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May 30, 2008 KB Homes: U.S. Home Prices Will Drop 10% MoreExcerpt from Bloomberg video interview: U.S. home prices likely will drop another 10 percent from their peak before the housing market begins to recover, said Eli Broad, founder of Los Angeles-based homebuilder KB Home. "Every housing market's different, but you can expect housing prices to continue to decline in most markets for the next year or so,'' Broad said in an interview from Los Angeles with Bloomberg Television. Sales of previously owned homes in the U.S. fell 1 percent last month and the supply of unsold properties reached a record, the National Association of Realtors said last week, signaling a continuation of the 27-month housing slump. The median price of an existing home fell to $202,300 from $219,900 in April 2007. "I think we've got probably another 10 percent to go'' from the price peak reached in 2006, Broad said today. Broad said the U.S. economy is "in a recession no matter how you want to measure it,'' and recommended that investors put their money in the energy industry, multinational companies with the largest stock-market capitalizations, and emerging economies such as Brazil, Russia, India and China. The return on U.S. stocks likely will "be in low single digits'' this year, he said. Posted at 06:13 PM | TrackBack May 28, 2008 Buy or Rent? Look at the Rent RatioFrom the New York Times: "The housing bubble drove up prices to unreasonable heights, based on a ratio of home prices to rental costs. But in some areas, prices have fallen far enough to make buying conceivable again"
Posted at 07:13 PM | TrackBack April 03, 2008 Posted at 06:43 PM | TrackBack January 07, 2008 Home Prices May See 3-year FallFrom Reuters: Posted at 08:52 PM | TrackBack Real Estate Intelligence Report It comes as little surprise that residential home values fell further in almost all the major markets in the United State. The Slatin Report: Posted at 08:46 PM | TrackBack January 05, 2008 Evaluating Return on Real EstateFrom the Wall Street Journal: Posted at 04:59 PM | TrackBack July 31, 2007 Property flippers target unsuspecting home buyers
Posted at 02:24 PM | TrackBack July 26, 2007 Seller's need to be flexible on price and attentive to detailThis from a Wall Street Journal Article on the current housing slump: "The message for home sellers is that they need to be flexible on price and may have to spruce up their house to stand out against plenty of competition, including from builders desperate to shed inventory" It is clear that sellers need to be much more attentive to the realities of current market conditions. Tightening credit means less buyers, so your asking price better be competitive. And with inventories rising in many areas of the country sellers will not only need to get real about their asking prices but also spend some time and money on staging and presenting their homes in the best possible way. Posted at 07:18 PM | TrackBack June 08, 2007 'For Sale By Owner' sellers come out ahead financiallyFrom the New York Times, an interesting study from two Northwestern University economists on the financial returns of selling your home yourself (FSBO) or by using a Realtor. My favorite part is the totally backwards logic - that if you "buy" a house from a Realtor, your getting robbed: "We're trying to tell the public that they pay 16 percent more if they use us?" said an exasperated David K. Stark, owner of the Stark Company, one of Madison's largest real estate firms, when asked about the national association's claims. If that were true, he said, all buyers should shop FSBO." More from the article: The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially. Dowload the Economists Report. PDF document. Posted at 05:05 PM | TrackBack May 29, 2007 S&P/Case-Shiller Home Prices Fell 1.4% in March, Index ShowsFrom Bloomberg News: Home prices in the U.S. dropped last quarter for the first time in almost 16 years, as 13 out of 20 cities reported declines in March. Posted at 01:28 PM | TrackBack May 21, 2007 Credit & Debt: Housing Woes Drag Down Economy
Despite Ben Bernanke's protestations to the contrary, it seems that the housing slump is going to drag the economy down more than estimated: Real gross domestic product, the government's broadest measure of economic output, is expected to advance 2.3 percent in 2007. That is down from an earlier estimate in February for 2.8 percent growth, a survey conducted by the National Association for Business Economics found. The lower forecast came after the government reported anemic 1.3 percent GDP growth during the first three months of this year..."Residential investment remains a dominant force dampening growth in 2007," NABE wrote, adding that almost half of those surveyed expect the bottom in housing will not be reached until the fourth quarter. A third of those surveyed think problems in the subprime market are delaying or deepening the housing correction. This should come as no surprise to anyone who's been reading this blog, other blogs like it, or following the markets in general. Any time someone makes a prediction as to how long a bubble or bust will last, take that figure and tack on another six months to it. I like to call it the "Lereah Extra." So buckle in, strap down, and hold tight for at least the remainder of 2007, because that's how long it's going to take for the market to flatten at bare--or is that bear?--minimum. Posted at 12:02 PM | TrackBack May 20, 2007 Buying & Selling: Realtors Reel In Redfin Reviews
I've had occasion in recent months to write positive news about the dissassembling of the MLS-Realtor monopoly, which is why it was so depressing to find out that the Seattle-area MLS was successful in shutting down the Redfin reader review blog: Redfin Chief Executive Glenn Kelman said he had no choice but to comply, noting that the listing service had threatened to shut off its daily feed of for-sale listings. "Access to listing data is our lifeblood and we just can't afford to mess around," Kelman said. "We have gone back and forth with the Northwest Multiple Listing Service and according to their rules, you can't advertise another broker's listing. We argued that it was in no way an advertisement, it was really a review." Kelman said he was disappointed by the disciplinary action, noting that Redfin was trying to disseminate different perspectives on homes from what one might receive from a real estate agent. Some notes on the decision from the Redfin blog itself: The Seattle and Bay Area real estate markets have now lost a voice that on the whole was not only good for everyday people, but for the real estate industry itself. Consumers want candor about homes they can buy, and if as brokers we refuse to provide it, we will lose the authoritative, trusted position we've cherished for decades. As MLS rules force our sites to act as listing brochures, other websites will develop a monopoly on the truth, and we will pay those websites for traffic we should have had in the first place. We are not only giving away our brain and our heart, but our wallets too...The question at the center of almost every skirmish in the modernization of real estate is who controls the information. Being able to get honest perspectives on a home's condition is essential for any buyer. Realtors rely on coded language ("Cozy first-time fixer-upper" = "one room piece of crap that only a first-time buyer could afford"), cheesy stagings, and rushed viewings to keep the buyer off-balance and unaware of the home's potential defects. A service like this could have potentially provided major benefits to Redfin users, and it's a shame to see it get squashed so that realtors can continue to control the information flow. Word to Techdirt. Posted at 04:29 PM | TrackBack May 16, 2007 Mortgage & Loan: More Bad Housing News
Although the overall economy is demonstrating resiliency and flexibility, the housing market continues to sag like Zsa Zsa Gabor's breasts: The Commerce Department reported Wednesday that construction of new homes and apartments rose by 2.5 percent in April compared to March to a seasonally adjusted annual rate of 1.528 million units. Even with the improvement, housing construction is 25.9 percent lower than a year ago. And in a worrisome sign for the future, builders cut their requests for new construction permits by 8.9 percent in April. That was the sharpest drop since a 24 percent fall in February 1990, another period when housing was going through a significant downturn. And NAHB economist David Seiders' forecast doesn't quite pack the rosy punch of his old buddy David Lereah: David Seiders, chief economist for the home builders, said the survey found that the rising defaults in the subprime mortgage market were adding to concerns about the ability to reduce a huge inventory of unsold new homes and causing builders to cut back on their plans. "We're now projecting that home sales and housing production will not begin improving until late this year and we're expecting the early stages of the subsequent recovery to be quite sluggish," Seiders said. What, no sunny forecasts about how the market has nowhere to go but up? Why isn't Lereah spinning his gospel on this? Posted at 02:53 PM | TrackBack May 15, 2007 Credit & Debt: CNet Vs. Casey Vs. "Haterz"
Peep this profile of the "most hated blogger alive," complete with comments from our old pal Robert Cote. It's ironic--I wonder how much more traffic I could have generated for this blog if I'd jumped on the Serin hate train and devoted my posts to chronicling his misadventures. People thrive on negativity and controversy. Positive news is often boring. And certainly, given the deluge of crappy developments in the real estate market over the past two years, there was no small amount of negativity to go around. But ultimately, what does it serve? Guys like Serin thrive on the attention and get money from the site hits. The "haterz" become so obssessed with criticizing Serin that they lose any interesting viewpoints of their own. And it doesn't change any root causes of why things like this happen in the first place. It's really the Internet equivalent of the gladiatorial games--as guys get mauled for the crowd's amusement, we forget about the crumbling of the world beneath our feet. Posted at 11:29 AM | TrackBack May 12, 2007 Buying & Selling: Vultures Plague Foreclosure Sales
From Reuters via Yahoo, we have a look at the "gold rush" brought on by eager buyers looking to make a killing in the foreclosure market: Beneath the shade of a magnolia tree, veterans and "newbies" crowd around auctioneer Gary Oberdalhoff as he lists a property whose owners couldn't pay the mortgage, one of thousands to go on the block in this sprawling, arid region 50 miles east of Los Angeles...A record level of home foreclosures has hit the U.S. housing sector after years of reckless lending to risky borrowers. To those on the courthouse steps, that spells opportunity. Unlike during the Great Depression, investors are still eager to enter the market. "A lot of people's misery is other people's gains," says investor Bryon Bettencourt. "It's just the way of the world, dog eat dog." It's that exact same kind of selfish mentality that provoked the housing bubble in the first place, and now these parasites are looking to profit off its carcass. And yet, until prices come down to reasonable levels across the nation, buying foreclosed properties may be the only way for home buyers squeezed by the credit crunch to get into the market. If you're a homeowner facing foreclosure and don't want to be preyed upon by carrion eaters, there is help available. Talk to your lender, get credit counseling, do whatever it takes to work something out. You should walk away if there are no other options--but only if. Posted at 01:57 PM | TrackBack May 11, 2007 Credit & Debt: KB Home Seeks To Unload French Division
As yet another sign of how tough times are for the homebuilding industry, former mega-giant KB Home is looking to trim its supply of French cuisine, so to speak: KB Home might be tempted by the $783 million such a sale could bring. The company said it is currently evaluating that offer and is also evaluating other strategic alternatives, including a public or private offering of its shares in the French unit or retaining its shares. The money could come in handy as the U.S. housing market continues to buckle. Thomas Smith, an analyst with Standard & Poor's Equity Research, says the company could use the money to bolster its balance sheet, or to fund future land acquisitions if prices fall to the point where the company sees a good opportunity. Either way, "cash gives you maximum flexibility," Smith says. Longtime readers will remember KB Home being notorious for their mandatory arbitration practices, and for their former CEO Bruce Karatz being booted for shady stock options scams. Given that the company's reputation as a homebuilder is generally one of the worst in the business, I'd say they need all the flexibility they can handle. Posted at 04:50 PM | TrackBack May 09, 2007 Credit & Debt: Fed Leaves Interest Rate Unchanged...Again
The Federal Reserve unanimously voted to keep the Federal Funds lending rate (what most lenders index their own rates to) at 5.25 percent: So far, the Fed's plan seems to be working to slow economic growth and lower inflation pressures. But the steep slide in the once-booming housing sector has raised concerns among some economists that the slowdown could worsen into a more severe downturn. Actually, if this information is any indication, the Fed's going to have a tougher time containing the damage by far: Employers added 90,000 positions in February, versus the 113,000 reported last month. Payrolls grew by 177,000 in March, slightly less than the 180,000 previously reported. Workers' wages grew more slowly...Wage growth is important for worker and supports consumer spending, a vital ingredient to the economy's good health. But a rapid pickup — if not blunted by other economic forces — can fan fears about inflation. The slower growth in wages could ease Federal Reserve fears that inflation might not recede as they have predicted. Anything to keep those horrible "labor costs" down, eh? You can read the full text of the Fed's statement here. Posted at 04:12 PM | TrackBack May 07, 2007 Buying & Selling: Washington Post Vs. Housing Market
The Post has published some yeoman articles dealing with the collapse of the housing market in recent months, and the last two days have been no exception. Sunday's edition had a story detailing the fight by lenders to keep their buyers from foreclosing: "We would much rather work with a borrower than go through the foreclosure process," said Steve Bailey, Countrywide's senior managing director of loan administration. "We lose money on a foreclosure, the borrower is out of their home, and nobody is happy. The math works against us." The article includes some detailed advice on what to do if you are falling behind on your payments, including the sobering advice that sometimes it's better to just hand over the keys in a short sale than be foreclosed on. Not to be outdone, today's edition has a look at how mortgage firms such as New Century were pressuring brokers to rubber-stamp bad loans: "The stress in that place was ungodly. It was like selling your soul," said Hardiman, who worked for New Century in 2004 and 2005. "There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals." This is EXACTLY why we need stronger oversight, regulation, and transparency of the markets. Wall Street turned its head and let itself be deafened by the sound of the cash rolling in like ocean waves, and as a result, "sweatshop lenders" like New Century pushed through loans that should never have been approved, under appalling conditions. As long as the market was good, no one gave a damn, but once the delinquencies started rolling in, everyone had one eye on the exit. This cannot be allowed to happen again, and kudos to the Post for shedding light on these issues. Posted at 01:28 PM | TrackBack April 30, 2007 It's The End Of An Era: Lereah Is Out At NAR
Bubble Meter has the scoop. Here's the full press release. I can't believe it, really. Who will the Realtors possibly get to regale us with tales of how the stars are aligned, how the market has bottomed out, or how unsophisticated it is to pay off your mortgage? I have to give mad kudos to David Lereah Watch for the unrelenting dogging of this most obvious shill for the scam that was the housing bubble. Good riddance to bad rubbish. I'm just amazed he didn't say something like how he wanted to spend more time with his family. ;) Posted at 03:35 PM | TrackBack Mortgage & Loan: Bad Foreclosure Advice From the Pensacola News-Journal: For those clients who face foreclosure, Daniell answers their question with a direct and simple strategy: Do whatever it takes to keep your home. "It's very hard for people to not pay their credit cards, but saving the home is the most important thing," Daniell said. "You can push credit card payments to a later date, and bad credit can be overcome." No, no, no. This is just wrong. You shouldn't fall into the trap of thinking you can blow off one form of debt to service another. It's all going to look bad on your credit report, whether it's a foreclosure, a charge-off, or a bankruptcy, and given the tightening of credit standards, any one of these might hamper your chances of buying another home for a loooooooong time to come. Before you let yourself go deeper into debt, talk to your lender. Many of them are increasingly willing to renegotiate your loan terms to something more favorable, just to keep that revenue coming in. Call the National Foreclosure Prevention Program and see what you can do to keep your head above water. Posted at 01:26 PM | TrackBack Buying & Selling: Flippers Flop As Market Cools Sunday's Associated Press had a marvelous gem chronicling the faltering fortunes of flippers in a cooling market: Jason Beaver, a Sunnyvale, Calif.-based Apple Inc. programmer, got caught up in the talk of the hot housing market from friends who bought multiple homes in Las Vegas and made a killing. His name was drawn in a buyers' lottery in the Solera subdivision and he put $35,300 down on a $353,000 home in February 2004. The community is restricted to people age 55 or older; the 37-year-old Beaver had no intention of moving in. I think these are the people Rob Dawg was talking about when we discussed whether or not to be merciful to f$#ked borrowers. People like Beaver are amazing--they're all about the market when it benefits them, but things suddenly go wrong and they want to sue? The kind of conditions he fell victim to were written on the wall months in advance--if the blogerati could see it, why couldn't they? Because they didn't want to. Because people will start with a belief and selectively look for facts to justify said belief, no matter how crazy. And because of the shortsightedness and selfishness of people like Beaver and specuvestor poster boy Casey Serin, many honest buyers are going to be locked out of the market due to severely restricted credit and tighter loaning standards. I hope people like Casey and Beaver can learn from their mistakes and provide examples to benefit others, but I can't shake the belief that this could have all been averted if they'd paid attention to the warning signs earlier on. Posted at 11:24 AM | TrackBack April 27, 2007 Mortgage & Loan: Foreclosures Rise, Rescue Efforts Continue
I hate to end the week on a downer, but looking around, I see the rising tide of foreclosures nationwide and no sign that it's cresting anytime soon: Delaware, home of credit card companies and tax-free shopping, has posted a 178 percent increase in foreclosures between Q4 2006 and Q1 2007. That is, simply put, unbelievable. Massachusetts governor Deval Patrick is calling his state's epidemic of foreclosures a crisis, and is pushing stronger state legislation to combat predatory lending--even as foreclosures were up 47 percent from last March. There is some good news on the front, however: New York City has set up a >call-in hotline to help distressed homeowners connect with nonprofit groups that will help advise them on getting out of foreclosure and find better refinancing plans. It's not much, but it's better than nothing. ACORN has joined the call of consumer groups that want a moratorium on foreclosures: Among the major points of the ACORN campaign is a proposal to state attorneys general to seek injunctions to stop foreclosure proceedings caused by predatory loans. The plan also calls for tougher laws against predatory lending. The group says predatory lending has lead to an epidemic of foreclosures. Last year there were 1.2 million foreclosure filings, a large increase from the 900,000 foreclosures that were filed in 2005. This year, foreclosure filings are expected to reach 1.5 million. It's terrifying to think about statistics like that, but I'm heartened by the response to the foreclosure tsunami. Maybe this really is a watershed in our thinking about real estate, and the laws that will come from this crisis will make lending safer and more responsible for all concerned.
Posted at 11:53 AM | TrackBack April 25, 2007 Buying & Selling: "Due Diligence" In Home Buying
Not long ago, the legendary Marinite asked a bunch of us bubble and housing bloggers this question: What constitutes "due diligence" in home buying? What kind of research is necessary to make the deal? What avenues should you pursue to make sure you're not saddled with a lemon? Here are some basic tips I'd recommend: * Get as accurate a valuation of the property as possible. Many home sellers let ego and social conditioning push them to list their home at the highest price possible, regardless of the local market or national housing conditions. There are numerous market valuation tools available to give you a decent picture of what the home is really worth, and what kind of an offer or counter you can make. In addition to the many Open MLS sites out there, there's Zillow, Ziprealty, HomeGain, etc. * Investigate the property's history. This is where the REAL due diligence comes in--hire a lawyer to look into the property, find out if it's distressed, foreclosed, if it has claims, etc. This 2003 New York Times article explains the process in more detail. * Know your loan potential. Find out what you can qualify for before you sign any papers. Consumers who let themselves be talked into a "creative" mortgage product that trapped them in a mortgage well beyond their years are regretting it now. Terri Cullen discussed this in a good Real Estate Journal article from 2005. * Check up on any potential real estate broker, realtor, or agent you use. It shouldn't take are-reading of Freakonomics to remind you that your transaction agents aren't always acting in your best interest. Investigate the agent's reputation. Find out what transactions they've closed and how they performed. How long have they been in the business? Are they part-time or full-time? Are they licensed? So on and so forth. All it takes is one unscrupulous broker to muck the whole process up permanently. Here are some more resources to help you through the process of due diligence in your home purchase: eBay Residential Real Estate Buying Guide Ten Tips For Home Buying And Selling Posted at 11:20 AM | TrackBack April 22, 2007 Buying & Selling: Buying A Home In Foreclosure
ConsumerAffairs.Com, which has done masterful work in covering the many stages of the housing collapse, has an article today on buying a home in foreclosure. Author Fred Yager walks you through all the steps you need to buy a property on the auction chopping block. It's by no means a cakewalk, as Yager notes: [F]oreclosure homes are sold "as is" which means that the 25 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in...be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure. A lot of bloggers and specuvestors alike crow about the ease of picking up foreclosed properties, especially now as delinquencies and foreclosures are reaching record levels all over the country. Yager's article is a good bit of cold water in the face on that score. Yager previously wrote about what to do if you find yourself on the other side of the foreclosure gun, which I also recommend. Posted at 06:08 PM | TrackBack April 18, 2007 Mortgage & Loan: Foreclosure Fight Forward!
The news that foreclosure in California is reaching record highs is the latest volley in the war between the merciless entropy that is the housing slump and homeowners' desire to hang in no matter what the cost. For a while there, it seemed like most of the folks who made the mistake of buying too much home with too little money would be left to twist in the wind. But as with all previous bubbles, some genius finally realized that this will threaten the bottom line of many prominent financial institutions, and as such, the forces of finance are stepping up to offer favorable terms for owners on the verge of delinquency: The agencies advised lenders that prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower...Examples of constructive workout arrangements include modifying loan terms, and/or moving borrowers from variable-rate loans to fixed-rate loans. Bank and thrift programs that transition low- or moderate-income homeowners from higher-cost loans to lower-cost loans may also receive favorable consideration under the Community Reinvestment Act (CRA), provided the loans are made in a safe and sound manner. No less than Fannie Mae and Freddie Mac have stepped up and offered their own products to help people stay in their homes. My one caveat is that simply extending the "teaser" period for an ARM is like giving a cancer patient morphine rather than chemo--it may hurt less, but it won't solve the problem. The 30-year-fixed is the way to go, always. Still, it's a good start. Let's see more of that, and soon. God knows it's needed. Posted at 11:41 AM | TrackBack April 13, 2007 Mortgage & Loan: Fighting Mortgage FraudOne of the sadder aspects of the housing collapse has been overturning the rock to see how much of the market was infected with mortgage fraud. Many subprime loans were pushed with outright fraudulent terms, and many homeowners have lost their homes to terrible "foreclosure rescue scams" and the like. It's good to see people like Massachusetts AG Martha Coakley taking a strong stand against mortgage fraud as foreclosures ravage the state: “These defendants, many of whom were professionals, preyed on vulnerable homeowners facing foreclosure to deceive them out of their home and life savings,” Coakley said in a press statement. “With the number of foreclosures increasing daily, this type of mortgage fraud is particularly troubling.” HUD Inspector General Kenneth Donohue correctly pinned the explosion in mortgage fraud to a lack of oversight and a willingness to look the other way, and recommended some new steps: What are some of the key changes that need to be made at FHA? Mortgage bankers have been creating a predictable model on screening some of these loan applications and that’s good thinking. That’s using technology to your advantage. I think FHA has to weigh in on that. I have not seen that. Well, let's hope he sees it soon. I've mentioned her before, but Rachel Dollar writes and runs what is probably the best and most comprehensive mortgage fraud site around. If you are a victim of mortgage fraud, or are worried about becoming one, go read that right away to get the answers you need. Posted at 06:26 PM | TrackBack National Foreclosure Prevention Program A national foreclosure prevention program and toll-free hotline (888)-995-4673 has been established to help homeowners who are facing foreclosure. Mortgage and loan companies are adding more 'work out' specialists to help homeowners restructure their loans in an effort to keep them in their homes. Some states, like Ohio, have started funds to help homeowners restructure their loans. Congress is working on proposals to get the Federal Housing Administration to help home owners with ARMs. It is clear that many local governments have been ill prepared to deal with the social and economic damage foreclosures can inflict on their communities. Local schools (kids) suffer and quality of life issues arise. A study in the Chicago metro area found that each foreclosure costs the municipal governments more than $30,000. This means less money for local social programs that help keep communities together. The research also determined that one foreclosure can reduce the value of other homes on the same block up to 1.5%, making it harder for people to sell their homes at a good price. It's in the best interests of mortage and loan companies, local, state and federal governments to do what they can to help homeowners facing foreclosure. Unfortunately, no quick fixes exist and the situation could get a whole lot worse before it gets better.
Posted at 12:24 PM | TrackBack April 12, 2007 History of Home Prices in the United StatesTracking value of housing as an investment over time. Does this look at all similar to the run up in stocks prior to the dot com bust? This chart does not include the year 2007.
Posted at 10:01 PM | TrackBack April 11, 2007 Credit & Debt: Meanwhile, Back At The Fed...
It's good to see that Bernanke has his priorities in order: In the minutes, Fed officials worried that the latest readings on core inflation were higher than expected and might not moderate as hoped. They also decided that holding rates steady was the best course to foster moderate economic growth and to bring core inflation down from "its elevated level." But policy-makers also felt surprisingly weak business investment and the rise of delinquencies in subprime mortgage markets were risks to economic growth."The combination of generally weaker-than-expected economic indicators and uncomfortably high readings on inflation suggested increased downside risks to economic growth and greater uncertainty that the expected gradual decline in core inflation would materialize," the Fed said. If you're hoping that the Fed would recommend stronger regulation of predatory lenders and oversight of the subprime sector, think again. Bernanke is a firm believer in the invisible hand: Regulatory oversight of hedge funds is relatively light. Because hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on the federal safety net, the light regulatory touch seems largely justified. However, the growing market share of hedge funds has raised concerns about possible systemic risk. In other words, the more complex something is, the less likely there is to be anything guiding or watching it. Yep, we're screwed. Posted at 06:37 PM | TrackBack Buying & Selling: Home Prices, Mortgage Apps Both Tumble
This morning we had the news that refinancings were dropping even as new home applications rose: Refinancing applications dropped for the fourth straight week, declining 4.0 percent to 2,015.0, its lowest level since mortgage rates reached their recent peak in late February. But the MBA's seasonally adjusted purchase index rose 2.7 percent to 413.8 last week. Applications to buy homes have been more choppy week to week than refinancings, though are generally trending higher. I'm probably grossly oversimplifying here, but it seems to me that the refinancings are slowing because of higher borrowing costs due to interest rates holding steady. The key to the housing boom was encouraging people to refinance using "creative" mortgages and take out home equity loans out the kazoo. Now, people are simply trying to dump their homes as fast as possible, and that means cutting prices--which opens the door to first-time buyers. And it seems that the NAR agrees with that assessment: The National Association of Realtors said Wednesday it expects its measure of home prices to fall this year for the first time since the group began tracking sales nearly 40 years ago. In its latest monthly forecast, the group said it expects a 0.7 percent decline in the median price of an existing home sold in 2007. A month ago it had been projecting a 1.2 percent increase. Half of all homes sell for more than the median and half for less. The CNN article goes into gruesome depth about how all homebuying statistics are expected to dip through 2007 and pick up again in 2008, but I wonder if even that is too generous. We're in a long slide, folks, and the bottom is--while getting closer--not quite there yet. Posted at 06:08 PM | TrackBack April 04, 2007 Mortgage & Loan: Predatory Lending Targets Higher-Income Homebuyers
It would seem that the report from the Center for Responsible Lending on subprime mortgages targeted to higher-income buyers was on the mark after all. The Washington Post yesterday looked into the spread of the spread of subprime mortgages in Philadelphia: The Philadelphia study concludes that predatory lenders are not targeting the poorest neighborhoods. Rather, they're seeking moderate-income neighborhoods where they can squeeze the equity of a house. The higher the interest rate on a mortgage, the more commission a loan provider typically makes. The Post article also notes the efforts of D.C. Council member Mary Cheh to introduce legislation to spell out lending terms in clear prose on red paper. I'm not sure why it has to be red, but as long as it's read, that's all that counts. And on the federal level, no less than Dem presidential heavyweight Hillary Clinton is saying the same thing: The New York senator said borrowers should have more access to counseling and unbiased advice on lenders, loan types and refinancing options and that mortgage documents should be written in plain, easy-to-read language. "We need clear, easily understood language in all these documents," Clinton said. "Enough with the confusion and complexity." Now that it's clear that subprime lending and predatory practices are not the exclusive province of the poor-and-nonwhite markets, hopefully we can finally see some good laws put into play that will keep this from happening again. Posted at 05:48 PM | TrackBack April 02, 2007 Mortgage & Loan: New Century Files For BankruptcyThis certainly doesn't come as a particular surprise. From Marketwatch: New Century Financial filed for bankruptcy protection on Monday and said it would lay off 3,200 people, or half its workforce, immediately as the second-largest subprime mortgage lender succumbed to a credit crunch in the sector. Reuters has a timeline of New Century and subprime history in general. Here's an interesting nugget: 1998 - Rising delinquencies and the aftermath of the Russian debt crisis spook investors in subprime, but U.S. Bancorp likes the business enough to strike a strategic alliance with New Century, buying $20 million of its preferred shares. Boy, why don't we pay more attention to the cycles of history, eh? I like the UPI take on it best: The company -- once a multibillion-dollar lender listed on the New York Stock Exchange and now trading on the over-the-counter pink sheets -- said its creditors included Countrywide Financial Corp., Bank of America Corp., Lehman Brothers Bank FSB, Residential Funding Corp. and Goldman Sachs Mortgage Co...The company, founded in 1995, went public two years later and was named to Fortune magazine's list of the 100 fastest-growing companies in 2003 and 2004. From the top of the world to Chapter 11 in twelve years. It could be written off as a poignant metaphor for the housing industry as a whole if it wasn't for the very real 3200 people who are about to be looking for work. Posted at 03:21 PM | TrackBack March 30, 2007 Credit & Debt: Bernanke Comes To Jesus On Easy Credit
OH, PLEASE, GOD, JUST LET ME GET OUT OF THIS WITH WHAT LITTLE HAIR I HAVE LEFT.... In a speech detailing the merits of the Community Reinvestment Act, Fed chair Ben Bernanke had some interesting comments: Third, access to credit in lower-income communities is obviously much greater today than when the CRA was enacted. This greater access has had tangible benefits, such as the increase in homeownership rates (Joint Center for Housing Studies, 2006). However, recent problems in mortgage markets illustrate that an underlying assumption of the CRA--that more lending equals better outcomes for local communities may not always hold.12 Whether, and if so, how to try to differentiate "good" from "bad" lending in the CRA context is an issue that is likely to challenge us for some time. One possible strategy is to place more weight in CRA examinations on factors such as whether an institution provides services complementary to lending--for example, counseling and financial education. This is as close as you probably will ever get to hearing Bernanke or anyone else admit that the ocean of credit extended to the subprime markets was a prime factor for inflating home purchasing in the last half-decade. It's also a prime signal that banks and lenders are going to tighten things up for the foreseeable future. Less available credit = fewer new home buyers = fewer home sales = flattening market. The Center for Responsible Lending has a new study out which indicates that even the saw about available credit increasing homeownership is false. Instead, they claim that the subprime market was chiefly targeted to refinancing existing loans rather than originating new ones. It makes sense when you think about it--how often did you hear and read about people swapping their fixed loans for fancy new interest-only products without much in the way of documentation or money down? The housing boom and bust was a tremendous example of letting short-term thinking and the desire for easy profits trump responsibility, frugality, and accountability. Now we have a sagging, fragile economy, millions of homeowners in foreclosure or default, lenders going belly-up like dying whales, and the creeping fear that it will get worse before it gets better. That Bernanke has his Jesus moment now is convenient, and not particularly impressive, to say the least. Posted at 02:28 PM | TrackBack March 29, 2007 Mortgage & Loan: Million-Dollar Mortgage MeltdownIt would seem that the mania that possessed people to buy homes far beyond their means is indeed not confined to the In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure. Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities..."Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside," says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. "People across all income brackets are having financial hardship." As I've said before, there tends to be very little sympathy for people caught in dire mortgage straits. Indeed, the reaction of many bloggers seems to be open contempt that these people got in so far over their heads. Now, to be fair, many of the people stuck with high mortgage payments are flippers, specuvestors, etc., but not everyone is a Casey Serin. So, watch this ABC News/BBC clip and judge for yourself: Are these folks guilty of "house gluttony" and rampant consumerism, or did they just get dealt a bad hand? For me, I say what I've always said: The American Dream of home ownership should not come at such a high cost that any misstep could mean a wreck for life. And the idea that your entire financial history and future should be tied so closely to a stupid three-digit-number is an idea only fit for the nuthouse. Clip found courtesy of Housing Panic. Posted at 01:31 PM | TrackBack March 28, 2007 Credit & Debt: Bernanke: "The Economic Expansion Continues"It seems that on Ben Bernanke's world, the interest rate is still 4%, home sales are on a permanent upward trend, and any damage you may have seen from the subprime implosion is nothing to worry about: Even so, Bernanke stuck with the Federal Reserve's assessment that the economy is likely to grow at a moderate pace over the coming quarters. He also repeated the Fed's belief that inflation also should ease in the months ahead, but he warned that underlying inflation remains "uncomfortably high."...On the other hand, consumers, who proved "quite resilient" despite the housing slump and increases in energy prices, could continue to keep spending at a pace that would make the economy grow faster than currently expected, he said. And, there are other forces, including a still-good jobs market that is producing fatter paychecks, that could push up inflation. Bernanke's formal comment on his hopes for consumer spending from his testimony: The continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending, which increased at a brisk pace during the second half of last year and has continued to be well maintained so far this year. Growth in consumer spending should continue to support the economic expansion in coming quarters. And just how is that working out?: "Despite diminishing expectations, consumers' assessment of present-day conditions remains steady and does not suggest a weakening in economic conditions. The recent turmoil in financial markets coupled with the run-up in gasoline prices may have contributed to consumers' heightened sense of uncertainty and concern. The direction of both components over the next few months bears watching to determine whether this decline is just a bump in the road or something more substantial." The key phrase there is "diminishing expectations." People are realizing that the housing market is crumbling, that their paychecks are stretched to the max, and that they have no savings cushion if an emergency strikes. These are not the hallmarks of a bull psychology by any stretch. Bernanke better bet on something else to keep his helicopter blades spinning. Posted at 01:01 PM | TrackBack March 27, 2007 Consumer Confidence Index Drops
NEW YORK (Reuters) - Consumer confidence weakened in March as higher gasoline prices and recent turmoil in financial markets made Americans nervous about the future, a report showed on Tuesday. A separate report showed U.S. single-family home prices plummeted in January, the first annual decline in home values in more than a decade. Read more on the Consumer Confidence Report. Posted at 02:47 PM | TrackBack March 26, 2007 Buying & Selling: New Home Sales Continue To Tank
A few days ago, Corey from Info |
