A Gross Oversupply
The Ledger reports from Florida. “It’s going to take time to clear out the 4,500 to 5,000 homes the Polk County Builders Association estimates is waiting in builder inventories. ‘Nothing is hot,’ said Mark Hulbert, president of Hulbert Homes in Lakeland. ‘Everything is moving at a slower pace.’”
“For Highland Homes, which typically produces 750 homes a year, sales are down 30 percent, said Joel Adams, the Lakeland company’s VP. ‘We think we are better off than most,’ he said. ‘Several years ago, we sold off some of our land base. Basically, if you have a high land base now, you are in trouble.’”
“Many of Highland Home’s house packages start between $150,000 and $160,000. ‘If you’re not a price-conscious builder and run a tight ship, you’re going to be in trouble the next eight months to a year,’ Adams said.”
“Southern Homes, which typically builds more than 300 homes a year, is projecting it will not exceed 200 homes in 2007. And while not all of the company’s inventory has been discounted, buyers can find homes up to $30,000 off the sticker price.”
“Traditionally, price cuts of about 10 percent are more common, said John Wood, whose company builds about 50 homes a year. ‘An empty house does no one any good,’ he said. ‘The worst I’ve heard of is a 30 percent cut. To me, that’s a little overboard. Ten percent is more in line with the market. I think just about every builder is offering some incentive.’”
“‘It’s a buyer’s market,’ said Scott Coulombe, executive director of the Polk County Builders Association. ‘It is not a seller’s market. But we are dropping down to what the norm was in 2001-2002, which is what we were expecting.’”
The Herald Tribune. “With the release of his new market study, ‘North Port Revealed,’ (appraiser) Dennis Black is likely to become a household name in record time. The study presents a bleak picture of North Port’s real estate market, a market in which hundreds of homes sit unoccupied and hundreds more are up for sale.”
“‘There is vacant home after vacant home, all of them built on spec with no buyer,’ Black said. ‘It amounts to a gross oversupply.’”
“His advice to people looking to buy houses in North Port: ‘Find out who owns those vacant houses and make an offer. Then just wait till you find someone willing to meet your price.’”
The Atlanta Journal Constitution from Georgia. “Throughout metro Atlanta, agents and brokers are reporting slowed sales and rising inventories of unsold houses.”
“From May 2006 to May 2007, inventories of unsold houses in metro Atlanta soared in every county, climbing between 18 percent and 70 percent in just one year, depending on the area. Hardest hit were Rockdale County, where inventory increased more than 70 percent to more than one year’s supply, and south Fulton, where a 53 percent increase pushed supply to almost 13 months.”
“Dac Carver, marketing director for Metro Brokers GMAC, said Atlanta’s market slowdown began last spring and ‘the bottom fell out at the end of the year.’”
“‘South Fulton,’ Carver said, ‘a few years ago was the talk of the town. Everybody was flocking there. Then, the months supply [of unsold homes] just rocketed up.’”
“‘Net sales are slower than they were last year, and not only are sales slower but [contract] cancellations are up,’ said Greg Duriez, division president for KB Home. KB Home is reporting about 30 percent of its contracts for new homes in metro Atlanta are being canceled before closing.”
“Metro Atlanta is unquestionably a buyer’s market, with developers sweetening their incentive packages and sellers showing great flexibility in price negotiations. ‘Don’t be afraid to ask for things now,’ Carver said.”
Bloomberg reports from Georgia. “Only the possums are enjoying the backyard of 2035 Lilac Lane in Decatur, Georgia, where Wall Street titan Bear Stearns Cos. is just another homeowner by default.”
“It’s a mess,’ said Kiwanna Ford, who grew up next door to the vacant brick ranch-style house four miles south of the DeKalb County Courthouse. Bear Stearns seized the property three months ago after Ford’s neighbor stopped making payments on his mortgage. ‘If we wanted to sell our house right now with that next door, it would hurt,’ she said.”
“After selling the property last week, Bear Stearns said it still owns 18 houses in the Decatur area acquired since November. Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. are listed in public records as the owners of at least 35 homes in the suburb.”
“The value of U.S. homes held by commercial banks swelled 53 percent nationwide to $2.3 billion at the end of March, the highest since 1992, from $1.5 billion a year earlier, according to the Federal Deposit Insurance Corp.”
“The dilemma facing banks is whether to pay maintenance costs or dump the properties at fire-sale prices, said Keith Gumbinger, vice president at a mortgage research firm. Both options can reduce real estate values. ‘No lender wants to own real estate, but at the same time you can’t just unload these properties because you would send home prices into a freefall,’ Gumbinger said.”
“Bear Stearns took possession of the three-bedroom Lilac Lane house for $76,500 on March 6, according to the foreclosure deed. The owner who defaulted had purchased the house in April 2005 for $160,000 using a subprime loan that required no money down. He had been renting it out, according to the neighbor, Ford.”
“The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount.”
“The firm sold the Lilac Lane house on June 28 for $84,000, said Elisa Marks, a Bear Stearns spokeswoman. That’s about half the price paid two years ago.”
“Whether selling at auction or using a real estate broker, lenders usually get ‘cents on the dollar,’ which undermines the confidence of mortgage bond investors by showing property values are nowhere near the loans they collateralize, said Keith Shaughnessy, president of Foundation Mortgage Corp.”
“‘It will have a decimating effect on the mortgage-backed securities market when lenders start facing the music and letting property go at whatever price people will pay,’ Shaughnessy said.”
“‘I hope they’d continue to hold them, because selling them at a price that’s too low would have an adverse effect on the neighborhood,’ DeKalb County Commissioner Connie Stokes, who is also a real estate broker, said of Decatur-area foreclosures.”
“In Decatur, JPMorgan owns a brick ranch-style house on Kelley Lake Road, according to the tax assessor’s office. Bear Stearns holds a second mortgage on the property, said spokeswoman Renu Aldrich. The vacant house sits across the street from an elementary school.”
“The former owners bought the three-bedroom property in September 2005 for $155,000 with no down payment, using a so- called piggyback loan, or a second mortgage taken out at the time of sale, according to the deed. Both loans (are) now defaulted.”
“‘It’s sad to see the empty houses,’ said Janette Brown, who has lived two doors away for 25 years. ‘I’m worried about what it might do to the values.’”
“‘It’s a buyer’s market,’ said Scott Coulombe, executive director of the Polk County Builders Association. ‘It is not a seller’s market. But we are dropping down to what the norm was in 2001-2002, which is what we were expecting.’”
So if they were expecting that why do they have to discount their houses? That does not sound like a sound business plan. He is full of it!
Bloomberg reports from Georgia. “Only the possums are enjoying the backyard of 2035 Lilac Lane in Decatur, Georgia, where Wall Street titan Bear Stearns Cos. is just another homeowner by default.”
“It’s a mess,’ said Kiwanna Ford, who grew up next door to the vacant brick ranch-style house four miles south of the DeKalb County Courthouse. Bear Stearns seized the property three months ago after Ford’s neighbor stopped making payments on his mortgage.
First there was Brer Rabbit and the Briar Patch … now you have Bear Patch as a landlord.
“‘I hope they’d continue to hold them, because selling them at a price that’s too low would have an adverse effect on the neighborhood,’”
Wow, there’s a Hobson’s Choice for the residents. Either watch the unit remain a vacant, deteriorating eyesore, or watch it sell at 50% off peak prices. The community is focked either way.
Ha - too funny!! The Pogo reference certainly dates you. I’d guess your age at least 67. Funny nonetheless for those that know Pogo.
“Bear Stearns took possession of the three-bedroom Lilac Lane house for $76,500 on March 6, according to the foreclosure deed. The owner who defaulted had purchased the house in April 2005 for $160,000 using a subprime loan that required no money down. He had been renting it out, according to the neighbor, Ford.”
“The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount.”
“The firm sold the Lilac Lane house on June 28 for $84,000, said Elisa Marks, a Bear Stearns spokeswoman. That’s about half the price paid two years ago.”
This pricing sounds about right to me.
Anyone know who Bear uses to market these repos?
Let me take a wild guess: Some small private company that you and I have never heard of, cannot contact directly, and caters only to friends and family of Bear Stearns and other connected Wall Street & bankster insiders. We’ll call it “Insider Repo Deep-Discounters, Inc.”
But don’t worry, after the insiders have snapped up all the best properties for rock-bottom prices, Wall Street will offer what’s left over to the rest of us serfs at those well publicized “auctions”. You know, the ones with (apparently legal) shill bidders and secret reserve prices.
Hmmm… maybe I’m becoming too cynical.
No, that’s how it works. On occasion, though, with a local bank (is there such a thing anymore), you can find a deal. But the best thing is to target a nieghborbood and talk to people/realtors/watch the NODs, etc…
“A gros oversupply” is ture in Chicago too. Not just because there are a lot of homes on the market but they’re not that attractive either.
yeah, most of the new construction in chicago (i.e., bubble-era construction) is fiendishly ugly. and much of it is slapdash quality as well. it’s depressing to walk through certain neighborhoods, such as sections of wicker park / ukranian village, and realize how many teardowns there were in the runup.
i wonder how many of those ugly newer buildings will still be around in a decade or 20 years?
Same thing happened in the seventies. There are a lot of high rises that went up that were completely uninspired. You can buy, or rent depending on the building, in those buildings for relatively cheap now because people don’t want to live there. 3950 LSD is a perfect example. The building is in a prime location being right on LSD but you can buy a 2/2 for $200,000 because the building is ugly and unkept.
I’m running the marathon in October - how is the route in terms of scenery?
The route takes you through a lot of neighborhoods. The only thing you wont see is the extreme poverty of the far west and south sides - because then you’d be running a lot more than 26.2 miles.
You won’t see many for sale signs, if that’s what you’re asking. Most places that are for sale don’t have signs.
I know some people that run marathons and they like running in Chicago. Nice and fast, with an unusually large and supportive crowd. Book your hotel very early though
No big hills either!
“‘It’s a buyer’s market,’ said Scott Coulombe, executive director of the Polk County Builders Association. ‘It is not a seller’s market. But we are dropping down to what the norm was in 2001-2002, which is what we were expecting.’”
Yeah right. Another real estate savant. If you were expecting it, you wouldn’t have so much unsold inventory on the market.
I think this article addresses what we are looking for, the tipping point. When banks decide to take their medicine and sell of their inventory of REO at the market price. They may be trying to stealthily do that now, but their inventory will dictate a more aggressive aproach soon.
Would it make sense that they are waiting until the foreclosures show some sign of subsiding, so that they can dump all REO and take the earnings hit all at once, to get it behind them?
A big bath? No doubt they are thinking of it. But if they take a big bath, they had better have great numbers the next quarter, or they will be in deep doo-doo.
“Subprime might be the dress rehearsal for something bigger and scarier”
http://www.bitsofnews.com/content/view/5774/43/
Oh good.
Yeah, global depression. But why, when you really think about it? People still need goods and services. That’s all that money really represents, or it used to. Maybe it will again, someday. Money’s only as valuable as the goods and services it represents. It really isn’t worth anything otherwise.
But why, when you really think about it?
because there has been a global amount of monetary inflation, that was more than the goods/services provided. Thus, we saw a worldwide boom in almost all categories- equities, commodities, real estate, gold, precious metals, oil, etc…
that can only go for so long… at some point, the debt can no longer be paid, so a deflation is required… this is also called global recession. not sure if depression is for sure in the cards, but recession is. (that’s why we call it a cycle… can’t have summer without winter)
The problem is there will be at least three waves of foreclosures - investors/speculators go first, sub-prime ARM resets along with them. Alt-A and Prime 0-10% down next (year probably, but a good number will hold out till round 3). Then in 2009-10 it will be the 15-20-25% down people that are underwater and walk. In 2011 it will likely subside and prices bottom.
You better check with Hank Panky on that call
“After selling the property last week, Bear Stearns said it still owns 18 houses in the Decatur area acquired since November. Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. are listed in public records as the owners of at least 35 homes in the suburb.”
BWAHAHAHAHAHA! Revenge of Main Street on Wall Street! You go, FBs!
If anybody comes out of this whole mess still intact it will be Bear. It will be messy and they’ll learn a valuable lesson, but I think they’ll be fine. They’re very open to modifications when possible.
Sorta weird to see hedge funds, Wall Street firms as owners of record, rather than banks or individual lenders.
“Sorta weird to see hedge funds, Wall Street firms as owners of record, rather than banks or individual lenders.”
It’s crazy more than anything else. It will go back to banks and individual lenders soon. When that happens, we’ll begin to see true improvement in lending standards. It got so poor when they could just sell any piece of garbage loan to any group of investors.
Fact is EMC (very close knit with Bear Stearns) has servicing rights to my mortgage. Their customer service is spectacular and their website is easy to use. I hate to see what would happen if the loan moves yet again…
What this all proves is that there are going to be alot of people STUCK in their homes for many years to come. As the market re-adjusts, it won’t matter what kind of loan you took out, you will have to wait it out to have your home value return and to be able to have equity once again….
Just a thought and point for the other side, but once prices fall far enough, a large percentage of properties will in effect be off the market for 10 or more years as a consequence of being upside down on mortgages and HELOC’S. In the near term - say 5 years, I believe there will be an ample supply of foreclosures, but at some point, that may dry up and leave a much smaller number of folks who are able to sell in the 5 to 10 year time period.
RE is all about the price of money and availability of credit, the current slowdown in sales velocity will be followed by a higher velocity price decline. The issue of foreclosures has a lot to do with were they are located and currently most are in area’s that have low desirability so this inventory issue will not unwind in any kind of normal manner.
“The issue of foreclosures has a lot to do with were they are located and currently most are in area’s that have low desirability ”
I must disagree. In big bust areas like Palm Beach County or to a lesser extent Detroit, ALL areas are sitting full of foreclosures. My parents old neighborhood in MI has 8 bank owned properties for sale right now. This is a very desirable area.
Olympia in Palm Beach County as well as IBIS and several other very high end developments are littered with foreclosures. Easy money made real estate attractive everywhere. When that money dried up and the double digit increases in value dried up with it, all areas became foreclosure magnets.
In my community there is a record number of houses on the market. That’s due to local, small builders building a record number of spec homes, all at the same time. They started in Spring 2006 so their timing was just about perfect! Unfortunatly, small builders can’t afford to carry a construction loan for very long, so I fear a rise in foreclosures here over the next year.
“…small builders building a record number of spec homes…”
The small builders were the first to see the writing on the wall in Palm Beach County. Those that built in the acerage started to stay off the spec homes when people were paying $275K for homes that were $150K in prior years. They kept increasing prices, but if you wanted a house you had to wait for them to build. Final highs in the acerage were nearly $500K for a basic home. Today you’ll pay $275K or so. Maybe they called a false high, but most will still be in business in 5 years.
Agree with that. A friend built 3 spec’s starting spring ‘05 - and sold the last one in April ‘07. Got progressively less return on each, and sold the last one ( orig. 629K ) for 445K. Saw the writing on the wall and bailed. His former partner ( a nasty split-up after the last sale ) still holds 2 other houses that he refused to sell at a lower price, and is now looking at bank seizures within the month.
“His former partner ( a nasty split-up after the last sale ) still holds 2 other houses that he refused to sell at a lower price, and is now looking at bank seizures within the month. ”
That’s going to be even more nasty than the split-up…
Inland Empire, NV, Sac, Central Valley have probably 12 months + supply, Redwood city, Palo Alto and other close in area’s to the employment base have maybe 3 months worth and citizens are still have biddling wars for property in certain areas. Mi, Oh and other automotive employment focused areas are in a big hurt and reflect a more normal RE downturn due to employment problems .
just pull up CFC REO list you woun’t find many properties in area’s that you want to move into.
“The issue of foreclosures has a lot to do with were they are located and currently most are in area’s that have low desirability ”
The two areas are completely different. The Detroit area home forclosures are a result of massive job losses due to manufacturing jobs going overseas for cheap labor. The Palm Beach, Florida area forlosures are due to investors and flippers who did not use common sense and ended up with property they could not afford. Big difference in the areas but with one common element and that is large amounts of forclosures.
a large percentage of properties will in effect be off the market for 10 or more years as a consequence of being upside down on mortgages and HELOC’S.
If they can’t sell, they can’t buy either. One more rung cut off the RE ladder.
District Attorneys should step up prosecution of mortgage fraud of all kinds. The level of criminal activities is one of the drivers of the upheaval in the RE market. In addition, taxpayers should insist on not bailing out banks and debtors, because they are all willing accomplices in this crime.
mile long chain gangs
We could use a few of those here in San Diego - Anyone living here would be amazed at the amount of litter along our freeways.
The real issue is gubbermint intervention. FDIC bails out failed banks. So they lend like no tomorrow!!! FNMA,Freddie,FHA,VA=the same story.
I think the real culprit is the Fiat money which needs bailing out to ‘be safe’=inflation and fraud. its truly hopeless.
“It will have a decimating effect on the mortgage-backed securities”
i think i really like this word “decimating”. i’m perky already!
I like it too. It sounds like you are moving the decimal point from the right, to the left. I.E. (1,000,000.00 -> 100,000.00).
Decimate means to reduce by 1/10th. When a Roman army unit didn’t follow orders or fled the field of battle or otherwise screwed up, the commanders would call out, then kill, every 10th man in the unit.
I’m thinking we need a new word for what will happen to the CDOs. Pentimate? Reduce by 50%.
Wouldn’t “pentimate” mean doing away with one out of five? That’s a 20% reduction.
So…. semimate? hemimate?
Actually, the men gathered together in groups of 10 and drew straws.
Yes, but decimation is only killing one out of ten. This will be a lot higher.
Perhaps we will see recursion in decimation.
“‘I hope they’d continue to hold them, because selling them at a price that’s too low would have an adverse effect on the neighborhood,’ DeKalb County Commissioner Connie Stokes, who is also a real estate broker, said of Decatur-area foreclosures.”
LOL!!!!!!!!!!!!!!!!!!!!
Yeah, they’re going to hold on to them until prices go back up 10 years for now so they can break even.
Ben, you have to put this down as one of the top 10 most stupid comments this month (albeit, there are alot of them daily).
LOL I also laughed! I think anyone who holds out is going to be even sorrier and lose more money due to property taxes and wait 10 years just to break even on the sell price but lose on taxes and to inflation.
Notice it’s only a problem for Joe Sixpack if it’s the house next-door or if it’s affecting the value of their own house. Otherwise, they could care less. Nobody cares about the macro trend for the nation - except possibly some folks on Wall Street, but they really won’t care until it’s their firm or their neighbor on the block either. Inaction will continue until the collapse.
People can’t remember back 10 years, so they are only in the moment nothing else.
The ‘moment’ will come slowly, then with an amazing rush. You’re right, and B.S., Goldman and the rest will not care about the local values…only to cut their own bleed. When it makes more sense to sell than hold, they will sell…and damn the neighbors.
Builders breaking a double bottom
https://image.minyanville.com/assets/FCK/File/christy/homies.gif
TX : What is you take on IYR (I’m trading SRS). Has it reached S/T fib support ?
Yeah, I bought about 100 shares of SRS last week as well, so I’d be curious to see what TxChick as to say.
Boy, can somebody say ‘classic head and shoulders’ or what?
Actually they are not breaking a double bottom, that is going to be a very nice 5 wave down Elliott Wave sequence before it is finished. It is clearly early in the final 5th wave down for this cycle. It has a ways to go and may not be a final bottom but will finish out the 5 wave cycle when the 5th wave exhausts itself.
With several hundred TRILLIONS of leveraged hedge fund a lot of which are connected in some way to real estate, how can anyone think that this is going to end in anything other than abject disaster. BIS warned last week of a global financial problem that could take down the financial system. I just don’t see that concentrating on just the subprime mortgage market or even the commercial real estate is not just looking at the trigger but the resulting fallout or demise of most of the structured debt, and structured financial components of this whole world mess is going to be contained. It is kind of self supporting on the way up, which got us to the place, I believe that it will be self reinforcing on the way down and just continue to domino all the way to the bottom. Real wealth will be defined as something else, rather than a notional value defined by the computer generated wealth that isn’t real at all. If the notional value would crash then what would the effect be on the rest of the economy?
“If the notional value would crash then what would the effect be on the rest of the economy?”
I sure don’t know, I’m not the sharpest tool in the financial shed. I just think a return to real value would be a nice idea. LMAO.
When do the numbers for the second quarter NODs and foreclosures come out? I’d like to see if we are on that same trajectory we saw earlier.
“‘It’s sad to see the empty houses,’ said Janette Brown, who has lived two doors away for 25 years. ‘I’m worried about what it might do to the values.’”
That’s funny. I bet you weren’t so worried when the house was bought for waaaay too much money and your saliva started flowing with greed as you saw dollar signs as you imagined the sale of your own POS house.
To be fair, she has lived in the same house for 25 years. She hardly fits the profile of a get rich quick flipper. Was she a excited over the prospect of maybe selling her house for a tidy profit when she retired and downsized? Probably, but in all fairness waht did she do to run up the bubble?
Sometimes we are quick to judge people we do not know.
The empty houses are a result of the bubble. Once values return to where they should be, the houses will no longer be empty.
Just imagine what the doom and gloom news stories will be like next year!
Bring em on! I can’t wait.
“said John Wood, ‘To me, that’s a little overboard.’
Sinking ships have that aspect about them.
Let me see if I understand the problem for the big boys on Wall Street.
In 1994-2001, they’d generated vast “wealth” by creating a stock bubble. They were able to dump this problem onto the private investors and pension funds.
2001-2006, again create “wealth” by generating a housing bubble. However, with $0 down the buyers have little to no skin in the game. They really want to dump this mess on someone, but so far, no takers. So, they are forced to tread water, hoping to hold on long enough to find someone to take the toxic waste off their hands.
Sound about right?
“It’s going to take time to clear out the 4,500 to 5,000 homes the Polk County Builders Association estimates is waiting in builder inventories.
Not long ago, the realtors were stating that thousands of people were moving to Florida everyday and land was getting hard to find.
The same group is now saying it is a buyers market even though current house prices have not aligned with incomes. Based upon the advice of the realtors groups, the inventory should be gone in a month or two if they were telling the truth. However, the truth has come out as inventories continue to climb that the public was indeed mislead. The next excuse we will hear from the realtors groups is that the the majority of it’s members are too busy in their day jobs in the fast food industry to sell houses!
But they keep getting fired because instead of asking “You want fries with that?” they revert to form and ask “You want a HELOC with that?”
Good one. I used to go with clients to closings when I sold real estate a few years ago. Do you know that when buyers went to sign their papers, the banks, “Yes Banks”, would have a home equity line of credit form with the closing papers. None of my clients ever signed one, but I’m sure in the last few years many have signed them and then proceeded to furnish their new houses. No wonder people get into trouble.
Very common practice to equity line out the equity you just put in….ridiculous..already have a few friends who have taken advantage of digging themselves an even deeper hole…
The excessive diversification in Florida has resulted in, neighbors not giving a rats ass about each other. This is why Florida is #1 in mortgage fraud, and #1 in foreclosures.
This is why probably millions are leaving Florida. I want a nice big house for under $100k and also Florida must address its property tax situation. Otherwise what reason do I and millions have? The only thing special is the beaches which I never go anymore and the lack of winters(albet excessively long summers which I hate)