« January 2007 | | March 2007 »

Mortgage & Loan: After Stock Bloodbath, Bernanke Spins

The B. Bizzle lets his homies know that he's keepin' it real for the 0-7, yo.
Either that or he's wishing he had a gun.

A day after the Dow Jones took a 500-point header into the toilet, Ben Bernanke was tearing out what little hair he has left playing spin control:

``My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy'' since his monetary-policy testimony to Congress Feb. 14-15, Bernanke said. ``We are looking for moderate growth in the U.S. economy going forward.''

Bernanke stayed on-message throughout, insisting that troubles in the subprime market wouldn't spill out to the prime sector, and that the big threats to the economy were still Social Security and Medicare.

Unfortunately, even Freddie Mac itself is exiting the subprime market, putting a grim coda on the era of speculative buying. The money quote comes at the end of the article:

Robert Moulton, who owns a mortgage brokerage firm on Long Island, said the industry’s greatest failing was not fully anticipating or preparing for the troubles of the housing market, especially the drop in home prices in some areas. Too many people believed that home prices would not or could not fall. Adjustable rate loans made sense as long as home prices were rising; borrowers could sell their properties for more than they bought them or refinance using their rising equity. “When these subprime loans were written, I honestly don’t think anyone from the borrowers to the bank anticipated a collapse in real estate values,” he said.

Amazing, isn't it? A bunch of bloggers were able to figure out something that apparently eluded a multibillion-dollar industry and all of its adherents, spin doctors, and PR flacks--that no market can expand indefinitely. Tech, gold, homes, you name it--every cycle has to boom and bust.

How do you think Bernanke has to feel knowing that his predecessor not only left him to clean up a mess that he himself helped create, but took time out to stick a knife in his ribs to boot?

And how will it be explained to the thousands of homeowners who are facing default and foreclosure and don't even understand why or how?

Posted at 06:13 PM | TrackBack

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Buying & Selling: Massachusetts' Schizoid Real Estate

A headline from today's Boston Globe real estate section--"Mass. foreclosures smash record":

Last month, 2,207 foreclosure filings - or 110 every business day - were submitted in Massachusetts, more than double the number of a year ago; filings in January 2007 were up 105 percent from 1,076 filings in January 2006, according to ForeclosuresMass.com, a Framingham firm that provides online Massachusetts foreclosure data to investors, real estate agents, and lenders.

So far, so good, right? Increases in interest rates, resetting ARMs, stagnant wages, and rising expense costs are stretching people to the limit of their finances, resorting in more notices of default and foreclosure.

Now, here's another headline from the same section--"Mass. Home Sales Rise In January":

The volume of monthly Massachusetts single family home sales rose for the first time in two years in January, a hopeful sign perhaps for the slumping housing market, according to a sales report out today. There is a downside for sellers however: prices fell 3.4 percent.

I wonder how many of these sales came from foreclosed properties or government auctions? Regardless, the more inventory that comes on the market, the more prices will drop. It's harsh, yes, but that's the reality of the slump as it stands.

Posted at 04:31 PM | TrackBack

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Buying & Selling: A Speculator's Story

This is something of a departure from my usual fare, but it's a tale I thought you fine folks out there would appreciate:

Last week I was attending a swanky business mixer in Bethesda when I met a woman who claimed to be "in real estate." Now, to put it kindly, this woman was not what I'd call terribly professional. She was dressed like she worked at a retail chain, had a mouth to match, and her business cards were large square pieces of orange paper, with no e-mail address, phone number, or physical home address.

What was on them, you ask? Just a huge admonishment to attend her seminar in Silver Spring that Saturday to learn how to get rich in the home buying market. According to this woman, she owned four houses in Baltimore, and was looking at buying two more--apparently from foreclosed or distressed properties, but I wasn't clear on that part.

I listened to her talk to a few people about real estate in the D.C. area, and it just blew me away how they continued to spout all of the inanities that brought about the bubble and the slump--"Credit's so loose now that anyone can buy! Homes are more affordable than ever!" So on and so forth.

What disturbed me the most about the woman and her spiel was that it was the actions of flippers and speculators that most directly contributed to the housing bubble and the current downward spiral we're on. People throwing around wads of cash, bidding insane amounts of money on homes not worth a fraction of the price, and pushing for more, more, more. It was just ignorance combined with greed and selfishness, and apparently there are still people who don't realize how that sort of business makes it tougher for real homeowners.

It's a good reminder that there will be "get rich quick" types in every sort of boom--tech, gold, real estate, you name it--and that to avoid being suckered by hucksters requires education, foresight, awareness, and most of all, patience.

Had I the presence of mind, I'd have attended her seminar and taken notes. :) I'm sure I wouldn't have learned anything, but it would have made a hell of an entry transcribed for this little blog here. ;)

Posted at 05:54 PM | TrackBack

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Buying & Selling: Lowe's, HR Block Bitten By Housing Slump

Just as Lowe's has been following on the coattails of Home Depot, so too does the home improvement chain now play "Me too" by posting lower earnings due to flagging business:

CHARLOTTE, N.C. - Lowe’s Cos., the nation’s second biggest home improvement store chain, said Friday that its fourth-quarter profit fell 11.5 percent due to a slowing home improvement market amid a continued slump in the housing sector.The Mooresville, N.C.-based retailer said it earned $613 million, or 40 cents a share, for the three months ended Feb. 2, down from $693 million, or 43 cents a share, a year earlier...On Tuesday, bigger rival Home Depot Inc. said its fourth-quarter income dropped 28 percent. Its same-store sales dropped 6.6 percent.

“Sales continued to be pressured by a slowing housing market, tough comparisons to last year’s hurricane recovery and rebuilding efforts and significant deflation in lumber and plywood prices,” Robert A. Niblock, Lowe’s chairman and chief executive said in a statement accompanying the results.

Talk about getting low(es)! :)

Not to be outdone, financial services/tax prep giant H&R Block was celebrating generally successful profits, except, of course, for its crumblingOption One subprime unit:

Excluding results from its Option One Mortgage unit, Block reported earnings from continuing operations of $25 million, or 8 cents a share. That was below analysts’ average expectation of 12 cents a share, according to Reuters Estimates. A year earlier, the company had a loss from continuing operations of $30.2 million, or 9 cents, due to soaring legal costs.

Option One has been investigated on charges of predatory lending, and will probably be cast off from H&R Block before 2007 is done.

How much longer do you think the Fed will manage to keep the bleeding of the mortgage industry contained?

Posted at 04:19 PM | TrackBack

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Credit & Debt: Housing Slump Hits HSBC, Toll Brothers

British bank HSBC blamed failures in the U.S. subprime market for bad earnings, and now they're offering up a few sacrificial lambs:

HSBC Holdings Plc, Europe's biggest bank by market value, said Bobby Mehta stepped down as head of the North American unit after the lender raised its forecast for bad loans in the U.S...``Mehta was the guy charged with driving the growth of Household into mortgages, and that has been the source of disappointment,'' said Simon Maughan, a London-based analyst at Blue Oak Capital Ltd., who doesn't have a rating on the stock. ``So he's the guy who has to fall on his sword.''

Let's hope Mehta's desire for "more entrepreneurial interests" include taking some basic math, accounting and finance courses. I wouldn't want that guy anywhere near my portfolio, that's for sure.

Meanwhile, Toll Brothers, a veritable bellwether of housing doom, has gotten slapped by the market yet again:

Luxury-home builder Toll Brothers Inc. said Thursday its first-quarter profit dropped 67 percent due to hefty writedowns and other costs, and Chief Executive Robert Toll said many markets were still soft...The latest quarter's results include a goodwill impairment charge of $9 million related to Toll's 1999 acquisition of the Silverman Cos. in Detroit. Earnings also were hurt by $96.9 million in costs to write down the value of land and housing stock the company no longer believes it can sell at a profit, versus writedowns of just $1.1 million in the prior-year period.

A one-year cost increase of $95 million? That's not a moon, that's a space station! Unbelievable. Not terribly surprising, but unbelievable, nonetheless.

Posted at 06:19 PM | TrackBack

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Credit & Debt: What The Fed Fears, Part II

"I FEAR NO MAN!"

Since the last time we checked in on the collective anxieties of the Federal Reserve, it seems that the course remains set, and the prime concern is still the fear of inflation:

The central bank, which kept interest rates unchanged at its last meeting, still believed the greatest threat to the economy would occur if policymakers did not succeed in reducing inflation pressures. "

But not everyone is drinking the Kool-Aid, specifically St. Louis Fed president William Poole:

Poole said he was content to hold rates steady because the economy appears evenly balanced and the forecast on Wall Street and the Fed generally expects moderate growth around 3% and inflation gradually coming down. "As long as that situation prevails, the current interest rate environment can stay right where it is," Poole said in an interview with Bloomberg Television. Poole downplayed the importance of the Jan. CPI report, saying it would be a mistake to act on the basis on one month's information.

I'm completely in Poole's corner. I realize it terrifies Wall Street to actually have to pay their workers more, but there's no need for a rate hike--or a rate cut--just yet. Let home prices continue to drop and let the subprime market make as dignified an exit as it can, taking the speculators and flippers with them.

Speaking of my favorite topic, it's good to see that Fed governor has her eye on the danger presented by the market's swift collapse, including how it may affect other industries. Uh, actually, I mean to say she is completely wrong:

Bies' remarks played down the risk that mounting problems in the subprime market was having a broader impact on homeowners, which could have serious implications for spending and growth. "I don't think there will be a large impact (from subprime market risks) on the prime mortgage industry. On the fringes there may be some. ... I think it's really in the subprime ARM market, it's isolated at this point," she said.

Good to see they've got their eyes on the prize. *sigh*

Posted at 06:09 PM | TrackBack

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Buying & Selling: Good Ol' Fashioned Advice

CNN Money has a great roundup of four common homeownership nightmares, including paying for home repair, PMI, paying too much PMI, and dealing with an ARM reset.

This is the kind of thing I like to see--commonsense advice for home issues, instead of silly frothy exuberance about how great it is to own homes, or miserly "THE BUBBLE IS BURSTING" doom from the Internets.

Bankrate also excels at this sort of thing, and this week they have an in-depth look at whether a home equity loan is right for you. I wish the Bankrate writers would take a more skeptical stance on their coverage of housing issues, but I can't argue with their advice. Opinions are nice, but facts are gold. :)

What are some other good advice/informational sites or blogs you might recommend?

Posted at 05:54 PM | TrackBack

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Buying & Selling: Is The NAR Near Extinction?

Inman News has collected the best comments from a previous discussion on the NAR-DOJ lawsuit. The comments span the gamut of opinion, with some saying that it will be the end of real estate listings as we know them, while others say that the DOJ's corner on the market will win in the end.

I take a balanced approach on this issue. It's my firm belief that the NAR's control of listings has hampered the ability of consumers to take full control of the real estate transaction--undoubtedly one of the most important financial moves they will make in their lives. Opening the lists will give FSBOs, Web brokers, and discount services a chance to show their mettle, and force the NAR to compete on a truly level playing field. That's what really scares the institution of the Realtors(tm)--once the curtain's pulled back, buyers and sellers alike will see how little most realtors actually DO for the transaction.

There's no question that the NAR is shook by the changes of the industry. The smart ones will adapt and change with the times, while the others will simply die on the vine.

Market performance determining success....who could've dreamed such a thing?

Posted at 06:13 PM | TrackBack

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Buying & Selling: Grim Housing News

The last two days have seen some bad news on the real estate front that may dampen Ben Bernanke's cautious optimism.

First came the news that home sales fell in 40 states, with median home prices dropping as much as 50 percent:

The National Association of Realtors said the states with the biggest declines in sales from October through December compared with the same period in 2005 were: Nevada, down 36.1 percent; Florida, down 30.8 percent; Arizona, down 26.9 percent; and California, down 21.3 percent. In all, the Realtors said sales declined in 40 states, six states showed gains and one state, Utah, had no change in activity in the final three months of last year. There was not enough information from Idaho, New Hampshire and Vermont to make a comparison...
In all, median home prices fell in 49 percent of the 149 metropolitan areas surveyed, the largest percentage of areas showing price declines in the 27-year history of the Realtors' price survey.

Although the Lereah attempted to spin this as the "low point" of the housing slump, he can't even hide the fact that his own house is declining in value, so how can we take him seriously with anything else?

Now today comes the news that the brutally cold weather has helped push new home starts to their lowest level in ten years. Of course, the weather can't solely account for the results, as it's the latest example in the overall decline in new home buyers:

But housing starts fell steadily last year as the market was buffeted by rising interest rates and slowing demand following years of spectacular growth which unleashed a speculative frenzy in some cities.

Bernanke may need to be checking a lot more carefully to ensure that said "spillover" isn't leaking out of the cracks and fissures by the gallon.

Posted at 12:15 PM | TrackBack

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Credit & Debt: Bernanke's Cautious Optimism

"What, Me Worry?"

The Federal Reserve chair made his first report to Congress today, and the general gist seems to be "Uh, things are okay, I guess":

Delivering the Fed's first economic report for 2007 to Capitol Hill, Bernanke offered a mostly upbeat assessment of the economy's outlook. Besides improvements on the inflation front, the Fed chief also cited some signs of stabilization in the ailing housing market...Even with his mostly positive assessment, Bernanke was careful to hedge his bets and pointed out risks that could upset the generally good economic outlook....On the other hand, there is the risk that a deeper than expected residential real-estate bust could yet unfold, which could hurt overall economic growth, the Fed chairman said. If that were to happen, Bernanke added, the Fed in theory might be inclined to lower rates to help bolster the economy.

I suspect Bernanke's optimism is guarded due to things like today's BusinessWeek report on the crumbling of the subprime sector:

Delinquencies and foreclosures may get worse. One out of five subprime mortgages issued in the past two years is projected to end in foreclosure, according to a study released in December by The Center for Responsible Lending, a Durham (N.C.)-based research group. The group also noted that even when home prices were rising, subprime home loans fared poorly, with as many as one in eight, or 13%, of these loans ending in foreclosure within five years of origination.

The ability of the market to absorb this kind of shock is going to be severely tempered if credit standards tighten and wages don't increase. I realize that nothing frightens Bernanke's paymasters more than the concept of workers earning decent wages, but without sufficient funds to put money down on a fixed loan, most homebuyers will resort to toxic mortgage products--except that this time, there will be fewer of those available, which will mean fewer buyers overall.

And with fewer people buying homes, the housing market will continue to stagnate, thus widening the already deep fissures in our fragile economy.

Posted at 01:53 PM | TrackBack

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Buying & Selling: BuyWiseRealty Goes Live

BuyWiseRealty.com is an interesting new service that combines the power of the MLS, Google Earth, and Web search tools into a force for good:

Did you know that over 85% of homes are not sold through open houses or newspaper ads? That’s right! It’s a fact that 85% of the homes are sold through the local Multiple Listing Service (MLS). The MLS is a data base where Listing Agents list your home, typically offering other agents half of their commission for them to bring their qualified buyers in to buy the home. At Buywise we have a better way. With our Buywise Seller Basic Program, we will list your home on your local MLS for a low one time fee of $500. With the MLS subscription, you also recieve a For Sale Sign and a lock box. You act as the agent and offer a typical 2.5% - 3% buyers agent commission and open up your home to your entire real estate community.

BuyWise has also teamed with the mighty Zillow to offer instant home estimates, though as today's WSJ notes, relying solely on Zillow for price valuations is an entirely different sort of gamble.

I'm sure Buywise will have its flaws and glitches, but in principle, this is another important step towards reshaping the dynamic of homebuying to give both buyers and sellers more power and influence over the transaction, and keeping more money in their pockets.

Read the press release for more info.

Posted at 12:56 PM | TrackBack

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Home Improvement: Home Depot Hits Hard Times

The bad news keeps coming at Robert Nardelli's former empire, as the company is contemplating the sale of its wholesale supply unit:

Feb. 12 (Bloomberg) -- Home Depot Inc., the largest home- improvement retailer, may sell its wholesale unit after investors said the company should get rid of the division because of its low profits.The company said it's also considering a spinoff or initial stock offering of HD Supply, which sells equipment and supplies to construction companies. The division has $12 billion in annual revenue, about 12 percent of Home Depot's total.

MarketWatch has a more in-depth analysis of the possible moves, including background on how Nardelli's decision to purchase the supply company was the first real sign of his Captain Ahab-esque attitude towards running the company:

Particularly galling to analysts and investors was that Nardelli would buy the business, which sells products to professional contractors, amid growing competition from smaller rival Lowe's Cos., and just as the nation's housing market was about to stumble.

Of course, it won't really matter to Nardelli, since he's been assured his golden parachute, but it's fascinating to watch this company scramble frantically to repair the damage he did while he waltzes off into the sunset. Another tale of the housing bubble, really.

Posted at 04:08 PM | TrackBack

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Mortgage & Loan: Subprime Market Collapse Accelerates

HSBC is calling out the U.S. mortgage market for increasing defaults as the subprime sector implodes:

HSBC management made the mistake of “going for volume” and selling second-lien mortgages, he said. HSBC’s mortgage-broker business will focus on packaging and selling loans for HSBC’s investment bank.

Of course, when the market was hot, money was cheap, and you could loan to anyone for a song, no matter their credit or income level, then it was all about volume. Now, though, it's a much different story:

Richard Shane, a mortgage analyst at Jefferies & Co. Inc., said it's hard to determine how severe the credit downturn is going to be in the subprime mortgage market. He said usually lenders can mitigate the effect of defaults by tightening underwriting standards, for example.

As predicted, this is how it starts. Tighter credit, less capital, fewer loans, and even fewer buyers on the market. The squeeze play is beginning. Take a look at what's happening in Massachusetts:

Shapiro blamed subprime mortgages, which are tailored to borrowers with poor credit, and "exotic" mortgages, with low initial payments that allowed people to buy homes they may not have been able to afford, for the sharp rise.

Take a look at your future. Grim, isn't it? The only thing that will ride this out is lower prices for homes, more workforce housing, tighter lending standards, and most especially, stronger laws against predatory lending and subprime profiteering. We have the way...we just need the will.

Posted at 06:25 PM | TrackBack

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Buying & Selling: Michigan Realtors Open MLS To All

Chalk up another victory for the forces of "open listings." ConsumerAffairs.Com has been covering this story for a while, and they have the current scoop:

Under the FTC consent order settling the complaint, MiRealSource has agreed to abandon such collusive conduct and provide its services to all member brokers representing potential home sellers, regardless of the type of listing contract that they choose..."As with the six prior consent orders the Commission has announced in this area, this enforcement action will have a direct positive impact on real estate consumers," said Jeffrey Schmidt, Director of the FTC's Bureau of Competition. "By requiring MiRealSource to discontinue its anticompetitive rules, the order will allow home buyers and sellers to choose the real estate brokerage services that they wish to purchase."

Free markets forcing competitors to provide the best service and value for the client's dollar? What a concept! I can't wait to see what the guys from "Freakonomics" have to say about this.

Posted at 12:12 PM | TrackBack

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Renting: Renters "Dig Deeper " in 2007

USA Today has a front-page story about the continuing rise in rents in many markets as the housing market slumps:

With the projected rise of 5% this year, rents would be 14% higher than at the end of 2004, the report says. Over the same period, paychecks are expected to rise 4%, adjusted for inflation. The widening gap is likely to worsen the crisis for workforce housing, especially in coastal cities, says Hessam Nadji, a managing director at Marcus & Millichap, a real estate investment brokerage. "This is a national trend. We're seeing rents rise in the majority of markets, and we see this continuing for at least three years.

The article correctly notes that the continuing spate of "condo glut" in many overbuilt markets will help ease things for renters, as the flippers are stuck paying two mortgages that they can't cover and need income fast. Let me take this opportunity to link to a recent Bubble Meter post discussing the flopping condo/lowering rent syndrome in that most overheated of markets, the Big Apple.

Posted at 01:24 PM | TrackBack

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Mortgage & Loan: Subprime Loans At Highest Default Levels Since 2001

More evidence that it's all over for the high-risk lending, as Bloomberg reports that the subprime market is facing record levels of collapse:

Defaults on mortgages to people with poor credit histories or large debt burdens rose in November above their worst levels during the last recession six years ago, according to Friedman Billings Ramsey Group Inc....Defaults on subprime loans have surged as rates on ones made in 2002, 2003 and 2004 adjust higher as their fixed-rate periods end following an increase in short-term interest rates from the lowest in 45 years. Subprime mortgages made in 2005 and 2006 are suffering from slumping home prices and looser lending standards.

And following up on JP Morgan's own exit from the subprime arena, The Real Estate Bloggers noted that Wachovia is shuttering its own subprime lending unit:

The meltdown in the subprime market is coming to a head as Wachovia is shutting down its EquiBanc Mortgage subsidiary. The subprime lending division is facing tighter restrictions, a limited market for selling the debt, and new regulatory challenges forcing Wacovia to re-evaluate the business.

There's no more money to be made in selling shady mortgages to poor people, so the shysters are bailing with the quickness...leaving the foreclosed and defaulted homeowners holding the bag. Did you expect any less, really?

Posted at 04:33 PM | TrackBack

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