« September 2006 | | November 2006 »

Mortgage & Loan: Are Home Sales Better Or Worse?

Today stats from the Commerce Department further bore out the reality that home prices are tanking, and that the end may not be as close in sight as we thought:

The Commerce Department reported that the median price for a new home sold in September was $217,100, a drop of 9.7 percent from September 2005. It was the lowest median price for a new home since September 2004 and the sharpest year-over-year decline since December 1970. The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record.

And yet...

The price decline for new homes came while the sales pace picked up, rising by 5.3 percent to a seasonally adjusted annual rate 1.075 million homes. It marked the second consecutive increase in sales following three months of declines. (Emphases added.)

USA Today also reports that sales of 30-year fixed-payment mortgages are on the rise as well.

Seems like a simple equation, doesn't it? Drop the prices to reasonable levels, and the buyers will come back. And--wonder of wonders--the traditional fixed mortgage is still the best value for your money. Who would have thought it?

It's worth noting that CNN Money has listings of the top 10 places to buy--and to NOT buy. The "Not Buy" column is full of textbook bubblicious areas that saw huge gains thanks to excessive speculation and toxic mortgage proliferation. I have no doubt that D.C. will weather the storm, but as for Bakersfield and Fresno, I wouldn't put money on it--or Vegas either. :)

Posted at 03:26 PM | TrackBack

digg this story

Mortgage & Loan: Interest Rate Stays, Home Sales Fall

Once again, Ben Bernanke starts wishing that Dean Glenn Hubbard was here now...

The word has just come out--the Federal Reserve has agreed to once again keep interest rates at 5.25%. The statement and the vote read almost exactly like the last one, right down to Lacker dissenting and the warnings about potential interest rates.

This was really all the Fed could do at this point. With two weeks before a Congressional election, Bernanke couldn't rock the boat too extensively in either direction. Tim Duy provided an analysis of what he expected to see from this meeting, and pretty much nailed it:

I expect the message they want to send is “With inflation rate uncomfortably high, rates will be held steady for the foreseeable future, barring a clear, sharp deceleration in economic activity. For now, our foot continues to hover over the break, not the gas.”

The way I see it, this is the best policy. As long as they don't veer too heavily in either direction, they can't do a lot of damage.

Meanwhile, a sure sign of how much damage has already been done came out today in the latest slump in existing home sales. Money quote:

However, analysts said that the weakness in housing could last for several more months with a real upturn in sales not occurring until next spring.

Sales were down in all sections of the country except the South, which posted a small 0.4 percent increase. Sales fell the most in the Northeast, a drop of 3.7 percent, followed by the West, where sales were down 3.1 percent, and the Midwest, where sales fell by 2.8 percent.

I may be totally off my rocker, but it seems that the collapse of the housing bubble may end up being what keeps us from the tipping point of recession as much as it may lead us there. As long as the bubble keeps deflating, the Fed will count on that (and lower gas prices) to offset the horror of--gasp--wage gains!!!! :) If there was ever a case of a cure being as bad as a disease, this is definitely it.

Posted at 04:18 PM | TrackBack

digg this story

Buying & Selling: Signs Of The Times

A few days ago, the Washington Post's Kirstin Downey outlined the new consumer warning against exotic mortgage products. While it's a clear case of closing the barn door after the tornado has hit, there are still many, many homebuyers out there who don't realize the danger of signing on to an option ARM until it's too late:

In 2000, fewer than 2 percent of people in the Washington area had them. In the past two years, more than 40 percent of people buying or refinancing homes here used them.

You can find versions of the pamphlet at the FDIC Web site, among other places.

ConsumerAffairs.Com has a roundup of what happens to buyers who are facing foreclosure, and why it happens. There's probably nothing here readers don't already know, but it's well-written and absolutely necessary for anyone who's in over their head with the home payment.

And to give you more of a look at what the future of the home market will hold, today's Boston Globe discusses the
24 percent drop in single-family-home-sales in Beantown. There is some evidence of buying upticks, which indicates to me that sellers are more willing to meet buyers in the middle and keep the housing downturn from becoming a true flameout. But still...$220,000 for a one-bedroom? I've lived in Boston, and it's a beautiful city, but let's be real. :)

Speaking of being real, here's the money quote from the Globe article:

Real estate specialists said the market can't fully rebound until the excess supply of homes is reduced, a process that could take months or years. The association's data, which are pulled from real estate agents' central databases around the state, said nearly 64,000 houses and condos were on the Massachusetts market in September, 14 percent more than a year ago.

Absolutely. As long as there's a glut of "ghost homes" clogging up the market, people will be gunshy. Prices will have to drop further to get buyers out of their caves again.

Posted at 12:01 PM | TrackBack

digg this story

Housing News: Special "All-Bloomberg" Edition

While cruising the Internets for news of the housing bubble's doom this morning, I came across several interesting articles from Bloomberg that shed a harsh light on the current state of the market.

First is the news that the subprime loan derivatives market is getting spooked by bad housing data. I don't pretend to understand how derivatives work, but once you boil away the legalese and market speak, the gist is that traders who've been banking heavily on subprime lenders to bring in gains are fleeing in droves. Money quote:

``Delinquency trends and home prices'' show a weakening real estate market, said Scott Eichel, head of credit trading for New York-based Bear Stearns & Co., the biggest underwriter of bonds backed by mortgages. ``A lot of investors that have concerns about the housing market'' are using the ABX index to speculate on a continued drop, he said.

Next we have some speculation about this week's Federal Reserve meeting. Will Bernanke and co. continue to hold the line by keeping interest rates at 5.25% and risk inflation, or will they raise rates and squeeze borrowers even more? As the Bloomberg folks see it, the possibility exists for a potential rate hike, due to the horror of solid wage increases:

In effect, policy makers were told last month that time is running out for inflation to fall. The forecasters expect ``only a small gap'' between what the economy can produce running at full speed and the actual growth rate over the next several quarters. That means any unexpected acceleration in growth might well heat up inflation.

However, the consensus seems to be that the Fed will hold steady for this round, ironically crediting the failing housing bubble as the reason:

Other analysts predict a slowdown in housing will cool the economy and prevent rate increases, helping prop up debt. The Fed cited a weaker housing market as a reason to leave rates unchanged the past two months, halting its two-year campaign of boosting borrowing costs.

Short-term pain for long-term benefit, eh? Keep in mind, this is Bloomberg, which is hardly the voice of the common man (or homeowner). Still, it is interesting to watch even the most bullish analysts' collective shrinkage in action...

Posted at 12:56 PM | TrackBack

digg this story

Mortgage & Loan: Foreclosures On The Rise In Cali

The Los Angeles Times reports that more California homeowners are facing default. Money (or lack of it) quote:

When she started TerraCotta 2 1/2 years ago, company President Tingting Zhang said two or three people would come through her door on the typical day looking for help. Now, it's 30 to 40. "And we haven't reached the peak yet," said Zhang, who believes that the combination of rising interest rates and high-risk mortgages could spell defeat for a rising number of borrowers.

As I said once before, what is happening here is everyone's problem. It's the fault of the homebuyers for not saving enough and thinking they could sneak in to a million-dollar home with beer money.
It's the fault of the lenders for promoting toxic mortgage products to people who can't afford them and aren't ready to handle the sticker shock.
And it's the fault of enablers like Greenspan, Bernanke, Lereah, and so on...all of whom saw the writing on the wall and chose to spread lies in order to cushion their own arses.

I can't say much else without getting furious, so I'll just stop here and remember that it's going to get better...but it'll get worse first.

Posted at 06:37 PM | TrackBack

digg this story

Buying & Selling: Ghost Towns

MyDD pointed the way to this speech from the president of the San Fran Federal Reserve. Most of it is typical boilerplate, but scroll down to her comments on the housing market, and things start to get really interesting:

Of course, housing is a particularly interest-sensitive sector, and, as we know, it already has shown clear signs of cooling. Frankly, the pace of it has been a little surprising. Nationally, housing permits are down noticeably—by more than 20 percent—from a year ago. In addition, inventories of unsold houses are up significantly, sales of new and existing homes are off their peaks, and surveys of homebuyers and builders are showing much more pessimistic attitudes....According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. For example, a major home builder has told me that the share of unsold homes has topped 80 percent in some of the new subdivisions around Phoenix and Las Vegas, which he labeled the new "ghost towns" of the West. Though the situation isn't that bad everywhere, a significant buildup of home inventory implies that permits and starts may continue to fall and the market may not recover for several years. While builders remain hesitant to cut prices so far, and instead offer sales incentives, price cuts at some point in the future seem almost inevitable.

Almost? As Agent Smith was wont to say, "It is inevitable." As long as you have all that excess inventory sitting out there untouched and unwanted, the market is going to have to tolerate lowered prices. No one's going to buy if homes are worthless thanks to glut. Of course, the situation won't be helped by arrogant homebuilders who insist on continued development even when it's becoming clear that no one is buying:

"In the builders' eyes, there's no excuse for having a house standing there," said Jonathan Dienhart, director of published research at Hanley Wood Market Intelligence, which follows the building business, in California. "They're doing everything they can to stop standing inventory from increasing any more."

Man, these days people can't hold on to the homes they have. What makes you think they're going to be splurging for more sh$tboxes unless the price is right?

Posted at 02:23 PM | TrackBack

digg this story

Mortgage & Loan: The End Of Predatory Lending?

"There's somethin' out there in the lendin' market waiting for us...and it ain't human..."

Paper Money has an intriguing post about the convulsions the lending industry is undergoing from cracking down on lax loaning standards. I'm surprised this hasn't gotten more play on the national scene, as it's incredibly significant. If lenders are really grokking the fact that they're going to lose millions on bad loans and are tightening up the belt as a result, it will mean far fewer houses will be moving in the foreseeable future. That might seem bad in the short term, but in the long run, it'll force buyers to be serious about saving money for a fixed loan, and lenders to put an end to toxic mortgage products.

Inman reports that predatory lenders in Chicago are fleeing tough new regulations. The article is predictably pro-business and heavy on the "regulations R teh SUXX0RZ" aspect of the new law, the simple truth is this: Why would these lenders stop doing business in the area if they're not predatory? What're they running from? Are they afraid of offering fixed 30-year mortgages or something?

Delaware Online has a great primer on why predatory loans are dangerous, and what can be done about them. It's a good reminder that a large part of the housing bubble was due to banks thinking money flowed from the heavens like rain, and tossed it around to any schmuck with a credit score--and sometimes deliberately gamed the system to ensure qualified people would pay far more than they had to, for far longer.

And that's something that has to stop cold.

Posted at 03:45 PM | TrackBack

digg this story

Mortgage & Loan: The Day Of Reckoning

Yesterday's Boston Globe had an excellent in-depth article on the end of the housing boom. It successfully touches on all the points bloggers have been hitting for months (if not years), and puts a very human face on these potential foreclosures, ARM resets, and cash-strapped homedebtors. Money quotes:

"...homeowners are willing to leverage themselves to an extent not seen before because we've come to equate bigger debt with a bigger return. We borrow to buy as much house as possible and sell with the intent of moving into something even larger. 'The perception,' Hudson says, 'is running into debt is the way to wealth.' "

"People have gotten used to relatively large gains in values," not only in real estate but in the stock market, says Mark Zandi, chief economist Moody's economy.com. But, he warns, "this period of growth is unlikely be repeated again in our lifetimes. It's important that people adjust their expectations."

It's an excellent piece and well worth reading all the way through, but it requires registration. If you don't feel inclined, Ben Jones has some more choice quotes and observations, though the comments veer off quickly into some bizarre and vaguely racist tangents.

Speaking of Ben, he gets name-checked (along with the aforementioned Moody's) in an Advertising Age article forecasting the future of housing. The consensus seems to be that there will be a--shocker--orderly bubble deflation, but the sheer fact of housing prices dropping at all is cause for concern. What, weren't any of these guys living in California in the early 90's?

And on a related note, in case you hadn't heard, thanks to the rise of exurbia, commuters are driving longer, waking up earlier, and getting older while doing it. The day of reckoning is fast approaching...

Posted at 11:05 AM | TrackBack

digg this story

Buying & Selling: The NAR, FTC, and You

One's for the consumer, one's for real estate. Who do YOU trust?

I'm a bit late to the dance on this one, but I couldn't go without mentioning that the Federal Trade Commission is cracking down on anticompetitve MLS operations. From the FTC statement:

According to the FTC, all seven groups adopted rules that withheld valuable benefits of the Multiple Listing Services (MLSs) they control from consumers who chose to enter into non-traditional listing contracts with real estate brokers. Six of the seven blocked non-traditional, less-than-full-service listings from being transmitted by the MLS to popular Internet Web sites. The seventh went further, adopting policies that include blocking such non-traditional brokerage contracts from the MLS entirely. Such policies limit home sellers’ ability to choose a listing type that best serves their specific needs. While five of the groups have entered into consent orders barring such conduct in the future, the two in Michigan have not, and the FTC has issued administrative complaints against them.

Of even more estimable note is the fact that five of the MLS sites are willing to play ball through leveling the playing field for discount brokers. This is, indeed, a great day for the Rebellion. Offering real competition in the listing field can only benefit consumers and brokers. Real competition in a market--hoodathunkit?

Found via the Freakonomics blog, which naturally is quite gleeful over this development.

Posted at 03:25 PM | TrackBack

digg this story

Moving & Relocation: The End of Suburbia?

Two interesting reports came out today that deal directly with the housing market. The first is the Federal Reserve beige book, which surveys data in key economic sectors from around the country. The report is mostly positive in a moderate sense, but when it comes to housing, the outlook darkens considerably:

Nearly all Districts reported that housing market conditions continued to soften, though several noted that activity increased in some markets. Most Districts reported higher home inventories, and several said that homebuilders and sellers continued to offer incentives to attract buyers....Rent increases were reported by New York, Minneapolis and San Francisco, with Dallas indicating that pricing power was shifting to landlords.

That squares with the typical end of a housing bubble--as owners scramble to get affordable housing in a balloon market, landlords play OPEC and decide to jack the prices of rentals up to whatever they can get away with.

The second bit of news is a report from the Center for Housing Policy that finds the costs of high commutes outweigh low mortgage payments for residents in the 'burbs. If you think you're getting a deal by owning vs. renting, you may be, but the costs of gas, car maintenance, tolls, bus passes, etc., can wipe all of that out. More about this from Brad DeLong.

This is the price of the exurbian exodus. People are so desperate to have land and own a home to use as a bank that they'll willingly sacrifice hours upon hours in long commutes, spend tons on gas, and end up even further behind the 8-ball than when they started. As DCist notes, this could be solved by workforce housing and better public transportation, but the elephant in the room is still overpriced homes.

Prices have to fall, not only for a sustainable future for the homebuying economy, but for the sake of maintaining lifestyles for people who may not want to give up their lives being stuck on the toll road. Read yourself some Kunstler and see if you're willing to make the change.

Posted at 05:56 PM | TrackBack

digg this story

Buying And Selling: D.C. Doldrums

Although Housing.com is a national blog, I live in D.C., and thus I do often find myself focusing on the dramatic shifts in the real estate market inside (and around) the Beltway. Studying D.C.'s real estate can often provide interesting clues as to where the rest of the market is--or is not--going.

So it is with interest that I look at the market reports provided by the MRIS listing service, and the thorough analysis conducted by the legendary Bubble Meter. His studies of the data continue to support a steady and noticeable decline in home sales throughout the region, but a curious uptick in home prices for D.C. proper.

An insider source sent me an Internet with an analysis of the data, which claimed that homes in very far outlining areas such as Fauquier County were bought because, simply put, there was nothing else affordable any closer to the city center. Now homeowners are trying to get those homes on the market and pick up lower-priced properties closer in, which may be exacerbated by the condo glut. Perhaps this could account for the price uptick, as young childless couples and singles are flipping the bird at the exurban trend?

Then again, if I read Delilah right, it looks like properties in D.C. are not going anywhere at the moment.

And not coincidentally, today Inman reports that mortgage applications continue to drop each week. You could almost hear a pin drop in the void of all those homes that ain't selling....

Posted at 01:22 PM | TrackBack

digg this story

Architecture & Design: Building Better Builders

I had the pleasure of attending the Festival of the Building Arts at the National Building Museum last weekend. It was a huge affair, with dozens of tables filled with craftworkers, builders, and masons plying their wares and giving kids opportunities to make and repair virtually everything under the sun.

One of the principal exhibitions at the NBM is the Green House, promoting sustainable development and eco-friendly technologies for all. Anything that promotes the ideas of renewable resources and efficient building practices among the next generations of buyers, sellers, and builders is something I support. Given that the current crop of up-and-coming architects are employing Green trends in their new designs, it's essential to impart the principles of building smartly and for the future while we can.

We can't afford a world consumed by cookie-cutter McMansions that waste land, cost thousands to maintain, and require acres of urban sprawl just to maintain living standards. We have to do better than that.

(Image courtesy of The Community Greenhouse.)

Posted at 03:21 PM | TrackBack

digg this story

Housing News: Random Detritus

Some unrelated bits of interesting news to close out the week with:

The U.K.'s Guardian Unlimited takes a look at the U.S. housing bubble and, unsurprisingly, sees gloom in the future:

A key difference to the British market is that supply in the US is much more flexible because land is more plentiful. Americans build houses by the million each year. So when demand drops off suddenly, the country's housing market can be clobbered by a glut of empty newly built property.

That sums it up right there. Homebuilders and developers just won't stop. They're like the Terminator or the Borg or something. They just keep piling up these crappy constructs and running away with the cash, then wondering why no one is buying the units.

There're some good signs of increased retail confidence thanks to lower gas prices and cooling temperatures, but I note with interest that Wal-Mart--that bastion of the working-class consumer--still missed its mark. It tells me that people on the margins--many of whom bought in with toxic mortgages--are still so stretched out that even a fall of roughly $.60 to $1 in gas prices isn't making much of a dent in their bottom line. And how much of that so-called "windfall" is getting eaten up by mortgage costs?

I am willing to be less bearish than some and say that we may yet weather this storm, but it's still very much up in the air (so to speak) as to how bad things will get before they bottom out. At least we've moved on to the "Acceptance" phase...

Gothamist eloquently explores the disconnect between flat rental prices and an insane market. Property Grunt echoes some thoughts that I had last year--that specuvestors will come flocking back to the stock market as housing continues to tank, witnessed by the Dow's stellar performance yesterday.

Speaking of that, Dean Baker punches a hole in the irrational exuberance as only he can. Money quote:

But, if future profits are projected to be higher because of lower wages or lower corporate taxes (e.g. a higher tax burden on workers or fewer public services), why should the mass of the population, who own little or no stock celebrate?

When a family of four can buy a home in D.C. or New York in the mid-six figures that isn't in a crime zone or powered with a "creative" mortgage, THEN we can start breaking out the bubbly. Will those days ever return? I don't know.

P.S. Hey Robert Cote'! You left a comment here a little while ago and it got swept up in my spam filter. Just didn't want you to think we forgot about you.

Posted at 04:35 PM | TrackBack

digg this story

$1.3 Trillion in ARM Resets Coming Soon

$1.3 Trillion in ARM Resets Coming Soon BLOOM (BLOOM), National Wed 4 Oct 2006 07:15 AM EDT With the coming rate adjustments on $1.3 trillion in ARM's, is now the right time to start thinking about refinancing.

Posted at 06:13 PM | TrackBack

digg this story

Fed Watch: Bernanke's Priorities

Bernanke decides to adopt English slang to explain his true feelings about the market.

On a day when Fed Chair Ben Bernanke finally admits that there's a substantial correction in the housing market underway, in light of further reports of the overall slowing economy, and the fact that our own Treasury Secretary's company has been added the Fannie Mae accounting scandal roster, what does Gentle Ben choose to focus on?

WASHINGTON -- Unless Social Security and Medicare are revamped, the massive burden from retiring baby boomers will place major strains on the nation's budget and the economy, Federal Reserve Chairman Ben Bernanke said Wednesday.

"Reform of our unsustainable entitlement programs" should be a priority, he said in prepared remarks to the Economics Club of Washington. "The imperative to undertake reform earlier rather than later is great," Bernanke added.

Really. Because that is the primary source of our $574 billion national debt, and is a looming, immediate threat that can only be solved by eliminating the only real assurance that seniors have of a decent standard of living in this country.

As I've said before, Bernanke is using bromides, slogans, and unrelated asides to cover up the fact that he's really just shilling for Bush's failed economic policies, not least because he realizes how powerless he actually is to halt the accelerating failure of the housing market.

Posted at 04:46 PM | TrackBack

digg this story

Super Tree Houses: Real Estate That Branches Out

Once a symbol of childhood imagination and the test of a father's carpentry prowess, tree houses are not becoming a luxury commodity for people of all ages. Designs from expensive custom makers can add to your property a fun space for entertaining, relaxing, or even working.

read more | digg story

Posted at 01:39 PM | TrackBack

digg this story

Mortgage & Loan: The Money Pit

One reason why the housing market is failing as badly as it is lies with the fact that homeowners simply don't have the means to hold on to the homes they have. Rising energy costs, stagnant wages, and astronomical home prices have pushed homebuyers to use toxic mortgage products just to get their feet in the door, and homeowners are so strapped that they're eating Ramen noodles and sleeping on mattresses just to make the mortgage payment.

This bleak analysis was further substantiated by today's release of data from the Census Bureau, confirming that in 2005, Americans spent more income on their homes than at any time since 2000:

Housing analysts blamed surging home prices, higher interest rates and lower incomes for hurting affordability.

The housing market has gone soft in many areas, but home prices are still much higher than they were at the start of the decade. Nationwide, median home values jumped 32 percent from 2000 to 2005, to $167,500.

Unsurprisingly, California rates as the country's most expensive market, with homes in San Diego doubling in price from 2000-2005. The report also claims an increase of 4 million owner-occupied units to 74 million since 2000, but you have to wonder how many people are looking at that deal and regretting it after seeing how their bank account got depleted.

In what I am sure is sheer coincidence, now, finally, regulators are paying attention to lending with toxic mortgage products:

In response to perilously lax lending standards and a proliferation of risky new mortgages, bank regulators issued new guidelines on Sept. 29 to protect American home buyers. The Office of the Comptroller of the Currency (OCC), along with the Federal Reserve Board, the Office of Thrift Supervision, and other bank agencies, now requires more stringent underwriting standards and more informational sales practices surrounding nontraditional mortgages, such as interest-only mortgages and "payment option" adjustable-rate mortgages (ARMs). These so-called exotic mortgages, regulators say, have raised serious consumer protection and safety and soundness issues for banks.

Day late and a few billion dollars short, eh, boys?

Posted at 03:39 PM | TrackBack

digg this story

Architecture & Design: The Modular Movement

Once again proving the theory that there are great ideas in the ether that people just pluck out simultaneously, there are a number of interesting articles on prefabricated and modular homes, all of which stress the category's growing popularity with buyers and builders alike.

ConsumerAffairs.Com's headline article this week is a thorough introduction to the modular world, complete with advice on how to choose from the right factory and comparisons between prefab and traditional modes of construction.n

The New York Times gets in on the action with a study on how savvy contractors are promoting the benefits of modular homes and pushing past the "double wide" stigma.

Here's a brief little piece about how the use of modular homes is speeding up the rebuilding effort in the Gulf Coast, and a plea for more homes to be built.

One thing that personally amuses me about the debate over modular homes is listening to traditional home owners stick their noses up at the "sameness" of prefab homes when they go to obscene lengths to buy McMansions that look almost exacly the same. Not only that, they're often pressed so closely together on the same lot of land that they might as well be trailers in their own right. ;)

I generally support anything that promotes innovation and better usage of the environment in home design, so if we can move past the snob factor, modular homes might have a place in the market by the time of the next bubble. :)

(Image courtesy of The Modular Homes Network.)

Posted at 02:06 PM | TrackBack

digg this story