The Housing Bubble 2

Technical Delays Today

2006-02-05T10:29:00.000-08:00

There will be periodic technical delays today. Thank you for your patience and please check back.

The Housing Bubble And The Employment Effect

2006-02-05T08:58:00.000-08:00

Readers want to discuss the housing bubble and the jobs impact. "I wanted to suggest a topic: I want to get into the details of the last SoCal collapse that has (to date) been blamed on the Aerospace industry collapse." "Is there a job loss scenario for SoCal that mirrors 1990? There have be oblique references to losses in the mortgage, banking and construction industries that seem to be the most likely candidates, but I also have an example that occured to me through personal experience." "I have a relative in Atlanta that has been working in the mortgage industry for the last five years. He owns a condo, but has been also been buying and flipping properties. He knows appraisers who will appraise for 'whatever he wants,' he can arrange for them to get the loan, and walk them through the application so that they don't 'hit any snags.' I am a lawyer and advised him this is really a bad idea, filled with conflicts of interest and possible fraud, but he advised me that this is standard operating procedure." "This seems to me a very overlooked area of froth (as a shout out to the departing Mr. Greenspan) which might account for some uncertainty in possible housing devaluation." Another reader asks, "How about a job loss update? We all know about Ford and GM. How about other recent announcements? Jobs are the glue that holds it all together." And another, "I, too, am interested in job loss scenarios for SoCal. A few years ago Big Pharmaceutical got hit pretty hard, though I'm not sure what the real cause was. It might have had something to do with the dot com bust and the Nasdaq decline generally. I know of one chemist who was laid off at that time and only recently got a 'real' job again, at Genentech in San Francisco." "I'd be curious to know why the downturn in Big Pharm, and could it happen again. After all, they are not profitless tech startups. A big slump in pharm would have a huge effect on the northern bay area and San Diego, if so." "I'm not sure what the big employment drivers are in the LA area, to be honest. There are a number of smallish tech startups. There is also the movie industry. The major studios are already asking big stars to take pay cuts and they are planning on putting out less product for the next few years." "In my area, much is made of the fact that The O.C. is filmed in Manhattan Beach. Big deal; one friggin TV show. Yet an unbelievable amount of froth has been generated around it. I am only half-joking when I say that the local economy here consists of selling real estate to each other and teaching each other yoga."

A 'Rash Of Cancellations' In Fresno

2006-02-05T07:21:00.000-08:00

The Fresno Bee has the latest on that bursting housing bubble. "Some home builders, trying to keep home prices down and responding to a possibly slower and highly competitive market in 2006, are planning to unveil new, more affordable designs. 'If [builders] see things taper off, they could shift the product a couple price points to midmarket or entry-market homes,' said John Karevoll." "Lower-priced offerings would be welcome in Fresno County, where the percentage of families that could afford a median-priced home sank to record lows in 2005, the pinnacle of a five-year real estate boom in the central San Joaquin Valley." "Rich Wathen expects more competition this year among builders, and without the escalating prices that frustrated many home buyers the last few years. 'Air is coming out of the bubble,' he said. 'There will be a lot of competition, and more as the year goes on. That will definitely have an impact on sales and prices.'" "How much of an impact? Wathen thinks sales in the central San Joaquin Valley could fall 10% to 15%. Developers say the long waiting lists and campouts at model home sites that characterized the past few years have mostly evaporated. 'We were allowing contingency buyers over the last three years, but in October, November and December we got a rash of cancellations as homes were getting completed,' said Steve Lutton, division president of Lennar Homes." "The greatest increase was in Fresno County, where cancellations doubled. Karevoll acknowledged the dangers of trying to assess this real estate market. '2006 will be an interesting year for the number crunchers,' he said. 'The arrows in the grass are pointing in all different directions. I've never seen the measures of uncertainty so high,' he said."

Any 'Freebees' In Your Housing Bubble?

2006-02-04T14:45:00.000-08:00

How about the housing market in your neck of the woods? Post any observations or media sources that you want to share; open houses, anecdotal items, etc. Some readers posted these in the topics thread. "The radio spots that are STILL played by mortgage brokers. Hayes Barnard of Paramont Equity is the worst. His newest is 'the average SD home appreciated nearly 40k last year! You have the power for financial freedom to pay off debt with this new found equity' Like 40k is just like your car keys or that $10 bill in your pants back pocket." "Are sellers including 'freebees' in your area? (Cars, vacations, plasma TV's, ganite counter tops)? Here in Irvine, (Orange County) California, the Irvine Public Schools Foundation is including a BMW 750Li in an 'early bird' drawing as part of its annual house raffle. That's a first." Another said, "I'd like comments from owners/rentors who actually live in these hi-rise condos so we could have first hand knowledge of the pros and cons." This reader noticed a change. "Is the tightening up of credit/liquidity being felt by consumers in areas other than mortgages?" "I pondered this last night when I took my junk mail and fed it to my shredder. Looking at the unsolicited credit card offers, I noticed that the quality of the offers (Balance transfer terms and CCard terms) seems to be way down in the last few months." "I've got the kind of credit profile that gets great offers by the ton (only 3 cards, plenty of activity (use Amex for everything I can), almost no debt, fico mid-800's, flawless histories) so I'm wondering why the change. As a single sample, this could be because something has changed in my credit reports. (Though it shouldn't have - I'm going to get updated reports to make sure nothing funny has happened)." "On the other hand, If I am not alone in seeing this trend, does that mean that lenders are anticipating tougher times and reduced consumer spending ahead? That would likely mean more people using their offers just to transfer balances back-and-forth to keep rates and payments down, and less new purchase spending." To which another responded, "But that's a good thing, right? I get tired of receiving all that mail. I'm just messin' with ya. I understand your observation and it's worthy of note. I agree it would be interesting if the lack of is related."

Speculators In 'Frenzy Of Over-Confidence'

2006-02-04T13:38:00.000-08:00

This financial advice answers some questions for speculators. "Q: I became a real estate investor last year (probably, too late) buying a small townhouse, which, fortunately, I rented out within a month. The idea was to let the property increase in value and sell it in two or three years. Now I know that plan will not work. How do you see the picture for investors who recently purchased properties?" "A: There are three essential issues you need to address: First, are the rent and the value of tax write-offs sufficient to support the property? If not, can you reasonably continue to carry the loss?" "Second, did you finance with a loan where payments may rise significantly in the next few years? If yes, will you be able to reasonably afford the higher payments? Third, what is happening in your local market? Are the population and job bases growing? Speak with local brokers for details." "If you can carry the property in a market with good fundamentals, then you have to question whether it makes sense to sell now and take a loss." "Q: Two years ago I refinanced my home. The lender appraised the house at $165,000. I did the loan, a two-year ARM, now the ARM 'start' rate has expired. My monthly payment has gone from $1,200 per month to almost $1,600. I went to refinance with the original company that gave me the loan and they said my home was now only worth $150,000 tops. I owe $160,000. The people who made the original said that due to foreclosures in my area property values had dropped in the last two years." "I now rent the property for around $1,250 per month. I would like to sell next spring but will be looking at a $5,000 to $10,000 loss. Any ideas?" "A: Interest rates are now rising thus your monthly cash loss a year from now could be substantially larger. You need to get this problem quickly sorted out." "The fact is the real estate is a commodity. Prices go up and down. In your case both property values fell and interest rates rose at the same time, the worst combination for a short-term investor. Huge numbers of people have invested in real estate with little down and financing that they only expected to hold for a few years. They gambled that if prices rose in those few years they would be able to sell the property, avoid higher loan costs and earn a profit from the sale. Some investors, in a frenzy of over-confidence, never considered what would happen if property values simply remained stable or actually fell." "Ask if your tenants if they would like to buy. If they have no interest, speak with local brokers where the property is located. Also, speak with other lenders, they may have a different view of local values." "By the time you're done with closing costs I suspect your losses will be greater than $10,000. Thus you have a situation where you both cannot keep the home and also cannot afford to sell it." "It may be that it will be necessary to downsize your current lifestyle, get a long-term loan to cover your losses, get a second job or sell off a car or other asset. None of this is easy, but the situation would be worse with a foreclosure and bankruptcy."

What's Your Housing Bubble Exposure?

2006-02-04T11:59:00.000-08:00

Several readers want input on where to park their housing cash. "I'm looking for a new bank for my cash. The main thing i'm concerned with is stability in the event of trouble ahead. that and good rates on 6 to 12 month cd's." "And while we're on the subject, how safe is internet banking (Ing Direct etc). Finally, do you guys like the ibonds?" A reader responded, "I've used ING direct for about 5 years now, and haven't had any problems with it, yet. But lately with all the bad financial news banging about, I'm getting antsy about having my cash in a digital account. If you want to get it out in a hurry, you're out of luck. It takes at least 2-3 business days to transfer funds from Ing to your local bank, then you gotta hope your local bank's doors are still open for business." One reader broadened the subject. "I'd like to read about where other readers have their money invested. What the rate and terms are and if it has worked out for them. Did the bank/company give them what was offered, were there any hidden fees, for example to move money in or out, do they know what this bank/company invests in primarily, has anyone discovered something new, has anyone tried something new and did it work out?" "I'm seeing a lot more offers out there (some pretty good) and lots of them are from unknown banks, so I wanted to get an idea of which are the better more reputable ones to stick with. Also, if anyone has suggestions ideas for a good mutual fund with respect to sector or class. Such as ‘good to invest in bio-tech or perhaps energy funds’ or ‘good to invest in growth or emerging markets or maybe small cap.’" Another is curious about housing bubble exposure. "Which institutions are holding GSE-issued or private MBSs and CMOs (asian banks vs. American mutual/retirement funds)? Do asian central banks own more of the stuff, or do Americans (through their mutual/retirement/401K/IRA funds)?" "While GSE-issued debt is fairly easy to spot on a prospectus/annual report (look for Fannie & Freddie), how can you tell if your mutual fund also owns PRIVATELY-issued MBSs or CMOs?" This reader had some answers. "Have you used Weiss Ratings for bank safety ratings? Nobody is as conservative as Weiss when it comes to rating financial institutions. He has a much better track record than AM Best, Moody's, Fitches, etc, when it comes to warning subscribers of impending bank failure BEFORE the failure." "Just last night we got our annual Weiss ratings book in the mail. A number of banks no longer have the A+ rating, probably because they are exposed to local bubbly real estate markets." "Fortunately Farmer's and Merchants bank, right in Southern California, is one of the best banks in the country, at least by Weiss's standards. Even better, they know about their rating and work hard to maintain it." "My survival strategy has largely consisted of having a Treasury Direct account wired to my F&M savings account. I won't mess with any Treasury money funds from a mutual fund company that might have to go through a bank that, you get the idea."

'Where Are The Buyers' In Phoenix?

2006-02-04T10:11:00.000-08:00

The Arizona Republic reports on the lack of affordability in Phoenix. "Skyrocketing prices have made Valley resale homes harder to afford than any time since the beginning of the last decade. A key housing index shows that a used home in metro Phoenix has not been so difficult to afford since 1990, even though interest rates have remained fairly stable and incomes are up. That's because prices for resale homes are at record high, though the market has cooled in recent months." "The new figures have implications for everyone associated with the Valley's real estate market, from agents to owners to businesses worrying if their employees can find a place to live. 'If you are trying to by a home, you have to be careful about what you are doing,' said Jay Butler, head of the ASU real estate center. 'If you are trying to sell this area as a place for a new company, then you may have some serious issues.'" "But incomes are not growing as quickly as house prices, which are at record levels after a yearlong selling frenzy fueled in part by speculators. The index is based on the value of 100 being the level where a typical buyer can afford a median-priced home at current interest rates and household income. Numbers higher than 100 signify increased affordability and those lower suggest the opposite. The Valley's resale index fell from 114 in 2004 to 84 in 2005. The new-home index dropped from 102 to 80 during that same time." "Buyers may finally be fed up with the higher prices. Agents say there are more houses on the market than at the peak of the buying binge and the houses are taking longer to sell." "'I asked another Realtor what he thinks about the real estate market,' said Brett Barry, (an) agent who specializes in the northeast Valley. 'He said, "What real estate market?' I have sellers calling me every day, breathing down my neck, saying, 'Where are the buyers?'"

The Legacy Of Greenspan, And Life After

2006-02-04T08:10:00.000-08:00

During the week, a thread for quotes from Alan Greenspan was suggested, so this is the place for that. And a reader asks, "Topic Suggestion: Life after Greenspan." "Some questions to address: 1) Will Bernanke abolish the PPT? 2) Will he do it gradually (administer methadone rather than induce fatal withdrawal symptoms)? 3) If he tries to reflate through purchase of l-t bonds, will that lead to higher interest rates (read mortgage rates) due to inflation fears? 4) And hence, won't any effort to offset an Asian pullback from $US assets inadvertently crash the housing market? 5) Will Ben B take measures to end the conundrum?" Another ponders, "How will the lower unemployment rate influence the FED on its rate changing policy in relation to Ben Bernanke?" "Will it be business as usual and they will continue to raise rates or will ben get in and just start printing money? We all know what affect higher rates will have on the housing market and we know what lower rates will do to the dollar. What becomes more important to Bernanke?"

Buyers 'Sitting On The Sidelines' In Boston

2006-02-04T07:08:00.000-08:00

The Boston Globe reports on the prospects for realtors. "Tempted by the boom, a record number of college graduates, retirees, housewives, and laid-off executives jumped into the real estate game last year, before sales started to slip. State records show that 9,547 people obtained licenses to sell real estate in Massachusetts in 2005, up 6 percent over the previous year. Today, there are more agents in Massachusetts than at any time in the past seven years." "'I think a lot of people saw real estate as an opportunity to use their business skills and make a lot of money, but things today aren't what they were a year ago,' said veteran broker Ruth Pino. 'Back then, buyers didn't quibble about price or inspection issues because there were 10 other buyers lined up behind them to purchase the property.'" "'Today, there's one buyer for every five or 10 houses, so the job has become a little more stressful,' said Pino, office manager in Gloucester." "A glut of unsold properties in Boston's suburbs is adding to the intense pressures facing new agents. The number of single-family houses for sale in communities around Boston surged 58 percent, to 4,286 yesterday, compared with a year earlier, according to the MLS of Shrewsbury. The figures include the suburbs within the Interstate 495 corridor." "Buyers now have the upper hand, and they know it, said Kelly Martinson, who is a director of the Greater Newburyport Board of Realtors. Many buyers are sitting on the sidelines, waiting to see whether prices will fall as the busy spring selling season draws closer, she said. As a result, homes are lingering on the market longer. For many agents, that means the time between paychecks is also growing."

The Bubble's Popping; Don't Take It Personally

2006-02-03T16:30:00.000-08:00

With many new readers, this blogger should explain that at the end of a busy Friday, it's time to clear the desk. "Lots of news on the home loan front. "Investors in the $5.6 trillion U.S. mortgage-backed securities market are growing wary of the inverted yield curve's impact on their investments since it is a harbinger of price losses. 'Historically, mortgages do not perform well in an inverted yield curve environment,' said Scott Kirby, who oversees roughly $25 billion in an array of different mortgage-type securities." From a mortgage site. "Mortgage companies trimmed 1,400 full-time employees from their payrolls in December, following 2,000 job cuts in November. MortgageWire has reported on layoffs at prime and subprime lenders alike, including Ameriquest Mortgage, Argent Mortgage, Aurora Loan Services, BNC Mortgage, ECC Capital Corp., and Countrywide Home Loans." "Warm weather helped builders in January, and the economy added 46,000 construction jobs after a 5,000 gain in December. Manufacturers added 7,000 jobs last month, after cutting 1,000 positions in December." "The hot job Market in metro Phoenix has a dark cloud on the horizon, however, McPheters warned. 'There's an issue lurking that is new to us, and that is the rapid escalation of home prices,' Lee McPheters said. 'Last year, we moved above the national average (in home prices). It won't stop people moving here, but they're going to live further and further out. We'll suffer growing pains as a result of housing prices.'" "Last month, there were 1,578 single-family homes and 2,125 condominiums being actively marketed for sale, said Mary Flood, president of the Honolulu Board of Realtors. This compares to just 961 and 1,378 dwellings, respectively. While prices are up year-over-year, performance in some markets is off. The median condominium price actually fell 3.3 percent to $295,000 from the prior month's $305,000." "Hurricane season is over, but for John Beach there's one more financial cloud on the horizon. He recently got a notice that insuring the house he owns near the Atlantic Ocean against wind damage will cost $7,606 in premiums this year. 'Bluntly, the coast can't afford itself,' says Jim Oliver." But the biggest surprise of the week for Californians was, foreclosures where? "More Bay Area homeowners had serious trouble paying their mortgages and went into default as 2005 drew to a close, evidence that a cooler housing market can hurt the financially strapped. Lenders sent 2,292 'notices of default' to owners in the nine-county area in the last quarter of 2005. 'From here on out the number will probably increase steadily,' said DataQuick's John Karevoll." "There were 3,163 default notices issued in the 14 counties that DataQuick counts as 'Central Valley.' The largest number, 849, was in Sacramento County, up 31.4 percent from a year earlier. Lending institutions sent 14,999 default notices to California homeowners during the October-to-December period..up 19 percent from the third quarter, and up 15.6 percent from 2004's fourth quarter. All regions of the state saw an increase in foreclosure activity." "Q: Lenders like to tell us to 'cash out the equity in your home.' What they really offer is a loan that must be paid back in full, with interest. The only true way to access the equity in a home is to sell it. People might be more careful with debt if they looked at it this way." "'It's a seller's market transitioning to a buyer's market,' says David Lereah, chief economist for the NAR. Sellers are reluctant to drop their asking prices, but a lot of them might have to." "Prepare yourself mentally. Don't take it personally if you don't get the price you expected. 'The big thing is you've got to accept what the market is, and make the most of it,' says (realtor) Jeff Lyons. 'It doesn't have anything to do with you personally; it has to do with the market.'"

'Ethical Bare Minimum' Of The Housing Bubble

2006-02-03T15:04:00.000-08:00

Kenneth Harney writes at the Washington Post. "The recent $325 million multi-state legal settlement involving Ameriquest Mortgage Co. suggests that not all is well on the home loan front, and that even experienced buyers and refinancers need to question more, review more, probe more before committing to what is often the biggest debt burden of their lives." "The alleged abuses by Ameriquest loan officers that triggered the states' legal actions constitute a how-to manual for mistreating customers. Some consumers complained that Ameriquest loan officers convinced them to pay higher-than-market rates with the oral promise that they would be able to refinance to a lower rate at some future date. Ditto on playing games with prepayment penalties. Loan officers are prohibited from influencing appraisers to inflate values under the Ameriquest settlement, but they also won't get to select the appraiser anymore, much less dictate the results." "The same goes for playing fast and loose with popular 'stated income' mortgages that require no hard documentation of borrower assets or income. Ameriquest loan officers cannot 'inflate or fabricate, or encourage [borrowers] to inflate or fabricate' earnings, bank deposits or other assets. Nor can they sign documents on behalf of their applicants." "Regulatory overkill? Hardly. Standards such as these, and dozens of others outlined in the new settlement, should be the ethical bare minimums for the entire mortgage industry." Another site wonders, 'Whose idea was this, and who said it was actually okay?' "As reported by the Washington Post on Dec. 10, 'Federal financial regulators appear to be on the verge of reining in one of the most popular mortgages in hot housing markets nationwide. The government finally seemed to say 'It's not okay,' in public remarks by the Comptroller of the Currency. But yesterday's Wall Street Journal said that fears of a 'regulatory crackdown on option-ARM lending practices turned out to be more bark than bite.' Why, then, did regulators suggest a 'crackdown' and then fail to crack down?" "Lenders who get the minimum payment on Option ARM mortgages are actually able to book the full monthly payment into their earnings. 'The banks' loan-loss reserves are low, by historical measures,' even as Option ARMs comprise dramatically higher percentages of their mortgage portfolios. As much as 80% of recent mortgage loans have been 'low documentation,' which means banks know very little about the creditworthiness of borrowers. As many as 13% of these borrowers are NINAs; 'no income, no assets,' which means 'customers get mortgages without disclosing their income and assets.' Why is this legal?"

'Signs Of Decline' In The Condo Bubble

2006-02-03T13:12:00.000-08:00

Inman News has the latest on the condo bubble. "As the national real estate market descends from record heights, condo developers in some markets are buddying up to home shoppers and real estate agents with promotions and incentives. Inventory is up, and some sellers have dropped prices after realizing they were expecting too much, Thomas C. Demsker, a realtor in New York City said. It's not unheard of to see price reductions of $100,000 for properties that are slow to sell." "'They're (developers) much more flexible and much more accommodating. What they're doing is sweetening the pot by adding a little perk here or there. It's becoming more prevalent. Some are actually negotiating on price,' Demsker said. 'They've become very amenable to my calls all of the sudden.'" "Similar trends are echoed on the West Coast, with real estate professionals in Southern California reporting that developers are reaching out to the brokerage community and are more aggressively marketing their properties. Veronica Hicks, broker-owner based in Orange County, Calif., said the condo market is generally slowing, and buyers 'are starting to be a little bit more apprehensive.'" "Developers of new condo projects aren't negotiating much on price, Hicks said. 'What they are offering consumers is not necessarily price reductions. They are offering them upgrades and closing-cost assistance,' she said. Some developers are offering commissions of up to 4 percent and 5 percent of the sale price as compensation for bringing buyers into a transaction. 'As recent as a few months ago they were offering absolutely zero,' she said." "Troy Soumis, broker-owner company that focuses on downtown Los Angeles, said it's still a seller's market for condo units, though 'it's not as good as it was last year.' Inventory is up, and several conversion and new-construction projects are coming into the market. The growing inventory is also a result, in part, of investors who bought the properties for a quick sell and are now returning them to market." "Meanwhile, the Washington, D.C.-area market 'has softened quite a bit and several projects have folded,' said Daniel Rubén Odio-Páez, based in Arlington, Va. One proposed $100 million-plus project in D.C.'s Logan Circle area has been withdrawn from the market. 'Our market is still strong but there seems to be a glut of condos,' and condo inventory is three times higher than it was 12 months ago, year-to-date, he added." "Market analysts have cautioned about the waves of proposed and under-construction condo projects in some markets, such as Miami and Las Vegas, as a possible indicator of over-supply, with some developers changing their condo plans mid-stream or canceling projects altogether. John Mudd, a Tampa, Fla., realtor, (said) that pre-construction and condo conversion sales are slowing down, 'but that's not my problem, it's the problem of developers. Their brokers often give me and my buyers first pick of the units. Brokers who tell agents it's about getting the listings are wrong. In this market there are too many listings.'" "Mudd said that the market has 'normalized' in the Tampa area. 'If you know how to paint a picture with words to reach the buyer you're targeting, and if you know what buyer demographic to target, you won't have too much trouble selling condos, even if there is a glut of condo inventory on the market, and there is a glut of inventory.'" "Joshua Lioce, broker-owner in Milford, Mass., noted that the higher-end condo market is showing 'signs of decline' in his market area. 'A builder in Uxbridge, Mass., about an hour southwest of Boston, is currently offering to pay the first year of condo fees, roughly $2,500. This is something that we have not seen around this area, but I feel that we will see more and more of this, especially in the higher-end condos.'" "And in San Francisco, the high-end condo market seems to be performing better than the low-end, said (realtor) Ed Campaña. Developers may be more willing to negotiate on the lower-priced units, he said, though they generally aren't offering too many incentives right now. That may change as interest rates bump up, he said. Open houses have slowed down a bit in the condo market, and there aren't as many offers for properties now, he said. 'This year I think will be steady. After that, all bets are off.'"

'Beware Of Overpricing' In Denver

2006-02-03T11:47:00.000-08:00

Several realtors in the Denver area agree about the buyers market. "Yes, we faced a housing price bubble throughout the years 2000 and 2001. However the bubble never burst but rather slowly deflated over the past several years. Pricing a home right is imperative in today's market. Homeowners that over price their homes are hurting themselves in today's market. If your home is over priced a buyer and/or a Buyer's Agent will know it and they may be angry that they wasted their time. BEWARE of over pricing!" "The Denver Metro area is experiencing an abundance of lender owned properties, helping to make this a very strong Buyer's market. As an investor, there are lots of deals to be done. If you are a home Seller, this market can be challenging. Well-priced homes still sell, but the Buyer is looking for a home with improvements at a reasonable price or a home which needs improvements at a rock-bottom price. Over-priced homes are not going anywhere!" "The real estate market in Denver remains a Buyers market. Going into the first week of January, 2006, there are 16,108 single family homes and 6,256 condos/townhomes on the market. If you are thinking of selling your house, don't be alarmed by the high number of lisings. Homes that are kept in good shape and are priced closer to the market than their competition, will be the first ones to sell." "'I think it says the housing market hasn't collapsed, but it's a sluggish market, particularly in terms of prices,' said Tucker Hart Adams, a regional economist in Denver. 'I think the parts of the country that are seeing these double-digit increases are just headed for problems down the road.'" "Another big concern is the 12.8 percent increase in inventory over last year. At the end of December, there were 23,572 active listings, a number that is expected to rise with interest rates." "Denver's real estate 'bubble' occurred in the '90's, with double-digit appreciation 'from 1996 to 2000 before dropping to 2 percent through 2003,' according to Gary Bauer, independent Denver real estate analyst. Values began a correction in 2001 and continued through 2005, with overpriced homes staying on the market longer and selling at a lower price than overzealous sellers expected." "The Sold Homes are on the market an average of 80 days in Jefferson County, in the last quarter of 2005 there were 408 homes sold per month. There are 2,276 homes currently for sale, so that means buyers have a five month supply of homes to choose from which has kept us in a buyers market. As the job market recovers we will see the market balance out."

'Worth Less Tomorrow Than Today' In Mass.

2006-02-03T10:06:00.000-08:00

The Rockland Mariner reports on the housing bubble in Massachusetts. "If you’re looking to buy a new house, Rockland’s the place to go. Just don’t sell your house. That was the assessment of (realtor) Dan Direnzo. Based on a study he has conducted on housing in Rockland, prices have gone from $302,353 to $282,500 in the span of three months. This fluctuation, which is caused in part by the diverse zoning seen in Rockland, Whitman and Abington, could spell trouble for anyone looking to sell their home." "'It’s not a good time to be a seller,' said Direnzo. 'By all indications a house can be worth less tomorrow than it is today.'" "Direnzo said the market has changed over the last few years from a seller’s market to a buyer’s though there have been precious few willing to sign on the dotted line. Since September there has been one sale of a single-family home in the range of $330,000-$400,000, a first for the long-time realtor. 'In 22 years I have never seen less people buying,' said Direnzo. 'The whole housing industry seems off by 35 percent.'" "Because of the fluctuating market, Direnzo said sellers have to face the reality that they are unlikely to get what they paid for when they try to sell their home. He said this spiral could last as long as another three or four years. 'It’s a good time to buy if you have to have a house,' said Direnzo. 'But if you’re out shopping for investment purposes, it’s not a good time.'"

Condo Projects 'Succumb To Realities': SD

2006-02-03T07:49:00.000-08:00

The Voice of San Diego is reports the 'dominos' are tumbling in the condo market. "The fact that Bay Structures LLC., a consortium of developers from Los Angeles, has decided to sell the planned-but-as-yet-un-built project, is the latest in a string of indicators that show the downtown condo market may have hit its high-water mark. Of the 59 residential projects currently underway in downtown, experts are predicting that many will never crawl off the plans and stand in the already saturated condo market. The Elle is the first development to succumb to the realities of that market, they said, and more are sure to follow." "'It's a little scary, no question,' said Joe Werner, COO of Intergulf Development, which has completed a number of condo projects in downtown San Diego. 'The speculators who have driven the market to some extent are bailing out.'" "It was unclear why Bay Structures decided to sell. Calls to the company were not returned. Tim Winslow, a broker who is selling the property, said the entire project, including land, designs and permits, is up for sale. The sale is completely in line with the company's business plan, Winslow said." "But Werner and others told a different story. Werner said he heard the company had run into difficulty with its financing for the project, and downtown realtors and analysts said that is more likely to be the case. Alan Gin, professor of economics at the University of San Diego, said financiers are increasingly wary of lending to condo developers. 'Lenders are starting to see that it's a little bit more risky venture and as a result they may be a little bit more hesitant,' Gin said." "Anthony Napoli, a Realtor in Little Italy, guessed that 35 to 40 percent of the 11,000 condo units in the pipeline for downtown San Diego will never be built in the current real estate climate. He said the superheated condo market of the last few years has attracted many people into the condo business who didn't really know what they were doing. 'In the heyday, a monkey could be a developer in downtown,' Napoli said. 'Now you will only get financing if you can show a real feasibility study.'" "Russ Valone was characteristically upbeat despite the news of the Elle sale. He said the sale could be due to any number of reasons, and that it is not necessarily indicative of a weakening condo market. However, Valone did say that the downtown condo market has become increasingly competitive, and that he can foresee a proportion of the planned condo units never making it off the ground. As developers find it more difficult to acquire the financing for projects, the existing inventory on the market will be bought up, he said, and soon enough, San Diego will face a 'shortage' of condos again." "'It would be better for property owners, people trying to sell their homes or increase their investment portfolio, if there wasn't a constant dumping of new units on the marketplace,' said Jim Abbott a realtor who lives and works downtown." "But Chris Thornberg, a senior analyst with the University of California, Los Angeles Anderson Forecast, said the important thing for owners, realtors and investors to consider is not the fact that the development has been put up for sale, but how quickly it sells. 'How fast will it get snapped up?' he said. 'That's what I would be watching.'"

An 'Abrupt Slowdown' In DC

2006-02-03T06:50:00.000-08:00

The Washington Times is just waking up to the housing bubble. "Last year's real estate market ended very differently than it began, leaving Washington area buyers, sellers and Realtors wondering just what to expect from 2006. The market cooled off abruptly in the second half of the year, though many in the area still haven't come to terms with that." "'It has been interesting, hasn't it?' says Alana Lasover, sales manager (in) Bethesda. 'And I think it will get more interesting this year, but I don't know how yet. In January, a lot of clients were being told, 'Wait another month. Wait until after the Super Bowl to do anything,' she says. 'That's because we've always said Super Bowl Sunday kicks off the year's market. So what's going to happen? You know, I've been in this industry for 30 years, and I still can't tell people what is going to happen,' Ms. Lasover says. 'We just don't know what lies ahead.'" "During the first half of 2005, the housing market was rather predictable. Homes sold very quickly, so buyers were told to expect some disappointments because other buyers would get in their offers faster or outbid everyone else. 'Back then, you only had a day or two to see a home before it was sold, so buyers really had to be prepared to win,' says Jaye Jordan, a realtor in Bowie. 'It's different now. "'Sellers today need to be more open to help from their Realtor,' Mr. Jordan says. 'The services of a Realtor are even more important than before, particularly because pricing has changed.'" "'If you price a home too high, you can wind up getting even less than if you had priced it properly to begin with,' Mr. Jordan says. 'Some sellers still haven't made the transition, haven't realized that the market has equalized. And their homes are staying on the market longer than others. Even some of the Realtors haven't made the adjustment as of yet.'" "In December, the median sales price there was $315,000, compared to $449,000 in Montgomery County and $484,000 in Fairfax County. 'The first time I heard it, it caught me off guard. It was early 2004, and it was the first time I heard someone say they were moving from Montgomery County to Prince George's County,' Mr. Jordan says. 'Before then, it was common for folks to move [in] the other direction, but when prices got too high in Montgomery, folks starting looking around.'" "'This is a trickle-up industry,' Ms. Lasover says. 'If the first-time home buyers can't find something they can afford, if they never come into the market at all, that means the next guy up the chain can't make his move. If he can't sell his home, he can't buy his next home. And if all that movement doesn't take place, the market really slows down.'" "'At the other end of the market, some people aren't buying because homes have become so ridiculously overpriced,' Ms. Lasover says. 'I've heard people say, 'I am not paying $1.3 million for that one-bath, no garage house with tiny closets. No way.'"

Weekend Topic Suggestions

2006-02-03T06:30:00.000-08:00

Please post your ideas for weekend topics here! As some have suggested, topics related to the changing of the guard at the Federal Reserve would be timely.

The Good News Is The Bubble's Temporary

2006-02-02T16:08:00.000-08:00

Two analysts see a housing bubble in San Diego, but expect different outcomes. "'Generally good news in terms of San Diego, we will outperform California and the rest of the nation,' (said) Alan Gin, an associate professor of economics. Housing prices should appreciate by about 5 percent or less, and the time it takes to sell a house is expected to increase, Gin said." "'Almost everywhere I go, people ask me if we're in a housing bubble here in San Diego,' Gin said. 'My answer is yes, but the bubble isn't going to burst.'" "Housing demand should continue to outstrip availability, because the relatively strong job market, he said. Downtown, however, may have an oversupply of condominiums." But Rich Toscano sees it this way. "The conventional wisdom among both real estate industry insiders and the populace at large goes something like this: San Diego has not built enough houses to support population growth. San Diego continues to not build enough houses to support population growth. San Diego will never build enough houses to support population growth. And that's why housing is, and will ever be, so expensive." "The San Diego housing supply has more than kept pace with population growth in recent years. Therefore, the sharp increase in home prices is not explained by a housing shortage as is widely believed. As it happens, I entirely agree that there is a severe housing affordability problem in San Diego. Put another way, San Diego housing is overpriced. Really, really overpriced." "Even at the very peak of the late-1980s housing bubble, people were paying about 10 times per capita income to purchase a median-priced home, compared to almost 15 times per capita income now. The good news is that the affordability problem is, by its very nature, temporary." "Consider the fact that San Diego scored an eight on the California Association of Realtors' most recent Affordability Index reading. Only the highest-paid 8 percent of San Diegans can afford the median-priced home. Does this really seem like a sustainable situation?" "Home equity withdrawal and loose lending have served as props under the San Diego housing market, allowing home prices to remain far above what local wages would normally allow. Were home prices to remain flat and lenders to substantially tighten their standards, these artificial props under the housing market would be removed, resulting in a situation where very few people were able, let alone willing, to purchase homes at current prices." "We live in an uncertain world, but I say the following with great confidence: unless wages start rising very fast, San Diego home prices will eventually have to fall. One way or another, the housing affordability problem will fix itself."

Cancellations Up, Cash Down For SPF

2006-02-02T15:40:00.000-08:00

A homebuilder just reported operating results. "Standard Pacific Corp. today reported the Company's 2005 fourth quarter and fiscal year operating results. Stephen J. Scarborough, Chairman and Chief Executive Officer, stated, 'Notwithstanding the demands on capital associated with our growth, we have continued to maintain a strong balance sheet. We increased our lot position 45% year over year." "'Our business plan for 2006 reflects our current view that many of our housing markets are moderating from the unsustainable pace of the past few years and that demand for new homes will adjust to more normalized and sustainable levels resulting in generally lower absorption rates on a project-by-project basis. At the same time, we plan to open approximately 150 new projects during the year, up 63% over 2005.'" "'We remain confident in our long-term prospects for growth. This confidence is no more evident than by our recent stock buyback activity. During the fourth quarter we repurchased over 1.2 million shares, extending our buyback string to 10 consecutive years. And to provide for additional buyback capacity, our Board approved a new $100 million repurchase plan this week.'" "During the 2005 fourth quarter, the Company delivered 989 new homes in California (exclusive of joint ventures), a 12% decrease from the 2004 fourth quarter. Deliveries were up 7% in Southern California..deliveries were down 47% in Northern California." "During the 2005 fourth quarter, the Company's average home price declined 12% year-over-year to $351,000. The lower average selling price was attributable to the shifting geographic mix of our new home deliveries. Our average home price in California was $687,000 for the fourth quarter of 2005, a 1% increase from the year earlier period." "Our expectations for the year are bolstered by our backlog of nearly 6,300 homes, valued at $2.3 billion. The Company's cancellation rate for the 2005 fourth quarter was 25%, up from the year earlier rate of 17%. The Company's cancellation rate was noticeably higher in Northern California." It looks like the company has a negative cash flow again. This firm ended 2004 with $141 million in cash and equivalents and at the time accounts payable was at $96 million. Standard Pacific had only $19 million in cash at the end of 2005, and accounts payable rose to $115 million.

'Not Very Much Land' West Of Phoenix: Economist

2006-02-02T13:36:00.000-08:00

The Glendale Star reports on an economist's view of the housing market. "Although other Arizona economic analysts are forecasting that 45,000 housing units per year would continue in the next decade, Elliott Pollack predicts we will see 55,000 per year being built in that time period. 'People like it here,' Pollack said. 'Housing, even now, is still affordable.'" "Although housing prices in the Phoenix area have been flat over the last six months, the second-home market is still very strong. The listing price average with the MLS was $335,000 in 2005; it is $325,000 today. Pollack foresees housing prices staying relatively flat over the next two years. 'Builders are going to be cutting (prices) to be competitive,' he said." "Vacancy rates in apartments are at 5 percent and the reason for this is because many are being converted to condominiums. Rents are lower now than they were in 2000, but that will change, Pollack said. Rents will be going up." "Peoria's Lake Pleasant area growth will be inhibited by the great areas of state land, Pollack said. Although there appears to be lots of land on the west side, Pollack said if you take out the government land and washes, there is not very much land, 'and that's important.' He was not optimistic in the short term about land prices. 'These things historically have not done well,' he said. 'In the long run, land you own will be more valuable.'" "Workforce housing looks grim, in Pollack's estimation. 'Fifty to 60 percent of median income is in trouble,' he said. 'For people on the lower end of the service industry, they've got problems.' What would benefit West Valley communities is a tax base to take care of community needs."

'Unmanageable Payment Shock' Seen: Bies

2006-02-02T11:30:00.000-08:00

A Fed official had this to say about home loans this morning. "Regulators are concerned about heavy commercial real estate exposures and risky mortgage lending practices at U.S. banks, Federal Reserve Board Governor Susan Bies said on Thursday. 'There are certain rapidly growing business lines in banking operations that are placing pressures on risk-management systems,' Bies (said) as she outlined guidance regulators have issued on commercial real estate and so-called nontraditional mortgage lending." "In discussing the guidance on exotic mortgage products, such as interest-only loans, Bies repeated that government regulators were concerned risk-management practices had not kept pace with the risks that these widely available loan products could present. She also cautioned those risks could be 'heightened by a downturn in the housing market.'" "Bies said that in the past such products were normally offered to higher-income borrowers only, but they now were being extended to low-income borrowers in the subprime market. 'These borrowers are more likely to experience an unmanageable payment shock at some point during the life of the loan, which means they may be more likely to default on the loan,' she warned." "Bies also expressed worry that banks could face difficulties if abnormally low risk-spreads in capital markets increased. 'When risk spreads return to more 'normal' levels, banks need to be prepared for the resulting impact on liquidity and pricing,' she said." "Bies added that regulators had observed that lenders were increasingly combining nontraditional mortgage loans with weaker controls on credit exposure. 'The absence of traditional underwriting controls may have unforeseen effects on losses realized in these products,' she said." And Inman News has this related report. "Foreclosure activity in California edged up in fourth-quarter 2005, according to DataQuick. Lending institutions sent 14,999 default notices to California homeowners from October to December, up 19 percent from 12,606 for the third quarter, and up 15.6 percent from 12,978 for fourth-quarter 2004." "'Because of the rise in home values, much of that financial distress has been covered by the increasing amount of equity that people have had in their homes. That equity is now being created at a slower pace, and default activity is inevitably on the rise,' said Marshall Prentice." "The median amount owed when the default notice was recorded was $6,862 in fourth-quarter 2005, up from $6,130 for the same period a year ago. All regions of the state saw an increase in foreclosure activity, ranging from 10.5 percent in the Bay Area to 19.6 percent in Southern California. In Southern California, the number of notices jumped from 1,123 to 1,607 (43.1 percent) in Riverside County; from 872 to 1,173 (34.5 percent) in San Diego; from 684 to 918 (34.2 percent) in Orange County." "In Northern California, the number of notices increases from 636 to 849 (31.4 percent) in Sacramento County and from 73 to 106 (45.2 percent) in San Francisco. On a loan-by-loan basis, mortgages are least likely to go into default in Marin County. The likelihood is highest in the Central Valley and Inland Empire." "'While foreclosure properties tugged property values down by almost 10 percent in some areas nine years ago, the effect on today's market is negligible,' DataQuick reported."

New York Housing Markets 'Achieved Touchdown'

2006-02-02T09:28:00.000-08:00

If information from realtors is any indication, there are some changes in the New York housing market. "There are signs that the roaring real estate market is slowing. That doesn’t necessarily mean prices are dropping. It just means that selling your home is a little more tricky and could take longer. Linda Bonarelli, president-elect of the Long Island Board of Realtors (said), 'Your best opportunity is within your first 30 days of the listing to get your price. And if you're overpriced, you’re missing the buyer for your house. You’re missing the entire market,' Bonarelli said." "'On Long Island in this current market, it takes four to five months’ marketing time to sell a house,' Bonarelli said." "The froth is dissipating in the Lower Hudson Valley's housing market. 'In terms of the high-flying housing market of the past five years, we have probably already achieved touchdown on the runway to a soft and uneventful landing,' the MLS stated in its report." "The Westchester median price of $652,250 was up 6.1 percent compared to the fourth quarter of 2004." If you read through the entire 4th quarter, 2005 report, no comparison is made to the 3rd quarter. So I looked it up. "Notwithstanding the third quarter’s slower pace of sales and the slight bulking of inventory, prices increased in all categories. The median sale price of a single family house in Westchester reached $711,700." From the 4th quarter report: "The cooling in the pace of sales reflected itself in the accumulation of inventory that has become more pronounced since 2003. The year-end inventories of 4,776 units in Westchester County and 821 units in Putnam County both were about 21% higher than at the end of 2004. The condominium sector posted a very large 55% increase in inventory from 397 units in 2004 to 617 units at the end of 2005. Some of the bulking up may be attributable to an influx of newly constructed luxury condominiums, particularly in White Plains and the surrounding region." "Robert and Mary Conway left Manhattan 2 1/2 years ago to start a family. They bought a new house on 5 acres near the New Croton Reservoir in Yorktown, and later had their first baby. But the rural lifestyle left Mary Conway feeling more isolated than she had expected, she said. They put their house on the market in the fall for $1.6 million and began looking for communities with more bustle." "Buyers were slow in coming, she said. 'We could barely get people to look at the house,' Conway said. They decided to take it off the market just before the holidays 'and kind of pretend that fall never happened.' Then last month, one of the few people who stopped by to see the place put in an offer. It was less than the asking price, 'but we were definitely willing to talk about it,' said Conway." And a reader found another source on the Hamptons. "So while the bubble is popping, it seems lots of property is still selling. There is no longer a frenzy to buy, but demand does exist; It's just more discriminating. Those properties that languish on the market for six months or so without an offer, are taking upwards of a year to make it to the closing table. Despite what many brokers may claim, if there are no offers on a property within six months, it is axiomatic that it is priced above the market; after all, the market is always simply what people are willing to pay, not what it is 'worth.'" "In the Hamptons, the up to $750,000 market is the new entry level for home buying. Even local landscapers who are not yet legal can find that kind of money."

'McCondos' A 'Warning Shot' To The Bubble

2006-02-02T08:24:00.000-08:00

The New York Times looks at a trend that may indicate the beginning of the end to the housing bubble. "For more than a decade, McMansions have been a fixture on the American landscape. Now apartments are being supersized, too. Make way for the McCondo." "On Fisher Island, near Miami, a condo developer is offering penthouses of 20,000 square feet, more than eight times the size of the average single-family house. In a Las Vegas suburb, a custom-home builder is developing high-rise condos topped by 16,000-square-foot apartments. And in New York, some luxury pads now on the market measure over 10,000 square feet, gargantuan by Manhattan standards." "This week Deborah Grubman and Sharon Baum gave a guided tour of a floor plan for one of the jumbo apartments. In addition to a master suite that could comfortably house a family of four, the apartment will feature seven other bedrooms with en suite bathrooms, a drawing room, a dining room, a family room, a media room, a library and two wet bars, one attached to the master suite. 'So if, God forbid, you should get thirsty at night, you don't have to go all the way back to the kitchen,' Ms. Grubman said. At nearly $4,200 a square foot, that yields an asking price of $35 million, not to mention the $26,000-a-month maintenance fees." "With every real estate agent, developer, homeowner and mortgage banker in the country trying to figure out what direction the market will move next, supersize condos may represent a warning shot. 'One word that came to mind is elephantiasis,' said Robert Fishman, a professor at the University of Michigan. 'It's the disease or syndrome of an individual or species that just before the crash there's this huge expansion in size.'" "'It's like raising your voice at a crowded cocktail party,' said Robert H. Frank, who is a professor of economics at Cornell University. 'If everyone is speaking loudly, you have to raise your voice a little louder to be heard. They just want something that feels spacious to them, but when the houses and apartments all around have gotten bigger, for a place to confer a feeling of spaciousness, it's got to be bigger than before.'" "In Manhattan, the emergence of these jumbo apartments uncannily evokes the grand co-op buildings of the late 1920's and early 1930's, built just in time for the start of the Great Depression." "'Home is an expression of self,' said Setha M. Low, a professor of environmental psychology at the City University of New York Graduate Center. 'And the more of it, the bigger you are.'"

Housing Bubble A 'Crapshoot' In Sacramento

2006-02-02T06:51:00.000-08:00

The Sacramento Bee reports on the change surrounding the housing bubble. "Until recently, home sales were on a blistering pace. But for the first time in years, a rapidly slowing market has left would-be buyers and sellers facing conflicting signals about what to do next. Buy now, or hope for a drop in prices? Try to sell now, or hope that demand bounces back in the spring?" "'What's the right answer?' asked Pam Petterle. 'It's a crapshoot out there. Nobody knows for sure.'" "Sales of new homes in Sacramento, Placer, El Dorado and Yolo counties plunged 57 percent in the last three months of 2005, compared with both the previous quarter and fourth-quarter 2004, according to the Gregory Group, a Folsom-based industry research firm. Sales of existing homes in December fell 30 percent from a year ago." "That leaves agents, mortgage brokers and others struggling to craft plans for the spring. Many agents are encouraging would-be sellers to put their homes up for sale soon, arguing they need to beat the anticipated crush of competition. Erin and Ron Steward will do just that. They tried to sell their Foothill Farms house in the fall, then took it off the market. They plan to re-list it later this month for $449,000, $40,000 less than their initial price." "'I think a lot more houses are going to come on the market in March,' Erin Steward said. Others are holding off. They want to see a rebound before they throw up a 'For Sale' sign." "Petterle doesn't think that's wise. She says new listings in the spring will compete with homes that have been for sale for up to six months, ones whose prices have been reduced multiple times. 'Sellers waiting for spring may have to start a lot lower (in price) than they thought they would have to,' she said." "Regina Luster has been trying to sell her 2,100-square-foot rental home in the Pocket since October for $559,000. She recently tried to sweeten the deal by offering to cover closing costs and lend a buyer enough to cover a 10 percent down payment. 'It's an effort to let buyers know you're flexible, that you're trying to work with them and not just trying to take advantage of a market that no longer exists,, Luster said." "A month ago Jerry Wright figured a simple newspaper ad was all it would take to sell a 1,400-square-foot rental home he owns in Roseville for $359,000. Not many homes sell for less there. But he found barely a trickle of demand. 'It's been very quiet,' Wright said. 'I've been getting very few phone calls.'" "Last week Wright, a real estate agent, decided it was time to 'stop the bleeding.' He put a renter back in the home to cover his mortgage. When the market picks up, he'll consider selling again. When will that be? That's what everyone is trying to figure out."

Exotic Loan Problems 'Inevitable': WSJ

2006-02-01T16:32:00.000-08:00

The Wall Street Journal reports on the 'exotic' loan business. "Oil prices are rising, economic growth slowing, housing sales faltering, consumers weakening and earnings outlooks dimming. So stock investors have, naturally, become more optimistic. Faith burns strongly that the Federal Reserve will manage the economy perfectly. Investors seem to believe that the power of the Fed resides in the title of 'chairman,' and that infallibility is passed to the holder, papal-like." "It's possible to see this whole phenomenon in the sunny climes of southern California, home to a modest bank called FirstFed Financial Corp., a Santa Monica bank with a $1 billion stock-market value. Its main business is option adjustable-rate mortgages. Option ARMs let customers choose how much to pay each month, including a small minimum. It's just like a credit card, with the same catch: The unpaid interest is tacked onto the mortgage and the balance grows larger." "The earnings that result from such loans are squishy. Even when a customer makes only the minimum payment, a bank books the full monthly payment into earnings. But these are noncash earnings. At FirstFed, such earnings are surging. Last week, it reported that the amount of interest that customers are rolling into their mortgage balances, known as 'negative amortization', rose $25 million in the fourth quarter to $63 million for the year, up from $6 million a year earlier." "Fully 51% of FirstFed's pretax income and 41% of its net interest income was from negative amortization in the fourth quarter. Investors are blithely ignoring the inevitable problems these banks will endure with their option-ARM customers. Just yesterday, mortgage giant Countrywide Financial Corp., another seller of option ARMs, reported rising delinquencies." "The banks all say that their losses on option-ARM mortgages long have been minimal. That's true. But the California housing market hasn't gone through a boom like it just went through." "Unlike Golden West, which is famously disciplined about its lending, FirstFed doesn't use its own housing appraisers. That should be a red flag to investors. Over 80% of FirstFed's recent loans have been 'low documentation' loans, meaning they required less confirmation about whether the customer was a good risk. Through the first nine months of last year, over 13% of its mortgages were NINAs, 'no income, no assets.'" "Analyst Fred Cannon notes that the number of customers who are prepaying their loans is rising. That is good for earnings in the short-term because the penalty fees from prepayments are high. But he figures that means savvy customers who are good credit risks are prepaying now rather than face higher rates in the future. He worries those who remain are doing so because they can't afford to do otherwise, making only the low-minimum payments." "That means that, just as earnings are starting to rise, these banks are likely to need to set aside more and more for mortgages that go bad."

'Soft Landing' In 'Changing Economic Environment'

2006-02-01T15:49:00.000-08:00

A Bay Area homebuilder reported after the bell. "Brookfield Homes Corporation today announced strong financial results for the year ended December 31, 2005. Housing revenue totaled $1,074 million, compared to $1,169 million in 2004. The decrease in housing revenue is primarily due to fewer units closed during the year compared to 2004, partially offset by an increase in the average selling price." "'We believe our markets will see a soft landing, characterized by a leveling off of home prices and deliveries. Having said that, we are well positioned to maintain our strong performance by proactively managing our operations through changing economic environments,' concluded Ian Cockwell, Brookfield Homes' President and CEO." "Lots Owned and Controlled: The company's lots owned or controlled at December 31, 2005 total 29,512, an increase of 6% from inventory levels at the end of 2004. The company has also targeted to close approximately 1,500 bulk lot sales during 2006." That's a nice trick. The number of lots is up 6%, but inventory is up from $680 million to $912 million over the past 12 months. "The company expects earnings per share to grow to between $7.60 and $8.20 in 2006, from $7.04 in 2005, an increase of up to 16%. Contributing factors to the positive earnings guidance (includes) the sale to other homebuilders of lots originally held through options." "Cash flow from operating activities was $60 million in 2005, and over the past two years the company generated a total of $224 million of operating cash flow." "The company purchased, at a price of $55.00 per share, 10% or 3,000,000 shares of its outstanding common stock through a tender offer which expired in the fourth quarter of 2005. In addition, under the share buyback program, Brookfield Homes purchased a further 707,500 shares or $34 million of its common stock at an average price of $47.84 during 2005." "Brookfield Homes Corporation engages in the design, construction, and marketing of single-family and multifamily homes. The company operates primarily in five markets, including San Francisco Bay area, Southland/Los Angeles, San Diego/Riverside, Sacramento, and the Washington D.C. area." Check out these price reductions in Virginia.

'Human Directionals' Called On In 'Competition'

2006-02-01T13:57:00.000-08:00

The Herald Tribune reports on the overbuilding in Florida. "One of the state's pre-eminent economists says what a lot of people have been saying: Southwest Florida can't sustain the pace of its housing industry growth." "'Over the past year we have seen an explosion of activity for new residential building permits,' Hank Fishkind said. 'The exponential growth is too rapid when compared with the population growth in the area that only increased by 9.7 percent in the last two years. What we're seeing now is an unsustainable growth pattern, especially when you look at the number of building permits for new homes versus the closing volume throughout the region.'" "While his comments derived from data that came out of Charlotte, Collier, DeSoto, Hendry and Lee counties, Fishkind echoes concerns that have been expressed by other economists about this part of the state in general." "Fishkind says there's a large gap between the number of permits being issued in Southwest Florida and the number of sales contracts that are being closed on single-family homes. Lee County, which includes Fort Myers and Cape Coral, might offer the best example." "In November, there was an 88 percent difference between the 587 single-family home sales that closed and the 1,104 building permits that were issued. In October the gap was even wider, 566 homes closed and 1,408 permits issued, a 217 percent differential." "The pattern in repeated in almost every other market in Southwest Florida, Fishkind said." That may explain this trend. "Sometimes called 'human directionals,' they are young, enthusiastic and a favorite advertising tool of condo converters. 'We had flags and signs and thought we were complying with the code. But the city of Miramar said it was a violation so we took them down,' Teresa Alvarez said. Although various businesses use them, competition in the condo market is forcing converters to find new ways of getting the word out to potential buyers." ""Virginia Bosch uses high school girls, all friends and relatives, to stand on the 17th Street Causeway and on Federal Highway in Fort Lauderdale. 'It's not like they're out there working for a stranger,' said Ernesto Del Monte, (who) is converting the Sea Breeze. People come in just because of the girls.'" "People like cosmetics distributor Sheila Ryan. 'I saw the girls with the signs and had some time. So I checked out the units, loved what I saw, went to get a cup of coffee and came back and put my money down,' she said." "'We pay them well, especially compared to McDonald's,' Mitch Dutia said."

'Cracks In The Armor' Of Subprime Players: CEO

2006-02-01T11:37:00.000-08:00

The LA Times has this report on infighting among subprime lenders. "Brutal competition in the shrinking home loan market has caused "irresponsible players" such as Ameriquest Capital Corp. and New Century Financial Corp. to spoil mortgage banking profits, the chairman of No. 1 home lender Countrywide Financial Corp. said Tuesday." "Announcing earnings that disappointed Wall Street, Countrywide founder Angelo R. Mozilo singled out the two Orange County-based competitors, blaming 'the Ameriquests and New Centuries of the world' for pricing loans too low in a bid to retain market share as business slows." "'I've been doing this for 53 years, and I've never seen that situation sustained,' Mozilo, 67, said. 'Eventually they gag on it.'" "Mozilo added that 'cracks in the armor' were beginning to appear, citing Ameriquest's recent decision to lay off 10% of its staff, or 1,500 people, at its Ameriquest Mortgage unit. On Tuesday, another Ameriquest company, Argent Mortgage Co., said it would shed 640 of its 4,000 employees, with layoffs spread across its California headquarters and regional centers in Illinois and New York." "Orange-based Ameriquest Capital and Irvine-based New Century are the largest 'sub-prime' lenders, specialists in higher-cost loans to people with poor credit or other financial issues. The prospects for sub-prime lenders are uncertain now that most people have already refinanced their homes in the last few years and short-term interest rates have risen sharply. Most sub-prime mortgage rates are adjustable." "'In 2006 you're probably going to see consolidation, people getting out of the business, the weaker ones folding, and that will all help us,' he said. Countrywide executives said that in addition to the sub-prime profit margin crunch, lending results suffered from several problems, including the nearly nonexistent 'spread' between short-term and long-term interest rates, which has driven lending profit margins down at many financial institutions. Pretax mortgage earnings dropped 80% for the quarter, from $517 million in 2004 to $102 million."

'Sellers Beginning To Get Real' In The Hamptons

2006-02-01T10:44:00.000-08:00

For news about the Hampton's housing bubble, Dan's Papers is all we can get. "Here on the East End, real estate has continued to be the hot topic of conversation. The threat of the market shifting causes as much a stir as multi-million dollar sales do. It has seemed for a long time that the sky was the limit. The East End (became) saturated with brokerages and agents. When the conglomerates moved in, more buyers with more money were attracted." "However, the market has begun to level off somewhat and buyers seem to be watching for what they believe to be the end of the ever-expanding real estate bubble." "Even anxious buyers I have talked to feel they may be wise to wait just a bit longer for the prices to fall lower. Area realtors seem to all agree that the market is flattening, but that it will remain strong and values will hold. They feel that drastic reductions will not occur anytime soon." "I hear people talking about prices dropping all around, but where? If you look at what is out there, there really are no drastic reductions. Although the listings are building up, the bottom certainly is not falling out. Prices are fairly similar, for the same size home and property with whatever amenities it may offer, to what they were saying back in the spring of last year." "The difference possibly is that the bidding frenzies have died down and overpricing has for the most part come to a halt. Sellers are beginning to get real." "The White House at the pond in East Hampton is holding steady at its $50 million mark. It has been on the market for almost a year now. The Church Estate in Montauk temporarily dropped its price a few months ago to $45 million and now is back up to its original $50 million price tag. It has been for sale for years. The mammoth Three Ponds Farm, with its jaw-dropping asking price of $70 million, is still available as well."

Speculators Burned In Colorado 'Concept'

2006-02-01T09:51:00.000-08:00

The Denver Business Journal reports on a real estate deal gone bad. "Real estate investors who signed contracts with Mile High Capital Group LLC are growing anxious about the prospects of getting their money back as the Englewood company reorganizes under the supervision of a bankruptcy court trustee. 'I'm getting by more on a prayer than a wing,' said Ron Hunt, a United Airlines flight attendant who invested $70,000 in five Mile High properties in addition to taking out $180,000 in construction loans on two Mile High projects." "Hunt, 52, bought the option to purchase Mile High duplex units in Grand Junction, Brighton, Cañon City, Colorado Springs and Kansas City. While his nearly completed Cañon City duplex is tied up in liens, Hunt said the remaining projects are far from completion." "Mile High, founded in 2000, told potential investors at real estate seminars around the country that it identifies and purchases tracts of land, develops subdivisions and sells plots to investor-owners. Once the developments were readied for construction, investors would take out real estate construction loans to build the actual units, which were mostly duplexes." "Earlier this week, the U.S. Trustee appointed Jay Smiley, a Denver-based attorney with experience in liquidation, to oversee the operation. Denver attorney James Faber, who's representing about 100 individual Mile High customers, hopes to persuade Smiley to authorize lawsuits against various Mile High-related entities and principals. In particular, Faber said his law firm is looking into recovering money that Mile High may have put into 1031 real estate exchanges. A 1031 exchange specifies that proceeds of land transactions can be reinvested as assets with no gain or loss recognized for tax purposes." "Shannon Kilkenny, who purchased a Mile High duplex in Milliken, said she considers herself lucky: She not only got an actual unit from the company, but a refund on a deposit she put down on Eagle Preserve, an undeveloped Mile High project in Brighton." "She attributes her good fortune to her acquaintance with one of the company's 'high-up guys.' Kilkenny, who lives in California, said rents on the unit are not covering her costs and that recently she received notice that one of several companies associated with Mile High, is going out of business and won't manage the property for her any longer." "Regardless of the difficulties, Kilkenny said she intends to hold onto the property for at least three years. 'I thought it was an innovative concept,' Kilkenny said about Mile High. 'If everything went as planned, it would have been a good deal.'"

Pending Home Sales, Borrowing Down

2006-02-01T08:08:00.000-08:00

The pending sales data is suggesting the housing boom is over. "Pending sales of U.S. homes dropped in December to the lowest point in almost two years, extending a months-long slide as the housing market shows signs of sustained cooling, a trade group said on Wednesday. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, stood at 116.4, down 3.0 percent from November and 5.5 percent below a year ago. December's level marked the lowest point for the index since February 2004, when it hit 111.6, the Realtors said. It also may indicate a decline in home sales for January and February. Long-term mortgage rates have once again started to climb, and earlier on Wednesday the Mortgage Bankers Association said mortgage applications fell for the first time in four weeks." "The PHSI in the South rose 2.3 percent in December to 135.9 and was 4.1 percent above December 2004. In the Northeast, the index increased 1.5 percent to 90.7 but was 11.1 percent below December 2004. The index in the West fell 8.1 percent to 117.1 in December and was 11.8 percent lower than a year ago. The index in the Midwest dropped 9.3 percent to a level of 105.8 and was 11.0 below December 2004." "David Lereah, NAR’s chief economist, said, 'We’re going through a period of adjustment. As home sellers recognize a return to more normal rates of price growth, some that have been holding out for higher prices will be more willing to negotiate terms that are acceptable to buyers but still provide them a solid return on their investment.'" "The popularity of home-equity loans and refinances is declining. Freddie Mac reports that as interest-rates rise, prime borrowers (those with the best credit) are taking out fewer cash-out refinances. For the first time since mid-1999, the total volume of revolving home-equity lines of credit also dropped this past fall." And from the Wall Street Journal. "Hoping to ride a new wave of profits as the mortgage boom winds down, lenders have changed course and are targeting borrowers with adjustable-rate mortgages and encouraging them to refinance into fixed-rate loans. The latest refinancing push comes as declining loan volume and increased competition is putting pressure on lenders' bottom lines." "They are trying 'to drum up that last little bit of business' as loan volume declines, says Amy Crews Cutts, deputy chief economist at the mortgage finance company Freddie Mac. 'They have too much time on their hands and too many employees sitting around.'"

Tampas' Condo Tower Still 'Speculation And Hype'

2006-02-01T06:58:00.000-08:00

The St. Petersburg Times reports on a questionable condo tower. "A year ago this month, billionaire developer Donald Trump swept into downtown Tampa touting a $220-million condo tower that at 52 stories would outstretch any skyscraper in the region. 'You'll be amazed how fast we go from here,' Patrick Sheppard, a local partner in what was being billed as Trump Tower Tampa, told the media at the time." "Today, to the casual eye, the 11/2-acre lot looks no more likely to sprout a luxury high-rise than it was a year ago. It's cleared, flattened, shrouded in construction fencing. Promises for a formal groundbreaking have been shoved back since early fall, along with the projected completion date, while the skyscraper's cost and price per condo have jumped. Some buyers, while captivated by the Trump mystique, hanker for explanations as delay succeeds delay." "'They haven't really said why it hasn't broken ground, and we don't know either,' said Alex Petro, a St. Petersburg chiropractor who has bought a $1.9-million, 12th-floor Trump penthouse. The condominium's charter cites a 2008 completion, but it's unclear what effect a postponed opening would have on developers' obligations to buyers." "Marvin Rose, who publishes a newsletter for residential developers, has been glum about a growing glut of condos in the Tampa Bay market. But Trump's project, whose high-end buyers aren't as hurt by higher interest rates, looks more promising, Rose said. 'Just the Trump name alone was just a brilliant marketing move,' Rose said. 'It really separated them from the crowd.'" "Less smitten is Warren Weathers, Hillsborough County's deputy property appraiser. He sees investors driving most condo sales. Until buyers emerge who want to live in the apartments, Weathers remains a skeptic. 'You've got to have an end user, not just speculation and hype,' Weathers said." "Roughly three-quarters of the 190 units have sold, developers said. Buyers plunked down nonrefundable deposits representing 20 percent of purchase prices ranging from $1-million to $6.2-million. Petro, the penthouse buyer, is watching and waiting, along with dozens of other buyers." "Some plan to live at what could be one of the region's most opulent addresses. Others, like Petro, are investors hoping Trump's brand generates big property appreciation. 'Will they finish? They'd better finish,' Petro said. 'They have a ton of money of ours.'"

Speculators 'Run Out' Of Bubble Markets, Into TX

2006-01-31T16:48:00.000-08:00

The Street.com reports that homebuilders are going where the speculators are. "Builders' recent order reports suggest that the Lone Star State is currently the brightest spot in the country's housing market. Housing sales are spiking in the four major Texas cities of Dallas, Houston, San Antonio, and Austin. The recent new order numbers at Centex, Meritage and Rylandwould've looked a lot worse if it weren't for strength in these cities." "In its most recent quarter, Meritage posted just 1% unit order growth. Orders were flat in Arizona, dropped 52% in California and fell 13% in Nevada. But orders jumped 22% in Texas." "Housing speculators, after being run out of Florida, California and Arizona, are already turning up in areas like Austin to flip properties for a quick buck. But speculators might be in for a big surprise, since Texas is far from land-constrained and artificial demand is not likely to have as big of an effect on housing prices in the state." One famous speculator has his eyes on Dallas. "Donald Trump declined to say much about his plans, but he predicted that a Texas version of his Trump Tower luxury hotel and condominiums would be a hit." "The question, however, is whether Trump is late to the party. Dallas is teeming with projects that will add several hundred luxury condominiums near downtown and the restaurant-laden West End. Developers of the landmark Stoneleigh Hotel say they'll build about 100 condos, and Perot plans another tower plus retail shops and restaurants." "At the W Hotel and Residences, they are still trying to sell about 30 of the 150 units, said Jonas Woods, president of Perot's Hillwood Capital. 'We definitely see the demand slowing,' Woods said. 'I'm worried about how much product is being talked about in Dallas.'" "Trump said during a brief telephone interview that he knows all about the city's condo boom and office space bust."

NYC Home Prices To Fall 10%: Bloomberg

2006-01-31T14:01:00.000-08:00

The city of New York released it's budget. "Mayor Michael R. Bloomberg today announced his Fiscal Year (FY) 2007 Preliminary Budget and presented an updated four-year financial plan for New York City. In the short term, New York’s budget is stable and strong. However, structural imbalance and large out-year budget gaps persist and not only threaten the City’s long-term solvency, but could force painful budget cuts and tax increases in the future." "For too long, New York City has not prepared for fiscal downturns and the ensuing budget problems they produce. We must seize this opportunity, marshal our current resources and work with our partners in government and labor to make the structural changes necessary to the City budget." "The City’s commercial occupancy rate is the highest in the nation. New York’s real estate market is expected to slow, however, with a 10% decline in home prices, a 14% decline in home sales over the next few years and a significant decline in real estate transaction taxes that have buoyed the City’s tax revenue in the last few fiscal years." "Despite the City’s strong economy and fiscal stability, significant risks exist in the out-years. Without long-term solutions to these recurring problems and structural shortfalls the City will be plagued by a continuous boom-bust cycle that invariably causes painful budget cuts and tax increases." "Extraordinary one-time resources, including increased real estate transaction taxes, the Personal Income Tax and delays in the City’s pension contributions have generated $3.5 billion in resources that will be used to reduce long-term costs to the City."

2006 Forecast 'Might Now Be Too Optimistic'

2006-01-31T13:49:00.000-08:00

The Greeley Tribune looks at the housing market in that area of Colorado. "Fewer homes sold in Windsor in 2005 than the year before, but average prices jumped 15 percent. The jump in housing costs worries Gary Haddock, a Windsor Town Board member and affordable-housing advocate. 'I'd love to see how many incomes increased by that much,' he said of the recent price spike. 'It just highlights the difference between our incomes and the cost of housing.'" "To buy a $300,000 home requires an annual income of at least $85,000 with $10,000 for a down payment, according to LoanWeb.com Haddock said 48 percent of Windsor households earn less than $50,000, and the town's average household income is $60,000. Most homes sold in Windsor last year fell in the $150,000-$300,000 (285 homes) and $300,000-$500,000 price ranges (212)." And one economist was in northern Colorado to perk up the troops. "The real estate market in Northern Colorado will mirror the national market, slowing down in 2006, but the industry here will still expand slightly as the state continues to see slight population influx, said David Lereah. 'The real estate boom is over. But as you've seen in Colorado, it's been a soft landing, not a crash,' said Lereah." "'It's not a real estate bubble, it's a balloon, and in Colorado, you've seen the air has come out with overbuilding on the market and with job losses.'" "Three risks facing the Northern Colorado market are overbuilding, drastic interest-rate increases and a simultaneous mass exodus of 'flippers,' or small-time investors putting properties on the market that they bought on speculation. The region also should be wary of a high percentage of homes purchased by buyers who didn't fully understand exactly how much variable-interest loans would increase after two or three years." "Though Mike Sutton in Fort Collins, agreed the real estate boom won't completely bust, he said home prices have leveled off recently. 'We do have a lot of supply (of available properties for sale on the market) right now,' Sutton said. 'We're experiencing what a lot of other markets may see in the near future.'" "The main message Sutton took away from the regional forecast? 'It's time to be careful, to be thoughtful and creative,' Sutton said." "Across the country, home sales declined 5.7 percent from November to a seasonally adjusted annual pace of 6.6 million, the slowest since March 2004, according to the NAR. 'I hadn't expected that for two or three months,' said David Lereah, chief economist for NAR, who conceded that his forecast for 2006 might now be too optimistic."

Will History 'Deal Kindly' With Greenspans Bubble?

2006-01-31T11:01:00.000-08:00

The FOMC interest rate decision is out. "The Federal Reserve nudged a key interest rate up to the highest level in nearly five years on Tuesday as Alan Greenspan brought his long tenure as Fed chairman to a close." "By holding interest rates down for so long after the stock market bubble burst in the late 1990s, Greenspan pumped up a housing bubble that allowed consumers to borrow against capital gains on their homes, spending more than they earned. Indeed, strong consumer spending has kept the U.S. economy rolling along when other nations continue to languish, but at the cost of a negative personal saving rate, a growing load of household debt and a mounting deficit." "In the unending search for increased profits, FF (Freddie Mac and Fannie Mae) undertook some financial innovation. They began bundling groups of mortgages together as mortgage-backed securities (MBS) on which they guaranteed, in case of default, to pay interest and principal 'fully and in a timely fashion.' And finally, to squeeze out even more profits, FF began taking 50% of their MBS holdings and pooling them once again into derivative instruments called Real Estate Mortgage Investment Conduits, i.e.'restructured MBS' or into what are called Collateralized Mortgage Obligations for which they are paid a fee." "These instruments are highly specialized derivatives, i.e. bets on the direction of future rates of interest. FF's profits went up even more but the risks associated with these actions became excessive!! Thus, what started out as a simple home mortgage, has been transmogrified in to something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on precisely these instruments as sources of funds." "Despite being delinquent on filing its annual financial statement with the SEC for almost a year, government-chartered mortgage backer Fannie Mae reported that it will not be delisted from the NYSE, at least, not yet. Fannie and Freddie are too big to fail; the repercussions on the housing market would be severe, perhaps taking down a number of financial institutions as well. That might very well create a spiral effect on the rest of the economy. Homeowners have tapped the equity in their homes to spur sales and fuel growth. If Fannie or Freddie go under, they might plunge the overall economy into a recession, or worse." "Would that lead to a massive taxpayer-financed bailout of Fannie and Freddie, like the S&L industry received in the 1980s? Perhaps not; the mortgages are not backed by the federal government, but Fannie and Freddie's congressional charters would suggest they are entitled to at least some protection. And the regulators will do all that's in their power to prevent such a collapse." "Alabama Republican Sen. Richard Shelby on Tuesday reiterated his concerns that those portfolios pose a risk, and said the investments do not help the companies fulfill their mission of supporting homeownership. 'The mission of the GSEs is important and that's why we created them,' he said. 'The risk is in the portfolio. It has nothing to do with providing money for housing.'" "Alan Greenspan, in comments made at a meeting of the Fed in Jackson Hole, Wyo., Greenspan had some choice words for investors. 'This vast increase in the market value of asset claims [read: real estate] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent..But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums."

Cancellations, 'Pricing Resistance' Hit DC Builder

2006-01-31T10:46:00.000-08:00

A Washington DC area homebuilder had some bad news for stockholders this morning. "Shares of Comstock Homebuilding Cos. were off nearly 10% in afternoon trading Tuesday after the company reduced its profit outlook and reported disappointing order growth. Soaring home prices in the company's Washington, D.C. market during the past few years has sparked 'pricing resistance which negatively impacted new order rates in the region in the fourth quarter.'" "Rising cancellations in many parts of the country also hit order activity, Comstock added. Comstock said it would write down some of its inventory in the Raleigh, N.C., market. The small-cap builder, which mainly constructs new houses and town homes in Washington, D.C., and North Carolina." "It's not clear if the writedown is for communities open for sale or simply owned land on the company's books. 'The rate of home price appreciation in the Washington, D.C., market during the past few years led to pricing resistance which negatively impacted new order rates in the region in the fourth quarter,' Christopher Clemente, the company's CEO, said." "Clemente also said that cancellations by buyers who were looking for houses as investments hurt results." "'We believe the strong demand caused by the tremendous job growth in the Washington, D.C., area, the absence of investors from the market, and a slower, more sustainable rate of appreciation, will lead to better balance in the market,' Clemente said."

Arizona Policy 'Favors Abstraction' Over Citizens

2006-01-31T09:02:00.000-08:00

The Arizona press looks at the dead end that is the housing bubble. "Soaring home values make it possible for many in Arizona and nationally to feel as though they've got plenty saved up even as the national savings rate for 2005 was reported at negative 0.5 percent. That's the lowest level since 1933, in the heart of the Great Depression. Certainly, more consumers are seeing their homes as their savings, economists said. But placing too much 'saving' inside the home and pulling out cash as needs arise are unwise, Mike Sullivan, director of education for (a) credit-counseling agency said." "'At some point. you are going to want to retire and not have any house payment,' he said." "Wells Fargo senior economist Scott Anderson, said he is monitoring the savings rate closely. 'So long as the banks continue to lend to consumers, it's not going to be a problem,' he said. Easy credit is why consumers don't save in a traditional way, Sullivan said. 'You don't have to save anymore, and you don't have to delay purchases,' he said. 'Everybody just buys want they want and have stopped saving. Frankly, people are weak,' Sullivan said. 'If you can get something now, why wait?'" "Traffic keeps getting worse, and it's not just because of light-rail construction. It's impossible to pave our way out of the problem. What's interesting is the one industry that manages to avoid any role in a solution: house builders. And everybody from economists to cab drivers keeps saying, 'People will come here no matter what.' So they'll accept higher prices for decent transportation, no?" "But with the political clout of the housing industry, it will never happen. So policy continues to favor the abstraction of people who will come here over those who actually live here. Foreshadowing: A parcel in Phoenix's Desert Ridge sold for $1 million an acre. Will that be seen as a baseline for the future or an artifact from just before the bubble burst?" "Buckeye issued a mere 77 building permits in 2000 for single-family homes. Compare that with this year's anticipated 9,600. As metro Phoenix has sprawled over the years, retail has followed rooftops. Major employment centers, however, haven't made the jump for the most part, RL Brown said." "That creates a situation where workers must commute increasing distances for employment. The large swaths of available land in the southwest Valley and in Pinal County are the drive behind such robust growth, said Jay Butler, at Arizona State University. 'This is the big growth area,' Butler said. 'They have room for development.' What could soften the growth? Three bucks for a gallon of gas, Butler said." "Gilbert Town officials brushed aside concerns a 40-percent decline last year in building permit applications will negatively impact the town's economy. System development fees in Gilbert average $13,400 per home. Tony Hyland, a business owner in Gilbert and former president of the Gilbert Chamber of Commerce, cautions placing too much emphasis on revenue from retail sales." "'Gilbert has been living of the fat off the land over the last ten years due to explosive residential growth,' he said. 'Sales tax is controlled by the economy. Any community that relies on sales tax revenues is making a big mistake. The economy is fluctuating. I don't think the town anticipated a $26 million loss in revenues from residential system development fees in 2005,' Hyland said." "Mr. Hyland said the drop in residential building permits is a sign people are looking elsewhere to move and build homes. 'My gut feeling is people are looking for less expensive homes and less crowded communities to move into,' he said. Gilbert Director of Economic Development Greg Tilque said despite home prices increasing for homes in Gilbert, the town is still growing. 'Keep in mind, we still have 3,000 homes being built,' he said." "Gilbert Mayor Steve Berman said Gilbert's retail sales tax revenues will make up for the decline in development impact fees. He acknowledged Gilbert's housing market is slowing down. 'There's not a lot anybody can do about it," he said. "We are shifting our focus from residential to retail. It's one of those things. Sooner or later we are going to run out of room. All this is going to do is slow the train down long enough to count the cars.'"

Studies Find Condo 'Glut' In DC Area: WP

2006-01-31T06:24:00.000-08:00

The Washington Post reports on the oversupply of condos. "The Washington area housing market has softened but is still in relatively decent shape except for what appears to be a glut of condos. Kenneth Wenhold predicted in an interview that so many condos are under construction or planned, particularly in Arlington and Fairfax counties, that 'there is a very significant problem' of overbuilding and the potential for projects to go bust." "Arlington and Fairfax have 14,156 units under construction and almost 28,000 planned or proposed, Wenhold said. 'But in the same area, last year we only sold 4,001 condos.' In 14 counties in Maryland, including those around the District and Baltimore, Wenhold said, 3,901 condo units are under construction." "Cities with the greatest risk of a hard landing, those with a lot of condo production and conversion, high levels of speculator activity and modest levels of job growth, are Las Vegas, Miami and Phoenix." "MetroStudy's fourth-quarter analysis of the area said listings of all types of housing for sale have doubled since July and new-home inventory for sale has jumped from 6.6 months of supply to 12.2 months. But much of that jump is due to the flood of condos. 'If you remove the thousands of condominium units that are being built in Arlington County, Va., housing inventories drop to a much more reasonable 7.6 month supply.'"

'Who's Next' In Crumbling Home Loan Business?

2006-01-31T06:19:00.000-08:00

Countrywide Financial missed its earnings target. "Countrywide's fourth-quarter earnings rose 73% from last year but missed estimates, as the company grappled with a tough secondary market for mortgages. Loan production had $102 million in pretax earnings in the quarter, down from $517 million a year ago. The decrease reflected a reduction in the profitability of mortgages and mortgage bonds sold in the secondary market." "'The primary cause of the decline was a lower gain on sale driven by front-end competitive pricing pressure and weaker secondary market conditions, as well as a 10-basis-point decrease in warehouse spread driven by a flattening yield curve. Normally, declining warehouse spreads caused by a flatter yield curve would likely be mitigated by an accompanying increase in gains on sale, but in the fourth quarter this was hindered by pricing pressure and weak secondary market conditions,' Countrywide said." "The company said its interest income for the quarter jumped 92% from year-earlier levels, but interest expense more than doubled." And the LA Times has this report on subprime lenders. "Ameriquest Mortgage Co.'s agreement last week to pay $325 million and reform its operations could turn out to be the first in a series of regulatory actions targeting mortgage companies specializing in credit-strapped borrowers. 'We're constantly talking about who is next,' said Chuck Cross, a leading investigator on behalf of 49 states and the District of Columbia in the case against Orange-based Ameriquest." "Federal Trade Commission officials confirmed that they have several open investigations of sub-prime companies but declined to provide details. Wall Street firm Bear, Stearns & Co. disclosed last month that its loan-servicing unit EMC Mortgage Corp., which collects bills and buys loans from sub-prime lenders, had handed over data and documents to the FTC. In a regulatory filing, Bear Stearns said the FTC was probing 'various unnamed sub-prime lenders, loan servicers and loan brokers' for possible violations of consumer protection laws." "Iowa Atty. Gen. Tom Miller suggested that it might soon be time to look at another part of the sub-prime industry, the so-called wholesale lenders that rely on independent mortgage brokers to generate loans for them. 'The retail side was clearly the more important place to focus,' he said. 'But at some point we want to take a look at the wholesale operations.'" "Kathleen Keest, a former assistant attorney general in Iowa, said, sub-prime lenders' aggressive marketing has persuaded many homeowners to refinance so frequently they have no equity left to tap or their incomes can't keep up with rising monthly payments. To overcome these impediments, she said, lenders have turned to shady tactics to keep the loans rolling in, not only exaggerating appraisals and borrowers' incomes but also pushing 'interest-only' mortgages and other products that disguise homeowners' less-than-flush finances. 'As long there's pressure to grow and the market's saturated, they'll do it whatever way they can,' Keest said. 'If they can't do it honestly, they'll do it dishonestly.'" "William Brennan, director of the Atlanta Legal Aid Society's Home Defense Program, says his office sees a stream of elderly widows whose Social Security incomes have been padded, on paper, by made-up jobs. And 55% of appraisers nationwide say they have been pressured to overstate home values, according to a 2003 survey." "Doug Duncan, the Mortgage Bankers Assn.'s chief economist, said that if large numbers of the loans were based on overstated home values or faked incomes, investors' profits would suffer and the investors would punish the offending lender by redirecting their capital toward other lenders. 'The market isn't perfect,' Duncan said. 'But it is efficient.'"

Taking The Ride In The Housing Bubble Boat

2006-01-30T15:37:00.000-08:00

More reports on the housing bubble in California. "About one in every 75 residents in the state holds a license to transact sales, according to the California Department of Real Estate. As of November, the total was 471,818 licensed professionals, historically, the average is roughly 300,000, and that tally is believed to have approached 500,000 already this year. 'This is the highest number ever,' confirms Tom Pool of the Depart. of Real Estate. 'Every month we're setting a new record.'" "An increase in interest rates, however, is expected to drive down sales volume in California by about 2 percent this year, according to CAR. 'We are anticipating a shakeout in the industry in the next few years,' says C.A.R. economist Leslie Appleton-Young. 'There just aren't enough homes to sell in California.'" From the LA Times. "David Yates didn't know whether he'd buy this particular boat, which had a list price of $21,000, but he was pretty sure of one thing: He wouldn't be at the Los Angeles Boat Show if not for the housing market. 'We couldn't have afforded to come here before, but now that my house has doubled in value, we have an opportunity to take out a second mortgage,' said the 48-year-old Burbank resident, who is a manager for a cabinet manufacturer. 'At least we're in reach of being able to buy a boat.'" "Though some economists worry that too many people are overextending themselves, the boating industry considers itself lucky that business is humming despite high gasoline prices. 'A lot of people are taking money out of their homes and buying different things, and one of them, fortunately, is boats,' said Dave Geoffroy, executive director of the marine association." "To be sure, some dealers worry that boat sales could fall if real estate values drop, which happened in the early 1990s. 'I'm moderately concerned,' said Michael Basso Jr., (who) sells family boats and has locations in Castaic, Dana Point and Ontario. He noted that half his buyers last year paid in cash, often from money they pulled out of their homes." From the Alameda Times Star. "Inventory has generally increased in the Bay Area from a year ago. Fueled by rising interest rates and more homes on the market, the slowdown in home sales started last spring. The slide has continued for nine months, with December sales down 15.5 percent from a year earlier." "'What I'm finding now is (buyers and sellers) have to take a much closer look at the dynamics and psychology of the local market than during 2003 and 2004 (and early 2005). That's when sellers held the cards,' said Steve Dhillon, a realtor in Fremont. 'There is definitely more negotiation. The buyers don't see the urgency. Pricing has to be very competitive. Now you have to pull out additional things like staging a home.'" "'Buyers are looking for a deal. It does not necessarily mean there are any deals out there,' (agent) David Kerr said." ""A year ago, Cynathya Mouton wouldn't have thought about putting her Union City house on the market, a time when the market was soaring. Now, she is. The reason she is considering selling: The red-hot real estate market of a year ago is cooling off." "'Timing is a factor," said Mouton, 39, who paid $220,000 for her four-bedroom home in 1996. 'I think (the market) has reached its peak. I've taken the ride. I'd like to take what I have. I'm a little bit nervous about what can happen in the next few months.'"

'Modest Price Declines Nothing To Be Alarmed At'

2006-01-30T12:42:00.000-08:00

Inman News reports on two big bubble markets. "Home sales across Virginia and Massachusetts dropped in December from their year-ago levels, while prices continued to increase, according to the Realtor associations in both states. In Virginia, 10,565 transactions closed in December, a 10 percent dip from last December. Massachusetts, single-family home sales dropped 8.8 percent in December from a year ago, marking the fourth straight month of declines." "Virginia's median existing-home price for December was $180,260, up 6.2 percent from $169,725 for 2004." Uh huh, but checking the Virginia realtors site, one can look up November 2005 and see the median was $197,213. On to Florida. "Some recent dips in condo prices are nothing to fear, said broker Pam Hoffpauer of Martha A. Gottfried. 'It's not uncommon to have price changes at this time of year. Historically, it's nothing to be alarmed at,' she said. 'Some people may have overpriced their property. Hopefully, they are adjusting them.'" "Among other recent price changes in condos: a unit at Chilean Ave., down from $895,000 to $845,000; Chilean Ave., $975,000 to $895,000; Palm Beach Towers at Cocoanut Row, $1.49 million down to $1.29 million, $575,000 down to $525,000, and $529,000 to $495,000. At S. Ocean Blvd., seller Richard Colardo paid $599,000 for a 2,131-square-foot three-bedroom unit in June 2004. He recently dropped his asking price from $1.39 million to $1.29 million." The Baltimore Business Journal. "The Residences in Federal Hill is advertising $10,000-$15,000 toward closing costs, a five-year phase-in on real estate taxes and historic tax credits. PierSide at HarborView off Key Highway is offering 'special pricing for a very limited time' on its waterfront condominiums. And until the end of this month, the Revels at W. Madison St. will contribute $10,000 toward closing costs on its 'luxury units.'" "Tempting incentives and modest price breaks on condominiums are cropping up throughout downtown Baltimore and in the surrounding neighborhoods. And with more than 2,700 condominiums in the pipeline, some wonder whether demand is deep enough to fill all of those units without significantly slashing prices or doling out incentives. Yet with investors pulling out of the market, the days of the million-dollar asking prices on average units may have ended." And the Connecticut Post. "After causing an explosion in prices in communities like Milford, the recent housing boom has grown much quieter these days, real estate professionals across the region say. That boom may soon be a distant echo as a buyer's market, recently unthinkable, becomes a possibility after an absence of more than three years. 'There is more inventory on the market, and we expect prices to come down this year," said Wendy Weir, an agent in Milford. 'We're seeing listings expire without being sold and relistings. It will become a buyer's market.'" "The housing market is also slowing in Fairfield and in the Valley, though less dramatically, agents there said. 'The scuttlebutt in our office is that last fall was as slow as the one after 9-11,' Weir said." "Many factors are contributing to the leveling-off of the market, the agents said. In the Valley, supply is exceeding demand, especially for higher-priced homes. Milford spent years being a relative value, especially compared to its pricier Fairfield County neighbors, mortgage broker Peter Spaltoff said. The slowdown may just mean that the imbalance has been addressed. 'One of the Villa Rosa Cottages was on the market for $2.2 million and finally sold for $1.7 million,' he said." "Kathy Alagno, president of the Milford Chamber of Commerce, agreed with Spaltoff that house prices in the city are leveling off because they are now appropriately priced instead of being bargains. 'We prefer to think of it as a correction, instead of as a bubble bursting,' she said."

'The Downward Side' Of Mortgage Lending

2006-01-30T10:37:00.000-08:00

A trio of reports provide an update on the home loan business. "ABN Amro Holding NV, the largest Dutch bank, may say fourth-quarter profit dropped as earnings from the U.S. declined and provisions for risky loans increased. 'The U.S. business is a risk,' said Patrick Leclerc. 'ABN Amro, like other commercial and retail banks in the U.S., is suffering from a flattening yield curve.'" "Paul Muolo writes at the NMN. "Here's how the big layoff went down at Aurora Loan Services last Wednesday: the 'suits' at Lehman Brothers arrived from New York that morning and the top brass at ALS were all dressed in suits and ties. (Normally it's a casual atmosphere at the Denver company.) A source familiar with the matter said 200 workers were let go. The alt-A giant also plans to wind down its Irvine, Calif., office over the next 90 days, resulting in another 100 or so job losses. Lehman would not comment for the record but a source familiar with the matter confirmed there were layoffs, blaming the cuts on reduced production volumes in the industry and the 'downward side of the mortgage cycle.'" "The MBA gave its members some really bad news last week. The trade group predicted that the yield curve, the difference between short and long-term rates, will be relatively flat the next two years. The forecast comes amid poor earnings reports (because of tight margins) and signs that a handful of midsized firms are heading for the exits. In the year ahead consolidation could eliminate scores of firms. In case you missed it: American Mortgage Network the San Diego-based wholesaler better known as AmNet, has officially exited the subprime business." And the Seattle Times reports on the reaction to the Ameriquest settlement in Washington. "State leaders say a settlement with Ameriquest Mortgage is an efficient solution that guarantees thousands of Washington homeowners will get some restitution money. But several local attorneys and a former senior assistant attorney general say the terms of the settlement in the predatory-lending case mean consumers may get much less than they deserve." "The states' investigation found that Ameriquest overvalued homes in appraisals and made up employment and income information to allow more people to qualify for loans. That's what Kelly Post of Auburn said happened to her. In May 2003, when she went to refinance, her husband was dying of Lou Gehrig's disease. Post said the Ameriquest lender pressured her to lie about her income and say she made $3,500 a month as a home caregiver. She agreed, even though the family made only about $1,100 a month from welfare and federal disability." "Post used some of the cash in the $139,000 refinancing loan to take her husband and two children on a final family vacation. They returned home to payments that were higher than promised, she said, and quickly fell behind. 'The guy seemed so nice and stuff when we did the refinance, and then it seemed like he didn't want to work with me at all afterwards,' she said." "Seattle attorney Melissa Huelsman has several clients who are suing Ameriquest. She won't recommend that they take the state's settlement. 'There's very serious problems with the AGs giving away essentially the whole farm in return for what we all agree is a very small sum of money,' Huelsman said. The settlement does nothing to get borrowers out of the loan terms they agreed to. It does, however, allow Ameriquest customers to use evidence of predatory lending to try to stop a foreclosure."

'The Unthinkable Has Happened' In Florida

2006-01-30T09:13:00.000-08:00

Mike Thomas at the Orlando Sentinel sees a dire outlook if one market tanks. "Baldwin Park has been ground zero in the real-estate boom, the Promised Land of six-figure flipping profits. And since Baldwin Park is simply a souped-up microcosm of what is going on across Central Florida, it's a question that affects real estate across the region. As goes Baldwin Park, so go all of us." "That said, here are figures from the Property Appraiser's Office and real-estate listings: A house bought for $279,200 last March is on the market for $499,500. A townhouse bought in October for $337,700 is on the market for $445,000. A house bought in October for $403,000 is on the market for $670,000. I actually found a comparable house from a builder in a better location for about $60,000 less." "Baldwin investors have developed a sense of entitlement to fast, huge profits. But now those prices have caused a backlog of inventory. There are about 90 listings on the market, and many have sat there for months. The unthinkable has happened. Baldwin Park has become a buyer's market. And so for investors, the waiting game has begun. How long will they hold out for top dollar when faced with growing costs to hang onto their property?" "Baldwin Park owners face a variety of fees to cover maintenance, infrastructure costs and homeowner-association fees. Condo and town-house owners also pay a service-area fee. Consider someone who paid $330,000 for a town house, hoping for a quick flip. The various fees amount to about $5,000 per year. He faces another $3,000 or so in property taxes. Throw in a $300,000 mortgage, and the monthly tab comes to about $2,400." "So every month, these investors will be making payments, holding out for prices that are based on a real-estate frenzy that may no longer exist. If the market outlook dims, they do the math on what it costs to hold the asset versus the expected return of doing so. The kind of market forces I am talking about are in play across the region. They may well cause painful price declines in other developments or areas that have been subjected to heavy speculation." "Baldwin Park, however, is a premier place. If you live there, your investment is as bulletproof as real estate can be. If Baldwin Park takes a dive, we are all doomed. That will mean the Great Depression II is here. But we might see some froth settle as speculators are weeded out. Even if that does happen, I still couldn't afford the place."

'Builders Speculative As Demand Wanes': BW

2006-01-30T08:21:00.000-08:00

The financial media is reporting on the housing bubble this morning. " Michael Youngblood, of Friedman, Billings, Ramsey Group Inc., has been tracking the U.S. home market for several years and forecasts steep declines in housing prices if the economy recedes over the next year. 'We expect median existing home prices to fall over 18 quarters by an average of 19.9 percent, ranging from 49.3 percent (Los Angeles) to 0.3 percent (Port St. Lucie),' he wrote in a recent report about what would happen to the most torrid markets during a sustained slowdown." "Youngblood says he's identified pricing bubbles in 69 markets that include New York City and Nassau County, New York; Washington, D.C.; all of the urban areas in Nevada; 27 of 28 areas in California and 11 inland ones. He estimates that prices would fall by an average of 25 percent in these markets if a contraction persists for one to four years. He defines a bubble as a huge disparity in home prices relative to per-capita personal income in each market." "If the market is slowing, as these reports suggest, buying for investment may be a bad idea unless you go bargain shopping in some of the most sluggish markets, which are generally not to be found on either coast. Selling properties you own might be wise if you need to take a profit or avoid a loss in case the bubble-prone markets deflate." And Business Week. "It appears builders are becoming more speculative as demand is set to wane. During the second half of 2005, the supply of new single-family houses available for sale has been growing at the fastest pace since the mid-1980s. The surge in supply has corresponded with a gradual slowdown in sales and, until December, little adjustment in housing starts." "Today's situation stands in contrast to the brief slowdown in late 2003 when a bump in long-term interest rates dampened homebuying. Inventories rose, but remained at relatively low levels. In 2003, 'it was safe to say that homebuilders had entirely avoided the temptations of speculative building,' says economist Chris Low. 'That is no longer true today.'" "Making matters worse for homebuilders is a surge in the number of existing homes for sale, up 20.6% from a year ago. As the housing market plateaus, speculative activity will evaporate. That's when housing should slow noticeably. Home sales could post the biggest annual decline since the 6.3% fall in 1991. At that point, builders will scramble to stop projects, and the big gains in construction hiring that have helped to drive the jobless rate lower could start to reverse."

Massachusetts Defaults At 12 Year High

2006-01-30T06:12:00.000-08:00

Kimberly Blanton at the Boston Globe has this update on the housing bubble. "The number of foreclosure notices filed against Massachusetts homeowners last year reached their highest level since the housing bust of the early 1990s, as homeowners fell behind on their mortgages and lenders began the process of taking back the properties." "Paradoxically, the sudden halt to sharply rising home prices put a squeeze on many borrowers. Homeowners were less able to refinance their loans at more attractive rates, or sell and pay off their debts, because the value of their homes fell or remained flat." "'There's an epidemic of foreclosures,' said Boston lawyer Gary Klein, who represents borrowers in lawsuits against lenders. 'We're getting a steady stream of referrals of people who are looking for any option to save their home.'" "The biggest spikes last year occurred in Essex County, north of Boston (up 48 percent), Barnstable County on Cape Cod (47 percent), Suffolk County (45 percent), and Bristol County (44 percent). 'People can't pay their mortgage,' said Juan Ortega, a real estate agent in Lawrence in Essex County. 'They're up to the top. They bought very high, and now they can't make the mortgages.'" "In the winter of 2004, Susan Chamberlain lost her part-time job as an IRS tax examiner. She recently was rehired, full time, but that earlier layoff precipitated a November foreclosure filing. She and her husband initially purchased their Lawrence home for $158,000 in the spring of 2001 with US Veterans Affairs financing. In December 2002, they refinanced and withdrew some money to pay off a car and some bills, bringing their mortgage debt to $206,000." "The interest rate on the new mortgage was variable, initially averaging 9 percent but rising since then. With the Veterans Affairs loan, the Chamberlains paid $1,200 a month on their mortgage; their current monthly payment is $1,900." "In the Boston area, house prices are so high, Klein said, that mortgages consume a growing share of monthly take-home pay. 'It used to be, if you lost a job you'd be at risk of losing the house,' he said. 'Now, if you lose overtime, many families are so close to the brink, and that can create problems.'"

Santa Barbara Realtors 'Refuse' To Share Data

2006-01-29T18:37:00.000-08:00

The Santa Barbara News Press ran this report on area home sales. "Home sales across most of Santa Barbara County fell last month, but median prices appear to be holding steady. On the South Coast, which has ranked as the most overpriced home market in the nation this year by at least two research firms, resales for single-family homes were flat in December compared with a year ago, according to data reported to the Santa Barbara MLS. For all of 2005, sales dropped more than 12 percent." "Since hitting a high of nearly $1.48 million last September, the South Coast median price has retreated and hovered around $1.25 million in the past three months." The paper dropped this little bombshell in the fourth paragraph. "Over the past several years, the News-Press has obtained sales and median price data for the South Coast from the Santa Barbara Association of Realtors. The group recently told the News-Press that it now refuses to make this data available to the newsroom. Other associations of Realtors across the county willingly continue to share sales and price information with the paper."

'Speculators Out Of The Equation' In Coastal Florida

2006-01-29T16:26:00.000-08:00

The Tallahasee Democrat has this update on coastal Florida. "Lenny Kopple of Tallahassee owns a lot in Franklin County but he doesn't plan to move there. He hopes to sell a new home lot along the golf course in the St. James Bay development for $219,000 after buying it two years ago for around $150,000. But he's received only a couple of calls since putting it up for sale last fall." "Some real estate agents and analysts say that coastal land sales in Florida are beginning to slow down. But Kopple says he's not worried about the potential of a real estate bubble bursting. 'There are too many people doing these things (investing in real estate),' Kopple said. 'To me, it's a lot safer than the stock market.'" "Concerns about hurricanes, insurance costs and high land prices are being blamed for the slowdown. But no one seems to be predicting a loss of property values, only a slowdown in price increases. 'I think anybody (who) is willing to sit with it a reasonable period of time will come out OK, if they didn't buy at the absolute peak of the market,' said Lewis Goodkin, a real estate analyst based in Miami. 'Right now, I consider that we are at the peak of the market, or close to it.'" "'I think most of it has plateaued right now,' (broker) Larry Hale on St. George Island. said. 'For a speculator to come in and buy a piece of property and hold it six months to a year and expect a major gain on it, it's just not going to happen.' The St. Joe Co. also has put a tremendous amount of property on the market, Hale said, 'So people have a choice.'" "When it comes to lots, there's plenty of choice in the nearby St. James Bay subdivision because of owners who are trying to resell. The development has sold 75 percent of its planned 417 single-family home lots. But in the community this month, at least 60 lots were for sale, including many for resale." "Ten homes within the development had been completed in January, said Bob Klein, general manager of St. James Bay. Two 12-unit condominium buildings are expected to be completed this month. Klein said the number of lots being resold in the development is typical of resort properties, which have cycles of buying and reselling as they are developed. 'Once the prices reach a certain level, it levels off,' he said. 'And it has leveled off.'" "Bennett Axelrod bought two lots in St. James Bay four years ago for less than $100,000 each. Now he's offering them for sale in the mid-$200,000s. Even though Hurricane Dennis may have discouraged some potential buyers, Axelrod said he hopes the market will pick up again in the spring. 'There is a lot more property for sale than there has been in the past,' he said. 'People who got in at the ground level in St. James Bay, like myself, and have a greater profit potential are looking to get out now.," "Meanwhile, hundreds of condominiums are planned or are under construction about six miles away in Carrabelle, fueling more talk about real estate speculation in the area." "Richard Parvey said his company is considering launching a new development on 372 acres near St. James Bay. Even if there is a slowdown in the market, he said, land in the area still is underpriced compared to other parts of Florida. 'I don't want to say the bubble has burst,' he said. 'But I think the speculators are now out of the equation to a certain extent.'"

'Nobody Knows' If There Will Be Panic Selling: CA

2006-01-29T13:17:00.000-08:00

Reports from California show the precarious nature of that states' housing bubble. "It's unclear what lies ahead for housing, which is a state of flux. Residential permits statewide were down 2.7 percent last year. In San Diego County, permit activity dropped 12.2 percent. Among the bigger cities in the county, San Diego and Oceanside were off more than 6 percent. Chula Vista was down 51.1 percent." "University of San Diego economist Alan Gin predicted that fewer homes permitted in the state means that the 6.8 percent increase in California construction jobs last year will not be equaled. 'That's a worry,' he said. 'Construction has been a big job producer. We added 7,200 (San Diego construction) jobs in 2004 and probably over 5,000 in 2005.' A bigger jobs hit is probably among real estate agents, mortgage brokers and other workers in housing services, he said: 'I think there will be a shakeout in that industry.'" "UCSD economist Ross Starr said the wild card in the local housing market is the financial health of recent home buyers who took out adjustable-rate mortgages with monthly payments set to rise substantially. 'The question is will there be some panic selling by buyers who bought during 2002-2003 and can't afford to hold on,' Starr said. 'The answer is nobody really knows the answer to that question.'" "The December median home sales price in the Coachella Valley was $390,000, down slightly from the record $400,000 posted in November. Experts say the valley is in no immediate danger of dealing with a foreclosure crisis, as local prices continue to appreciate even as unsold resale inventory rises." "Buyers have relied increasingly on nontraditional loans to be able to buy into the local market amid plunging affordability. The loans have helped many, including investors like Danielle Galland of Desert Hot Springs. She bought a home in that city recently with an interest-only loan with payments scheduled to jump in two years. 'The payments are scheduled to go up in two years, but I plan to sell before then,' she said." "One red flag is that the valley's notices of default, sent by lending institutions when payments are overdue, totaled 816 in 2005. That was up 29 percent from the 632 notices seen in 2004, and reversed a three-year trend of declines." "Longtime valley banker William Powers said while his bank does not offer them, many valley buyers have been able to save on their monthly payments initially by opting for non-traditional loan packages. The upside is that it allowed many more people to purchase homes than would otherwise have been possible. The downside is that when their introductory rates convert to adjustable, some will find that they really weren't able to afford their properties long term." "The reason: They've already spent their monthly-payment savings on other items, like cars, big-screen TVs and upscale furnishings. If those owners find themselves with default or foreclosure notices, and home values aren't rising as they are today, some may unload their homes at a loss or below-market value to pay off their loans. That could put a drag on the selling prices of non-distressed homes in the same neighborhoods." "'As a homeowner, that wouldn't make me very happy,' Powers said." "As an indicator of what could be at stake nationally, there is currently between $1.5 trillion and $2 trillion tied up in what are known as interest-only loans. Currently, interest-only loans are more popular in the inland Riverside-San Bernardino metro area, which includes the valley, than in California and the nation. 39.3 percent of all inland home loans were interest-only in 2005, up from just 3.7 percent in 2000." "The California percentage was 34.3 (up from 1.4 percent). The national percentage was 24 percent (up from 1.1 percent). According to recent figures from the California Association of Realtors, only 10 percent of valley households can afford to purchase the median-priced valley home based on working income." "'Our house is almost paid off, and we’re on a fixed-rate loan. We want to sell the house eventually and retire, but where? Not in California,' said Colleen Bliss, (a) Calimesa resident visiting Palm Springs."

'Accelerants And Value Killers' For The Bubble

2006-01-29T10:23:00.000-08:00

A reader is interested in conditions that might speed up the housing bubbles demise. "I would echo the topic suggestion from last weekend, (that) wanted to discuss 'accelerants and value killers' in a downturn and the current request, 'a thread covering the difference between high end homes' and low end homes' experience in a bursting bubble." "What role, if any, does zoning play? For example, contrary to popular belief San Diego, still has many underdeveloped lots in central areas (lots with single family or duplex that are zoned for 4-8 units). Many of these were flipped during the bubble but with cosmetic improvements only (no further development). With a glut of inventory what role does the possibility of further development play?" "I am also interested in regards to the competition in a downtown market btw re-sales and new homes. I understand how intuitivelly a new home is more appealing and a buyer can be easily seduced from all the shiny new appliances, high ceilings, etc vs. a home that has already depreciated and more prone to needing repair $ in the short term. However, in SD for example, newer homes tend to be the McMansion style (smaller lot, two stories and longer commute to job centers) and there is an abundance of poor construction practices (some stories have hit the mass media)." This is the high/low end topic. "I would like to see a thread covering the difference between high end homes' and low end homes' experience in a bursting bubble. Snippets of evidence on this include the McCain story, and a couple of months ago, the story in the SD Union Tribune about how Randy Cunningham had difficulty unloading his Rancho Santa Fe home." "Note the beginning of the early 90s bust in the LA basin. The ice sheet which spread across the market clearly started out in the wealthy coastal areas and moved inland over time. Initially, buyers were still driving prices into the sky in San Bernardino." "Is the same pattern repeating itself now? It is hard to say, as it seems like sales of homes at the high end have just dried up entirely." Another added, "I think the key will be employment. As long as people have their jobs and they are making the same or more money they may be able to struggle with their mortgage payments if adjustable rates don't move." "A recession in the early 90's plus an aerospace downturn hit Southern California hard from 1989-1995. Some properties took a few years after that to recover their prices, as they were down by as much as 2/3 from their peaks." "If the income rug gets yanked out from underneath, demand could dry up overnight and the need to sell will accelerate."

'Less Ka-Ching' In Home Equity 'Piggy Bank'

2006-01-29T09:01:00.000-08:00

The Pioneer Press has a report on the bursting home equity bubble. "The signs are as subtle as quartz countertops versus expensive granite, but the red-hot home-equity cash machine that for years has boosted household spending is beginning to slow. Mortgage professionals and even a few remodelers around the Twin Cities are beginning to feel the gears shift as rising interest rates and cooling home prices make it less attractive for homeowners to borrow against the house to pay off bills, build the big addition or book a room in Vegas." "It's too early to see much real-world impact from the downshift, said Scott Anderson, senior economist at Wells Fargo in Minneapolis. People are still spending the record amounts of cash they pulled out of their houses last year. But all signs suggest the slowdown is in the works. '2006 will just be the turning point,' said Anderson. 'It's going to be Part One of a five-act play.'" "Less ka-ching spells trouble for the legions of mortgage brokers operating in the Twin Cities, where experts say borrowing against the house has been particularly popular. Home-equity debt per household in the Twin Cities metro area is 50 percent higher than the average. 'Business right now is way down,' said Terry Sullivan." "'Layoffs, office closings, and consolidation of mortgage operations are all happening, and likely to continue in 2006,' Keenan Raverty, incoming president of the Mortgage Association of Minnesota wrote. 'Ultimately, the marketplace will sort itself out, but a lot of fine people may lose their jobs in the process.' Raverty and others pointed to Bank of America's Bloomington loan center as an example. The bank is in the process of closing the center, which handled mortgage and home-equity applications by phone and employed about 200 people." "The local market was so flooded with small mortgage brokers during the boom that people might not notice their passing, said Alex Stenback, sales manager in Plymouth. Some 860 mortgage brokers in the state didn't renew their licenses when last summer's deadline arrived. Despite the dropouts, Minnesota still has 3,137 licensed mortgage brokerages, a thousand more than in 2003." "The luster may be wearing off the equity-fueled remodeling industry too, according to national numbers. Customers aren't canceling jobs, Shawn Nelson said, but they are scaling back in areas where they have choices, such as flooring. Exotic granite countertops are going by the wayside now, he said. 'People are being a little more cautious,' said Nelson, adding that contractors are starting to adjust. 'You're going to fight a little bit harder, you've got to put more money on the marketing side of things. The jobs are getting smaller.'" "Matt Schneberger in Woodbury, said he sees fewer people 'fantasizing about mega-remodels,' a phenomenon he ties directly to access to home-equity cash. Some customers have scaled back big remodeling plans, he said, because of uncertainty about whether home values will continue to rise." "One disturbing note: subprime borrowers, those most at risk of getting in over their heads, have not slowed down their refinancing habits. In fact, they've been accelerating them. Subprime cash-out refi's totaled $61.98 billion in the fourth quarter last year. That's up 4 percent from the quarter before and up 22 percent from a year earlier. Stiff competition among subprime lenders has kept interest rates on refinances relatively low through the year, which could be driving the increases, Andrew Analore said the new bankruptcy laws that took effect this past fall, making it harder to file personal bankruptcy, are also driving more people to try to manage their debt by refinancing, others said." "'The question that keeps coming up at the conferences is 'How many more times can people keep going back to the piggy bank?' said Analore." "Wells Fargo's Anderson said he estimates home-equity extractions, including capital gains homeowners banked when they sold homes, have been adding about 0.5 percent to the country's GDP for several years now, or about $500 billion last year. That's roughly equivalent to what people in the U.S. spend each year on motor vehicles and parts."

Exiting 'The Church Of Greenspan'

2006-01-29T07:54:00.000-08:00

The newswires are looking at the Greenspan/Bernanke hand-off; a reader asks, "Topic, Countdown to Bernanke. Greenspan retires on the 31st. Time to put in your final predictions." Another adds, "How will Bernanke be able to reduce interest rates to a level which reflates the bubble without crashing the bond market, especially given recent reports on strong labor market and durable goods orders?" "Mr. Greenspan oversaw a massive Internet stock bubble in the late 1990s. And what many see today as a housing bubble could leave headaches for his successor at the Fed. Was he too slow to react to a stock market bubble he saw coming for years? Did he need to say more about a bubbly housing market and skyrocketing debt?" "Mr. Greenspan could have educated the public more about unsustainable trends in the stock market and home lending, Lee Price said. 'If he had been more courageous in talking about that imbalance in the stock market, it would've had a salutary effect on the real economy as well,' he said." "For the past few years, Greenspan himself has emerged as little more than a cheerleader for the U.S. economy, putting a happy face on potential economic troubles with assurances that the underlying strength of the economy is sound and brushing off concerns about potential inflationary pressures. Gone are the pithy economic bon mots about 'irrational exuberance,' replaced by descriptions of the housing market as having 'froth' in some markets." "On Greenspan's watch, the United States experienced only two relatively mild recessions, even though it was hit by a number of shocks, such as the 1987 stock market crash, two wars in the Persian Gulf, the 1997 Asian financial crisis, the bursting of the stock bubble in 2000 and terrorist attacks in 2001. Bernanke's job will be to keep the good times rolling." "Ben Bernanke may never match Alan Greenspan's influence over the economy. 'The Fed now has limited leverage over the housing market,' said Peter Morici, an economics professor at the University of Maryland. 'It has been unable to tap the brakes on the housing market,' even though many economists fear housing prices have risen to dangerous heights in some markets. 'We're getting a price bubble on houses,' and the Fed has been unable to prick it, he said." "Worship at the Church of Greenspan had reached such a feverish pitch that when Senate Minority Leader Harry Reid called the Federal Reserve chairman 'one of the biggest political hacks' in Washington, even fellow Democrats shushed him. It now appears that Reid has lots of company. Top economic minds are saying that Greenspan was not a great central banker, or even a good one." "Central bankers are supposed to abhor market bubbles, but Greenspan blew air into two of them, a stock and a housing bubble, by keeping interest rates low. American consumers responded by borrowing money against their paper profits. They spent the dough, which propped up the economy. Now consumers are burdened with debt." "Part of America's economic prosperity, The Economist notes, 'is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future.' As the Austrian economist Ludwig von Mises once said: 'It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.'" "Greenspan leaves behind an America that is the world's leading debtor nation. The United States must now borrow $2 billion from foreigners every working day to service its debt. Its personal-savings rate is negative. So expect a lot of economists to be sitting on their hands as Greenspan departs the Fed at the end of the month. Even his Enron Prize for Distinguished Service, which Greenspan accepted a few days after the energy company admitted to filing falsified earning reports, doesn't impress them."

Anything 'Weird' In Your Housing Market?

2006-01-29T06:56:00.000-08:00

Post your observations of local housing markets here! There is a lot to be on the lookout for; clues in the classifieds, especially a proliferation of spec homes seeking renters; or websites with builder incentives. One reader posted on an open house, "How's this for weird. I saw an open house on a Tuesday in a town next to me. A TUESDAY! Complete with signs on the corner & balloons." "This was in Montville, NJ. One of those 'prestigious' labeled towns as quoted by the property salesman." Another saw the same thing, "There was a Tuesday open house a street over from me this week too. I'm just north of Destin, FL. Home would be called entry level for the area, and even though it's in good condition, is about 10% overpriced. They're asking $325K right now when similar homes have been going in the $275-$299K range." "I'm guessing they'll either end up taking it off the market, or take about $280K for it after it sits for three months." Another notes it's not just housing to consider. "When the housing bubble bursts, where do you think it'll show up too? My guess is any biz that relies on home equity. High-end cars, home improvement, jewelry, the travel industry, furniture stores, boats. I suspect there will be a lot of boats for sale in a few months, especially in California." One reader can hear the housing bubble popping. "Other Signs? Many granite cutters set up shop in the industrial area nearby. They would make loud stone grinding sounds all day, but I thought it was kind of cool. 'Nrrrrrrrrmmmmmmm!' So much energy! Now these places are all going quiet at once. On the one hand I find myself saying 'Ha, ha,' and on the other 'uh-oh!'"

When Did You First Suspect There Was A Bubble?

2006-01-28T17:01:00.000-08:00

A reader wants to know when you decided there was a housing bubble. "When did you first begin to suspect a housing bubble and how have your opinions of the bubble changed since reading this blog?" "I moved to my beach neighborhood in 1995 and thought things were starting to get a little wacky in 1998-99. I haven't done much traveling, but I think I have seen enough of other parts of the country to sense that what was around me just wasn't a real good value. I was way early about the stock market too, though." "How has this blog changed me? In the discovery that there is a lot of 'grass roots' info out there that all is not well in real estate, which you don't see on Bubblevision TV."

'Bulldozing' The Bubble In 'Verbal Firefight'

2006-01-28T16:50:00.000-08:00

The New York Times looks at the language of a housing bubble. "How best to describe the condition of the New York City real estate market? Is it 'cooling' or 'melting down?' Will there be a 'pause?' A 'soft landing?' A 'slow leak?' Are you a 'bubble' believer or of the 'frothy' faith? These and other buzzwords have been appearing in articles and rolling off the tongues of broadcasters. They are whirring around New York cocktail parties and being whispered in Wall Street elevators." "As intangible as words are, they influence the decisions buyers, sellers and lenders make, and those decisions can affect the market. As Jean-Paul Sartre said, 'Words are loaded pistols.' A look at the most popular ones being bandied about nowadays may not reveal the future, but they reveal the pulse of the public. Its beat is a mix of fear, confusion and wishful thinking." "The yearning for a smooth transition from the surging market is seen in the increasingly frequent use in the last six months of the phrase 'soft landing.' 'Soft landing is everyone's big hope,' said Paul Payack, (who) analyzes language trends and their impact on politics, culture and business. He uses an algorithm that tracks words and phrases in the media and on the Internet in relation to frequency, contextual usage and appearance in global media." "Among the market buzzwords he ranked, 'soft landing' and 'pause' were ranked first and second respectively, while the more ominous sounding 'housing bubble' ranked seventh. 'Pause' is another one of these hopeful things,' Mr. Payack said." "Brokers are loath to use hyperbolic language to describe the market partly because they think the market is cyclical and partly because it is in their best interest to bulldoze fear. Steve Solomon said that 'professionals use words to soothe and to give hope and positive feelings about properties so there isn't as much anxiety.' So they engage in verbal firefighting. 'If prices are going down, we don't like to say that,' Mr. Solomon said. 'It's 'prices are leveling off,' 'there's a pause in the market.'" "These days, brokers frequently find themselves massaging market buzzwords, or the 'macro' language of real estate, to make it more palatable. At the same time they are also busily tweaking the 'micro' language of real estate, the language used to describe properties, to make it more alluring and meaningful. A new micro lexicon is emerging, one that borrows from the art and fashion worlds and in which nearly every word implies affluence, exclusivity and limitlessness." "Then there are words that were in vogue a few years ago, like 'cozy,' but which have since been put out to pasture. 'Everyone knew it meant small,' Ms. Liebman said. 'They figured it out.' She now predicts the death of the word 'luxury,' because it is overused." "Beauty is in the eye of the beholder, yet at the end of the day the building must 'live up to the words,' Mr. Solomon said. For some, words are but white noise. Still, if you feel the market is too frothy for comfort, you can always retreat into your grand apartment, climb into your spa-bath and wait for a resurgence."

'Long Run Down Crooked Path' For Recent Buyer

2006-01-28T14:41:00.000-08:00

Steve McLinden at BankRate.com fields a letter from a remorseful homebuyer. "Dear Real Estate Adviser, I have a contract to buy a new town home for $800,000, but recently I learned that since I signed, the builder has reduced the price of the same type of town home by $100,000. I have a closing coming up and will be sitting there with a house which has already depreciated before I move in. If I put it on the market, will I get $800,000? Should I stay for a while or rent it out? I am confused and frustrated!" "A: Wow! That's one inordinately steep discount and appears to be a cut-and-run strategy that shows little regard for the housing values of other recent buyers. But in most businesses, including real estate, sellers will seek what the market will bear, then drop prices abruptly to clear out excessive inventory when conditions change. Usually, there's little you can do about it." "You were, and I shudder to have to tell you this, likely caught on the wrong end of a change in your market. And unfortunately, you have little recourse, unless you can prove that the builder used fraudulent or otherwise illegal hard-sell tactics to rope you in before new pricing took hold. Even then, you're looking at a long run down a crooked path." "You don't say how much earnest money you plunked down or what contractual consequences you face if you don't 'perform' on your deal. These are issues you should immediately discuss with an experienced real estate lawyer if you are entertaining thoughts of backing out." "In the last few months, some single-family home builders have cut prices up to 25 percent in a few previously red-hot markets such as Las Vegas. These scenarios usually occur when speculators quit investing. Until recently, investors accounted for as many as one in four transactions in several of the hotter markets." "Depending on where you live, it's not very likely, though certainly not impossible, that you'll be able to sell your townhome for $800,000 any time soon. As for renting: If the entire market softens, more rental houses will start appearing, and rents will drop. So you may be better served just nesting in your town house for a while." "History (and inflation) have shown us that hot-gone-cool markets almost always heat up again. Good luck."

Buyers, Brokers Seek 'Benefit Of The Bargain': LV

2006-01-28T10:29:00.000-08:00

The New York Times reports that the cancellation of Las Vegas condo projects isn't the end of the matter. "Three weeks ago, Eli Verdnikov, an engineer in Los Gatos, Calif., received a letter saying that the apartment building he planned to retire to, Icon Las Vegas, would not be built. In the envelope was a check for $73,672.81, the 10 percent deposit Mr. Verdnikov had paid, plus interest." "But Mr. Verdnikov wants more than the $73,672.81. Since he agreed in May 2005 to buy the apartment near the Las Vegas Strip for $728,900, its value, he says, has increased. 'To purchase something similar, we would need to pay $200,000 more,' said Mr. Verdnikov. So Mr. Verdnikov is suing for the gain he would have realized if the apartment had been built. 'He deserves to get the benefit of the bargain,' said Will Kemp, a lawyer in Las Vegas, who is representing Mr. Verdnikov and a dozen other Icon buyers." "As the market for high-end condos levels off, more and more people may find themselves in Mr. Verdnikov's position: with contracts to buy condos that will never be built. And some hope to recover the profits they believe they would have made." "The Icon cancellation came as a surprise, in part because its developer is a partnership of two giants: the Related Group of Florida and the Related Companies. Mr. Perez was out of the country and could not be reached for comment, a company spokesman said. Reached on his cellphone, Martin Burger, the president of Related Las Vegas, hung up. In contrast to its current silence, 'the company relied heavily on its own reputation in marketing the building,' said David Ezra (who) sold some 60 units in the building. He added that he thought the excuse of higher construction costs 'might work for a first-time developer, but it doesn't work for Related.'" "The contract at Icon included no limitation on damages, Mr. Kemp said. 'It's a standard measure of damages in contract law,' he said, though he said he had not seen it applied in a case involving an unbuilt condo building. Mr. Kemp is also representing more than 100 buyers of units in a Las Vegas development called Krystal Sands. In that case, the developer chose to sell the land the building was going to be built on, and buyers received their deposits back. A lawyer for the developer, Cam Ferenbach, said that he thought the company had a good defense, but said, 'I don't want to try the case in the press.'" "In the suits he has filed against Related, he charges not only breach of contract, but 'fraudulent misrepresentation,' because, he said, 'they continued to reassure these people that they were going to build, and then they didn't build.'" "Real estate brokers who sold units in canceled projects may also have grounds for a lawsuit, and Mr. Ezra, for one, says he is considering legal action. Mr. Ezra said the 60 units his firm sold at Icon were worth about $50 million. Ezra International Realty stood to receive about $1.5 million in commissions from Related Las Vegas, which pays brokers 3 percent commissions on each sale. Mr. Ezra said he has not received any offer of compensation from Related, which he said he earned because he produced 'ready, willing, and able' buyers." "David J. Wine, the vice chairman of the Related Companies said, 'We have an incredible reputation for delivering to our customers. I think we can say that, over all, this is a very unusual situation, and that our followers will appreciate, in the long run, our being candid and straightforward, because that is the kind of company we are.'"

Miami Is 'Ground Zero' For The Housing Bubble

2006-01-28T07:14:00.000-08:00

The Sun Sentinel reports on the developing condo wipe-out. "If you're buying a single-family home or condominium, plan to live in it long term because the days of making fast cash in real estate are over, industry experts said Friday. 'Everybody can't be Donald Trump,' said Henry Fishkind, an Orlando economist. 'I'd be cautious right now.'" "Fishkind and other analysts agree that the housing sector has peaked and predicted problems for the condominium markets in West Palm Beach and Miami, where thousands of units are expected in the next few years. In Miami-Dade, more than 71,500 units are built or planned, Miami real estate consultant Jack Winston said, adding that only 9,100 units were completed countywide in the past 10 years." "Some small banks will be in trouble because they've loaned money to condo developers who won't follow through on building plans as the market softens, analysts said Friday. They think falling land prices are inevitable during the next year. Already, agents are reporting price reductions in some condo resales." "'Miami is ground zero for the housing bubble,' Winston said. 'It's going to be severe in Miami, and it's going to be problematic in West Palm. We've built too many units compared to the projections for real users.'" "More than 6,000 units are coming to West Palm Beach, mostly in the downtown corridor. But unlike Miami, West Palm can't count on a large contingent of international buyers to scoop up condos, Winston said. Developers point to the growing numbers of young professionals who want to live in downtown condos, Winston said. 'The problem is, while they are an emerging market, they can't afford the product,' he said."

A Blip In The Market Or The Bubble Is Bursting

2006-01-27T14:21:00.000-08:00

Time to clear this bloggers monitor. The financial press is trying to catch up. "Sales of new U.S. homes increased a surprising 2.9% in December to a seasonally adjusted annual rate of 1.269 million, the Commerce Department reported Friday.Economists were expecting sales to fall slightly to a 1.23 million rate. The sales rate in November was revised lower to 1.233 million from 1.245 million previously." "The inventory of unsold homes increased 2.4% in December to a record 516,000. The median sales price fell 3.4% year-over-year to $221,800 in December. Sales of homes valued at $500,000 or more fell to the lowest level since June 2004." "For all of 2005, new home sales rose to a record 1.282 million. Annualized housing starts increased 5 percent to 2.12 million in November, with single-family starts increasing to 1.81 million." "While 2005 will go down as a big year for both the Tampa and Sarasota-Bradenton housing markets, there is the possibility of a slide coming in the near future. There is a backlog of more than 22,300 units under construction in the Tampa Bay area, including more than 14,200 units in the Tampa metropolitan area. For the year, lot inventory is up 7.6 percent to 19,491 lots." "Although 268 new homes are planned for development in north Walnut, local schools don't expect a resulting flood of new students. High prices could be a barrier for young families with children. When 30 new homes were built in 2001 at Del Mar and Graves avenues in Rosemead, Garvey School District gained only one student, though the district had expected 10 to 14." "Even at age 50, Judith Max admits to not saving for retirement. 'How?' said the South Lake Tahoe real estate agent when faced with the question Thursday morning outside Bank of the West. 'I'm overwhelmed by taxes in California. I love California, but there's no industry here, and Tahoe's becoming a rich man's paradise.' She plans to sell her home to cash out and move to some place cheaper 'and warmer.'" "And apparently she's not alone. Of the Tahoe Daily Tribune's small sampling, only three out of 10 people ages 18 to 50 said they're saving for retirement. And just one said she's saving enough. Cheryl Sillings, a South Shore financial planner said the baby boomers are falling short on saving. 'I'm guessing we're going to see some defaults,' she said." "Most financial advisers recommend people spend a third of their income on shelter, but many are shelling out over half of what they make. Property values, including those in Tahoe, have skyrocketed. Mary Beth Taylor is struggling, doling out three-fifths of her net income to her mortgage. She's overextended and has dipped into savings set aside for emergencies, not retirement. 'I'm in the negative everywhere I look. I can't afford to save for retirement,' she said." "The median home price for a single-family house in San Luis Obispo County fell nearly 12 percent in December, or more than $70,000. The December 2005 figure was the lowest monthly median price registered since May 2005." "In another measure of the local housing market, permits for new homes were down 14.4 percent in 2005 for the county, with 1,937 permits. The steepest decline in the county was for the city of San Luis Obispo, which saw permit activity fall 69.6 percent to 35 from 115 permits in 2004." "'A one-month adjustment does not justify fear that the bubble is bursting. The figures can be skewed by a few million-dollar homes selling one month and then not the next," said Lenny Jones, the vice chairman for the state association of Realtors. "It's too early to tell if this was a blip in the market or the start of a trend."

High End Spreads Caught In 'Reverse Land Rush'

2006-01-27T11:42:00.000-08:00

Even the upper end of the housing bubble is slowing. "Sen. John McCain, R-Ariz., tests the declining real estate market as he tries to sell his recently price-reduced $3.75 million Phoenix mansion. The 11,000 square foot estate, with its nine bedrooms and eight bathrooms, and eight surveillance cameras, has been on the market for three months." "Only six prospective buyers have checked it out, the Arizona Republic says. That led to a half-million-dollar price cut. A year ago, there were 145 homes priced at $500,000 or more for sale in Phoenix. Now, there are 1,341. Houses were selling in days last year, but now, it's taking an average of six weeks." "McCain and his wife, Cindy, who grew up in the house, want to downsize." And the Wall Street Journal reports that the rich and famous are trying to get out as well. "A decade or so after big names in entertainment, sports and business turned the rugged ranch into a real-estate fashion statement, many of them are packing up the wagon trains and pulling back out. Why the reverse land rush? Many wealthy ranch owners, celebrity and otherwise, are hoping to cash out after years of gains in real-estate, according to John Frome, a ranch appraiser in Afton, Wyo." "Also, for some who've made their second or third home on the range, ranch life has turned out to be anything but simple. Yearly maintenance costs can run $150,000 and up." "There are indications that now ranch properties have been backing up on the market. Rick Schroder's southwestern-Colorado ranch has been sitting on the market for 15 months, while Leon Hirsch's Montana ranch has gone unsold for more than a year. Spreads owned by tennis's Martina Navratilova and novelist Warren Adler both found buyers late last year, after more than four years on the market apiece." "Meanwhile, Harris Hudson, the former co-owner of baseball's Florida Marlins, has been trying to sell his 60,000 acres in Colorado for two years, first for $25 million, then for $20 million, and now he's planning to part with the property at auction." "Real-estate agents in these areas say ranch properties that sold in 2005 sat 22 months on average, about double the amount they spent on the market five or six years ago. Big auction companies, typically a last resort for anxious sellers, say they're putting more ranches on the block: National Auction Group says it sold 34 Western ranches last year, up from 22 the previous year." "One recent seller: Atlanta Braves pitcher Mike Hampton, whose 50-acre Colorado ranch went for $3.08 million last year, almost $1 million less than he paid in 2001." "Don Lucas, a venture capitalist in Atherton, Calif., says the mystique of the Old West drove him to buy a ranch in southwestern Montana in 1996. But Mr. Lucas says sometimes the 6,150-acre ranch could be a bit too out of the way. 'Sometimes you'd have to fly in your friends just to have people around,' says Mr. Lucas. He put the property on the market 15 months ago for $14.6 million, and later cut the price to $12.5 million." "Some in the industry suggest celebrity ranchers may have themselves to blame for a slowing market. The price of ranch acreage rose 11% in the third quarter of 2005, to $1,216 an acre in Western states including Oregon, Utah and Nevada." "Cable-industry veteran Leo Hindery Jr. would be happy enough to get out. In 1998, he thought he'd fulfilled a lifelong dream when he bought a 1,400-acre ranch in Larkspur, Colo. After he left Global Crossing and moved to New York, his family became tired of making the trip to the property's unpaved roads and manure-filled pastures. Now, he says he's spending about $500,000 a year to maintain the property and pay salaries for the ranch hands, a foreman and equipment." "Mr. Hindery put the ranch on the market a year ago for $13.7 million and trimmed the price by more than $1 million last fall. 'I've never tried to sell one of these things before,' he says. 'It's a big bloody place. Finding a buyer could take awhile.'"

''Scarcity Value Dissipates' For San Diego Condos

2006-01-27T08:54:00.000-08:00

The Voice of San Diego has this report on condos. "The number of condos placed on the market in downtown increased 17 percent in the first month of 2006 to a record high of 530. Southern California's analysts aren't particularly surprised by the spike in downtown inventory hitting the market this month. They said it is further evidence of what they have been saying for months: the downtown condo market is over-saturated, condos are taking longer to sell and a buyer's market is emerging." "Edward E. Leamer, director of the University of California, Los Angeles, Anderson Forecast, said this month's upsurge in inventory is indicative that the 'scarcity value' of downtown condos is starting to dissipate. 'What you'd expect to see happening is exactly what is happening. There's a temporary scarcity value in the condo market as the condo market heats up, then that scarcity value is competed away by new building,' Leamer said." "That would make sense in San Diego, where high-rise condos have sprung up all over the 92101 ZIP code in the last few years. Even more are in the works. Russ Valone said there are currently 52 residential projects underway in downtown San Diego, comprising a total of 11,000 condo units either being planned or under construction. That figure dwarfs the total amount of inhabited condos in downtown at the moment. Valone estimates downtown hosts 7,500 condos currently." "There are now seven times as many properties listed downtown than there were in the same week in 2003. Leamer, who many in the business regard as the most influential real estate economist in Southern California, said what is going on in San Diego's market is watched closely by real estate professionals all over the country. He said San Diego led the rest of the nation in an upsurge in the real estate market and now it's starting to lead the country into a market downturn." "'San Diego is the canary in the coal mine,' he said. Asked how that canary is looking in January 2006, Leamer had a grim prediction. 'It's definitely coughing,' he said. 'In fact, it might be lying down in the coal mine. It's time for the rest of us to get out of the coal mine.'"

Dearth Of 'End Users' Spells Trouble For Flippers

2006-01-27T08:22:00.000-08:00

The Tampa Tribune has this report on condo flipping. "Real estate investors are finding that the days of selling units, or 'flipping' contracts on pre-construction condos within hours or days, are over, especially downtown. It's taking months, or longer, to find buyers, and some sellers are having to lower their asking prices." "That could spell trouble not only for condo owners hoping to turn over their units quickly, but also for developers. More than 30 condo projects are in development in and around the city. Many condo developers have relied heavily on investors to raise enough start-up money to persuade lenders to finance their projects. With short-term investors shifting from urban condos, developers now must market more to people who want to live in their buildings or hold units as long-term investments. Compounding the problem are completed condo towers that sit half-empty." "In September 2004, Lance Ponton Jr. put down 10 percent deposits on five Harbour Island condominiums before they were even built. Ponton, 27, hoped to sell them for a big profit as soon as the building was finished and his deals closed. 'But when it was done, we found that everyone else in the building was doing the same thing,' Ponton said." "He ended up having to make thousands of dollars in mortgage payments for 10 months on all five condos in the ParkCrest Harbour Island. Eventually, he sold four units, pocketing $50,000 to $100,000 on each. With one more unit left to sell, Ponton hopes he can slip out of condo investing before he loses money. 'The market was really good, but it has changed, and it's time to move on to the next hot thing,' Ponton said." "The dearth of full-time residents has made it difficult to attract shops and other tenants in the buildings. Some potential buyers are turned off by buildings that aren't lively, said Jason O'Neil in Tampa. 'It's more difficult to attract end users right now,' O'Neil said, referring to buyers who plan to live in the units full time. The lack of primary residents appears to be affecting marketing retail space in the Parskide building. None of the 11,500 square feet of retail space has been leased." Byron Moger, of (a) commercial real estate firm, is confident that retail space in the condo high-rises will be leased. 'It's just a matter of getting enough people downtown to support it.' Still, the lack of retail is an annoyance to high-rise residents such as Maryanne Piplica, who came downtown for an urban lifestyle. Piplica, who grew up in New York, said she and her husband traded in suburban life in Palm Harbor hoping to find a lively lifestyle. With her children grown, she looks forward to walking to everything she needs." "'I was hoping for a Starbucks, a bistro-type restaurant, a small gourmet shop,' she said of the empty retail space in her building. 'I want to see museums and galleries and shops downtown..things to be open after 5 p.m.'" "Some investors are worried. Jason Barrett, a resident in Parkside, said he is on a list of potential buyers for some condo projects. Some of the lists are a year or more old, Barrett said, and the names were collected when the market was much different.He won't be buying any more condos, he said. Barrett had luck with one condo in Parkside and plans to sell his current unit in four to five years. But he had to lower his price to compete with other sellers in his building." "To Barrett, evidence that the condo market is no longer a good investment can be found at Parkside. He notes that about 40 condos were for sale when he sold his unit last summer. Many of his neighbors use their condos a few times a month, and some use it strictly as a place to party on the weekends." "Barrett, who also owns a condo in Sarasota and a condo/hotel unit on Anna Maria Island, hopes to sell those soon. 'I'm spread thin now and that's not a comfortable situation,' he said." "Despite signs the downtown condo market is slowing, developers continue to come forward with proposals. Some developers of other downtown condos have restricted investor buying at the request of banks and other lenders, (agent) Jim Walters said. 'I don't know why you would want to control the investment markets so much,' Walters said. 'The developer makes their money, and an end user ends up there anyway.'"

Record New Home Inventory, Prices Tumble

2006-01-27T07:12:00.000-08:00

From the Commerce Department. "Sales of new one-family houses in December 2005 were at a seasonally adjusted annual rate of 1,269,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.9 percent (±11.8%)* above the revised November rate of 1,233,000 and is 1.8 percent (±17.1%)* above the December 2004 estimate of 1,247,000." "The median sales price of new houses sold in December 2005 was $221,800; the average sales price was $272,900. The seasonally adjusted estimate of new houses for sale at the end of December was 516,000. This represents a supply of 4.9 months at the current sales rate. An estimated 1,282,000 new homes were sold in 2005. This is 6.6 percent (±5.4%) above the 2004 figure of 1,203,000." Not mentioned is the rising inventory for sale. A new record, at 516,000, which is 12.6% higher than November 2005 and 22% higher than the same month last year. Also from the commerce Dept. "The economy grew at only a 1.1 percent annual rate in the fourth quarter of last year, the slowest pace in three years. Spending on residential projects also rose at a 3.5 percent pace in the fourth quarter. That was down from a 7.3 percent pace in the prior quarter and an additional sign that the housing boom is losing some of its steam." From the US Census Bureau: U.S. Median Sales Price Jan 2005 $223,100 Feb 2005 $237,300 Mar 2005 $229,300 Apr 2005 $236,300 May 2005 $228,300 Jun 2005 $226,100 Jul 2005 $229,200 Aug 2005 $240,100 Sep 2005 $240,400 Oct 2005 $237,500 Nov 2005 $226,800 Dec 2005 $221,800 Posted by a reader: U.S. Average Sales Price Dec '04 $284,300 Aug $295,000 Sep $299,600 Oct $291,400 Nov $286,000 Dec '05 $272,900 From Annette Haddad at the LA Times. "New home construction in California fell last year for the first time in 10 years and could drop more sharply this year. The California Building Industry Assn. said housing production could drop by as much as 11% this year, potentially bad news for a California economy that has depended on construction as its leading job creator." "A slowdown could mean no increase or even a decline in construction jobs this year, economists said. 'Builders will be building fewer homes so they won't need to keep the same number of people on the payroll,' said economist Esmael Adibi of Chapman University." "He predicted that employment growth in California would slow this year to 1.1% from 1.6% in 2005, largely because of the ripple effects of the slowing housing market. Some regions, particularly the Inland Empire, where most of the state's new-home construction has been in recent years, could see an even bigger decline in employment growth." "Calabasas-based builder Ryland Group Inc. reported this week that its new-home orders were down 34% in California and the West last year. Dallas-based Centex Corp. held a 12-hour 'sale' Saturday at many of its new communities around the state, offering a select number of houses for as much as $100,000 off." "Multifamily permits fell 15% from last year, to 52,338. The fall was led by a steep decline in the Inland Empire, where starts fell 45%, and in Los Angeles County, which experienced a 10% decrease." "Back in 1995, the last time construction declined, the slowdown coincided with a housing market downturn that was caused in part by overbuilding of new homes. From 1992 to 1996, fewer than 100,000 homes a year went up across the state. Now, fearful of a repeat, builders are trying to line up buyers before laying foundations. Still, 2005 was the second time since 1989 that California's housing production exceeded 200,000 units."

'Frustrated Sellers Are Screaming' In Fresno

2006-01-27T05:18:00.000-08:00

The Fresno Bee has the latest on that housing bubble. "In Fresno County, 1,343 homes sold in December compared with 1,310 houses in November. With fewer sales and a climbing inventory of houses for sale, prices appear to be flattening or decreasing. 'We're seeing across-the-board price reductions,' (agent) Vicki Dobbs said, characterizing what she called a return to a 'normal' market." "She cited a recent 24-hour period when 107 houses went up for sale and only 35 others were listed as a 'pending sale' by the Fresno Association of Realtors. That's a departure from nine months ago when appraisers, loan officers and others had an abundance of work. 'Pest control companies are looking for business again,' Dobbs said. 'Mortgage people have lots of time on their hands. We can get an inspection done in 48 hours instead of two weeks.'" "Real estate agent Cliff Lloyd said some sellers are frustrated. 'The sellers are screaming because their homes are staying on the market 60, 90, 100 days when last summer they would sell in weeks or days. I had a home sell in an area for 10% less than the same house did six months ago,' said Lloyd, in Fresno. 'There is going to be a real adjustment for the industry this year.'" "Mike Gilmore said his loan activity has tumbled 20% in the last quarter. Some of that could be seasonal, 'but some of that is a market correction,' he acknowledged. Still, he doesn't forecast a bubble bursting."

Post Weekend Topics Suggestions Here!

2006-01-27T04:57:00.000-08:00

Post weekend topic suggestions here! Especially wanted are ideas about multi-family properties; duplexes, for example and arrangements like co-ops or condos.

Housing Boom Doesn't Create Growth': Econ.

2006-01-26T17:48:00.000-08:00

The New York Post had this to report. "It's not the end of the world, just the first signs that the housing bubble is beginning to deflate. That's the verdict economists delivered yesterday on the data that show an unexpectedly steep slump in the sales of existing homes in December." "The NAR reported sales of previously owned homes slid 5.7 percent in December over November levels, with about 6.6 million properties changing hands compared to 7 million in November 2005. The market had been braced for a decline, but not of this magnitude. More striking still, it's the third-straight month that the volume of real estate transactions has fallen since peaking at 7.35 million units last June." "For New Yorkers and others in the Northeast, the picture is slightly brighter. In contrast to steep declines in the South and West, sales of existing homes in the Northeast were flat in December." "Still, this is no time for complacency, economists agree. In a note fired off to clients, Ian Shepherdson, chief U.S. economist for High Frequency Economics, warned that this is just the start. 'We expect price increases to slow much further, dragging down expectations for future price gains and therefore raising real mortgage rates,' Stepherdson cautioned." "'This will be the trigger for a serious collapse in home sales later this week. The housing market is a bubble, and it will burst,' he said." And Newsday had this, "Real wages across Long Island fell during the past three years, leaving residents with declining incomes once they accounted for rising prices for everything from gasoline to health care to food." "In Nassau County, real average weekly wages fell 3.2 percent between the first quarter of 2002 and the first quarter of 2005, according to data collected from the regional Bureau of Labor Statistics and analyzed by Newsday. In Suffolk, the drop was 4.2 percent over the same period, while Queens saw a 3.7 percent decline." "The declines were widespread, in industries ranging from construction and manufacturing to leisure and hospitality and transportation. In Suffolk County, every industry saw wage declines except one. professional and business services, the data showed." "At a time when the region's economy has continuous job growth, rising housing prices and good consumer spending, the wage data is particularly disconcerting, area economists said. 'This really underscores that just because there's a booming housing market, it doesn't translate into strong economic growth,' said James Parrott, chief economist for the Fiscal Policy Institute in Manhattan. 'It suggests that consumption spending has a built-in speed limit to it. You just can't expect to grow very fast.'" "But even without real wage gains, consumers have kept spending. How? 'The answer is debt,' said Martin Cantor, the chief economist for Sustainable Long Island. 'The pump is being primed by debt, but not by real growth.'"

Will San Diego 'Bust' With the Housing Bubble?

2006-01-26T14:59:00.000-08:00

Rich Toscano has this editorial today. "San Diego, it is widely understood, experienced a housing boom in the late 1980s and a commensurate bust in the early 1990s. But despite the fact that the 'boom' phase of the 1980s has been absolutely dwarfed in every respect by San Diego's current housing run-up, we are often assured by those in the business that there is no 'bust' forthcoming." "Now, the conventional wisdom goes, things are entirely different. San Diego's robust and diverse economy is no longer dependent on any single industry for its continuing health. But San Diego's economy is still overly dependent on a single, vulnerable industry. It's just no longer aerospace or defense. It is the real estate industry itself." "Since 2000, according to the Bureau of Labor Statistics, San Diego employment outside of the real estate and construction sectors has annualized out to just 1 percent per year. Employment in the real estate and construction industries, meanwhile, grew at almost 6 percent per year. Forty percent of all new jobs in the past 3 years were in either real estate or construction. This calculation doesn't even include the explosive mortgage industry." "The real estate boom has aided San Diego's economy through more than just direct employment. It turns out that for the past few years, San Diego's per capita income has been declining against the local Consumer Price Index. How are people paying for their new BMWs and Fashion Valley spending jags? The answer is that the money came from people's homes." "Home sales volume declined by 9 percent between 2004 and 2005, a trend that appears to be getting more pronounced as time goes on. Housing-related employment surged while home sales were increasing. There is no reason to expect that the reverse will not take place if home sales continue to decline." "There are 115,000 San Diegans employed in the real estate and construction industries. Even the bullish housing analysts acknowledge that San Diego home prices are likely to flatten out for a while. But a flattening of home prices represents an economic threat as well. If people run out of home equity to extract, the wealth effect-related stimulus that San Diego has enjoyed for the past several years will disappear." "The standard contention is that San Diego's economy will keep the real estate market strong. This argument is circular, as it is the only real estate market that has kept our economy so apparently strong. San Diego may have weaned itself from the defense industry, but it has only replaced over-reliance on one vulnerable sector with over-reliance on another."

Regulators, Wall Street Confront Subprime Loans

2006-01-26T12:29:00.000-08:00

More reports on the changing landscape for lenders. "About 450 workers at Irwin Mortgage in Fishers face an uncertain future after the firm's parent said it might put the mortgage unit up for sale. Home mortgages used to be a cash cow for Irwin Financial. But officials said they fear profits will shrink as big competitors take more of the market." "'Indymac delivered outstanding results in 2005. This performance was achieved despite less than favorable conditions for mortgage lenders including the flat yield curve and industry volumes and declining profit margins,' said Michael W. Perry, Indymac's Chairman and CEO. Two milestones were particularly noteworthy as annual revenues surpassed $1 billion for the first time in the Company's history and we became one of the nation's top ten mortgage lenders." "As the housing market slows, the booming subprime real estate loan market, loans for people with less-than-stellar credit, is also slowing, observers say. 'In general, there's been a subprime boom over the last two years,' said Jeffrey DerGurahian, 'but Wall Street is getting concerned about the risks in these loans.'" "One industry veteran predicted that 'exotic' loans, a category that includes subprime loans, would be curtailed in 2006. 'The secondary market is tired of creative financing products and is starting to price against them,' said Pat Stone." "Subprime loan originations grew more than ninefold, from $35 billion to $332 billion, between 1994 and 2003. Subprime loans totaled $403 billion in 2004, 17.6 percent of all originations. But the party may be over, with bonds backed by subprime home loans losing about 2.5 percent since September." "America's mortgage market will shrink about 20% to $2.24 trillion this year, heightening the temptation of some borrowers and lenders to bend the rules, industry officials said. 'Lenders looking to keep their volumes up maybe won't be looking closely at loans,' said Regina M. Lowrie, chairman of the Mortgage Bankers Association. 'Look at what happened during the period of peak volumes we've seen since 2003; the largest increase in fraud in the last decades. This year, we need to be more vigilant.'" "Mortgage fraud losses exceeded $1 billion last year, more than double the $429 million a year earlier, FBI figures show. The crime, perpetrated against or in collusion with lenders, has ballooned, increasing seven-fold in the last five years alone, said Kurt Pfotenhauer, the MBA's senior vice president of government affairs." And from an editorial at the Voice of San Diego. "Appraisal inflation is the product of pressure from lenders and others to pump up the value of homes. Essentially, more money exchanges hands among sellers, lenders, real estate agents, title companies and others. A growing number of appraisers are going public with their professional experiences dealing with this pressure." "One important fact for consumers to know is that independent appraisers receive a flat fee and do not take a percentage of the selling price. So when honest appraisers refuse to 'hit the price,' they sacrifice future business, and suffer financially. Some appraisers, however, work as staff for lenders or for a company owned by the lender. This is not illegal, but the lender must ensure complete independence between the loan production staff and its appraisers." "Many states, including California, as well as the federal government are considering legislation that would require more oversight of the appraisal industry. It is important, however, for all of those involved in the housing industry to not wait for the future implementation of regulations, but to come together on this issue. Our goal is to give honest appraisers the ability to do their jobs; to ensure lenders are providing accurate loans; and make certain homebuyers can fulfill their dreams of becoming homeowners without overpaying."

'Thrill Is Leaving' The Chicago Condo Market

2006-01-26T10:21:00.000-08:00

The Chicago Tribune reports on the condo market. "Condo sales, the driving force behind Chicago's housing market throughout the fall, went flat in December, the latest sign that the torrid housing market has eased to tepid. The Illinois Association of Realtors reported Wednesday that existing-condo sales in the Chicago area rose just one-tenth of 1 percent last month from December 2004." "In Chicago, single-family home sales continued their gradual decline, falling 2.7 percent in December. Statewide, it was a similar story: Single-family sales, though posting an annual record, were down 1.1 percent for the month, with their median sales price up 8.6 percent, to $203,000." "Chicago-area agents have mixed views of the market. 'It just feels completely flat,' said Pamela Ball, a North Side agent. 'There's no sense of urgency from buyers. In Edgewater, for instance, just eight condos over $300,000 were sold in all of December. The year before, there were about 15. That doesn't seem so good.'" "'There are buildings that are very flat,' said Thaddeus Wong, a principal in Chicago. Wong said one reason condos are lingering is because many lack distinctiveness from one another, a byproduct of the housing boom that has created a bumper crop of units in similar buildings with similar amenities. He also cited overpricing by 'overzealous sellers' whose perceptions are colored by memories of a hotter market." "'I wouldn't call it a glut,' said Arlington Heights agent Bill Brucks. 'But there's plenty available. In the past five years we've had several new high-rises built here, and they're putting more in as we speak.'" "NAR President Thomas M. Stevens of Vienna, Va., cautioned Wednesday that sellers should expect prices to come down to 'more normal levels' because of inventory." " A report Wednesday from Goldman Sachs said the December existing-home sales report suggests that 'U.S. housing market conditions are deteriorating rapidly,' because inventories of both single-family homes and condos 'appear to be surging.' If the market doesn't bounce back sharply in early 2006, 'we may need to revisit our view that U.S. house prices are set for stagnation rather than outright declines,' the report stated."

Housing Bubble 'Fever Has Broken' In CA

2006-01-26T08:53:00.000-08:00

A flurry of reports show that California is also aware of its' housing bubble. " The sideways slide was more pronounced in Los Angeles County. The median home price in Los Angeles County dropped from $575,310 in November to $552,760 in December. The market is leveling off and some prices will drop, said Marty Rodriguez in Glendora. A home that needs work or that is on a busy street might see price reductions, she said, since a buyer has more choices and doesn't have to take those homes anymore." "The median price of an existing home in the San Diego region was down 2.1 percent in December, and sales were down 21.3 percent, compared to the same period last year, a real estate group reported. The median price of a home in San Diego stood at $603,680 in December, down from $616,840 the previous month, but up 4.6 percent from $577,040 a year ago." "Statewide, the median price of an existing home remained flat in December. Sales of existing homes in California last month were down 8.2 percent from November and down 17.6 percent from the same period last year." "'The market has definitely peaked,' said Jack Kyser, chief economist with the L.A. County Economic Development Corp. 'The fever has broken and now the question people are asking themselves is if there is a crash ahead.'" "(Realtor) Bill Velto said some of the builders in the Upland area actually are listing new homes with real-estate agencies. 'We have a situation right now where resale prices are higher than new homes,' he said. 'That's really not a good situation for builders.'" " After years of double-digit price increases for homes in Riverside and San Bernardino counties, the median price is expected to flatten out, according to Chapman University. The EDD estimated job growth in the two-county area as 2 percent for 2005, but Chapman staff, as well as other economists, questioned that figure. 'There is no justification to see such a strong home demand and such lousy job growth,' Esmael Adibi said." "The Chapman report also provided an economic forecast for 2006, presented by Jim Doti, university president. The picture Doti presented was neither a perfect storm of bad events nor a perfect rainbow of good news, he said. 'It's a calm with concern,' Doti said."

'How Much Prices Will Fall Is The Question' In DC

2006-01-26T07:59:00.000-08:00

The Washington Post has this report on the DC market. "Real estate groups in the Washington area have reported declines to varying degrees. The Northern Virginia Association of Realtors, for example, said December sales were down about 24 percent from December 2004 in an area that includes Alexandria, Arlington and Fairfax counties. In Loudoun and Prince William counties, sales were down roughly 14 percent. Prince George's County sales fell about 5 percent." "The 5.7 percent drop in the sale of existing houses, townhouses and condos to an annual pace of 6.6 million units (nationwide) was steeper than many analysts had predicted and was the first time since March that it had fallen below 7 million. Peter Morici, an economist and business professor at the University of Maryland, had predicted the December sales figure would be 6.9 million units." "'Wow,' he said when he was told of the 6.6 million figure. 'Mortgage rates dipped a little in December, so I thought we were going to get a little bit of help from that. The housing bubble is pretty much over. We are in for an adjustment. The question is not will prices fall, because they have been falling, but how much prices will fall.'" "Candy Clanton, an associate broker in Fairfax, has seen just how much the landscape has changed over the past several months. She listed a four-bedroom house in Woodbridge, with new siding, windows and driveway as well as a renovated kitchen, for just under $350,000. It was among the least expensive in the neighborhood, Clanton said, but last week, after three months, her client took it off the market. 'I think the buyers who do have money..are all waiting to see what is going on,' she said. 'My phones are not ringing and my houses are not selling.'" "In a report yesterday, Goldman Sachs Group Inc. said the December figures suggest that 'housing market conditions are deteriorating rapidly.' The $7,000 drop in median home price from October to December, Goldman Sachs said, is the largest two-month drop in prices in years and must be taken seriously as a 'potential sign of a sharper-than-expected weakening in the U.S. housing market.'"

'A Lot Of Disappointment' In Florida

2006-01-26T06:50:00.000-08:00

People in Florida woke up to the housing bubble this morning. "A national cooldown in the housing market made itself felt in Southwest Florida..the weakness was even more pronounced during December, with sales dropping 42 percent in the Sarasota-Bradenton market and 25 percent in Charlotte County-North Port. Meanwhile, listings in the region have been skyrocketing. In the most up-to-date snapshot for Sarasota, for example, there were 5,369 homes on the market. That compares with 3,525 at the end of November." "Industry insiders blame the shift in the local market in part on the flight of speculators and investors, estimated to have been as much as one-third of real estate players in recent years. Thomas Heimann for one, has got 'lots of new listings.' 'The competition's fierce, and there's a lot of disappointment out there,' Heimann said. 'The investors have completely gone away.'" "'I see people reducing prices, but typically the prices that were reduced were probably a little high to begin with,' said Carla Stiver in Englewood. 'Last year, sellers could ask any price they wanted, stick a sign up and it'd be sold in days. The builders were only paying Realtors 2 percent commissions for buyers and sticking too many clauses against investors. Now they're paying 4 percent and offering us bonuses.'" "The median price of existing homes declined to $377,700 in Miami-Dade County in December, down from $381,600 in November. In Broward County, the median price dipped to $369,000, from $391,100. The number of homes sold in December also plunged compared to the year before. Sales were down 41 percent in Broward and 39 percent in Miami-Dade." "Tom Flood of HomeBanc also noted the market's wobbly performance. 'The market is like a drunk boxer,' he said. 'Prices can't continue to go up or who is going to be able to afford to live here?'" "The once-blistering Palm Beach County housing market cooled off in December. The number of existing-home sales dipped, and the county's median home price fell to $408,200, from $421,500 in November. The number of homes for sale in Palm Beach County has nearly tripled in the past two years. The Regional MLS now shows 20,399 homes for sale in the county, up from 7,799 two years ago." "West Palm Beach broker Steve Hollander said the increase in homes for sale has forced him to order more yard signs. 'I'm running out of signs,' Hollander said. 'I've got more listings than I've ever had.'" "Palm Beach County's public school enrollment dipped to 477 students for the 2005-06 school year, and Hunter thinks escalating home prices are partly to blame. 'I have to infer that's the explanation for the sudden drop,' Brad Hunter said." "Homeowners are discovering the Space Coast no longer is so much of a sellers' market. 'It seems pretty tough right now,' said Neilyne Laasko, who put her house in Satellite Beach up for sale last week for $399,900. 'It seems like there are a lot of homes on the market, and I don't think that helps.' Housing expert Ingo Winzer said the outlook might not be good for Brevard. After a housing market is about 40 percent overpriced, the risk is fairly high for a market correction, said Winzer." "Existing home sales in the Naples metropolitan area dropped to 266 in December 2005 from 388 homes in December 2004. 'It was a combination of the continuing bubble press , the whole Chicken Little mentality and the holiday season,' said Bill Barnes, broker in Estero and Fort Myers." "Fred Stokes just listed his three-bedroom lakefront home in Boca Raton for $439,900, and interest from buyers has been slow so far. He realizes the real estate market has changed. 'The way I look at it is, I live in paradise,' said Stokes, 60, a grandfather of eight who has no immediate plans to cut his asking price. 'If I have patience, I'll eventually make money on the house.'"

'Nervous Developers Losing Taste' For LV Condos

2006-01-26T06:00:00.000-08:00

Time Magazine reports on the fading condo fantasy in Las Vegas. "Now that several high rollers in the Las Vegas condo-hotel game..are either folding or selling their holdings, a growing number of players are losing their taste for big bets on high-rise, residential real estate development." "Over the past two years, as high-rise fever spread across town. Buyers, mostly interested in flipping them for quick profits, eagerly anted up five-figure down payments, while developers planned more than 70 luxury towers holding a total of about 43,000 units on or near the Strip and downtown." "But the intense competition for the city's limited supply of contractors sent construction costs skyrocketing 30% last year, just as lending policies tightened, interest rates climbed and sales started to slow. Currently, just 18 projects are underway, and nervous developers have called off three high-profile projects over the past seven months. A number of others..either are being revised or postponed." "Back east, the luxury condo markets that have had similarly explosive growth in Miami and New York, where high-end apartments can command from $2,000 to $4,000 a square foot, haven’t slumped yet. Still, experts say the abrupt reversal of fortune in the desert, where the mainstream residential real estate and hotel markets are still quite healthy, shows just how quickly the odds can change in even the most affluent markets if runaway speculation and overzealous development take hold." "'It’s another case of irrational exuberance,' says John Restrepo, head of a Las Vegas real estate and economic consulting firm. 'There is a market for high-rise condo hotels here; but it’s not as deep as people thought it was. The days of the two guys from the East Coast or Canada coming into town and promoting a condo development with a website and a dream are over.'"

'False Assertions Of Bubble Delay Sales': MAR

2006-01-25T14:53:00.000-08:00

The Massachusetts realtors have the December numbers out. "Sales of detached single-family homes fell in December for a third consecutive month compared to year ago levels, the first time since April-June 2003 that detached home sales have declined for three straight months." The talking points memo somehow forgot to mention what the full PDF file states. The year-over-year decline in detached SFH sales was 8.8%, with 3,574 sold. "The more moderate sales pace reflects softening buyer demand due to higher mortgage rates and a weak job market, as well as increased inventory levels, which have led to a more balanced market in which buyers don’t feel the same sense of urgency to make a quick offer as they did when supply levels were tighter. False assertions of a price bubble in the local market also have prompted some buyers to delay their home buying decisions" "The sales decline of 3.7 percent that took place between November and December is not unusual and generally reflects seasonal changes. On a month-to-month basis, home sales have now declined for four consecutive months, dating back to August 2005." "The supply of detached single-family homes on the market rose for a tenth consecutive month in December, increasing 31.8 percent over the past year from 22,593 homes for sale in December 2004 to 29,771 this December. Inventory, as stated in months of supply also has risen steadily from 5.8 months last December to 8.3 months of supply in December 2005. Active listings are up from November as well, when there was 28,152 listings and 7.6 months of supply." "In Massachusetts, the market is at equilibrium for buyers and sellers when 7.5-8.5 months of housing supply exists, thus despite concerns about an inventory glut, there’s a healthy balance between supply and demand at the present time." "First-time buyers and empty-nesters looking to downsize and purchase second homes continue to boost condo sales to record levels. The 1,627 units sold in December set a new state record for the month, eclipsing the prior record of 1,580 condos sold in December 2004. The number of condos for sale has increased 43.2 percent in the past year, from 10,180 units last December to 14,581 in December 2005. Inventory, as stated in months of supply, also has risen in the past year, climbing to 9 months of supply this past December from 6.4 months of supply in December 2004." "Compared to a month earlier, condo listings have increased 12 percent from November when there were 13,024 condo units on the market and 8 months of supply." "The statewide median selling price for detached single-family homes rose modestly by 2.6 percent in the past 12 months to $354,000. The predictions of steep price declines in home values that were made this fall are largely unfounded. While the current median price is 5.6 percent below the record high monthly median of $375,000 set in July and August 2005 (due to monthto-month price declines in September and October), prices rose 1.7 percent in November and have stabilized in December." "Condo prices also have begun to moderate, with the statewide median selling price rising 3.8 percent in November from year-ago levels. The median price of $275,000 is down 4.5 percent from the record high median selling price of $287,900 set in July 2005."

California Existing Home Sales Fall 17%

2006-01-25T13:02:00.000-08:00

The California realtors have this on Decembers' sales. "The median price of an existing home in California in December increased 15.6 percent and sales decreased 17.6 percent compared with the same period a year ago, C.A.R. reported today. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in December 2005 was 3.6 months, compared with 2 months (revised) for the same period a year ago." "Sales dropped 37.6 percent in Monterey County, 34.8 percent in the Monterey Region, 32.8 percent in Northern Santa Barbara County, 32.2 percent in the Sacramento area, 30.7 percent in Northern California, and 30.4 percent in Santa Cruz County from December 2004 to December 2005, the association reported." And Broderick Perkins has this at Realty Times. "Some mortgage shoppers in the Golden State may be the first to be underwritten out of the home buying market. A data crunching company's new index, designed to help Californians choose less risky housing markets, says California lenders, fearing rising default risk levels, are already more closely scrutinizing mortgage applications." "During the last six months of 2005, risk levels for new mortgages statewide increased an average 28.6 percent in the Golden State, according to San Juan Capistrano-based HomeSmartReports.com, which for the first time offered such data to the public." "'The frenzy we saw in more coastal markets last year moved inland at the same time as interest rates were edging up. Some neighborhood sales patterns are showing signs of market stress, and buyers may be stretching their finances. Lenders are evaluating loan applications and appraisals much more carefully,' said Mike Ela." "Ela said the problem is exacerbated by home builders developing large plots of homes and offering easy-money, no and very low-down payment financing to buyers stretching to become home owners. Home owners with no or small equity stakes in their homes are more likely to quit home ownership. 'The moment things get tough, people walk away from homes and you are left with an excess supply of homes,' Ela said." "Even if it means putting a damper on the housing market, lenders have little choice but to curtail their risk. Jonathan Lansner a columnist with the Orange County Register said local lenders including New Century, Impac and Downey were experiencing smaller net interest margins, the gap between a banker's cost of money and income from loans, compared to the margins a year ago." "The risk factor is lowest in coastal Southern California and the San Francisco Bay Area and highest in the rural Central Valley. The greatest increases came in the Salinas and Santa Cruz-Watsonville areas."

Discounts Offered To Combat Cancellations: CTX

2006-01-25T11:36:00.000-08:00

Market Watch has this report on Centex. "There's no question demand is slowing in certain markets, such as Phoenix and Washington, D.C., Centex executives said. Cancellations ticked up 175 basis points to 27.2% in the fiscal third quarter ended Dec. 31. But Eller said this still falls within the company's historic cancellation rate average of 20% to 30%. The biggest cancellation increases came in Phoenix, Indianapolis, Minnesota, San Diego, Sacramento, Calif., and Reno, Nev." "To combat this, the company has started offering incentives and discounts, such as special 12-hour 'blowout' sales, to drive traffic and sales at some communities. Chief Financial Officer Lel Echols emphasized the discounting sales were held in markets that had seen 'heavy runups in prices in the last year,' where the discounts simply brought prices back to levels they were at six months ago. " "Chairman and CEO Tim Eller said the company's wide geographical footprint should allow Centex to offset weaknesses in some markets with strength in others. 'For example, frothy markets such as Phoenix and Washington, D.C. are moderating, but our operations in the Carolinas and Texas are accelerating,' Eller said. 'Right now, our Sacramento and San Diego operations are also moderating while our five other California markets continue to be strong.'" "Orders, which reflect revenue two or three quarters down the line when a home sale closes, rose only 4% in the quarter. Several regions experienced year-over-year declines: The Mid-Atlantic, Southeast and Midwest saw orders fall 8%, 15% and 3%, respectively. This was partly offset by order increases in the Southwest and West Coast, where orders climbed 28% and 10%, respectively." "Echols sees the slowdown in Washington as a temporary phenemona that will likely rebound within a few quarters. 'The speculators, let's call it the flipper-speculators, are exiting the (Washington) market and putting inventory on the market, and that inventory is being worked through through the normal sales process,' said Echols." "Centex has been aggressively buying back stock, having repurchased 5% of the company's shares outstanding in the past four months. Eller said the company expects to continue repurchasing shares." Update: From Marketwatch. "'Speculators are pulling out,' said David Lereah. 'I expect further softening in prices,' Lereah said."

Seattle Builders 'Dogpile' Luxury Condo Market

2006-01-25T10:05:00.000-08:00

The Seattle Post has this report on the 'luxury' condo boom in that city. "All signs point to go in the completion of downtown Seattle's recovery from the last economic downturn, but if developers aren't careful, they could overbuild and be left in the lurch. Builders also should be careful not to dogpile too much on the luxury market, which has been the focus of a spate of condominiums proposed in downtown, with nearly 20 buildings in the pipeline. That analysis came out at the Downtown Seattle Association's state of downtown economic forum." "'Affordability has basically nose-dived,' said Hessam Nadji. 'And that is going to be a hindrance, limiting growth, because it will prevent companies from moving here.' Nadji said that a greater diversity within Seattle's business ecosystem would enable the city to better withstand another recession." "Some regional developers (are) primed to put their bid on Seattle's future. And contrary to Nadji's cautioning, it all seems focused on luxury, leaving the middle class to figure it out or get out of town." "The positioning of Second + Pine, in the Pike/Pine corridor..is part of a larger city-supported initiative to revitalize the link between the two tourist centers to make it easier for money to flow freely there. Belltown resident and Washington State Convention and Trade Center Chairman Frank Finneran said petty street crimes, which he witnesses on his daily walk to work, cast a pall on marketing efforts for the center." "Figure in how the various projects proposed for the Pike/Pine corridor, including the lavish Four Seasons hotel and condos going up next to the Lusty Lady, (which) could help replace the pawn shops and sex stores with better offerings to capture those incoming dollars, and you've got the city's plan. What that doesn't include, though, is how to maintain a balance between the target audience: those who can afford such condos and those needed to provide the city's services." "Second + Pine's 115 condos, averaging between 1,000 and 5,000 square feet, are priced at between $550,000 and more than $5 million. 'Some of these prices are pretty hefty,' said Kate Joncas, Downtown Seattle Association president, referring to local condo market prices. 'Who are these people?'" "(Developer) Dean Jones..takes a hard line on the boundless rise of condo prices in the area. When discussing the sticker shock that could keep some of the condos on the market longer than developers hope, especially if all that is proposed is built, Jones said, 'Honestly, people need to get over it. That's just what it is.'"

Florida Existing Home Sales Fall 15%

2006-01-25T08:53:00.000-08:00

While the Florida realtors group hasn't released the full numbers, there is this press release. "The median price for existing single-family homes in Florida continued to rise in December, reaching $247,000, an increase of 27 percent compared to the statewide median price of $194,000 in December 2004, according to the Florida Association of Realtors." "Statewide, a total of 17,505 homes sold last month compared to 20,592 homes sold in December 2004, for a drop in the sales pace of 15 percent during the holiday period. Realtors across the state reported that inventory levels appear to be on the rise following months of tight supply in many markets." Comparing the data we do have with last months release provides these numbers, which are price declines from the previous month and percentage declines from November, 2004. Ft. Lauderdale, from $391,100 down to $369,000, sales off 41%. Gainsville, from $197,100 to $190,400, sales flat. Punta Gorda, from $236,900 down to $223,800, sales off 25%. West Palm Beach/Boca Raton. from $421,500 to $408,200, sales off 37%. Sarasota/Bradenton prices flat, sales were down 42%, YOY.

Existing Home Sales Continue Slide

2006-01-25T07:03:00.000-08:00

The existing home sales numbers are out. "Sales of existing homes set a record for a fifth straight year in 2005 even though the year ended on a weaker note with three straight monthly declines, sending a strong signal that the nation's housing boom is beginning to cool." "The National Association of Realtors reported that sales of previously owned homes and condominiums dropped by 5.7 percent in December compared to the sales pace in November. It marked the third consecutive monthly decline, something that has not occurred in more than three years." The median for the US was $211,000, down from the October high of $218,000. Median prices in the west were down to $318,000 from Novembers $333,000. And even though inventory was down 4.4% from November, the 'months sales' figure climbed to 5.1. The annual pace of sales fell to 6,600,000, from Novembers 7,000,000, and a high of 7,350,000 in June of 2005. "'Clearly the air is coming out of the balloon,' David Lereah, chief economist at the Realtors' group, said. 'We're transferring from a sellers' market to a buyers' market.'" "Home resales fell 11 percent in the West to 1.40 million. They were unchanged at 1.09 million in the Northeast. In the Midwest, sales fell 2.6 percent to 1.52 million, and they fell 7.2 percent in the South to 2.58 million. 'I have a lot of confidence that these balloons won't burst,' Lereah said. 'They're balloons, not bubbles.'" Update: Inman News reports that excluding condos, the sales are worse. "Existing condominium and cooperative housing sales increased 1.6 percent to a seasonally adjusted annual rate of 877,000 units in December from a level of 863,000 in November. Last month's sales activity was 4.5 percent higher than the 839,000-unit pace in December 2004." "Single-family home sales declined 6.8 percent to a seasonally adjusted annual rate of 5.72 million in December from 6.14 million in November, and were 4.2 percent lower than the 5.97 million-unit pace in December 2004."

Cruise Ship Condo Conversions Planned

2006-01-25T06:59:00.000-08:00

Inman News reports on the latest evidence of a housing bubble. "About 70 percent to 75 percent of the Earth's surface is covered in water. For condo developers, this means that something less than 25 percent to 30 percent of the globe can be stacked with residential units. Then again, what if condos could float? It's easy enough if you build them on a boat, and it's already happening." "To sell these units, promoters are using glitzy Web sites that gush glowing imagery of lavish living and travel adventures. And while the land-based condo boom has subsided in some previously hot markets." "There are tradeoffs for this seafaring lifestyle. While promoters say there are plenty of advantages to ship-based condos, the monthly maintenance costs can be high and ships tend to depreciate in value and will eventually be taken out of service." "Most of the residential units aboard The World area available for rent, according to ResidenSea. Renters must stay at least six nights, with rates starting at $1,200 per night, including food, port charges and gratuities." "John L. Letham, for a company that is promoting The Orphalese project, would not reveal how many of the units have been sold to date. To boost sales, company representatives are planning to appear 'at a number of prestigious yacht clubs over the next few months. Now we think we're ready to take this on the road,' Letham said. Last year, the company focused its sales effort in landlocked Las Vegas, a city that had seen an explosion in planned high-rise condo projects over the past few years." "Letham said that The Orphalese is definitely competing with land-based residential condo projects for buyers. 'We do see some of the competition being land-site high-rise condos. The only problem..(those) don't move.'" "The Orphalese will be retired after 50 years, and 'put into dry dock at a 'leading city of the world' to become a floating hotel/condo,' Letham said. If the project fails to get off the ground and into the water, Letham said that money will be returned to the prospective resident-owners." "And then there is the more budget-minded Condo Cruise Lines proposal for a series of more affordable ships that convert mothballed cruise ships into residential vessels. Mark Boyd, the visionary behind Condo Cruise Lines, said he hopes to launch a fleet of five condo ships. Units will range in price from $349,000 to $529,000, said Boyd, with annual fees ranging from $7,000 to $10,000 a year." "Unlike land-based condos, the sales of the ship units are not technically considered real estate transactions, Boyd said. Rather, it is a real property transaction, in essence buyers own 'a tin box in the midst of a ship that goes to sea,' Boyd said, adding that you don't need a real estate license to sell the units. Even so, some real estate agents are specializing in the sale of these properties." "'A lot of agents and brokers have gone nuts over this. It's fresh new inventory for them. They're easy to sell, and investors (can) make a lot of money,' he said. 'It's just like pre-construction condos.'"

Fall In Existing Home Sales Expected: Survey

2006-01-25T05:50:00.000-08:00

Bloomberg has this report before the NAR release is out. "Sales of previously owned homes fell in December for a third straight month, evidence that housing demand was starting to falter at the end of a record year, economists said before a private report today." "Sales of existing homes fell to a 6.87 million annual pace last month, the slowest since March, from 6.97 million in November, according to the median of 59 forecasts in a Bloomberg News survey. Sales haven't fallen for three straight months since 2002. They are down from a record 7.35 million rate in June." "'For existing home sales, we may have passed the peak in 2005,' said (economist) Mike Englund. 'The story line for 2006 is going to be a slowdown, primarily in those geographic areas that have seen big gains.'" "The National Association of Realtors is scheduled to release its report at 10 a.m. in Washington. Forecasts range from 6.75 million to 7 million." "Applications to purchase homes dropped 21 percent by the end of December from a 12-month high in June, while filings for refinancing fell 54 percent from their yearly high, also in June, according to figures from the Mortgage Bankers Association. 'Rising home prices, higher mortgage rates and declining affordability are starting to affect housing demand,' said Peter Kretzmer, a senior economist at Banc of America. 'Evidence continues to mount that the housing market is cooling off.'" "Home resales, which account for about 85 percent of the residential real estate market, are tabulated at contract closings and reflect buying decisions made a month or two earlier. Purchases of new homes are counted when a contract is signed, making them a better gauge of current conditions, economists said." "The Commerce Department will report new-home sales figures for December on Jan. 27. Sales may have fallen to a 1.225 million annual rate last month, the lowest since January 2005, from 1.245 million in November, based on the median estimate in a Bloomberg survey of economists."

Appraisal Inflation 'Systemic', Process 'Broken'

2006-01-24T14:58:00.000-08:00

The Broker Universe site has this editorial by William C. Apgar, the former Federal Housing Administration Commissioner and currently Senior Scholar at Harvard University's Joint Center for Housing Studies. "The American Dream of home ownership has become a reality for more people than anywhere on the globe. Lending money based on the securitization of loans backed by real estate has been the rock on which this phenomena has been built. Fundamental to this system is the fair, objective and unbiased valuation of the real estate that secures these loans and provides the confidence Americans have in the value of their home." "As it is not uncommon today for a lender to be on both sides of the equation, making the loan and picking the appraiser, the federal regulations seek to separate the appraisers' work from other aspects of the transaction. That is the idea, anyway, but not always the practice. In practice there are lenders that hire staff appraisers who are picked by and report to the lender's loan officers. Certain lenders and title companies own or are part owners in appraisal companies." "In May 2005..the regulators again issued guidelines, warning that financial institutions 'may not fully be recognizing the risk inherent in their aggressive lending standards.' In June, on the heels of this 'shot over the bow,' a nationally recognized consumer group..determined in their study 'problematic appraisal practices exist as a serious impediment to responsible lending, impede fair housing and equal access to credit, and place the American Dream of homeownership and the safety and soundness of the mortgage marketplace at risk.'" "Today, no one can accurately assess how many homes are overvalued in the U.S. housing market and for how much. There are those who argue that there is no such thing as appraisal inflation and therefore, no problem exists; if a buyer is willing to pay an asking price, then the price isn't inflated. True enough. But, when appraisal inflation becomes systemic to the loan process and when almost half of appraisers say they are pressured to inflate appraisals by others involved in the loan closing, then maybe it is time to change the way appraisals are ordered." "This is a time of transition for the mortgage marketplace. Economists agree that although there is no nationwide housing bubble there are 'regionalized bubbles' where housing prices seem to have risen to unsustainable levels and price declines have been predicted over the next two years. The mismatch between income gains and higher real estate values in some cities is particularly striking. How can someone earning $70,000 a year afford a $500,000 home? They can't over the long run." "This issue is systemic industry-wide, as the entire process from the regulators to the lenders to the third party interactions of the loan officers and the Realtors/builders is broken. It certainly will take a collaborative effort from the entire industry to unravel the pyramid of bad practices that have occurred over the past ten years."

Inventory Piles Up At Centex By The $Billions

2006-01-24T14:32:00.000-08:00

The homebuilder Centex had result out this afternoon. "U.S. home builder Centex Corp. said on Tuesday its fiscal third-quarter net earnings rose 30 percent as it sold more homes at higher prices. 'The long-term fundamentals driving the industry remain strong, and we continue to see opportunities to gain market share in a more normalized housing environment,' said Tim Eller, Chairman and CEO of Centex Corporation." But why can't the firm generate enough cash? For the nine months ending 12/31/05, in millions: $898 -Net Earnings 49 -Depreciation/amortization (33) -Other (2,255)-Increase in Inventory 224 -Other Operating (912) -Increase in Loans Held For Investments, (These are MBS's) 124 -Other Investments 1,782 -Increase in Short-Term Debt 114 -Issuance of Long-Term Debt (461) -Other Financing Activities (2) -Exchange Rate Effect (424) -Net Decrease in Cash & Equivalents On March 31, 2005, the firm had $503 million in cash. By the end of the year they had $79 million. Centex had a year end accounts payable of $2.4 billion. Total inventory grew from $6.43 billion to $8.67 billion over the same period. Now we know why the company is running specials. The firms 'Lot Position' is up 14% as well. Lots owned..106,597 Lots controlled..187,126 Total..293,721

'Available Supply Of Homes Is Good News': NAR

2006-01-24T12:04:00.000-08:00

Some economist are concerned about housing prices. "While the recent rise in prices in the U.S. housing market is not currently indicating a bubble, the increases may be showing the emergence of one, according to a new report released by the BMO Financial Group. However, bubble conditions are unambiguously emerging in several local markets, especially in the West." "'Bubble conditions may not be present yet but are approaching such and thus require close monitoring going forward,' stated (economist) Paul Ferley. 'Sizeable declines in housing prices occurred in the early 1980s and the early 1990s, but both of these periods followed recessions,' said Ferley." "Although housing prices and the national trade deficit worry him, the chief economist at Comerica Bank said the economy is much more resilient than many think. Don't worry that short-term interest rates will be above long-term rates, he told his audience. Normally, that signals a recession." And Realty Times reports on NAR numbers. "The National Association of Realtors reports that in November, housing inventory, the number of homes available for sale, rose to its highest level since April 1986. Among the cities that topped the list; Chicago, Illinois; Binghamton, New York; and Boston, Massachusetts." "Chicago, Illinois, peaked at the top of the monthly supply survey completed by NAR. In it they found that the Chicago area had an inventory increase of a staggering 132.2 percent. It seems that everyone wanted to get on what they thought was the last stand for the sellers market." From the report. "The housing market is going through a transition, shifting from a hot sellers market, as it has been for several years now, to a more-balanced market...And slowing sales are good for the long-term health of the housing sector. So we should welcome a moderate slowdown, not panic from it." "It is also useful to look at the top 10 markets by increase in month-supply from the third quarter of 2004 to the third quarter of 2005. These would be the markets that some might consider as potential 'red flags' because of the run-up in inventory." "Top Ten Markets ranked by increase in Months Supply" Percentage change, 3rd quarter 2004 compared to 3rd quarter 2005. Chicago/Naperville/Joliet....132% Binghamton, NY...............125% Boston/Cambridge/Quincy......115% Washington, DC................98% Baltimore/Towson..............95% Palm Bay/Titusville, FL.......94% Champaign/Urbana, IL..........83% Cumberland, MD WV.............73% Hagerstown/Martinburg, MD WV..64% Madison, WI...................55% "Don't Panic...So, even though inventory may rise, home prices are not necessarily headed for a downturn. It is true that price appreciation may slow due to a softening of demand because of higher interest rates. But there will still be buyers out there. The good news is that there will be an available supply of homes for them to purchase."

Moving Towards Equilibrium In Coachella Valley

2006-01-24T09:34:00.000-08:00

The Desert Sun has an update on the Palm Springs housing market. "The Coachella Valley's median home sales price slipped a bit in December from its record $400,000 posted in November. But at a median of $390,000, the figure was still 15 percent higher than a year ago. The trends have shown fewer homes being sold in recent months and staying on the market longer." "December valley home sales counts were down from year-ago levels in most categories tracked by DataQuick. The overall 990 homes sold was down 7.6 percent, the count for resale condos was down 33.6 percent, and the total of new-construction properties sold dropped 10.7 percent." "According to Greg Berkemer of the California Desert Association of Realtors, local unsold inventory continues to grow, from 5,657 properties in December to 6,395 as of Monday, as the market moves toward equilibrium between buyers and sellers." "To ease the sale of a house he purchased in Palm Springs in August and placed on the market in October, longtime investor Rick Castro of Rancho Cucamonga is trying a method that he said has worked well for him and other investors elsewhere in Riverside County. He is offering the four-bedroom home, located in an older neighborhood..with an asking price of $450,000, with a rent-to-own option." "There is no formal qualifying process, but Castro is looking for buyers with a steady income. His terms: pay $7,500 in initial move-in costs and $1,800 for rent. Provided the buyer stays for the term of a one-year lease, $1,350 out of each month's rent payment will go toward the purchase price. 'Not everybody has $20,000 or $25,000 to put down as a downpayment on a house,' Castro said Monday. 'If they have decent credit and decent income, this can work for somebody buying a house for the first time.'" "Carl Ingram, a real estate agent in Rancho Mirage, predicted that a continually tightening market will prompt more sellers to try similar methods, or at least lower their asking prices. Pressure on sellers could heighten if mortgage interest rates rise, or if sellers begin to feel pressure as the introductory terms on their 'exotic' loans expire in the next two years." "Right now, Ingram said homes priced below $400,000 are selling briskly, while sellers of homes priced higher are getting fewer bites, depending on homes' amenities. 'It's gotten to where if you don't have a swimming pool, don't expect to sell very fast around here,' said Ingram. He said he is advising selling clients to consider lowering their asking prices by 10 percent if they have not received serious offers in the first 45 days."

'Unwitting Victim' Inflated Thousands Of Appraisals

2006-01-24T08:16:00.000-08:00

Details are emerging about the Ameriquest settlement. "The settlement between attorneys general in 49 states and Ameriquest, the nation’s largest lender to consumers with less than perfect credit, was announced Monday in Los Angeles. Ameriquest has characterized itself in that case as an unwitting victim of rogue employees who colluded with corrupt appraisers and brokers. A company spokesman said Monday that a restructuring plan..would make appraisal-related fraud more difficult." "Investigators accused Ameriquest of deceptive practices. They included failing to disclose prepayment penalties, misrepresenting the cost of refinanced loans, and causing inflated appraisals from 1999 to 2005, a period of soaring home sales during which the company wrote $106.5 billion in loans." "'The bottom line is that this was a refinancing market in which they were trying to be very aggressive, and they used unscrupulous tactics,' said Missouri Attorney General Jay Nixon." "Federal investigators contend as many as 1,000 Kansas City urban homes were sold with inflated appraisals and forged documents. According to private lawyers, at least 12 class-action lawsuits were pending against the company. The lawyers said they also would inform consumers of their option to sue Ameriquest privately for more money." "One Missouri consumer, Annie Lewis, said she ended up with a loan she couldn’t afford. After she refinanced her Kansas City home through Ameriquest, she said she was shocked to learn her interest payment increased from $645 a month to $820 a month. She later learned from other lenders that 'my property was overappraised.'" "The settlement between the mega-lender and the attorneys general of 48 states, including Massachusetts, halted the investigation into the company's fraudulent lending practices. The investigation found that salesmen for the privately held Ameriquest were encouraged to engage in practices including concealing interest rate and loan costs during the loan processing period, and pressured appraisers to inflate the value of borrowers' homes." "A Whitman resident complained that Ameriquest inflated the value of her house to get her family to borrow more money. Ameriquest then wrote her a high-interest, adjustable rate mortgage, but promised that she could refinance again and get a fixed rate loan within six months. Ameriquest later reneged on that promise, forcing the woman to pay a $6,000 pre-payment penalty when she opted out of the loan." "Lawyers handling private lawsuits against the company criticized the settlement funds as inadequate. Many Ameriquest customers have lost their homes in foreclosure, including many working people of modest means who live in Lowell, Lawrence, and the Plymouth area. Loan fees often amounted to $10,000 or more." "'Many of the affected homeowners paid tens of thousands of dollars in fees and higher interest rates than they should've had to pay, and under the settlement they'll only get a small portion of that back,' Boston lawyer Gary Klein said. Klein said many Ameriquest customers now face the decision of whether to accept the attorney generals' proposed settlement or wait for possibly greater financial relief from class-action suits that have been filed around the country against Ameriquest." "'They'll give up their rights' to participate in the suits, he said, 'if they take money in the AG settlement.'" UPDATE: "Iowa Attorney General Tom Miller led a group of state Attorneys General and financial regulators who brokered the agreement. Miller says they found a variety of problems in the tactics used by Ameriquest. Miller says one of the things the company did was to try and 'up-sell' the loan, or sell them a loan for a higher interest rate and or higher charges than the person had been approved based on their credit history. Miller says the salespeople were given incentives for 'up-selling.'" "He says the more the company overcharged the consumer, the more the salesperson got paid. Miller says there was also a culture of 'doing whatever it takes to sell, sell, sell, and that created a lot of violations.' Miller says there were also a variety of problems with the appraisals used by Ameriquest. Millers says homes were appraised higher, in some cases much higher than they were worth to accomplish the loan. He says the company also made up income when the customer didn't have enough income to justify the loan."

Skinnydipping In The Housing Bubble

2006-01-24T06:55:00.000-08:00

Robert Kiyosaki is talking about the housing bubble again, "We all know a real estate crash coming. The problem is we don't know when. One of the more popular predictions floating around is that investors are now moving out of real estate and back into the stock market. Another prediction, which I think is valid, is that the real estate market is set to crash because of the high costs of building materials." "But such rumors only affect those investors who, as Warren Buffett says, 'take their cues from price action rather than from values.' During such periods of high prices and volatility, it's even more important to pay attention to value, more than price." "Buffett said: 'For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for someone else.' The sage of Omaha sums up pithily: 'The dumbest reason in the world to buy a stock is because it's going up.'" "Personally, I would say, 'The dumbest reason to buy anything is because the price is going up.' Yet that's what people do when they invest. They generally don't buy high-priced things when they shop." "For example, if Safeway had a sale, 25% off everything in the store, the supermarket would be swamped. Yet, when the stock market or real estate market has big discounts (often called a crash or a burst bubble), that same shopper runs away from an asset sale. Instead, they wait until prices are high and other fools are bidding them up further to finally buy." "Take market crashes. I love them because that's the best time to buy, finding true value is a lot easier during such periods. And since so many people are selling, they're more willing to negotiate and make you a better deal." "Now, more than ever, it's important to focus on value, not price. When prices are low, finding value is easy. When prices are high, value is a lot harder to find, which means you need to be smarter, more cautious, and resist your knee-jerk reactions. A final word from Warren Buffett: 'It's only when the tide goes out that you learn who's been swimming naked.' In my opinion, there are many naked swimmers, especially in the real estate market."

A 'New Lexicon' To Describe Falling Prices: RI

2006-01-24T06:22:00.000-08:00

The Providence Journal has this update on the Rhode Island housing bubble. "Rhode Island's housing market ended last year with overall prices up, sales down and selling time longer than it's been in five years. The statewide median price of a single-family house in the fourth quarter rose 5.6 percent, to $285,000. That's compared with a 13-percent increase in the median price during the fourth quarter of 2004." "During October, November and December, house prices fell in nine communities: Tiverton, Barrington, Bristol, Johnston, Lincoln, Smithfield, Westerly, Narragansett and East Greenwich." "The market's downshift has forced real-estate agents to adopt a whole new lexicon for describing what is taking place. The housing market is 'tempering' or 'moderating' or 'becoming more balanced.' 'It's not quite as frenetic,' said Bob Del Deo, a real-state agent on the East Side of Providence. 'It's a more rational market.'" "Michele Caprio, president of the Rhode Island Association of Realtors, said, 'Generally, there's been a sort of tempering effect..I'd say the market's moderating.' The market shift has meant that sellers with 'elevated expectations' are getting a dose of 'realism,' the agents say, but, some say, customers aren't getting it soon enough." "'I lost a listing this morning where two other [agents'] prices were higher,' said Peter Ciccone,a real-estate agent in East Greenwich. 'I just said..it's probably gonna sit' on the market. 'And I don't want to get stuck.'" "In East Greenwich, the median price during the fourth quarter fell 15 percent, to $480,000, compared with $565,000 during the same period in 2004. Similarly, in Bristol, the median house price during the quarter fell 10.4 percent, to $326,950, compared with $364,900 during the fourth quarter of 2004." "The market's shift has created a 'communication barrier' between sellers and buyers, said Ron Phipps, a real-estate broker in Warwick. 'I have a significant number of sellers in East Greenwich who got offers in the last quarter and refused them,' he said. 'The buyers were reading national press and saying, 'I can offer 10-percent less than the list.' And the sellers were saying. 'I'm not selling!'" "Ciccone said sellers are 'used to the last five years..If you throw realism at them, they don't necessarily want it. There's nothing wrong with a flat market," added Ciccone, 'it just means we can't have these inflated prices.'"

Phoenix 'Dealbusters' Include 'Dump And Run'

2006-01-23T17:29:00.000-08:00

The Arizona Daily Sun hasthis report on Flagstaff's housing bubble. "The number of for-sale housing units brought onto the market in the city of Flagstaff last year was up substantially from 2004. But the extra supply still didn't keep pace with demand, as costs here skyrocketed. In total, 634 new housing units were built in 2005. The only year in the past five that topped that number was 2003, when 733 units were built." "That year, the median housing price was $212,000 and the median family income was about $51,800. In 2005, the median house price hit $300,000 but the median income hasn't increased significantly since 2003." "Some other factors that played into this year's market boost included...increased traffic from second-home buyers, which has grown to about 25 percent since 2000, and Flagstaff's ever dwindling land supply." And the Arizona Republic had this, "Rising prices, government bottlenecks and construction delays didn't stop the market from racking up 63,570 permits for new homes, about 4.4 percent more than the 2004 record, analyst RL Brown said. Brown made his remarks at a market forecast Monday that drew more than 1,000 builders, developers, land brokers, bankers and government officials to a north Phoenix resort." "Housing forecasts are drawing particular attention these days as the Phoenix market cools and the players look for consensus on what happens next. Predictions at another recent housing forum said that from 35,000 to 45,000 homes would be built in the Valley this year, a much steeper decline than the one Brown foresees and one that could damage a local economy that relies on housing as its top industry." "Brown said the median price for a new home in the Valley rose $98,000 to $299,000 in 2005, increases he said would not be sustainable. Brown said, an acre of land that cost $7,000 to $8,000 rose at the beginning of last year sold for $80,000 at the end of the year. Still, he said, builders' margins were running 20 to 25 percent in the Valley, a record for the area." "Brown cast some skepticism on the city's growing condominium craze. He said some apartment buildings that are being converted to condos have little chance of selling well and predicted that 15 to 20 percent of the announced 'vertical' or high-rise condo projects will be built. 'Condos will not become the dominant lifestyle choice for consumer in this marketplace,' Brown said." "He expects that the shakeout of speculators in the resale market will continue. Among Brown's big worries, or 'dealbusters' that could derail the market..a mass exodus or 'dump and run' by housing investors."

For Some, Second Home 'Badge' A 'Hassle'

2006-01-23T14:28:00.000-08:00

The Christian Science Monitor looks at second homes. "Sales of vacation homes have surged in the past few years, accounting for 13 percent of all homes purchased in 2004. Some owners buy a second home as an investment. Others use it as a badge to proclaim status. 'Some people buy second homes for what we call 'badging,' says Patricia Breman, a consultant for a market research firm. 'It's a way of saying 'I've arrived, I'm successful, I can afford to do this.'" "Whatever the reason for the second address, owners acknowledge that maintaining two places brings challenges. Last year, to maximize the time they could spend at their cabin, Deva and Stan Taffel sold their house and moved to an apartment in Sherman Oaks, Calif. 'It was a means to make the whole second-home lifestyle more enjoyable,' she says. 'When we owned our house, my husband would say, 'Do you want to go to the cabin this weekend?' I'd look at my garden and say, 'I can't.' You don't want to be tied to the place you're trying to get away from.'" "Susan Newman, who commutes between two houses in New Jersey, also describes the routine as hard work. Beyond that there is the transition between houses, leaving one life for another life. 'You just don't walk into one place and settle down immediately,' she says. As an author, Newman can work in both places. But, she says, 'You don't always have to go. You can say no. You don't want to be a prisoner of your second home. It's an inanimate object. You don't want it to be running your life.'" "Asked about the worst aspects of owning a second home, one-third of survey respondents listed maintenance, repairs, and upkeep. Fifteen percent cited taxes as the biggest drawback. For others, like Scott Testa of Blue Bell, Pa., the best solution is to sell. For 10 years he and his wife have owned a vacation house on the New Jersey shore, two hours from their home in suburban Philadelphia. They spend three or four weeks a year there." "'The thrill has worn off,' he says. 'We have found that it's more hassle than it's worth. Stuff breaks. You have renters. It's a responsibility.' He feels obligated to use the vacation home when it is not rented, but adds, 'I want to go to other parts of the country and the world, and not be obligated to go to one house.' The couple is considering selling both houses and buying a larger primary home."

''Early Stages Of Adjustment' For 'Bubble Zones'

2006-01-23T12:21:00.000-08:00

CNN has a new report out. "Although many overheated U.S. housing markets lost steam during the third quarter of 2005, most still grew less affordable. That's according to the a real-estate market research provider. Through the third quarter of 2005, 79 of the 100 surveyed markets had gotten more expensive." "At the top of the list for overpriced cities was Santa Barbara, Calif. at 86 percent overvalued. The average home there should cost $308,900, according to the (research). Instead it sold for $573,100. Overall, 37 markets were found to be severely overpriced, which meant that they were at least 15 percent more expensive than they should be." "The level of over-valuation matters in three ways, according to Ingo Wenzer. The higher it is, the greater the risk of it correcting; the greater the correction can be; and the longer it will take to return to present-day prices after they fall. 'Once markets are overpriced by 40 percent or so, the risk is pretty high and the adjustment can take five to 10 years,' said Winzer." And from the Financial Times. "Data this week will shed needed light on the state of the US housing market. Figures from the NAR on Wednesday are expected to show a third consecutive monthly fall in existing home sales. The Commerce Department is expected later in the week to report a similar drop in sales of new homes and figures are due from the MBA. If the reports are as downbeat as expected, they will add to evidence that the US housing market is beginning to cool." "The ratio between average income and the costs associated with buying a home has risen to record levels. 'Strong price growth momentum has resulted in very high prices relative to incomes across the country,' says (economist)Ian Morris. Mr Morris says a 'bubble zone' has been created where house prices are overvalued by 35-40 per cent, equivalent to $6,000bn." "Merrill Lynch writes in a note that 'substantial evidence has emerged that the US housing market could be in the early stages of an adjustment process similar to that experienced by the UK.' 'There are already signs of softening in the new homes market in the US if you look at prices and the number of sales,' says David Bowers, chief global investment strategist at Merrill Lynch." "The University of Michigan consumer sentiment study shows that the proportion of Americans who believe it is a bad time to buy a house 'because prices are high' is at a level not seen since the early 1980s. The NAR, which has an interest in being optimistic, is predicting that house price inflation will slow from 12.9 per cent last year to 5.1 per cent in 2006."

'Declining Market Values' Slow Luxury Sales: CT

2006-01-23T11:14:00.000-08:00

This Connecticut article provides a rare look at that states' housing bubble. "Individual markets across Connecticut show new construction activity, positive sales and quality listings, including homes carrying multi-million-dollar price tags. 'There is a lot of new construction in the Greenfield Hill area [of Fairfield], and more and more people are pulling down little Capes on the beach and building beautiful new luxury homes instead,' says Mary MacKenzie, realtor in Fairfield. In addition, Fairfield has a strong new luxury construction market." "'The newer constructions are top-of-the-line, with high-end appliances and high-end construction details,' says MacKenzie. 'Those are gorgeous properties, but they also sit on the market because there aren't the number of buyers out there that can afford that high end.'" "'A lot of the people who have purchased 5,000 to 6,000-square-foot homes have lived in them for a year a two,' says MacKenzie. 'Then they decide that these homes are just way too big, and they want to downsize.' Consequently, this trend puts the homes that are only a year or two old right back on the market." "This turnover not only helps drive prices down for newer homes, but also presents more opportunity for Connecticut's mortgage brokers. So-called jumbo mortgages for luxury homes constitute only a small percentage of West Haven-based business, says Jack Ellison. This already small percentage might decrease further in 2006. 'I think we will see, not just in mortgages but the real estate market in general, sales of higher-end homes slowing down,' says Ellison. He believes this will result from declining market values, rising interest rates and a greater tendency toward caution on behalf of homebuyers." "Of those customers prepared to invest in a luxury home in 2006, many will be high-end borrowers seeking greater flexibility and options in their mortgage products. 'These borrowers like our option ARM [adjustable-rate mortgage] product a lot,' says Ellison." "Ellison recommends that homebuyers not worry too much about rising rates or declining market values. 'The fact that sales prices are stabilizing or declining slightly is not a bad thing for all of us,' Ellison says. If home values drop a few percentage points this year, but stabilize for a while and then increase again, say, in 2010, homeowners retain the equity that accumulated over four years. If, on the other hand, prices continue to increase drastically, eventually the market will hit a bubble." "'When that bubble bursts,' says Ellison, 'it is much more dramatic in its decline than a standard stabilization.'"

'Challenging Environment' A 'Sign Of The Times'

2006-01-23T09:07:00.000-08:00

Wall Street is sounding off on the housing bubble. "JMP Securities on Monday downgraded shares of a pair of homebuilders that operate in markets where the analysts see signs of a housing slowdown. The analysts said the sector 'may face some margin pressure in the second half of 2006 as pricing power decelerates and the use of incentives picks up.'" "JMP said both companies have exposure to areas where it sees slower home sales: Northern California, Phoenix and Florida." "JMP predicts a softer landing for the housing market than forecast by analysts who take a more negative view. 'We do not expect dramatic margin compression, as the bears believe, [because] we expect the builders will begin pushing back on their materials suppliers and subcontractors and will renegotiate land deals to more favorable terms.'" Inman News has this report on Ameriquest. "Ameriquest Mortgage Co. has finalized a $325 million settlement of allegations that it deceived borrowers, falsified loan documents and pressured appraisers to overstate home values, the Los Angeles Times reported Saturday. A task force of 49 states and the District of Columbia plans to announce today that the Orange County-based company and two affiliates, all specialists in higher-cost mortgages to borrowers unable to qualify for bank loans, agreed to overhaul their lending practices." "Industry experts told the Times the deal could in effect force rival lenders in the higher-cost loan market to adopt similar standards to avoid legal challenges from both regulators and consumers. These loans have been the fastest-growing segment of the mortgage market and now account for an estimate of approximately 20 percent of all such lending." "The settlement terms are designed to address a variety of allegedly improper lending practices detailed in a series of Los Angeles Times articles in the last year. In those Los Angeles Times stories, former and current employees alleged that top-down pressure to boost loan sales created a 'boiler room' atmosphere where workers forged documents, misled borrowers about rates and fees and inflated borrowers' incomes and home values to qualify them for loans they couldn't afford. Under the reported deal, hundreds of thousands of customers could be eligible for refunds." From Origination News. "Washington Mutual, Seattle, has reported that it earned just $47 million off its residential lending business in the fourth quarter, a 71% decline from the level of a year earlier. Compared with those of the third quarter, home lending profits fell by 75%. WaMu chairman and chief executive Kerry Killinger attributed the earnings dropoff to a 'challenging environment' in residential finance, including increased hedging costs and a flat yield curve." "The surprising thing about last week's announcement that Washington Mutual Inc. is moving 1,000 call-center jobs from Chatsworth to San Antonio, Texas, and Costa Rica is that it wasn't surprising. At least not to economic development officials. Dirt's cheaper in Texas than here. After Nissan USA moved its headquarters to Tennessee a few weeks ago, Jack Kyser, chief economist at the the Los Angeles Economic Development Corp, sent letters saying, 'Hey, we got a problem here,' to eight influential lawmakers, including Gov. Arnold Schwarzenegger. He got one response. It wasn't from Schwarzenegger. 'Basically, they act like they are in a bubble. They don't think anybody is competing from our job base,' Kyser said." And some headlines from NMN. "American Mortgage Network, the San Diego-based wholesaler better known as AmNet, has left the subprime business. Friedman Billings Ramsey has downgraded Fannie Mae's stock to "underperform" because the giant mortgage company could be stuck with higher capital requirements and slower portfolio growth for two years." "In what might be a sign of the times subprime giant Aegis Mortgage has tossed its correspondent division overboard. The privately held lender apparently bought its last loan in December."

Slow Market No 'Mystery' For Market Watchers

2006-01-23T08:25:00.000-08:00

The Grand Rapids Press reports on Michigans housing market. "Donna Carnes and her husband love the Jenison home they lived in for 12 years. They wish someone else would love it, too. The updated three-bedroom ranch has been for sale by owner or through a real estate agent since April. 'It's a lovely home and a wonderful family neighborhood where people take care of each other,' said Carnes, who moved to Arizona last fall and has made two house payments since then. 'It's quite a mystery why it hasn't sold,' she said." "Not so much for market watchers. The Carneses are trying to sell their home at a time when sales have slowed after a record year and listings are through the roof. Too many 'For Sale' signs and not enough people to pull them out has made for a good news-bad news scenario." "'I can tell you there's some great, great buys out there, because there are sellers who need to sell,' said Tom Kuiper, associate broker in Walker. 'If you're a serious buyer and want to do some picking, you can find a pretty good deal,' he said." "Grand Rapids-area sales in December were down more than 24 percent from the same month in 2004. At the same time, new listings were up almost 14 percent from a year ago. That means there's a 12-month supply of homes on the market, or 12 homes for every buyer. 'We've never had quite that supply, which makes more competition,' said Rick Voorhies, broker-owner in Jenison." "Homeowners realize they have to sweeten the deal. Tom and Jessica Borisch gave up about $20,000 and a home theater system to sell their house. So, after installing new appliances, the couple listed their Grand Rapids home for $202,000, slightly more than the $199,900 Tom paid for it. Then, they found their dream house in Ada. 'It was going to go away pretty quick, so we went with it and financed both homes,' Tom said. 'You can only afford to pay for that for so long.'" "After about six months, the couple accepted an offer of $184,000, only after agreeing to pick up $2,000 of the buyer's closing costs and to hand over a home-theater system they planned to take with them. 'It was going to take a lot to uninstall it, but we were going to do it,' Tom said. 'I couldn't let the offer go on account of something like that.'" "Dave and Jennifer Sears lowered the price twice, are willing to pay closing costs and have come to terms with the fact they won't recoup about $10,000 in upgrades. They also are open to creative requests from potential buyers. But the most common buyer request is a low price. 'That's what we've seen the most of,' Sears said. 'People are trying to low ball it and just see how desperate you are.'"

Housing Bubble A 'Reasonable Side Effect': AG

2006-01-23T07:06:00.000-08:00

The Washington Post looks at the Fed chiefs' legacy. "Beverly Wilmore is bracing for the tuition bills about to start rolling in after her 19-year-old daughter starts at Towson University this week. But she's not too worried, she figures she and her husband can borrow against their four-bedroom Gaithersburg home, which has appreciated from $250,000 when they bought it in 2000 to about $400,000 now." "Like many families who caught the housing boom, the Wilmores now have more debt than before they bought their home, but they also are wealthier. 'I'm thankful for the low interest rate,' said Wilmore." "When he leaves office Jan. 31, Greenspan leaves a nation awash in debt, record household debt and a record trade gap. 'The jury is out on his legacy in large part because of the debt' and the trade deficit, said Stephen S. Roach, chief economist at Morgan Stanley. 'You will not be able to truly judge his accomplishments until we see how this plays out in the post-Greenspan era.'" "U.S. household debt hit a record $11.4 trillion in last year's third quarter, which ended Sept. 30, after shooting up at the fastest rate since 1985, according to Fed data. U.S. households spent a record 13.75 percent of their after-tax, or disposable, income on servicing their debts in the third quarter, the Fed reported." "A sudden reversal in housing prices could trigger a recession if consumers cut back on spending and households have trouble paying their mortgages. Even without a crisis, the debt load will weigh on the economy simply because of the interest to be paid on it." "When questioned on Capitol Hill in June about criticism that the Fed's strategy had helped inflate a housing bubble, Greenspan suggested that such imbalances were an acceptable price for avoiding another depression or a Japan-like economic stagnation." "'We knew that in the process of what we were doing, that is, addressing the consequence of a very severe deflation of a [stock] bubble, carried with it potential side effects,' Greenspan said. 'As best we can judge, things have turned out reasonably as we had expected, both positively and negatively, but in our judgment, the positive effects of the policy far exceeded the negative ones.'"

Speculators Make Alamo City 'Hottest' In Texas

2006-01-22T16:24:00.000-08:00

The Houston Chronicle reports on the speculative blow-out in San Antonio. "Satisfied home buyers like the Ausmuses have thrust San Antonio into the national spotlight of the housing industry. Last month, Fortune magazine proclaimed the Alamo City the nation's 'hottest' residential real estate market for 2006, with a projected appreciation rate of 8.3 percent. That follows a three-year stretch in which home values increased more than 20 percent." "The nation's home builders have taken notice, he said. Five years ago, only 10 builders produced 80 percent of the homes. 'Now it's 30 builders who dominate the scene,' local housing analyst Jack Inselmann said. In all, 16,340 houses were started in 2005, up from 12,838 in 2004, he said. By year's end there could be 18,000 starts, he added." "'For the first time since we've been monitoring MLS statistics, every one of the Board of Realtors' map areas, 31 of them, had an increase in the number of sales or an increase in the average sale prices when you compared 2004 and 2005,' San Antonio Board of Realtors Chairman Barbara Tarin said." "A significant number of buyers are out-of-state residents seeking second homes and investment properties, Tarin said. 'We have a lot of investors from some of the higher-priced markets, like California and Florida, coming into Texas because the returns here on investments are a lot higher,' she said." "Many of the investment homes become rentals, creating a huge glut in that market, said Misty Wood. 'Normally we run 200-300 homes on the market for rent at a time. We're at 900 right now, which is a lot, and it's because of the investors,' Wood said."

What Will The Post-Bubble RE Industry Look Like?

2006-01-22T15:05:00.000-08:00

Two readers contemplate the fall-out from the housing bubble. "I'd like to hear opinions on how the real estate industry landscape may change after a widespread and significant price drop." "I have been appalled watching real estate agent compensation skyrocket during the housing boom of the last 3-5 years. Yet, media coverage of the growing inbalance in agent commissions and the average US worker salary is non-existent." "I think this industry is overdue for an overhaul, more government oversight, internet home sales (similar to auto industry), direct buyer-to-seller transactions, etc. Especially if the housing market tanks by 30+% over the next 2-5 years, as many on this board expect. Today, it is in the agent's best interest to drive prices to the highest price possible. This can only have exacerbated the past skyrocketing home prices. I do not see how there is such a thing as a buyer's agent any longer." And another added, "I am wondering about the social implications when this mess unfolds; when people reach the 'angry' point after denial and fear. Most will seek someone to blame and realtors will likely be in the cross-hair." "How do we expect someone who bought at the peak with the 'real estate can only go up' talk from his realtor, who took an extra-exotic loan with the advice of a loan officer, and then went under and lost everything, to react?"

Prices Cause 'Middle Class Exodus' In California

2006-01-22T12:14:00.000-08:00

Reports show that real estate is getting alot of attention in California. "The San Francisco public schools have a math problem: Students outperform those of all other large, urban districts in the state, but children are leaving, in droves. There will be more wrenching decisions like the ones reached Thursday night when the Board of Education agreed to close or move 14 schools." "A group of middle-class parents in the city's Potrero Hill neighborhood last month asked about 140 families in an anonymous e-mail survey why they had moved away. In all, 70 percent of the respondents said housing prices caused them to leave the city. 'With the housing prices what they are, I would hope for public schools with a better reputation than those in S.F. seem to have,' wrote one person." Experts differ on the situation. "Perrie Mundy, a real estate broker in Redlands, is all too familiar with high-flying real estate markets. And while waiting for the right price can be prudent, she is often an advocate of buying whenever possible. 'Today, money is running in the streets. It is so cheap (to borrow) and so doable, you can do it with no down (payment),' Mundy said. 'And if the only thing that is going to drive the market down is higher interest rates, it's either pay (less for a house) now, or pay (more) later.'" "Craig Burger, a senior portfolio manager in Los Angeles, argues that in this housing market, patience should rule the day. 'As mortgage rates move up, the market is going to soften. So I tell people to be patient,' Burger said. 'This is not a market you want to chase. Let the market come to you.'" "Perhaps that will happen sooner than previously anticipated. In November, sales of previously owned homes fell an annual 11.2 percent in California. And for the first time in 47 months, the median price of homes in two Santa Barbara County markets declined between 2 percent and 7 percent." Some have already made up their minds. " Go east. Go north. This is the rallying cry for a growing number of Californians who are packing up and moving out. A decade ago, a distressed economy drove people out of the state. Today, it's soaring house prices." "Some simply can't afford a home. Others own homes and are taking advantage of the strong real estate market to cash out and move to nicer homes in Nevada, Arizona, Texas, Washington, Oregon and beyond. Californians are changing the real estate landscapes in the communities they're moving to. Many are buying homes for themselves, but many others are investors who are buying houses to resell quickly or renting them out until they appreciate, Realtors in Houston and Phoenix said." "Builders are concerned that neighborhoods filled with renters will chase off potential buyers for other homes in the development. (Economist) Keitaro Matsuda said as investors and families leave California in search of better real estate bargains, the competition for housing is sharply pushing up prices in states throughout the West, starting with those closest to California." "Sandra Harris, 44, is moving back into an apartment because she can't keep up with the mortgage payments on her Riverside home, which she has lived in for three years. She said she plans to put her house on the market soon and is strongly considering moving to Phoenix because she can get a condo for less than $200,000 there. 'There's no way I can buy in California again, no way.'" "The California Association of Realtors' annual survey of its members shows that in the last two years more Californians selling their homes intended to move to other states. In 2005, 31 percent of sellers were planning to go out of state. In Seattle, another hot spot for relocating Californians, Realtor Sharilyn Patterson said more than 70 percent of her business in the last year involved people moving from California." "The locals complain 'all the time' about Californians driving up the price of housing because they arrive with so much cash from the sale of their California homes, said Rhonda Weldon, a real estate agent who works in Scottsdale, Ariz." "For the first time in a decade, United Van Lines designated California a 'High Outbound' state in its annual migration study. Other states in that category were Illinois, Indiana, Michigan, Pennsylvania, New York, New Jersey, Rhode Island, North Dakota and Louisiana." "'High Inbound' locations were Nevada, Arizona, Oregon, Idaho, Kentucky, Tennessee, Alabama, Georgia, North Carolina, South Carolina and the District of Columbia."

What's The New Sales Pitch In Your Town?

2006-01-22T12:00:00.000-08:00

Post your first hand housing bubble observations here. This post will be forwarded through the weekend. The flavor of the week seems to be builder incentives, but don't stop there. Open house visits? Website come-ons or anecdotal info from local realtors? Anything to give us an idea of what's going on in your area. Here are a couple from the comments: "This is the new sales pitch: 'Buyers market!!!!!' A house will drop 5% (STILL 35% overpriced) here in San Diego and realtors will scream that you can 'save' over last years/months/days' asking price. This new mantra will replace the sneering (yet somewhat enticing) 'who on earth told you an I/O negam loan was a smart idea??' sales pitch which is now dominating the airwaves. How far off are we from the 'I'm going to hunt your children down and shoot them if you don't buy a house' salespitch?" And another, "Let's take Phoenix 12/05: 12/30: 27,455__12/05 sold: 6,480 27455/6480=4.23, so in december we were looking at 4 1/4 months of housing supply." "Let's try another one, Riverside county in Socal. 12/30: 14,772__12/05 sold: 6,305 14772/6305=2.34, so 2 1/3 months of housing supply." "Thus despite very similar listing per population ratio, Riverside is not busting quite yet, but Phoenix certainly is. Let's try this for our canary in the coalmine: SD 12/30: 14,591__12/05 sold: 4,262, 14591/4262=3.4, thus almost 3.5 months of inventory." "Of course, these are december numbers, when a lot of homes were taken off the market for the holidays. With the huge surge in inventory for January, we are looking at very interesting numbers when Jan sales figures come out."

Finding A 'New Equilibrium' On Long Island

2006-01-22T10:14:00.000-08:00

A reader asks, "I'm in the Long Island area and see very few articles about the bubble ('what bubble?'..lol) around here...any local readers in this area have some input?" It just so happens, "The supply of homes on Long Island has significantly increased from even a year ago but remains far below the levels of the early 1990s bust. As of December, it would take seven months to sell all the homes on the market in Suffolk County at the current sales pace, and six months in Nassau County. All told, the region's real estate inventory has increased 58 percent from December 2004 to December 2005, when there were 21,201 homes up for sale. Queens is seeing similar trends, with housing inventory up 64 percent." "The real test, experts say, will come this spring. It is certainly, however, a changing market, in which sellers and buyers must shift attitudes and strategies, experts say, and there may be pockets of price declines in some regions and price ranges." "'The bottom is not going to fall out,' said Martin Cantor, chief economist of Sustainable Long Island, an advocacy group. 'We're going to find a new equilibrium, and right now we're just searching for that equilibrium.'" "If the rates go much higher or the economy turns south, some observers say, a housing downturn is more likely. 'I lived through the complete blowout in the late 1980s and I don't see a whole lot different,' said Beth Marten, who heads a real estate agency that represents buyers. 'I see a very similar perfect storm evolving.'" "As the buyers gain the advantage, sellers are feeling the pressure. Take Jonathan and Rosemarie Kimball. After more than 30 years in their Shirley home, they bought a house in Las Vegas and put their house on the market in October, pricing it at $369,000. But there were no takers." "Kimball, it seems, chose a tough time to sell. The market had begun to shift- but no one knew it yet. The Kimballs have dropped the price by $10,000 and aren't ruling out lowering it again, but they're also willing to wait." "In Queens, inventory is up by nearly three times, according to broker/owner Ed Gitlin. Just this month, for instance, Lorraine Martinez bought a one-bedroom co-op in Forest Hills, spending $166,000. 'I think I got a really good deal,' she said. 'There was a lot of supply and I found it pretty quick.'" "Even if a small downturn in prices does occur, experts say, the run-up of the last several years will cushion the impact for many homeowners, especially those who bought before the upturn or plan to stay in their homes for years to come. 'It's only collapsing from a fake high, in my opinion,' said real estate broker Katy Anastasio, in Huntington." "For buyers who are getting in the game now, there's more concern. If the market does see price declines, they will have bought at the high. If they need to get out, and in particular, if they have little or no equity, they could be in trouble. 'I worry that I bought at the wrong time,' Martinez said. 'I'm hoping that prices don't go down now. But it was the right time for me.'"