New Home ‘Cancellations Rampant’ In Phoenix
Some housing bubble reports from Arizona. “The latest numbers show consumers have had it with high home prices. According to the Phoenix Housing Market Letter, permits for new homes fell more than 20 percent in February. ‘The drop was considerably more than most observers had anticipated and the industry hoped for,’ the authors wrote. ‘The 3,729 permits issued was the lowest total in the last 24 months. Cancellations were rampant.’”
“Homes that were resold also dipped more than 11 percent from 8,722 in February 2005 to 7,774 during the same month this year, the newsletter said. The newsletter said, ‘The average base price of all of the plans was $387,000. The median closing price in the market this month was $268,000, or $119,000 less than the current base price. Could a case be made that the current new home market offerings are over-valued in the consumers’ eyes by that or some similar amount?’”
“In the Johnson Ranch area, only 26 of 303 plans had price increases. ‘In those edge areas it appeared that the majority of the builders are holding prices steady, a reflection of the empty parking lots that sales folks are buzzing about,’ the newsletter states.”
“One factor driving builders to pull fewer permits: Buyers cancelling their contracts because they can’t sell their existing homes in the slowing resale market. Analysts say that builders won’t ask for additional permits until they clear out their standing inventory.”
“‘It’s certainly a concern,’ said Ross Smith, a land broker in Phoenix. ‘Things are moderating. But I think a lot of it (last year’s run-up) had to do with investors in marketplace.’”
“Doug Fulton, president of Tempe-based Fulton Homes, said there is additional pressure on public home building companies whose fiscal year’s close at the end of this month. He said companies are pushing to book sales and clear inventory to make their numbers as attractive as possible to Wall Street.”
“‘You’ve got a bunch of divisional presidents trying to beat last year’s numbers,’ he said. ‘I wouldn’t want to be in their shoes.’”
“Fulton said some builders fell for the euphoria of last year’s selling frenzy, which was driven in part by housing investors. The result, he said, is too many unsold homes. ‘They took the ‘Build it and they will come’ attitude. No matter what we build, people will stand in line to by it,’ Fulton said. ‘Now, they’re like, ‘Oops, we have to get rid of this stuff at year end.’”
“Fulton just started work on 300 spec houses, figuring that his company will have homes ready for move-in when other builders have gotten rid of that backlog and are cautious about building more spec homes. ‘There’s still lots and lots of activity out there,’ he said. ‘It’s truly a market becoming more normalized. There still is a significant shortage of land out there.’”
“The latest numbers show consumers have had it with high home prices.”
Time for that spontaneous boycott I mentioned earlier…
Interesting post on CL, someone tells the guy that these abnk repo will be setting the price for next couple of years
2nd Lowest Price in Neighborhood
Reply to: eric@propertybyeric.com
Date: 2006-03-28, 6:26PM PST
3 bed 2 bath home. Great for first time home buyer or investors. Currently the 2nd lowest price in the neighborhood. (The cheapest in the neighborhood is a bank REPO.) Elk Grove School District. Asking $306,900. Seller is Listing Agent.
Please email or call for details or to schedule an appointment.
Eric A. Kelly at 916-501-0242, eric@propertybyeric.com
Or visit http://www.propertybyeric.com
* this is in or around 95823, Elk Grove border
* no — it’s NOT ok to contact this poster with services or other commercial interests
“Doug Fulton, president of Tempe-based Fulton Homes, said there is additional pressure on public home building companies whose fiscal year’s close at the end of this month. He said companies are pushing to book sales and clear inventory to make their numbers as attractive as possible to Wall Street.”
And just exactly who are the illiterate morons on Wall Street who cannot figure out how this application of lipstick to a pig works?
I believe they’re called “institutional portfolio managers.”
The lemming herd of portfolio managers has great CYA protection, because no matter how stupid the investments they make, they can always say “I was just doing what all my peers were doing.” Everyone used to think social security would not be around to fund their retirements, but at this point, I would save private pensions are also in serious doubt.
News from Arizona.
A fellow flipper bought two houses and fixed it up real nice. he bought it 9 months ago and has been working like a dog to fix it up. he recently finished the two houses but he could not get a buyer. he estimates that he will lose money if he is going to move the houses. just painful.
i also checked back with a house i bought in merced in 2003 and sold in 2004 for 50k profit. that same house was sold 5 months later for 8k more than what they paid me. those flippers got burnt pretty bad. it’s all about timing.
It is all about timing and the smart money has exited the market. It is not a GOOD time to be flipping real estate.
Well said Tommy Boy.
‘Build it and they will come’
Quoted from a relevently titled movie, “Field of Dreams.”
Phoenix Realtors:
“We will no longer negotiate. We will no longer tolerate and we will no longer be afraid…..it’s your turn to be afraid.” Harrison Ford (President Marshall) in the Movie, Air Force One
This is too funny…
Mo Money,
This guy gonna have No Money…
Yea, he so’s hell bent on his strategy he can’t see the writing on the wall
“Trump had another tip: he says he’d steer investors toward real estate and oil and away from airlines and retail businesses.”
Trump noticed something is wrong with the airlines? Who told him?
I have a tip for “The Donald”
Do something about your hair!
I disagree with you Tom,
I think “The Donald Do” will come in handy when his face is beet red from embarrassment. When he drops his head in dejection, it will fall down and cover his face completely.
The idea that anything could possibly be embarrassing to Trump is not plausible.
What tax changes is Trump rambling about, the 1986 changes? Leading to the collapse in the early 90’s? Uhhh, it was the aerospace debacle in Southern California, not tax changes from years prior.
Currently, a slight hiccup in Southern California real estate could precipitate a burst, as so many jobs are now tied to the Real Estate Machine.
The ‘86 changes caused the S&L collapse.
It won’t be just real estate jobs that tips the scales IMO it will be when places like Nissan and their child companies finish their relocation. Or when the country that lost that port deal starts buying their planes from AirBus instead of Boeing.
Trump’s too much. Now how much residential real estate do you think The Donald is putting his own money in these days?
Being one of the world’s billionaires, nothing costs too much for him…it’s all in the deal for him. How could he really think small or think bubble? Small is not even a part of his vocabulary. The things that should and do concern smaller-time investors probably bore him.
BayQT~
BayQT,
I think The Donald is a brilliant marketuer (of himself), but don’t believe he is worth as much as he says he is. He’s certainly richer than I, so I give him credit for being “extremely successful”- but I think alot of his “Schtick” is smoke + mirrors… and DO believe he will be hurt by the housing bubble burst. He’s got a tremendous amount of condo conversions in the works at the moment.
Yeah, I do see what you mean. He IS very high on himself, and would turn green holding his breath instead of admitting any defeat.
BayQT~
Isn’t he just selling his “name” to these developers?
Your assessment of Donald is accurate, however don’t give him any credit. He inheireted his $$$ from his dad and his track record in RE isn’t very good. He is a self-promoted specticle who is more of an entertainer than anything else. He is definitely NOT qualified to be giving anyone financial advice.
“‘It’s certainly a concern,’ said Ross Smith, a land broker in Phoenix. ‘Things are moderating. But I think a lot of it (last year’s run-up) had to do with investors in marketplace.’”
___________________________________________
NO shit Sherlock!
STOP THE PRESSES!!
Captain Obvious!
“I think” - He thinks?!?!? I know ,thats exactly why!
This guy’s as sharp as an egg.
“There still is a significant shortage of land out there.” ??? Wha? I’m going to have to polish up on my goegraphy and where Tempe is…desert right?… (and ignore the fact there is no housing shortage, but a shortage of affordable housing). I keep reading the there-is-no-bubble PR and have to reassure myself I’m not the crazy one!
That area is land-locked, in case you haven’t heard.
Yep, no spare dirt in Tempe :p
Sorry dude… Tempe is landlocked. When I was a kid growing up there it used to have cotton fields and sheep farms. Not anymore
Instead of Google Maps use Google Earth and turn on municipal boundaries. Then when you zoom into that big metro area referred to in your link above you see that Tempe is, in fact, surrounded by Phoenix, Chandler, Scottsdale and Mesa.
The few areas that aren’t built out aren’t zoned R1, R2 or R3.
yup, in Tempe proper. If you take the PHX metro area, though I don’t think so. Of late I’ve made far too many trips coming in on I-10 from the west. As my dad used to say, miles and miles of nothing but miles & miles. Sure, some Gubmint land, but lotsa private stuff as well.
Exactly, definition of “landlocked” is surrounded by land So then one must ask can I develop on that other land? Of course if by definition he must develop in Tempe, then there could be a shortage of land that is easy to develop. But readily available land is relatively close by. Ergo, I would argue not a significant driver of cost/availability.
Bearnanke sez “don’t argue with me or I raise your rates!” (j/k)
You are are right about the no-shortage of housing…just a shortage of affordable housing. If there was a housing shortage, inventories would hover around zero, not 30,000 like they currently are in the Phoenix area.
I find this highly questionable. I have been looking for recent net migration information for Arizona. Does anyone have any information?
According to my calculations, it is 475 people per day, but we must divide by 20 people per dwelling.
So funny, if only it weren’t so true.
…yeah, but aren’t about 400 of those people per day just stopping by on their journey from Mexico to other parts of the U.S., using Phoenix as a half-way house stop over, where their coyotes stash them while waiting for onward transportation.
I think that United Van Lines puts this info out annually.
Thanks. Here’s a link:
http://www.unitedvanlines.com/mover/united-newsroom/press-releases/2006/2005-united-migration-study-01-06.htm
I’d like to get some current numbers for this and will post if found.
The old land shortage trick again. There’s plenty of land and I guess still plenty of suckers willing to pay prices that are 30% higher that they should be. My zip code is setting new records for listings again. It’s amazing how many people believe a sucker will bail them out at the top.
Hi,
This is kind of off topic. A coworker of mine is selling her house in the area. The house has sat for a few months with no interest. They finally seeked out a realtor who told them the news. The market is dead and that there have been houses sitting on her street for sale since last year.
She then said, I told my husband to sell the house a few months ago and he didn’t want to do it. I hope she gets the house sold, but I told her that she has to be realistic on price and price it to sell. I said, in what you will pay in a declining market with negative depreciation, taxes, and insurance, that you are better off just cutting your losses and letting it go. You will still make a hefty profit and you will actually gain since you won’t be a bag holder.
Let’s hope she and other sellers heed my advice for their own good. This market is just going to get worse.
Oh, rates just went up again, hurricane season is around the corner, and oil is back up over $66 a barrel and sure to go to a record high this summer. Not a good market to sell real estate period.
Let the bloodbath start, let the incentives roll, and let the price wars begin.
Potential Problem: What if every seller takes your advice? Then buyer panic, freeze and nothing sells, only prices come down. That’s called a bubble bursting.
They all won’t. That’s the key. Some will hold out and lose their shirts.
It’s the difference between fast slow….Between ‘POP” and ‘FFFFFFFFffffffffffff’
OT
Thought you might all like a gentle reminder that the OCC Picks up on deciding the fate of Option Arms and IOs tommorrow:
This was from http://www.originationnews.com
OCC: IO, Option-ARM Regulation May Be Tough
Proposed regulatory guidance on interest-only and payment-option ARMs may be tougher than a lot of people realize, according to the deputy comptroller of the currency. Deputy Comptroller Barry Wides told a consumer group that federal banking regulators expect lenders to make “conservative assumptions” in their underwriting of these nontraditional adjustable-rate mortgage products. First, lenders should qualify borrowers at the current fully indexed interest rate, not the teaser or introductory rate. Second, the lender should calculate the monthly payment as if the loan were fully amortizing on day one. When it comes to an option ARM, lenders should assume that the borrower will make the minimum payment, calculate the potential negative amortization, and add it to the loan amount. So a $400,000 option ARM with potential negative amortization of $44,000 should be underwritten as if it were a $444,000 mortgage, he said. “We are telling lenders to make conservative assumptions about the borrower making minimum payment and how much they can end up owing, and then amortize that at the current rate,” Mr. Wides told the National Community Reinvestment Coalition. The public comment period on the proposed guidance ends March 29.
I’ll bet the farm that this is a hardcore change from the current methods. Just the word ‘conservative’ must strike fear in the heart of lender land.
Zip Realty Phoenix area has 39,813 mls listings!!! Flippers are going to pay for their greed.
But not 40,000? Damn, I was betting on that by Mar 26th. Things must be getting better or at least less badder less fastly.
Don’t worry - guess what comes this week? A flurry of new listings - goodbye March, hello April! I just saw four single family homes (@550K - ha ha, very funny) come on the market today in a subdivision here in small Fauquier County, VA. All at once. That’s so amazing.
30 more townhouses came on the market in Loudoun County this week — over 900 on the market.
Funny Cote…I enjoy your musings…
visit my blog. Two new housing bubble theme songs, a rant about affordable housing, equity evaporation, immigration, summer blockbusters and whole bunches of weird stuff.
How do I get there ??
Wow, you’re certainly creative!!!!
You should just be able to click on my name. If not:
http://exurbannation.blogspot.com/
See you there…..
Robert,
The number of listings on the market may have hit a permanently high plateau. This will eventually take place if it has not already, as a steady downward adjustment to the market price restores equilibrium and reduces the tendency for the number of new listings to steadily outpace the rate of sales.
GS
“Anything which cannot go on forever will stop.”
Herbert Stein
plateau=total # units in PHX.
another 153 SFR added since yesterday
The bottom underlying fundamental issue is Phoenix is a desert, and this means lack of water. As summer approaches look for more homes to go up for sale and water and gas bills to skyrocket. It does not take a genius to figure this out, Arizona cannot suppport a growing population in a city that has no real industry. The lack of decent paying jobs and H2O from the Colorado river will kill Phoenix. This housing bubble will not only become an economic issue but also an environmental issue (hurricanes, tornadoes, flood plains, rising rivers and oceans), which we have not control over or can predict. When the market starts to drop becareful where you invest your money.
Phoenix is a desert?
So is all of southern California. Maybe you should get a six pack of beer, dust of the old vcr, and throw in a “China Town” for a refresher of just how the water wars work.
Your water observations are right on mark, but your timing is off. Most of what you predict won’t happen in our lifetime because the great American southwest now generates over 50% of our GDP.
The US can’t let the southwest go dry so we keep looking for more and more ambitious ways to prolong its life. As evidence I submit to you Las Vegas’s recent start of a 5 billion dollar project to pump water 450 miles from a honeycomb of wells in northern Nevada back down to the southern part of the state.
Project sound familiar? That’s exactly what Libya did to bring water from the middle of the Sahara desert (it sits on a big underground aquifer) to the coast instead of building desanilzation plants. They figured once the aquifers dry out (2030) they’ll build the desals.
Man hasn’t yet run out of the arrogance to think we can manipulate our planet to our own will… but we are losing the battle. Grab a copy of Flannery’s “The Weathermakers” if you want to see how we are winning battles but losing the war.
Just a side note, I was recently informed by credible sources that that water project is 10-20 years before it comes online. I’m not sure what to believe on that issue because this same source originally had believed the water would arrive much sooner, but has suddenly turned sour on the project. The main reason is the political and legal wrangling that has to be worked out on top of the already monumentous logisitical and engineering requirements. I’m up in the air on it but I wouldn’t be suprised if our gov had originally said for everyone to be calm, water’s on the way, but in reality behind back doors hand wringing and red faces.
This project is under the domain of the SNWA, not the federal government. I’ll be in Vegas on Monday meeting with some of the board members, not on this project, but on other water management technology.
The Department of the Interior is spearheading a major re-work of the Colorado River Compact, in essence, telling the compact states “if you don’t get this right, we’ll do it for you.”
If I was a betting man I’d say in another decade we stop passing the last remain million acre feet of the Colorado on to Mexico, per our agreement, instead keeping it for ourselves.
As it stands right now we have to clean it up before re-releasing it back into the Colarado. It just seem so inevitable that we’ll decide to hook a pipe up to the other side of the reclamation plant and pump it back up to Phoenix, leaving our southern brothers in a lurch.
Virtually every report out of the World Bank and the WEC predict major international disputes over water by 2025. Think Israel and Palenstine will eventually bring the middle east to all out war?
Think again.
It will be Syria as it is already screwing with the water flows in the Euphrates. This water stuff is serious business!
The water rights are more important then the housing bubble, because you can always move, but you cant take water with you. No matter what you do by taking from on place to supply another , someone will eventually pay for it. For every action there is a re-action, so by keeping Phoenix chugging along with water then somewhere in the wonderful silver state of Nevada somebody will pay the price.
So true.
Truth is this whole civilization thing is such a mess. We have no business inhabitating some of the areas of the planet we do (Phoenix, LA, and most recently New Orleans) yet we do.
From a big picture perspective it’s laughable that people worry about what there homes are worth. Did I sell to low? Did I buy to high?
It reminds of that scene in Schindlers list where the kid was selling candy at train depot which was the last stop before the gas chambers and people were haggling over the price.
In reference to your original comment “be careful where you invset your money” I guess my whole point is you can’t even appreciate just how on the mark you are.
Or my favorite, “The Milagro Beanfield War.”
Awesome movie
I hate to tell you this, but in the summer Southern Cal is like the Artic compared to Phoenix. I’m not saying that water is not a huge issue in both places. Just that, Phoenix is probably 5 degrees away from a total meltdown if global warming decides to visit.
AZDan,
There is no “if global warming decides to visit.” If you’re in doubt of that fact I really recommend “The Weathermakers.” Ten years ago global warming was a scientific debate, today, the debate is over and the doomsayers have won.
The University of Arizona just released (last week) new maps that show what the global landmass will look as the oceans rise due to the melting of the Greenland icesheet.
After it melts there is no southern California as we know it, large portions of it lay in the new bay just west of Indio.
I was in playing golf the day Phoenix hit 123, and, yes 128 would be really hot once the planet warms 5 degrees, but the people in Riyad seem to tolerate it. Trust me, the new warmer tempature would likely be the least of most Phoenicians worries.
Bigger issues await us my friend, and none of us will be able to escape them no matter where we live!
Euphonism,
I agree with your conclusion that global warming is a done deal. Not to set off any political fireworks, but I personally find it amazing that our President is still in denial about it and has done everything possible to forestall a meaningful response.
We are fiddling while the planet burns.
P.S. - When it hits 128 I’m getting me a camel.
Along the coastline, it’s cool most of the summer. It’s shocking to see the difference between the temperature in Malibu (78) and the temperature 20 miles away in Woodland Hills (100). We do some outdoor events near Ventura in the summer and the weather is wonderful. When we are driving back, it’s like we hit a wall of hot air in Simi Valley.
Anyway, if you spend some time driving around SoCal in the summer, you can really feel some amazing temperature differences between various areas. It’s not like anywhere else I’ve ever lived.
American southwest now generates over 50% of our GDP
Huh? Got anything to back that up? Seems real high to me.
yup, but it isn’t usually the water & gas bills. Gas = heat, all those lovely new developments have ‘low maintenance yards’…..ROCK & DIRT. Only the owner has grass, & it’s in the glovebox. The ouch on that 3000sqft is always electric to run the a/c. $400/500 mo for juice. Early January, the util sent out the +20% rate increase notice. Not too bad in March, try August.
And you’re spot-on for the water. Every drop of the Colorado was allocated 80 years ago. Just a prolonged drought away from the rotary oscillating device. (deep Bandini for the native LA’ers).
To Bubble Butt,
That be a gut start. But they need to up the ante and add in the property taxes and insurance to be impounded and add that figure to the ARM. Print the final number in size 24 text, make them sign forms stating they can’t walk away or file BK for 7 years and see if they’ll ink the line.
While I believe that tax and insurance are used in the ratio calcs already, you bring up an interesting point: purchase money is non-recourse, and refi money is recourse. Having refinanced many times (on both the borrower and lender side), I can tell you that borrowers are barely told about this distinction. If things get ugly, lenders may go after the borrowers on refi deals, as opposed to just taking the keys. I wonder if there is any push to make purchase money recourse, too.
Virginia has recourse on Purchase Money. State laws vary.
I am betting they put the squeeze on alot of IO and Option ARM borrowers over the next couple of years IF lenders follow guidance
My recollection (just confirmed on google) is that AZ is a “right to work State,” hence the low wages. “Right to Work law guarantees that no person can be compelled, as a condition of employment, to join or not to join, or to pay dues to a labor union. In other words, if you work in a Right to Work state, like Arizona, and the employees form a union, you may not be fired if you decide not to join.” (see http://phoenix.about.com/cs/empl/a/righttowork.htm ).
The result is lower wages for union type jobs. Lower wages reduces the amount buyers can afford to pay.
Right, sort of like how unions are a huge boon for the French economy, when they’re not burning stuff.
LOL
so true.
That would be a “right to work for less” state.
Hey…. we wanted a WalMart economy….. we got it.
Enjoy the ride to the bottom.
Just wondering what people here are seeing in their communities. I see more and more (poorer and young) charging their groceries, charging their fast food (Taco Bell: yesterday I had to wait for someone in the drive up to be passed the little box to sign on…fast food isn’t fast anymore) while interest rates are rising. Just another sign of how people are stretched thin or won’t do without. It’s these little things that help paint that bigger overall picture.
Those could be ATM’s not credit cards. At least for the most part I hope they are ATMs.
I use my credit card for everything (although I don’t eat fast food; and I pay off the whole thing each month. I like having all of my expenses tracked electronically then I can download into spreadsheets, etc. Maybe these people are just tracking all of their expenses, including fast food “dining”.
I agree with Karen. I have both a debit and a Visa card, but I do use my debit for many purchases, and like Saratoga, to keep track. The Visa card? That damn thing is paid in full. I like it like that.
BayQT~
I use my “World Points” visa for everything, pay it off in full each month and rack up rewards points for cash back and/or free junk.
I charge fast food and everything else that takes the card. However, I pay the bill off each month. My card sent me to Puerto Rico for President’s day, others give you a nice little % back especially at the grocery store/gas station. Not everyone who uses a credit card is unable to pay cash for everything, but it’s a whole lot easier. I find it rather annoying to have to occasionally get cash/write a check for some things. I prefer the convienience of the card (credit or debit).
me too! United Airlines and Delta Miles. Rarely use cash or checks. Autodebit all recurring bills.
Many people charge everything if they have a card that gives them airline miles or 1% back or points for prizes &c.
Now in some countries they have been “trained” to prefer cards to cash for many years. Japanese people put EVERYTHING on a card. I don’t know if I’ve ever seen one pay cash for anything less than a dollar.
Interesting. I’ve lived in Asia for several years, including Japan for 2 full years and I’ve observed that Japanese people rarely ever use their cards and use cash for almost everything.
Darn those thrifty Asian savers! Their addiction to saving money is wreaking havoc on our debt market, by artificially supressing our mortgage interest rates, thereby tempting US housing market participants to buy and builders to construct bigger homes than anyone really needs or can afford…
It’s different this time….as long as foreign investors are still willing to buy up USD dominated assets.
1. The slowdown in housing, even though it contributed 50% of the jobs during this recovery is irrelevant.
Daily News headline tomorrow
Bernanke to Housing Market:
Drop Dead!
If you get this, you’re over 35
This was the same era that little squares of gum that said “Ford” on them, could be bought from the gumball machines for a penny. Some michievous adult told me the gum always had the president’s name on them.
Let’s remember that the last 3 times a new fed President took over the market crashed in the following few months….
That’s because the market lost confidence in the new FED Chairman and he happened to take over at the end of booms that had to go bust. The same thing is true of Bernanke, but he is trying to gain confidence as an inflation hawk. He even hinted that rate hikes are no where near done. They are more worried about wage growth than a housing pop. They want to nip inflation in the bud. The thing is, everyone is touting wage growth, and the fed wants to stop that. When rates go to high, the jobs that will be lost are related to housing in one way, shape, or form. This will cause unemployment to grow and hopefully stagnate wage gains.
We’ll see what happens.
When I said hopefully, I meant in the eyes of the FED. Not mine.
Well, a recession is just the thing. It kills the inflation and wage growth problems at the same time.
Wage growth? In the face of 105,000 GM union job buyback offers? And the outsourcing of a huge share of our manufacturing base to Asia?
Hum…
Heh, one possible conclusion is that the previous Chairman knew that all hell was about to break loose. Certainly true for the just-departed Chairman Gasoline.
Read about The Future Course of The Housing Bubble…
CivilBear - Tue, Mar 28, 2006 - 11:41 AM
A very perceptive, brief piece on da bubble from Financial Sense Online..
RIDICULOUS & DANGEROUS IDEA ABOUT
THE FUTURE COURSE OF THE HOUSING BUBBLE.
Titles on Mortgagedaily.com
With titles like these I feel like running out an buying lots, and lots of RE.
Subprime Employees Laid Off
A California-based subprime REIT has announced it will close wholesale operating centers in Florida and New Jersey — leaving 100 employees without a job.
Secondary Deal Nearly $1 Billion
NovaStar Financial, Inc. has inked an agreement to acquire approximately $940 million in nonconforming mortgage loans.
De-REIT-ization
The nonprime mortgage sector’s love affair with real estate investment trusts may be coming to an end.
New Century Reaches Agreement with Investors
New Century Financial Corp. has reached a truce with investors who were battling for more seats on its board of directors.
Shareholders Lose Lawsuit Against REIT
A Florida real estate investment trust has won a lawsuit filed by stockholders.
New Century Fundings Hold
Monthly volume was flat and rates were higher at New Century Financial Corp.
$1.5 Billion Subprime Portfolio Trades Hands
A New York-based real estate investment trust sees opportunity in the currently depressed mortgage market.
New Century Battling Investors
New Century Financial Corp. is fighting a slate of directors proposed by a group of investors.
NovaStar Delays Financial Announcement
NovaStar Financial Inc. postponed its fourth-quarter earnings release and conference call as it awaits legal opinion regarding tax issues.
WaMu, New Century Make Moves
Activity at Bimini Mortgage Management Inc. and New Century is among the latest mergers, acquisitions and other corporate activity in real estate finance.
Not to worry everyone, things are just great out there.
Loan officer is an ex-convict
Regulators allowed him to keep license despite his record
Sunday, March 26, 2006
Geoff Dutton
THE COLUMBUS DISPATCH
Thomas F. Sands was convicted of 16 felonies in 1994 and lost his law license for bilking clients out of $800,000. He has repeatedly filed for bankruptcy, and he has a long history of not paying his mortgages.
After his release from prison, the Northeast Side man worked for a couple of years as a car salesman before finding a more rewarding career in 2001 as a loan officer for a mortgage broker.
He has since lost another house for not paying the mortgage and filed for bankruptcy for a third time, despite reporting a six-figure income. He’s been charged with assault and continues to fight a $150,000 IRS debt dating to his prison days.
But he’s still licensed to arrange loans for home buyers.
As lawmakers consider sweeping consumer protections on the mortgage industry, including broader criminal background checks, Sands and other ex-convicts show that felons can find work in the mortgage business.
Some, such as Sands, convince the state that they’ve turned their lives around. “The history’s bad,” Sands acknowledged, “but it’s old history.”
Brokers who run mortgage companies have been subject to background checks for more than 20 years. In 2002, Ohio extended the checks to loan officers. Lawmakers also allowed for appeals and exceptions, such as the one granted Sands.
Moreover, the checks don’t include national searches that would reveal federal crimes and convictions in other states.
The state Department of Commerce, which licenses loan officers, doesn’t keep track of how many of Ohio’s 8,300 licensed loan officers are felons. Because the paperwork is exempt from the state’s publicrecords law, consumers have no way of checking.
‘ A lot of shame ’
Sands, 46, had been a highflying, fast-living Zanesville lawyer before July 1994, when he pleaded guilty to 16 counts of forgery and grand theft.
He had settled clients’ lawsuits without telling them to fund his lavish lifestyle.
Prosecutors estimated the losses to his clients at $800,000. Sands ultimately repaid those clients, in part by selling a Florida condominium and several airplanes.
He also surrendered his law license and served nearly two years in prison.
“I’m embarrassed by it. I still walk around with a lot of shame,” Sands said in a recent interview. “But I’ve worked really hard for the past 10 or 12 years to overcome it.”
In 2001, he began working as a loan officer, briefly for a bank and then for a series of mortgage brokers.
In 2002, when the state began licensing loan officers and running background checks, the Department of Commerce notified Sands it planned to deny him a license because of his criminal history.
But he appealed, and a hearing officer agreed that he had put his troubles behind him. The department issued a license.
Although it didn’t come up during the March 2004 hearing, Sands had recently lost his own home in Granville after taking out two mortgages of more than $300,000 and apparently making few, if any, payments. Court records show that, with interest and fees, he owed more than he had borrowed 19 months earlier.
For a second time, he filed for bankruptcy, postponing repossession of the house. The bankruptcy filing later was dismissed. It was the third house in less than 10 years for which he had defaulted on a mortgage.
Also not raised at the hearing was an accusation that Sands inflated an employee’s income to help her qualify for a car loan. The accusation was part of filings in the woman’s divorce proceedings .
“That’s not true,” said Sands, who later married the woman. “I didn’t help her inflate her income.” The couple eventually divorced.
A state lawyer asked Sands about his felony convictions and whether he’d had any legal troubles since leaving prison. Sands said no, according to a transcript, even though he also had a pending assault charge in Licking County related to a confrontation with the exhusband. The charge later was reduced to disorderly conduct.
“It didn’t mean anything to me, to be honest with you,” he said of failing to disclose the incident, which he described as a minor domestic dispute. “I don’t know what effect that would have on being an ethical and effective loan officer.”
In August, Sands created Patriot Mortgage Services Co. in the name of his son, who was a 19-year-old college student in North Carolina. Patriot isn’t licensed by the state. The incorporation papers say the company will “perform general mortgage and related services but not as a mortgage broker.”
Sands said Patriot served as a marketing vehicle, and was put in his son’s name “for estate planning purposes.”
Recently, Sands joined Watermark Lending Ltd., a new mortgage broker in Dublin. He resigned Wednesday, after speaking with The Dispatch.
In a letter to Watermark, he wrote: “I do not want you to be smeared or tainted by this story about me, when it has nothing to do with you or your business.”
Personal problems aside, Sands said his track record as a loan officer speaks for itself. “I’ve worked really hard at building a reputation in this business of being honest and ethical,” he said.
Dredging up his past, he added, is a cheap shot. “It’s not fair. It has nothing to do what I’ve done since I got my (loan officer) license.”
Background check debate
A bill to strengthen regulation of the mortgage industry would, among other things, make criminal background checks national in scope. For the first time, the state also would run checks on appraisers.
The bill has been approved by the state Senate and awaits a vote in the House, where opposition has been fierce.
The bill still would allow loan officers and appraisers to receive a license, at the discretion of the state Commerce Department, even if they fail the background check.
The department has no specific plans to track those cases more closely or report them to the public.
But a new computer system is being installed that should improve record-keeping in general. “Hopefully, that’s one of the things that will be part of it,” spokeswoman Denise Lee said.
The Commerce Department will continue to run background checks when a license is issued, not for annual renewals. But loan officers are supposed to notify the state if they are arrested or convicted of any crimes.
Noel Morgan, a legal-aid attorney in Cincinnati who represents people cheated during the purchase or refinancing of home loans, said better background checks would help.
“Criminal background checks are something that seems obvious,” Morgan said. In Ohio, “the surprising thing is it’s an innovation.”
gdutton@dispatch.co
I wonder how many characters like this are in every public trust position .
Today I overheard a co-worker complaining about not being able to rent her investment property in PHX. Said that all her take home pay was being used to pay for her primary house and investment mortgages. The kicker was that the investment house was 2000 sq/ft spec with a long commute, and she expects to rent it for $1800 (which is way overpriced for all of you unfamiliar w/ PHX).
This bubble is going to financially destroy too many people. I once anticipated it finally bursting, but now find myself hoping that the damage can be minimized in some way.
I can only bet it is in Buckeye or Queen Creek. There are fields of for sale and for rent signs all over the both of them.
You can’t feel sorry for someone elses ignorance. It is the sheer fact she can even think of $1800 for rent, for any average priced home, outside of central Phoenix. It should be half that.
It isn’t the stock market where you can bail out in a click of a mouse button. If they weren’t smart enough to do their homework before they laid their ass on the line, I say let them crash.
amen
As mentioned, I saw some dolt with a 310 area code trying to get $1900 for a new crackerbox in Euless, TX which would be about Dallas’ version of Queen Creek. Way the hell out there, too far really to commute to work in Dallas and jobs in Ft. Worth, which is closer, don’t pay what Dallas jobs do. The dude will be lucky to rent it at all and my guess is he can get 900-1K absolute max.
Why should you hope that the damage can be minimized in some way. Everything is balanced. As some people experience damage, others will benefit. The speculators have caused damage by running the prices up in the first place. Those greedy speculators that should have had no business “dabbling” in speculative real estate deals deserve to experience the full brunt of their mistakes. It will be a costly lesson for them to learn, but a deserved one. The same lesson as those who knew nothing about the fundamentals of stock market investing and decided to try and make a quick buck by becoming day traders. Nothing in life is free (free money in real estate dealing) and these gamblers will soon learn there is a price to pay!
“‘You’ve got a bunch of divisional presidents trying to beat last year’s numbers,’ he said. ‘I wouldn’t want to be in their shoes.’”
I HATE CLEANING $h!T OFF MY SHOES…
‘I think a lot of it (last year’s run-up) had to do with investors in marketplace.’
About a year ago, I read somewhere that speculators leaving the marketplace would cause a lot of trouble…..HMMMM….Where did I read that?
OH! Yeah! It was right here on this blog.
Thanks, Ben.
Merrill Lynch economist David Rosenberg said Friday’s figures, which showed that sales of newly built US houses dived 10.5 percent in February to the lowest level since May 2003, were ominous.
“Let’s just say that over the past three decades, there were eight episodes where new home sales decelerated into an environment of double-digit decline — and in seven of the eight, the economy slowed sharply in the ensuing four quarters,” he said.
3 weeks ago I saw something that I’ve never seen in PHX before. A TV commercial advertising Condos(La Terazza at Biltmore — http://www.laterrazalifestyle.com)! For weeks it’s been playing constantly on all 3 channels during the morning shows (Today on NBC, GMA & Early Show on CBS.) “Grand Opening for sales” is this Saturday. Darn I wish I could organize a guerilla team of “Phoenix Freeze Outers” to go down there and “fart-spray” some of the model condos there.
re: Climate change/global warming
By the year 2100 it is projected that because of melting ice in the polar caps (which is double the rate expected a few years ago) Seas around the world will rise 13-20 feet- this will cause severe flooding in New York, Miami, New Orleans (if it is still there) and other coastal cities- it will not result in total inundation- as a writer above speculated. Coastal California- the SF bay area- San Diego, and to a lesser degree L.A will have many problems with sea rise- that will become worse after 2100. AZ will become hotter and drier- more then 5 degrees, more like 7-10 degrees which could make most of the state ‘unihabitable’. If the state is so important in the economic vitality of the USA and southwest- we all are in for a big surprise in years to come when the state becomes a dry hell hole.
The doomsayers where right- and the ‘happy feel good’ people who said global warming was a ‘liberal-radical-anti religion’ crusade can go back to their landlocked minds. Too bad we have President who remains unconvinced about the validity of the scientific method- but relies on mysticsim and religion (something akin to what society did in the year 1100) just my thoughts….
Amen brother
Can I get a witness.
*By the year 2100 it is projected )
If you think most Americans care about what their great grandchildren will be facing in 2100, check out the national debt.
We can always default on the debt. Not so true for the planet.
On the bright side, the later does take care of the former, although that’s a bitch of a default penalty.
Morning humor -
This “doll’s house” has a “re-molded” bath . . .
http://www.homesdatabase.com/FQ5581460
I just lost a tenant who told me prices are getting cheaper in AZ so she’s going back to buy a house. Gave me her 30 day notice yesterday. She has no savings and makes 300 dollars a week, but I guess that’s enough over there. Also mentioned something about how she can’t live amongst all these illegal immigrants here.
wait til she gets to Phx!
Wow, $300 a week….even the laziest immigrants make more than that. LOL
She’s very educated, but a music production industry intern, which doesn’t pay much…
They Call Him Flipper! Flipper!
Faster than lightning!
No one you see, is smarter than he!
And we know Flipper
Lives in a world full of wonder,
Lying there under, under the sea!
Does anyone else find the words to this song strangely appropriate to the current market?
Posted under another thread, but appropriate here for Phoenix:
How could the experts be surprised? I was formerly an expert, and I could see this coming 6 years ago, the market was overpriced then! I predicted the crash would have occured 3 years ago. Shows how damn smart I am. For what it’s worth:
Then (1980-82) and Now (2005-06) observations:
Then, real estate prices were driven by 10%+ annual inflation and investors trying to shelter ordinary income from taxation. Most of them were “buy and hold”, and paid attention to the “numbers”, i.e. cash flow, rent to value ratios, reasonable valuation modeling and forecasting. Then, investors had the option of long-term treasury investments at 10+% or long-term tax sheltered investments. The congress pulled the rug out from under them with the 1986 Tax Reform Act and wiped out billions of dollars in equities overnight, causing a real estate depression that lasted for 8 years. We relied on an MLS book to estimate the state of the market. If it was thick, there were more properties, and vice versa. There was no internet, just newspaper and tv. Information disseminated at a very slow pace.
Now, prices driven purely by easy money, herd-mentality speculation. No attention is paid to the numbers, and the investment term is short-term flips. Inflation is “low” and the taxation issue is entirely different. We have instant information (this blog among others) and in many respects, can see the current situation unfolding before our very eyes. Virtually every tv station and newspaper is now producing housing bubble news.
In light of the above, I disagree with the observations that the so-called “smart money” got out last year before the downturn in the market (July 2005). Many of the short-term flippers/investors/fixer-uppers have been in a state of mass denial and are quickly entering a new state of mass panic. They didn’t see it coming (the disappearance of buyers and increase in inventory). Because of denial and greed (typical human behavior), they got caught with their pants down. Real estate is not a highly liquid asset like stocks. It takes time to buy, fix, list, sell and close escrow. Phoenix has the potential to approach 100,000 to 120,000 properties on the market before year end. WAG on my part. We’ll see.
Bottom line: This is only the beginning folks. There are no precedents for what is happening now. Be patient.
Great post. I agree with your number…also a lot of the speculators/flippers bought at pre-sales of new developments last summer and those houses are still being built. Just wait until these all hit the resale market. There’s nothing as unattractive as a re-sale that has a back-yard of dirt. Also, some pre-sales may be to legitimate buyers (say from California) who were planning to relocate after the house was built, but now may have a hard time selling their current home (especially if they are stubborn on not lowering their price) and may rethink their plan to relocate to to AZ. I thing there is a $$$ point where a lot of potential transplants will stay put if they can’t significantly improve their lifestyle by selling in one area and moving to another.