary tax break averaging about $2,000. The assessor’s office has just mailed notices to the county’s 460,000 residential and commercial property owners, stating the assessed values that will be used to determine their property taxes this year. Those values have been reduced from last year for 90,000 of the county’s 406,000 single-family home and condo owners, thanks to the decline in the housing market.”

“The total assessed value reduction is more than $17 billion, reflecting average reductions of $170,000 for homeowners. By comparison, about 46,000 property owners got reductions last year averaging $78,000 for each home.”

“‘Some people think this is good,’ Stone said, acknowledging it’s perhaps little comfort since every dollar in reduced property tax means $99 in lost equity.”

The Los Angeles Business Journal. “Babette Heimbuch joined FirstFed Financial Corp. more than 25 years ago, just about the time the thrift made its first option adjustable-rate mortgage loan. She was there as FirstFed grew into one of the nation’s largest so-called option ARM lenders. And she is there today as CEO as FirstFed is the last one standing among all the big lenders of those risky loans.”

“The big question looms: Will FirstFed, a savings and loan founded in Santa Monica on the eve of the Great Depression, be next? ‘We’d be fools not to be nervous,’ said Heimbuch. ‘But all we can do now is work really hard to fix the problems that we have.’”

“With 38 branches across Los Angeles and assets of $6.8 billion, FirstFed is L.A.’s fifth largest depository institution. Much of its growth, however, has come on the back of the variable-rate loans that have been defaulting in large numbers in the past two years. FirstFed, the parent of First Federal Bank of California, has endured nearly $300 million in losses in just the past two quarters while its loan-loss provision has ballooned to more than $300 million. Nonperforming assets now stand in excess of 8 percent of total assets – even half that amount would be considered high.”

In January, regulators placed the thrift under a cease-and-desist order over concerns that its capital supply was rapidly depleting. Even its auditor expressed doubt about its ability to survive.

Yet the institution is still around, and executives, who admit that the work can be draining, said they expect it to stay that way.

“The risk in this portfolio was not Armageddon,” said . “It was pain and suffering, but not Armageddon.”

“Management instituted a massive – and, to date, successful – loan modification program beginning in 2007, well before most other lenders saw the need. The company halted its lending and reduced staff levels by nearly one-quarter through layoffs and attrition. Top executives took a 10 percent pay cut.”

“‘We’re the last option ARM lender out there,’ Heimbuch said. ‘Not to say that we’re not struggling and we don’t have to raise capital, but we feel like we’re getting our arms around the risk.’”

“FirstFed had been making option ARM loans without incident for more than 20 years. The loans held up well largely because option ARMs tended to be given to borrowers with good credit and proof of income. But everything changed in the early 2000s, Heimbuch said, when Wall Street firms began securitizing the loans in large numbers. ‘When Wall Street came in and had really low pay rates with no documentation, that just bastardized the loan and ruined it,’ she said.”

“James Giraldin, FirstFed’s chief operating officer remembers the day he realized that Wall Street’s influence would prove disastrous. In the fourth quarter of 2005, he learned that one of the top local competitors was a subsidiary of Bear Stearns. At that moment, he said, he knew that securitization was truly taking hold of the industry. Turning to Heimbuch, he said, ‘This is over.’”

“FirstFed readily admits it made the mistake of dropping its own standards in a misguided attempt to remain competitive. It did that mostly in 2005, a year in which the thrift originated $4.4 billion in single-family loans – primarily option ARMs and most without full verification of income or assets. But the thrift was also one of the first to pull back. By late 2005 and into 2006, managers made the decision to stop underwriting the riskiest loans and begin requiring proof of income. Within two weeks, their business dropped in half.”

“‘We really cut back,’ Heimbuch said. ‘We took a lot of grief for that. People were saying, ‘Why aren’t you lending? Everyone else is lending. What’s the matter with you?’”

“Giraldin pointed out, just a year of unwise lending has pushed the company to the brink of failure. Since then, shareholder value has been all but wiped out. Its stock, which traded at more than $69 a share in 2007, closed June 25 at 35 cents. ‘Most of our pain and suffering comes from that ’05 production,’ he said.”

Bits Bucket For June 29, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.

June 28, 2009

The System Always Returns to Stability

-by The Mysterious Flying Miser

Everyone’s asking what’s next. In a world inured to bubbles, many are champing at the bit to multiply their cash on the next irrational boom. But is it possible that we are done with bubbles for a while? Could it be that we are entering into a period of relative stability, during which normal returns will be gotten based on actual production and good decisions? Not many are of this tack, but it could happen.


From CNN Money: A Nebraska farm girl who went on to a globetrotting career as a derivatives trader for Goldman Sachs (GS, Fortune 500) and then as a hedge fund executive in London, Warner, 45, is back on the farm pursuing what she believes is a huge moneymaking opportunity. Two years ago Warner launched an investment firm, called Chess Ag Full Harvest Partners, with a fairly simple underlying strategy: Buy undervalued farmland in the U.S. and profit from the coming global agriculture boom.

Improving diets in the developing world will …help drive up prices. As per capita incomes rise in China, India, and other parts of Asia, hundreds of millions of people will be adding meat to their daily fare. …The Gulf States of Qatar, Abu Dhabi, and Saudi Arabia have already begun making deals to acquire or lease large tracts of farmland in Africa and Asia at bargain prices.

A lifelong “music nut,” (Warner) started visiting Clarksdale to hit the local blues clubs after getting divorced in 2000. In 2004, after selling her share of a hedge-fund-of-funds business in London, on a whim she bought a two-story, 19th-century brick building on Delta Avenue downtown that housed a general store, renamed the shop Miss Del’s (as in “Mississippi delta”), and added antique knickknacks and British chocolate to the inventory.

Maybe Not.

From CBS News: Owner Hyun Ku Kim started business 40 years ago in his native South Korea and moved production here in 1990 to use China’s cheaper labor, reports CBS News correspondent Barry Petersen. And Qingdao’s port makes for easy shipping to the U.S. - except these days there’s less to ship.

The numbers tell the story. In a good year they’ll sell 20,000 stirrups. This year they will be lucky to sell 8,000. And there was one month this past spring when they got no orders at all. Fewer orders means fewer workers; layoffs cut 500 workers down to 290.

Their empty chairs litter the factory

From Arabian Business: The region’s largest oil exporters (Saudi Arabia, Kuwait and the UAE) will slip into recession this year, the International Monetary Fund (IMF) said as it slashed its growth forecast for the GCC.


Todd Tresidder, financial educator and former hedge fund manager, has a different idea of where the next bubble will form: “The next bubble to inflate will be gold. It should be the final bubble, as that bubble will only burst when we embark on a new path of stability. …It’s actually one long series of rotational asset bubbles. …Each bubble primarily result(ed) from the credit bubble …Each bubble has caused asset prices to inflate beyond a point that they can be supported by the underlying economics of the asset. …The further the economics deteriorate, the further asset prices must deflate. …The government’s unwillingness to accept this ultimate outcome is what will cause the final bubble: gold. Just as they caused all prior bubbles, they will also cause this bubble (unless, of course, they suddenly display economic wisdom that is fully unexpected). …The long-term rise in gold began in 2001-2002, and will likely accelerate at some point in the future. How long it takes to run its course I cannot say. … The system always returns to stability from instability.”

Maybe Not.

From Reuters: Gold’s upward potential is limited because of strong demand for the U.S. dollar to repay a burgeoning debt amid deflation, technical analyst Robert Prechter said on Monday.

“It seems to me the most popular opinion out there right now is hyperinflation. I think we are in an opposite environment, a deflationary (one). …Unfortunately, in this environment, what creditors …and debtors need the most are dollars, so I think the main thing that will return to substantial demand when deflation bites again is the dollar. …I think gold is a good thing to have. It would be a small amount, you should have some gold. For the most part, you want cash and cash equivalents,” he said.

Green Energy?

From Moneyweek: We’re not sure that investors have another bubble in them just yet. But with all that money floating around, it’s eventually going to go somewhere. And one area stands out as a prime candidate: alternative and renewable energy.

The sector has the heavy backing of the government. It has some great stories behind it (solar towers, wave farms, and electric cars), all linked together by smart grids, already being hyped as “the energy internet”. So the conditions are ripe in the alternative energy sector for a bubble.

Well, You Know.

But, from The New York Times: Like others before it, the latest “green bubble” was inflated during a highly polarized moment in American politics, two writers say, and now it has burst in the economic downturn. The writers say that “while utopianism has a bright side — it is a way of imagining a better world — it also has a dark side characterized by escapism and a disengagement from reality that marks all bubbles, green or financial.”

And Finally:

Michael A. Kamperman, author of “How America Can Escape the New Great Depression” and owner of Prometheus Wealth Management, says “In my opinion, there will not be another investment bubble in the near future. All of the investment bubbles in history were fueled by access to easy and affordable credit. The credit markets are broken and they have not been fixed.”

Bits Bucket For June 28, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.

June 27, 2009

To Prosper Again

-by The Mysterious Flying Miser

Recent headlines have made much ado about homeowners who tap themselves out trying to pay their mortgages and keep their houses. And recent spending has been aimed at helping them do it. An oft-repeated premise behind this action has been that homeowners must be saved from the only tyrannical outcome of foreclosure, a fate on par with homelessness: renting. But is this assumption valid? Are we really helping homeowners in this environment by encouraging them to pay their unaffordable mortgages? What exactly becomes of them once they leave their houses? Do they die, or are they …better off renting? The truth may shock you.

In 2005, Robin Kerr Drulard was a real estate investor, so she bought an apartment in Hollywood, FL. Her monthly mortgage, HOA dues, and maintenance set her back about $3,000/month, but she was sure she would make a profit by holding the property for a short while before selling it at a higher price. By 2008, the 1-bedroom, 1100 sq. ft. ocean-view apartment had lost much of its value and was foreclosed upon. She lost her entire down payment of $36,000, along with $300,000 that she put down on multiple other investment properties, and will declare bankruptcy at the end of this year. She will also lose a small cottage in upstate New York as a part of her bankruptcy.

But 53-year-old Drulard says that life is better since she got out from under her onerous investment properties and began renting a nicer apartment across the street. Her new 2-bedroom, 2-bath, 1700 sq. ft. apartment with wrap-around views only costs her $1500/month, which means she can save money, live comfortably, and work on her new business that helps people save money. When asked how she feels about her future, Drulard states “I feel great! I learned a lot, crashed, burned, came out alive, and I am ready to start fresh and prosper again.” She also thinks that, with foreclosures becoming so common, “if landlords don’t want people with damaged credit or a foreclosure on the records, they will lose their whole rental base.” Drulard’s husband shares her optimism, but she says that many of her family and friends are less understanding.

Brad, a 33-year-old San Diego resident and electrician, bought a condo with his wife
in August of 2005. The monthly mortgage and HOA dues on the 684 sq ft unit were $1867/month. By June of 2009, the value of the condo had dropped precipitously, so Brad arranged a short sale. The loan payments, initially requiring them to pay interest only, cost them $700/month above what they could collect in rent.

By the time they sold the condo, they had a 14-month-old and another on the way, so Brad was happy to have the 3-bed, 2-bath house he rents today, paying $2,125/month. Brad was not required to make a down payment, so the only thing he feels he has lost is his good credit. “Our life has definitely improved lifestyle wise. However, there are a lot of credit ramifications that we didn’t anticipate; such as the credit card companies monitoring your credit and lowering all your limits because of any negative marks, regardless of (your history with) the creditor lowering the limit. …Another reason (I feel my life has improved) is that we were covering the negative balance of the rent coming in. We were paying an extra $700.00 a month in hopes that we would get a loan modification. We wasted a year and a half spending that extra money, and that’s one of the reasons we’re in the debt we’re in now.”

Brad’s advice to anyone else in his situation: “I hope others out there that are underwater give up the ‘loan modification’ route. It is a waste of time and the banks are not as willing to work with you as they say they are. The best thing to do if you foresee a shift or loss of income is get the hardship documents into the bank ASAP. Get approved for a short sale before you list the property. That way, you can advertise it as an approved short sale. You will end up with multiple offers, and you won’t make a potential buyer wait while you wait to get a final approval. There is really no quick fix for the upside-down home, but if you are considering a short sale, then get the paperwork 100% complete before you send it. Otherwise, the process is delayed by weeks. That was our experience and we were lucky to have the buyer stick it out with us; we would have had to go into foreclosure otherwise.”

A 58-year-old retired biomedical researcher and freelance writer, Sue Chehrenegar bought a house with her husband in Culver City, CA in 1987 with a 30% down payment. They refinanced the 3-bedroom, 2-bath house several times, and then sold it in December of 2006. She went through a grieving process when they sold their house, and still keeps in touch with the real estate agent. “I felt sorry for my granddaughter,” says Chehrenegar. “She and her parents stayed in our home from May of 2006 until January of 2007. She was almost walking when we sold our home. I never got to see her playing in the yard.”

But Chehrenegar was able to use the money from refinancing to cover added and unanticipated expenses in her retirement, and to help care for Mr. Chehrenegar’s mom without accumulating debilitating debt. She also made enough profit from the final sale to cover 10 months of rent on their new apartment. She says that her life today is much like her life 30 years ago, and “As long as I have a computer, and as long as I can keep writing, I feel that I have some control over my future.”

Bits Bucket For June 27, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.

June 26, 2009

The Fun Is Just Beginning

It’s Friday desk clearing time for this blogger. “Joshua Hamann jokingly compares himself to the last human in a city overrun by zombies. He’s not suggesting his neighbors are zombies. The problem is, he has no neighbors.Hamann occupies one of only about 50 sold condos in his 49-story tower, out of 409 units. A couple miles north at Midtown Miami, Alisha Marks knows the same feeling. ‘It was pretty much a ghost town when I got here,’ she says.”

“On a recent Friday morning, Hamann encountered exactly three people over the course of several hours — two security guards, and a concierge. ‘This is how it goes every day,’ Hamann said, adding that he interacted with more neighbors growing up in rural Kentucky, where farms were spaced a mile apart.”

“Chris Cooley bought a 19th-century farmhouse last year on nearly 11 acres in Williamson County that was going to be his dream home. He hired Chris Parker, a custom homebuilder in Nashville, to preserve the look of the old house. Now, Cooley wishes he had put off his dream a bit longer. His appraisal for the construction loan for the remodel project came back saying the house will be worth less than what the work will cost. And his financial institution, Reliant Bank, wanted him to pay the difference.”

“‘It definitely has been possibly the worst timing ever,’ Cooley said, adding that he is worried about being able to sell his existing home in Franklin.”

“Jim Tew, senior vice president over mortgages in Tennessee for Fifth Third Bank, said it’s not uncommon to reappraise homebuilders’ properties. He said bank regulators are encouraging banks to re-evaluate the values and collateral positions of their loan portfolios. ‘What we have found is the value isn’t there,’ Tew said. ‘When we try to sell it, we’re stuck with a value problem.’”

“Appraisals that overvalued homes — often at the urging of lenders looking to close deals — were one factor in the housing bubble that popped last year. In response, lenders have gotten more picky about the criteria appraisers use to back up the values they assign to home. Before, there was some “wiggle room” in such cases, said Steve Stiloski, the president of the Wisconsin Chapter of the Appraisal Institute. Now, ‘there is no putting a square peg in a round hole.’”

“William Malkasian, president of the Wisconsin Realtors Association, said efforts to tighten the mortgage industry have ‘gone absurdly too far.’ Rules like those for appraisals and for measuring a borrower’s credit worthiness are being implemented nationally, he said, but ‘real estate is local’ and Wisconsin is different from California and Florida, for instance.”

“Massachusetts housing prices continued to fall at a double-digit rate last month as foreclosure sales put downward pressure on the market, according to new data released today by Warren Group. ‘Prices are still declining,’ said Timothy M. Warren Jr., CEO of Warren Group, and sales volume won’t increase significantly ‘unless the employment outlook improves dramatically and the tight mortgage lending standards are loosened.”’

“Valerie McGillivray, president of the greater Newburyport Association of Realtors, says the problem with the Warren Report figures is that they are average numbers for the state as a whole. McGillivray says in the cities the market is tough. ‘The big cities are faced with hundreds and hundreds of foreclosures,’ she says.”

“‘Prices are at an all-time low,’ she says. ‘There are some great deals in Amesbury and some really great deals in Newburyport.’”

“Charles McMillan, who this year is leading the 1.1 million-member National Association of Realtors, returned to his home turf Friday to speak to the Dallas-Fort Worth Chapter of the National Association of Hispanic Real Estate Professionals. McMillan spoke with the Star-Telegram following his address.”

“As the housing market was going bad, was there anything that real estate agents could have done back then to help?”

“Neither the real estate industry nor its allied folks and regulators knew the huge tsunami that was about to hit us. One of the things we did, and do, as Realtors, is we would bring to the attention of authorities when we saw abuses going on at the closing table; fraud going on at the closing table. As far as us forecasting and foreseeing the great decline, we did not, nor should we be faulted for it.”

“Alma and Adolfo Vasquez might not appear to be prime candidates for foreclosure. Their 3,100-square-foot home near two golf courses is appraised at nearly half a million dollars. They were far from irresponsible buyers, making a 20 percent down payment after selling their California home in 2006, just before the housing bubble burst.”

“But by early April, the Vasquez family, slammed by a double whammy of rising property taxes and tough times for Adolfo’s home-renovation business, were three days from losing their home at a foreclosure auction. ‘It’s an emotional torture,’ Alma Vasquez said. ‘We never thought we could end up in this situation, but it happened. It’s kind of embarrassing; you don’t want to let your friends or anyone know.’”

“Another reason might be an influx of out-of-town investors from places like California, who scooped up hundreds of properties in upscale subdivisions. Now they’re having a hard time keeping up with mortgage payments, according to experts in Central Texas. ‘Steiner Ranch was the place,’ said Kelly Diamond, who moved there with her husband from California in 2005, when she says builders were offering all manner of incentives to lure buyers.’”

“‘People came in eager to get the incentives, and they ended up getting in over their heads,’ said Diamond, who lives on a block near three homes listed for foreclosure. ‘They were not in a place that if something happened they could stay in this neighborhood. There was no room for error.’”

“During the big housing boom a couple of years back, I can remember driving through the El Centro area and seeing all the new homes sprouting on once-vacant land. It was impressive, but I couldn’t understand where all those new home buyers were coming from since El Centro is smaller in population than Yuma. I was eventually told that buyers were being drawn to El Centro by the relatively low cost of housing there in comparison to other California cities.”

“Some of the new homes were being bought by people who - believe it or not - commuted to San Diego and other distant cities. Other buyers were simply speculators. They were grabbing up what they considered ‘cheap’ homes on easy credit terms in the expectation they would quickly appreciate in the booming housing market and then they could sell them for a big profit or rent them out for income.”

“One in 10 families faces home foreclosure there, and Mayor Ben Solomon thinks even worse is to come. In addition to the loss of homes, the article noted that El Centro has the highest unemployment rate of any metropolitan area in the nation at over 26 percent.”

“Day in and day out since 2007, callers who struggle with mortgages throughout the Sacramento region, those who can’t sleep for worrying, who want to stay with houses that have lost $150,000 in value, have phoned Home Front to fret and express a common sentiment. ‘My lender,’ they say, is ‘difficult.’”

“Callers complain about long waits, bureaucratic snafus and a sense of not being helped. These calls have kept coming through every government program unveiled to help borrowers, despite every statistical release saying more loans are being modified.”

“Now, as the state has unveiled a law making lenders prove they have comprehensive loan-modification programs, a new round of callers have weighed in with their problems. Two told of modifications that raised their monthly payments instead of lowering them. One, regretfully, paid $3,800 up front to a loan modification company for that outcome. Another, sheepishly, told how a new-home sales agent told him – in 2007, no less – that his house would appreciate enough to refinance the adjustable-rate loan now taking him under.”

“There’s been a lot of talk about how lax lending standards helped blow up the housing bubble. Talk about short memories and logic disconnects, though; apparently Massachusetts Congressman Barney Frank and New York Representative Anthony Weiner are trying to pressure Fannie Mae and Freddie Mac to lighten up a little and relax condo lending practices. Um … I think we’ve seen this disaster flick before.”

“Given the nature of the beast we’ve created, banks need to be a lot more prudent about who they lend to. Otherwise, we’ll end up right back in the danger zone. But the word on the desire to lower some standards hints that forces at work may tempt us all back into the same black hole.”

“Recent reminders that often-quoted economist Paul Krugman was OK with the ’solution’ to the previous recession that led to the housing bubble, and that Fannie and Freddie were both major parts of our disaster and were highly regulated, political entities can make you question some of the assumptions right now. And of course, Barney Frank was a force in some of the loose mortgage lending practices to begin with; the quote going around at the moment is how he said Fannie and Freddie should ‘roll the dice’ for ‘affordable’ housing back when the housing bubble was starting to take on some air.”

“President Barack Obama’s proposal for a regulatory overhaul of the financial industry vastly expands the reach of the Federal Reserve, yet fails to make policy-makers more accountable for their actions. Critics argue that the new legislation fundamentally misses the problems that led to the financial crisis. It was a lack of enforcement by supervisors, they say, not insufficient rules, that fostered a cowboy culture of rampant risk-taking on Wall Street.”

“‘Obama is letting the Fed and everyone else off the hook by saying that the problem was with the regulations and not the regulators,’ said Dean Baker, co-director of the Center for Economic Policy Research in Washington.”

“‘If regulators know that even if they totally fail on the job, they will face no career consequences, then at some future point, when there is a choice between confronting the financial industry or just going along, the regulators will just go along,’ said Baker.”

“Some feel uncomfortable with a broader role for the Fed primarily because of the Fed’s closeness to the banking sector. The Fed is not technically a public entity. Each of the Fed’s 12 branches are overseen by a nine-member board of directors, two-thirds of whom are elected by the bankers in the district.”

“‘The Federal Reserve has massive conflicts of interest that make it ill-suited for its present regulatory functions and certainly for an expanded regulatory reach,’ said Robert Auerbach, a professor of public affairs at the University of Texas at Austin. ‘The officials leading the Fed today preside over an organization that is run in substantial part by the bankers they regulate.’”

“Central bankers largely ignored mounting evidence of fraud in the housing arena and touted the benefits of ‘financial innovations’ such as derivatives instruments — the very securities that would bring the banking system to its knees. Baker, who long warned of a looming housing crisis, said the central bank’s meek reaction was a primary cause of the crisis: ‘The Fed had all the authority it needed to burst the housing bubble and prevent this disaster. They opted not to do it. This was a disastrous failure.’”

“Merced, situated in Central California’s San Joaquin Valley, is an extreme example of what’s happening across the country. As the economy tanks, foreclosures are soaring. Roughly one out of four subprime mortgages nationally is in trouble. Even so-called prime borrowers, who had good credit when they got their loans, now are having trouble keeping up; about 5% of these loans are in foreclosure, up from less than 1% in 2007, according to the Mortgage Bankers Assn. Rates are even higher in cities like Merced, Fort Myers, Fla., and Bakersfield, Calif., where the bust has been brutal.”

“The housing crisis is creating ghost towns of once-bustling communities like Merced. In largely abandoned neighborhoods, paved sidewalks and driveways lead to empty lots strewn with utility coils. Unfinished frames with rotting rafters and rusted hinges sit alongside occupied homes. Roughly 40% of the homes in Merced are considered distressed.”

“The University of California announced in 2001 that it would open its first new campus in more than 40 years on 84 acres in northern Merced. In anticipation of the potential demand, builders flocked to the area, and real estate investors bid up prices. But they were overly optimistic. Now the market lies in ruins, as unemployment tops 20%. Says Janet Young, assistant chancellor at UC Merced, which opened in 2005: ‘The housing boom was a huge surprise to us.’”

“The housing market has suffered a ‘massive shock’ and faces a difficult recovery in the face of job losses, foreclosures and tight credit, according to Harvard’s Joint Center for Housing Studies. The national homeownership rate has dropped to 67.3 percent, erasing all the gains since 2000. As of March, more than 14 million households owned homes that were worth less than their mortgages. Close to 4 million households have entered foreclosure since 2007.”

“Builders have reduced home construction to 60-year lows. But demand remains extremely low; it’s as if builders saw ‘two out of every three customers disappear,’ said Eric Belsky, executive director of the housing center.”

“The good news is that the bursting of the housing bubble has made real estate more affordable.”

“In the wake of a housing market melt down, many companies have had to diversify and reorganize to keep from going down. Advantage Homes, the largest retailed of manufactured homes in California has always specialized in mini-mansions and high-end vacation homes, until now.”

“The most inexpensive house with delivery is $43,642, with models up to $69,975. The switch to entry-level homes, and a decrease of the large up-scale home is market driven, said factory sales manager Eric Homan. People aren’t buying large houses right now and they want to keep Silvercrest buzzing. Advantage Homes president Thomas DaRosa said, ‘In order to keep my people working we needed to develop a product everyone could afford.’”

“Two friends of mine just moved back to Chicago from Philadelphia. I’m…jealous of the limitless possibilities that lay before them. They’ve got a six-month lease on an apartment in the city, and plan to find a new single-family home by New Year’s. So they’re just starting their second home-buying process. They’re dealing with real estate agents. They’re sifting through endless online listings. They’re coping with the financial headaches. They’re living with the relentless stress.”

“And I’m jealous. Really, I miss it. I miss the thrill of the chase. The excitement. Even the agita.”

“Our house hunt was short — the first house I liked was the one we wound up buying. All told, it took a little more than a month from the time we started thinking about buying a house until we were under contract. We visited fewer than 10 houses. But it was fun.”

“Come take a look at our TiVo ‘Now Playing’ list. I have season passes for HGTV’s ‘House Hunters,’ ‘Property Virgins,’ and ‘My First Place,’ as well as TLC’s Jon-and-Kate-free ‘My First Home.’ And I still watch them. A lot. It doesn’t even matter that I can’t stand the walking clichés that populate these shows — the family that sneers at gorgeous $250,000 homes despite a $25,000 salary and no pre-approval; the couple who invariably makes the ‘this airplane-hangar-sized walk-in closet might be enough for only the woman’s clothes’ joke; the gullible homebuyer who actually believes the real estate agent when told he or she should make an initial offer at asking price or higher.’

“I can’t stand these people. Yet I live vicariously through them, because I sometimes wish I were in their shoes.”

“Don’t get me wrong. I love our house…But that doesn’t mean I don’t wonder what could have been had we waited. We thought the housing market was hitting rock-bottom back then, that prices were as low as they would be, that a ‘dead-cat bounce’ was inevitable. Now? Heck, maybe we could have bought our house (or a bigger one, a newer one, a better one) for a $20 bill and a few coupons for half-price appetizers at Bennigan’s. Who knows?”

“That’s what my Philadelphia refugees are facing. The future is wide open. The possibilities are endless. The fun is just beginning. Then again, I just spent two hours helping to haul couches, loveseats and boxes of books into their new digs. And then I remembered — with house-hunting comes moving. So, um, never mind. I’m happy where I am.”

Bits Bucket For June 26, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.

June 25, 2009

Bits Bucket For June 25, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.

June 24, 2009

Drop The Price Or Bulldoze Them Down

A report from Marketplace. “Stacey Vanek-Smith: The median home price is down about 17 percent from last year. The reason? Foreclosures, of course. Buyers are bargain hunting. And owners of more expensive houses aren’t selling unless they have to. But there’s another problem says economist Lawrence Yun with the National Association of Realtors. He says appraisals are coming in low. Yun: ‘The buyer and the seller agree to a price. Yet when an appraisal is coming in, it’s coming in much lower than the agreed price.’”

“Columbia University housing economist Chris Mayer says appraisals are coming in low because home values are still falling. Mayer: ‘I think that’s a bit like blaming the messenger for the bad news. Prices are falling in housing and down payments are unfortunately going to be high, and it’s going to be very hard to complete transactions. So I think yelling at appraisers is misplaced blame.’”

“If the appraiser values the home at less than what the buyer agreed to pay, the buyer, not the mortgage lender, has to make up the difference. Colorado realtor Marianne Snygg says this is causing deals to fall through. Snygg: ‘I heard about one just last week. The buyer will need to come out of pocket for the difference and a lot of times the buyer can’t.’”

The Denver Post in Colorado. “Cherry Creek Mortgage Co. is among the lenders picking up the pieces in a shattered mortgage industry. A focus on long-term customer relationships, an adherence to more conservative underwriting standards and honoring commitments to its banks when loans did go bad are among the reasons Cherry Creek has survived.”

“‘To grow a firm to such size, and so rapidly, yet untainted by the grotesque ethical behavior recently so common in the mortgage world — that’s a corporate citizenship lesson to all businesses,’ Boulder mortgage lender Lou Barnes said.”

“When Frank Lorenti walks his kids down the street to the park, they share a highway with semi trucks. When Liz Campbell fills a bath at her home, the water runs brown. In exchange for embracing the plan that would quadruple the town’s number of homes, Bobby Ginn promised Minturn a $180 million package. Voters approved the council’s deal with Ginn by an overwhelming 87 percent…Ginn’s plan for Battle Mountain includes 1,700 luxury homes in a private golf and ski community.”

“Without seeing any tangible progress on Ginn’s promises to Min turn, residents can only remember the round of drinks the developer bought at the local saloon after the annexation vote. ‘It’s like Manhattan. The Indians got beads and we got a free beer,’ said Lorenti.’”

The Park Record in Utah. “There’s a lot of grumbling going on about the most recent proposal from David Holland Resort Lodging to pay back condominium owners owed nightly rental income since February. David Zatz, owner of the company, sent a letter to condominium owners Friday morning announcing a partnership with Phoenix Realty who will take equity ownership in the company. As part of the new arrangement, Zatz is requesting owners agree to sign a three-year contract.”

“But while owners willing to speak on the record are hard to find, they do want it said that they don’t like being told the conditions upon which they’ll receive money owed them. Jim Jenkins, an owner in All Seasons who has only done rentals for one year, wants the company to acknowledge that.”

“‘It doesn’t matter to me that he’s promised if I sign up with him for a new contract he will pay me for the old one. He still owes me the money whether I sign up with a new contract or not,’ he said Monday. ‘I think generally speaking, people in the rental program feel the same way. That’s our money and he owes it whether or not we sign.’”

CNN on Arizona. “Financially strapped prospective buyers like Locascio have discovered hope in the Neighborhood Stabilization Program, a year-old federal program designed to help stabilize communities decimated by foreclosures and abandonment. However, not one home in Phoenix has been purchased using the NSP funds despite hundreds of applications.”

“Experts want to caution those who think the Neighborhood Stabilization Program will solve Phoenix’s devastated real estate market. John Smith, president of a nonprofit that helps people find affordable housing, says that won’t happen. ‘We have to identify those goals, those strategies and those resources that are going to make a difference,’ he says. ‘This is not, in and of itself, going to do that.’”

“He compares the program to a Band-Aid, cautioning, ‘It is only one tool … we’re going to have to find some other solutions to stabilize these communities.’ Communities are visibly ailing all across the area, with some of the hardest-hit neighborhoods nearly abandoned by foreclosures. Homes are boarded up and weeds cover the ‘For Sale’ and ‘For Rent’ signs in thousands of yards.”

“‘It’s overwhelming when you look at the numbers,’ Smith said, noting that Phoenix still records roughly 8,000 new foreclosure notices every month.”

The East Valley Tribune in Arizona. “The National Foundation for Credit Counseling survey revealed that nearly half of all American adults no longer believe homeownership is a realistic way to build wealth. Dennis Hoffman, economics professor at Arizona State University, isn’t surprised that many people’s attitudes toward homeownership have soured.”

“‘It’s just kind of a psychological thing,’ he said. ‘When people loved housing back in 2005-2006, they way overloved it, and now they’re way overhating it. I think psychology will slowly improve as we go forward. It may take years to kind of regain the basic confidence that people have in housing.’”

“John Stih, CEO of the Southeast Valley Regional Association of Realtors, said the American dream of homeownership is still out there, but ‘their vision might be blurred a little bit because when they went through this last cycle, they wanted to reap all the benefits.’”

“‘There’s still going to be homeownership, but maybe it won’t (yield) as much equity as it did in the past because it will be slower and it will be controlled because I don’t think the government and the regulators are going to let things get out of hand again,’ Stih said. ‘When you had 50 percent to 100 percent appreciation, that just couldn’t sustain itself. But homeowners will still be there.’”

The Camp Verde Bugle in Arizona. “Beth Adams, president of the Verde Valley Association of Realtors…says foreclosures are an important factor in home sales now in the Verde Valley. ‘They are a large percentage of the sales that are happening now,’ she said. She says foreclosure sales are priced at market value and the lenders want them off their inventory.”

“‘The inventory is incredible,’ said Carol Anne Warren of Adobe Group Realty in Old Town Cottonwood. ‘We have so many houses for a buyer to choose from. The sellers are very, very negotiable. It’s totally a buyers’ market.’”

“‘Every realtor in the Verde Valley has a list of 100 buyers,’ Warren said. ‘But those people must sell a house somewhere else. Once that starts to move, then the dam will break.’”

“Warren said the federal stimulus package has down payment assistance included that doesn’t have to be paid back, and it includes an $8,000 legitimate tax credit. ‘It’s not just first-time homebuyers right now, it’s anybody,’ Warren said. ‘I took my youngest son by the ear and told him ‘you’re buying a house.’”

The Las Vegas Business Press. “Whether all the ’stop foreclosure’ ads will lose their appeal after residents get a chance to go to court mediation for as little as $200 remains to be seen, said local attorney Frank Sorrentino. The lawyer, best known for his bankruptcy practice, has seen business soar in the last year. Many clients attempt to save their homes by going into bankruptcy, he said.”

“However, his clients usually have multiple financial issues that go beyond losing their home to foreclosure, he said. ‘Many have lost their jobs. Some have decided to let the house go,’ the lawyer said. He noted that the prices of houses have dropped so dramatically that somebody hopelessly upside down in their current domicile may opt to let the bank take the house back and save money by buying a new one.”

“At a June 16 Nevada Supreme Court hearing to get public comment on proposed rules for the mediation, attorney Benjamin Childs told Chief Justice James Hardesty that all homeowners should be allowed to request mediation on their loans, not just those that are facing foreclosures.”

“Childs, who handles bankruptcies and foreclosure issues, talked about the impact on the neighbors not in foreclosure. ‘My neighbor is 60 days behind and in the mediation program, and now he is paying $500 less than me,’ he gave as a scenario. ‘I’ll get to participate if I stop making (mortgage) payments.’”

“Frustrated homebuyers at the still under construction Cosmopolitan Resort Casino on the Strip have filed three lawsuits against the project. They claim numerous breaches of contract, and now want their money back. More than $200 million in deposits hang in the balance for the troubled development. The lawsuits have since been consolidated into a single case with more than 400 plaintiffs. Las Vegas-based Marquis & Aurbach is leading the legal charge.”

“The $3.9 billion Cosmopolitan, at 3700 Las Vegas Blvd. South, had been scheduled to open in December. Developer Ian Bruce Eichner, however, defaulted on construction loans last January and lost the project. Deutsche Bank AG subsequently bought the twin 600-foot tower, 2,998 condo-hotel unit complex during a foreclosure sale last summer for $1 billion. Next, it hired The Related Cos. to oversee construction on its behalf.”

“Related’s involvement is ironic, considering the developer failed to build two high-rise projects of its own in Las Vegas — Icon and Las Ramblas — due to financing problems and gross miscalculations about the marketplace.”

“‘It’s rumored that they are going to finish the building as a shell and not do any interior work,’ said Marquis & Aurbach President and Managing Partner Terry Coffing. ‘They may convert it into a straight hotel, but the balconies present a building code issue. They still need someone to operate the hotel. They’re in too deep not to do something.’”

“‘This money in deposit is an attractive thing for them to keep their hands on,’ Coffing said. “They are going to do whatever they can to keep that cash. They may look to settle for 70 cents on the dollar. That would give them $60 million for doing nothing. It has to be attractive in some perverse accounting sense.’”

“Homebuyers could…wind up with dramatically different looking units than originally purchased. Calls to the sales office were not returned. The Cosmopolitan project Web site is no longer online. And Deutsche Bank officials refused to comment on pending litigation.”

“‘They haven’t talked to anyone in a year and a half,’ said Neil Senturia, a San Diego-based Cosmopolitan homebuyer who paid $590,000, or $697 per square-foot, for a 610-square-foot unit in the first tower. ‘No one will respond. And there is no Web site. I think they have issues. People don’t like being lied to and stonewalled.’”

The Las Vegas Sun in Nevada. “Skeptics have been suggesting for decades that Las Vegas has built more hotel rooms than can be filled, and still with every economic downturn, the Strip bounces back with remarkable occupancy rates, stoking even more construction. It may be the closest that man has come to creating a perpetual motion machine.”

“But the machine is sputtering now, and will sputter more through 2010, according to two new reports out this week that fret about the number of hotel rooms being added to the market next year. CreditSights noted that lower room rates are helping to fill Las Vegas hotels, but sales of condominium units on and near the Strip have come to a near standstill with 2,200 vacant units on the market.”

“The CreditSights analysts called it ‘remarkable’ that Nevada gaming win dropped in April for the 16th consecutive month, considering the major additions to the market. With the opening of Las Vegas Sands’ Palazzo and Steve Wynn’s Encore, ‘the old rubric that ‘supply creates its own demand’ is clearly not relevant in today’s environment,’ CreditSights said.”

Bits Bucket For June 24, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the American Visionaries series from Schwarzfilm.