The Housing Bubble

Sac bee article =

Sales far from sizzling at downtown condo
But 500 N’s management still optimistic
By Bob Shallit — Bee Columnist
Published 12:01 am PDT Saturday, August 19, 2006
Story appeared in Business section, Page D1

I’ve seen the idea that you go back to 1997 or 1998 before the bubble, use that price/value, and add inflation 3-4% each year to get to an equilibrium value. I understand that.

How would one apply this to this situation?

1935 house. In 1997, it had about 2000 sf of finished living area renovated to early 1980s style/standard. Large unfinished attic.
2BR-2Bath, 4 Living areas. 2000 sf above ground basement (unfinished). Price of comps (hard to do in old neighborhood), but let’s say $350K.

Today is has 4BR-3Baths-2 1/2 Baths-5 Living areas. 3400 SF finished to 1999-2000 standards. 2000 sf above ground unfinished basement. Sold recently $700K.

This in Atlanta GA.

Thanks, Army No. Va.

I have got proof that the housing bubble is alive and well in small town, “flyover” America. Take a look at this house, which is currently on the market for $439,500 in a small town in south Georgia:

http://tinyurl.com/f46us

In May of 2004 this house sold for $200,000, per the county records, which are on-line beginning in 2004. Prior to that, it sold in 1999 or 2000 for somewhere around $100,000 (per local realtor).

What’s changed? The 19xx-1999 owner was an elderly couple who had lived there for years. They keep the place in good repair and made some updates to the systems but didn’t get too fancy. The 2000-2004 owner had a small business specializing in faux painting and faux stained glass. She painted and also updated the bathrooms and kitchen with new fixtures. She was rewarded for her efforts with approximately $100,000 increase in the value of the home. The current owners added a swimming pool, some landscaping (flowers and bushes, no trees or major improvements), and painted over the faux painting. Apparently they believe that their efforts are worth an additional $239,500.

How do I know all of this? My mother-in-law lives in this town (population 3879 in 2000–last census). She knows the current owners as well as the previous owners. And just in case any of you are thinking that these newest owners are a couple of Yankee carpet baggers, let me assure you that both they and the previous owner have family in this town that go back for generations. These are just small-town southern folk participating in the housing bubble.

Saw this in the WaPo this morning:
“Insurers Urge Action on Risky Loans”
Well, finally!
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/18/AR2006081801032.html

The bond conundrum?

http://www.xanga.com/private/yourhome.aspx?user=russwinter&nextdate=8%2f18%2f2006+23%3a59%3a59.999

WSJ - Loudoun County VA down 10-15%, not 2.5% as reported by realtors

Housing
Measuring the Cracks in the Foundation
By MARK WHITEHOUSE
August 19, 2006; Page A2

Economists looking for evidence of a hard landing in the housing market will be watching closely next week when the National Association of Realtors releases its latest data on existing-home sales and prices.

Some think there is a chance the report will show the median price of a single-family home declined in July when compared with a year earlier. If so, that would be the first time prices have fallen in more than a decade.

Economic data often defy the forecasters, and monthly housing data are notoriously volatile. But whether the data show a decline or not, many people trying to sell their homes probably already have felt one. That is because the official numbers tend to be rosier than reality, particularly at turning points like the present.

For much of the past year, economists have been engaged in a slow-motion debate over where the housing market is headed. Most still predict a soft landing, in which sales would decline and prices would stall, but only enough to take a small bite out of economic growth. Lately, though, worries have mounted amid indications that the landing could be harder.

Last week, for example, the National Association of Home Builders reported that its index of new, single-family-home sales fell to a 15-year low. The previous week, luxury-home builder Toll Brothers Inc. said orders were down 47% in the three months ending July 31 from a year earlier. Chief Executive Robert Toll said he had never seen such a sharp downturn in an otherwise healthy economy.

For the most part, economists expect next week’s housing reports, which include fresh July data from the Census Bureau on new homes, to confirm the downward trend they already see. But fresh data on median prices — particularly for existing single-family homes, which make up most of the market — could raise some eyebrows. So far this year, price gains have shown a sharp deceleration: In June, they were up only 1.09% from a year earlier, compared with 12.61% in January. Should prices actually fall in July, that will be a telling sign that housing could be in for the kind of sustained decline in prices that could weigh heavily on consumers’ moods and finances.

Moreover, there is some reason to believe the reality is even harsher than the numbers reflect. That is because when home sales begin to slow, sellers offer incentives that the official prices don’t reflect, such as help in paying buyers’ closing or moving costs. Also, as sales volumes in the worst local markets decline, a larger share of the recorded sales tend to come from markets that are still doing relatively well — a factor that can skew official prices upward.

The difference can be significant. Thomas Lawler, an economist and former vice president at Fannie Mae who has studied prices near his home in Loudoun County, Va., estimates that the average price of similar homes in July — accounting for concessions — was down 10% to 15% from a year earlier. The local realtors’ organization, he says, reported only a 2.5% drop.

“There are a lot of people who would love to be able to sell their homes at last year’s price,” he says. “But they can’t.”

Hi everyone. I am a long time lurker that has enjoyed the lively discussions and all the great reporting. THANK YOU BEN for this wonderful website.

I have a question for experienced landlords/renters. When we moved to PA, we took a townhouse in a community that catered to executive housing. It now resembles section 8 housing and has become unbearable. We are trying to find a single family to rent, and I was wondering what I should look for and what clauses I should try to get into the lease. Also, any ideas as to where to find listings (beyond mls and paper) would be appreciated.

Thanks so much.

Friday, August 18, 2006
Countrywide Home Loans Letter to Borrowers

Excerpt from the Baltimore Sun: Interest-only loans may start cheap, ‘reset’ scary

To head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, quietly has begun sending out letters to thousands of borrowers who have been making only the minimum payments on the company’s popular “PayOption” adjustable-rate mortgages.

The letters explain that “this is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly.”

A model letter provided to me by Countrywide includes this hypothetical example of what could be ahead for a California homeowner currently making only minimum payments monthly on a $402,000 loan.

The current full interest rate on the loan is 7.6 percent, but the borrower has been paying just $1,348.47, far less than what’s needed to fully amortize the mortgage over its 30-year term.

If the loan reset at today’s rates, the letter explains, the full payment required would be $2,887.50 - more than double what the homeowner has gotten used to paying. Future reset rates could be even steeper, making the potential payment crunch much worse.

My comments:

These neg am IO loans have a clause that requires a reset to regular amortization once the loan principal hits a percentage of the initial mortgage. Typically it is 110% or 115%. So in the example mentioned of the 402k mortgage, neg aming at $1,540 a month, the 110% mark would trigger after 26 months. It would then revert to a regular mortgage with about 28 years left. Assuming the rate of 7.6% still stands, the new payment (on 442k) would be $3,181 a month, requiring the neg amer to fork over an extra $1,832 a month, or about 22K a year.
http://www.amo-mortgage.com/amortization.html

August 19 (UPI) - Skilled cult deprogramer Ben Jones today arrived outside the fortified compound where members of the SDCIA doomsday cult were holed up making final preparations for what can only be described as mass financial suicide. Reports from inside the compound say that Cult Leader Gary Watts is growing increasingly desperate and hysterical, leading his Flipper minions in round-the-clock chants of “Real Estate only goes up!” and “12% is in the bag!”

While most of the empty-eyed SDCIA cultists are still clinging to their delusions, a growing number are starting to feel a palpable sense of unease, thanks to devastating forays into their camp by TxChick57 and other Housing Bears. Their feeble attempts to stage counter-strikes against the Ben Jones partisans have quickly collapsed as Sammy Schadenfreude and his intrepid Housing Bear brothers-in-arms (females included) have swooped down to club them like baby seals. Several “it’s different here” bubble stalwarts like LV Landlord have tried to make a stand, only to ooze away under a barrage of bad news as their soap-bubble dreams of easy money come to a Hindenburg-like end.

More and more disillusioned, fearful Flippers are slipping past grim-faced minders like Suzanne, ignoring her proffered Kool-Aid, breaking ranks with the lemmings and rushing to unload their “alligators” before the onrushing crash. Some have even defected to Ben’s Housing Bubble Blog, embracing their new creed with the zeal of “born-again” neophytes.

More on this fast-breaking story as it develops….

Good Morning to all. As a heads up, there is a very good article in this weeks Barron’s. It is on page 33 and is titled “The No-Money-Down Disaster.” Very readable and some shocking numbers. Enjoy.

The world’s worst resume:

http://www.dealbreaker.com/2006/08/worst_resume_ever.html

Reverse mortgages will probably be the next “scandal” in a few years, a few years too later I’m sure.

LA Times
“The sign over the back door, “Bless this mess,” doesn’t adequately convey what waits inside: floors caked with animal excrement, waist-high piles of junk, the stiffened corpse of a cat — and a teary-eyed woman whose life has spun out of control.

On Thursday, volunteers wearing breathing masks began cleaning out the single-story Garden Grove home to help owner Anne Francis avoid foreclosure and eviction.
Francis, 70, a former interior decorator, said she was embarrassed by the massive amount of clutter she has accumulated over the years. “I know it’s like a sickness,” she said. “I guess when your life is empty with one thing, you fill it with something else.”

Francis’ situation has tugged the heartstrings of a Bakersfield reverse-mortgage processor and a publicist from a Vancouver, Canada-based, junk-removal company.

“She needs help,” said Tina Wilson, the Network Source Funding mortgage agent whose usual professional detachment crumbled when she worked on Francis’ case. “This is something I can’t walk away from.”

Wilson teamed up with Katie Dunsworth of 1-800-Got-Junk, which donated junk-removal services for Francis and tried to drum up media interest in the story.

But their efforts might not save the day.

The home recently went into foreclosure after Francis failed to keep up with the mortgage payments. She applied for a reverse mortgage, hoping it would enable her to pay off the house and leave enough for her living expenses.”

More & more general financial blogs are starting to “get it” on real estate.

http://www.seeingtheforest.com/archives/2006/08/todays_housing_34.htm

A little ruckus has erupted over at Lew Breeze’s San Diego condo blog (92101.blogspot.com). Quite humorous.

Posted on Sat, Aug. 19, 2006

INSURANCE
Residents dreading insurers’ letters
As the insurance crisis deepens, policy cancellations and sharply higher premiums have South Florida homeowners reeling.
BY BEATRICE E. GARCIA
bgarcia@MiamiHerald.com

Many South Florida homeowners are approaching their mailboxes with dread these days, anticipating a notice from their insurance company. Such a letter can only be bad news — either a massive rate increase or worse yet, a policy cancellation.

For some consumers, like Jill Puppilo of Davie, it’s both.

First Protective Insurance canceled the fourth-grade teacher’s homeowners policy soon after repairs from Hurricane Wilma were completed.

Finding no other willing insurer, she landed with Citizens Property Insurance, the state-run pool. Her premium is now nearly $7,500 — about three times what she had paid last year.

”When I first heard the new premium, I got tears in my eyes. Now I’m resigned to it,” Puppilo says.

As insurance companies continue to reduce exposure in this hurricane-prone state, more than a dozen are notifying homeowners that their policies will be canceled at renewal time.

”Companies are getting rid of anything that’s borderline,” says Dulce Suarez-Resnick, an agent with HBA Insurance in Miami.

That means insurers are bailing on older homes or coastal properties. Sometimes, they are just reducing policies in a certain region.

Companies quietly cutting back in recent weeks include Florida Family, Universal Property & Casualty, Clarendon Insurance, Liberty Mutual, and Vanguard Fire & Casualty.

Meanwhile, the Florida units of State Farm, Nationwide and Allstate have been trimming nearly 200,000 policies from their books.

”Some companies have too much exposure in Florida. If we’re going to have more hurricanes, then they have to balance the needs of policyholders against their financial health,” says William Stander, government affairs representative for the Property Casualty Insurers Association of America.

One of those is Tower Hill, which is cutting about 20 percent of its agents throughout the state as it pares policies. It now has some 700 agents statewide, with nearly 250,000 policies in force.

Donald Matz, Tower Hill Insurance Group’s president, says the company’s action is driven by the higher cost of reinsurance — that’s insurance that insurers buy to help cover catastrophic losses — and premium rates that could still be too low to cover losses the company expects.

Also, one rate hike for Tower Hill has already been approved, and the company has requested a second one to cover higher reinsurance costs. The two add up to a nearly 50 percent increase for homeowners in some parts of the state, Matz says.

As private companies drop policies, the state’s insurer of last resort continues to swell. Already the largest insurer of homes, condos, apartments and mobile homes in Florida, Citizens is the only option for many homeowners receiving nonrenewal notices.

Citizens now has 1.2 million policies. On July 1, it took on more than 300,000 policies from the three now-defunct Poe Financial Group firms.

Citizens is ”becoming the greatest gift to the insurance industry,” says State Rep. Dan Gelber, D-Miami Beach. “Insurers can walk away from any policy they believe will present the slightest risk. They can get rid of the lemons and keep all the cherries.”

Agents and company officials say the homeowners insurance market tightened considerably as hurricane season got under way. Only a handful of private insurers are writing new policies, but far fewer than before. For instance, Travelers is allowing each agent in Miami-Dade County to write two policies per quarter. Until July 1, it was writing about four to five policies per agent each month.

Florida Family and Universal of North America stopped writing wind coverage after July 1.

Joan Hernandez of Homestead was distressed when the bill from her home insurer, United Property & Casualty, hit her mailbox. The new premium was $11,529; last year’s was $3,795.

So she got an inspection done and received discounts for her roof and shutters. She also opted for higher deductibles and reduced or eliminated other coverages, such as for her screen enclosure.

Her revised premium will be closer to $7,000, but that’s still almost double. ”If it keeps going like this, we will have no choice but to go without insurance,” she says.

Norvell A. S. Holyfield of Northwest Dade is paying her $4,502 premium in several installments. She’s considering borrowing from a long-term healthcare policy for the next payment. Two years ago, her premium was $900.

”The money you’ve set aside for your retirement you’ll have to use today just to keep what you have now,” Holyfield says.

From Craigslist:

$11000 / 4br - Sunny Architectural Show Piece in Santa Monica
http://losangeles.craigslist.org/wst/apa/193945337.html

This beauty is located near the takeoff end of the airport runway for maximum comfort.

What else can I say, except: BWAHAHAHAHAHAHAHAHAHAHAHAHAHA!

People just don’t get it do they! Wake UP! This housing bubble was “created” for a reason. Duh! Follow the clues, folks. Company pensions going the way of the do-do bird. Medicare struggling and on the verge of collapse. Baby boomers heading into retirement years and living longer which will be a drain on the social security system. A national debt going forward for so many years it boggles the mind. That means government entitlement spending cuts JUST to tread water. Okay, have you soaked all that in. Move over to “column 2″. Government, Fed, Banks, Greenspan. A very untrustworthy and sneaky group to say the least. What did this group offer? Free money for anyone who has a pulse and can sign “x” on the loan application. Okay. Mmmmm. What’s in it for them (KEY QUESTION HERE!)Move over to “column 3″. Are you following the clues so far? In just 5 short years, a property worth $150,000 shoots up to $550,000 after a quick coat of paint and some slick paperwork drawn up by a realtor and his/her pet appraiser. Notice that it’s mostly in the highly populated areas like New York, SF, Los Angeles, Chicago, etc. These are the money centers. Now follow the housing bubble “tracks”. A bubble which has far exceeded the tech boom and bust around 2000 and is the greatest property valuation boom on record. We must go back to “column 1″. That $150,000 property which has now arrived at the peak (as the boom turns to leak) at $550,000, will start to track back down. It WILL NOT go straight down. Greater, unsophisticated, fools will appear and buy and get stuck as resistance is hit, then previous support (price) is broken. Will it go back to $150,000? No, it will not. If anyone thinks they will be buying property for 10 cents on the dollar, I suggest you get a sample of your tap water checked out. Where will it track back to? Probably to it’s value in 2003/4 over a period of time if you ignore the (fake) dips. Price around 2008? About $300/350,000. In places like Florida it could be worse but I’m not sure. Still more than double it’s 2000 price. End result? For boomers who own property, more than enough to help pay for those expensive medical costs they are going to need and which the insurance companies are going to LIMIT and also to suppliment their “means (to be introduced) tested” social security pensions. You can guarantee the government, fed, banks, aided and abetted by Greenspan fed all the numbers into a possible final outcome. Like generals who calculate odds before a battle, they even included a casualty percentage (say 20%) of those dead beat borrowers who will walk when they see it’s cheaper to rent when their cheap loans reset (soon). End result………..it work out for the government, fed, banks (who will be helped if a bail-out is needed) and Greenspan doesn’t give a s*it. He’s gone. Need an expensive medical option? Need to suppliment that lower social security pension? REVERSE MORTGAGES. Oh, btw, just to add some more happy news, we are heading into a recession. Just don’t know how long or how deep…

Any opinion on REITS? Think they will suffer with the RE down turn or hold up as more people chose to rent?

The United States is bankrupt. End of that rant. Mr. Washington Hack Greenspan managed that, aided by a president who’s only claim to business fame before being elected to office, was to sell a sports team (put into the deal by his rich daddie’s pals) and a oil affiliated company he bankrupted. His success in business and financial management prior to being elected = ZIP + Nada + Zero. About the same level has his military experience…..but he salutes well. He’s has since dragged the US economy into the gutter (We were told bringing freedom and democracy to Iraq will cost around $2 billion. We are now passing $300 billion and could hit 1 trillion by the time we end up deciding we will join the list of others who tried to occupy these middle east countries and get out). The US is surviving financially because of 3 items. Foreign money. Money the Fed prints like confetti, working on the assumption that the rest of the world will still have faith in the US system. A faith which appears to be fading under Bush very, very, very fast by the day - and a pumped up credit system which is so bloated and stinks so much it looks like a 5 day old dead pig which has been left in the desert sun. The US needs that foreign money to keep pouring in and in order to do that it needs to offer a good return. BTW, brain washed America, we are no longer the financial “world’s superpower” OR the world’s “military superpower”. China is looking at us in their rear view mirrors as they drive the cars they are starting to make and which will probably replace Ford and GM or at least relegate them to a “also ran” who get their income from the military or the police departments or state and fed agencies. Here’s a little info which those purveyors of selective news doesn’t give you on tv. If you think GM and Ford are struggling now, how would they be doing if all the military, state agencies, etc, decided to buy vehicles like Toyota or Nissan? Back to China. China is the country doing oil deals around the world with countries Bush picked fights with (like Venezula) and China ain’t gonna like it if the phoney Rhode Island Cowboy starts giving those countries a problem. How can I put it….Oh, yes. We have NO credibility left and other countries want to distance themselves from the US. For instance, our best ally is the UK. They have stayed with us while others faded away but (because of Bush) a recent poll showed that 80% of the Brits want to break with the US and conduct the war on terror in their own way because they have lost faith in US competence. In a war situation, I would put China’s military way ahead of ours. They don’t owe us money - we owe THEM money. A LOT of money. Maybe if American’s stopped listening to the flag wavers on t/v and did some of their own thinking and observing instead of letting a few overpaid celebrity anchors think and observe for them, they might start to work out what’s true and what isn’t. As far as property prices are concerned, you WILL NOT see property for 10 cents on the dollar. Ever. There are millions of foreigners who come from countries which have not become another “modern Rome” like the US who have real cash they have SAVED, who will sweep in and buy up property long before it reaches 10 cents on the dollar. As for the opening of the money spigot. Consult any financial chart. Market sank - property went up. Almost in unison. The Fed knows where the money is going when they open the free money spigot. It certainly wasn’t going to go into a tanking stock market. With the banks screaming “Mortgages for 1%!!!” it doesn’t take a genius to see in which direction the Fed is herding the sheep. And it isn’t to let them borrow large amounts so they can buy 2 tons of cookies. When Joe Sixpack hears that the bankruptcy he has on his credit record along with the two vehicle repo’s he has and a none payment of a medical bill doesn’t mean anything if he wants a mortgage - what do you think he’s going to do? And when he sees those bank rates re-set and the property taxes, water bills, etc, are twice as much as they were 2 years ago and there’s a nice little apartment for rent at $300 a month less just down the road….what do you think he’s gonna do. I’ve worked in finance for years and I can tell you one thing for certain. 90% of those who didn’t handle their finances correctly and eventually defaulted (not the one’s who got hit with medical bills who didn’t have insurance and we are going to see a lot of them as time goes on) NEVER change their spots.

The For Sale sign is now the official flower of the Hamptons.

The number of proprties on the market has grown immensely and the number is likely to become substantially larger after renters clear out after Labor Day and sellers who couldn’t sell and rented out make a second pass at the sales market.

At cocktail parties, last year’s bragging about real estate has all but disappeared. And the long. long winter is just around the corner.

The very top of the market has not been affected yet. But the layers below, aka “Wanabee World” are in very bad shape.

Ben has some good updates to the bubble photo gallery this weekend!

Flippin’ On Down

I/O, I/O, deep in the hole I go
I work away another day
To serve a loan I can’t repay
I/O, I/O, I/O, I/O

I/O, I/O, my spirit’s waning so
I’m a slave to debt that I regret
I “knew” I’d win – a card’nal sin
I/O, I/O, I/O, I/O

I/O, I/O, I bet the farm on an Option Arm
“The payment’s low!” the teasers go
and now I’m screwed - my life’s unglued
I/O, I/O, I/O, I/O

I/O, I/O, I lost my bet, to my regret
Yep, I got hosed and they foreclosed
I left my keys — it was a breeze
I/O, I/O, I/O, I/O

I/O, I/O, I’m off to Mexico
The prices there you can’t compare
I beat my debt, let Joe regret
I/O, I/O, I/O, I/OOOOOOOOOOOOO….

I shudder to think what this guy has in mind

http://dallas.craigslist.org/acc/196442135.html

August 20, 2006

Home sellers lower price or learn to chill

By TUX TURKEL, Portland Press Herald Writer

The number of single-family homes for sale in Maine
has hit record levels, industry figures show, with
inventory continuing to climb this summer.

More than 26,000 homes currently are on the market,
according to statistics from the Maine Real Estate
Information System, compared to roughly 18,000 at this
time last year, and 14,000 in 2004. Inventory has
grown by more than 1,000 in just the past month,
figures show.

This plentiful supply of homes has outpaced demand in
many areas, and that is pushing down prices, further
proof of a market that is shifting in favor of buyers.

In response, sellers are trimming their asking prices,
and some real estate agents are becoming more creative
to get their properties noticed, particularly in
southern Maine. One Realtor in South Portland offered
a free 24-month lease on a new car to buyers who
closed on select homes. An agent in Saco drew traffic
to an open house - and put the home under contract -
by slashing the price from $249,000 to $199,000.

It’s no secret that home sales have slowed in much of
the country.

The National Association of Realtors said last week
that 28 states and the District of Columbia were
reporting spring sales declines. Double-digit drops
were noted in former boom areas, such as Florida and
California. At the same time, states that saw only
moderate price increases during the past five years,
such as Arkansas and North Carolina, had sales heading
up.

Maine recorded a slight sales gain during the spring
period of 1.5 percent, the group reported. But it may
be too soon to answer one of the big-sky questions
about Maine real estate: Has the market cooled so much
that median home prices - which rose by double digits
for three years - will actually decline?

Recent trends are pointing in that direction. Here’s
some perspective.

The median sales price means half of the homes sold
for more, half for less. Between 2001 and 2002, median
prices rose by 15.14 percent. They were up 12.23
percent between 2002 and 2003; up 12.18 percent
between 2003 and 2004; and up 9.14 percent between
2004 and 2005, according to industry figures.

Taken together, the statewide median sales price rose
from $125,500 in 2001, to $189,000 in 2005.

Then the brakes came on. For the first six months of
this year, the median price has edged up just 2.91
percent, to $194,500.

Real estate markets are local, so it’s hard to make
generalizations. But in some areas, in some price
ranges, Realtors are calculating that it would take 12
to 18 months to sell current inventories, based on the
rate of sales activity over the past year or six
months.

“Some sellers haven’t come to the reality that it’s a
buyer’s market,” said Cathy Manchester, a Realtor at
Keller Williams Realty in Gray. “They’re still trying
to get higher appreciations. But the record inventory
means it’s a fantastic time to buy. Everything is
selling, if it’s priced right.”

What does it mean for a house to be “priced right?”
Take Bruce Thistle’s home in Windham.

Following appraisals from three real estate agents,
Thistle listed his split-level, beautifully landscaped
home with a right-of-way to Collins Pond last August
for $259,000. He finally got it under contract this
month, for $216,000.

“A year ago, if you told me I’d sell the house for
that price, I would have laughed,” he said.

Thistle only had one showing during the first six
months his home was for sale, even though he dropped
the price $9,000 during that period. In the meantime,
he and his wife were renovating his father’s former
house nearby and had moved out of their home of 37
years.

“I thought we’d sell it in days,” he said.

When Thistle’s listing contract expired in March, he
switched Realtors and went with Manchester. She
started the process at $240,000 and cut the price
three times before finding a buyer.

Thistle’s house was appealing because it’s well
maintained and has extensive gardens. It finally sold,
Manchester said, because the price was right. That
combination made it stand out in a market with too
many homes for sale and not enough buyers.

Consider the inventory in Windham. Over the past six
months, the town has had 52 homes for sale that were
priced from $220,000 to $250,000. Thirty-three of them
sold during that period, Manchester said. That
translates into an inventory of 5.5 months’ worth of
homes in Thistle’s price range.

“Right now,” she said, “what’s driving the market is
inventory, not historic prices.”

That’s a tough reality check for many sellers, who
have a hard time accepting how quickly the market has
changed.

Noah Smith is a Realtor with Coldwell Banker in Saco.
He listed a three-bedroom property in Hollis that
featured four acres, a sunroom, barn and inground
pool. The owner insisted he price it at $299,000. That
was more than a year ago, before Smith was able to
convince the owner to go down to $249,000.

After three months without an offer, Smith had another
idea. He set up an open house and invited fellow
Realtors via e-mail. The draw: A drastic price cut to
$199,000.

Smith and the seller reasoned that the bargain price
would attract attention, and it did. More than 30
parties came to the event, and the house finally is
under contract. Smith wouldn’t disclose the contract
price, but said his strategy was to generate enough
buyer interest to receive bids above the asking price.

In today’s market, Smith said, sellers need to be
realistic about the condition of their homes and the
asking price. That’s especially true in York County,
where inventory has continued to grow in recent weeks.

“Anyone who says the market is leveling off is in
denial,” Smith said.

With so much competition in the marketplace, some
agents are trying novel ideas to break through the
clutter.

Kevin Cloutier, a Realtor with Keller Williams Realty
in South Portland, ran newspaper ads last month
promising a new car to people who closed on a select
home. To separate his properties from the pack,
Cloutier reasoned, he needed to do more than just
lower the asking price.

Cloutier worked a deal with the Jolly John car
dealership for a 24-month lease on new vehicles, such
as the Jeep Liberty. The house sellers had to agree to
give the buyers $11,000 at closing, to cover the
lease.

“It was just a creative way of saying why this
$400,000, three-bedroom house is better than the one
up the street,” Cloutier said.

The technique brought in plenty of inquiries, but no
firm offers on the five homes that were part of the
experiment. Cloutier said he might try again next
month.

“It did generate activity,” he said. “There are just
too many houses for people to pick from.”

Other homeowners are dangling similar incentives. The
seller of a Portland condominium has been running
newspaper ads offering a new Honda Civic. Ads for a
new, energy-efficient home in the Sebago Lake region
feature this headline: “Free heat for 1 yr.!”

These measures don’t interest Cathy Manchester.

“You don’t need all those bells and whistles to sell
it,” she said, “if it’s priced, shown and marketed
right.”

Manchester expects inventory to build only to a
certain point. After that, falling prices and stable
mortgage interest rates will convince more buyers to
jump in.

But it’s harder to predict how far prices may fall. In
York County, for instance, both the number of homes
sold and the median sales price are down modestly for
the first half of 2006. Those figures are more or less
flat in Cumberland County.

Manchester doubts that statewide median sales prices
will actually decline in 2006. She expects this year’s
modest growth to continue, in the 3 percent range.

“It will seem like a leveling because of the market
we’ve been in,” she said.

Sheryl Gregory, a past president of the Maine Real
Estate Information System, said she detects that
leveling, but not a decline. A broker at Homestead
Realty in Winthrop, she’s operating in an area that
continues to see active sales and moderate growth in
housing prices. The buyer’s market that has washed
over southern Maine has yet to reach Kennebec County,
she said.

“If prices do decline,” she said, “they will be area
by area, month by month.”

http://business.mainetoday.com/news/060820homes.shtml

Rural Oregon Town Feels Pinch of Poverty
By ERIK ECKHOLM

OAKRIDGE, Ore. — For a few decades, this little town on the western slope of the Cascades hopped with blue-collar prosperity, its residents cutting fat Douglas fir trees and processing them at two local mills.

Into the 1980’s, people joked that poverty meant you didn’t have an RV or a boat. A high school degree was not necessary to earn a living through logging or mill work, with wages roughly equal to $20 or $30 an hour in today’s terms.

But by 1990 the last mill had closed, a result of shifting markets and a dwindling supply of logs because of depletion and tighter environmental rules. Oakridge was wrenched through the rural version of deindustrialization, sending its population of 4,000 reeling in ways that are still playing out.

http://www.nytimes.com/2006/08/20/us/20poverty.html?_r=1&oref=slogin&pagewanted=print

Difficult economic times are a subject playing
many financial boards this weekend and this
is an article talking about hard times. This NYT
article is anecdotal but it brings home the
hardships in small towns that we in suburban
locales don’t see (though we may see it in other
ways). I’ve been working for the last 32 years
and have never had to seriously look for work
so I guess I’ve been very lucky. Passing that on
to the next generation is a lot of hard work.

http://www.marketwatch.com/News/Story/Story.aspx?column=Economic+Preview&siteid=

http://www.bloomberg.com/apps/news?pid=20601039&sid=aN47QLcOF15c&refer=columnist_berry

Housing looks a bit “rickety”

http://www.businessweek.com/magazine/content/06_34/b3998029.htm

Man, it’s just a great country, isn’t it.
http://jeffmatthewsisnotmakingthisup.blogspot.com/2006/08/burger-king-flippers-toast-new-buyers.html

Greetings all from Zurich. Found this in the weekend FT today. I don’t know if it is a MSM outside of the US thing, but I have seen a noticeable increase in bearish news on both the ecomony and housing.

__________________________________________________________

Hard edge of a soft landing for housing

Published: August 19 2006 03:00 | Last updated: August 19 2006 03:00

The world’s leading economies have long been given extra impetus by an extraordinary boom in the price of houses. That boom now seems to be coming to an end, but exactly what happens next and what the effect will be on the world’s economy is not clear; the risks, however, are substantial.

The size of the boom is hard to dispute. According to the Organisation for Economic Co-operation and Development, house prices have been enjoying their longest upswing since the 1970s. Leaving aside the long-lasting slumps in Japan and Germany, real house price growth in the OECD averaged5 per cent between 1995 and 2000, then accelerated to 6.6 per cent between 2000 and 2005. In the UK, France and New Zealand real house price growth hit nearly 10 per cent between 2000 and 2005, a huge increase over a sustained period. US real house prices increased by an average of 6.4 per cent between 2000 and 2005. Several countries now enjoy record house prices by reasonable measures, and the boom is highly synchronised by historical standards.

Such dizzy heights are not necessarily a pure bubble. House prices have tended to outpace consumer price inflation in the long run, fuelled by a combination of increasing wealth, finite land and, often, planning restrictions. They have also been boosted by low real interest rates and by low nominal rates, too, which spread the repayment burden more smoothly and so make houses easier to afford.

A report by the OECD at the end of 2005 concluded that a peak in house prices for most countries was unlikely before prices had risen further, and unless interest rates also rose by a percentage point or two. Yet both prices and rates have indeed risen. Now several markets have shown signs of weakness, and the implications may be stark even without a serious slump.

Naturally, attention is most closely focused on the US market, particularly following the Federal Reserve’s decision last week not to raise interest rates after 17 successive rises. That market now looks feeble. New single family home sales are 11 per cent lower year on year, while house prices are now barely rising. The stock of unsold houses relative to turnover has also jumped, the number of new building permits issued has been falling since February and builders are concerned about business conditions.

What makes housing prices so im­ponderable is that they are bound up in the animal spirits of everyday punters. Prices can be pushed higher simply by the expectation that that is where they should go, as buyers scramble to buy what they cannot afford using ever more innovative mortgage products, while sellers hold on to property and sell only with a view to buying something even bigger. A slowdown in these red-hot markets is inevitable. It may be gentle, but it is impossible to rule out a collapse of sentiment and of prices.

Even a soft landing would mean a prolonged period of stagnant nominal prices. Prolonged weakness in the housing market has characterised the struggling Japanese and German economies, which is hardly encouraging. The trouble is that greater housing wealth has encouraged consumers to borrow and spend. If housing wealth stops rising, even if it does not fall, consumer spending, the engine of economic growth in the short term, is likely to stall too. Australia and Britain have both seen this pattern already. If the US consumer were to give up and go home, the effect on the world’s economy could be depressing indeed.

this just happened to catch my eye in the la craigslist…..

$1 MILLION MORTGAGE JUST $2500/MONTH

Reply to: see below
Date: 2006-08-19, 5:55AM PDT

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(i especially liked this part!)

I just published the following in our notes to lenders and clients which we send out periodically. I can assure you there will be phone calls in the morning.

I have been investigating this Interest only option arm and it is a beast lurking under the stairs. The following excerpt will show that clearly. These things are real trouble.

From what I gather there are between $400,000,000,000 that’s billion and $1 trillion of mortgages with some derivation of this out there and they are due to reset in the next 18 months.

This will coincide with a significant downward thrust of values. The issue will then be if these folks want to refi and convert to fixed rates will there be any equity in the property with which to do so. Keep in mind that about 50-60% of new home purchases were made with 100% plus financing over the past 2-3 years.

It will likely play out this way. Many people will simply walk away. The 30 somethings have nothing to lose and plenty of time to get a new life. The 45’s up will try to hold on by making increased payments. Ya gotta live, right? However, the values will drop precipitously as more and more foreclosed properties become available as banks will be forced to write down loans and all will be upside down for years and years.

The double whammy will come in the form of people now having to allocate that additional $1500 to housing and not consumption. This will impact the entire economy and especially the service sector such as restaurants, hotels, travel etc. Descretionary spending will all but dry up. In the mix add the loss of many jobs especially those in the real estate industry. 4 out of 10 jobs created since 2000 are associated with that sector.

In my opinion this is not a forecast but a given. It is going to be bad. How bad depends upon what the government can do given the huge deficits we are faced with presently. I and others don’t see many tools available as was the case with the S&L meltdown associated with the commercial market. It pales by comparison. This is a huge pool comparatively and populated by unsophisticated people, homeowners.

In my industry we are turning down 60% of the work offered as it is a refi on a home purchased in the last year to 2 years. The lenders are hoping we will find a 20% increase in value as the underwriters are tightening and you must show equity in the property. IN 90% of the cases we find that the existing mortgages, a first and a piggy back second exceed the value of the home. These are the properties on which there were multiple bids last year and the contract price exceeded asking price in many cases.

Sellers are beginning to get it. However, the buyers are sitting, waiting to see how far they will fall. This is the absolute worst scenario as all of our banker clients know. The doldrums! Typically, and based upon history, we can anticipate a wobbling effect and perhaps a small mini-boom as sellers start to drop prices, auctions, which are occurring now, and that pent up “gotta move now” psychology.

However do not be fooled as the fundamentals are way out of whack with rents being at practical rate while housing is way up(same utility), incomes flat to slightly increasing and real inflation well above what is being reported. Unsustainable emotional value beliefs by homeowners are based upon wickedly idiotic lending over the past few years. LEVERAGED REAL ESTATE

The wealth effect which has been brought on by refi’ing and pulling equity out of your home is over. This number was equivalent to having incomes go up by 200% nationwide overnight.

An example I personally witnessed was a couple who live in the Clermont area. They lived in a 1600 square foot house with a pool. They bought the house in 2003 for $187,000. They are both correctional officers with xxx county making about $30,000 a year,each. When I arrived I found two brand new cars in the driveway, one a passenger car and the other an SUV. The house was well maintained but upon inspection I noticed that it was fitted out like mansion. I could not believe the toys and the electronics as well as the finish of the home. It was as upscale as you could get in a modest neighborhood.

IN the appraisal world that gets your attention and my curiosity was peaked. I began my inspection at this point and the lady of the house asked me if I would like to see the last appraisal. I said “sure.”

She went into the office and brought out a file 3 inches thick. She then pulled out 4 appraisals all of which had been done in the past 18 months. Yep, they had refi’d 4 times in that period. They had an additional income, to them, of $110,000 or roughly an extra $55,000 a year with no taxes. They also had huge deductions for interest.(HUGE)(60% of all homes in the US have refi’d 3 times in the last 3 years)

I pulled the last appraisal and found that the value on that appraisal was 20% above($347,000) the current market value based on the sales I had in hand. I did not complete the appraisal and told her that my value was well below her last appraisal. She said, “oh no we will lose this house if we don’t get the loan.”

They had gone with an ARM loan and had an interest rate of 13% at that time.(Poor Credit)

This is not an unusual scenario folks. Also this was over a year ago. It is much worse now.

This thing is unwinding now and I will keep you posted. For the real estate professionals and lenders there won’t be many surprises as we have all been there done that but for those of you who have not been watching this closely I wanted to give you a heads up.

Jack

This went to local clients and portends to represent just that, local issues. Nationwide I suspect isn’t much different but here in Central Florida it has been nothing short of a breathtaking whoopedeedoo ride.

Please take alternate route to avoid the coming crater.

I got a letter from Countrywide the other day. It said the person who processed my loan was convicted of stealing and my personal information might have been sold and used for identity theft.

Of course, they offered to give me 12 months free for their credit report service.

My question is: are they using a stealing employee to sell their credit report service?!? Countrywide must be desperate for funds.