May 3, 2013

Even Though We Learnt A Big Lesson People Forget

It’s Friday desk clearing time for this blogger. “O’Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area. Lotteries are not a perfect solution, especially for the buyer who walks away empty-handed. Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $420,000 and $620,000. The last grouping went for $555,000 to $815,000, a 32% increase. Even with the price hikes, buyers kept returning.”

“Last weekend, more than 1,000 people showed up for a sale of lots in its Boynton Beach, Fla., community featuring homes ranging from the high $300,000s to the low $600,000s. GL Homes held a lottery, in which 75 home buyers entered to win their first choice of lots. ‘The first winner was so excited, she was crying,’ said GL Homes division president Marcie DePlaza.”

“About 12,000 new homes were constructed in Wisconsin last year, reported Wisconsin Builders Association President Craig Rakowski. That’s a far cry from Wisconsin’s average year of 27,000 new homes, or the peak year when 40,000 were constructed, but Rakowski said at least the numbers are headed in the right direction again. ‘It’s the perfect time to build right now,’ he said. ‘Don’t put it off. The message is that the ‘wave’ is here – you want to catch the wave.’”

“At one of in Derrick Companies’ housing developments in New Richmond, sales people received three building lot reservations in one day alone. Bill Derrick, president of Derrick Companies said it’s been a long time since the western Wisconsin region has seen that kind of activity. ‘We’re feeling like there’s a light at the end of the tunnel … and it’s not a train coming at us,’ Derrick joked.”

“The chairman of Emaar Properties is setting his sights on building a new contender for the world’s tallest building, possibly in Dubai. Mohamed Alabbar said yesterday he was considering building a tower taller than both the Burj Khalifa in Dubai and the Kingdom Tower, under construction in Jeddah. ‘I think we might try to do something a little taller,’ he said. ‘We have learnt how to make money out of tall buildings.’”

“Mr Alabbar said Emaar was doing its best to try to control flipping in the market. ‘You can never really stop people who flip, that’s part of life, part of business,’ he said. ‘Even though we learnt a big lesson four years ago people forget. Greed is in our DNA.’”

“China’s leading developers were out in force when a four-day real estate fair opened at the Shanghai Exhibition Center. Many home-seekers seemed to have concerns about fast rising prices. ‘I just checked one Poly project in Jiading New Town and was told that there ‘could be’ some discounts in June when the second phase of the project is scheduled to be released and the sales price will also not be disclosed until then,’ said a woman in her 30s. ‘The only thing for sure, as the salesman told me, is that prices will go up further from the first phase which had been sold out,’ she said.”

“Another couple were checking out a project in Minhang District. The husband said: ‘It’s crazy that they are asking for more than 27,000 yuan (US$4,333) a square meter now for bare-shell apartments as the price was only around 20,000 yuan about a year ago. Our patience is wearing thin and we are really afraid that if we keep waiting, we will never be able to afford a house of our own,’ he said.”

“Almost a quarter of all properties advertised for sale in Australia are distressed sales, according to new figures. The Gold Coast region of Queensland fared particularly badly: 74% of its listings were distressed. Stewart Gilchrist, of Colliers’ insolvency property services, said high-end homes accounted for the majority of distressed sales on the Gold Coast, explaining that ‘there is still an oversupply of residential [properties] in excess of UA$1m so those distressed sales would be at the upper end of the market.’”

“Las Vegas would seem a highly unlikely locale for a new housing bubble. There are at least 20,000 homes in some stage of foreclosure, and the jobless rate hovers near 10 percent. But the surge here has another origin: the Federal Reserve’s continuing push to buttress growth in the wake of the 2008 financial crisis. Prodding investors further out on the so-called risk curve is part of what the monetary mandarins had in mind. But in treating the consequences of the last bubble, the Fed is now spawning new, smaller manias like the Vegas rental rush.”

“Not everyone is a believer. ‘The Vegas housing market has only firmed because of speculators,’ said Jason Ader, a New York money manager and former Wall Street casino analyst who invested in foreclosed homes in Phoenix a year ago but bypassed Vegas. ‘Vegas is only doing well for now because of the greater-fool theory.’”

“Kathryn Kay Chapman rents a two-bedroom house here with her boyfriend and has been looking to purchase a place nearby. The couple scraped together enough cash to make a bid on a three-bedroom home they’ve been eyeing. Their cashier’s check was found to be improperly drawn and they couldn’t participate. Chapman says they may try again, though she suspects they’ll be outgunned. ‘We know there is a minute chance we get anything,’ she says. ‘The most frustrating part of all this is how home prices keep going up and up, yet you have so many empty homes.’”

“Almost 43 percent of bank-owned properties in one Newark neighborhood remain vacant, even years after foreclosure, according to a new study. On a day when the city auctioned off 80 abandoned properties, the large number of vacant foreclosures ‘really jumped out’ at researchers as they walked the Upper Clinton Hill neighborhood and studied property records, Linda Fisher, a Seton Hall University professor, told a Newark City Council committee hearing. ‘We’ve heard a lot about homeowners walking away in the middle of foreclosures’ rather than continuing to make mortgage payments, Fisher said. ‘Well, these are bank walkaways.’”

“Foreclosures have added $56 million to expenses in a five-year period in which the city’s average tax bills have risen by almost 50 percent, said Carol Meyers, a researcher for the Service Employees International Union. Meanwhile, at least 9,000 more Newark residential mortgages are ‘underwater,’ with borrowers owing more than the current value of their properties, according to Meyers.”

“The researchers were particularly dismayed to come across squatters in the vacant units. Many habitable units are in ‘foreclosure limbo,’ Fisher said. Upper Clinton Hill ‘is one of the city’s more stable neighborhoods, or at least, it was,’ said Fisher.”

“Sixty-five-year-old Janis Thompson and her dog live in Euclid. Thompson wanted to escape the Midwest winters this year, by selling her cozy colonial and moving to North Carolina. But now she’s staying put, given recent events. ‘Each house on each side of me have gone into foreclosure. But both of them lost their jobs, and now both of them have lost their homes.’”

“Thompson is grateful she’s keeping her own home. But the value, once estimated at about $105,000, is now pegged at $78,000. RealtyTrac shows about 500 homes in Euclid are bank-owned, many priced at 20 to 50 percent of their original value. RealtyTrac says Ohio also has a 25 percent increase in unlisted, bank-owned foreclosures, known as shadow inventory. ‘After 17 years of paying mortgage faithfully, I’m not sure that I could sell the house for enough to cover the mortgage and Realtor fees,’ she said.”

“Thompson’s resigned to staying put. ‘Originally, I felt terribly depressed. I’ve picked out an apartment complex in the Raleigh area that I was going to move to. I have family down there. I thought, ‘Oh, you’re still young enough, you can make friends,’ and now I have no idea when—if ever—I can get down there. I don’t think we have choices anymore on that.”

“Ricardo Rodriguez lives in the Mission District of San Francisco in a modest two-story home he purchased from his parents more than 20 years ago. Today, half-filled cardboard boxes are scattered around his living room. ‘We haven’t bothered to clean it up,’ Rodriguez said. ‘We never know when we might have to leave.’”

“In 2006, Rodriguez refinanced and borrowed $643,500 from MortgageIT Inc. Bank of America later took over the adjustable-rate loan, which had a starting interest rate of 1.25 percent. Rodriguez said his mortgage broker assured him he would be rolled into a fixed-rate loan before the payments increased. But in 2008, his interest rate spiked. He went from paying $1,704 a month to more than $6,000 before getting a loan modification in 2009 that brought his payments back down, he said.”

“Bank of America said it had reduced the Rodriguez family’s loan to a 2 percent fixed rate, but they were unable to pay the lower amount. Rodriguez still was struggling when he lost his job delivering newspapers in 2011 and fell further behind. He is now 34 months late and owes the bank more than $92,000 in back payments and fees, loan documents show. Since 2009, Rodriguez has applied for at least 10 loan modifications without success.”

“‘I wake up every night thinking I’m going to get up in the morning with no house,’ he said.”

“The Obama administration announced an initiative to ensure more home loans for those with weak credit. For the public, it’s déjà vu all over again: an all-knowing federal government again pushing its way into the housing market against the backdrop of a softening economy. Yet again, we hear calls for banks to facilitate more home loans to mortgage seekers with less-than-stellar credit. And all in the name of helping young people and those with poor credit histories secure a house.”

“But the ink still isn’t dry on the bad (mortgage) paper and lawsuits generated as a result of the government’s last attempt to manipulate risk. How quickly we forgot about that five-year recession brought about by government-sponsored risky loan practices. The downturn has been referred to as the greatest economic calamity since the Great Depression. The president said so himself!”

“But now the feds wish to revisit ’subprime lending land.’ Government again wants to substitute its judgment for the market’s. And yet again, it will be federal taxpayers on the hook for the inevitable cascade of newly mined bad loans. One piece of good news for mortgage originators: Obama housing officials are asking the Obama Justice Department to reassure banks that they will not face severe legal consequences if (and when) large numbers of the newly issued loans turn out to be bad. Wow — bet everyone feels secure with their ‘get out of jail free’ card.”

“So, taxpayer beware: The government must be hyper-careful in reengaging banks in the subprime market. Indeed, mortgage creditworthiness should be a function of rational economic calculation and little else. Such is the hard (but familiar) lesson of our recent economic woes.”

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