“Too much cheap money”

Posted on April 22, 2007 by grim

From the Times Trenton:

More owners facing foreclosure

Two years ago, when the housing market was booming, William Soodul figured he would reduce his costs with a “creative mortgage.”

He took out a $226,500 adjustable-rate mortgage on his A-frame home in Allentown with a 1.8 percent interest rate and monthly payments that were not applied to either the principal or the interest. His plan was to refinance before his interest rate rose and higher payments kicked in.

But Soodul, a 61-year-old self-employed title insurer, got the surprise of his life when he tried to line up a conventional mortgage last month. Not only would his costs rise $7,000 a year if he kept the mortgage, he would have to pay a $10,000 prepayment penalty just to get out of the deal.

Soodul, a former mayoral and council candidate in Allentown, is among the legions of consumers finding out the hard way these days about the cooling housing market.

Easy credit deals have evaporated and the complex underpinnings of some loans, like the negative amortization mortgage Soodul took out, are becoming all too clear to an increasing number of homeowners.

Soodul is battling back by filing a complaint with the state banking department in which he contends he was misled by the mortgage company about the costs of the loan.

Others are in more dire straits. In county offices throughout the state, foreclosure filings are rising sharply, meaning lenders are seeking to take control of properties after borrowers miss payments. Those homes can then be sold at sheriff’s sales or through real estate agents.

“We’ve seen a 30 percent increase in our foreclosures in the last five or six months,” said Mercer County Clerk Paula Solami-Covello. “Some lending institutions made it easier for people to get mortgages, and maybe they don’t make the salary to pay for them. People are getting into situations where they just can’t pay.”

All towns in the county, even wealthier areas where homes carry price tags of $500,000, have seen increases in foreclosure filings, which are the first step toward a sheriff’s sale, Solami-Covello said. In 1998 and 1999, there were about 1,000 new foreclosure filings in Mercer County for the entire year. This year, 421 were filed through the end of March.
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There was a 70 percent increase in new foreclosure filings statewide from the third quarter of 2005 to the third quarter of 2006, said Jeff Posner, owner of SheriffSalesOnline.com, a Web site that tracks the filings. In January, the state filings more than doubled over the same month last year; in March, filings were up 22 percent.
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While the housing market always has its share of distressed borrowers, experts believe boom-time credit practices are accelerating the pace this time around.

“A lot of cheap money out there was fueling the real estate market,” said Timothy Duggan, who chairs the bankruptcy and creditor’s rights group for the law firm Stark & Stark.

“Wages haven’t kept up with the increase in the housing costs,” Duggan said. “There is a higher default rate because people are struggling to service their debt.

“People, over time, have taken on too much debt,” he added.

“Lower interest rates and the ability to obtain from the subprime market by less qualified borrowers are factors. Others have just continued to borrow.”
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Borrowers who get into trouble can’t rely on selling their homes to pay off their debt.

Real estate values have dropped, and houses are remaining on the market longer.

From 2000 to 2005 housing prices in New Jersey rose 85 percent, said Pat O’Keefe, the CEO of the New Jersey Homebuilder’s Association. But beginning in 2006, the “housing market stalled,” he said. “Particularly in the resale sector. It ground to a halt.” Sales are down 20 percent since 2005, he said. This spring, prospective sellers are becoming more realistic and lowering their prices, he said. But sales are still “very sluggish” except for houses at or below $300,000, he said.

In Mercer County, 4,450 homes sold at an average price of $341,017. That’s down from 5,410 sold in 2005, according to Greg Williams of TREND Multiple Listing Service. In Burlington County, 6,402 houses were sold last year at an average price of $284,693, down from 7,580 the previous year. While real estate agents try to work with those hard-pressed homeowners to sell their houses, it’s often very difficult to make a sale in time to save their equity, said Peter Doolan of Doolan Realty.

Posted in Risky Lending | 1 Comment

“As the real estate market goes, so goes the homebuilding market. “

Posted on April 21, 2007 by grim

From the Courier Post Online:

Homebuilders see end to slump in ’08

As the real estate market goes, so goes the homebuilding market. Since the former is mired in the doldrums, the latter is mired as well, said Patrick J. O’Keefe, executive vice president and CEO of the New Jersey Builders Association.

Home prices are out of reach for many buyers, whether new or resale. Housing prices rose 87 percent from 2001 to 2005, and another 12 percent in 2006 — faster than household incomes.

“There’s a mismatch between income and prices which explains the weakness in the market,” O’Keefe said at the Atlantic Builders Convention this week at the Atlantic City Convention Center. “We are way down statewide. It’s price-driven. The regions where pricing is less elevated are not as constricted.”

Since South Jersey prices tend to be substantially lower, he said, many buyers have turned southward. Still, even in the southern end of the state, housing has become unaffordable.

The vast majority of new homebuyers are move-ups or move-overs, both discretionary situations. There’s no compulsion to move.

How bad is the problem?

New home construction dropped 17 percent in 2006. For the first two months of 2007, activity is down 20 percent. Building permits in Ocean City for the first two months of the year dropped from 68 to 14 compared with last year, said Bill Southwick, general manager of Bill Wahl Supply Inc. of Blackwood.
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By the third quarter, the number of resales should equal the number of listings, the first sign of a turnaround in that market, O’Keefe said.

“Prospective sellers are beginning to realize that asking prices will have to be lowered if they want to sell,” he said.

Prices need to go down 20 percent to get back to the mid-2004 or early 2005 levels, O’Keefe said.

“Once that improves, the new-home sector will move upward,” he said.

When it does, builders will go to those projects with approvals already in hand. Zuhse expects to come out of the muck by the middle of 2008.

Posted in New Development, New Jersey Real Estate | 4 Comments

Making the loans work

Posted on April 21, 2007 by grim

From MarketWatch:

The dubious value-add of appraisers

The solicitation that Texas real-estate appraiser Jim Amorin fielded came with a quid pro quo. If he’d appraise a mixed-use Austin subdivision for $25 million, the mortgage broker promised to steer 15 more major deals his way.

“After I asked a few questions, it became clear the real value was closer to $15 million,” says Amorin, vice president of Atrium Real Estate Services. “I told him I’d accept the assignment but not with a predetermined value, so he kept looking for someone who would.”

Amorin works for a large appraisal firm that can afford to turn away business. That’s not so easy for many of the 115,000 U.S. real-estate appraisers who, as independent contractors, often rely on mortgage-industry referrals.

The pressure on appraisers to “make loans work” — the industry parlance for hitting the number that a lender wants on a closing contract — has been ratcheted up as U.S. home sales and mortgage refinancing have tumbled. By law, appraisers are required to render impartial judgments.

Federal and state authorities are now pushing for tighter regulation, licensing standards and criminal penalties to keep all players in the real-estate transaction process on the level.

“Mortgage and real estate brokers are paid on commission, so they have a vested interest in seeing that loans get funded,” says Ted Faravelli, manager of the California Association of Real Estate Appraisers and an appraiser for 23 years who testifies as an expert witness in mortgage-fraud cases.

“If an appraiser speaks to the facts and indicates a market is declining and in oversupply, there’s a good chance deals won’t be consummated and referrals will dry up.”

Posted in Housing Bubble, National Real Estate | Comments Off on Making the loans work

Appraisers under pressure

Posted on April 20, 2007 by grim

From the Baltimore Sun:

Appraisers seek curbs on lender pressure

Have inflated appraisals helped fuel the current surge in foreclosures by credit-strapped borrowers? Are they at the core of many mortgage fraud schemes?

The four largest trade groups representing appraisers say yes – and they are asking federal financial regulators to crack down on lenders and loan officers who pressure appraisers to raise valuations to allow overpriced deals to go through.

Led by the 22,000-member Appraisal Institute, the groups told regulators last week that subprime lenders experiencing high rates of foreclosures often have been guilty of “systematic inattention” to the accuracy and sources of the valuations backing the mortgages they funded.

Such lenders:

Bought loans with zero or minimal down payments without taking hard looks at the qualifications and track records of the appraisers supplying the numbers. Yet in softening housing markets, accuracy on property valuations is essential whenever down payments are tiny and borrowers’ credit histories are shaky.

A zero-down mortgage made to unqualified buyers on a house worth thousands less than the appraisal in a depreciating market is a financial cluster bomb waiting to explode.

Failed to require “firewalls” separating loan officers working on commission from the appraisers hired to value the properties to be fi- nanced.

National studies repeatedly have shown that commissioned loan officers often demand that appraisers cooperate to hit whatever number is needed to push the transaction to closing – or lose all future business.

Ninety percent of the appraisers in a 2006 national survey by October Research Corp. said they had experienced threats, nonpayment of fees and other forms of coercion. Many said they had lost business by refusing to play the game.

Posted in National Real Estate | 1 Comment

Mortgage market slowdown prompts job cuts

Posted on April 20, 2007 by grim

From the NY Times:

2 Subprime Lenders Announce Job Cuts; Call Centers Closed

General Electric’s subprime lending unit, WMC Mortgage, closed three centers yesterday and cut 771 jobs — about half of its remaining staff — while the Residential Capital home-lending unit of GMAC announced it would eliminate as many as 700 workers, or 5 percent of its American work force.

The moves were part of a broad retrenchment in the subprime lending industry amid mounting loan losses.

A WMC spokeswoman, Brandie Young, said that WMC Mortgage was tightening lending standards and reducing loan originations in the United States, and would have about 700 employees in two call centers after the cuts. The cuts, first reported by Reuters, are in addition to the reduction of 460 jobs announced in March.
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At GMAC, about 600 to 700 workers will lose their jobs by midyear, and at least 300 vacant positions will not be filled, a spokeswoman, Gina Proia, said in an interview. Residential Capital, known as ResCap and based in Minneapolis, will have about 12,000 employees after the reductions are made, she said.

“The decision was influenced by current market conditions and the deterioration of the U.S. mortgage market,” Ms. Proia said.

Posted in National Real Estate, Risky Lending | Comments Off on Mortgage market slowdown prompts job cuts

West Windsor transit village planned

Posted on April 20, 2007 by grim

From the Trenton Times:

Transit village design unveiled

The possible future of the township was revealed last night by Hillier Architecture in a redevelopment design that would envelop the Princeton Junction train station with retail, residential and office buildings while adding open space, a pedestrian/bike tunnel and a “significant public building” to the mix.

“This is not about today, this is about tomorrow,” architect J. Robert Hillier told the nearly 400 people who came to Grover Middle School last night for the last of three public hands-on workshops dealing with the $163 million transit village project.

The much-debated redevelopment idea, evolving over a three-year period, has attracted large numbers — 400 and 300 — to two previous workshops on the area surrounding the train station. Traffic, parking and housing are the focus of most residents’ concerns.

What Hillier called “The Plan” presents a solution for one of the major problems in the train station area — a connection between the east and west sides of the train tracks via a major pedestrian and bicycle tunnel that would cross under the tracks at the station.

Although residents originally selected a concept that would move the station to Route 571, the site of a planned retail and commercial hub, the final design or “Little Move,” as Hillier dubbed it, calls for moving the station only slightly northward, and linking the new station with a town green on the east side, tying into Route 571.
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All public spaces would be flanked by residential, retail and commercial uses.

Parking would be contained in both garage and surface areas on both sides of the tracks and Hillier says his concept would generate 33 percent less peak-hour traffic than calculations based on the potential build-out if there is no redevelopment. New Jersey Transit’s projected need for parking by the year 2030 is 5,700 spaces; Hillier’s plan has the potential for 10,400 spaces.

The most controversial element of the plan — Hillier’s insistence on a minimum of 1,000 housing units — remains in place, with 860 apartments and 140 town houses that will be marketed to empty-nesters and young professionals, the groups that traditionally generate the least amount of school-age children. An estimated 300 children are projected.

The residential buildings, predominantly on the western side in four-story units, will also be contained in several two- and three-story buildings on the east side.

Posted in New Development, New Jersey Real Estate | Comments Off on West Windsor transit village planned

Hoping for a bottom

Posted on April 19, 2007 by grim

From Reuters:

Housing market bottom hoped for, not expected

Investors hope the next round of results from U.S. home builders, starting on Thursday, will show that the slump in the housing market is abating, but realistically they expect no sign of a bottom yet.

In fact, many investors and analysts expect the market downturn — caused by a glut of homes for sale, tighter lending standards and weak demand — to worsen until at least the second half of this year.

“I think it’s a pretty severe downturn,” said Robert Curran, Fitch lead home building analyst. “Could it be more severe still? Obviously.”

JMP Securities analyst Jim Wilson said he does not expect to see any sign the market for new homes has reached bottom.

“The builders are the last ones to see that, because the resale market drives the new home market,” he said.

The resale market is comprised of foreclosed houses; homes of subprime borrowers, which have poor credit histories, nearing foreclosure; and “regular people who need to move,” Wilson said. These homes comprise about 85 percent of the U.S. housing market.

“You have to start seeing (that) the resale market is seeing less inventory, and so far it’s not. It’s seeing more,” he said.
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“There’s way too much resale inventory sitting out there that hasn’t been and needs to be marked down in price and needs to clear before you have any need of new homes,” Wilson said.
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Fitch Ratings recently estimated that U.S. new home sales this year would fall by 11.5 percent from 1,053,000 houses last year to about 900,000 homes.

Without the mortgage mess, the forecast would be 7 to 7.5 percent, Fitch’s Curran said.

Meanwhile, the year’s supply of new houses is expected to be about 1.2 million, he said.

As a result, home builders will add 300,000 homes to the current overhang of new homes for sale, Curran forecast, adding that the overhang is already troubling at about two months worth of sales.

Posted in Economics, Housing Bubble, National Real Estate | 134 Comments

Steep slide for MEW

Posted on April 19, 2007 by grim

From Bloomberg:

Housing Bust Meets the Equity-Withdrawal Blues: Gene Sperling

While the subprime and exotic mortgage fallout has been grabbing recent housing headlines, another potential story for 2007 may be in the wings: as Americans withdraw less equity from their homes will it mean a big or little hit for growth and consumer spending?

The connection between housing and consumption isn’t a new story. Economists have long assumed that there is a so-called wealth effect from rising home prices: for each dollar of housing wealth accumulated, people spend anywhere from 4 cents (as conventional economic models predict) to 9 cents, as John Hopkins economist Christopher Carroll found in a December study.

Yet, the dramatic expansion of mortgage-equity withdrawal, or MEW, by homeowners over the last decade has raised new and less-settled issues over whether housing wealth now has a greater impact on consumption that ever before. Many — me included — have likened home-equity withdrawals to automated-teller machines, with owners literally taking money out of their houses to bolster consumption.

Goldman Sachs Group Inc. has found that consumers spend about 50 cents for each dollar of home-equity extraction and cash-out refinancing. The International Monetary Fund, using a different methodology, has found that 18 cents are spent per dollar of home-equity withdrawal.

Nonetheless, there is no unanimity on the causal connection between mortgage-equity withdrawal and spending assumed by the ATM theory. The Congressional Budget Office, for example, surveyed the equity-withdrawal research in a recent study and said the evidence regarding the size of the effect on spending was “inconclusive.”
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Consider that between November 2001 and August 2006, inflation-adjusted wages didn’t gain a penny. As of 2005, real median family income was $500 below its 2001 level. All the while, consumption averaged a respectable 3.2 percent between 2002 and 2006. While the negative personal-savings rate provides some explanation, the vast rise in equity withdrawal amid escalating home prices does seem to help complete the puzzle.

The explosion of mortgage-equity withdrawal over the recent housing cycle was given greater prominence by the Federal Reserve, thanks to work by former Fed Chairman Alan Greenspan and Fed economist Jim Kennedy. In December 2005, Greenspan and Kennedy published a new, comprehensive measure of equity withdrawal that went beyond the information provided in the Fed’s Flow of Funds data.
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Their research showed an amazing development. Between 1995 and the final quarter of 2005, equity withdrawal grew to 8 percent of the economy from 1 percent — a whopping 800 percent increase. And as of the fourth quarter of 2005, when total MEW had reached its peak, it stood at $1 trillion annualized.
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But it is too early to bury falling MEW as a consequential economic event. Those who worry about the impact of mortgage- equity withdrawal caution that there might be a lag of as long as six months between declines in MEW levels and changes in consumption.

Only time will tell. But don’t yet count out the potential of declining mortgage-equity withdrawal to join subprime mortgages as one of the more depressing housing stories for 2007.

Posted in Economics, National Real Estate | 2 Comments

Piggyback or PMI?

Posted on April 19, 2007 by grim

From the Wall Street Journal:

When It Makes Sense to Pay PMI

My sister Melissa and her husband Joe have finally pulled the trigger and made an offer to buy a house, after years of struggling to find something affordable near my Jersey Shore town.

Melissa and Joe have enough in savings to make a 10% down payment on the $250,000 home, but doing so would leave them with no financial cushion. Instead, they want to put just 5% down and save the rest for financial emergencies and to pay other expenses, such as moving costs and making minor improvements to their new home.

So the couple is considering two options. One would be to take out a traditional 30-year fixed-rate mortgage for 95% of the cost of the home and pay the remaining 5% out of their savings. Because they’d be financing more than 80% of the home price, they’d be required to pay private mortgage insurance (PMI) — coverage that protects a lender in the event the homeowner defaults on the loan.
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Piggyback mortgages grew in popularity when mortgage and interest rates were low. (Mortgage rates track the movements of the Treasury market, while second mortgages — or home-equity loans — move in line with the Federal Reserve’s fed-funds target rate.)

But after the Fed began incrementally raising short-term rates — to 5.25% today from 1.25% in June 2004 — piggyback loans began to lose their luster. The problem? The second mortgage payment became too expensive for some borrowers, says Keith Gumbinger, spokesman for New Jersey mortgage-data publisher HSH Associates.

This year homebuyers such as Melissa and Joe have another reason to avoid non-traditional loans such as piggybacks. Piggybacks used to be more attractive than traditional loans because mortgage interest on the second loan was tax-deductible, while PMI premiums weren’t. But under a new federal law passed late last year, PMI premiums are tax-deductible for borrowers who buy or refinance a home in 2007. There are eligibility requirements: A homeowner must have an adjusted gross income of $100,000 or less to get the full deduction. Above $100,000 the deduction begins to phase out — borrowers with AGIs of $110,000 ($55,000 for married people filing separately) or more get nothing. The deduction also doesn’t apply to mortgage-insurance contracts issued before Jan. 1, 2007.
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So does it make sense for my sister to pay PMI? I asked Mr. Gumbinger of HSH to run the numbers to see how the two loans compare at today’s rates. On a piggyback loan — 80% financed with first loan, 15% down payment financed with second loan, 5% down payment from savings, no PMI — Melissa and Joe would pay $1,236.64 in principal and interest on a $200,000 30-year fixed rate mortgage at 6.29%. On the second loan — a $37,500 20-year loan at 8.15% — they’d pay $317.17 a month in principal and interest. So their total monthly payment would be $1,553.81.

On a $237,500 fixed-rate 30-year mortgage with PMI (95% financed, 5% down) at 6.29%, their monthly payment would be $1,468.51 and PMI would cost an additional $154.38, for a total estimated monthly payment of $1,622.89 — or about $69 more a month than the traditional loan. Now factor in the PMI tax deduction: $39 a month, assuming a 25% tax bracket, according to this calculator from PMI Group Inc. So Melissa and Joe would save just $30 a month for the remainder of this year by going with the piggyback loan.
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The iffy housing market also may mean Melissa and Joe’s home will appreciate in value much more slowly than in recent years, or may even decline, forcing them to make premium payments for much longer than the five to seven years homeowners typically pay for PMI. “With the position the housing markets are in today, it’s much more of a crapshoot than it was before,” says HSH’s Mr. Gumbinger.

While traditional loans are looking more appealing these days, there’s also no guarantee that PMI premiums will remain tax-deductible — the law is set to expire in 2008. Melissa and Joe are likely to begin making mortgage payments in August, so the tax benefits would be relatively small. (And if they took the standard deduction when they filed, rather than itemizing, they wouldn’t be able to deduct PMI premiums at all.)
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In the end, Melissa and Joe decided to go with the piggyback loan, largely due to the flexibility of the lower monthly payment and their doubts that the tax break for PMI will be extended for purchases and refinancings after 2007. Because the short-term second loan pays down principal more quickly than a long-term first mortgage would, they’ll save on interest by making additional principal payments to pay down the second mortgage. Since they’ll likely receive a much larger refund thanks to mortgage-interest and property-tax deductions, they plan on reducing their tax withholding so there’s more income to make those payments. (This IRS withholding calculator can help you determine how much to withhold.)

Posted in Housing Bubble | 4 Comments

NJ Unemployment up in March

Posted on April 18, 2007 by grim

From the NJ Department of Labor and Workforce Development:

New Jersey Employment Gained 4,900 Jobs in March Unemployment Rate at 4.3 Percent for the Month

New Jersey’s payroll employment expanded in March fueled by job growth in the private sector. New Jersey’s unemployment rate, although inching higher to 4.3 percent, continued to remain below the national unemployment rate of 4.4 percent.

Total nonfarm employment in New Jersey increased by 4,900 in March, reaching a level of 4,089,900, according to preliminary estimates from the Department of Labor and Workforce Development’s monthly survey of employers. The previously released February estimate was revised upward by 400 to 4,085,000 based on more complete reporting.

“Payrolls increased in New Jersey by almost 5,000 jobs in March, and the private sector accounted for 98 percent of the job gains,” said Labor Commissioner David J. Socolow. “At 4.3 percent last month, New Jersey’s unemployment rate remains low and continues to be lower than the national rate.”
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Job gains over the month were recorded in both the goods producing (+1,400) and serviceproviding (+3,500) sectors of New Jersey’s economy. Moreover, within the private sector, seven industry supersectors realized job gains, while only two recorded losses. Government employment edged up over the month by 100.

Job growth in goods producing industries was fueled by construction employment (+1,800) in March as many projects were back on track after weather-related slowdowns in February. Further employment gains in the goods producing sector were slowed by lower payrolls in manufacturing, which was down by 500. Job losses in durable goods (-1,000) overshadowed an increase in nondurable goods employment (+500) over the month.
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Employment gains in financial activities were tempered by mortgage companies having to reduce their workforces to adjust to the slower volume of loans and the shakeouts in the subprime lending industry.

Posted in Economics | 8 Comments

Unwinding of the bubble will take time

Posted on April 18, 2007 by grim

From Mark Kiesel at Pimco:

Still Renting
(This one is worth the click)

One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent. Back in late 2005, I became anxious about my investment in the “American Dream,” after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices. At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years, and then, upon closing, published For Sale, our U.S. Credit Perspectives, June 2006 publication. A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well. Why? Housing inventories remain high, delinquencies and foreclosures are set to rise as homes purchased over the past few years by speculators and individuals with teaser-rate and adjustable-rate mortgages come back on to the market, affordability is low, and sentiment and risk appetite has shifted negatively. Most importantly, the availability of credit is set to take a turn for the worse as lenders tighten credit standards.

This is all great news for renters and buyers who are patient. Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the U.S. housing market as “the next NASDAQ bubble.” The NASDAQ took over 2 ½ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.
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Housing was an asset bubble influenced by bullish sentiment, robust risk appetite and speculation, lack of fundamental analysis, cheap money, inflated appraisals and easy lending standards. These factors helped to drive housing prices up to new levels and the unwinding of these conditions is expected to drive housing prices down. Never before have we witnessed so many people lever-up real estate with so little money down or “skin in the game.” This growth in mortgage debt and risk appetite helped fuel consumer spending and corporate profits. As such, the unwinding of this bubble will have broad consequences for the overall economy.

As the housing bubble unwinds, what are the implications for the overall economy and credit spreads? The U.S. economy will likely experience sub-par economic growth for the next year as declining housing prices lead to weaker consumer spending, slower corporate profit growth, a decline in business investment and less job creation. This environment favors reducing credit risk, especially to cyclical industries and lower-quality sectors of the market. As lending standards tighten and risk appetite turns more conservative, housing prices are likely to face a further leg down.

What’s the big picture? Declining housing prices will lead to a pullback in job creation and a sharp slowdown in corporate profit growth, causing the Fed to lower short-term interest rates by the end of this year. Despite lower short-term rates, mortgage rates may not follow downward, because more cautious lenders will charge higher spreads relative to Treasuries. In addition, credit spreads should widen as consumers rein in their risk appetite for housing and investors turn more cautious on the outlook for the U.S. economy. We will now turn to an analysis of the supply and demand factors influencing housing. These factors should help to illuminate the future path of housing prices over the next year.

Posted in Housing Bubble, National Real Estate | 47 Comments

Bailing out borrowers

Posted on April 18, 2007 by grim

From Reuters:

Subprime summit to propose steps to help borrowers

A Washington summit on Wednesday on how to help troubled subprime mortgage borrowers will end with seven principles to aid borrowers, according to a document prepared for the meeting.

Mortgage servicers should seek to modify the terms of subprime loans before the interest rates are reset higher and set aside dedicated resources and staff to help those borrowers, according to the document obtained by Reuters.

Fannie Mae and Freddie Mac should work with lenders to make credit available to borrowers who have trouble refinancing out of subprime loans, the document also states.

Another principle calls for servicers to make early contact with subprime borrowers with adjustable-rate mortgages to determine if they qualify for a more stable loan, according to the document.

The goal of Wednesday’s summit is to “maximize the number of homeowners who are able to stay in their homes who would otherwise be threatened with default and foreclosure as subprime hybrid ARMs reset, resulting in significant payment shocks,” according to a statement that will accompany the principles.

From Bloomberg:

U.S. Foreclosure Filings Rise 47 Percent in March

Banks began foreclosure proceedings against 47 percent more U.S. homeowners last month compared with a year ago as falling housing prices made it more difficult for borrowers to refinance mortgages.

More than 149,000 filings were posted in March, the highest number since RealtyTrac Inc. began collecting data in January 2005, the Irvine, California-based research company said today in a statement. California filings rose to 31,434, more than triple the number a year ago. Nevada and Colorado had the largest percentage gains.

The number of owners making late payments on mortgages is at a four-year high and the failure or sale of 50 subprime mortgage companies has tightened the supply of money for lending. The National Association of Realtors is forecasting that the median price of a home will fall 0.7 percent this year to $220,300.

“Foreclosure activity shifted into a higher gear in the first two months of 2007, and March’s numbers continued that trend,” James Saccacio, chief executive officer of RealtyTrac, said in the statement. “Last year we saw a surge in foreclosures in the first quarter followed by a leveling off through the second and third quarters.”

Foreclosure filings in March rose 7 percent from those in February, RealtyTrac said.

(Edit: The original post, below, has been removed.)

From the Online Journal:

Trouble in Squanderville

Posted in Housing Bubble, National Real Estate | 67 Comments

Luxury home prices slide

Posted on April 18, 2007 by grim

From Bloomberg:

Luxury Home Prices Fall in New York’s Long Island

Luxury home prices slid in New York’s Long Island and Queens in the first quarter as more property came onto the market and took longer to sell, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said.

The median sales price fell 5.3 percent to $900,000 from a year earlier and houses took 25 percent more time to lure a buyer, the companies said today in a report. An oversupply of expensive houses for sale is reducing demand, said Jonathan Miller, president of New York-based Miller Samuel, in an interview.

“You’re just not seeing the demand level that you had been seeing in prior years,” Miller said. “You just reached a saturation point to what the economy could support.”

The decline in the luxury market in these areas outside Manhattan mirrors a drop in prices across the U.S. In Manhattan, the most expensive urban real estate market in the U.S., the median apartment price rose 1.2 percent in the first quarter to $835,000, the smallest quarterly gain in five years, Miller Samuel and New York-based Prudential said on April 3.
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In the first quarter, it took owners 121 days to sell their homes, compared with 97 days a year earlier, a sign demand has weakened.

The median sale price of a condominium dropped 4 percent to $240,000, Miller Samuel and Prudential said. The total number of condominium sales rose 6.2 percent to 1,312.

The weakness at the high end also hurt the overall housing market on Long Island, which includes the suburbs of Nassau and Suffolk counties, and in Queens, a borough of New York City.

Sales fell 6.4 percent to 7,001 from a year ago and the median sales price slipped less than 1 percent to $437,500. The number of homes for sale jumped 18 percent to 31,954.

“Inventory levels today are double what they were two years ago,” Miller said. “It’s a real issue. What that’s going to do is temper any price appreciation going into the spring market.”

Posted in National Real Estate | 1 Comment

School board and budget results

Posted on April 18, 2007 by grim

From the Record:

Budgets in the black

Tuesday’s school elections produced some surprising results, from squeakers on budget approvals and veteran board members being voted out of office to a power outage that held up counting.

Rochelle Park showed that every vote counts. The $10.1 million budget passed 190-187 at the polls, but absentee ballots still needed to be counted.

And in Maywood, the budget passed with 13 votes, although 15 absentee ballots were still waiting to be counted.

Teaneck’s budget passed after last year’s was the first in eight years to be defeated. Also veteran board member Barbara Ostroth lost her bid for a fifth term, placing fourth in a five way race for three open seats.

The smallest community in Bergen overwhelmingly supported its spending plan. Teterboro voters passed the budget unanimously, 4-0.
…
Eileen K. DeBari, secretary of the Bergen County Board of Elections, said the board had managed to count all but a few of about 2,400 absentee ballots before the power outage brought the count to a halt. It was not clear when a final tally would be available.

With 25 of the 74 districts reporting, school budgets in Bergen County were passing overwhelmingly. Tax levies were approved in 24 of the 25 districts.

Passaic County election officials were having technical problems Tuesday night and were unable to disseminate election results quickly.
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Last year, 75 percent of budgets were approved in Bergen County — the second highest in the state. Only 28 percent of spending plans were approved in Passaic County.

About 53 percent of budgets were approved statewide last year, the lowest in 12 years.

From the Cherry Hill Courier Post:

Results on school budgets mixed

South Jersey voters went to the polls Tuesday, approving school budgets in towns like Cherry Hill, Deptford and Mount Laurel, but rejecting spending plans in Washington Township and the Lenape regional district.

Elsewhere, budgets appeared to pass narrowly in Haddon Heights and Medford, both with margins of fewer than 25 votes. South Harrison’s budget was approved in a 184-183 squeaker, according to unofficial results.

Budgets went down by narrow margins in Haddonfield and Evesham, while defeats were lopsided in Waterford and the Black Horse Pike regional district serving Bellmawr, Gloucester Township and Runnemede.

Winslow voters overwhelmingly rejected a budget that would cut 80 jobs, as well as a $3.7 million proposal that would bolster security.

At press time, tri-county voters had approved basic budgets in 64 districts and rejected them in 33.

School administrators fared worst in Camden County, with 21 approvals and 18 rejections. Burlington County had 23 approvals and eight rejections. Gloucester County had 20 approvals and seven rejections. Results were too close to call in at least one school board race.

Posted in Politics, Property Taxes | 8 Comments

Buyer’s market on LI?

Posted on April 18, 2007 by grim

From Newsday:

LI home buyers feeling in control

It’s still a buyer’s market on Long Island but less so in Queens, according to the latest report on housing sales and prices.

Statistics compiled for the real estate brokerage Prudential Douglas Elliman and released today show that housing prices and sales on Long Island slipped in the first quarter, compared with a year ago, while inventories rose. But in Queens, sale prices continued to appreciate.

The data exclude the Hamptons and the North Fork.

The latest findings largely confirm the results of other reports released recently.

Overall in the three counties, the median sale price of a home fell 0.6 percent to $437,500, compared with $440,000 a year ago. The number was buoyed by a 3.8 percent increase in the median home price in Queens to $492,900. But the statistic was pulled down by a 4.2 percent drop in median prices in Nassau, to $460,000, and a 1.8 percent drop in Suffolk, to $385,000.

Rosie West, an associate broker for the real estate firm Re/MAX Action in Freeport, said sales are slowing because sellers are still “overpricing” their homes, and buyers are holding out. “Buyers are in control right now, and they know it,” she said. “They have a lot of homes to choose from.”

In fact, the number of sales declined 6.4 percent in the three-county area, said Prudential, which is based in Huntington. But again, Queens buoyed that number with a 1.2 percent increase. Meanwhile sales declined 3.2 percent in Nassau and 14.7 percent in Suffolk.

As a result, overall listing inventories rose – 17.9 percent from a year earlier, to 31,954 homes. In Nassau they climbed 19 percent, to 9,260 houses. In Suffolk the listings rose 20.1 percent, to 13,424. In Queens the supply of homes listed for sale rose 13.7 percent, to 9,270.

Posted in National Real Estate | 1 Comment