Delinquent loans at 16 year high

Posted on August 23, 2007 by grim

From Reuters:

Late loans soar on troubled mortgages: FDIC

The Federal Deposit Insurance Corporation said on Wednesday delinquent loans at U.S. banks jumped 36 percent to $66.9 billion in the second quarter, the biggest quarterly increase since 1990, largely fueled by unpaid real estate loans.

Rising U.S. home foreclosures and problems in the subprime mortgage market have spilled into broader financial markets in recent weeks.

In a sign of the distress borrowers are facing, U.S. banks’ delinquent or noncurrent loans hit $66.9 billion at the end of the second quarter, up 36 percent from a year ago and up 10.6 percent from the end of the first quarter, the FDIC said.

The rise was the largest quarterly jump since the fourth quarter of 1990, the agency said. The second-quarter figure also represented the largest 12-month increase since 1991.

Noncurrent loans are those for which payments are overdue by at least 90 days.

“We remain vigilant,” FDIC Chairman Sheila Bair told a news conference on the data. “We are closely monitoring the situation in the markets as well as individual institutions.”

Charge-offs, which indicate losses due to unpaid loans, also jumped sharply in the second quarter to the highest level since the end of 2005. Net charge-offs totaled $9.2 billion, up 51 percent from $6.1 billion in the same quarter of 2006.

Bair said the “tremendous golden age of banking” for U.S. financial institutions has ended, at least temporarily.

“Everybody is being challenged in this current environment,” she said.

Posted in National Real Estate, Risky Lending | Comments Off on Delinquent loans at 16 year high

Homeownership a poor decision for some?

Posted on August 22, 2007 by grim

From the Wall Street Journal:

Payback
August 22, 2007; Page A14
BUSINESS WORLD
By HOLMAN W. JENKINS, JR.

Bailout has been a busy word in the last two weeks. But lending so solvent institutions won’t go under for lack of short-term liquidity is very different than bailing out insolvent institutions from their bad decisions. In any case, we’ve made peace with a financial system that lives a little closer to the edge on liquidity than it would if there weren’t a Federal Reserve. Whether the alternative would be a more stable world, with as much growth, is uncertain. But there’s no doubt that the system has been conditioned to expect a general subsidy to risktaking by way of the Fed’s willingness to provide cheap money in an emergency.

Everybody talks about moral hazard. A wisp of memory came to mind last week. Then-Fannie Mae chief Franklin Raines visited The Journal years ago and entertained himself by mocking editorial writers who assume that establishing that a policy is economically inefficient is enough to establish that it’s unwise.

He yukked it up quite a bit, in fact, noting that voters are perfectly entitled to assert values other than those of the market, namely that homeownership is a social blessing and should be encouraged with subsidies. And so we’ve done with tax subsidies, lending subsidies and a concerted set of policies by Bill Clinton’s HUD to move low-income people out of rental units and into homes they own. His goal, which was achieved, was to lift the homeownership rate from 64.2% to 67.5% of households.

But a home financed by a mortgage is not just an asset. It’s also a liability. We owe thanks to Carolina Katz Reid, then a graduate student at University of Washington, for a 2004 study of what she dubbed the “low income homeownership boom.” She considered a simple question — “whether or not low-income households benefit from owning a home.” Her discoveries are bracing:

Of low-income households from a nationally representative sample who became homeowners between 1977 and 1993, fully 36% returned to renting in two years, and 53% in five years. Suggesting their sojourn among the homeowning was not a happy one, few returned to homeownership in later years.

Even among those who held on to their homes for 10 years, the average price-appreciation gain was 30% — less than if their money had been invested in Treasury bills. This meager capital gain was about half that enjoyed by middle-income homeowners.

A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job. Ms. Reid’s counterintuitive discovery was that higher-income households were “twice as likely to move long distance if they’re unemployed.”

Almost needless to add, the great squarer of circles for middle-income homeowners, the mortgage-interest deduction, won’t turn a house into a paying proposition for those with little income to shelter.

Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.

And yet subprime lending wouldn’t be a business without a flow of customers, and politicians and a vast array of interest groups flog the notion that owning a home is the American dream for anyone who can squeeze sideways through the door. Now this curse is being repaid with interest, and by an inherently unpredictable route — don’t buy any “news analysis” that says that because subprime lenders were known to be making risky or fraudulent loans, last week’s credit meltdown in unrelated markets from here to Tokyo should have been foreseen
…
For the sake of people trying to climb into the middle class, let’s hope that one lesson will be a rethinking of policies designed to saddle them with money pits. The Democratic presidential contenders are currently outbidding each other in ways to help “homeowners” (a dubious term in the present instance) avoid foreclosure. What might really benefit these citizens is being freed to return to renting, where some real bargains will likely be had in the months and years ahead.

Posted in Economics, National Real Estate | 212 Comments

No rescue for NJ foreclosures

Posted on August 22, 2007 by grim

From the Asbury Park Press:

Mortgage misery

Homeowners facing foreclosure will get no help soon from a $30 million state rescue program because officials have suspended the effort before it even started.

The decision comes as foreclosure lawsuits in New Jersey are on pace to rise to their highest level in at least 12 years.

The state’s Housing and Mortgage Finance Agency has stopped the foreclosure rescue program after meeting with activists, who said the standards were so high that few homeowners in fiscal trouble would be able to qualify.

The delay will affect people like Stephanie L. Cannizzaro and her family in Manchester, who now face foreclosure because they cannot make payments on a high interest rate loan, commonly called a subprime loan.

Cannizzaro, 34, said she was told by state workers early this month to apply for a loan under the program. But when she did, she could not meet the stringent credit requirements.

“They’re rescuing people who are rich and had one late payment,” Cannizzaro said. “They’re contradicting themselves. They say their program is for homeowners who are suffering from predatory lending and adjustable-rate loans.”

The executive director of a nonprofit community activist group said state officials told her they had intended to start the program at the beginning of this month.

State officials said they reconsidered offering the program after meeting with the group and a state senator.

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a Newark-based nonprofit that provides credit counseling and also helps find financing for homeowners in trouble, said the state program’s requirementswere so tough that it would help only people who would be able to refinance in the open market.

Homeowners, like Cannizzaro and her husband, Paul, who have missed multiple

mortgage payments, have already seen their credit ratings drop precipitously, Salowe-Kaye said. Most lenders won’t touch them, she said.

Yet even if the state’s requirements were lowered, the $30 million program would provide refinancing for only about 160 homeowners, Salowe-Kaye added.

“What are they going to do with the rest of the people in danger of losing their homes?” Salowe-Kaye asked. “This should not be the only thing out there today to help people. This program doesn’t deal with the most vulnerable.”

Posted in New Development, Risky Lending | 8 Comments

Looking for a new career?

Posted on August 22, 2007 by grim

From the Record:

Real estate as a 2nd career

Charlie Chichizola remembers the moment when he decided to switch careers. He was a cable TV technician in the 1980s, and found himself “hanging off a pole in the dead of winter at 3 in the morning, with icicles hanging off my face.”

Just as he thought, “There’s got to be a better way,” he spotted a real estate office across the street. The next day, he called a real estate school to get his license. Now he is co-owner of Re/Max Experts in Fort Lee.

Like Chichizola, most North Jersey real estate agents are people with a past. They used to be nurses, writers, musicians, teachers, actresses, computer geeks, hairdressers, lawyers, dental hygienists – and much more.

They left their previous careers as a result of layoffs, buyouts or burnouts. And they brought with them a variety of skills from their old lives.

Transitioning into real estate is relatively inexpensive and easy, compared with some other careers. It requires a 75-hour course costing $300 to $450, plus a total of about $300 in state testing and licensing fees.

“It’s pretty good to be able to put out your own shingle” for that amount, said Ria Bloss, supervisor of continuing education at Bergen Community College, which offers the real estate salesperson’s course for $415.

Not that it’s enough to just get a license, she added. “It is what you make it,” Bloss said.

“If you get your license and sit at home and wait for the phone to ring, you’re not going to make a dime,” because agents are paid on commission.

Real estate agents in New Jersey make a median $41,200 a year, compared with $47,700 nationwide, according to a survey by the National Association of Realtors. Agents work a median of 40 hours a week.

Posted in General, National Real Estate | Comments Off on Looking for a new career?

“The market in New Jersey has been our friend.”

Posted on August 22, 2007 by grim

From the Record:

Ailing builder bets on N.J.

New Jersey is the key to Tarragon Corp.’s survival, the real estate development company’s top executive says.

Tarragon has been slammed by the sinking real estate and credit markets, forcing the Manhattan-based company to default on payments to vendors and lenders.

Its market value has plummeted from $287 million to $16.4 million in just two months. Tarragon stock, which sold for more than $10 a share in mid-June, closed Tuesday at 57 cents a share, down 5 cents.

Even so, the company remains “extremely hopeful” it can avoid bankruptcy, William Friedman, its chairman and chief executive, said in an interview Tuesday with The Record.

It all depends on New Jersey, where the company has three major projects under way, he said. “I think we have enough equity in our New Jersey and Connecticut properties. That will save the day.”

Tarragon is working with its lenders “and I’m hopeful we’ll have a successful outcome, subject to incredible conditions in credit markets that are affecting a lot of companies,” he said. “We expect over the next six to eight weeks we’re going to have a number of positive announcements.”

Projects in the state — including a mixed-use development in Hoboken and condominiums in Edgewater and Palisades Park — are already a “significant part of our business,” he said.

“In the future, they will become even more significant,” he said. “The growth we see is in long-term development projects in New Jersey.”

Tarragon is cutting back on its ventures in Florida, where the “accelerated deterioration of the homebuilding industry” has hit the company hard.

“The market in New Jersey has been our friend; The market in Florida has been from hunger,” Friedman said. “Market conditions have been very slow for two years, and are constantly getting worse. At the time the Florida slowdown started, it represented 80 percent of our business.. Now it’s down to less than 50 percent.”

Tarragon has never had an unprofitable project in New Jersey, he said. “Everything we are working on now looks like it’s going to be successful, from the standpoint of the final product to the profit and loss for the company.”

A big difference in the two markets is that Tarragon’s New Jersey projects make financial sense either as rentals or condominiums. But the Florida condominium properties — super luxury apartments — can’t be profitable as rentals, he said.

Despite the financial problems, work continues on projects that are under way, he said.

Posted in New Development, New Jersey Real Estate | Comments Off on “The market in New Jersey has been our friend.”

“Now forget it. It’s not happening.”

Posted on August 21, 2007 by grim

From the Press of Atlantic City:

Local mortgage shoppers find it’s not so easy

A single mother who earns $14.20 per hour at Tropicana has found herself in the same position as the owner of a law practice and three investment properties in Ventnor: Both are having a harder time obtaining a mortgage here than they would have six months ago.

Almost anything went among mortgage lenders and brokers until problems in the industry surfaced publicly early this year. Some lenders freely gave 100 percent financing to people with bad credit who couldn’t document their income. Now, jittery lenders are requiring better credit scores, down payments and documentation of income as dozens of mortgage companies are being forced to close and more people default on their loans.

The tightening credit market is making it harder for some people to obtain mortgages – especially those with no money down – say local brokers, who are scrambling to keep up with guidelines that beleaguered lenders are changing almost daily. Many of them, while acknowledging the distress to their bottom lines and some consumers, see the pullback as a return to standards that should have been required in the first place.

At one end of the homebuyer spectrum is Doris Rodas, who makes sandwiches at Tropicana Casino and Resort and has rented in Atlantic City for 22 years. Her credit score is high, but she cannot afford the down payment that lenders are increasingly demanding. She said she lives “check for check, every week – no extra money for (anything).”

Rodas’ real estate agent, Jose Sinclair of Balsley Losco in Northfield, has a stack of files just like hers.

All these people could be real buyers before,” he said. “That’s why we are so slow.”

Rodas has been looking for a house with enough room for her mother, brother and son. She will not be able to obtain 100 percent financing for a house beyond the $150,000 to $175,000 range because her income is low. Standard loan requirements prohibit her from obtaining a mortgage with monthly payments exceeding about 41 to 45 percent of her income (minus monthly liabilities, such as car payments), her loan officer said.

The Atlantic City area’s median single-family home price is $264,600. Rodas said she likely will have to move to Vineland for an affordable home.

Rodas and others like her six months ago would have been able to obtain loans for pricier houses quickly, no matter what their credit or income, Sinclair noted.

“Buyers need to understand that … in the long term this is good, this is helping to correct the market,” Sinclair said. “It is a good thing, as bad as it seems.”
…
One of those is Atlantic Coast Mortgage. Not long ago, a prospective homebuyer could obtain a second mortgage, “no doc” loan and easy 100 percent financing. Those loans recently comprised 25 percent of the company’s business, but have dwindled to nothing, Vice President Jim Malamut said.

The office has “been nuts” during the past month, Malamut said. Atlantic Coast Mortgage has received e-mail notifications of changed guidelines, products being eliminated and assurances from lenders that they are not, like so many others, collapsing.

“It definitely hurt our bottom line. … I’m sure it’s hurt everybody out there. It’s just a reality check,” he said.
…
Tighter restrictions are “certainly going to impede a lot of people from purchasing homes,” said Joseph Heisler, president of the New Jersey Association of Mortgage Brokers. “First-time buyers are going to be more dramatically affected because of the lack of the lower down payment types of programs like FHA or loans with 100 percent financing.”

Tougher credit requirements also could hurt local casino workers, noted Karen Thompson, manager of Liberty Mortgage Services in Ventnor. Liberty Mortgage handled a lot of alternative loans for casino workers who relied on tips, making it harder to document their income and build up credit if they used mostly cash.

“There’s a lot of people that expect us to do miracles because that’s pretty much what we were able to do before,” Thompson said. “I mean, who in the world ever heard of, ‘Hey, no money down, your credit score is 580, and no money out of your pocket?’ Now forget it. It’s not happening.”

Posted in New Jersey Real Estate, Risky Lending | 292 Comments

Lending regulation draws criticism, argument, lawsuits

Posted on August 21, 2007 by grim

From the Wall Street Journal:

BORROWING TROUBLE
Illinois Tries New Tack Against Predatory Loans
Its First Effort Drew Charges of Racism; Mortgage Brokers Revolt
By AMY MERRICK
August 21, 2007; Page A1

The Illinois legislature this month passed a law that goes to the heart of the global subprime lending mess that is rattling the housing industry and shaking financial markets from Wall Street to Hong Kong.

The new law will require people in the Chicago area who want to take out a home loan with nontraditional terms — such as prepayment penalties or interest-only payment options — to spend an hour or two with a credit counselor so they won’t be hoodwinked at the closing table.

President Bush has endorsed such educational efforts, noting in a recent press conference that in many cases “people aren’t sure what they’re signing up for.” The new law, which would go into effect next July, comes as states across the country are rushing to address the rising foreclosure rates that threaten to expel hundreds of thousands of people from their homes.

Yet Illinois’s experience to date shows how difficult it is to create even modest safeguards in the home-buying process. A previous pilot program similar to the new law was viciously attacked and rescinded in January, after only a few months. Instead of winning plaudits, the pilot program quickly became mired in charges that it would make it harder for minorities to buy homes. Mortgage brokers, fearing a loss of business, claimed that access to credit would tighten in the neighborhoods targeted by the law. Rumors flew that dozens of lenders had pulled out of the area.

One woman filed a lawsuit saying the program scared away buyers for her home in a working-class neighborhood in the city’s so-called Bungalow Belt. A pastor called it “the most racist piece of legislation that we have ever experienced in Illinois.”

Now that the new law is expanding the program, the nearly one dozen Department of Housing and Urban Development-approved counseling groups who will be responsible for the measure’s success aren’t sure they have enough resources to handle the thousands of mortgages they will be expected to review.
…
Yet even before the law went into effect on Sept. 1, the response was vitriolic. Dean Martinez, secretary of the Department of Financial and Professional Regulation, says he first began receiving angry calls and letters from people in the mortgage industry who claimed that business would dry up in the pilot area. Then, he says, he started hearing from community organizers and religious leaders who raised concerns about discrimination.

At least two lawsuits alleging discrimination and civil-rights violations were filed against the state that fall. One plaintiff was Tammy Peña, who says she put her house up for sale several months before the law took effect. She and her husband, Francisco, wanted to move to the suburbs to enroll their four children in better schools and cut down her 100-mile round-trip commute.

But they were unable to sell their house. One potential buyer who signed a contract to purchase the home couldn’t qualify for a loan because he was unwilling to attend the required counseling session, Ms. Peña asserts in her lawsuit. The suit argues that the law constitutes state-approved redlining — the refusal of lenders to work with borrowers in certain neighborhoods or ethnic groups — because it effectively prevents minorities from getting credit on the same terms as non-minorities.

Mr. Martinez, a former prosecutor, says he would have moved to strip the license of any lender that intentionally ditched the study area because of the new rules. Ms. Peña’s suit was dismissed after the pilot project was called off. Her home still hasn’t sold, her lawyer said.
…
Some people who received counseling are now believers in the program. Alvaro Cortez, a 38-year-old who works in sales for an automotive paint shop, found his dream home in December for $190,000 in a neighborhood near Midway Airport. Because the house was in the pilot area and he had a low credit score, his mortgage broker told him he had to go to a counseling session. The broker seemed angry, says Mr. Cortez, who is Hispanic.

“They were trying to tell me it was racist,” says Mr. Cortez, sitting in the cramped offices of the Resurrection Project, one of the groups providing the counseling. “When I came here, I saw it wasn’t that.”

Mr. Cortez pored over his loan documents with a counselor, who showed him how to verify his mortgage’s terms. He says the session helped him stand up for himself when he went to his closing. There, he says, the paperwork showed that he had an adjustable-rate loan, instead of the fixed-rate one he had been promised. The interest rate also was higher than he had agreed to pay. Mr. Cortez refused to sign.

On his second closing date, the documents still were wrong. Mr. Cortez exploded. Finally, on the third try, he signed for the loan he had been promised and moved into his brick, two-story row house the next day.

Posted in National Real Estate, Risky Lending | Comments Off on Lending regulation draws criticism, argument, lawsuits

NJ foreclosures up 52% YOY

Posted on August 21, 2007 by grim

From RealtyTrac:

Foreclosure Activity Increases 9 Percent in July According to RealtyTrac(TM) U.S. Foreclosure Market Report

RealtyTrac(R) (http://www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its July 2007 U.S. Foreclosure Market Report, which shows a total of 179,599 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported during the month, up 9 percent from the previous month and up 93 percent from July 2006. The report also shows a national foreclosure rate of one foreclosure filing for every 693 households for the month.
…
“While 43 states experienced year-over-year increases in foreclosure activity, just five states — California, Florida, Michigan, Ohio and Georgia — accounted for more than half of the nation’s total foreclosure filings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Meanwhile, a few states actually reported declining foreclosure activity on a year-over-year basis. Some of these states could be benefiting from increased interest from real estate investors who have pulled out of more volatile markets where home price appreciation seems to have hit its peak for the time being. In contrast, states like Texas, South Carolina and Utah have seen slow but steady price appreciation over the past five years, making them much more attractive and affordable.”

Posted in National Real Estate, Risky Lending | Comments Off on NJ foreclosures up 52% YOY

Troubles hit Tarragon

Posted on August 21, 2007 by grim

From the Record:

Tarragon facing financial woes

The builder of two major North Jersey condominium projects said work is continuing even as the company fights to avoid bankruptcy in the real estate market meltdown.

New York City-based Tarragon Corp., which is building multi-story condominiums in Edgewater and Palisades Park and was selected to develop a 44-acre industrial tract in Ridgefield, announced last week that it can’t pay its vendors and lenders.

It said it had received default notices from lenders demanding that it immediately pay back 17 percent of its $1.6 billion in outstanding debt. Creditors include Barclays Capital Real Estate Inc., General Electric Capital and Fannie Mae.

Tarragon said it faces “liquidity issues caused by the sudden and rapid deterioration in the real estate credit markets.” It could also be delisted from the Nasdaq National Market for failing to file its quarterly report on time.
…
The spokeswoman said Tarragon is continuing to close on units in Palisades Park and Edgewater.

Martin Gobbo, the Palisades Park borough clerk, said he had heard nothing concerning the Trio project being built near Bergen Boulevard.

“We’ve had no problems,” Gobbo said. “Everything is going as planned, two buildings are complete, and they’re ready to start on the third. They’re in the process of selling the units they’ve already built.”

In June, Tarragon said the first building was 60 percent committed.

The story is similar in Edgewater, where Tarragon is building a 16-story condominium on River Road.

“I’m not aware of any problems,” said Greg Franz, the borough administrator.

Tarragon is putting the finishing touches on the complex and was applying for additional certificates of occupancy on Monday, Franz said.

Posted in New Development, New Jersey Real Estate | Comments Off on Troubles hit Tarragon

“[S]till room to profit on lower-price homes.”

Posted on August 21, 2007 by grim

From the Record:

Days are numbered for low-price haven in Englewood

Rents are so low at Forest Park Gardens, it really does feel like an enchanted forest.

Apartments in the 1960s-era cul-de-sac go for as low as $524 and top out at $868. Diana Robinson’s family pays $656 a month for their two-bedroom duplex, less than half of the average Bergen County rental.

But that will come to an end in a few years, when the units turn into condos or co-ops. Residents — some of whom have rented here for three decades — have already received letters informing them of the owner’s intent to sell the units in three years.

The shift makes Forest Park Gardens part of a growing number of rentals changing to condos or co-ops in recent years, especially in such up-and-coming areas as Englewood, Hoboken and Jersey City.

The number of rental-to-condominium conversion projects statewide went up by more than nine times between 2002 and 2006, according to the state Department of Community Affairs. In some cases, renters have been able to get an insiders’ rate to buy their own homes.

Even if the prices are low, though, some residents wonder if they’ll be able to buy at all. Many are senior citizens or on fixed incomes. First-time borrowers may have difficulty getting loans in the wake of the subprime mortgage collapse.

“My main concern is not knowing how much it’s going to be,” said Lenox Smith, a truck driver who has rented his apartment for 11 years. “I wouldn’t mind purchasing if it’s the right price, but if it’s not, where are we going to go?”

Neither owner David Anfang nor his lawyer would comment on the reason for selling the units after renting them for almost half a century.

But the property’s manager said the yearly rental increase isn’t enough to cover the costs of insurance, gas and other utilities. Rent increases in Englewood are capped at 4 percent unless the owner makes major improvements. And though the housing market has softened, there is still room to profit on lower-price homes.

“The condo projects that are successful are those projects that either have particular appeal — like on the waterfront in Hudson County — or those that are priced right,” said Michael Fasano, New Jersey regional manager of Marcus & Milichap, a real estate investment company.

Posted in New Jersey Real Estate | Comments Off on “[S]till room to profit on lower-price homes.”

Transforming wealth into debt

Posted on August 20, 2007 by grim

From the NY Times:

Debt and Spending May Slow as Housing Falters, Fed Suggests

A new research paper co-written by the vice chairman of the Federal Reserve says that consumer debt soared over the last six years mainly because of the rapid increase in housing prices.

The research suggests that consumer spending may slow down over the next few years.

The paper will be presented this morning by Donald L. Kohn, the second-highest ranking Fed official after Ben S. Bernanke, during a conference of central bankers in Sydney, Australia. Mr. Kohn wrote the paper with a Fed economist, Karen E. Dynan.

Ms. Dynan and Mr. Kohn say that higher housing prices made many homeowners feel wealthier and more willing to take on debt, which they then used to finance more spending. This spending helped to keep the economy growing at a healthy pace since the last recession ended in 2001.

But the increase in debt “is not likely to be repeated,” according to an advance copy of the paper, unless home prices rise as rapidly as they have in the recent past and mortgages become even easier for borrowers to obtain.

Home prices are already falling in much of the country, and mortgages have become far harder to get in recent months.

Higher home prices also raised debt in recent years by causing families to take out large mortgages in order to afford the houses they wanted.

The Fed’s study, which has been in the works for months, helps highlight some of the difficulties that policy makers are facing.

The authors note that the average household now owes more money than it makes in annual income. In the early 1980s, the debt-to-income ratio was below 60 percent.

The fact that the population is older and richer than it once was explains part of the rise. So do financial innovations that have made it easier to borrow money. But “the increase in house prices — particularly, but not exclusively, over the past half-dozen years — appears to have played the central role,” the authors write.

Among nonhomeowners, the debt-to-income ratio has not risen significantly since the early ’80s, the authors said.

In some cases, the authors said, homeowner families might have taken on more debt than was wise, out of a misplaced belief that the rise in prices would continue for years.

The Fed’s analysis is noteworthy because consumer spending has been arguably the economy’s biggest strength since 2000.

From MarketWatch:

Home prices boosting U.S. household debt: Kohn

Rising home prices and innovations in the financial sector are the two biggest factors in the spike in U.S. household debt and the related decline in savings, Federal Reserve Vice Chairman Donald Kohn wrote in a research paper presented Sunday.

In a paper presented to a conference held by the Reserve Bank of Australia, Kohn and a Fed economist wrote that a “wealth effect” caused by rising home prices could boost consumption, leading in turn to an increase in household debt. Expenditures for more expensive homes are another factor behind an increase in debt, wrote Kohn and co-author Karen Dynan, chief of the household and real estate finance section of the Fed’s Division of Research and Statistics.

In their paper, Kohn and Dynan noted that the personal savings rate in the U.S. has fallen from an average of 9.1% in the 1980s to an average of 1.7% so far this decade. In the same period, the ratio of total household debt to aggregate personal income has risen from 0.6 to 1.0.

Posted in Economics, Housing Bubble, National Real Estate | 242 Comments

JC market “still very strong.”

Posted on August 20, 2007 by grim

From the Jersey Journal:

HIGH-ROLLER HIGH-RISE

Who says the real estate market is cooling off?

It’s still red-hot on the Hudson County waterfront, where a high-roller has purchased two condos on the top two floors of a Jersey City development at a whopping price tag of just more than $6 million. It’s believed to be the highest price paid for a condo in the city’s history.

Even if sold separately, either likely would have fetched more than $2.3 million, the previous record for a condo sold in Jersey City.

The unnamed buyer reportedly plans to merge them into a lavish two-story penthouse at the top of the 49-story building. Once completed, the two-story penthouse will measure 4,188 square feet. That translates to roughly $1,400 a square foot.

The purchase was made at K. Hovnanian’s 77 Hudson St. development. The developer announced the sale last week but refused to divulge any details about the buyer – only about the development itself.

“The sophisticated design, hotel-quality amenities, luxury materials and finishes at 77 Hudson are exactly what buyers are seeking,” said Tom Graham, of K. Hovnanian Homes, in a press release boasting about the sale.

Gershon Adjaye, a broker who deals with high-end real estate in Hudson County for Keller-Williams, said the price per square foot is on the high end in the county – but it’s still a steal compared to prices in the New York City market.

“The truth is the square foot price is still much less expensive than penthouse condos in New York, which don’t offer the same views,” said Adjaye, who is not associated with the sale.
…
Approximately 50 percent of the 100 residences released already have been sold, ranging in price from the upper $400,000s to $6.07 million. Thirty percent of sales have been broker generated.

“The waterfront is an extension of the New York market, and that is still very strong,” said Jersey City Housing and Economic Development Corporation Acting Director Bob Antonicello, who defined the waterfront as everything east of Marin Boulevard. “The waterfront has now become separate part of the city, with very little linkage to the rest of the city.”

The previous record of $2.3 million was the price of a penthouse condo sold at the Beacon, the site of the old Jersey City Medical Center.

Posted in New Jersey Real Estate | 2 Comments

Forgiven, but not forgotten

Posted on August 20, 2007 by grim

From the IHT:

Former home owners find foreclosure can have unintended tax consequences

Two years ago, William Stout lost his home in Allentown, Pennsylvania, to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward. So Wells Fargo bought it for $1, county records show.

Despite the setback, Stout was relieved that his debt was wiped clean and he could make a new start. He married and moved in with his wife, Denise.

But on July 9, they received a bill from the U.S. Internal Revenue Service for $34,603 in back taxes. The letter explained that the amount of debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. The couple had a month to challenge the charges.

The Stouts had originally tried to sell the house themselves and thought the bank takeover extinguished the debt.

“Getting that tax bill, my first thought was that I needed to see my family doctor to help me with my stress, because we had a big mortgage and other debt and then here came the IRS saying we owe this,” Denise Stout recalled.

For those who struggle to pay their bills, who watch their housing payments rise out of reach with their adjustable mortgages, who lose a job or who fall victim to illness, losing one’s home can feel like hitting bottom. But one more financial indignity may await as the fallout from the great housing boom ripples across the United States.

Notices of unpaid taxes, unanticipated and little understood, will probably multiply as more people fall behind on their mortgages, explained Ellen Harnick, senior policy counsel at the Center for Responsible Lending, a nonpartisan research and policy center in Durham, North Carolina.

Foreclosure is one way that beleaguered homeowners can fall into this tax trap. The other is when homeowners are forced to sell their homes for less than the value of the mortgage. If the lender forgives that difference, they are liable for income taxes on that amount.

The “1099 shortfall,” as it is called, stems from an Internal Revenue Service policy that treats forgiven debt as income even if the taxpayer has nothing tangible to show for it.

Posted in National Real Estate, Risky Lending | 4 Comments

Windfall for libraries

Posted on August 20, 2007 by grim

From the Courier Post:

Funding’s too good for some libraries

Far from crying poverty, public libraries in some well-to-do New Jersey shore towns may be getting too much of a good thing.

The booming shore real-estate market combined with a 120-year-old state law that allocates a fixed percentage of local taxes to libraries has created a surplus that has reached in the millions in some cases.

In Avalon, where taxable real estate has tripled since 2004, $2.3 million will go the town’s library this year. In Ocean City, officials expect a library surplus of more than $4 million.

Now, town officials want legislators to modify the law so they can transfer some of the surplus to addressing other municipal expenses. The New Jersey State League of Municipalities plans to continue pushing for a change.

“Some of these towns, their library systems cannot possibly spend the amount of money they’re collecting,” William Dressel Jr., the league’s executive director, said in published reports.

But library advocates warn that the law is a necessary fail-safe because it stops politicians from cutting library budgets.

The real-estate slowdown may act as a natural regulator. And some local officials point out that library revenues fall under a state cap on how much property taxes can be raised, currently at four percent. The more towns raise for libraries, the less wiggle room they could have under the cap.

Posted in New Jersey Real Estate, Property Taxes | 1 Comment

Weekend Open Discussion

Posted on August 19, 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 | 557 Comments