From the Daily Record:
Record Madison home price: $5.1M
A borough resident recently purchased a home on Midwood Terrace, for a borough record $5.1 million, according to several local real estate agents and the Garden State Multiple Listing Service.
Harding Builders LLC built the home on speculation after purchasing the 1.5-acre property two years ago for $1.7 million. Builders tore down a 1950s split-level.
The 10,000-square-foot home in the Hill section of town is spread over four floors. The basement houses a 1,000-plus-bottle wine cellar, according to the seller’s agent, Sharon Vopal of Keller Williams Realty in Summit.
The home was put on the market last February and was contracted in October — a relatively quick period for the sale of a luxury home, Vopal said. It closed on Jan. 30.
Builders originally asked $5.7 million for the home, Vopal said.
…
According to data from the Otteau Appraisal Group, a New Jersey real estate consultant, the average absorption rate for homes priced greater than $2.5 million is more than 30 months.
Take your Money and run now!!!
================
Mortgage lenders plunge amid missed payments, depreciating home loans
Posted 2/8/2007 3:34 PM ET
NEW YORK (AP) — The mortgage industry plunged deeper into distress this week as two lenders said sagging home prices and higher interest rates are pushing many borrowers into delinquency.
HSBC Holdings (HBC), Europe’s biggest bank and a major player in the U.S. mortgage industry, said the market for “subprime” mortgages, or home loans to people with blemished or limited credit histories, is in trouble.
CONGRESS INVOLVED: Predatory mortgages lending labeled ‘crisis’
Analysts’ estimate for how much HSBC needs to sock away for problem loans is shy by a fifth, HSBC said. The London-based bank estimates it needs to set aside almost $10.6 billion to cover loans it won’t be able to collect.
Shares of mortgage providers fell across the board on Thursday, but none were hit as hard as New Century Financial (NEW), a subprime mortgage lender based in Irvine, Calif. The company said late Wednesday accounting errors caused it to lose track of how drastically some of its mortgage loans are losing value.
Three Wall Street analysts downgraded New Century, and the company’s stock plummeted $9.58, or 32%, to $20.58 in afternoon trading, crashing through its previous 52-week low of $29.07, set last month.
During the housing boom, many mortgage banks devised crafty loans allowing people to borrow money with no down payment and pay low interest rates for the first few years on adjustable mortgages. Now, as interest rates reset higher, more borrowers are missing payments and many lenders are going out of business or putting themselves up for sale.
Subprime loans were once very attractive to some banks because of their higher interest rates.
But HSBC said the weak housing market exacerbates credit problems in the subprime mortgage space. Until a little more than a year ago, stretched borrowers who needed to raise cash could take out a second mortgage on their houses and use that money to pay off loans. With housing prices stagnant — and in some markets falling — consumers’ best source of financing has shriveled.
The problem for these types of lenders may not go away quickly.
“We expect poor subprime credit trends to continue at least through 2007 and into 2008,” Merrill Lynch analyst Kenneth Bruce wrote in a research report.
Another reason bad credit plagues mortgage lenders is it shrinks appetite for home loans in the bond market.
Most mortgage lenders don’t keep their loans; they package them into bonds and sell them to investors. Lenders’ profits are determined by how much the bonds sell for.
A loan marred by a missed payment loses value because of higher risk the loan won’t be repaid. The price of a bond falls if it’s backed by mortgage debt that has become riskier.
When lenders sell loans, the deals normally include clauses allowing investors to force a lender to buy back a loan if the borrower misses an early payment. Roth Capital Partners analyst Richard Eckert said missed payments on subprime loans have become “epidemic,” and investors are sending loans back to lenders with unusual frequency.
New Century made two accounting mistakes: It didn’t assume more investors would sell back loans, even as loan repurchases surged throughout 2006 amid defaults. And, New Century didn’t assume the repurchased loans would be worth less. Piper Jaffray analyst Robert Napoli estimated a repurchased loan has typically lost 15% to 20% of its value.
New Century said it will restate results for the first three quarters of 2006 and expects to post a loss for the fourth quarter. The company needs to set aside money anticipating more loan repurchases, and reflecting the lower value of those repurchased loans. The lender also said new loans this year will fall 20% as the company becomes more selective about which borrowers it lends to.
Shares of mortgage lenders fell across the board Thursday. Countrywide Financial (CFC) and IndyMac Bancorp. (NDE), the two biggest independent U.S. mortgage lenders, each fell more than 2%. Novastar Financial (NFI) fell more than 11%, hitting a new 52-week low.
Another sector hurt by the troubled subprime mortgage market is mortgage insurance. Companies like PMI Group (PMI), Radian Group (RDN) and MGIC Investment (MTG) underwrite insurance policies that trigger when borrowers miss a payment on their mortgages. If mortgage credit worsens, these companies pay out more in insurance claims.
http://www.usatoday.com/money/industries/banking/2007-02-08-subprime-lenders_x.htm
In the article it says
“She said the average home value in Madison is about $400,000.”
i Live in madison, and have been keeping track of RE around here. i would LOVE to find a house for about 400,000 dollars in this town. i have seen 2 bedroom condo’s go for 450,000
“the average absorption rate for homes priced greater than $2.5 million is more than 30 months.”
I don’t know how these builders make such deals work. To carry a $2M house for 30 months is a tremendous expense (taxes + utilities + insurance + staging + realtor fees).
Lots of risk and deep pockets needed, but apparently it’s worth doing, or no one would do it.
“I don’t know how these builders make such deals work….”
It’s easy. They just lose their asses doing it. Hey, anybody can do lots of business
selling dollar bills for 80 cents. Who do you think these builders are? They’re not rocket scientists. The’re former, carpenters, framers, etc. who started to believe their own bullshitand figured “if they build it, they will come…” It ain’t so easy any more
and t5hese guys are getting their proverbial heads handed to them.