“There are going to be no happy endings here”

Posted on August 28, 2007 by grim

From the Wall Street Journal:

Inventories of Homes Rise Sharply
By SUDEEP REDDY
August 28, 2007; Page A2

U.S. sales of existing homes fell slightly in July, but a surge in inventories set the stage for a steeper slump and sharper price declines in the months ahead.

After the credit crisis that hit financial markets this month, U.S. home sales are expected to drop further as tighter lending standards and a pullback by mortgage firms keep potential buyers on the sidelines.

Sharply rising inventories are a sign of homeowners trying to sell their homes before prices tumble more, said Joseph Brusuelas, chief U.S. economist at consulting firm IDEAglobal.

“There are going to be no happy endings here,” he added. “It’s the last days of the old order.”

Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, the National Association of Realtors said yesterday. The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.

Inventories of homes for sale jumped 5.1% to 4.59 million, or about 9.6 months of supply at the current sales pace. A supply of about six months generally indicates a balanced market.

The tightening of credit markets became most severe in mid-August. That means the full effect may not be seen until sales figures for September are released. The Realtor group’s figures reflect transaction closings, which mark the end of the buying process.

The problems may be most acute in the markets for lower-end homes, which tend to go to less credit-worthy borrowers, and for higher-end homes that require buyers to take out so-called jumbo loans. Rates for such loans, which exceed $417,000, jumped sharply this month.

Even before the market turmoil, inventories were expected to rise sharply into early next year as homeowners increasingly default on loans.

Sellers could face price declines of as much as 10% in the next six months as the market settles, said Joshua Shapiro, chief economist at consultancy MFR Inc. in New York.

“To sell cheaper homes, prices need to be slashed even more because demand is falling off,” Mr. Shapiro said. “If the bottom is falling out of the lower end of the market, it’s going to have to affect the middle, which affects everything above it.”

Posted in Housing Bubble, National Real Estate | 326 Comments

A “choice recipe for further sales declines this fall and into the winter”

Posted on August 28, 2007 by grim

From the Courier Post:

Area home sales, prices down

Housing sales slid to the slowest rate nationwide in July.

Quarterly statistics for southern New Jersey showed a sharp decline in volume with the exception of the shore.

The only community that recorded significant gains in both price and sales was Moorestown, where the average home sale was $610,000, a 14-percent gain over the same time a year ago; 73 properties changed hands in the Burlington County community, a 12.3 percent increase, according to Trend MLS, a King of Prussia, Pa.-based provider of real estate statistics.

“In a few pockets, there hasn’t been a difference,” Howard Lipton of Weichert Realtors in Burlington Township said. “But in most places, prices are definitely coming down.”

While prices in the Northeast rose 1 percent overall, a number of communities posted double-digit dips. In Lumberton, the average home was off 16 percent to $267,900, Trend said. In Pemberton, prices dropped 20.4 percent to an average price of $172,000.

Overall, prices inched up. In Burlington County, the median price was up 2.3 percent over last year to $277,100, according to the most recent numbers from the National Association of Realtors. In Camden County, a typical home gained 4.5 percent to $211,800. In Gloucester County, a 5.2 percent increase boosted the median home price to $238,900.

In South Jersey Shore communities, both prices and volume gained, with the median home price up 4.4 percent to $251,000 on sales of 1,111 homes, a 17.2-percent increase in volume over 2006.

“This state is in a better position than many places in that we’re holding our prices,” said Bill Hanley, president of the Realtors Association of New Jersey.

The rub is fewer homes are selling, swelling inventory.

Nationwide, the inventory of unsold single-family homes ballooned to 4.59 million homes, the highest level in 16 years. In Burlington, Camden and Gloucester counties, 12,786 existing single-family residences were for sale as of June 30.

Hanley attributed the glut to buyers sitting on the sidelines waiting for a sign that prices have bottomed out. Credit curbs also are putting the brakes on buyers.
…
“With fewer buyers qualifying for loans and lots of unsold houses out there, that makes a choice recipe for further sales declines this fall and into the winter,” said Stuart Hoffman, chief economist at PNC.

Currently, homes in South Jersey are taking an average of 71 days to sell. Lipton noted listings that are overpriced or don’t show well are sitting for as much as 14 months.

Daigle said sellers are becoming increasingly willing to negotiate as they internalize the reality of doing business in a buyer’s market.

“What we’re seeing is a shift in the market, with prices getting down to where they should be,” she said.

Posted in Housing Bubble, New Jersey Real Estate | 3 Comments

Home equity loan standards tighten

Posted on August 28, 2007 by grim

From USA Today:

Your Money: Home-equity loans tougher to get

Back when the real estate market was flying at 30,000 feet, getting a home-equity line of credit was a pretty straightforward process. You called a toll-free number, asked for a loan, and within hours, a guy with a suitcase full of money showed up at your door.
It’s a lot harder now. Some lenders have stopped offering home-equity lines of credit and home-equity loans altogether, even to borrowers with good credit. And lenders that still offer the loans are being a lot more selective.

The lenders that have cut back on home-equity loans and credit lines are mainly those that raise money by selling the loans to investors. Investors have stopped buying such mortgages since the subprime market collapsed, says Bob Walters, chief economist for Quicken Loans, which has stopped offering home-equity loans or lines of credit.

Walters says investors have backed away from second mortgages for the same reason they’ve abandoned jumbo mortgages (those that exceed $417,000). Because investment mortgage giants Freddie Mac and Fannie Mae won’t buy jumbos or second mortgages, these loans are considered riskier than so-called conforming loans.

But just as community and national banks are offering jumbo loans, many banks, savings and loans and credit unions are still providing home-equity loans and credit lines, says Keith Gumbinger, vice president for HSH Associates, a publisher of mortgage information.

These lenders typically use customer deposits to finance loans, so they’re not beholden to Wall Street, he says.

Still, these lenders are unwilling to take big risks with their money, especially in this environment. The Federal Deposit Insurance Corp. said last week that delinquent home-equity lines of credit — those late by 90 days or more — jumped 16.6% in the second quarter.

Pava Leyrer, a mortgage broker in Grandville, Mich., says she’s been able to find home-equity lines of credit for clients with good credit histories who can show they have sufficient income to make payments.

Lending standards “have tightened somewhat to where they should have been in the first place,” she says.

Posted in National Real Estate, Risky Lending | 1 Comment

July Otteau Report

Posted on August 27, 2007 by grim

From the Otteau Valuation Group:

HOUSING MARKET IMPROVES SLIGHTLY, INVENTORY STOPS RISING

The decline in the housing market which began during the 2nd half of 2005 is evidenced by the rising tide of unsold homes on the market. While there are many contributing factors, the supply of competing properties is paramount as it creates a ‘mood of the market’ which determines whether home buyers feel any sense of urgency. For example, as Unsold Inventory declines and a buyer’s choices diminish they are inclined to purchase sooner rather than later driving inventory even lower and home prices higher in the process. Conversely, rising inventory extends normal marketing time causing home sellers to reduce their asking price. In this rising tide environment home buyers adopt a ‘wait & see’ stance due to concern about falling home prices, leading to further increases in Unsold Inventory and thus creating a downward spiral. Any reverse of this cycle is then predicated upon a decline in Unsold Inventory. While this is admittedly a simplistic view which does not take into account corresponding demand factors, the bottom line is that the housing market can not improve significantly until Unsold Inventory declines. And the first step toward inventory decline is for it to stop rising.

The New Jersey housing market provided a glimmer of hope in July as Unsold Inventory declined for the first time since January. That this decline accounted for less than a 1% reduction in Unsold Inventory makes it clear that the housing recession is far from over and will continue into 2008. However, should inventory hold at its present level would signal the ‘beginning of the end’ for the housing recession.

The July housing market also saw an increase in contract-sales activity on a seasonally adjusted basis. As demonstrated in the NEW JERSEY CONTRACT-SALES ACTIVITY chart, July sales were higher than one year ago confirming that while the housing market is weak it still has life. No surprise here as despite the decline in sales activity over the past 2 years the underlying demand for housing is still bubbling beneath the surface. This is because life goes on with continuing household formation, marriages, the birth of children, job promotions, divorce and retirement all leading to changing housing needs which translates into housing demand. Thus, the stage is being set for a rebound in the housing market once the current challenges sort themselves out.

From a market absorption perspective, the Unsold Inventory presently reflects a 9.0 month inventory of homes as compared to 8.9 months in June. This however compares to a 4.0 month supply in July 2005 suggesting that inventory is currently about double where it needs to be before home prices will start rising again. This is important to would-be home sellers who are considering waiting things out before selling their present homes as any rise in home prices is likely several years off.

Posted in Economics, New Jersey Real Estate | 91 Comments

Hold on to those hats…

Posted on August 27, 2007 by grim

From Bloomberg:

Tough Times Are Still Ahead for U.S. Home Market: John F. Wasik

If you think the worst is over for the U.S. home market, hold on to your hats.

The credit crunch is not only making mortgage financing tougher, it will force more homeowners into foreclosure. The surge of more bargain homes on the market will further depress prices. Along with a corresponding pinch on home equity, auto loans and credit cards, this pullback doesn’t bode well for the economy.

The credit industry has become an inadvertent cheerleader for a recession. Consumers who can’t borrow typically don’t spend on items such as homes, cars and remodeling projects. It’s a punishing economic boomerang of mass psychology.

Only those with above-average credit ratings will fare well in the purge of the riskiest kinds of mortgages from lender portfolios.

“It’s been a bloodbath,” says George Jenich, owner of Milwaukee-based Lender Rate Match LLC, which runs an online mortgage service. “Since the beginning of the year, 25 lenders have been dropped from our database who have either gone bankrupt or stopped lending. We’re down to 15 lenders now.”

Jenich said all but the largest lenders have curtailed or halted their offerings of the riskiest kinds of loans. That includes subprime, so-called Alt-A, stated income, no- documentation and 100 percent financing.
…
Congress, market regulators and the Federal Reserve are trying to prevent a liquidity crisis that will cripple the already depressed home market.

Yet it may be too late to contain the collateral damage. At the end of last year, there were an estimated 7.5 million subprime mortgages totaling $1.4 trillion, according to the Center for Responsible Lending, a research organization in Durham, North Carolina. Some 20 percent to 30 percent of those loans may result in foreclosure. All told, the center predicts more than 2 million Americans will lose their homes. It may be more if the credit crunch continues unabated.

In July alone, foreclosures almost doubled compared with a year earlier, according to RealtyTrac Inc., the Irvine, California-based property tracking service. Hit hardest were those who were trying to refinance but couldn’t obtain loans after their adjustable-rate payments rose.
…
Also hurt are those homeowners refinancing loans who have no equity or money down.

Jenich said lenders are most restrictive in Arizona, California, Florida, Georgia, Michigan, New Jersey, New York, Nevada and Ohio.

That means banks in those states will require more equity or cash and offer lower loan amounts. Not surprisingly, Nevada, Georgia and Michigan posted the highest foreclosure rates in the U.S., with California and Florida showing the highest total foreclosures, RealtyTrac reported.

The trigger point for what industry experts say will be the next wave of foreclosures is November — when the next resets are scheduled — and then in April of next year.

“This will put borrowers in a straitjacket if they need to find 100 percent financing since no products will be available,” says Jenich.
…
The credit industry will eventually adjust to the new reality of tighter standards after the free-wheeling, no-money- down days that ended last year.

It’s too late for regulating out of this morass, though Congress may be forced to compel secondary-market leaders like Freddie Mac and Fannie Mae to buy a wider range of mortgages and improve disclosure on loan contracts.

In the meantime, if you need a loan, you will need more savings in the bank and extensive documentation to prove income and assets. That was a safeguard all along. Why does it suddenly seem like a good idea to the industry and Washington?

Posted in Housing Bubble, National Real Estate, Risky Lending | 203 Comments

One in three chance of a recession?

Posted on August 27, 2007 by grim

From the Wall Street Journal:

Debt Issues Top Economists’ Fears
Terrorism Falls in Poll On Short-Term Threats Amid Market Turmoil
By SUDEEP REDDY and KELLY EVANS
August 27, 2007; Page A2

The combined risk of mortgage defaults and heavy debt loads has overtaken terrorism as the biggest short-term threat to the U.S. economy, according to a survey of economists being released today.

The National Association for Business Economics says almost a third of its survey respondents listed debt-related problems as their top worry: About 18% cited the effects of subprime-loan defaults and 14% listed excessive household or corporate debt.

About 20% of the 258 members responding put defense concerns and the possible economic disruption of a terror attack at the top of their list, down from 35% in the group’s March survey. Energy prices were the top-cited risk among 13% of the group, which largely includes economists working at U.S. corporations or with think tanks and universities.

The poll results, collected from July 24 to Aug. 14, reflect early worries about the turmoil spreading through equity and debt markets in recent weeks. Defaults tied to riskier home loans soared this year, devaluing mortgage-backed securities and spurring a pullback from many lenders. The ensuing crisis has spurred worries of cutbacks in business and consumer spending.

Forecasters are starting to shave their growth forecasts for this year as a result of the market turmoil. They are discussing the odds of a recession, which they say is avoidable if the Federal Reserve cuts interest rates. The economy grew at a strong 3.4% annual rate in the second quarter after almost stalling in the first three months of the year with 0.6% growth.
…
Peter Hooper, chief economist at Deutsche Bank Securities, said growth in coming quarters would be trimmed “if we don’t get some snapback [in markets] pretty soon. The odds of recession have gone up,” he said. “We were thinking they were one out of four; maybe they’re closer to one out of three.”
…
The housing market has also restrained economic growth, with construction activity easing and household wealth declining because of falling prices in many areas. However, the business economists’ survey says the five-year outlook for housing “remains largely positive.” About 42% of those responding said they expect U.S. home prices over the next five years to be flat, on average, while 41% expect price increases. Just 16% expect price declines.

Posted in Economics, National Real Estate | Comments Off on One in three chance of a recession?

“Getting off financial steroids will not be easy for any of us.”

Posted on August 27, 2007 by grim

From the NY Daily News:

Feeling pain of real estate on steroids

Once in a generation, an event occurs that changes the rules of investing and the way we live. Some are massive events, like the 1929 stock market crash. Others are incremental, like the increase in interest rates in the 1970s.

It is always difficult to know when rules are changing. Except for watershed events, changes are not made instantly. Behavior is difficult to modify, and many investors remain in denial as the world around them is transformed.

I think this could be one of those times. For the past few decades, one sure rule was that people could always make money in real estate. The stock market could go up and down, but real estate was a sure thing.

Our economy has lived off gains in real estate. People took profits from their homes and bought more expensive homes. They made lower down payments and took out adjustable rate mortgages, some of which initially required only payments on the interest. Then they took out home-equity loans to buy big-screen TVs and clothes, and to pay for vacations.

This easy financing for real estate was the steroid that boosted our economy. While most people complain about Barry Bonds allegedly cheating the system to hit home runs, few complained when each of us took financial steroids to boost our real estate. While most want baseball to outlaw performance-enhancing drugs, most also want the government to step in with performance-enhancing financing.
…
This is most critical for real estate. My view is that real estate in general will be flat for at least the next decade. This does not mean every piece of real estate. Just as there are great stocks even in a bear market, there will always be great real estate investments. But I believe most people will not see the value of their homes appreciate over the next decade.

This means people should be cautious about buying too large a home or taking out a mortgage that’s based on being able to sell the home for a much higher price.
…
The government has lots of tools – it can offer cheap mortgages and prolong the day of reckoning. But eventually the bills will be paid and the economy will have to get off the steroids of cheap money.

Bottom line: Don’t borrow too much. Don’t reach for real estate you can’t afford, and don’t spend now in the hopes you can pay later. Getting off financial steroids will not be easy for any of us. It will be more difficult for those who ignore the warnings.

Posted in Housing Bubble, National Real Estate | 3 Comments

“Countrywide was the worst lender”

Posted on August 27, 2007 by grim

From the New York Times:

Inside the Countrywide Lending Spree

ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.

But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.
…
Homeowners, meanwhile, drawn in by Countrywide sales scripts assuring “the best loan possible,” are behind on their mortgages in record numbers. As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year’s rate of 5.35 percent.

Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month’s upheaval in the mortgage markets.

To be sure, Countrywide was not the only lender that sold questionable loans with enormous fees during the housing bubble. And as real estate prices soared, borrowers themselves proved all too eager to participate, even if it meant paying high costs or signing up for a loan with an interest rate that would jump in coming years.

But few companies benefited more from the mortgage mania than Countrywide, among the most aggressive home lenders in the nation. As such, the company is Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.

Posted in National Real Estate, Risky Lending | 1 Comment

“If the sale doesn’t go through, what do they do?”

Posted on August 26, 2007 by grim

From the Record:

When mortgage cash dries up

Lisa Meserole was two weeks away from closing on her new Hackensack condo when she got a shock: Her lender, American Home Mortgage, was not going to fund her loan — or for that matter, any loans — because the company was filing for bankruptcy.

“You want to know stress?” Meserole said. “I thought I wouldn’t have a place to live — where was I going to go?”

Meserole’s mortgage broker scrambled and found another lender for her, and she bought her condo in mid-August, as scheduled. But her experience throws a spotlight on how the North Jersey housing market has been affected by the national mortgage crunch — especially in the more affordable towns where first-timers buy houses.

The fallout includes:

• Buyers who, just a few months ago, would have been able to buy without a down payment or even proof of their income now find that’s no longer possible. Many have dropped out of the market.

• Other buyers have to pay more for their loans. Interest rates on jumbo mortgages — more than $417,000 — have climbed to an average of about 7.4 percent, though some regional banks are offering lower rates.

• In the most extreme cases, house sales just fall apart. “I have had two closings die at the table because the banks could not fund [the mortgage],” said Crystal Burns, an agent with Re/Max Advantage Plus in Teaneck. “And there is literally no recourse.”

In Wayne, Coldwell Banker agent Bob Lindsay has a sale that is supposed to close Monday. His clients, the sellers, have booked a moving van and are ready to go.

But last week, the buyer’s mortgage lender, First Magnus Financial Corp. of Phoenix, filed for bankruptcy, and the buyer’s mortgage broker began searching for another lender. As of 6 p.m. Friday, Lindsay still had not heard whether the financing is in place.

“If the sale doesn’t go through, what do they do?” Lindsay said of his clients.

So far, most of the pain has been felt in towns where first-time buyers tend to look for homes, such as North Arlington and Bergenfield. In these areas, many recent buyers had used no-down-payment loans and other non-traditional mortgages to get into a high-priced housing market.

But mortgage lenders have stopped writing these risky loans, because Wall Street investors, spooked by a rise in mortgage delinquencies, no longer want to invest in them. And mortgage lenders’ requirements for borrowers have been changing overnight in response to the mortgage turmoil.

“We’ve seen people who thought they had a 5-percent-down mortgage who now need to put 10 percent down,” said Teri Gamble of GoldStar Realty in Oradell.
…
Similarly, Ivana Crecco of Camelot Realty in Hackensack said she is not working with any buyers who don’t have a down payment and a decent credit score.

“I won’t waste my time, because I know the deal won’t go through,” she said.

Even buyers with good credit have recently found that in a world of tighter credit and slumping house values, bank appraisals have become unforgiving. Geraldine Tecchio of ERA Nalbandian in Saddle Brook said she has worked on several deals where the appraiser valued the house at less than the sale price. In those cases, the bank refuses to write the mortgage for the amount needed. Either the seller lowers the price or the deal falls through, she said.

Posted in Housing Bubble, New Jersey Real Estate, Risky Lending | 7 Comments

Weekend Open Discussion

Posted on August 24, 2007 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 | 427 Comments

“It’s hard to imagine that we’re anywhere near a turnaround”

Posted on August 24, 2007 by grim

From Bloomberg:

New Home Sales in U.S. Probably Fell to Lowest Level in 7 Years

New home sales probably dropped to the lowest level in seven years in July, showing a deepening housing recession that will drag down U.S. economic growth.

Purchases fell to an annual rate of 820,000 last month from 834,000 in June, according to the median forecast of 73 economists surveyed by Bloomberg News. That would be the slowest pace of sales since June 2000.

A continuing slump in housing may undermine the Federal Reserve’s efforts to stabilize U.S. credit markets, which have been roiled by losses on securities backed by subprime mortgages. Americans are finding it more difficult to buy homes as mortgage rates rise and banks tighten requirements for getting a loan.

“It’s hard to imagine that we’re anywhere near a turnaround,” Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said before today’s report. “We’re certainly not going to see an inflection point until the dust has settled on the current credit conditions problem.”

The Commerce Department is scheduled to release the new home sales report at 10 a.m. in Washington. The department is also forecast to say at 8:30 a.m. that orders for goods meant to last several years rose 1 percent in July, according to a Bloomberg News survey of economists. Excluding transportation, bookings increased 0.6 percent, after a 1 percent drop in June.

Economists’ estimates for new home sales ranged from 770,000 to 860,000. Purchases have risen in just one month so far this year.
…
Fed officials, who said all year that the housing slump was contained, have acknowledged the downturn will extend further than they anticipated.

“Recent data on actual housing market activity have dampened my optimism” about a bottoming-out in the industry, Richmond Fed President Jeffrey Lacker said on Aug. 21. Tighter credit conditions “could further dampen residential investment,” he added.
…
Even before last week’s market rout, the National Association of Realtors lowered its 2007 forecast for new and existing home sales for an eighth time this year. The Chicago- based group forecast that new home purchases will total 852,000 this year, down from 1.05 million in 2006.
…
“Larger declines in residential construction are quite possible,” said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York.

Posted in National Real Estate, New Development | 1 Comment

“Like a cash-strapped shopaholic reaching for a credit card”

Posted on August 24, 2007 by grim

From NorthJersey.com:

N.J. needs $2B loan to pay its bills
By ADRIENNE LU
Friday, August 24, 2007

Like a cash-strapped shopaholic reaching for a credit card before payday, New Jersey is planning to borrow $2 billion to cover expenses over the next few months – including those record-high property tax rebates.

But given the state’s financial situation, some wonder if it’s a wise move.

The state already owes an estimated $29.7 billion to creditors. Debt service alone is costing taxpayers upward of $2.5 billion a year. And employee pension funds are at least $25 billion behind where they should be to cover projected future costs.

Overall, money is so tight that Governor Corzine is looking at selling or leasing state assets, such as toll roads and the lottery, to raise revenues.

Like many states at the beginning of a fiscal year, New Jersey is short on cash to pay its bills. But New Jersey has a $2.2 billion expense coming up this year that is unusual: property tax rebate checks.

The checks – which average $1,200 for most homeowners – are timed to be in mailboxes this fall before the upcoming legislative elections.

Last year a much smaller loan cost taxpayers $43.2 million in interest and fees.

The fact that the state is borrowing money upfront to cover the costs of the property tax rebates is further evidence that the program is not sustainable, said Senate Minority Leader Leonard Lance.

“I think it’s an indication of a much more serious matter next year, when we will not be able to pay for the program because we don’t have enough revenue,” said Lance, a Hunterdon County Republican.

This year’s rebates will be paid for with revenues from last year’s 1-cent sales tax hike.

However, a new source of funding has yet to be determined for next year, if the rebates are to be repeated.
…
Early next month, the state plans to issue tax and revenue anticipation notes, which essentially serve as short-term loans, providing cash to the state until projected revenues flow in.

New Jersey first issued such notes in 1991, when the property tax rebate program cost $710 million. Since then, the program has nearly tripled, reaching record heights.

Tom Vincz, a spokesman for the state treasurer, described the short-term loan as a “routine issuance to meet cash flow needs for the fiscal year.”
…
How much it will cost in interest and fees to borrow the money is yet to be determined.

Last year, the state borrowed $1.75 billion. Interest came to $43 million, and the state paid $200,000 in fees, Vincz said.

Mark Tenenhaus, a senior analyst at Moody’s, which provides credit ratings, research and financial information to capital markets, said almost every state relies on such notes to smooth out the cash flow.

“It’s an accepted form of business with all entities, be they governmental or corporate,” Tenenhaus said.

“It’s prudent governmental policy.”

Routine or not, some question the idea of borrowing money rather than cutting spending at a time when the state is, for all practical purposes, looking between the sofa cushions for spare change.

“It seems like a contagious disease down there, let’s borrow money,” said Sen. Anthony R. Bucco, R-Morris.

Posted in New Jersey Real Estate, Property Taxes | 6 Comments

“Don’t ask + don’t tell = sell.”

Posted on August 24, 2007 by grim

From Bloomberg:

It’s Time to Meet Subprime Devil We Don’t Know: Caroline Baum
Aug. 24 (Bloomberg)

Ever since financial markets went into their summer swoon, economists, analysts and journalists have been trying to explain why a small number of defaults on a small number of home loans morphed into a global liquidity and credit squeeze.

How on earth did the subprime mess come to this?

It’s not easy to comprehend or explain the linkages from loans to bonds to credit derivatives and back to loans (the unwillingness to make new ones of any kind!), which is why I’m taking another stab at it. This time around, I learned that the bigger threat is not what we know about these complex credit derivatives, but what we don’t know.

“The most interesting aspect of the ongoing subprime saga is not what it says about the U.S. mortgage market or the U.S. consumer but what it says about the impact a lack of transparency in financial market risk can have on markets overall,” writes Gail Fosler, chief economist at the Conference Board, a business research organization based in New York, in the July/August edition of “Straight Talk.”

That lack of transparency in risk has to start with a lack of transparency in the structures themselves. If an investor doesn’t know what he owns or what it’s worth, how can he assess the risk, not to mention hedge against it?

“Market risk is a major component of the rating,” says Joshua Rosner, a managing director at Graham Fisher & Co., an independent research firm in New York. With illiquid securities created by slicing and dicing pooled mortgages and other loans, “market risk is a greater issue” than credit risk, he says.
…
Raising the veil on these structured products might have tempered demand for them over the last few years. It surely would have smoothed what’s become a bumpy road today.

So how can we increase transparency in a complex market where everyone involved profits by keeping the investor in the dark?

One way would be “a large lawsuit by a well-capitalized institution,” says Sylvain Raynes, a principal at R&R Consulting, a structured valuation boutique in New York.
…
The primary market needs to develop “valuation standards,” which “could have avoided 90 percent of the problems,” he says. “It is possible to know a priori that a deal does not work, that the amount of securities in the transaction is too high.”

2 + 2 = 3

The deal may make “linear sense,” with $100 million in loans for $100 million of securities. “But the obligors are too risky for the bonds being issued.”

Given the opaque nature of the securities and structures, no wonder their risk isn’t obvious.

“The lack of transparency around risk creates an incentive for indiscriminate market turmoil because investors don’t know how to selectively implement their risk aversion,” Fosler says.
…
When things get dicey, the lack of transparency contributes to risk aversion. At times like these, the formula is simple: Don’t ask + don’t tell = sell.

Posted in Housing Bubble, National Real Estate, Risky Lending | Comments Off on “Don’t ask + don’t tell = sell.”

“What do you do after that?”

Posted on August 23, 2007 by grim

From the Herald News:

Senior’s cherished home going on block

If the reasons Theresa Skibicki had to sell her house were lined up like a row of dominos, the latest tax bill gave those tiles a mighty push.

The 76-year-old Skibicki opened her third-quarter property tax bill from the city, saw her taxes had more than doubled, and decided to put her home on the market.

Skibicki, a senior citizen on a fixed income and living in a cherished historic home, is one of scores of Paterson homeowners still reeling from the impact of the citywide property revaluation. Some have vowed to appeal their new assessments, others want to pack up and go.

The bill for Skibicki, which raised her quarterly taxes from about $1,150 to more than $2,460, prompted her to put the house up for sale. But the real estate market may not bear an asking price at the home’s newly assessed value of about $427,000.

Skibicki, like many other homeowners, is disputing the assessed value — assessors did not examine the building’s interior, she said. Now Skibicki feels she cannot pay the roughly $7,000 in taxes due before being able to appeal the assessment to the Passaic County Board of Taxation next April.

Living on a monthly Social Security pension of $740 and about $100 a month more in interest from savings, Skibicki said, she had rented out a one-bedroom attached apartment until December, but three trips to Landlord-Tenant Court soured her on any more renters. She has money in savings, and is worried about what happens when that money runs out.

“That’s all I have,” she said. “What do you do after that?”

Posted in New Jersey Real Estate, Property Taxes | 3 Comments

“We can Make a Dream Come True”

Posted on August 23, 2007 by grim

From the NY Daily News:

HOME BUYERS: WE WERE DUPED

A federal judge yesterday green-lighted a discrimination suit by eight black home buyers who say shady real estate brokers, lawyers, appraisers and subprime lenders duped them into buying rundown Brooklyn houses at inflated prices.

The victims of the alleged scheme say they were sold houses in Bedford-Stuyvesant, Bushwick and Brownsville – some at more than $100,000 over their actual value – after responding to ads for United Homes in the Daily News and on subway billboards.

They say the ads – which always featured minority families and the tagline “We can Make a Dream Come True” – targeted them because they were financially inexperienced.

Now, several of the first-time home buyers are in foreclosure on their mortgages.

The plaintiffs allege United Homes representatives would show them decrepit homes – some of which they likened to “crack houses” – and promise to fix them up.

The company would then organize an appraiser to value the home and an attorney to “help” home buyers look over their contracts and pressure them into signing, they say.

The real estate broker would also set them up with a lender, who they claim allowed them to take on subprime mortgages they couldn’t afford.

After closing, the plaintiffs say they discovered that many of the promised repairs had not been finished and that the value of the home was substantially less than what the appraiser had told them it was worth.

Posted in Housing Bubble, National Real Estate | 5 Comments