From the Herald News:
Lessons to be learned from housing mess
These are scary times in the housing industry. Scary for lenders. Scary for buyers. The depth of that anxiety was fully realized late last month when the Commerce Department released its report that new home sales had fallen 6.6 percent in June, more than triple what had been predicted.
Analysts attribute a good part of the housing market’s woes to fallout from the defaults on so-called “sub-prime loans,” a decade-long trend whereby at-risk buyers were encouraged to purchase homes they couldn’t really afford, at variable interest rates — even though their credit scores were historically low and their monthly incomes small.
As reported last week in a special Herald News report, (“Firm foundation: Solid history key to owning home,” July 29) the housing bubble’s burst has been felt acutely in North Jersey, and most particularly in Passaic County.
That story pointed out how the slowdown in the market, and the ensuing correction toward wiser home-buying — while less profitable for real estate agents and troublesome for bankers — will be most healthy for the industry and for consumers in the long run.
“It’s not like buying a shirt at Macy’s,” said Jonathan Sang, manager of Benchmark Lending in West Paterson. “You have to do your research.”
Indeed, it was the lack of this due diligence by lenders and consumers, and perhaps some overzealous selling by real estate agencies, that left many would-be homebuyers in Passaic County in dire financial straits in recent years. While these buyers realized, initially, the thrill of owning their own homes, because of the volatile nature of the sub-prime loans they soon found themselves in deep holes, scrambling to make mortgage payments that often grew higher with increasing rates.
The end result is that many of those properties are now being foreclosed, and families are being forced to look for new forms of shelter. It has been so bad that Passaic County sold more foreclosed properties in the first six months of 2007 than in all of 2005. Some economists believe the rocky road down may ultimately lead to sinking property values all around.
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Buying a home is one of the most important financial decisions a person will make. There are many factors to consider. In no instance should it be a rushed decision.If the present upheaval in the housing market teaches us anything, it is to be wary of deals that sound too good to be true. Tightening of regulations will help, but ultimately the consumers must also do their homework and shop responsibly.
Toll Brothers expects revenue drop
Homebuilder projects decrease of 21 percent amid sluggish market, gives no outlook for future.
August 8 2007: 7:49 AM EDT
NEW YORK (Reuters) — Luxury home builder Toll Brothers Inc. said Wednesday that it expected to report a decline in quarterly home-building revenue as the U.S. housing crisis deepened.
The company said the number of signed contracts was down, and cancellation rates rose.
Based on preliminary results, Toll Brothers said its home-building revenue had fallen 21 percent to about $1.21 billion in the third quarter ended on July 31. That was within the company’s May forecast, which had called for $990 million to $1.28 billion.
“We are now in the twenty-third month of a down housing market,” Chief Executive Robert Toll (Charts, Fortune 500) said in a statement. “With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down.”
On the other hand, pent-up demand may be building among potential home buyers, since the U.S. economy and employment are still strong, and demographic trends are lending support, the Horsham, Pa.-based company said.
Toll said that under current market conditions, it was not comfortable giving an earnings outlook.
The company plans to report its third-quarter results on Aug. 22. Because of its fiscal calendar, Toll is the first major home builder to report a quarter that will contain July. Investors use it as an indicator of the performance of other home builders.
For more than a year, home construction has fallen sharply on weakening demand and rising interest rates. Problems in subprime mortgage lending – loans to those with sketchy credit histories – have made it even more difficult for potential buyers to get a mortgage and banks have restricted mortgages even to those with good credit.
Pending completion of an impairment analysis, Toll estimates its pretax write-down for operating communities, land and land options for the quarter at $125 million to $175 million.
The third-quarter backlog of homes on order fell 34 percent to about $3.67 billion from a year earlier.
Looking to indicators of future revenue results, Toll said net signed contracts were down 31 percent from a year earlier to $727.1 million.
The third-quarter cancellation rate was 23.8 percent compared with the prior quarter’s rate of 18.9 percent.
Toll Brothers has been hit by the same downturn dashing the revenue and profit of Lennar (Charts, Fortune 500), Pulte (Charts, Fortune 500) and Centex (Charts, Fortune 500).