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.
…
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.
Lennar Offering Up to 33% Off on Inventory Homes in Phoenix
By twist
http://housingdoom.com/2007/04/21/lennar-offering-33-percent-off/#more-619
Hat-tip to Housingdoom (again) for this one. One word folks: FIRESALE!
Man, wanna have some fun? Run around to new home communities and ask for 50% off the original price. At least you’ll get a nice counter offer. But obviously don’t buy unless you can rent the place out for positive cash flow. Do that math with the builder on that one too…
Oh, for extra credit fun, go knock on doors in these new home communities and let the neighbors know how far their homes have fallen in value since they bought. Let ’em know the builder is conducting a historic firesale that will destroy the comps for years to come.
You might want to bring protection.
http://housingpanic.blogspot.com/
Lennar Offering Up to 33% Off on Inventory Homes in Phoenix
By twist
http://housingdoom.com/2007/04/21/lennar-offering-33-percent-off/#more-619
California home prices to weaken further: Goldman
Countrywide could be hurt by exposure to Golden State, bank says
By Alistair Barr, MarketWatch
Last Update: 4:21 PM ET Apr 20, 2007
SAN FRANCISCO (MarketWatch) — Investment bank Goldman Sachs is increasingly concerned about the health of California’s real estate market and reckons mortgage giant Countrywide Financial could be harder hit than other lenders because of its big exposure to the state.
Countrywide shares slipped 2.5% to $37.28 on Friday, leaving them down more than 11% so far this year.
Mortgage delinquencies jumped 46% in California last year, vs. a 5% increase nationally, Goldman said in a note to clients late Thursday.
Delinquencies on prime and subprime adjustable-rate mortgages in California soared by 78% and 60% respectively, vs. 33% and 24% across the U.S., the bank added, citing recent data from the Mortgage Bankers Association.
Median California home prices are still creeping up, and the state’s strong employment trends should support the real estate market. But Goldman is worried that surging prices in the state in recent years weren’t driven by traditional factors such as strong employment and income growth. Instead, the bank reckons an increase in ARM mortgages offered to borrowers who were already stretching to buy high-priced homes fueled the boom.
Now that lenders are cutting back some of these types of loans and regulators are beginning to crack down, California home prices could begin falling later this year, especially in high-price cities and towns, Goldman said.
“Many metros in California have home prices that are not justified by the underlying fundamentals,” Goldman analysts James Fotheringham, Daniel Zimmerman and Monica Gabel, wrote in their note to investors. “Instead house price trends have been driven by the availability of subprime and non-traditional credit.”
Originations of subprime mortgages, which are offered to poorer borrowers with blemished credit records, could drop 30% to 50% in 2007 and this contraction in the availability of credit will hit California’s real estate market harder than elsewhere, the analysts said.
Ten of the top 12 metropolitan areas for subprime mortgages last year were in California, with Stockton topping the list. More than 40% of home loans in that town, nestled in the state’s central valley east of San Francisco, were subprime in 2006, the analysts noted.
With fewer subprime loans available and more delinquencies likely, California home prices will probably weaken further in 2007, the analysts said.
That’s not good news for Countrywide (CFC : Countrywide Financial Corp
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CFC37.36, -0.86, -2.3%) . Almost half of the company’s $71.8 billion mortgage portfolio and more than a quarter of its home loan servicing business is from California, the Goldman analysts noted.
Countrywide has also offered a lot of option ARMs. These types of mortgages let borrowers pay less than the interest they owe on the loan each month, for a certain period of time. If borrowers chose this option, the size of their loan grows and when they finally have to start paying off the principal, the monthly payments can increase a lot.
Mortgages offered to prime borrowers (people with high credit scores and less debt) haven’t experienced large increases in delinquencies. But option ARMs are one of the few types of “prime” home loans that have begun to deteriorate, Goldman said.
About 46% of the principal from Countrywide’s mortgage portfolio is from option ARMs, and many of these loans were probably originated in California, Goldman noted, adding that this is a “risky combination.”
Countrywide will likely have to set aside more money to cover loan losses and that will cut into profits, the analysts said. They cut their earnings forecasts for the lender by 3% in 2007 and 2008 and by 4% in 2009.
The analysts also reduced their price target to $32 from $33 and reiterated their sell recommendation.
Alistair Barr is a reporter for MarketWatch in San Francisco
‘Upside Down’ Home Sellers Owe More Than They Get
By Nancy Trejos
Washington Post Staff Writer
Friday, April 20, 2007; A01
Jeffrey Taylor and his wife bought their dream home in Purcellville for $538,000 last August. Now they have to sell it because they are getting divorced and neither one can afford the mortgage alone.
The most they could get for it was $430,000. After paying all the real estate commissions and taxes, they will still owe the bank $118,000.
http://www.washingtonpost.com/wp-dyn/content/article/2007/04/19/AR2007041902924_pf.html