Realtor Chief Economist: “I spun”

Posted on December 20, 2008 by grim

AKA: Why you should ignore your Realtor and everything the National Association of Realtors Says

David Lereah was the Chief Economist for the National Association of Realtors (NAR) up until April 2007, the time period otherwise known as the “Bubble”. His outrageously bullish forecasts earned him the name: Baghdad Bob of real estate.

His continually rosy forecasts, in the face of a rapidly deteriorating market even led some to start blogs to keep track of his spin, the David Lereah Watch was probably the most famous of these.

Criticism wasn’t coming from bloggers alone, mass media journalists routinely took aim at Lereah, and even his successor Larry Yun, one of the most scathing appeared in Slate:

Worst. Forecasters. Ever?
By Daniel Gross
Posted Monday, Dec. 10, 2007

As the housing decline began to take center stage, NAR forecasts were an important market event. This spurred investment research firm Investech Research to publish this gem:

Our own RentingInNJ came up with his own compilation, which spurred the wildly popular (one of the most widely linked and traffic’ed NJREblog posts ever):

Tracking Realtor Spin

1. “There’s no question there is a strong demand for housing from a growing population.” – David Lereah, NAR Chief Economist

2. “For the foreseeable future, the demand for homes will continue to outstrip supply” – Al Mansell, NAR President

3. “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.” – David Lereah, NAR Chief Economist

Which leads up to the January 2009 issue of Money Magazine, where Lereah admits what we’ve already known:

Former real estate bull admits, “I spun”
Working for realtors, David Lereah was famously optimistic. Not anymore.
By Donna Rosato

As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the “positive spin.”

Q: Were you wrong to be so bullish?

A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q: The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?

A: My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.

Q: Any regrets?

A: I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

Some fun threads from back in time:

The Big Picture: NAR and Housing Forecasts

San Diego Home Blog: Spin Class – David Lereah and NAR

Matrix: David Lereah Resigns, Spin Takes A Smoke

Patrick.net: Is David Lereah going to Hell?

The Mess That Greenspan Made: NAR Housing Report: Declining Home Prices Induces Heavy Spin

Housing Panic: David Lereah, the most discredited economist in world history, finally admits housing crash going to get worse, expects US home values to plummet 20%

Hat tip to Chifi!

Posted in Housing Bubble, National Real Estate | 281 Comments

North Jersey November Residential Sales

Posted on December 18, 2008 by grim

Preliminary November sales and inventory data for Northern New Jersey (GSMLS) is in. Please note that this data is subject to revision.

The first graph plots the unadjusted sales data (closed sales) for the counties listed. Please note the lower bound of the graph, it is set to 500, not to zero. I do this to emphasize the seasonal nature of the Northern NJ market.


(click to enlarge)

The second graph is another view at the sales data for the full year. Please note that this graph does cross at zero.


(click to enlarge)

The third graph displays only November sales, 2000 to 2008 YOY.


(click to enlarge)

The fourth graph displays an overlay of Sales and Inventory from 2003 to 2007.


(click to enlarge)

The fifth graph displays the year over year change in inventory on a month by month basis.


(click to enlarge)

The sixth graph displays the year over year change in sales on a month by month basis.


(click to enlarge)

The last graph displays the absorption rate (not seasonally adjusted), in months:


(click to enlarge)

Bonus Graphs!


(click to enlarge)


(click to enlarge)

Posted in New Jersey Real Estate | 423 Comments

NJ Unemployment Rises to 6.1%. 6,200 jobs lost in November.

Posted on December 17, 2008 by grim

From the NJ Department of Labor and Workforce Development:

Employment in New Jersey Fell by 6,200 in November;Unemployment Rate Rose Slightly to 6.1 Percent

New Jersey employers shed jobs for the fourth consecutive month in November while the state’s unemployment rate moved higher. Employment was lower by 6,200 over the month. The state’s unemployment rate rose by 0.1 percentage point to 6.1 percent but remained below the U.S. rate of 6.7 percent, the highest rate in 15 years. November’s rate represents the highest statewide unemployment rate since August 1996.

Over the first 11 months of 2008, employment in New Jersey has followed the national trend, falling by 34,400 jobs (-0.84%), a slightly smaller percentage decrease than the nationwide job loss of 1,911,000 (-1.38%) over the same period.

According to preliminary estimates from the New Jersey Department of Labor and Workforce Development’s monthly survey of employers, nonfarm wage and salary employment in the Garden State fell by 6,200 in November to a total of 4,048,200. Losses occurred in both the private (-5,700 jobs) and the public (-500) sectors of New Jersey’s economy. Based on more complete reporting, the previously-released October employment estimate was revised lower by 1,000 to reflect a September-to-October loss of 7,000 jobs.

“The November data underscore how deeply the national recession is hitting our labor market,” said Labor Commissioner David J. Socolow. “Governor Corzine is taking action to help speed the recovery and protect the most vulnerable, including providing funding for foreclosure prevention assistance; creating an Invest NJ program to give businesses incentives to make capital investments and create jobs; providing $22.5 million for food, energy and legal aid assistance for individuals and families struggling to make ends meet; and investing $500 million in state-managed cash funds and pension funds in New Jersey banks to allow these banks to make more loans available to New Jersey businesses,” Socolow said.

Over-the-month losses were recorded in eight of eleven industry supersectors. The largest employment loss occurred in professional and business services which contracted by 1,900 jobs. All three industry components of the supersector registered job losses, led by professional, scientific and technical services (-1,200), followed by management of companies (-500) and administrative support/waste management/remediation services (-200). Also moving considerably lower was employment in manufacturing (-1,600) as both the durable (-900) and nondurable (-700) goods segments suffered job loss.

Other supersectors recording job loss included information (-900), financial activities (-900), construction (-500), and trade, transportation and utilities (-200). The only industry to record appreciable gains in November was education and health services which added 300 jobs. Hiring in the health care and social assistance (+500) category was responsible for the increase.

Over the month, the unadjusted workweek for manufacturing workers increased by 0.3 hours to 41.3 hours, average hourly earnings rose by $0.14 to $18.10 and weekly earnings were up by $11.17 to $747.53. Compared with November of last year, the unadjusted workweek for manufacturing workers was down by 0.5 hours, average hourly earnings rose by $0.65 and weekly earnings were higher by $18.12.

Posted in Economics, New Jersey Real Estate | 202 Comments

Time to start the real cuts, Jon.

Posted on December 17, 2008 by grim

From the Record:

Corzine looking for another $1.2B to cut from budget

Governor Corzine will announce new spending cuts early next month, his response to a recession-fueled budget deficit that is now $459 million and likely heading to well over $1 billion.

Thanks to another bleak report on state revenues released Tuesday, Corzine said the budget deficit — and a series of new spending cuts — could total more than the $1.2 billion he predicted just last month.

“We need to find at least $1.2 billion and, as I have talked about, if we are in error, it will probably be larger numbers as we go forward if we sustain the kind of declines in revenue that we’ve been seeing the last two months,” Corzine said Tuesday in Trenton.

November’s revenue report indicates state tax collections came in about $200 million below the projections included in the $33 billion spending plan Corzine and the state Legislature approved this summer. Revenue collections in October also came up short, by $211 million.

In all, state revenue collections are $459 million behind original budget estimates for the first five months of the fiscal year that began on July 1.

“They are very indicative of a weakening economy,” Corzine said.

About $400 million has already been cut in response to the declining revenue and the governor has asked department heads to find another $600 million. He said those cuts and at least $200 million more will be detailed in January.

“We will be out very early in the New Year with the specifics on this,” he said. “We’ve had an ongoing serious scrub of every element of our budgetary options.”

“We’re making adjustments in spending as we speak,” he said.

The total revenue shortfall of $459 million marks a 4.2 percent gap between the $10.57 billion that was collected and what was projected for the first five months of the fiscal year.

The state’s three major revenue sources — the corporate, income and sales taxes — are all seeing deficits between 2 percent and 5 percent.

“These revenue numbers paint a sobering picture of how the deepening economic downturn is impacting New Jersey jobs, businesses, personal income and consumer spending,” state Treasurer David Rousseau said.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 123 Comments

A Bank Too Important To Fail

Posted on December 15, 2008 by grim

Kudos to Deborah Smith over at the Jersey Bites Blog for putting the “Blogging Out Hunger” campaign together. Deborah managed to get more than 100 blogs to spread this very important message.

Economy Leaves Americans with Empty Plates

More than 35 million Americans, including 12 million children, either live with or are on the verge of hunger. In New Jersey alone, an estimated 250,000 new clients will be seeking sustenance this year from the state’s food banks. But recently, as requests for food assistance have risen, food donations are on the decline, leaving food bank shelves almost empty and hungry families waiting for something to eat.

The situation is dire, no more so than at the Community FoodBank of New Jersey (CFBNJ), the largest food bank in the state, where requests for food have gone up 30 percent, but donations are down by 25 percent. Warehouse shelves that are typically stocked with food are bare and supplies have gotten so low that, for the first time in its 25 year history, the food bank is developing a rationing mechanism.

As the state’s key distributor of food to local banks – serving more than 500,000 people a year and providing assistance to nearly 1,700 non-profits in the state – the stability of replenishment of the CFBNJ is essential to ensuring that individuals in need have access to food.

If everyone could just do a little, it would help those in need a lot. To help, people can:

1. Make a monetary contribution: Visit www.njfoodbank.org.
2. Donate food: Drop off a bag of food at your local food pantry.
3. Organize a food drive: We can help explain the logistics of starting a food drive. Just call 908-355-FOOD.
4. Help “Check Out Hunger:” Look for the “Check Out Hunger” coupons at your local supermarket and donate. No donation is too small!

A list of participating blogs can be found here:

Bloggers Unite to Fight Hunger in New Jersey

Posted in General | 251 Comments

Record foreclosures clog NJ courts

Posted on December 12, 2008 by grim

From the Record:

Credit crunch cases clog the courts

New Jersey’s courts are feeling the pressure of the ongoing recession with mortgage foreclosures soaring and credit-card debt lawsuits on the rise as well.

The state court system in October posted a record number of mortgage foreclosure filings for one month with more than 5,000 new cases, New Jersey Supreme Court Chief Justice Stuart Rabner said Thursday.

“Each of these cases involves the potential for someone losing their home,” Rabner said.

In all, 46,130 foreclosures were filed in a 12-month period that ended September 2008. There were a total of 31,667 mortgage foreclosure filings, about 46 percent fewer, during the previous 12-month period.

In response, the court system has started a new program that provides mediation in an effort to get lenders and borrowers to come up with ways to prevent owner-occupied foreclosures. Mediation is now mandatory when a foreclosure is contested by the homeowner.

The courts must remain neutral in foreclosure cases, but Rabner said both the lender and the borrower have an incentive to participate in mediation sessions and reach an agreement.

“We’re encouraging people to participate at any step of the process even up until the time of the sheriff’s sale,” he said.

Posted in General | 411 Comments

“We’re going to see a pretty significant storm next year”

Posted on December 11, 2008 by grim

From Bloomberg:

Foreclosure Storm Will Hit U.S. in 2009 as Loan Changes Fail

U.S. foreclosure filings climbed 28 percent in November from a year earlier and a brewing “storm” of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac Inc. said.

A total of 259,085 properties got a default notice, were warned of a pending auction or were foreclosed on last month, the seller of default data said in a report today. That’s the fewest since June. Filings fell 7 percent from October as state laws and lender programs designed to delay the foreclosure process allowed delinquent borrowers to stay in their homes.

“We’re going to see a pretty significant storm next year,” Rick Sharga, executive vice president of marketing for Irvine, California-based RealtyTrac, said in an interview. “There are two or three clouds that suggest a pretty heavy downpour.”

Rising unemployment, expiring foreclosure moratoriums and state efforts that “run out of steam” will push monthly filings toward the record of more than 303,000 set in August, Sharga said. The number of homes that revert to lenders, the last stage of foreclosure and known as “real estate owned” or REO properties, will increase to 1 million from as many as 880,000 this year, he said.

“The forces leading to foreclosure are hard to offset in most cases and impossible in many,” Robert Hall, a Stanford University professor and chairman of the National Bureau of Economic Research committee that calls the beginnings and ends of recessions, wrote in an e-mail. “Job loss is a major source of defaults at all times, and job losses are running at extreme levels now.”

Posted in Foreclosures, Housing Bubble, National Real Estate | 370 Comments

Becoming a Subprime Society

Posted on December 10, 2008 by grim

From MarketWatch:

Foreclosures could top 8 million: Credit Suisse

More than 8 million mortgages could go into foreclosure in coming years in the wake of the credit meltdown as the economy worsens and the U.S. suffers more job losses, according to a recent report.

Credit Suisse’s fixed-income research team forecast that 8.1 million mortgages will be in foreclosure over the next four years, representing 16% of all mortgages. In a recent research note, Credit Suisse lifted its earlier forecast from April when it predicted 6.5 million foreclosures, or 13% of all mortgages.
…
“Despite some initial signs that subprime foreclosures were near a plateau, the combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies, particularly in the prime mortgage space, ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher,” Credit Suisse wrote.
…
Earlier this week, Office of the Comptroller of the Currency director John Dugan released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008.

“The results were surprising, and not in a good way,” Dugan told a gathering in Washington at the Office of Thrift Supervision’s annual conference.

According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months the rate was roughly 56%.

After eight months, 58% of borrowers had re-defaulted. The OCC tracked the number of borrowers that re-defaulted on their mortgages after the modification was completed.
…
Meanwhile, Credit Suisse said that if home prices continue to spiral down, more and more mainstream borrowers could end up walking away from their homes, especially if the mortgage is worth more than the value of the house.

“Thus far, the population of subprime borrowers in the U.S. is relatively small,” the analysts wrote.

“However, the severe recession that appears more and more likely, coupled with the collapse of confidence in housing and resultant foreclosures and the impact on credit scores, risks transforming the U.S. into a subprime society.”

Adding to the headwinds, a deteriorating labor market will put more pressure on foreclosures, they said.

Posted in Foreclosures, National Real Estate, Risky Lending | 335 Comments

Schools: What do our tax dollars buy us?

Posted on December 8, 2008 by grim

That time of year again, no not Christmas, U.S. News and World Report released its “America’s Best High Schools” report.

America’s Best High Schools

So how does New Jersey rank nationwide? Unfortunately, the answer is: Not very good at all. Jersey only managed to take two spots in the top 100. Congrats to Lincroft High Tech and McNair for making the cut.

Gold Medal Schools – Top 100 (Cut to Top 20 and Local)
1. Thomas Jefferson High School for Science and Technology Alexandria, VA
2. Oxford Academy Cypress, CA
3. Pacific Collegiate Charter Santa Cruz, CA
4. High Technology High School Lincroft, NJ
5. Design and Architectural Senior High Miami, FL
6. International Academy Bloomfield Hills, MI
7. International Baccalaureate School at BHS Bartow, FL
8. Preuss School UCSD La Jolla, CA
9. Academic Magnet High School No. Charleston, SC
10. Gretchen Whitney High Cerritos, CA
11. Pine View School Osprey, FL
12. Maine School of Science & Math Limestone, ME
13. Basis Tucson Tucson, AZ
14. International School Bellevue, WA
15. Ridgeview Classical Charter Schools Fort Collins, CO
16. Benjamin Franklin Senior High School New Orleans, LA
17. Early College at Guilford Greensboro, NC
18. School of Science & Engineering Dallas, TX
19. Idea College Preparatory Donna, TX
20. Raleigh Charter High Raleigh, NC
23. Stuyvesant High School New York, NY
31. Dual Language and Asian Studies High School New York, NY
32. Staten Island Technical High School Staten Island, NY
33. Bronx High School of Science School Bronx, NY
37. Yonkers High School Yonkers, NY
38. Baccalaureate School of Global Education Long Island City, NY
46. Horace Greeley High School Chappaqua, NY
47. Dr. Ronald McNair Academy High School Jersey City, NJ
48. Queens High School of Science at York College Jamaica, NY
49. Great Neck South High School Great Neck, NY
51. Edgemont Junior-Senior High School Scarsdale, NY
62. Jericho Senior High School Jericho, NY
66. Masterman Julia R Secondary School Philadelphia, PA
84. Cold Spring Harbor High School Cold Spring Harbor, NY
87. Blind Brook High School Rye Brook, NY
88. Wheatley School Old Westbury, NY
92. Scarsdale Senior High School Scarsdale, NY

Jersey fared better on the state-by-state ranking at 6th place overall. 20 schools (5.4% of total) were awarded “Silver” or “Gold” rankings, and 41 schools (10.5% of total) managed a “Bronze” or better.

Best High Schools: State by State Statistics

Posted in General | 406 Comments

Freddie: How to do business in Washington

Posted on December 8, 2008 by grim

From the AP via CNBC:

How Freddie Mac Splashed Cash to Halt Regulation

From a hefty lobbying budget to the use of free baseball tickets, Freddie Mac fended off any meaningful regulation in the years before the housing mortgage giant crashed, records obtained by The Associated Press show.

When the Washington Nationals played their first-ever baseball game in the nation’s capital in April 2005, two congressmen who oversaw Freddie Mac had choice seats — courtesy of the very company they were supposed to be keeping an eye on.

Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back.
…
The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated, multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time.

Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts.
…
The tactics worked — for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007.

Posted in Housing Bubble, National Real Estate, Risky Lending | 421 Comments

Multifamily Slows in North Jersey

Posted on December 7, 2008 by grim

From the Record:

Multifamily projects in slowdown

Builders who started condo and town house projects during the housing boom are now cutting prices or putting the brakes on development as they face a steep downturn in sales.

“We’re not going to start any new projects for over a year,” said William Rosato, president of Tarragon Corp., a New York builder that has developed a number of multifamily projects in North Jersey.

“Builders are trying to survive; it’s a very difficult period,” said Bernard Markstein, senior economist at the National Association of Home Builders, which recently reported that its index measuring builders’ confidence in the condo market is at the lowest level since the index was created in 2003.

For home buyers, the builders’ troubles translate to lower prices and a wider range of property choices. And buyers often find they can get upgrades on kitchen cabinets, appliances and flooring for no extra charge.

Nonetheless, many potential buyers are wary, either because they can’t get mortgages, they’re worried about their job security or they are waiting for home prices to fall further.
…
Builder George Vallone of Hoboken Brownstone Co. put a 438-condo development in Jersey City on hold in response to pessimistic housing forecasts. He thinks he’ll have to wait six to 12 months before starting. In the meantime, he’s researching green building techniques, which he hopes to incorporate into the development.

Tarragon put off starting the third of its three Trio condo towers in Palisades Park until the market comes back, probably in 2010, Rosato said. The first two buildings, which each have 70 units, are almost sold out — though the company had to offer discounts totaling as much as 25 percent, through a combination of incentives and price cuts.

Tarragon, which has reported millions in losses, says it may have to file for Chapter 11 bankruptcy protection. It is trying to restructure its debt and looking for an equity investor.

In another response to the housing market, Tarragon converted two new Hoboken buildings, originally planned as condos, to apartments. A number of other builders are making the same move. The rental market in North Jersey remains strong, so it’s not too difficult to find tenants. But rents are unlikely to offer builders the same profit margins as sales, Markstein said.

Posted in Economics, New Development, New Jersey Real Estate | 75 Comments

Weekend Open Discussion

Posted on December 5, 2008 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 481 Comments

Surprise surprise, NYC in recession

Posted on December 4, 2008 by grim

From the NY Times:

No Surprise, New York Is in Recession

One year after the national economy officially fell into a recession, New York City and State have joined it, according to an influential research firm.

On Wednesday, Moody’s Economy.com said that the city and state, like almost all other parts of the country, are now in a recession. For the last several months, Economy.com had said the city and state were “at risk” of recession but had not yet begun shrinking. Almost all the rest of the tristate area, including all metropolitan areas in New Jersey, are also in recession, according to Economy.com.

The downgrading of New York came just two days after the National Bureau of Economic Research declared that the national economy entered a recession in December 2007. Recessions are generally defined as periods of declining production and employment.

Separately, the Federal Reserve said on Wednesday that the economy of the New York City region had “deteriorated substantially” since mid-October. Companies reported “widespread declines in business activity and employment levels,” according to the report, known as the beige book.

The real estate market, especially in Manhattan, has softened substantially in the last several weeks, and tourism and retailing have declined significantly, the report said. The most pronounced decline in consumer spending has been in New York City, which had outperformed the rest of the region until recently, it said. Business at hotels in Manhattan has “plummeted” in recent weeks, and ticket sales at Broadway theaters have been weak since mid-October, it said.

In northern New Jersey, sales of inexpensive homes have held up, but the market for homes priced at $400,000 and up were “moribund,” according to the report. “Larger construction firms are backing out of new developments and cutting jobs, while a number of smaller firms are contemplating either moving into the rehab segment of the market or going out of business,” it said.

Marisa DiNatale, at senior economist at Economy.com, said she expected the city and state to remain in recession through the first half of 2009. After that, she said, she expects the city’s economy to recover more slowly than the state’s and the nation’s. “I’m just thinking that what’s going on in the financial sector is going to play out much slower, probably over several years,” she said.

There were no bright spots cited in the report.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 349 Comments

North Jersey October Residential Sales

Posted on December 3, 2008 by grim

Preliminary October sales and inventory data for Northern New Jersey (GSMLS) is in. Please note that this data is subject to revision.

The first graph plots the unadjusted sales data (closed sales) for the counties listed. Please note the lower bound of the graph, it is set to 500, not to zero. I do this to emphasize the seasonal nature of the Northern NJ market.


(click to enlarge)

The second graph is another view at the sales data for the full year. Please note that this graph does cross at zero.


(click to enlarge)

The third graph displays only June sales, 2000 to 2008 YOY.


(click to enlarge)

The fourth graph displays an overlay of Sales and Inventory from 2003 to 2007.


(click to enlarge)

The fifth graph displays the year over year change in inventory on a month by month basis.


(click to enlarge)

The sixth graph displays the year over year change in sales on a month by month basis.


(click to enlarge)

The last graph displays the absorption rate (not seasonally adjusted), in months:


(click to enlarge)

Bonus Graphs!


(click to enlarge)


(click to enlarge)

Posted in New Jersey Real Estate | 184 Comments

Straight out of the early 90s real estate bust playbook

Posted on December 3, 2008 by grim

From the WSJ:

Lenders Tiptoe Into Bulk Sales
Glut of Foreclosed Homes Spurs Some Trial Runs
By JAMES R. HAGERTY

As the glut of foreclosed homes swells, banks and other lenders are starting to warm to the idea of selling some of the homes in bulk to investors, a departure from the practice of selling homes one at a time.

For the past year, investors have been eager to buy large numbers of homes from lenders at knockdown prices. Lenders have generally resisted that idea, but now some are trying it out on a small scale.

Barclays Capital estimates that banks and loan investors owned 871,000 foreclosed homes as of Nov. 1, up from 414,000 a year earlier. Barclays forecasts that this inventory will peak at around 1.4 million homes in mid-2010.

That deluge has persuaded some banks to start bargaining. In recent months, Wells Fargo & Co., Fannie Mae and Synovus Financial Corp. have negotiated a few transactions and have signaled to investors they might be willing to do others.

So far, no major lender has fully embraced the idea of selling in bulk. In many cases, they say prices that investors are demanding remain too low. The banks say they can get more money for most homes selling them through local agents. If investors buy homes and quickly flip them for a higher price, banks feel they have just let a middleman earn proceeds they should have been able to get on their own.

“We are getting a ton of bottom fishers,” says Barbara Desoer, president of mortgage and insurance services at Bank of America Corp., but the prices being offered aren’t attractive. Ms. Desoer says Bank of America, which this year became the nation’s largest mortgage lender by acquiring Countrywide Financial, isn’t doing bulk sales for now.
…
James Odell Barnes, an investor in South Carolina, says he and a group of investor partners recently paid about $1.2 million for a bulk purchase of about 800 homes from Fannie Mae. That works out to about $1,500 apiece on average. A large share of the homes were in Detroit and other depressed Michigan cities; others were in cities including Indianapolis, Pittsburgh, Memphis, Tenn., and Toledo, Ohio. Mr. Barnes says he quickly resold for about $50,000 one of the Detroit homes purchased from Fannie for $1,800.
…
Fannie’s main rival, Freddie Mac, says it is open to bulk sales but hasn’t been able to reach acceptable terms. “We don’t accept 20 or 30 cents on the dollar,” says James “Chris” Bowden, a Freddie vice president.
…
Partly for public-relations reasons, lenders are expected to be more open to considering bulk sales to nonprofit groups seeking to acquire homes in poor neighborhoods as a way to prevent blight and create affordable housing.

Housing and Neighborhood Development Services, Orange, N.J., is setting up a nonprofit company to pursue such deals. Harold Simon, executive director of the new company, says it is negotiating to buy mortgages backed by about 100 homes, mostly in northern New Jersey. He declined to identify the seller of those loans.

Posted in Economics, Housing Bubble, National Real Estate | 146 Comments