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« January 2006 | | March 2006 » February 28, 2006 Buying and Selling: Cronies Running The Asylum
(Hat tip to Waterthread for the +6 image win.) Ben Jones provides some interesting answers regarding Fannie Mae's inability to police itself. From the comments: Something no one is talking about with regards to FNM and FRE: Their delinquency rates are ballooning rapidly — to 0.79% at FNM in December from as low as 0.57% earlier in 2005. That December reading is the worst going back to at least the late 1980s, according to my work. So far, people are buying FNM’s “the hurricanes ate my borrowers” excuse. But the fact is, more and more of their portfolio is being paid late every month. We’re coming off extremely low levels, of course. Yet it’s the trend that matters. I expect to see much higher delinquency rates as housing slows rapidly. Perhaps this is behind the administration's drive to privatize Fannie Mae's assets--put 'em on the market and resell them for twice the price? Twice as nice. By the way, in case you didn't hear the news, we are, in fact in a condo glut. I attended a local neighborhood community meeting protesting the development of yet another overpriced condo in Northwest D.C. last night. The developers showed us this picture that looked like someone knocked an icebox over on its side, and were asking $800,000 to start for each unit. For this you kill trees? When I think of "excess inventory," the first thing that comes to mind are all the nutbar commercial developers, flippers, and speculators that need to be purged before serious investors and buyers--including you and I, dear reader--are willing to get back into the market. Posted at 12:52 PM | TrackBack February 27, 2006 Hurricane Housing: FEMA = FUBAR
The money for long-term reconstruction of New Orleans and the Gulf Coast is nearly gone, gone, gone, and cruise-ship "residents" are suing to keep from being tossed over the side. Is this what it's come to? Having to sue your own government to keep them from compounding their failure to protect your home in the first place? Man, it's like the Bizarro World Kelo vs. New London. I have no doubt in my mind that the Big Easy is gonna rise again, but it's like the chick says: Mardi Gras "is just a symbol of the fact that New Orleans is going to come back," said Stephanie Hall, 28, a city resident. "New Orleans has always done what it wants to do and it's gonna come back whether the country wants it to or not." Let the good times roll.
Posted at 02:52 PM | TrackBack February 23, 2006 Buying and Selling: News From The Frontlines Yesterday's New York Times had a chilling look at the home ownership dream denied. (Free registration required, BugMeNot, etc.) This is a good read on many levels--it explores how the explosion of subprime lending has been a factor in the housing boom, and how the Midwest isn't going to be the panacea to keep it going. Well worth perusing if you follow the market in any depth. Craigslist is under attack for permitting offensive and discriminatory ads. I'm of two minds on this. You should do everything you can to filter or flag racist content on your site or in your business--it's just unacceptable. But part of Craigslist's strength is its immediate, unfiltered publishing ability. The housing market, in particular, benefits from Craigslist because you can slide all kinds of fantastic FSBO listings in there without a broker ever getting a dime. I'll keep an eye on this to see how it develops. Fannie Mae is under the gun once again. I really can't figure out why the Bush camp is so hot to divest Fannie and Freddie's portfolios, unless the ultimate aim is to have private mortgage lenders snap up those holdings and remarket them at much higher prices, thus sabotaging the affordable-housing market. Don't laugh--it IS a possibility. Maybe some of my readers and fellow housing bloggers can shed light on the issue...that's a BLATANT PLUG for comments, make no mistake. ;) There are two interesting bits of economic news I saw today that tangenitally deal with housing: Jobless claims have dipped, but overall wages are shrinking. So people are working, but are they working jobs that will enable them to afford traditional mortgages? With the ballooning costs for health care, child care, education, and gas--and let's not forget the piles of consumer debt--people may feel like they will be forever "priced out" unless they take on ever-more dangerous "creative" mortgages. Where will it end? Posted at 06:40 PM | TrackBack February 22, 2006 Wednesday Housing News: Fed Shocker Another member of the Federal Reserve Board has resigned. This is about as good a sign for the economy as Rehnquist dying and O'Connor resigning was for the Supreme Court. Here's his bio. I have no doubt that Bush will pick a man of sterling character and exemplary credentials to succeed a guy as accomplished as Ferguson. I hear this guy's looking for work:
And it's gonna be reports like these that the FNG is gonna be faced with. Oh, joy and rapture. 5% increase in energy costs, despite it being one of the warmest January months on record? WTF? The American Prospect has an intriguing essay on the shady financial dealings of Rick Santorum. Of note to housing bubble watchers is the discussion of how he and his part-time-author wife could afford a $757,000 house on a Senator's $161,000 salary: The Santorums bought their oversized Shenstone “estate” even though his financial disclosure forms since 2001 have shown little family income beyond his Senate salary, now $162,100, and he admits that life hasn’t been financially easy. The senator made a startling remark to The New York Times Magazine last spring: “We live paycheck to paycheck, absolutely.” But he explained that his parents help out. “They’re by no means wealthy -- they’re two retired VA [Veterans Administration] employees -- but they’ll send a check every now and then,” he said....Initially, according to Loudoun County property records, the purchase was financed with a $405,000 mortgage from a conventional lender, Westminster Mortgage Company. But a year later, the couple refinanced for $500,000. That was not unusual in the fall of 2002, when many homeowners were refinancing to take advantage of plunging interest rates, while also cashing in on the rising equity in their homes. The housing bubble: The ultimate faith-based initiative. Posted at 05:56 PM | TrackBack February 21, 2006 Buying and Selling: Short-Term Memory
"I know NAAAA-THEEENG...." That's the shorter version of this discussion about Bernanke's reluctance to influence policy. If Greenspan had possessed Bernanke's reticence, we might not be sitting on the pressure-cooker we are today. Ironically, it may very well take a more active Fed chair to rein in spending and counsel against continuing to flood the market with cheap dollars. Is "Helicopter Ben" up to the task? Doesn't sound like it. "How to Ride a Housing Bubble?" This's funny as hell, not least because the article, much like the topic it discusses, has been very obviously scrubbed from the public memory. C'mon, Business Week, keep the propaganda straight! Ok, here we go. I think I liked the scrubbed version better. Money quotes: Last year pay-option ARMs made up 99% of Golden West's loan pool. (It also offers home-equity lines of credit.) And 62% of the loans were secured by homes in California, where housing prices could fall in coming years. But Golden West's risk management is among the best in the industry. Its annual default rate has been lower than that of its peers for years. Golden West maintains a higher-than-average percentage of assets in cash to cover losses. And the Sandlers don't lend to the riskiest borrowers with spotty credit histories. Does this make sense to you? 99%--that is, nearly ALL--of their pool is in negative-option ARMs, over half of which is in California, the bellwether for overpriced, no-document-craze markets if ever there was one. And yet they don't make shifty loans? Boom and bust, baby. It's the way of the world. Unfortunately, the idol of this age happens to be none other than Leonard Shelby, as in the guy from "Memento" who kept doing things over and over again because he had no ability to make new memories. A better metaphor for the housing market--and the market as a whole--could not be found if I tried. Posted at 12:07 AM | TrackBack February 19, 2006 Housing Bubble: The Downward Spiral A sharp-eyed fellow blogger made mention of a Craigslist R/E ad that featured a $100,000 price drop for what seems to be a decent condo in the Herndon/Chantilly area of Virginia--a big "tech corridor" about 30-40 miles from D.C. On a whim, I browsed other listings to get a sense of the market, and came across some interesting finds, such as these two shit sandwich condos on sale for under $200,000 in Gaithersburg, MD, which is kinda the northern equivalent of Herndon. ;) And here's another one in Alexandria. Of course, you still have more than your share of ridiculous listings, like the guy who's asking $189,000 for 500 square feet of what is no doubt pure shite, but the trend seems to be fast-dropping prices in order to get rid of excess inventory. I wasn't expecting the drop to hit for another few months at least. Good times. Hopefully the smart shopper will find bargains amidst the many potential lemons they got goin' on out there. Given that everyone from MLS to Zillow is gambling on what may be unverifiable data these days, the art of the bargain is going to come in to play more than ever. Don't assume that the listed price is the best price you can get. Learn to negotiate, bluff, counter, and do your research. This is the kind of thing we used to rely on brokers for, but now, more than ever, it's self-empowerment time for the home buyer. HOO RAH! ;) Posted at 09:41 PM | TrackBack February 17, 2006 Friday Housing News: Sticker Shock
I know someone in upstate New York who's planning to put their home on the market and downsize to a smaller condo. The list price for her place is $140,000. As a gag, I sent her to ZipRealty and told her to look up D.C. housing prices. These were the comments I got: "OH MY GOD! $619,000 FOR A 1700 SQ. FT. PLACE? ARE THEY INSANE? ARE THEY MADE OUT OF GOLD OR SOMETHING?" Maybe we can learn something from simple country life after all. I don't think you could find anything priced at $140,000 in any of the bubble markets at the moment. Maybe a closet. ;) (Image courtesy of News and Tech.) This is a good overview of the increasing struggle between commercial and residential developers as the space for homes continues to shrink. Right now, homebuilders are so desperate to keep the cash rolling in that they're putting up shacks wherever they can be found, and apartment buildings that used to be considered rat traps are now "lap of luxury" condos. If I may quote: But developers and real estate analysts said the market for new residential space is far stronger and offices could sit empty without a significant increase in local employment. In other words, "If you build it, maybe they'll come...and maybe they won't." Posted at 06:13 PM | TrackBack February 16, 2006 Housing Market: If You Build It...
...will they come? That's the question at the heart of today's data showing new home construction is hitting record highs. All the pieces of the puzzle are in the article. Jobless claims are up, maybe temporarily, maybe not. Can you say "GLUT," kids? I knew you could. Flood the market with anything and the prices go down. That's elemental economics. The only way housing will sustain itself is if prices drop, thus letting new home buyers back into the market. Otherwise, once the homebuilders make off with their bank, you'll have rows and rows of empty McMansions with no one on the move to put a payment on any of them. Ben Jones has a tale of what happened to one unlucky Chicago couple who thought they could game the market. "You don't change Wall Street, boy...it changes you." It's also worth noting this particular statistic: Building activity rose in all parts of the country in January. The biggest gain was a 29.2 percent rise in the Northeast followed by increases of 23.7 percent in the Midwest, 16.9 percent in the West and 8.7 percent in the South. Purely anecdotal evidence validates that home builders are moving into economically depressed areas such as upstate New York and putting up condos by the dozen. I asked my sister about it, and we both laughed--what's the point of building all these houses if there're no jobs to get people living in 'em? As far as the data from the Midwest, well, hey, Newsweek said it's a nicer place to live, and they wouldn't lie about a thing like that, now would they? Posted at 06:12 PM | TrackBack February 15, 2006 Wednesday Housing News: Gentle Ben
Bernanke: "...uncertainty attends the outlook for home prices and construction..." That was the basic gist of Bernanke's first report to Congress this week. Everything's fine, hunky-dory. Sure, there may be a few problems, but we're not worried about those pesky inflation targets just yet. The real key here lies in how many new home buyers are prepared to suck up the adjustment of their I/O mortgages, or who has and hasn't successfully shifted to a fixed financing. As SoCalMtGuy points out in no uncertain terms, the proliferation of easy-credit, no-document loans has flooded the real estate industry with "fake" money, gambling on appreciation that may or may not happen. Smart buyers have held tight to their equity and rode out price drops and gains, and the panic-stricken will face foreclosure and worse. The whole "no document" craze is really one step shy of flat-out mortgage fraud, and if Barack Obama is ready to crack down on the real thing, then more attention needs to be paid to supposedly "legitimate" lending practices and the total reliance on a silly three-digit number as a barometer of a person's borrowing ability. Speaking of mortgage fraud, here's a great essay from Homeowners for Better Building on fighting against bad building practices. The fraud doesn't end at closing, you know. :) Posted at 05:27 PM | TrackBack February 13, 2006 Hurricane Housing: No Laughing Matter
"What? Put those bats and chains down! I said it wasn't my fault!" Y'know, I try to keep a fairly light and jovial tone in this blog. Housing is a complex and difficult topic, and I find I approach things better if I keep it light and not inundate you with statistics and dire pronouncements. But sometimes there are things so scandalous that you just can't joke about them, and the current ass-hattery surrounding FEMA and Katrina rebuilding is a prime example. It isn't enough that an overworked and understaffed agency's inability to police itself has led to monumental fraud and abuse. Now people are being turned out on the street, even as trailers continue to go unused, and affordable-housing advocates like the NMHC are wondering why they aren't being utilized. This whole thing is sick beyond words. We've wasted months and billions of dollars housing people in expensive hotels, and haven't done nearly enough to give them long-term aid or assistance. What good is $2,000 when you're facing the total destruction of your life? I have zilch confidence in Chertoff's "sweeping" reforms when balanced against stories such as this.There needs to be accountability, at every level, for what has become the near-total destruction of a great American city. New Orleans and the Gulf Coast will rise again. I believe that with all my heart. But if you think it's gonna be quick and simple, well,
Posted at 05:21 PM | TrackBack February 09, 2006 Housing Bubble: "It's just a flesh wound..."
Way to go, Marin Real Estate! (And a hat tip to Bubble Meter for the find.) Sorry, Lereah, but all of the publicity spin in the world won't save you. The crash will turn out to be a major boondoggle, but also a major boon, specifically for first-time buyers, FSBO's, and yes, we mighty Web discount brokers. I don't necessarily think of us as the Zillow of the online real estate world--we're more like Mothra, in that we don't crash as much. :) Meanwhile, Joanna Glasner at Bankrate has some useful tips for closing the deal in a buyer's market. Boy, how nice it is to type that phrase again..."buyer's market." Ah, bliss. Posted at 08:53 PM | TrackBack Housing Bubble: More Softballs
What the hell is this crap? Evidently Ms. Stern doesn't quite grasp that homes are not ATM's. Tapping all that equity will drain the home of its value. It's not free money. My fellow brothers and sisters of the housing blogerati were remarking at how tough it is to get the message out about the crisis we're facing the other day. I was trying to be optimistic, but in the face of stuff like this, you gotta wonder. Now, this is basically a rewrite of news from earlier in the week, but there is one new thing of note--specifically the comments from Freddie Mac: ...a report by mortgage giant Freddie Mac Tuesday indicated consumers continue to borrow against the value of their homes. Fully 80% of Freddie Mac-owned loans that were refinanced in the fourth quarter of 2005 resulted in new mortgages at least 5% higher than the original loan balance..."The overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments," says Freddie Mac chief economist Frank Nothaft, adding consumers were using cash-out refinancing because 30-year mortgage rates near 6.25% are below home equity rates, linked to the 7.5% prime rate. People with adjustable-rate mortgages might also be refinancing into fixed-rate loans . Freddie Mac expects homeowners to extract $117 billion in equity from their homes in 2006, down from $243 billion in 2005. No wonder you've got hacks like Steno Stern shilling for continued equity extraction--that's a drop of $126 billion that the financial sector is gonna miss. "None dare call it conspiracy." Posted at 02:38 PM | TrackBack February 08, 2006 Wednesday Housing News: Same Old Song
This soft pedal from Business Week is exactly the kind of treatment you can expect for discussing the housing bubble in mainstream media. "It's ok! It's just a cushion! Home prices are still experiencing And speaking of falling, mortgage apps have dropped faster than Mariah Carey's neckline. And just like her career, the same material gets rewritten to note that mortgage rates are creeping up. Or maybe that's the hem of her skirt...I always get those confused. What's not confusing is that more and more people are stepping away from the traditional "brick n' mortar" mold and making their own decisions about where prices are going, what makes a house valuable, and where to get the info. Not to get all "We Are The Champions," but everything from moguls jumping into the discount-broker business to this humble blog is designed to put the focus of home buying and selling right where it belongs---back with you, dear reader. That's what's got the NAR and their ilk running scared, from banks, from bloggers, and from discount sellers alike. When market fluctuations are no longer dictated by goofballs like David Lereah and untrained part-time brokers who care about nothing but the sale, what will the industry do then? It'll probably look something like this:
"You can't handle the truth!" Posted at 06:18 PM | TrackBack February 07, 2006 Housing Market: Things Are Tough All Over I mentioned not long ago that I have a friend living in England who's put her home on the market. According to her, the U.K. real estate scene is similar to the U.S. in some ways, and different in many others. Chiefly, the RE market is much lower-tech than ours, with a lot more emphasis on old-style methods of keeping records (Filing cabinets, calendars, etc.). Homes are much smaller there than here (owing to the small country size, population density, and Americans' love of big wide spaces), and real estate agents are even less scrupulous and ethical than our "best of the best." And if you think going Down Under might merit you a better deal, well, I'd rethink that. Good to see that mortgage and real estate fraud don't respect traditional boundaries, eh? Of course, here in the U.S. of A, we can rely on prognosticators like David Lereah to remind us that things are going swimmingly, except, well, they're not. Why does this man still have a job? Lenders are definitely getting more timid with the higher interest rates, and if news from Massachusetts in any indication, things will get worse for at least a few more months before they get better. As long as major markets--and even middle-road markets--keep converting or building overpriced s$#tboxes and glutting the market, prices will have to come down due to inventory. If lenders expect to command 2003 prices in the 2006 market, they're living in Lereah Land, or at least the Bay Area. Posted at 05:26 PM | TrackBack February 03, 2006 Home Buying: NAHB's Crocodile Tears
The National Association of Home Builders is throwing a temper tantrum over the increase in energy prices leading to higher construction costs. It's hard for me to be sympathetic with statements like these, though: Because of fierce competition among builders in North Texas, it's been tough to pass along price increases to the consumer. So, let me get this right--you mean you actually have to do a better job and demonstrate that you can do the work better than the other guy? Heaven forfend. The article makes a lot of good points, but I'm just aghast at how these guys are complaining over actually having to compete in the market once again. So much for that can-do rugged individualism, eh? Of course, what's higher costs to some is a sustainable pace to others. Except this is also the NAHB talking. Suddenly I'm hearing the chorus to "War Inside My Head" for no discernible reason.... Posted at 02:52 PM | TrackBack February 02, 2006 Some Assembly Required - Contemporary Prefab Homebuilding The Walker Art Center in Minneapolis is exhibiting a showcase of some of the most creative architects involved in modern modular home design.
Check out the show - Prefab is the future of homebuilding. Posted at 08:05 PM | TrackBack Housing Bubble: Lost In Translation Federal Reserve Board Governor Susan Bies has clearly learned the ways of Greenspan-speak, judging by this incredibly veiled warning about the perils of "creative" mortgage lending. Here is the full text of her remarks for the interested. Highlights for me: In 2005, option ARMs and IOs were an estimated one-third of total U.S. mortgage originations. By contrast, in 2003, these products were estimated to represent less than 10 percent of total originations. Despite the recent publicity, however, it is estimated that these mortgages still account for less than 20 percent of aggregate domestic mortgage outstandings of $8 trillion. While the credit quality of residential mortgages generally remains strong, the Federal Reserve and other banking supervisors are concerned that current risk-management techniques may not fully address the level of risk in nontraditional mortgages, a risk that would be heightened by a downturn in the housing market. Nontraditional mortgage products have been available for many years; however, these types of mortgages were historically offered to higher-income borrowers only. More recently, these products have been offered to a wider spectrum of consumers, including subprime borrowers who may be less suited for these types of mortgages and may not fully recognize their embedded risks. These borrowers are more likely to experience an unmanageable payment shock at some point during the life of the loan, which means they may be more likely to default on the loan. Further, nontraditional mortgage loans are becoming more prevalent in the subprime market at the same time that risk tolerances in the capital markets have increased. When risk spreads return to more “normal” levels, banks need to be prepared for the resulting impact on liquidity and pricing. Supervisors have also observed that lenders are increasingly combining nontraditional mortgage loans with weaker mitigating controls on credit exposures, such as allowing reduced documentation in evaluating the applicant’s creditworthiness and making simultaneous second-lien mortgages as competition in the mortgage banking industry intensifies. These “risk layering” practices have become more and more prevalent in mortgage originations. Thus, while elements of the product structure may have been used successfully by some banks in the past, the absence of traditional underwriting controls may have unforeseen effects on losses realized in these products. Shorter Susan Bies: "We let the market get flooded with no-document loans and easy credit for anyone with a heartbeat, and paid absolutely no attention to oversight or enforcement because housing prices were what's keeping the economy going. Now the market is sliding, we're facing foreclosures up the kazoo, and have no idea what to do about it." Or, put another way:
Posted at 05:39 PM | TrackBack February 01, 2006 Wednesday Housing News Found via Inman: Tomorrow's Cities, Tomorrow's Suburbs. This completely squares with the rise of "New Urbanism" that is bewitching urban planners, architects, developers, and of course, flippers. But what the flip market lacks is a real sense of building a community worth living in. Anyone can slap a coat of paint and knock down a few walls in an apartment building, then call it a condo--hell, Washington, D.C. has raised that to an art form! But what happens when you get there? Does your pad have all the necessary amenities? Are there good schools nearby for the kids? How's the commute? Are the walls thick enough to block out your hot neighbors going at it on a Sunday morning? :) Also thanks to Inman, I found the latest salvo from NAR on why banks shouldn't get into real estate. Of course, this all seems like a giant case of hair-splitting, since you don't get money for home loans from Joe's Chicken shack, so banks are already up to their toupees in the business as it is. And indeed--banks are already getting deeper into the game just by pushing borrowers to refinance to fixed loans, if only to avoid a tsunami of foreclosures. Hell, BB&T threw down the gauntlet and said that it wouldn't lend to developers using Kelo as a justification for eminent domain seizure. If that's not political, or a market move, what is, really? I'm certainly not a fan of banks possessing even more power than they do, but I think the real fear of the real estate industry is that if banks can make RE deals, that means they don't need third parties to do the work for them. Tough break for the commission-based, sales-focused, close or bust folks, eh? Posted at 02:44 PM | TrackBack Go back |
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