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Worldwide Real Estate Trends

 

 

UPDATE - November 1, 2009

 

I haven't posted to this blog in over 2 years but I thought I'd take the time to revisit the forecasts I've made over the years on what I said would happen to real estate prices in the USA, UK and Spain.

 

I gave all the reasons why real estate prices would PLUMMET in the USA and today we can see all the forecasting came true. I advised all my clients to dump their real estate in the USA in 2004/2005/2006 and 2007. That advice turned out to be golden. The USA real estate market has crashed over the past several years just as I predicted it would.

 

In some parts of the USA like Miami real estate prices have fallen more than 70% from peak levels in 2005/2006. One property I have been tracking sold in Miami Beach in November 2005 for $460,000. That same property is now selling for $122,000 and still can't sell and is in foreclosure.

Real estate prices in Buenos Aires during that same time frame have risen substantially. I gave specific reasons why this would occur and they still come into play today. The USA real estate market is still artificially being subsidized by the government.

 

The government is desperate for home values not to continue to fall. Unfortunately there are millions more properties in a "shadow inventory" that will be foreclosed on over the next two years. Real estate prices in the USA most likely won't see the peak levels again for over 10-15 years or more.

I also advised my investment clients to start selling off their stock market portfolios in mid to late 2007 and also strongly recommended to short sell financials, banks, insurance companies and bond insurers in mid to late 2007 and all throughout 2008.  Those that followed my advice made tremendous amounts of money.

 

 

_______________________________________________________________________

 

I have traveled around the world over the past several years in my quest to live life to it's fullest.  Along the way I studied the real estate market in most of the places I visited.  I went on over 100  international trips around the world in the past few years.  I discovered that real estate had been an amazing investment for many investors but in many cities I saw the market softening in the near future.  My research proved to be correct and real estate prices are softening in many parts of the world now.

I've actively posted on several message boards that the situation in the USA was chaos with banks and creditors lending to too many people that had bad credit.  I called the "sub-prime mess" in 2005.  Many people didn'tunderstand their ARM (adjustible rate mortgages) or all interest mortgages and I predicted they would default on those loans.  Banks and the general public are now seeing the logic of what I posted years ago.  I posted that not only was sub-prime loans about 20% of the total lending but many others got ARM's that they didn't understand and they are repricing to higher rates now and they can no longer afford their payments.  The banks are no longer offering these loans and you will find the total number of people getting loans much lower which should adversely affect demand and therefore prices on real estate in the USA well into late 2008 and 2009 and probably beyond.

Below I am posting informative and unbiased articles on worldwide real estate trends.   You will quickly see why investors and property owners are selling off properties in overvalued areas like the USA and the UK and purchasing here in Argentina.  The majority of my consulting clients that are purchasing real estate here in Argentina were fortunate enough to purchase a second property in the USA/UK/Europe and they experienced tremendous capital appreciation.  They now are intelligent enough to realize they need to take profits and do the same thing over in another city where they can realize the same type of capital appreciation.

One thing many people do not realize is that ALL of the real estate purchases by foreigners and almost all of them by locals are paid 100% in cash so these are REAL investors and not gamblers like you have in the USA that put little to nothing down to purchase their properties. 

Part of the reason I have such credibility throughout the investment community around the world is I publicly called everything correct in Argentina since 2002.  I correctly called 1) the real estate market in Buenos Aires; 2) tourism trends and I predicted that tourism would significantly increase; 3) I predicted in 2002 the exchange rate would free float in a range between 2.75 - 3.25 (which has proven to be EXACTLY correct);  and 4) I predicted the economy would steadily improve and unemployment rates would decrease.   All my forecasts on Argentina since 2002 have proven to be spot on target.

 

October 17, 2007 - USA

The Union Tribune reports from California. “The six-county region, including San Diego County, saw a year-over-year sales decline of 48.5 percent, to 12,455 transactions. That was the lowest monthly total since DataQuick began keeping records in 1988. Lori Staehling, next year’s president of the San Diego Association of Realtors, said she could not ’sugar-coat’ the latest statistics.”

“‘It’s a tough time; it’s not pleasant,’ Staehling said. ‘This whole soft-landing idea would be nice, but the number of sales is off so much and the inventory is so much higher than it was, it’s a huge struggle.’”

The Orange County Register. “A mid-summer credit crunch took a big bite out of Orange County’s housing market last month. Sales fell 44 percent from a year ago to 1,643 homes last month, according to DataQuick. That’s the lowest number of homes sold per month in the 20 years that DataQuick has tracked the local housing market.”

“The median price of an Orange County home fell 9.5 percent from the year before, dropping to $570,000. That price was down $75,000, or nearly 12 percent, from the peak price of $645,000 reached in June.”

“Rick Gorman gave up trying to sell an investment property in Rossmoor after failing to get a single offer in three months, even after dropping the price from $950,000 to $899,000. ‘We decided there was no sense in giving it away,’ said Gorman. ‘The real estate market will come back at some period. … (We’ll) wait it out.’”

“Amid sliding home prices, banks foreclosed on 444 homes in Orange County last month. That total is up 469 percent from a year ago, DataQuick reported Tuesday.”

“And there appears to be few buyers for homes going into foreclosure. For example, during an Oct. 3 foreclosure auction at the Santa Ana courthouse, 33 out of 34 properties went back to the bank because no one bid.”

The LA Times. “In Southern California in September, home sales in six counties, Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura, fell 48.5% from the same month last year. They were at their lowest since DataQuick began compiling such statistics in 1988.”

“Garden Grove real estate broker Patrick Schwier, who specializes in apartment buildings, said he had sold 70% fewer buildings this year compared with the same period in 2006. Schwier said he saw two more years of falling sales and prices.”

“‘Prices were too inflated when credit was easier,’ he said, and now home prices, though they’ve been slipping, still ‘don’t make sense. And they will drop until they make sense.’”

“‘We’re on our way down and still picking up speed,’ said Christopher Thornberg, a Los Angeles-based economist who four years ago warned that the pace of housing price gains in the region couldn’t be sustained. Thornberg discounted the overall credit squeeze’s effect on the housing market. He said housing prices, pumped up for years by questionable mortgages, had to drop considerably.”

“The median income of L.A. County homeowners, he said, is at 60% of what’s required to buy a median-priced home in the county, assuming a housing budget of 35% of gross income.”

“‘This thing’s going to get worse when the peak of resets occur next year,’ Thornberg, the L.A. economist, said. His prediction: Southern California sales and prices will decline into 2009.”

The Daily News. “Looking to bottom feed in this depressed real estate market? Take a foreclosed home in Winnekta on the market for $404,900. The asking price is 24 percent lower than what the former owner paid in June of 2006, according to Realtor Steve Smallson.”

“The home, owned by Countrywide Financial Corp, now features a homemade sign with ‘Hurry’ and ‘Wow!!’ written on it to entice potential buyers.”

“‘We’re just trying to stimulate buyers, stimulate the market,’ Smallson said.”

“The three-bedroom house has been on the market for about two months and despite new carpet, it has received no written offers.”

“Geostat Advisory’s analysis of the Los Angeles and Orange County residential real estate markets suggest lenders that repossessed homes and condominiums are slashing sale prices similar to the discount offered on Smallson’s listing.”

“‘Lenders have to offload the nonperforming assets from their portfolios as soon as possible,’ Nima Nattagh, a principal in Geostat, said.”

“Not everyone believes that foreclosures are a big bargain. Yet. ‘There is a discount, but it’s probably in the 7 (percent) to 8 percent range and in most areas there is not much of a discount at all,’ John Karevoll, an analyst at DataQuick, said of Geostat’s assumption.”

“On average, a foreclosed property sells 20.3 percent below its market value. The median discount level is slightly lower in Orange County at 19.6 percent compared with 21 percent in Los Angeles County.”

“70 percent of homeowners who are foreclosed on bought their homes between 2003 and 2005. Homeowners who bought during this period and at the peak of the housing market are likely to be in a negative equity position now.”

“Neighborhoods that experience high levels of foreclosure are likely to see bigger price declines. For example, Geostat said that foreclosures in Lancaster sell at a much higher discount compared with cities in south Orange County.”

“Nattagh believes better deals are ahead. ‘If the inventory of foreclosures continues to rise and if prices remain soft there is a good probability that the discount rate could get bigger than this,’ he said.”

The Whittier Daily News. “The biggest price drops came in San Bernardino County, off 11 percent to $325,000, and Riverside County, off 10.8 percent to $375,500, DataQuick reported.”

“‘Things are clearly getting worse,’ said Christopher Thornberg, a principal with Beacon Economics. ‘It’s going to remain terrible for some time.’”

“Thornberg said the number of mortgages that are 60 to 90 days overdue is climbing, foreshadowing a higher number or foreclosures in the coming months.”

“Stephen Levy, senior economist at the Center for Continuing Study of the California Economy, noted that monthly home sales in the state have now dropped below figures from the early 1990s, when California’s economy suffered a recession.”

“But he believes it will take far less time for sales to recover during this housing slump.”

“‘Buyers have essentially gone on strike, and we need more price correction,’ Levy said. ‘In the early 1990s, because sellers got stubborn, it took seven or eight years to recover. I think this market will clear more quickly.’”

The Press Enterprise. “In September, Riverside County saw a 53.3 percent drop in housing sales compared to a year earlier, and San Bernardino County saw a sales decline of 56.1 percent, according to DataQuick. That is the sharpest sales drop in Southern California and greater than any seen during the last housing recession of a decade ago.”

“‘I don’t think this is just a one-month phenomenon,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘I think in the next several months there will be more of the same.’”

“The median price of homes sold last month in Riverside County dropped to $375,500, down almost 11 percent from September 2006 — the steepest year-over-year decline in nearly two decades of record-keeping. Median prices in Riverside County have been declining monthly since April.”

“In San Bernardino County, the median home price in September dropped 10.8 percent from a year earlier to $325,000, after beginning a monthly slide in July. It was the largest year-over-year price decline there since May 1995.”

“James Monks, manager of Prudential California Realty’s Riverside branch, said buyers today are demanding deals and finding them primarily in the new-home and repossessed-housing market.”

“But even cutting prices does not guarantee a quick sale, since many would-be buyers are waiting to see if even better deals will be available in coming months.”

“James Mosebach said he and his wife, Sue, have had their three-bedroom house in Moreno Valley listed for $350,000 for three weeks with no takers, even though the couple paid $466,000 for the property in March 2006. Mosebach said about six other houses are for sale in his neighborhood and ‘new homes are being built all around us.’”

“‘It is kind of disconcerting right now. It is nerve-wracking,’ said Mosebach, who was laid off from his job as a production supervisor at a plant in the City of Industry and starts a new job next week in Ohio.”

“Mosebach said with all the competition in the market, it’s been tough to generate interest in his property, which sits on a half-acre lot with a swimming pool and spa. ‘We can’t afford to drop (the price) a whole lot more,’ he said.”

Inside Bay Area. “While the housing market is weakening by the minute, city leaders are strengthening the tools they have to secure homes abandoned by foreclosure. The Manteca City Council unanimously decided Monday night in favor of a series of ordinances that would secure vacant properties, primarily at the expense of the owner.”

“Slumping housing prices and bad lending practices have turned Stanislaus and San Joaquin counties into one of the nation’s leading areas for foreclosures. Manteca, a city that coins itself the ‘Heart of California’ because of its location, is in the center of the crisis.”

“‘This is a nationwide problem,’ Councilman John Harris said. ‘I think we are just entering the tunnel and I don’t see any light at the end of it. We have to take some action; this gives us some teeth as far as prevention.’”

“‘We haven’t seen the tip of the iceberg yet,’ added Councilman Steve DeBrum in reference to the number of foreclosure properties.”

“As of Oct. 1, Manteca has approximately 300 bank-owned residences, with about 800 homes in various stages of foreclosure, Police Chief Charlie estimated in a report, adding the number of bank-owned residences has been increasing by 10-15 homes per week.”

“In Manteca, the rise in foreclosures has not only led to brown or weed-filled yards, broken windows and swampy, mosquito-infested swimming pools, but also reports of vacant lots being used for homeless squatting and parties.”

“‘We’ve had significant issues in some of the houses where vagrants are moved in, bypassed meters and turned on electricity, squatters, they’ve become party houses for kids,’ Halford told the council, adding police responses have markedly increased and neighborhoods have been degraded.”

“He said: ‘This is an effort at the very least to get the bank owned residences maintained by the banks and maybe to get some of the homes in foreclosure, that haven’t been taken over by the banks, better maintained.’”

“Some residents argued the ordinances unfairly target the wrong people, while blaming the problem on too many homes being built outside the range of affordability. ‘This is wrongheaded. This is kicking someone when they are down,’ said Joseph DeAngelis.”

King 5.com reports from Washington. “Selling a home in the Seattle area has become trickier. What used to sell in one week can now take months. Home sellers are going to more and more extremes, offering enticing incentives to hook a buyer. Those boom days when homes in Seattle could be sold in a matter of hours are for the most part over.”

“When Tavis Gaudet put up his ‘for sale’ sign on his home in West Seattle, he wasn’t alone. Two houses, one across the street and another up the block, also had signs up as well. Just a couple of blocks away, three houses in a row are on the market.”

“‘You’re always looking for some kind of edge that’s going to take you beyond what your competition is going to be,’ said Reba Haas, realtor.”

“According to real estate statistics, Seattle had 50 percent more homes on the market during the month of September than last fall. At the same time, pending sales dropped by more than 25 percent.”

“For sellers, one of the most important things they can do is to be realistic about the worth of their home. Real estate agents say some of these lower prices are simply because sellers were asking for too much in the first place.”

The Oregonian. “Three years ago, home builders in the Portland market worried about having enough supply to meet sizzling demand. Now, the region faces a glut of available homes, a six-month supply for sale, translating to the biggest inventory in three years and an emerging buyer’s market.”

“To stay in the game, builders are slashing prices and offering incentives such as trips and gift cards to clear out stock, leasing homes rather than selling them, and cutting back on building without confirmed buyers.”

“‘There’s a lot of standing inventory and real price-point issues that are going to slow the pace of construction,’ said housing economist Jerry Johnson, who advises home builders and local governments.”

“In Happy Valley, about 70 upscale homes built by Buena Vista Custom Homes are looking for takers. Average time on the market: three to four months, despite striking views of Mount Hood and Clackamas County, granite countertops and stone entryways. Some have sat empty for six.”

“‘It’s a great time to buy,’ said Don Johnson, broker and the listing agent for the homes. ‘Just on Buena Vista alone, they’ll knock $20,000 off the price — that’s instant equity,’ he said.”

“‘It’s a good market, just not that 30-year-high market,’ said Mike Higgins, a spokesman for fast-growing Buena Vista.”

“In August, pending home sales in the Portland area dropped 18 percent compared with the same month during a hot 2006 season, according to the Regional MLS. Officials estimated it would take 6.2 months to sell 15,782 active residential listings at that pace.”

“Companies such as luxury builder Renaissance Homes are ready to deal, within reason, to tempt skittish potential buyers into any of the 35 to 50 finished homes it has on the market in communities from Forest Grove to Clark County, Wash., to Bend, said VP Kim Whitman. He said the company’s sales this year will be on par with last year but not as strong as projected, in part because of an unusually high rate of ’sale fails’ in 2007.”

“‘It’s just not as crazy as it once was,’ he said.”

“Katie Fellows’ 3,100-square-foot, five-bedroom home in Portland continues to sit on the market as it has for the past seven months, at an asking price of $499,000. ‘We had an open house in September, and three people came, but there were no real nibbles,’ she said. ‘Our listing expired and we relisted it, but nothing really happened then either.’”

“Up the street, five or six brand new empty homes also languish in the subdivision. ‘I’d hate to be a builder right now,’ she said.”

“The downturn threatens to delay construction in Pleasant Valley right when Gresham’s bid to urbanize it should be gaining steam. ‘Unfortunately, we aren’t the real estate gods, the market is what it is,’ said Cody Bjugan, owner of one of the city’s three private development partners. ‘It’s too bad, because we’ve all made a huge commitment.’”

“Now, with the market in flux, no one is sure how much demand to expect, especially since a pocket of houses built next to the valley are selling so slowly a couple have become rentals.”

“‘It’s almost like having a lottery ticket and not being able to cash it,’ said dentist Stan Bohnstedt, who anticipates selling his five acres to be developed when market conditions improve. For the moment, ‘it’s like being in limbo,’ he said.”

The Argus Observer from Oregon. “Two local real estate agents said the housing market in the area is either a buyer’s market or just a good opportunity for potential house hunters.”

“Karen Hollis, a real estate agent in Payette, (and) Kim Bruce, a real estate agent in Fruitland, both agree there are a large number of houses available locally.”

“Hollis said for the most part, the prices for lots and houses are holding, although they have shown a slight decline. ‘I don’t think the bottom’s dropping out, but right now it’s really turning from a selling market to a buying market,’ she said.”

“‘The cycle’s always up and down,’ she said. ‘But we’ve overbuilt a little bit.’”

“In the future, Hollis said she expects the types of housing being built in Payette County to better reflect the income base of the area. ‘I think it’s a good thing,’ Hollis said. ‘You hate to see them overbuild something that the community can’t support.’”

“Bruce said, currently in the area, houses are selling ‘if the price is right,’ but added ‘buyers do have the benefit right now.’”

The Statesman Journal from Oregon. “State lawmakers vowed Tuesday to pursue a subprime-mortgage lending reform bill in February’s special legislative session. But the scope of the bill still is unclear, as consumer advocates and mortgage industry representatives remain at odds about the role the state should play.”

“Milwaukie resident Bob Barney, who was forced to sell his home and forfeit his retirement savings because of an ill-advised mortgage, said when he boards a bus, he rests assured the uniformed driver is responsible and will get him there safely. Home borrowers should have assurances their home lenders are trustworthy, and not like people selling used cars through the classified ads, Barney said.”

“‘I believe that the people who are selling these products have a responsibility,’ he said.”

“Consumer advocate Angela Martin, of the group Our Oregon, said 15,000 Oregon homeowners have adjustable-rate subprime mortgages at risk of foreclosure in the next 12 months, because their monthly payments will jump $400 or more.”

“Christopher Ambrose, president of the Oregon Mortgage Lenders Association, warned that other states’ efforts to restrict predatory lending were ‘unmitigated disasters,’ reducing home ownership. ‘This is a national crisis that requires national solutions,’ Ambrose said.”

“‘The lending community is perfectly happy with lax lending laws,’ Martin said after the hearing, skeptical that a consensus can be forged.”

“Sen. Ben Westlund said the state needs to avoid hampering the industry and causing the economy to ‘crater.’ But, he added, ‘there has to be more fiduciary responsibility and individual accountability for the mortgage lending industry.’”

“Westlund said, ‘If someone thinks this isn’t a problem, then they’re wrong. The worst is yet to come.’”

The Idaho Press. “Idaho ranked 17th in the nation with 646 foreclosure filings, or one for every 922 households. That’s almost a 19 percent increase from August 2007. RealtyTrac’s Web site currently lists 275 foreclosure properties for Caldwell and 496 for Nampa.”

“As far as what’s driving an increase in foreclosures from last year, Travis Franklin, VP of marketing at Home Federal Bank, said, ‘I think it falls back on some of the unique lending products that were being used.’”

“Franklin said that during the housing boom, some banks and lenders ‘wanted to make a buck’ and were making riskier loans to finance people who were greater credit risks. However, Franklin said Home Federal Bank has only had four foreclosures this year. ‘As a local bank, we’ve been pretty conservative,’ he said.”

The Idaho Statesman. “Andrea Campbell couldn’t sleep at all Thursday night, anticipating the new Corey Barton house in Meridian she planned to buy, thanks to a big sale Barton’s company, CBH Homes, is holding this weekend. Campbell arrived at the Meridian sales office at 8 a.m. Friday.”

“Her purchase was one of six sales there in the first hour. Campbell and her husband had been looking for a home in less-expensive Nampa. ‘We couldn’t afford a home in Meridian,’ Campbell said. ‘This sale came and saved the day.’”

“The sale is aimed at pushing potential homebuyers off the fence by reducing prices on 200 Treasure Valley homes. The biggest discount in Meridian: $70,000 off a $377,895 home on White Birch Drive, lowering it to $307,895.”

“But while Barton’s ads prominently advertised ‘up to $70,000 off,’ that was the only home in Meridian with so big a discount. A price sheet listing 78 Meridian homes in eight subdivisions featured discounts mostly between $20,000 and $30,000.”

“The four-bedroom, 2,000-square-foot house Campbell looked at — and signed a purchase agreement for — was discounted $30,000 to $179,900.”

“Barton’s sale could inject energy, at least briefly, into a Treasure Valley housing market crowded with nearly 8,000 unsold homes in August.”

“A couple of buyers in line when the doors opened at 9 a.m. were hoping for the same house. The one who arrived three minutes earlier snagged it. The other buyer went searching for another deal.” “‘The phones have been ringing off the hook,’ said Michelle Jacobi, the office manager.”

Some housing bubble news from Wall Street and Washington. Bloomberg, “Housing starts in the U.S. plunged more than forecast to a 14-year low in September, the Commerce Department said. Building permits fell 7.3 percent to a 1.226 million pace. The number of housing starts was the lowest since March 1993. The decline was led by a plunge in construction of townhouses, apartments and condominiums.”

“Construction of single-family homes fell 1.7 percent to a 963,000 rate, today’s report showed. Work on multifamily homes slumped 34 percent to an annual rate of 228,000.”

“The decrease in starts was led by a 28 percent drop in the Midwest. Construction fell 12 percent in the South and 10 percent in the West. Starts jumped 45 percent in the Northeast. The number of homes under construction fell 1.4 percent to a 1.114 million pace and the number of properties completed dropped 8.2 percent to an annual rate of 1.391 million.”

The Street.com. “‘Starts have declined at almost a 40% annual rate over the last three months, as the problems in credit markets gave the housing market another leg downward,’ said Wachovia economic analyst Adam York. ‘We think new construction will continue to decline into 2008.’”

“Housing analysts continue to say that a reduction in overall home inventories is a necessary precursor to any recovery in housing prices, which are falling in nearly half of U.S. markets.”

From MarketWatch. “Economists were clearly shaken by the accelerating weakness in housing starts. ‘There is no end in sight to the drop,’ said Ian Shepherdson, chief U.S. economist at High Frequency Economics.”

“He noted that housing starts fell 66% from 1978 to 1981. ‘This episode will likely be worse. The housing hit is intensifying,’ Shepherdson said.”

The Guardian. “‘September’s housing starts figures were so bad I’ve just had to apologise for using a profanity out loud,’ said Paul Ashworth, economist at Capital Economics. ‘Starts peaked at almost twice that level only 21 months ago. The credit crunch may only have had a limited impact on the rest of the economy but it has devastated an already weak housing sector.’”

The Associated Press. “Homebuilders are getting gloomier about the slumping housing market, as a 22-year-old index that tracks their sentiment set a new record low Tuesday.”

“The National Association of Home Builders said its housing market index, which tracks builders’ perceptions of conditions and expectations for home sales over the next six months, fell two points to 18 in October, the lowest level since the index began in Jan. 1985. It was the eighth straight monthly decline.”

“The group’s chief economist, David Seiders, said in a statement that many prospective buyers have ‘unrealistic expectations’ about new home prices and about how much their current homes are worth in this market.”

“Nationwide new home sales are projected to fall to 805,000 this year, down 23 percent from 1.05 million last year, the National Association of Realtors said last week. If that happens, it would be the worst year since 1997, and sales are expected to drop a further 6.6 percent in 2008 from this year’s forecast, according to the Realtors group.”

“In August, new home sales tumbled to the lowest level in seven years, and the median nationwide sales price fell by 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years, the Commerce Department reported last month.”

From Forebes. “‘Builders in the field are reporting that, while their sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,’ said NAHB President Brian Catalde.”

“The Mortgage Bankers Association predicts the housing recession will last until the end of the third quarter next year. And if confidence isn’t restored in the credit markets, the wait could extend until 2009, the group’s chief economist said.”

“‘Tough times,’ said said Doug Duncan, chief economist of the group, after sharing the group’s loan production estimates during a briefing with reporters.”

“‘We have a ways to go in the housing recession. It is clearly a deep recession; at this point, we figure that will dissipate at the end of the third quarter,’ he said. ‘Anyway you look at it, there are massive supplies of homes that have to be worked off the marketplace before we return to an increase in activity, and certainly in terms of construction.’”

“In fact, the publicly reported inventory numbers are likely underestimated, considering they don’t include contract cancellations for new homes or foreclosed properties that aren’t being marketed by a real estate agent, Duncan said.”

“With the current glut of homes for sale, ‘any significant increase in homebuilding is probably years off,’ Duncan said.”

“‘The day of the 100 percent loan-to-home value loan in the subprime world are gone,’ he said in an interview with The Associated Press.”

“‘If you’ve got a spotty employment record, but good financials on your credit record, you may well still be able to get credit,’ he said. ‘But if you have a spotty employment record, and late payments on three credit cards, and you don’t have cash reserves, most likely you’re not going to get the credit.’”

“‘Layered risks is what that is all about,’ he said.”

The Sun News. “Troubled home builder Levitt and Sons has halted construction at all of its home projects across the Southeast, a spokesman for its parent company said. Fort Lauderdale, Fla.-based Levitt and Sons ordered builders to stop working Thursday - the same day the parent company, the Levitt Corp., announced it would write off huge losses from its home-building subsidiary.”

“The glitch leaves home buyers in Seasons, Levitt’s planned 460-house community for people ages 55 and older in Murrells Inlet, in limbo.”

“One buyer, Eileen Behrens, had been looking forward to moving into the Seasons community next month. She said she put $42,000 down on the house, including luxury upgrades.”

“But when Behrens drove through the neighborhood Thursday, she found that all work had stopped. But as the road progressed through the development, homes were less and less complete. Frames of homes stood deserted on lots, as if a permanent lunch break for construction workers had been called.”

“‘It’s just sort of like a ghost town there,’ Behrens said.”

The New York Times. “J.P. Morgan Chase took $1.6 billion in write-downs and increases to loss reserves, in line with several of its Wall Street peers, after it suffered from a sharp drop in leverage loan values, bad trading bets, and deteriorating home equity loans.”

“CEO James Dimon was cautious about the next quarter or two. ‘Clearly there are still a lot of issues out there that will take time to resolve and there is a lot of risk on the balance sheet.’”

“Mortgage lender Thornburg Mortgage Inc. said Wednesday it lost more than $1 billion in the third quarter due to the fallout in the mortgage markets and elected not to pay a dividend to holders of common shares to conserve cash.”

“During the third quarter, Thornburg Mortgage sold a total of $21.9 billion of loans at a loss of $1.09 billion. Thornburg also posted a loss of $11.5 million to fund forward commitments.”

“The lender was forced to sell loans from its portfolio at a discount because of the declining mortgage market. Thornburg Mortgage originates jumbo loans.”

From Reuters. “Fremont General Corp, which quit offering subprime mortgages in March, on Wednesday reported a $1.06 billion loss for the 18 months ended June 30.”

“CIT Group Inc., the largest independent commercial finance company in the U.S., reported a third-quarter loss, dragged down by costs from closing its subprime home-loan unit. he loss included a $290.5 million charge for lowering the value of its home lending portfolio to reflect market conditions, following a $495.3 million charge in the second quarter.”

“MGIC Investment Corp., the largest U.S. mortgage insurer, posted its first quarterly loss and said it won’t be profitable next year as the U.S. housing market worsens.” “The net loss of $372.5 million, was the worst quarter for the Milwaukee-based company since it went public 16 years ago.”

“MGIC reported third-quarter costs of $602.3 million, more than three times as much as a year earlier, to cover losses by the mortgage lenders it insures. CEO Curt Culver said on a conference call that U.S. real estate prices may drop 10 percent over the next 18 months.”

“MGIC wrote off its $466 million investment in Credit-Based Asset Servicing and Securitization LLC, jointly owned with Radian Group Inc., after demand for subprime loans collapsed.”

“Fitch Ratings said it may downgrade MGIC’s claims-paying ability because mortgages insured in 2007 appear to be performing as badly or worse than 2006 loans.”

The Kansas City Star. “Kansas City-based NovaStar Financial Inc., scrambling to survive the subprime mortgage meltdown, plans to sell much of its remaining business and slash about half of its remaining staff.”

“The company late Tuesday announced a deal to sell its mortgage-servicing rights for $175 million to Saxon Mortgage Services of Fort Worth, Texas. NovaStar said it would use the proceeds to pay off debt. At the end of June, NovaStar had about $633 million in short-term liabilities.”

“The once high-flying company has been laid low by the woes of the subprime industry, which makes residential loans to borrowers with blemished credit histories.”

“As of June, more than 1 million mortgages were in default or foreclosure, up 50 percent since June 2005, according to a report released Tuesday by the Government Accountability Office.”

“By selling off its mortgage-servicing rights to Saxon, NovaStar hopes to buy time until housing conditions improve. Whether it can do that while other subprime lenders declare bankruptcy, close their doors or get bought out by larger concerns remains an open question.”

The Journal Sentinel. “The U.S. housing market has become an economic drag on the businesses it once fed, A.O. Smith Corp.’s chief executive said Tuesday. ‘Housing weakness will continue for the foreseeable future and may be accompanied by slowdown in other market segments,’ said CEO Paul W. Jones. ‘As subdivisions don’t get built, some strip malls and the like will be delayed.’”

“‘The first couple weeks in August, when credit dried up and everyone decided we weren’t at the bottom of the housing market after all, we saw a couple weeks with practically no orders,’ Jones said.”

The Palm Beach Post. “Treasury Secretary Henry Paulson said he wants lawmakers, regulators and lenders to focus on ‘putting an aggressive plan together and moving forward.’”

“The roots of the problem reach back to the 2002-05 housing boom, when many lenders aggressively pushed subprime mortgages. Paulson also urged Congress to ‘make some changes in our laws and rules in order to prevent some of the excesses and abuses of the last few years from happening again.’”

“‘Some of the conduct and practices that I have learned about are shameful,’ he said. ‘It is no secret that, while not the norm, some fraudulent activity on behalf of mortgage brokers occurred.’”

“A plan by top U.S. banks to set up a fund preventing the forced sale of billions of dollars of hard-to-value securities faces some serious obstacles.”

“Analysts said the pool might end up hurting existing SIVs even more by stripping them of their best assets. Nor is it clear who would manage the new pool. ‘It’s all a bit of a shell game,’ said Bill Cunningham, head of global fixed income research State Street Global Markets in Boston.”

“The chief of JPMorgan Chase & Co Inc, which is helping create a roughly $100 billion fund to bail out risky, illiquid investments, said there may be some of these investment vehicles that will not be helped.”

“JPMorgan CEO Jamie Dimon said on Wednesday the so-called super fund for structured investment vehicles, or SIVs, won’t help every SIV equally. ‘No one ever said every SIV is going to be helped,’ Dimon said.”

“‘There may be some SIVs that it’s not going to help, and that’s life in the fast lane,’ Dimon said.”

The Washington Post. “Only on Wall Street, and in its political annex, the U.S. Treasury, could someone think that the way to prevent a meltdown in structured investment vehicles is to create a giant structured investment vehicle.”

“While we’re at it, why not locate it, with all the other SIVs, in some offshore financial haven like the island of Guernsey or the Cayman Islands, where we can shield it from lawsuits and regulatory scrutiny and make sure nobody has to pay taxes until the profits are repatriated.”

“Like the SIVs it is hoping to rescue, let’s make sure it is highly leveraged, to get the best return on the relatively modest amount of real cash anyone puts into it.”

“And let’s ensure none of the banks setting up this Super SIV will have majority control or assume too much of the risk, so they won’t have to put any of it on their balance sheets or set aside their own money — ‘regulatory capital’ — in case something goes wrong.”

“Best of all, let’s use it as another chance to earn big fees!”

“International investors sold a record amount of American securities in August. Total holdings of equities, notes and bonds fell a net $69.3 billion, the Treasury Department said Tuesday. None of the dozen economists surveyed by Bloomberg News predicted the decline, the first since Russia defaulted in 1998.”

“Foreigners dumped American assets as mortgage defaults set off a surge in borrowing costs that spurred central banks to flood the banking system with cash and forced the Federal Reserve to reduce interest rates.”

The News Press reports from Florida. “Many of the Real Estate Network Services’s clients, 65 percent, are faced with a ’short sale’ situation, where the loan balance exceeds the home’s market value, said broker Beth White-Dahlstrom. ‘It’s very intricate, right now, to make sure that a property owner knows, realistically, what a property is worth,’ she said. ‘But that’s not always a really bad thing because the banks are working with us now. But it makes it tougher to sell a house. That’s why we have to be realistic with the price.’”

“‘If you don’t need to sell right now, I would say hold on to your house for a little while. But if there is a need to sell, I’d say make sure your price is competitive with similar homes within a quarter mile of you. No matter how much you owe, what we have to look at is what is today’s value,’ she said. ‘You should make sure that you’re priced toward the bottom few homes in your class. I’m not saying give it away, but make sure that your value is correct. The sellers need to put themselves into the buyer’s shoes because when you’re a seller, right now, you’re competing with a lot of other people.’”

The Star Banner from Florida. “In Marion County, some 1,181 petitions were filed with the county’s Value Adjustment Board. By comparison, there were 626 petitions filed in 2006 and 108 filed in 2005.”

“Greg Meade owns a few mobile homes he rents out. The appraised value went from $75,500 in 2005 to more than $303,000 in 2007.”

“‘Make no mistake, those people went crazy on assessments,’ Meade said.”

“After Meade filed his appeal, the Property Appraiser’s Office went out to visit the property and reduced the appraised value to a little more than $254,000. Meade dropped his appeal. But he said his concerns remain.”

“‘We’ve got an actual property tax crisis here,’ Meade said. ‘If you own any property except homestead, you’re dying. It leaves me in the unenviable position of maybe getting out of the rental business.’”

The Orlando Sentinel from Florida. “Nearly twice as many people face losing their homes in Central Florida this year compared with 2006, many of them borrowers struggling to repay adjustable-rate loans or investors unable to sell in a glutted market.”

“Through the first eight months of 2007, more than 11,000 homeowners in a seven-county area in and around Orlando have entered the foreclosure process by defaulting on their mortgage payments — 85 percent more than all of last year.”

“Experts say the evidence points to both homeowners living beyond their means and investors grasping for quick riches as prime sources of the problem, with foreclosure notices stretching from the new resort-home subdivisions near Walt Disney World in Osceola to the established starter-home neighborhoods of Deltona in Volusia County.”

“‘There is blame for everybody: builders who overbuilt, Realtors who oversold, lenders who weakened loan criteria and borrowers who stretched too far knowing nothing goes up forever,’ said Doug Duncan, chief economist for the Mortgage Bankers Association.”

“Don Casselman of St. Cloud started missing mortgage payments on his home earlier this year, after work injuries and a failed attempt to start a business. When Casselman, saddled with two mortgages, tried to sell it recently, he got no takers. Last month, Minneapolis-based U.S. Bank forced his family to leave.”

“‘They take people who are not in the best of credit, and they treat us like we’re millionaires — then they try to rip every dollar that you can make from your pocket, and they try to draw blood,’ said Casselman, who couldn’t persuade lenders to refinance his adjustable-rate loans when the $974 monthly payment was about to double. ‘They try to keep a poor man poor.’”

The Atlanta Journal Constitution from Georgia. “Foreclosure actions for metro Atlanta hit an all-time high this month, with 6,809 properties in 13 counties threatened with public auction in November. So far this year, lenders have published 41,312 foreclosure notices against properties in the 13-county area of metro Atlanta.”

“The October statistics, released Monday by Equity Depot, represent a 38 percent increase over September and a 49 percent jump when compared with October 2006. ‘This is the largest swing we have ever seen from month to month,’ said Barry Bramlett, an Equity Depot VP.”

“The total estimated value of properties entering foreclosure in metro Atlanta was $1,076,975,783.”

“Bramlett said mortgages with high interest rates are driving foreclosures across Atlanta. Adjustable rate mortgages make up about half of 2007 foreclosure notices.”

“Bramlett said an unusually high number of construction loans also showed up in this month’s listings, representing developments that never got off the ground or that failed to sell when construction was complete.”

“The October totals represented an all-time high for each of the 13 metro Atlanta counties, suggesting that the national mortgage meltdown is touching virtually every corner of the metro area. Even Fayette and Forsyth, where foreclosures have historically been rare, saw big jumps this month.”

“‘Now that we are at this kind of quantum level up in terms of foreclosure activity, I think we’re going to start really seeing the effects on housing prices,’ said Dan Immergluck, a Georgia Tech professor who is an expert on foreclosures.”

The Post & Courier from South Carolina. “Homes sales in the Charleston area were off significantly again last month, weighed down by too much supply and not enough demand. The Charleston Trident Association of Realtors said Wednesday that 885 homes changed hands in the three-county region in September, a 28 percent drop compared with the same month in 2006.”

“It was the second-steepest decline in monthly sales since the local housing slump took hold early last year.”

“Builders are trying to keep their prices stable, but to do so they are offering upgrades and more-attractive financing packages to bring buyers in the door, said Frank Hefner, an economist with the College of Charleston.”

“Nearly every zone that the Realtors association tracks saw sales volume drop off last month. The declines were mild in some areas and eye-opening in others. In Hanahan, sales plummeted to 10 last month, compared to 84 a year earlier.”

“The competition for buyers is especially tough in developing suburban residential areas where sellers of existing homes are going up against deep-pocketed national companies that are offering incentives on newly built models, said real estate agent Tenia Cattles. ‘They get very frustrated because they can’t give away the farm like builders can afford to do,’ she said.”

“Frank Finlaw, the local president of Atlanta-based Beazer Homes, said September sales for his division were healthy compared to the first half of the year, thanks to reduced prices and more-attractive incentive packages. ‘We’re much more willing to negotiate,’ he said.”

“These days, many local home buyers are either relocating from other areas or are making their first purchase, Finlaw said. ‘Someone who has to sell their house — those folks have come to the realization that it would be very difficult to sell right now,’ he said.”

“Experts agreed that the local inventory will have to fall back to a more-manageable level before the market trends will change course. As of Wednesday, 10,887 residences were listed for sale in the Charleston region, more than double the average number of properties on the market in 2004 and 2005, according to association data.”

“The rental side of the housing industry also is providing some relief, said Bonnie Miller, owner of Mount Pleasant-based Old Dominion Realtors. She said some owners who bought a new home before selling their first are having to seek tenants to help them cover both mortgages.”

“Miller said the rental trend ‘helps the market, too, because it gets some of that influx of supply off.’”

“Finlaw noted that the local supply of new homes is falling, a good sign for the industry. Once that happens, demand for existing homes will go up, bringing the overall market back into balance. ‘This has been a cyclical business since the housing industry started,’ Finlaw said.”

 

October 16, 2007 - USA

 

report from the Arizona Republic. “The 3,050 recorded sales in September 2007 heralds in the local resale housing market’s traditional period of doldrums. The activity of September followed August 2007 at 4,240 sales and was below last year’s 4,875 transactions. The month of September brought the year-to-date total to 40,800 sales, which is well below the 52,390 for 2006 year to date and 88,750 sales for 2005 year to date, according to real estate experts for Arizona State University.”

“‘Even in an uninspiring market, there are potential buyers that cannot get the needed financing due to tighter mortgage underwriting guidelines,’ said Jay Q. Butler, director of Realty Studies in the Morrison School of Management and Agribusiness.”

“The combination of large inventories and low interest rates have enabled people to purchase more expensive homes, which is one reason the county median price has remained fairly stable. However, continuing concerns in the nonconforming mortgage market (mortgages above $417,000) have begun to adversely impact the move-up market.”

“Foreclosures and new homes are providing a competitive alternative to the resale home in many areas of the market. New home builders have been aggressively pursuing buyers through incentives such as specially priced up-grades, free pools and gift cards.”

“‘Because of these tactics, the 2007 resale housing market is showing signs of increasing weaknesses that could drive it below the expectations of even a few months ago,’ said Butler.”

“‘Brutal’ and ‘perfect storm’ are some of the descriptions local economists now use to describe economic conditions in Maricopa County.”

“I think this will be a brutal year,’ said Dennis Hoffman,an Arizona State University economist who helps guide sales tax forecasts for the state.”

“In an interview, he said ‘I think it has a lot to do with the fact that our local sales tax revenues are tied to this new house-new car phenonomen, decorating the house, doing maintenance and repairs and adding new carpeting, furniture and fixtures.’”

“‘It is kind of humorous when you walk on the (auto) lot. You are treated like the messiah returning,’ Hoffman said. ‘The deals are incredible. It’s a great time to be buying an automobile.’”

“Economist Elliott Pollack reiterated that the housing market is a serious worry because there are so many houses on the market and lending standards have become tougher. Also the housing slump could slow migration into the state because homeowners in other states can’t sell their houses to move here, he said.”

“‘We especially have a perfect storm in the housing market,’ he said.”

“Jay Butler, director of Realty Studies at ASU, said some housing prices are improving in some areas, such as east Mesa, and falling in others, such as Surprise and Queen Creek.”

“Apartment rents are stalling to fall, in part because of competition from apartments that were going to be converted to condos that are now reverting to apartments.”

“‘The housing market is structurally about where it should be,’ he said. ‘We have got to get the overhang down where it should be. That is going to take several years.’”

“The Southeast Valley’s housing market continued its slump. The Mesa ZIP codes 85213 and 85215 posted slight gains while the rest of the Valley’s home values fell.”

“‘There’s a gigantic inventory out there,’ said Cindi Dewine-Barebo, a real estate agent who specializes in the Southeast Valley. Dewine-Barebo estimated there are 56,000 homes for sale in the Valley right now.”

“‘In the heyday (2005), there were 7,000 homes,’ she said.”

“Dewine-Barebo said falling values represent an overdue market correction. But she tells sellers that they need to be realistic and not ‘get hung up’ on an asking price that doesn’t reflect today’s market.”

From Builder Online. “Ashton Wood Homes, the industry’s 37th-largest builder last year, reported yesterday that its orders, closings, and net income were hit hard during the three months ended August 31.”

“Like many builders, Ashton Woods finds itself in a bind, where it can’t sell homes without discounting, but where discounting only encourages buyers to think that lower prices are around the corner.”

“‘[T]he demand for new homes has declined as consumers continue to see home prices adjust downward, which has contributed to the weakening of consumer confidence,’ states Tom Krobat, Ashton Woods’ CEO.”

“During the quarter, the average sales price of this builder’s homes fell 7.9 percent, to $270,000, with the biggest dip - 33.3 percent - in the Phoenix market, to $305,000. ‘Phoenix is one of the more depressed [housing] markets, with a tremendous price problem,’ Krobat told BUILDER during an interview.”

The East Valley Tribune from Arizona. “Developers of the planned Gilbert Esplanade have sold the property, becoming the second builder of a major retail center to announce an ownership change in less than a month.”

“Officials with Phoenix-based De Rito Partners said they decided to sell the site at Gilbert Road and the Loop 202 Santan Freeway to an Ohio-based firm when it was unable to fill an anchor space.”

“Dawn McLaren, a research economist at Arizona State University in Tempe, said retail developers are feeling the new realities in the housing market. ‘Things have changed in Arizona,’ she said.”

The Review Journal from Nevada. “The Silver State had the country’s highest foreclosure rate for the ninth consecutive month in September. Monthly single-family home sales are falling dramatically against a staggering inventory of unsold properties.”

“The MLS has more than 30,000 single-family homes, condos and townhouses for sale in the Las Vegas Valley. Rick Brenkus, co-owner of two local Keller Williams Realty offices, sees uncertainty in both buyers and sellers sitting on the sidelines, holding out for a better deal.”

“Some potential buyers think this 18-month inventory of homes warrants a 20- to 30-percent price plunge, he said.”

“‘You have to get rid of that inventory before any real recovery can take place,’ said Dennis Smith of Home Builders Research. Yet at some auctions lenders have been unwilling to discount foreclosed properties more than 20 percent or 25 percent from listed prices, he wrote.”

“But Guy Deiro, president of a local real estate brokerage, auction and liquidation company, said he recently has seen more lenders and individual sellers willing to compromise. In the past month, he said, about 80 percent of the sellers accepted final bids at his auctions.”

“‘Lenders are starting to figure it out, what the story is in terms of where they have to go down to,’ Deiro said. ‘As the month goes on, everyone seems to get more realistic.’”

“Smith suggested lenders follow the example of home builders that have aggressively unloaded their inventory and move on.”

“The new home market has a much leaner inventory than the resale home market, about one to two months’ worth, McCormick said. Area builders sold 1,970 new homes in August, about double the number of building permits issued that month.”

“Presold properties have long been a mainstay for Astoria Homes. Nonetheless, the company was caught off guard when it lost about 25 percent of its buyers because of the subprime crisis.”

“‘These are people who had bought from us and told us they had a loan, and the lender went broke, so the buyer never closed,’ McCormick said. ‘That is why we had a sudden burst of inventory.’”

“Astoria Homes bolstered its financing promotions with other incentives, including lot premiums, customized upgrades and discounts that created savings upward of 15 percent off the sales price, he said. The builder expects to sell its remaining homes, which totaled about 60 early this month, by the end of the year.”

“The Greater Las Vegas Association of Realtors reported 990 single-family home sales in September, down 24.8 percent from the previous month and down 43.1 percent from September 2006.”

“As a sign of the times, Brenkus, with 22 years in the business, estimates that 20 percent of the properties his offices handles are foreclosures or short sales, up from about 7 percent a year ago.”

“The stumbling housing market has tentacles that could reach into every household in the Silver State.”

“From thousands of lost jobs to widespread housing depreciation to a dip in the revenue flowing into state and county coffers, the fiscal fallout of a lagging housing sector is settling across Nevada’s economy.”

“‘All sectors are feeling the effects of (greater delinquencies and dropping home prices),’ said Brian Gordon, a principal in the economic research firm of Applied Analysis. ‘It’s impacting the willingness of consumers to spend on discretionary purchases ranging from automobiles to dining out to gaming, and everything in between.’”

“Clark County’s construction sector shed more than 4,100 jobs between the first quarter of 2006 and the first quarter of 2007, according to the state’s Department of Employment, Training & Rehabilitation.”

“Pile on job contractions in real estate-related fields such as title insurance, mortgage banking and property appraisals, and the effect on consumer spending becomes more acute.”

“More than a fifth of loans made in Nevada in 2006 were interest-only mortgages with payments that will rise in coming months and years, according to LoanPerformance. Another 17 percent of the loans made here last year were option-ARM mortgages.”

“Falling home prices are also vaporizing assets: Every 1 percent drop in the median single-family home price costs Clark County homeowners $800 million in household wealth, said Jeremy Aguero, another principal at Applied Analysis. Toss in condominiums and town homes, and the impact approaches $1 billion, Aguero said.”

“The median price of an existing home in Las Vegas was $270,000 in August, down 6.6 percent from $289,028 in August 2006, according to SalesTraq.”

“Nevada’s revenue from taxable sales has declined three months in a row, falling 2.6 percent in July when compared with July 2006, and 0.3 percent in June when compared with the same month in 2006. May’s 3.6 percent slide in year-over-year revenue was the biggest drop since December 2001.”

“Tyler Corder, (a) car dealer’s chief financial officer, knows of a ‘fair number’ of consumers who plan to avoid auto purchases until they can sell their homes.”

“‘They’ll say, ‘My house has been sitting on the market for 90 days and I haven’t had any offers on it,’ Corder said. ‘I know of a few people who bought second homes as speculative properties, and they’re having difficulty renting out their homes or unloading them.’”

 

Some housing bubble news from Wall Street and Washington. Bloomberg, “D.R. Horton Inc., the second-largest U.S. homebuilder, said orders in the fiscal fourth quarter plunged to the lowest in almost six years as customers canceled and banks restricted lending. Buyers agreed to purchase 6,374 homes from the Fort Worth, Texas-based company, 39 percent lower than a year earlier. The value of those fell 48 percent to $1.3 billion.”

“Customers canceled 48 percent of homes they reserved, up from 38 percent in the previous quarter. ‘We expect the housing environment to remain challenging,’ said Chairman Donald Horton. ‘Buyers continued to approach the home buying decision cautiously.’”

“The five largest homebuilders have reduced the value of their real estate and incurred expenses totaling $4.7 billion in their most recent quarters, in the worst housing slump in 16 years.”

The Street.com. “The sharp order drop was disappointing since Horton was facing an easy comparison from a year ago, when orders declined 25% year over year.”

“The question now becomes whether the big sales drop came even amid aggressive price cuts. If so, that’s bad news for the homebuilding business, since it points to an even larger supply and demand imbalance than most analysts had been projecting.”

“Orders came in lower across all of Horton’s markets. California was among the worst, with a 58% plunge.”

From MarketWatch. “Morgan Stanley analyst Robert Stevenson said D.R. Horton’s preliminary results ‘underscore the continued decline in housing operating fundamentals and further extends our timetable for stabilization.’”

“He said the nearly 50% cancellation rate for the quarter ‘illustrates that the problem is industry-wide and not merely focused on the smaller builders in significant financial trouble.’ There are concerns some companies may not have the financial strength the weather the downturn.”

“‘Given falling home prices and the various mortgage-market issues, we expect cancellation rates to be [at least 40%] for most builders this quarter,’ Stevenson wrote. ‘Coupled with the level of oversupply and our view that there could be another [10% to 15%] hit to home prices from foreclosures in 2008.’”

“Banc of America Securities analyst Daniel Oppenheim in a report Tuesday said D.R. Horton has been ‘extremely aggressive’ on price cuts in recent weeks in two speculative markets, Phoenix and Southern California, and is gaining market share.”

“‘We think Horton’s aggressiveness is likely to reset the bar even lower for home prices as other builders react by matching these price cuts, which should trigger significant further impairments,’ Oppenheim said.”

“Wells Fargo & Co., the biggest bank on the U.S. West Coast, said third-quarter profit rose less than estimated after losses from home equity and consumer loans climbed.”

“Chief Financial Officer Howard Atkins said in an interview the weakness will also hurt fourth-quarter results. ‘The decline in home prices accelerated’ in the third quarter, ‘which produced somewhat higher losses than we anticipated,’ Atkins said.”

“The bank reported net credit losses of $892 million, up 35 percent from a year earlier. About half of the increase stemmed from home equity loans, where lower home prices caused steeper- than-expected losses, Chief Credit Officer Mike Loughlin said.”

“Mortgage originations at Wells Fargo dropped 12% from a year earlier to $68 billion. Wells Fargo said that mortgage applications in the pipeline fell 18% to $45 billion.”

From Reuters. “Challenges facing homeowners today are so manifold that even lenders’ best efforts to stave off foreclosures may never work, according to a major lender and a community group.”

“The combination of falling home prices, rising payments on adjustable mortgages and higher unemployment in some regions have created problems so diverse that single solutions, such as widening the Federal Housing Administration’s reach, will not be enough, said Mary Coffin, an executive VP for Wells Fargo & Co.’s loan servicing group.”

“‘You have so many factors happening at once that there are some customers (the industry) cannot help,’ Coffin told Reuters at the Mortgage Bankers Association annual meeting here. The industry must be careful about making blanket statements suggesting it will be able to help all borrowers prevent foreclosure, she said.”

“Just getting the customer to call is a big frustration for Wells Fargo, which found 30 percent of borrowers it services have contacted the company, she said.”

“Options may still not keep people in their homes, according to consumer group NeighborWorks America. Some borrowers who because of falling house prices owe more than their home is worth are able to sell their home to the bank at the appraised value, freeing themselves of the debt, said Douglas Robinson, a spokesman for NeighborWorks.”

“‘Not everyone can be helped in the way they want,’ he said.”

“Treasury Secretary Henry Paulson, defending an effort he spearheaded to stabilize credit markets, has ‘no interest in bailing out lenders or property speculators,’ the New York Times reported on Tuesday.”

“Later on Tuesday Paulson will call for new regulations for mortgage lenders, changes in credit-rating agencies’ practices and stepped-up oversight by financial regulators, the Times reported.”

From CNN Money. “Paulson did not allow borrowers to escape without their share of blame. ‘Buying a home today is a complex process, but that in no way excuses home buyers from their obligation for due diligence.’”

The Associated Press. “Paulson also stated, ‘When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators.’”

The International Herald Tribune. “At least give Peter Kasch, managing partner of Catalyst Capital, a London real estate firm, credit for his brutal honesty. With a hint of nostalgia, Kasch recalled the heady days when low-cost borrowing and willing investors made European real estate a business in which it was hard to go wrong.”

“‘A lot of us only had to get out of bed to make money,’ Kasch said.”

“Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.’”

“Problem is, the issue was never just subprime loans, it is the far wider and deeper problem of loans made on overly optimistic assumptions secured on U.S. real estate, which is now in a once in a generation slump.”

“The banks, in isolating the better mortgage debt, run the risks that the market either offers them a price that would force damaging writedowns of other mortgage debt held on or off balance sheet, or worse, refuses to fund at all.”

“‘I’m not sure it will be easy to find people to buy this stuff,’ said Jochen Felsenheimer, head of credit strategy at Unicredit . ‘It’s not just a subprime-linked problem. The problem is that we have used securitization instruments to create a bubble. We sold a lot of risk just knowing that the CDO or other manager would buy it.’”

The New York Times. “The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening. ‘The idea is to avoid a fire sale of assets,’ said one banker involved in the initiative.”

“Josh Rosner, an expert in mortgage-backed securities at Graham Fisher, an independent research firm in New York, questioned why the banks needed to establish such a vehicle.”

“‘If they really believe these are good assets being mispriced in the market,’ he said, the banks could just buy them and wait for the asset values to recover. ‘This raises the question of whether the banks are doing this just to avoid taking their losses.’”

“‘I don’t really see that this is going to make a significant difference,’ said Jan Hatzius, chief United States economist at Goldman Sachs. ‘It seems a little more like a P.R. move, frankly.’”

“Mr. Hatzius said he wondered ‘why this is going on when previously the official word was that things were getting better.’”

“During the summer credit crisis, investors concluded that the default rates on subprime mortgages made last year would probably prove to be the highest in the industry’s history. But there appears to be another contender for that dubious honor: subprime loans made in the first half of this year.”

“Borrowers who took out loans in the first six months of 2007 are falling behind on payments faster than homeowners who took out loans last year, according to a report by investment bank Friedman, Billings, Ramsey.”

“The report’s author, Michael Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, said that most mortgage companies and banks had not tightened lending standards for borrowers with weak, or subprime, credit until July or August, even though early this year regulators, analysts and mortgage investors knew that the easy lending policies of 2005 and 2006 were producing high default rates.”

“‘There are $10.6 trillion of mortgage loans outstanding in the U.S., and even if the brakes had been slammed, it was going to take a long time to slow this locomotive down,’ said Youngblood, who has researched home lending for more than 20 years. ‘And I don’t see that the brakes were slammed on or that the engineer had a new track to follow. That track only now seems to be appearing.’”

“He noted that Countrywide Financial, the largest U.S. lender whose practices are often emulated by smaller companies, did not significantly tighten standards until August.”

“And it was only in mid-July that Moody’s Investors Service and Standard & Poor’s, the large ratings agencies, said they would make major changes in the assumptions that they use to evaluate pools of home loans sold to investors.”

“Standard & Poor’s on Monday cut its ratings on $4.6 billion worth of residential mortgage-backed securities exposed to subprime mortgages, citing expectations of further defaults and losses in the securities.”

“The downgrades include 402 pieces of 138 transactions. All are backed by first-lien subprime mortgage loans issued in the first three quarters of 2005.”

“‘These rating actions incorporate our most recent economic assumptions, and reflect our expectation of further defaults and losses on the underlying mortgage loans and the consequent reduction of credit support from current and projected losses,’ S&P said in a statement.”

“In response to a question by Henry Kaufman, the former Salomon Brothers Inc. economist, Federal Reserve Chairman Ben S. Bernanke said investment firms ‘need to be as transparent as possible’ about how they value their assets.”

‘’This current financial stress is not likely to disappear overnight; partly it is an information problem,’ Bernanke said. ‘It is going to take a while for investors to appropriately value these assets.’”

“‘I would like to know what those damn things are worth,’ Bernanke joked, referring to the products that investors have shunned in the credit rout. ‘This episode has revealed a weakness in structured credit products,’ namely the difficulty in coming up with valuations in periods of stress.”

“Moody’s Investors Service last Thursday downgraded another $33.4 billion in mortgage-backed securities, noting that it now assumes losses tied to currently delinquent loans will be 40% to 50%. ‘The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,’ says James Bianco, president of Bianco Research.”

“U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the biggest mortgage financiers said Monday.”

“Officials with government-sponsored mortgage companies Fannie Mae and Freddie Mac and CEOs from two major mortgage banks told the Mortgage Bankers Association’s annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.”

“‘It’s going to be a long time before we see it bottom out and recover,’ said David Lowman, CEO of JPMorgan Chase & Co.’s Global Mortgage unit. ‘There’s too much inventory already in the marketplace.’”

 

The Baltimore Sun reports from Maryland. “The Station North townhouses rise four stories and boast granite kitchens, open floor plans and the floor-to-ceiling windows that new-home buyers have come to expect. But the courtyard is deserted. In about half of the 32 homes, the oversized front windows reveal an emptiness back to rear windows. Several ‘for rent’ signs appear next to front doors.”

“Like other new residential projects around the Baltimore area, Station North was planned at the height of the housing boom but not finished until after the market began to fizzle.”

“Many other builders around the city and region are grappling with half-occupied, completed projects they assumed would be sold out long ago.”

“New condo sales in metropolitan Baltimore fell 37 percent in the first half of this year, while new townhouse sales fell 15 percent, according to Hanley Wood Market Intelligence. And in the third quarter, as the credit crunch hit the market, there were more contract cancellations than sales in the Baltimore metro market, according to Delta Associates, which includes projects that are selling or under construction.”

“Builders now are cutting prices to levels that are more than 10 percent below the height of the market.”

“‘The market has definitely slowed down dramatically from what it was when we were under construction,’ said James D. Campbell, a principal with the Station North builder, which originally had projected homes would be sold out by now at prices up to $450,000.”

“Instead, it has reduced to $299,900 a home with hardwood floors in the kitchen, a slate-surround electric fireplace with remote; a security system and a full-size stackable washer and dryer.”

“‘We had hoped to be out by now,’ Campbell said. ‘The concept was to leave the last units until they were ready to be completed and get the highest prices, but unfortunately the market changed before we got to completion.’”

“The number of unsold new condo units in metro Baltimore has been growing since the end of 2005, when the region had 2,843 unsold units, according to the Delta Associates analysis. By the end of this September, the number had jumped to 5,091, including 865 in the city.”

“In April 2006, Jessica Franklin made a deposit on a $375,000 townhouse in Station North, with plans to move there from Washington and work from Baltimore as an affordable-housing consultant.”

“But her job plans changed, and she decided to stay in Washington, she said. Shortly after closing on the home in May 2006, she put it up for sale. But by then the market had turned, and it was difficult to compete with the builder, who had lowered prices on new units and begun offering incentives. Now, the builder is offering one of the townhouses for $299,900.”

“‘I just think that it was not a good investment for me because it turned out that the market is just not ready for those prices and probably won’t be ready for that for a few years,’ said Franklin, who has since rented out her home and is waiting for the market to improve.”

“‘Our expectations back [in 2005] might have been unrealistically optimistic,’ said Campbell, of Somerset Development. ‘We’re hoping now our expectations are unrealistically pessimistic, and we could do better.’”

The Worchester Business Times from Massachusetts. “Home stats in Worcester County are looking more troubled than in many parts of the state. According to the Warren Group’s August real estate roundup, Worcester County single-family sales dropped 7 percent during that period, and condo sales plummeted 13.5 percent.”

“‘Overall, I think a significant impact on the Worcester market is our high rate of foreclosures,’ said Jeff Hall, VP of the Worcester Regional Association of Realtors.”

“Area developer Roger Kane said the slump in Worcester County and boost in Middlesex County may reflect buyers taking advantage of falling prices to move east. ‘A couple years ago, a buyer couldn’t afford to buy a home, say, in Sudbury,’ he said. ‘This year they might be able to.’”

“Kane said there is less demand for starter homes in places like Holden and Shrewsbury than he’s ever seen, and he doesn’t know why. ‘There’s always been a shortage of that first-time homebuyer home,’ he said. ‘Now it seems like some of those homes are sitting.’”

The Boston Globe from Massachusetts. “When one of the condominiums at Dale Village, a 108-unit complex in Roslindale, fell victim to foreclosure last month, its owner left behind more than an unpaid mortgage. She also owed the condo association $9,000 in fees and legal expenses.”

“The association, which has sued the woman and her lender to collect the overdue balance, believes it eventually will get its money. But until it does, the complex has delayed small repairs to focus on bigger issues.”

“‘If one owner is unable to pay, then the other owners are left holding the bag, so to speak,’ said attorney Janet O. Aronson of the Braintree law firm which represents 2,700 condo associations in Massachusetts, New Hampshire, and Rhode Island. ‘Because when you buy a condo, you’re linked financially with people you don’t know, and you have to take the good with the bad.’”

“Aronson’s firm has seen a 150 percent increase in the delinquency of fee payments in the past two years, tracing back to when subprime mortgages exploded in popularity.”

“Unlike during the last real estate slump of the early 1990s, when some condo associations were ruined financially by unpaid fees, Massachusetts now makes it easier for condos to recover delinquencies.”

“When condo associations sue delinquent owners, ‘a lot of people say, ‘That’s not fair. Why did you do that? Why not cut me some slack?’ said Charles A. Perkins Jr., a Chelmsford lawyer who represents condo associations and whose debt-collection activities have doubled since last year. ‘But the association has no choice.’”

The Republican from Massachusetts. “At a Congressional hearing in Boston’s Roxbury neighborhood, Attorney General Martha Coakley said the home foreclosure crisis was far from over and would spread beyond urban areas to the suburbs.”

“There have been 1,000 home foreclosures in Boston in the past six months, clustered in minority and low-income neighborhoods, Coakley said. But the problem is not isolated to the cities, she said.”

“‘You haven’t seen the end of this crisis yet,’ Coakley said. ‘You are going to see foreclosures in some of our middle and more tony communities.’”

“In Springfield, according to The Warren Group, the number of foreclosure auction notices - the last step before the actual auction - totaled 682 from January to August this year, a 154.5 percent increase over the 268 auction notices in the same period last year.”

“Michael J. Farrell, president of Northeast Financial Group in Wilbraham, who helps people trying to stave off foreclosure, said he hasn’t seen a consistent approach from lenders dealing with the wave of delinquent borrowers.”

“Instead, mortgage companies have been postponing foreclosure auctions ‘without any end in sight. The banks just don’t seem to have a game plan,’ Farrell said.”

“He has been able to work out ‘quite a few’ short sales, he said. But the biggest problem is time. Lenders are taking so long to agree to the lower price, with lower loan repayment amount, that ‘in the meantime, we lose the buyer,’ Farrell said.”

The Cape Cod Times from Massachusetts. “Cape Cod is among the areas of the Bay State to see its share of foreclosure turmoil in recent months. On the Cape, more than 200 homeowners have lost their property to foreclosure so far this year, according to the Barnstable County Registry of Deeds.”

“So far this year, the registry has recorded nearly four times as many foreclosures as it did during the same period in 2006.”

“The Housing Assistance Corp. in Hyannis has been working on ’short selling,’ with its clients for about a month, said the organization’s CEO Rick Presbrey. ‘I think there’s been relatively little success,’ Presbrey said, noting that the state government has little real authority over national mortgage companies.”

The Street.com. “On the New England resort island of Nantucket, real estate attorney Stephen Meister has hired the auction house, Sheldon Good, to sell off three properties, two of which he developed and a third that his son bought and renovated.”

“Meister, who owns a residential development company on Nantucket, says he chose to auction because ‘I want a definite timeline,’ and the flexibility to make his next moves.”

“Meister says he has set minimum bids for his properties ‘at least 15% to 20% below market value,’ at $7.65 million, $2.55 million and $1.15 million.”

“Is Meister pursuing the right course? Ryan Wagner, a VP a real estate broker, said he recalled ‘two other instances where it’s been tried, but I don’t think in either the reserve price was met.’”

“Wagner says that ‘the market is fine.’ However, he adds, ‘I don’t think anyone in their right mind would have hoped things would continue’ at the pace that pulled the market forward in 2005 and 2006.”

 

The Record Searchlight reports from California. “Here’s another sign of a stagnant real estate market: Some developers in town are taking their homes off the market and turning them into rentals. Two weeks ago, East Oak Estates in south Redding announced this would be the last weekend some of its homes would be for sale. They were going to start leasing them out.”

“But East Oak developer Karen Margrave said buyers waiting for some colossal closeout sale will be sorely disappointed. She has no plans to sell her homes at below what she paid, nor she says will other builders. So they’re getting into the rental business while waiting it out.”

“Some homes in East Oak Estates already have been reduced as much as $57,000.”

“‘We have sold homes recently, though it’s much slower than we’d like to see. We know prices are going to go back up, and we believe they will start rising again next spring,’ Margrave said in an e-mail.”

“Margrave added that other builders like Palomar Builders Inc. already have moved their inventory into rentals and will hold them until the market turns.”

“Brad Garbutt, who’s been selling real estate in Shasta County for years, said it’s unusual for developers to rent back their homes. ‘I don’t recall any developer on a large scale doing something like that,’ Garbutt of Real Estate Professionals GMAC said. ‘Developers usually can’t do that. They can’t stop everything because the bills keep coming.’”

“Glen Jones of Greater Shasta Homeplaces in Redding agreed that it’s strange to see a builder get into the rental business. ‘I have never seen it before, but we have never had this situation,’ Jones said.”

The San Fernando Valley Business Journal. “Oh what a difference a year makes. One year ago, housing sales were booming. One year later, sales are at their worst in 16 years. Depending on who you talk to, borrowers, Wall Street, banks and the Federal Reserve receive their share of blame.”

“Yet mortgage brokers are the group getting the largest portion of bad press. Many brokers are fighting back, blaming the banks and mortgage companies that package the loans and establish broker fees.”

“‘The bottom line is that banks definitely allowed people to over-leverage themselves, and now they are in a period where they have to correct the market,’ said Bill Knox, senior loan officer at Bristol Home Loans in Sherman Oaks.”

“Knox, whose sales have been 40 percent in subprime loans, said the majority of lenders are conscientious about explaining convoluted loans to clients – even though loan documents average, he said, between 15 and 100 pages.”

“‘You go over the main information,’ Knox said. ‘You try to explain it to them until you are blue in the face.’”

“One of Knox’s clients read a mortgage contract all day, he said. ‘The next day she came in and signed everything. And then a year later, she calls to say she didn’t understand any of it.’”

The Mercury News. “Increasingly, as homeowners fall behind on their loan payments or lack enough equity in their homes to sell them for more than their mortgage balances, they are contacting their mortgage lenders for possible help.”

“In the beginning, his calls were transferred repeatedly and often dropped, he said. With persistence, he reached the lenders’ correct departments and told his story. He and his wife, Grace, were both diagnosed with cancer at different times in the past four years. Both had to quit working during their treatments.”

“‘I believed what they said about calling your bank ahead of time, because they don’t want your house,’ said Chavez, who first called his lenders for help in August. ‘I didn’t get that response at all. They told me they had no programs to deal with that type of thing.’”

“In response to a call Wednesday by NACA for a boycott of Countrywide because, according to the group, the company ‘refuses to restructure loans to what homeowners can afford,’ the lender issued a statement Thursday.”

“Chavez now is back at work in quality control for a tea manufacturer, following about eight months of treatment for lymphoma. His wife was treated for sarcoma for a year and went back to work as a teacher in 2005.”

“Their household income is about $90,000. But they’ve nearly maxed out their $120,000 home equity line of credit, and because they can only afford the minimum payment option on their adjustable-rate loan, the principle balance on their first mortgage is growing rather than shrinking with every payment they make.”

“‘They were nice about it,’ Chavez said of the representatives he eventually spoke with at his lenders. ‘But I mean, it’s still, ‘They don’t have a program for you.’”

The San Francisco Chronicle. “Of the Bay Area’s 236 ZIP codes, 25 are foreclosure hot spots - places where more than eight of every 1,000 homes were repossessed by lenders this year.”

“Even in expensive areas like Marin County the crisis is beginning to be felt. One of the Bay Area’s highest-priced ZIP codes, 94920, in the tony Belvedere/Tiburon area, was home to nine foreclosures - including a $1.3 million ‘Bel-Aire tract home’ with ‘floor-to-ceiling windows … and French doors leading to the pool.’”

“In the Antioch ZIP code of 94531, the median price stood at $452,000 in July and August, according to DataQuick. But that seems to be dropping fast, putting more homeowners in danger of losing their largest asset.”

“Real estate agent Luis Salas has about 10 listings in the Antioch area; eight are short sales, in which the sellers ask the bank to take the properties for less than they owe on the mortgage.”

“In part, Salas and others blame the steep competition for buyers’ attention. Along the line separating Antioch and Brentwood sit winding streets filled with just-finished homes - more than 40 percent of the housing stock there is considered new, according to the Construction Industry Research Board.”

“With so many choices for buyers, builders are offering big price reductions or luxurious upgrades. Why buy a home from a bank or distressed homeowner when a builder will kick in granite countertops or knock off tens of thousands of dollars from the sale price?”

“‘They can afford to give you $100,000 in incentives,’ Salas said. ‘I can’t afford to give you $10,000 in closing costs.’”

“Towns closer to the region’s urban core - Richmond, Oakland and East Palo Alto - also show rising foreclosure rates…Those areas do share some of the other characteristics of the most foreclosure-prone parts of Antioch or Oakley: affordability and large price drops.”

“For the first time since the mid-1990s, some Bay Area counties are reducing property taxes for significant numbers of homeowners, mainly those who bought houses since late 2005 in areas where prices have declined.”

“Most of the reductions were in cities where a lot of subdivisions have been built in the past three years, such as Antioch, Pittsburg, Brentwood, Oakley and San Ramon, says Contra Costa County Assessor Gus Kramer.”

“This is the first time since 1995 that his office has proactively reduced property values.”

“Santa Clara County automatically reduced taxes on about 18,000 properties, compared with 6,000 last year. Most of the reductions were on mid- and lower-price homes and condos in cities with less-than-stellar school districts, says Santa Clara County Assessor Larry Stone.”

“San Francisco Assessor Phil Ting says, ‘At this time we haven’t seen any more (property tax) reductions than normal … but I think it’s coming.’”

The Street.com. “Gary Feldstein from Ojai, Calif., has hired auctioneer Sheldon Good & Co. to dispose of the house he bought for about $1.25 million three years ago. His hoped-for take from a sealed-bid auction set for Nov. 7, at least $4 million, says Jamie Somers, the broker in Ojai who sold Feldstein the house but who won’t be getting the listing this time.”

“Somers says he is ’skeptical’ about how well Feldstein’s sale will go, although he says he understands the seller’s need for speed. ‘Even in the upper end, things are not selling quickly,’ he explains. And although Somers acknowledges that Feldstein ‘did quite a number’ in renovating and furnishing the house, ‘he’s asking quite a premium. The upper end is good, but I don’t know if it’s as good as he thinks it is.’ (The lower end, he says, ‘is horrible.’)”

“‘The market is going to determine what the house is worth,’ says Feldstein.”

“Says Feldstein about what’s really underlying his auction decision: ‘I’m a New Yorker,’ he declares. From a timing standpoint, ‘today is okay, but yesterday is always better.’”

The Orange County Register. “Mission Viejo broker/economist Gary Watts, whose home-price insights are widely watching in the local real estate community, conceded Friday that his 2007 housing forecast was wrong, but in his 2008 forecast remains upbeat, predicting that home sales will bounce back.”

“‘The numbers for September and October may be our darkest hour, and then things are going to improve,’ Watts said.”

“Watts didn’t issue a price forecast, saying there’s too much uncertainty…A year ago, Watts forecast a 7% gain in home prices this year. House prices actually were flat through August, and are down 2.2% in the latest weekly figures from DataQuick.”

“Watts said he expected inventory to decline this year (plus) higher summer sales and for the Federal Reserve to lower interest rates earlier in the year. And he hadn’t foreseen the subprime mortgage meltdown.”

“His published forecast notes: …In the 1990s, real estate values dropped over 19% in Orange County; in this housing downturn it has been minimal. So what makes this cycle different. The truth lies in the fact that today’s homeowners have more income, more equity and more wealth than in previous cycles.”

The Press Telegram. “The California Association of Realtors annual Expo 2007 ran from Tuesday through Thursday at the Anaheim Convention Center.”

“The housing forecast, delivered on Wednesday by CAR Chief Economist Leslie Appleton-Young was perhaps the low point of the conference. The state’s median home price will incur the biggest drop in 15 years, as sales slide to their lowest point in more than 20 years, Appleton-Young said.”

“The forecast called for California’s median home price to fall 4 percent to $553,000 in 2008, while sales will fall 9 percent to 334,500 units. The last time sales fell below 2008’s forecast of 334,500 units was in 1985, when the volume reached 328,270 units, according to CAR.”

“Appleton-Young blamed the anticipated price drop on a market weighed down by sluggish sales, the mortgage crisis and because the market is no longer boosted by consumer expectations of rising home prices.”

“‘We really are going through a major adjustment right now to a market that isn’t fueled by those expectations,’ Appleton-Young said.”

 

 

October 15, 2007 - USA

 

The Detroit News reports from Michigan. “Michigan’s largest lender Quicken Loans Inc. is retrenching, including freezing hiring in the state, as it sets a new course in the turbulent mortgage industry. The Livonia-based mortgage giant is lowering goals for its loan writers, ending mortgages that investors no longer will buy on the secondary market, and introducing new products backed by the federal government in its effort to gain market share in a shrinking industry.”

“The culprit behind the struggling mortgage industry and Quicken’s need to adjust: the worst housing slump in nearly two decades.”

“Eight ex-employees told The Detroit News that unrealistic sales goals, in a tough mortgage market, led to their dismissal or decision to quit in August and September. They say the goals were laid out in an ‘Opportunity Letter.’”

“‘I got a letter saying they wanted me to write 10 loans by the end of the month — superstars were doing five or six a month,’ once the market took a dip, said Steven Campisi, a mortgage banker who worked in Quicken’s Cleveland office. ‘I knew what they meant: They wanted me to go.’”

“As for the mortgage industry as a whole, it should begin looking up as the credit crunch eases, Quicken CEO Bill Emerson said. ‘Credit guidelines probably got a little too loose, and now they’ve corrected, perhaps too much,’ he said.”

The Citizen Patriot from Michigan. “The number of mortgage foreclosures in Jackson County this year has reached 950 — the highest it’s been in about 20 years, maybe longer, officials said. The number is 10 times greater than it was 10 years ago, and there are still two months left in the year.”

“Officials say there are several reasons why the foreclosure rate is growing: job loss, rising adjustable-rate mortgages, an unstable housing market and flat or declining income.”

“Record homeownership levels in the state increase the probability that more people can’t make payments, according to a state mortgage brokers group. And the road to foreclosure is a slippery slope. ‘You legally only have to miss one payment to start the process,’ said Pava Leyrer, president of the Michigan Mortgage Brokers Association.”

The Business Journal from Indiana. “Pending sales of houses-those with contracts signed by not closed-plummeted 16.8 percent in September from a year earlier, according to Metropolitan Indianapolis Board of Realtors figures released today by brokerage F.C. Tucker Co. Sales in Boone County fell the most, by 42.7 percent.”

“‘Central Indiana’s housing market is continuing to balance out,’ said Tucker President Jim Litten. ‘Inventory levels are still increasing slightly, but we are hopeful that the decline in new home construction and the steady pace of existing homes sales will be reflected in sales statistics in coming months.’”

The Rockford Register Star from Illinois. “Kitzman’s Lumber and Building Materials opened in 1979 as a straightforward hardware store, but that wouldn’t be enough to succeed in 2007. Many businesses are finding that diversification is the key to growth, maybe even survival, as subprime mortgage woes and credit crunches affect the economy.”

“Kitzman’s major customers are the area’s custom home builders such as Sean Adams Custom Carpentry of Byron and Zimmerman Home Builders of Rockford. Still, housing starts for the tract builders as well as custom home builders were down more than 30 percent through May.”

“‘We’re very fortunate because not all of our eggs are in the residential market,’ said Scott Kitzman. ‘Last year was a phenomenal year. If we were just in home construction, we’d be down 10 to 15 percent.’”

The Chicago Tribune from Illinois. “A new study by a home-improvement industry research firm found that the nation’s homeowners, expressing doubt about the market, are doing fewer fix-up projects. And they’re holding the glitz.”

“‘The thrill is gone,’ said Bruce Forni, a Detroit-based researcher whose firm, TNS-NFO, this summer studied 2,900 homeowners for a trade group that held its fall meeting in Chicago last week. ‘Fewer people are saying [they’re remodeling] because they want the best house in the neighborhood.’”

“Forni said the shift may come from homeowners too time-pressed to pay as much attention to their homes as in years past. But it also may be a reflection of housing-market jitters, said Forni, whose company conducted similar studies in 2003 and 2005.”

“‘Home isn’t a safe [financial] haven any more,’ he said. ‘Homeowners are uncertain about the stability of their primary investment.’”

“He also said historically low interest rates no longer seem to be spurring as much remodeling. Freddie Mac has reported that the amount of home equity cashed out through refinancing in the second quarter was down about 25 percent from the year earlier. Forni said consumers tend to have low opinions of interest rates, particularly of adjustable-rate loans and mortgages.”

“‘Maybe they just don’t have the equity to borrow against,’ he said.”

“Though the home-improvement institute’s study found a large majority of homeowners said they agreed, at least to some extent, that putting money into their homes ‘is always a good investment,’ they were less confident when asked whether home values would increase in the next two years.”

“‘That’s where it starts to get disconcerting,’ Forni said. ‘They’re not seeing near-term improvement. There could be less confidence in trying to increase the value of their home.’”

“Rick Baumgarten, president of Lee Lumber on Chicago’s North Side, said there is a big segment stuck in neutral, watching to see whether home prices drop.”

“‘Instead of spending $60,000 to do their kitchen or $80,000 doing a room addition, they’re telling themselves that the prices are coming down so much that they may be able to get a home that’s got all those things done already,’ said Baumgarten.”

“South suburban remodeling company executive Jack Philbin said he is hearing some tales of woe.”

“‘I know from talking to many of my suppliers that they’re hurting,’ said Philbin, president of Philbin Construction & Remodeling in Crestwood. ‘One company that deals with insulation and drywall tells me their business is down 50 percent. One of our millwork suppliers is having a strong cutback in staffing, getting back to the nitty-gritty of people.’”

The Standard Democrat from Missouri. “Foreclosure rates in the area are beginning to edge up, a shadowing of what is occurring in the national market.”

“‘They are by far higher this year,’ said Tom Dirnberger, Scott County recorder. ‘Every day, we’re getting one or two, and it used to be one or two a week.’”

“In fact, a record number have already been filed this year. More than 200 were filed so far this year — a sharp contrast to the 153 total filed in 2006.”

“A big chunk of the filings in Scott County deal with land fraud. ‘In Scott County, there have been at least 300 fraudulent loans — fraudulent meaning loans given on properties that were over-appraised,’ he said.”

“‘It’s just been aggressive lending practices in general,’ said Lori Fowler, a broker in Sikeston.”

“One practice has been 100 percent financing often offered to borrowers. ‘People who wouldn’t have traditionally qualified for a home qualified,’ she said. ‘Some people who were not as financially stable were buying houses.’”

“‘I think most of the real estate agents in this area think the real estate market has been a little softer this year,’ Fowler said. ‘Sellers have to be a little more patient; and they may not get that really high dollar they were getting recently for their homes.’”

The Rapid City Journal from South Dakota. “Although some areas of the United States seem to be headed for a housing meltdown, builders and Realtors in Rapid City say the market here is holding its own for the most part.”

“‘Our market, contrary to all of the negative publicity from coast to coast, is not seeing that reality,’ said Sheila Tom, president of the Black Hills Board of Realtors. ‘All real estate is local, and what’s going on here might not reflect what’s happening there.’”

“On the construction side, building permits for single-family homes is down about 18 percent in Rapid City and Pennington County in the first eight months of the year.”

“For area builders, their biggest fear is fear itself. If people perceive that the housing marketing is headed for a fall, they will be reluctant to buy a new home - or a bigger home. It could become a self-fulfilling prophecy, they fear.”

“Builders have been trying to counter the perception that the housing market is in the dumps. Meanwhile, they’ve also cut back to reduce the inventory of houses.”

“Contractor Ken Fuerst of K1 Construction in Rapid City said he built 14 houses a year during the peak times; this year he’s done about four houses so far.”

“Scott Mueller of Mandalay Homes, one of the biggest builders in the area, said his company has about 45 homes in some stage of permitting, construction or sale. That’s about half what it was in 2005, he said.”

“Black Hills home values have seen steady, not spectacular, growth over the years. The average price increase has ranged from 4 percent to 6 percent in recent years. We simply don’t have that far to fall.”

“However, Sgt. Mike Dailey of the Pennington County Sheriff’s Office said foreclosures have been on the rise. So far in 2007, the sheriff’s office has handled 74 foreclosures, compared with 58 during the same period last year and 57 in the first nine months of 2005.”

“In 1997, the Pennington County Sheriff’s Office was involved in 33 foreclosures for the entire year.”

“Jack Lynass of BankWest in Rapid City said he remains bullish on the Black Hills economy. ‘I think the Black Hills area is recession-proof; we’ve been through tough times,’ he said.”

 

Some housing bubble news from Wall Street and Washington. The New York Times, “Three of the nation’s largest banks, working together at the behest of the Treasury Department, announced this morning that they were creating a large fund to serve as a buyer of bonds and other debt at a time when many investors are avoiding them. Citigroup, Bank of America and JPMorgan Chase will create a fund, called a conduit, that will be able to buy around $75 billion to $100 billion in highly rated bonds and other debt from structured investment vehicles, or SIVs.”

“Those vehicles own mortgage-backed bonds and other securities and have had trouble obtaining financing since early August, when the credit markets froze up. Bank and government officials are concerned that if these vehicles are forced to dump billions of dollars worth of debt in the coming weeks, it could cause a repeat of the crisis that rattled markets in August and sent the cost of mortgages and other loans soaring.”

“To maintain its credibility with investors from whom it would raising money, the conduit will not buy any bonds that are tied to mortgages made to people with spotty, or subprime, credit histories.”

“Each bank will put up an unspecified amount of its own capital into the fund, and other banks from around the world are expected to join the consortium in the coming weeks. The conduit will raise most of its money by selling commercial paper.”

“But it remains unclear how officials will determine the price of some bonds that have not been actively traded since August, because the difference between what buyers are willing to pay and what sellers want has widened significantly.”

“‘For me, this is more of a P.R. blitz,’ said analyst Christian Stracke. The banks are ’saying, it’s not just that we are doing this on an ad hoc, individual basis. Rather, we have a plan and consortium in cooperation with Treasury, which gives it a veneer of respectability.’”

From Bloomberg. “The group formed by Citigroup, Bank of America and JPMorgan will be known as the Master Liquidity Enhancement Conduit, or M-LEC.”

“‘This is mostly symbolic,’ said Christian Stracke, strategist at a New York bond research firm. ‘The banks were going to need to inject more liquidity into the SIVs anyway, so the public cooperation just makes the bailouts of SIVs seem more orderly.’”

From MarketWatch. “There won’t be any public money involved in the fund, said Robert Steel, the Treasury’s deputy undersecretary for domestic finance, in an interview on Bloomberg TV.”

“‘The goal here is to help the markets start to work,’ Steel said. ‘’This is a temporary solution in order to transition the market on to more sound footing.”

“The announcement of the fund came as Citigroup reported its third-quarter net profit fell by 57%, reflecting accounting for previously announced write-downs for bad loans and other credit issues. ”

From Reuters. “Citigroup Inc said on Monday third-quarter profit fell 57 percent as losses mounted from subprime and leveraged loans, fixed-income trading and its U.S. consumer business.”

“The earnings decline was the largest in three years for the No. 1 U.S. bank, and reflected $6.5 billion of pre-tax losses and writedowns, $600 million more than previously estimated.”

“‘This quarter’s performance was well below our expectations, and frankly surprising,’ CEO Charles Prince said on a conference call.”

“Citigroup reported pre-tax writedowns of $1.35 billion for leveraged loans, $1.56 billion for subprime mortgages, and $636 million from fixed income trading.”

“It also reported a $2.98 billion increase in credit costs, including a $780 million increase in net credit losses and a $2.2 billion charge to boost reserves for bad loans. Delinquencies on second mortgages nearly doubled last quarter.”

“CFO Gary Crittenden said Citigroup ended September with exposure to $57 billion of leveraged loans.”

“Crittenden said U.S. consumer credit conditions ‘will continue to deteriorate’ this quarter. He also said Citigroup faces $10 billion of mortgages whose rates will reset by the end of 2008, though 90 percent of these are higher-quality loans.”

“Nomura Holdings, Japan’s largest brokerage, on Monday said it will quit the U.S. residential mortgage-backed securities market and cut one-fourth of its U.S. workforce.”

The Wall Street Journal. “Nomura said it would take a loss of $621 million on write-downs of residential mortgages and an additional charge of about $85 million for restructuring the business. That will swing Nomura to a pretax loss of as much as $510 million in the quarter ended Sept. 30, 2007.”

“‘This is extremely regrettable,’ Nomura CEO Nobuyuki Koga said at a press briefing in Tokyo today. ‘The pace of the collapse in the U.S. residential mortgage-backed securities market was quicker than we expected.’”

“The world’s largest banks and securities firms have reported credit and market losses of at least $21 billion after defaults on subprime mortgages contaminated securities backed by home loans and other types of debt.”

“‘We found out that there was a limit to the measures that could be taken to cope with changes in the U.S. without having a thorough understanding of the market,’ Koga, said.”

The Washington Post. “Long before the mortgage market fell apart this summer, Friedman Billings Ramsey, Washington’s largest investment bank, saw the trouble ahead.”

“In early 2005, the company invested an eye-catching half-billion dollars, a third of what it had available, in the subprime mortgage business, even buying a mortgage lender. The company bet big that these high-risk loans to people with poor credit would return impressive profits.”

“But by the end of the year, FBR realized that it had miscalculated. The Federal Reserve kept raising short-term rates, and the firm suddenly was paying more to borrow money than it received in interest on its loans.”

“FBR sold some investments to stem the losses but didn’t move aggressively enough. Eventually, 80 percent of its mortgage-related investment would be lost and the company’s stock price would spiral downward.”

“‘It was brutal, extraordinarily difficult. There’s no other way to describe it,’ said CEO Eric Billings, of the firm’s series of investments in subprime mortgage lenders. ‘Our timing was very bad.’”

The Dow Jones Newswires. “Months before Merrill Lynch & Co. preannounced a third-quarter loss and a writedown of $5 billion last week, it had been assuring investors and the press that its portfolios of mortgages and asset-backed securities were well-hedged and profitable.”

“Investors are now questioning why Merrill would dissemble if the truth was going to come out weeks later. Similar questions could be asked about Citigroup Inc. and UBS AG, which each wrote off fixed-income assets of $1 billion or more months after sending out soothing words about their franchises. Bear Stearns Cos. whose mortgage woes triggered the summer credit crisis, similarly offered assurances that its mortgage portfolios were solid.”

“‘They didn’t understand or someone was willfully deceiving them,’ says Arthur Levitt, a former chairman of the Securities and Exchange Commission. ‘I don’t think either is a very good excuse.’”

“‘This market is characterized by an overwhelming number of synthetic and derivative products that are not adequately understood by people who build them and by people who buy them,’ Levitt said. ‘Investors in companies dealing in these opaque products probably bear risks that they never knew they were buying into.’”

“Autumn in New England may feel more like a winter of discontent for the 4,000 home lending specialists heading to Boston next week for an industry jamboree set amid the worst housing slump in a generation.”

“The Mortgage Bankers Association’s annual convention, a gathering ordinarily known for its pomp, parties and star sightings, this year will reflect the belt-tightening across a business under siege.”

“As of Thursday the MBA had registered just 38 Countrywide employees for the Oct. 14-17 meeting, down from 61 last year and 63 at the height of the housing boom in 2005. Wells Fargo & Co, JPMorgan Chase & Co’s Chase Home Mortgage and WaMu also sharply trimmed registrants.”

“Many previous conference-goers are now out of work, with 97,509 housing-related jobs slashed in the past year, according to Challenger, Gray & Christmas Inc.”

“The bottom line: Mortgage bankers lost $50 per loan in 2006, compared with $258 profit in 2005, according to the MBA.”

“Seismic shifts of power in the industry are still unfolding, with some lenders still nursing their wounds and others moving forward.’We’re at the beginning of an 18-month period that’s going to be very bumpy,’ said Alfred DelliBovi, president of the Federal Home Loan Bank of New York and a former HUD official.”

“Larry Goldstone, co-founder of jumbo lender Thornburg Mortgage, added: ‘There seems to be a lot of uncertainty about exactly what people want to do’ in the near-term.”

National Mortgage News. “Countrywide Financial Corp. has plenty to worry about these days: it’s facing a second-quarter loss that could top $2.5 billion, not to mention tons of negative publicity concerning its loss mitigation efforts on delinquent loans.”

“But now it may have a new worry. Loan brokers that use the company for table funding say its service is getting worse. One broker told us, ‘Ever since they closed local offices in Fresno their Sacramento office has no clue of what the hell is going on. I never get any of my calls returned and my clients tell me: ‘Why would I want to put them into loan with Countrywide?’”

The News Press reports from Florida. “WCI Communities Inc. is the latest developer to be targeted by homebuyers trying to get out of deals now that prices have fallen drastically. A federal class action lawsuit filed recently claims there’s a fatal flaw in the contracts used by the Bonita Springs-based developer to sell the 116 units in its luxury, 21-story condo tower Florencia — now some buyers want their deposits back.”

“The lawsuit is one more symptom of a softening housing market. The median price of an existing condo in Lee County has fallen 38 percent from February 2006, at $353,900, the highest on record, to $218,800 in August 2007, the last month available, according to the Florida Association of Realtors. For single-family homes, the price has fallen 22 percent from the all-time high of $322,300 in December 2005 to $250,800 in August 2007.”

“In this case, David Berry and John Schrenkel want out of the contract and their $115,000 deposit returned. But WCI attorney Thomas Roehn told Miami-based attorney Robert Cooper, who filed the suit, in a letter that it’s all just a misunderstanding. ‘WCI looks forward to Mr. Schrenkel and Mr. Berry closing upon their purchase of Unit 1202 at Florencia.’”

The Palm Beach Post. “Behind doors in Palm Beach County and along the Treasure Coast, from the meanest fixer-upper to the glitziest gated community, thousands of homeowners are struggling to make the mortgage.”

“Between Jan. 1 and July 1, homeowners in Palm Beach, Martin and St. Lucie counties defaulted on 4,318 mortgages worth $1.05 billion. That’s a 311 percent increase in defaults from the 1,051 recorded during the same period in 2006.”

“Loans in tony new communities crashed just as disastrously as homes in Counterpoint Estates, the aging middle-income subdivision just down the road from Versailles’ golden gates. Condos that once generated traffic jams of eager buyers went dark.”

“The $1.05 billion would buy the net assets of Florida Atlantic University — twice. And the number of soured mortgages adds up to one for every man, woman and child in Juno Beach.”

“Millions of dollars in mortgages collapsed before a single payment was made. Borrowers holding pre-construction loans defaulted on dirt before homes could come out of the ground.”

“‘This is all new territory,’ said Jessica Cecere, president of Consumer Credit Counseling Services of Palm Beach County and the Treasure Coast. ‘Two years ago, we could see it coming and thought it would be a disaster, but not this.’”

“This is staring her in the face the minute she leaves her house: A half-dozen homes in her neighborhood are in foreclosure.”

“Michael Sichenzia, lead investigator for (a) Deerfield Beach law firm, noted the media frenzy accompanying the boom. ‘Every book that was written, every time you read the paper … all you heard was flipping your way to wealth, borrow your way to wealth,’ he said.”

“That’s the environment in which mortgage broker Micki O’Callaghan snapped up two homes in Andros Isles and three in Terracina in West Palm. Same thing for Demetrius Walton, a 24-year-old South Florida man, who managed to purchase two Wellington homes and a housing lot with roughly $2 million in loans and no money down.”

“That sort of exuberance, irrational or otherwise, is the sort of thing loan officers and lenders once walked away from.”

“To keep the roof over her head, cancer survivor Deborah Tipton is squaring off with one of the largest banks in the world. Global powerhouse Deutsche Bank never wrote a loan on her modest Greenacres condo. It never saw her credit score, checked her baby-sitting income or requested an appraisal.”

“Tipton admits her $100-a-week baby-sitting wages should not have qualified her for a home loan in January 2006. But when her abdomen ruptured and herniated, a life-threatening post-cancer complication, she had no health insurance. She needed money. After 12 lenders turned her down, Fremont Investment and Loan Co. and QuoteMeARate.com Inc. said yes.”

“In broker documents, there’s no mention of Tipton’s meager wages. Instead, the paperwork says Fremont made a call to Wyn Solution Services Inc. of Sunrise, which said Tipton worked there as a district manager, earning $3,800 a month.”

“Deutsche Bank, which purchased Tipton’s loan along with millions of others and sold them to investors, declined to comment, citing the pending foreclosure. Deutsche Bank holds roughly $154 million in Palm Beach, Martin and St. Lucie county mortgages that defaulted between Jan. 1 and July 1, more than any other lender.”

“‘We all own a piece of this mess,’ said Bill Davis, former president of the Palm Beach County Mortgage Brokers.”

“In Anthony Groves near West Palm Beach, a half dozen homes on Berenger Walk defaulted on mortgages between Jan. 1 and July 1. In Counterpoint Estates in Royal Palm Beach, Oliver Lane had defaults; in Lake Worth, Wauconda Way; in Riviera Beach, West 30th Street.”

“It’s economics 101, Davis said: Prices are a function of demand. In Palm Beach County, the number of homes for sale in August rose to a three-year supply at the current pace of sales. In August, 33,708 houses and condos were for sale in Palm Beach County, according to Illustrated Properties.”

“‘My neighborhood is a classic case,’ Davis said. ‘Three years ago, you could put a for-sale sign out, and in three days you would have a contract and two backups. Now, houses are still listed for 12, 18 months. They don’t even have open houses anymore.’”

“‘The first part of this year, we started to see an increase, a lot of layoffs, even with the smaller contractors,’ said Steve Munnell, executive director of the Florida Roofing, Sheet Metal and Air Conditioning Contractors Association.”

“Not only is construction of new homes off but also homeowners looking to put their homes on the market are more likely to repair or replace tiles and shingles. Now, though, ‘people are not putting their homes on the market because there is no market,’ he said.”

The Orlando Sentinel. “More than 11,000 homeowners in the seven-county Central Florida region have defaulted on their mortgages through August. As in other communities walloped by the nation’s mortgage crisis, real-estate agents say Osceola’s foreclosure boom is fueled by small-time speculators and buyers who got no-money-down mortgages at teaser rates — and then got trapped when home prices fell.”

“‘If a buyer’s looking for a house and they have 100 homes to look at, and 10 or 15 of them are bank-owned properties that are well below market value, those are the ones they’re going to buy,’ said broker, Bryant Tutas.”

“Leonardo Calvo, a carpenter in East Hampton, N.Y., thought the house would be an easy investment. Years earlier, his friend bought a house in the Kissimmee area for about $150,000 and sold it two years later for more than $200,000.”

“The broker who sold him the house said he could get $2,000 a month by renting it. But Calvo never got close to that. He tried to sell the house for a year before giving it back to the bank. ‘It was a big mistake,’ Calvo said. He also blamed real-estate agents for misleading him.”

“‘Those guys are liars. They said this is a good deal, you can do this, you can do that. They say everything is easy, and you’re going to make a lot of money,’ Calvo said. ‘’When they give you the keys and they say, ‘Congratulations, goodbye,’ by that time, you’re going to be in trouble.’”

“For every Poinciana house sold in August through a real-estate broker, more than three homeowners entered the foreclosure process.”

The St Petersburg Times. “Tampa Bay area home sales keep probing new bottoms. September’s totals were off 39 percent from the none-too-spectacular sales of September 2006. That part about probing bottoms sounds proctological, but the market is about as savory as a barium shake.”

“Why aren’t people buying? Prices have retreated up to 20 percent. Builders are giving away the kitchen sink, along with Jacuzzis and hard-wood floors. Banks are dumping repossessed homes at discounts.”

“Many buyers wait for home prices to strike bottom, whenever that might be. They assume prices have room to fall, so why buy a diminishing asset?”

From Reuters. “Workers are painting, patching stucco and peeling protective plastic from gleaming panes of balcony glass at a new 1,000-unit condo called The Plaza, two towers that rise 43 and 56 stories over Miami’s bank district.”

“The opening of a raft of big complexes has analysts predicting the market, fueled by a frenetic construction spree that saw cranes sprout like mushrooms on the skyline, is edging toward a cliff.”

“In August, condo sales in Miami-Dade County dropped 44 percent, according to the Florida Association of Realtors. But the number of condos on sale has climbed to 25,000, a 36-month supply.”

“Some analysts believe 2008 will be the turning point, when pre-construction buyers are forced to pony up the full purchase price or walk away from deposits, speculators feel the pain of holding too many properties and developers need to dump excess units at discounts of 30, 40 or even 50 percent.”

“At the peak some 60,000 units were under construction, planned or permitted in the city of Miami, whose 400,000 people represent only 16 percent of Miami-Dade County. Some of those projects have been canceled. But the ones already underway and soon ready for residents are shrouded in uncertainty as buyers look to back away from contracts, unable to get mortgages or fearing they are paying too much.”

“‘We have definitely not seen the bottom yet. In the next six to 12 months we’ll see the beginnings of that moment of truth,’ said Brad Hunter of Metrostudy. ‘It could be 2012 to 2014 before this market needs to build more condos.’”

“Between 2006 and 2009, one analyst said, developers will drop 28,000 new units into the Miami market. In just eight prominent buildings in the downtown and banking districts more than 6,600 units are nearly ready.”

“A smaller Miami-area condo glut in the 1980s took six years to correct, analysts say. This one could be worse. ‘I think we’ve only seen the tip of the iceberg in terms of the pain the market will see,’ said Matthew Martinez, point-man for a Connecticut-based private equity fund.”

From CBS 4.com. “CBS4 has been bringing you to the latest on South Florida’s housing crisis as countless condos and homes remain unsold and record-breaking foreclosures continue. Now some insiders say our real estate crunch is going from bad to worse.”

“Cutler Bays’ John Shimmel just put his home up for sale. Fed-up and laid off the Miami native is looking for a new life anywhere but Florida. ‘I just got laid off, and I think it’s just never a better opportunity to leave,’ said Shimmel. ‘It gave me a good chance to get the house up for sale 100 percent, and I’m ready to go.’”

“Shimmel’s optimistic he’ll be able to sell his home before he gets into real financial trouble. His advice for any other neighbors still struggling to pay their tax and insure bills?”

“‘If they want to stay, it’s a beautiful sunshiny state, but there’s better places to be. I’ve lived all around — traveled all around the United States, and there’s just better places to be than right here,’ said Shimmel.”

 

 

Mortgage crash hits new home sales

 

Sales hit 7-year low as lower prices can't clear out huge glut, new government report shows.

By Chris Isidore, CNNMoney.com senior writer

 

September 27 2007

 

 

NEW YORK (CNNMoney.com) -- The mortgage bomb hit the demand for new homes even harder than expected in August, leaving the nation's builders with their weakest level of sales since the summer of 2000, when the nation was struggling with a stock market collapse, rising interest rates and a looming recession.

And the government's latest snapshot of the battered housing market, released Thursday, may actually be understating the problem: It does not account for the rising cancellation rates or sales inducements that builders have reported in recent months.

According to the Census Bureau, new homes sold at an annual pace of 795,000 in August, down 8 percent from the revised 867,000 sales pace in July.

It was the slowest pace of sales since June 2000, as legions of buyers had trouble finding mortgages or selling their existing homes. Economists surveyed by Briefing.com had forecast that sales would fall to a pace of 825,000.

The report also showed the median price of a new home fell 7.4 percent from year earlier levels to $225,700 in the month, as prices were pressured by both the problems in mortgage finance and the excess supply of homes on the market.

The inventory of new homes on the market rose to an 8.2 month supply, as the glut of completed homes without a buyer was near a record high, with 180,000 completed homes listed for sale, just off the record high of 182,000 set in May of this year.

The July report wasn't the only month revised lower by the Census Bureau; it also dropped its sales estimates for May and June, leaving sales 34,000 below the previous estimates.

The decline in sales came despite a pickup in sales in the Northeast and Midwest compared to July. But the South, which accounts for nearly half of the nation's new home sales, saw a nearly 15 percent drop from July levels, while sales in the West declined more than 20 percent. Sales in each of the four regions were off more than 10 percent from year-earlier levels, and nationwide the pace of sales is down 21.2 percent from a year ago.

This is just the latest sign of trouble for the housing market. On Tuesday, a report from the National Association of Realtors showed the pace of existing home sales dropped in August for the sixth straight month to their lowest level in five years.

And the new home sales report likely did a better job capturing the turmoil in the real estate market in August, as it is based on contracts for new homes signed in the month. The existing home sales figures are based on when a deal is closed, typically a month or two after the contract is signed.

The new home sales report, besides serving as a leading indicator of the overall housing market, is closely followed because of the importance of construction to the overall economy. The home building boom helped support the nation's economic and employment growth during 2003 to 2005.

But economists are growing increasingly concerned that the current weakness could become a large enough drag on the economy to help tip the nation into recession. The latest report on gross domestic product, also released Thursday, shows investment in housing subtracted 0.6 percentage points from the nation's overall growth in the second quarter.

Still, as weak as the new home sales report is, experts caution it could actually be masking other signs of weakness. Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests.

Also about three quarters of builders surveyed by their trade group report offering incentives, such as paying for closing costs or offering additional features on a new home for free, in order to maintain demand. So the drop in prices could actually be more severe than the report indicates.

The nation's major home builders have been hammered by the downturn in both home sales and prices in the last year. On Thursday, KB Home (ChartsFortune 500), the nation's No. 5 home builder,reported a loss in its most recent quarter, compared to a solid profit a year ago, as the company warned it expects conditions to worsen through 2008.

Lennar (ChartsFortune 500), the nation's No. 1 home builder by revenue, posted a bigger than expected loss Tuesday.

In addition, No. 2 homebuilder D.R. Horton (ChartsFortune 500) and No. 3 Centex (ChartsFortune 500) both reported losses far bigger than Wall Street had expected, while No. 4 Pulte Homes(ChartsFortune 500) and No. 6 Hovnanian Enterprises (ChartsFortune 500) both have reported losses for the last two quarters and analysts project losses for at least the next year. 

 

 

September 27, 2007   - USA

Some housing bubble news from Wall Street and Washington. Dow Jones, “New-home sales resumed falling in August, sinking to the lowest level in seven years, and prices tumbled. Year-to-year, new-home sales were 21.2% lower than the level in August 2006. The median price of a new home decreased by 7.5% to $225,700 in August from $243,900 in August 2006. The average price declined by 8.0% to $292,000 from $317,300 a year earlier.”

From CNN Money. “It was the slowest pace of sales since June 2000. The inventory of new homes on the market rose to an 8.2 month supply, as the glut of completed homes without a buyer was near a record high, with 180,000 completed homes listed for sale, just off the record high of 182,000 set in May of this year.”

“As weak as the new home sales report is, experts caution it could actually be masking other signs of weakness. Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests.”

“Also about three quarters of builders surveyed by their trade group report offering incentives…in order to maintain demand. So the drop in prices could actually be more severe than the report indicates.”

From Bloomberg. “Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970. The number of properties completed and waiting to be sold rose by 2,000 to 180,000.”

“KB Home today reported a third-quarter loss on lower sales and $690 million in expenses to write down real estate.”

“‘We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins,’ Jeffrey Mezger, CEO of Los Angeles-based KB Home, said today in a statement. ‘The oversupply of unsold new and resale homes and downward pressure on new-home values has worsened in many of our markets.’”

“KB Home, the homebuilder that has lost half its market value this year, reported a third-quarter loss on costs to abandon land purchases.”

“‘The oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets as tighter lending standards, low affordability and greater buyer caution suppress demand,’ said Mezger.”

“Net orders fell 6.2 percent to 3,907 in the third quarter, KB Home said. The average selling price slid 7 percent to $267,700.”

“KB Home’s biggest markets by deliveries are Las Vegas, Houston and Orlando, Florida, according to the company.”

The Street.com. “‘Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation,’ said Mezger.”

The Wall Street Journal. “Mezger also noted impacts from higher foreclosures and builders and investors cutting prices to move supply, all of which cut the company’s prices and profit margins and ‘prompted us to take substantial write-downs of inventory and goodwill.’”

“Excluding charges, gross margins fell to 13.9% from 23.3%.”

From Reuters. “The cancellation rate for the quarter was 50 percent, compared with the prior quarter’s 34 percent, reflecting the troubles in the mortgage market, KB said. For the just-completed quarter, net orders for new homes, an indicator of future sales, were off 6 percent at 3,907.”

“‘I was kind of surprised to see that their orders were actually down compared to a really bad number last year,’ said analyst Alex Barron.”

“The value of the assets of Carlyle Capital, the publicly traded credit fund backed by the private equity firm Carlyle Group, fell 24 percent in August as it sold holdings and global debt prices declined.”

“Credit fund managers were hurt as rising mortgage defaults sent investors fleeing all but the highest-rated securities. Carlyle Group twice propped up the fund in August, lending a combined $200 million and buying $900 million of its assets.”

“‘It was a common theme that these companies moved to rescue their affiliates during a month of extreme losses,’ said Bradley Alford, who runs an investment firm in Atlanta. ‘I would question how long Carlyle is willing to prop up this entity if losses continue.’”

“Kenneth Heebner, manager of the top-ranked real estate fund in the United States, has sold stakes in New York property owners, saying he believes prices will decline as banks, hedge funds and buyout firms fire workers.”

“‘You’re seeing a retrenchment in the private equity, hedge fund and brokerage businesses, and there could be a lot of layoffs,’ Heebner said. ‘That could have a devastating impact on high-end residential real estate in New York.’”

The Seattle PI. “Last month, Carol Allen was two months out of bankruptcy and set to refinance her Seattle home. Just before closing, Option One decided to ‘reprice’ loans in its pipeline, adding 1.6 percentage points to her interest rate and about $400 a month to her payment.”

“‘I can’t afford that,’ Allen said last week.”

“So Allen) walked away, sticking with her adjustable-rate mortgage. Allen’s story is just one example of how the hangover in the subprime mortgage market, which serves people with poor credit, is causing headaches for many Seattle-area homeowners and buyers.”

“Lenders who previously approved mortgages to people with bad credit, no down payment and little or no documentation of income now are refusing loans if even one of those three factors is questionable.”

“Option One spokeswoman Christine Sullivan acknowledged Monday that the repricing of loans such as Allen’s was part of the larger fallout. ‘Like other lenders, Option One has tightened underwriting guidelines and made product and pricing changes,’ she said.”

“Tightening standards is good, but it has gone too far in certain cases, said Adam Stein, president of the Washington Association of Mortgage Brokers.. He noted that a recent customer’s low credit rating and high-debt level precluded him from getting a loan, despite an income of more than $200,000 a year.”

“‘This guy’s still got $80,000 to $90,000 a year of discretionary income,’ he said. ‘The market just isn’t tolerating exceptions right now, even if they would make sense.’”

“The subprime market has nearly dried up altogether during the past two to three months, said Angela Ceaser, who owns Integrity Community Mortgage in Lakewood, and worked with Allen on her loan.”

“But while the subprime market has been most affected by recent problems, prime borrowers are not immune. Ceaser said she recently ran into problems with a prime borrower whose information she fed back into Washington Mutual’s system to look at other options after the bank already had approved a loan.”

“‘It wouldn’t even price her,’ she said, even though she still was able to close the already approved loan.”

“Patricia Sawyer of Renton refinanced into an adjustable-rate mortgage in December, after hearing a radio ad promising low payments and no closing or appraisal costs.”

“‘Now I know it was too good to be true,’ she said last week.”

“Her new payment was lower than her old one, but higher than expected, and she didn’t realize it added $1,100 a month to her principal because it was less than the interest charge. With her payment set to jump in October, Sawyer would like to refinance.”

“But her credit is bad, she said, and if she qualified for a new loan, the added principal and prepayment penalty from her current lender would push her payment above what she could afford.”

“Allen, who walked away from her refinance, said her adjustable-rate loan resets in October. She plans to save and work on her credit in hopes of qualifying for a better loan in a year or so. ‘I can’t even tell you the last time I even went shopping,’ she said.”

 

New-home sales tumble to 7-year low

 

By JEANNINE AVERSA, AP Economics Writer    September 27, 2007

WASHINGTON - New-homes sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump.

Sales of new homes dropped by 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000 units. That was the lowest level since June 2000, when sales clocked in at a pace of 793,000.

The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8 percent GDP figure was less than first estimated and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold.

 

August new homes sales fall more than expected

September 27, 2007   

 

REUTERS

Sales of new single-family U.S. homes fell 8.3 percent in August to a 795,000 annual sales pace, its slowest rate in over seven years, while the inventory of homes dropped, a Commerce Department report showed on Thursday.

Analysts polled by Reuters were expecting August sales to fall to an annual rate of 830,000 from July's previously reported rate of 870,000, which was revised to 867,000. The August sales pace was the slowest since a 793,000 rate in June 2000.

Some analysts blamed new, tough mortgage standards for part of the sales decline.

"A lot of people who were close to making deals or actually in contract to buy found it more difficult to get financing," said Michael Bizenov, president of Sterling National Mortgage, Sterling Bancorp in New York.

In August, the median sales price of a new home fell 8.3 percent to $225,700, the lowest since January 2005. The 7.5 percent price drop from a year ago was the sharpest since December 1970.

There were 529,000 new homes for sale in August, a 1.5 percent drop from July. It would take 8.2 months to clear that inventory at the current sales pace, up from the 7.6 months reported in July.

Sales through August are down 21.3 percent from the same period a year ago.

Longer-dated U.S. Treasury debt prices rose after the steeper-than-expected drop in August new home sales data while stocks pared gains.

The data came two days after a report showing the sales of existing homes falling sharply in August.

Total existing homes sales fell 4.3 percent in August to an annual rate of 5.5 million units from July. Home resales represent 85 percent of the housing market.

 

 

Houses built on sand

 

Sep 13th 2007


From The Economist



America's housing boom was almost modest by global standards—which is worrying


EVERYTHING in America is bigger. Cars, hotel rooms, servings at dinner, the salaries of sports stars and chief executives. So anything that merits the adjective “jumbo” is extravagantly large. Except, that is, for shrimp and home loans. In America a jumbo mortgage is one that exceeds the authorised limit for loans bought and securitised by Fannie Mae and Freddie Mac, the government-sponsored lenders. That cap was increased this year, to $417,000—a sum that, at today's exchange rates and prices, is barely enough to buy a cramped flat in the outer suburbs of London. Could it be that America's housing boom, which has now turned horribly sour, was not even super-sized?

 

That is what The Economist's table of house-price indicators shows (below). The S&P/Case-Shiller national index, the best gauge of American house prices, peaked last year after rising by 134% in the previous decade. France, Sweden and Denmark have all had booms of similar size. In Britain, Australia, Spain and Ireland, the ten-year increase in house prices has been even larger. If America is staring at a nasty housing crash, what does this say about the fate of frothy markets elsewhere?

 

Research by David Miles and Vladimir Pillonca of Morgan Stanley concludes that there are likelier candidates than America for a housing bust. In a recent paper covering 13 European countries as well as America, they assess how much of the rise in property values in the past decade can be put down to bubble-like optimism about future price increases. The authors constructed a model in which housing demand is driven by rising real incomes, population growth and declines in real interest rates. They then estimated the downward effect on prices from increased homebuilding. They argued that what is left—the part of price rises that is unexplained—is without substance and vulnerable to a correction.

 

In six countries—Belgium, Britain, Denmark, Greece, Spain and Sweden—real house prices have risen much faster than the model predicts. Mr Miles admits that calculation of real interest rates may have distorted the results for Greece. But in the remaining five countries, the average “excess” increase in real house prices is 47%. Some of the paper's results challenge accepted wisdom. Ireland's housing boom, often seen as a spectacular bubble, is almost entirely explained away by rapid real-income growth, rising population and the drop in real interest rates. Nevertheless, Irish house prices are now falling, if modestly.

 

The other surprise is America. The Morgan Stanley economists reckon the housing boom more or less reflected durable shifts such as rising incomes and population growth. That conclusion, however, hinges on the choice of price index. The authors' gauge of real house-price gains uses the series of the Office of Federal Housing Enterprise Oversight (OFHEO). That index excludes deals above the loan cap of $417,000, where price gains have been greatest, as well as transactions financed by subprime mortgages, where activity was most frenetic. Mr Miles says that using the Case-Shiller index, the assessment is gloomier.

 

 

 

Why America?

 

Even so, the contrast with events on the other side of the Atlantic is puzzling. Several of Europe's housing markets are more overpriced, but have lost only a little of their fizz in the past year. Price rises in Britain have even accelerated. If America's housing market was less puffed up, why is it alone bursting?

 

One reason is that America is a big country. Comparing its entire housing market—including slow-growing rural areas—with selected European hotspots makes it look less bubbly. In America's top-ten cities, for example, prices are up 171% in the past ten years, much more than the national average.

 

But what sets America apart is the time-bomb laid by subprime mortgage lending in the late stages of the housing boom. The way many of these deals were structured—two or three years of low “teaser” rates, which then switch to much higher tariffs—gave homebuyers with tarnished credit records a free option on house prices. If prices are expected to rise enough, borrowers may be willing to pay higher interest charges in order to keep the equity gains. If prices fall short of their hopes, borrowers have an incentive to default.

 

In short, dangerously loose lending standards fuelled America's housing boom and now the fallout from increasing defaults is exacerbating the bust. Nearly 15% of subprime borrowers are behind with their mortgage payments. The defaults so far have poisoned the mortgage market for prime borrowers too.

 

The Federal Deposit Insurance Corp, which guarantees bank deposits in America, reckons over 1.5m households will eventually be unable to meet their mortgage payments. Prices are falling and more forced sales will add to the already swollen stocks of unsold homes.

What might this presage for Europe's overpriced markets? Robert Shiller, a seasoned bubble-hunter at Yale University, has stressed the role of news reporting in influencing price expectations. If America's slump deepens, it might trigger a reassessment in Europe's property hotspots, particularly as tighter credit markets start to price out the more speculative investor.

 

Asset markets are unpredictable. When house prices in London stalled during 2004-05, many pundits thought the spell had been broken. Then the upward trend mysteriously reappeared. As Mr Shiller noted recently: “The London case study should caution any who feel that a substantial decline in home prices in the US is inevitable.” No one knows for sure how markets in Europe might respond to events in America. But one thing is certain: when it comes to asset bubbles, bigger is not better.

 

 

 

August 24, 2007

 

The New York Times reports on Florida. “In a sign that the real estate slowdown has hit even the most desirable locations, the developer converting the Savoy Hotel in the South Beach section of Miami into multimillion dollar Fendi-designed condominiums and condo hotels may be facing foreclosure. ‘You have a situation where you have one of the most beautiful locations in Miami right on the beach. You have an amazing architect. You have an amazing designer,’ said Seth Semilof, a former broker. ‘This is the first of many that’s going to go down.’”

“The vice chairman at Prudential Douglas Elliman, Dolly Lenz, was hired to market the apartments. Ms. Lenz said that the project fell apart because the developers could not get enough money from banks to finance the construction. ‘The banks just felt that the whole Miami market was an issue to start,’ she said. ‘I introduced them to every bank on the planet. They couldn’t get financing.’”

The Wall Street Journal. “Problems are emerging as some buyers who signed contracts to buy new condos two to three years ago, when construction was just starting, seek ways to back out as they encounter trouble getting financing in the suddenly dicey mortgage market.”

“Falling prices are forcing appraisals down, so banks aren’t willing to lend the full amounts that people committed to in the sales contract.”

“‘Closings that are scheduled to take place are not taking place,’ says Marvin Moss, a North Miami Beach real-estate attorney. He is suing several developers to help clients get out of contracts.”

“Miami added 4,549 condo units in 2006 and 3,276 so far this year. Another 7,985 will be delivered by the end of the year, with another 8,260 slated for 2008 to 2011, for a grand total of 24,070 news units between 2006 and 2011.”

“Buyer’s remorse is causing problems for some developers. Cindy Cicala plunked down a 10% deposit on a $370,000 two-bedroom condo in a new project in Tampa, Fla., in August 2004, a time when investors were elbowing each other aside to sign contracts. Her unit was to be finished by August 2006, making it one of the first high-rise residences to be built in the city’s reviving downtown.”

“But in April, 2005, the developer asked for an extension. ‘It was just one delay after another,’ says Ms. Cicala, a residential-mortgage broker. She decided she didn’t want to close on the condo, claiming the developer hadn’t held up its end of the contract.”

“Ms. Cicala says she asked for her deposit back but hasn’t received it, so she sued under a federal law that guarantees condos must be delivered within two years unless the developer can prove certain extenuating circumstances.”

“Her attorney, Harry Lee Coe IV, says Ms. Cicala and other clients ‘are seeing their investing potential has dwindled, and they are now no longer at the front of the pack — and you don’t want to be in the middle of the pack in a bad or down market.’”

“In a sign of how widespread the condo frenzy was among lenders, developer Farbod Zohouri’s financing sources ranged from tiny local banks to Lehman Brothers, which lent him $180 million for two Orlando condo-conversion projects that flopped.”

“Several commercial banks lent him money for five projects, despite his relatively small operation and spotty track record, which included a settlement with the federal government on mortgage-kickback allegations.”

“Zohouri says he is ‘an honest person’ who is working hard to get his investors’ money back. He says because of possible legal actions, he can’t explain exactly what went wrong.”

The Street.com. “The developers of Jade Ocean, a luxury high-rise condo near Miami Beach set to be completed in 2009, claim they’ve already sold 98% of the building’s units.”

“Of course, the reality is that this ‘pre-construction sales’ number at Jade Ocean carries little meaning. It’s a phrase that previously impressed people but carries little meaning in present-day Miami, which is increasingly looking like the Netherlands in the aftermath of the Tulip Craze more than 300 years ago.”

“Buyers will walk away from their 20%-down deposits because of rapidly falling prices and a huge inventory overhang that will only get worse in the market, several industry experts say.”

“South Florida real estate agent Mike Morgan estimates that condo flippers have made up 90% of the buyers at the projects Corus has lent to in Miami. ‘These flippers are now under water in most Corus buildings based on what they paid and where the market is today,’ he says. ‘But the market is getting worse.’”

“‘I don’t know anyone that is loaning on these condos to investors,’ Morgan says. ‘If it is not your primary [residence] , you have a problem. I am predicting condos in less-desirable areas will sell for 25 cents on the dollar.’”

The Herald Tribune. “Some Southwest Florida builders are seeing a better year than 2006. ‘We’re actually seeing good increase over last year,’ said Lee Wetherington. ‘The only caveat is that last year was probably the slowest year we’ve ever had.’”

“‘Prices are 20 to 25 percent less than they were a year ago,’ Wetherington said. ‘We’re also getting a lot of help from our suppliers and subcontractors. Their prices are also coming down.’”

“The price of new homes is now substantially less than the price of existing homes — at least 20 percent lower, Wetherington said.”

“‘I had one client who saw a house for $1.75 million. But when he came to us, he realized we could build the same model for $1.25 million,’ Wetherington said. ‘Guess what? He signed a contract.’”

“‘Some national builders will leave the area; other builders will shut down,’ Wetherington said. ‘I don’t expect any real upturn until 2009, and we won’t return to normalcy until 2010. I haven’t seen anything like this since the oil embargo in the 1970s.’”

“Sun-soaked Southwest Florida is largely considered an enclave of wealth. But the last year of suffering in the real estate market has slowly percolated to nearly every industry in the region.”

“Tina Stebner is a college-educated former British Petroleum account executive who came to Sarasota from Chicago three years ago. She bought a home two years ago, at the height of the real estate boom.”

“When she lost her job at BP, she began temping. But even those sporadic jobs ‘ran out’ in the past year. In July, after looking for work unsuccessfully for months, she landed a sales job in Venice. But two weeks ago, she was let go because of ‘economic uncertainty.’”

“‘I was brought up to believe that you go to school, get a college degree and that you buy a house, it’s the smartest investment you will ever make,’ Stebner said.”

“Meanwhile, the back rooms of area pawnshops are filling up with saws, drills and other tools and equipment pawned by displaced workers in the construction trades. ‘We’re being swamped, to the point that we’ve pretty much stopped taking it,’ said James Sewell, co-owner of Goldcoast Pawn & Jewelry in Sarasota. ‘It’s gotten really bad in the last four to five months.’”

“Sewell said many of the former construction workers tell him they are leaving the Sunshine State. The unemployment situation combined with rising taxes and property insurance premiums has made Southwest Florida unlivable for many, Sewell said. ‘It’s gotten to be like California, but without the wages.’”

From Florida Today. “A national economist told representatives of the housing industry Thursday not to count on a sales turnaround in the Sunshine State for at least 18 months.”

“‘Are things going to turn around next year? No,’ said Ted Jones, chief economist with one of the nation’s largest title companies. ‘We’re going to have another 18 months of ugly coming out of this subprime mess’”

The St Petersburg Times. “Jones, a prognosticator often cited by Realtors’ groups, told agents that rashly approved mortgages, the worst of which he dubbed ‘time-bomb loans,’ would help keep the Florida housing market hobbled until 2009.”

“‘If you think it’s bad now, you haven’t heard the end of this,’ Jones said to audible groans from Realtors who’d enjoyed earlier pep talks from the likes of Gov. Charlie Crist.”

“Jones blamed a get-rich-quick ethos that drew gamblers into the housing market and encouraged bankers to make risky loans on the assumption the good times would roll forever. ‘What is the difference between flipping real estate in Florida and playing craps in Vegas?’ Jones said. ‘You get free drinks in Vegas.’”

“Jones described prospective home buyers as buzzards circling fresh highway roadkill, waiting for prices to fall further. He urged Realtors to speed up the process by confronting sellers with the reality of a glut that’s left 41,000 homes on the market in the Tampa Bay area alone.”

“‘We’ve got to sober up sellers,’ Jones said. ‘I don’t care what you paid for it.’”

The Sun Sentinel. “For those with a mortgage who want to refinance…it can be done, but not if your property’s value has fallen off a cliff.”

“‘Banks haven’t stopped lending money to people, they’ve just made it more practical on both sides,’ said Casey Casperson, a senior loan officer in Palm Beach Gardens. ‘Now they’re making borrowers prove they can pay it back.’”

“During the housing boom, lenders didn’t require that of borrowers. As unbelievable as that sounds, let’s give money to people without checking to see if they have a job or looking at their pay stub, it was the way the subprime market worked.”

“What happened a few weeks ago was investors who bought those mortgages from lenders simply stopped buying. Now that no one is willing to take on the riskiest mortgages, lenders say they’ve raised their standards.”

“At Wachovia, those 5 percent down payment mortgages with no verification are gone. If you want a loan that does not require proof of income, you must put 20 percent down. And you’ll need a higher credit score than in the past for any high loan-to-value mortgage, a spokesman for SunTrust said.”

“It’s similar for borrowers with credit that’s not good — 20 percent down payments are being required.”

“Jonathan Klein, general manager of Associates Home Mortgage in Boca Raton, was recently working on a $480,000 mortgage for a home near Loxahatchee, in western Palm Beach County, a few weeks ago. The buyer was making a 25 percent down payment and the interest rate was to be 7 percent.”

“The day the loan was scheduled to close ‘was the day when the market completely collapsed,’ he said.”

“In a matter of two hours, the interest rate rose to 8 percent and the borrower had to pay 5 points, for an extra cost of $17,000 on the loan, to prevent the deal from falling through.”

 

 

August 2, 2007  - USA

 

Las Vegas Now reports from Nevada. “The recent troubles in mortgage lending mean foreclosed homes are flooding the market. They’re also making it tougher for other sellers who were hoping to make a profit selling their home. You can usually buy foreclosed homes for less than a regular house for sale. That’s good news for the buyer, but bad news for sellers trying to compete with bank prices.”

“Eyewitness News looked at a five bedroom home in northwest Las Vegas that has never been lived in. It was supposed to be a big help for Kathy and Michael Lowry. Michael Lowry said, ‘Biggest real estate boom in the history of the United States, we couldn’t go wrong. We needed to send our kids through college and we thought it was a great deal.’”

“A year and a half later, they’re still waiting all while continuing to pay their interest-only loan.”

“Kathy Lowry said, ‘The frustration level in our household has been through the roof. And it’s been the first time I’ve had to tell my kids that no, we can’t go to the movies because I’ve got to pay for this house that we are not living in right now that’s not selling.’”

“Eight foreclosure homes in their subdivision, all with similar square footage, have forced the Lowry’s to drop their price. Still, they can’t compete with bank prices of almost $100,000 less than they’re asking.”

“Real estate broker Cameron Yates-DeAngelo said, ‘If you are out looking for a home, which home are you going to select? These folks that are trying to sell their home legitimately, they are taking a hard hit.’”

“The Lowry’s are now looking to rent out the house just to help with payments, but it still won’t be enough. ‘I’m depending now on my retirement, which is being bled down and I won’t even have that money as an option for college because it’s basically become a money pit here.’ said Michael Lowry.”

Eyewitness News is taking a closer look at how the nation slump in the housing market is affecting the Las Vegas Valley. It’s estimated that close to 30-percent of the homes on the local market right now are foreclosed homes.”

“Recently, one of the top zip codes for foreclosures in the nation was in North Las Vegas zip code 89031.”

“In just about every neighborhood throughout valley you will find for sale signs. Many of the homes that are on the market have gone through foreclosure. For sale signs are becoming more like yard ornaments at homes in some neighborhoods.”

report from the Arizona Republic. “A planned condominium project in central Phoenix has irked area residents, who say the developer’s lackadaisical approach to demolishing the site’s former buildings has contributed to neighborhood crime.”

“CEO Jonathan Larmore says the development, Residence at the Grove, will be a more affordable alternative to the multimillion-dollar condos that currently dot the Biltmore corridor. Units would be priced from $440,000 to $850,000, he said.”

“Residents already are angry with Larmore because, they say, the company took too long to demolish the medical offices and clean up debris. Arciterra Group received the first of its demolition permits from the city Feb. 6 but did not complete the razing of the buildings until late last month.”

“In the interim, residents say, at least one of the buildings sat half-demolished, attracting vagrants who committed crimes there. ‘It looked like a war zone,’ said Holly Rye, who lives near the site.”

The Tucson Citizen from Arizona. “July has come and gone and nothing is happening on the Congress Street empty lot where construction should have started on The Post lofts. Bourn Partners in spring indicated construction on the six-story, 52-unit complex would start ’sometime in July.’”

“Tucson’s overall real estate market has staggered this year. Ron Schwabe, a former partner in the 44 Broadway Lofts, said a few months back that the national picture impacts downtown Tucsonand had slowed the 44 Broadway project.”

“In prior interviews, Turner hinted reservations were never robust at The Post. In the past and now, he never disclosed how many reservations were placed other than saying in December that the number is ‘better than we expected. We haven’t sold out by any means.’”

“John Strobeck, author of the Tucson Housing Market Letter, is not surprised with the reticence. ‘Downtown is such a crapshoot,’ Strobeck said. ‘Everybody was depending on a good program (with Rio Nuevo). Now the confidence of anything happening is so low there is no confidence of any investors. There’s a lot of people sitting on the sideline saying, ‘If they would have done something, I’d be pitching.’”

“Ann Vargas, the city’s downtown housing coordinator, prefers to use the term ‘chess game’ to describe the challenges to find buyers for downtown condos.”

“‘You can’t hold somebody by the hand and take them into a loft and show them, ‘Here’s what you’re going to get,’ Vargas said. ‘Until you’re really ready to sell, it’s really hard to push on something that’s going to be built in a year or two out.’”

“Strobeck said the local condo market, whether conversions from apartment or new condo units, is unremarkable. ‘Condo conversions are dying right now if you’re not around the university or District 16 (the Catalina foothills),’ Strobeck said.”

The Transcript Bulletin from Utah. “The number of houses sold in Tooele County plummeted 17.3 percent during the second quarter of 2007 compared to the second quarter of 2006, according to statistics from the Wasatch Front Regional MLS.”

“After only a 5 percent increase in the average sales price for houses during 2005, sales values jumped 26.4 percent during the second quarter of 2006, a period during which the average home price increased form $137,333 to $172,601.”

“Tooele’s ReMax Platinum owner Dan Egelund said the real estate market in the Tooele Valley has recovered during the past two years after going through a rough period. ‘Home prices will still increase but at a more gradual pace than they have in the past,’ Egelund predicted.”

“He said that four or five years ago some homeowners faced foreclosures and were eager to get out of their homes. The sudden and substantial increase in home values has made foreclosures almost non-existent in Tooele County because people have been able to sell quickly at higher prices the past two years.”

“Egelund said home buyers are lured to Tooele County because sales prices are still extremely low compared to Salt Lake County prices. As an example, he said a four-bedroom, two-bath home inSalt Lake Valley listed at $291,782 in June. A similar four-bedroom, two-bath home in Tooele County was listed at $198,310.”

“‘We still have wide-open spaces in Tooele County. Water is an issue, but there is still plenty of developable land,’ Egelund said.”

 

The Miami New Times reports from Florida. “Crossing the Lehman Causeway into Sunny Isles Beach, you might wonder if you’ve been sucked into an interstate wormhole in the space-time continuum and landed in downtown Miami. Construction cranes perch atop a skyline that, though dominated by high-rises, still strains upward. Lucy Collins purchased her apartment at the low-slung Kings Point Imperial, in late 2005 when the market was hot. ‘You can’t go wrong buying this property,’ she remembers being told.”

“Thanks to an adjustable rate mortgage, she now pays almost twice what she used to spend on rent for a similar apartment, more than $2000 a month and the bill is rising.”

“‘I’ve already borrowed $12,000 on my credit cards just to keep going,’ Collins says. She is even considering cashing in her IRA, as well as looking for a job at Home Depot. ‘Instead of working less as I get older, I’m having to work more. I want out. I’m thinking I would just leave the state.’”

The Sun Sentinel. “Marge Dwyer was in ‘total shock’ when she heard she wouldn’t be getting the money to pay off her mortgages. The Maryland native, who lives here seven months out of the year, was to receive more than $1 million for her two mobile homes in the (Briny Breezes) seaside community.”

“‘It’s horrible,’ she said. ‘I still can’t believe it’s happening.’”

“The $510 million deal fell through Monday after the town refused to give Ocean Land an extension on an Aug. 10 deadline and the developer pulled out of the deal. Between her two units, Dwyer would have made about $1.6 million on the sale.”

“She planned to pay off about $1 million she owed on three properties in Delaware, three in Maryland and a condo in Delray Beach. ‘I’m mortgaged up to my eyeballs,’ Dwyer said. ‘I’m going to have to start selling [my properties] off just to survive.’”

The Palm Beach Post. “The $510 million Briny Breezes deal, which fell apart yesterday, always had more than its share of surreal touches. For starters, there was the incongruity of a trailer park nestled amid some of the priciest oceanfront land in the world. Then there was the idea of deep-pocketed developers securing a $510 million deal for an entire town with nothing more than a $500,000 deposit.”

“Silver-haired Briny residents visiting the Post’s editorial board recently and swearing up and down that they didn’t want to sell, but they voted to sell anyway. One even broke down in tears, in between trying to figure out how to make her BlackBerry stop ringing.”

“Looking to scoop up some prime Miami Beach real estate? This could be your year. Nine properties valued at a million dollars or more have gone into foreclosure on the Beach since the beginning of 2007.”

“According to research, these include a prime, vacant 10,500 square foot waterfront lot on Hibiscus Island ($3 million) as well as several condos that haven’t even been completed.”

The Herald Tribune. “Foreclosure filings during the first half of 2007 totaled 2,303 in Sarasota County, up 198 percent from the same period last year. Manatee and Charlotte counties also posted increases of more than 100 percent for the time frame, RealtyTrac reported.”

The News Journal. “In a sign that deterioration of the Volusia-Flagler area housing market may be accelerating, foreclosure activity on local homes soared in the first half of the year at rates far exceeding the troubling increases nationally and statewide.”

“The number of foreclosure-related filings shot up 156 percent in Volusia County from the first six months last year to 2,623 in the first half this year, according to Realtytrac. In much less populous Flagler County, the total number of filings was smaller, 600 in the first half this year, but represented a staggering 408 percent increase over the year-earlier pace, the company said.”

The News Press. “Housing permits in Cape Coral fell to their lowest level in more than a decade in July, according to a city report released Wednesday. Meanwhile, activity in unincorporated Lee County slowed drastically following a surge in June caused by a deadline to avoid the tripling of road impact fees.”

“In Cape Coral, only 45 permits were pulled for single-family homes last month, a far cry from the 858 recorded in March 2006 at the height of Southwest Florida’s real estate boom.”

From Florida Today. “The pain in the local housing market isn’t limited to Realtors and people trying to sell their homes. Construction workers also are getting their share. Brevard County has lost a big chunk of its construction jobs during the past year, as a result of the slumping housing sector.”

“‘We recently merged our Space Coast and Palm Bay divisions in response to reduced demand in the current housing market,’ said David Barin, president of Mercedes’ Space Coast Division. ‘Like other builders, we have had to lay off and transfer some employees as the industry searches for equilibrium.’”

“Martin Carrizales was laid off with other workers last week from his job as a roof designer after 11 years. ‘They just told us one day, and we were gone,’ said Carrizales. ‘They said, ‘It’s just the market. No one’s building, no one’s buying.’”

“The number of mortgage foreclosures in Brevard has continued to rise, with 385 foreclosure filings in June, the most for any month in at least 51/2 years, according to the Brevard County Clerk of Courts. During the first half of 2007, there were 1,975 mortgage foreclosures filed with the clerk’s office, compared with 1,144 for all of 2005 and 1,868 for all of 2006.”

“Alan Hunter, a housing market analyst with Metrostudy in West Palm Beach, expects housing prices in South Florida to continue to fall for another year, in some places as much as an additional 20 to 30 percent, stemming from artificially inflated prices and an excess of housing construction. ‘Prices just got way out of line with what people could afford,’ Hunter said.”

“The median single-family home resale price in Brevard fell from a peak of $248,700 in August 2005 to $198,000 in June, a 20 percent drop.”

The Times Union. “The St. Joe Co. reported an operating loss for the second quarter Tuesday, as the slumping housing market reduced demand for the company’s residential real estate projects. St. Joe reported a loss from continuing operations of $5.3 million, or 7 cents a share.”

“‘It was a difficult quarter, reflecting the current market,’ said CEO Peter Rummell. ‘It’s a tough time for the housing industry nationally, and it’s tough in Florida,’ he said.”

“While St. Joe officials expressed optimism about the future, Wachovia Securities analyst Christopher Haley expressed caution for the short term in a research note Tuesday. ‘We note that such optimism has been offered by management in the recent past, only to have the existing weak market conditions persist longer than expected,’ Haley said.”

From Florida Trend. “Some owners are paying the price for homes built in a hurry during the boom years. In addition to contractor abandonment cases, Florida is seeing a rash of construction defect and delay cases as the housing boom deflates, according to attorneys around the state.”

“‘Because so much was going up so quickly, you had subcontractors on the job who didn’t have experience building a 30- or 40-story high-rise on the ocean,’ says Stacy Bercun Bohm, a construction attorney in Fort Lauderdale. ‘You had subcontractors here from other parts of the country getting in on the boom, but they had no experience with environmental factors such as salt air and the humidity here.’”

“Some cases may represent desperate attempts by condo investors to get out of preconstruction contracts by claiming substandard work. But many involve contractors who cut corners as costs boomed and the housing market began to wane.”

“Orlando home inspector Richard Tan says the situation is the same inland. He tells story after story of substandard work by both custom luxury builders and cookie-cutter home building corporations. ‘My reports used to be 20 to 30 pages long, but lately they’ve been hitting 50 to 60 pages,’ he says. ‘And these are brand-spanking-new homes.’”

The Orlando Sentinel. “Central Florida’s only publicly held financial institution posted its first loss in more than a decade Tuesday, falling into a multimillion-dollar hole triggered by real-estate failures in Florida’s slumping housing market.”

“It was the latest hit Federal Trust has taken during the past year as fallout from the housing slump has taken its toll on the banking industry. The thrift’s profit fell more than 65 percent in the first quarter after a 23 percent decline in 2006. It was the 17th-largest bank in the region in 2006.”

“‘Federal Trust and a lot of other smaller banks are probably suffering more than bigger banks right now,’ said Rod Jones, an Orlando banking lawyer and a former state regulator. ‘But even the big players such as Bank of America and Wachovia are being hit hard. And we may not have seen the bottom of that yet either.’”

“Florida’s economy, and thus the state government’s finances, is in worse shape than predicted and will take a longer time to turn around, state economists revealed Wednesday. The state is not in a recession, economists said, but only because that’s a term they reserve for describing national fiscal woes.”

“Amy Baker, coordinator of the Florida Legislature’s Bureau of Economic and Demographic Research, said of the state’s economy: ‘By almost any way you calculate it, if you looked at the housing market and all its related pieces, the finance piece, the Realtor piece, the building piece and the sales piece, by pretty much any measure, that is akin to a recession. It’s just we don’t define it that way.’”

“The economists blamed Florida’s troubled real-estate market, saying sales of existing homes and housing starts are down, which keeps the overall economy stagnant.”

“Worse, they said, there is no sign of a recovery before 2009. ‘While Florida is not in a recession, it looks very much like a recession,’ state economist Frank Williams said. ‘We’re not expecting to see a big comeback like you would coming out of a recession.’”

“‘There won’t be a day, there won’t be a ‘Eureka’ moment but more of a period of time,’ said economist Amy Baker. ‘This will be a fairly long adjustment.’”

The Tallahassee Democrat. “Baker said Florida’s housing boom was bigger and longer-running than most states enjoyed. Therefore, she said, the correction has been a longer, steeper fall that looks likely to last a while.”

“‘It was a windfall or a boom, we were in a bubble,’ she said after the conference meeting, ’so you’re seeing the growth rates in a bubble that were not sustainable, ever. This was inevitable.’”

The St Petersburg Times. “Throughout the past couple of years, Tampa was tops at producing happy workers. How the mighty have fallen. The Hudson Employment Index, which tracks worker confidence in 11 major cities, ranked Tampa second to last in its July measurements.”

“What’s turned us into such pessimists? ‘It’s got to be something related to the whole real estate market,’ says Fritz Eichelberger, who runs (a) local techie networking group. ‘Companies here don’t want to pay any money,’ said David Rudd, a business development specialist at Manpower in Tampa, ‘and the government wants to charge more money to live here’ in property taxes.”

The Naples News. “There’s no arguing that this is a tough time to be in the real estate business. Inventory is up, sales are down and agents are finding themselves with way more free time than they’d like to have. But some say there is good news to be had if you look closely enough.”

“‘People have to understand that if they bought for $150,000 several years ago and had it listed for $450,000, and now in order to sell they have to sell for $350,000, they did not lose $100,000,’ said Realtor Joe Pavich Sr in Estero.”

“Of course, making a profit under that scenario assumes the seller didn’t use his home equity ‘like a debit card’ a few years ago when interest rates were at historic lows and property values were at historic highs, he added.”

“And Realtors say buyers are out there, they’re just hovering until they feel confident the market has reached bottom.”

“‘My impression is there’s a huge pent-up market of buyers out there, but they’re all waiting for the media to say something positive before they jump in,’ said Wes Brodersen, broker in Bonita Springs.”

“Brodersen believes much of the blame for the current market belongs on the shoulders of the media. ‘I’m beginning to believe the media actually has an agenda with this,’ he said. ‘The market we’re in now started two years ago, but I’ve been reading about it for three years. Can you say self-fulfilling prophecy?’”

 

 

 

August 1, 2007 - USA

 

report from the Arizona Republic. “The fallout from the country’s real-estate slump continues to reverberate in Arizona and across the nation as more homeowners and lenders turn to foreclosure to solve their financial woes. New data released Monday show that foreclosure-related filings in Arizona jumped during the first half of 2007, compared with the same period a year ago.”

“Experts say it will likely take time before things get better. ‘By any calculation, things are going to look bad compared to 2004 and 2005,’ local economist Elliott Pollack said. ‘There will be a transition period over the next couple of years as those people who took loans that maybe they shouldn’t have taken have to deal with the issue.’”

“Numbers released b RealtyTrac show that foreclosure-related filings in Arizona increased by 128 percent in the first half of 2007, over the same period a year ago. In Maricopa County, for example, there were 19,394 properties in some stage of foreclosure in the first half of the year, up from 7,671 during the year-ago period, the company said.”

“Data from Glendale-based Information Market are different but reflect the same upward trend. That firm shows that 2,952 homes were foreclosed on in Maricopa County from January through June, up from 208 during the first half of 2006.”

“‘They are at an all-time high, but it’s also following a period of very high sales back in 2005,’ said Tom Ruff, a principal with Information Market. ‘I just look at it as a market correction, myself.’”

“While most experts agree the rising number of foreclosures signals a return to normalcy both locally and nationally, it still can have a very negative impact on neighborhoods.”

“‘If you go into a neighborhood and there’s a lot of foreclosed properties, they’re empty, you don’t know who’s going to buy them, they’re probably not being maintained at the moment,’ said Jay Butler, director of realty studies at Arizona State University.”

“Home building in metropolitan Phoenix continues to stumble, with permits dropping 23 percent from last year. But it’s not all bad news. We remain among the nation’s leading housing markets.”

“Valley housing analyst RL Brown said the traditionally strong Phoenix market retains potential even though builders have suffered some damage. ‘If you’re a home builder, you want to be where the action is,’ he said.”

The Review Journal from Nevada. “Apartment landlords are not able to raise rents in Las Vegas as much as they have in the past, partly because of increased competition from single-family homes, a multifamily broker said Monday.”

“Concessions such as one month of free rent and move-in discounts are going up and overall rents are staying flat, Spence Ballif of CB Richard Ellis said. He estimated 11,000 homes in Las Vegas that are not owner-occupied. Many of them are being offered for rent because they’re not selling.”

“‘What we’re experiencing is the amount of single-family homes being rented is giving us short-term supply,’ Ballif said.”

“Previous annual rent growth leaders such as Phoenix, Las Vegas and Riverside-San Bernardino, Calif., continued to slide, Chris Bates of RealFacts said. With a quarterly increase of 0.3 percent, Las Vegas will see an annual rent growth increase of 1.2 percent, dramatically lower than last year’s 5.4 percent annual growth rate, he noted.”

“‘I think it’s going to slow even more, particularly with decreasing occupancy,’ Bates said. ‘The other thing I’ve heard in pockets of California is all of these single-family homes are built and not sold, but they’re being rented.’”

“‘With Nevada having the highest foreclosure rate in the country for single-family homes and condos, we have seen the vacancy rate increase. This is surprising, but it seems the people being foreclosed on are moving into rental homes or upper-end apartments,’ said Carl Sims of Hendricks & Partners.”

“Also, with home prices on the decline, some renters are now starting to buy foreclosed homes, he added.”

 

 

 

July 31, 2007  - USA

 

Some housing bubble news from Wall Street and Washington. “IndyMac Bancorp Inc., a big Southern California mortgage specialist, said Tuesday second-quarter profit fell 57 percent as the deepening U.S. housing slump hurt margins and loan volume, and more customers fell behind on payments.”

“Lenders forced the company to buy back $219 million of loans because borrowers missed early payments, up from $48 million a year earlier. IndyMac specializes in ‘Alt-A,’ or ‘Alternative-A,’ mortgages, which fall between prime and subprime in quality.”

The Street.com. “IndyMac’s non-performing assets rose 342% to $516 million, while mortgage loan production fell 12% from first-quarter levels to $22.5 billion.”

“‘We anticipate that the second half of 2007 and 2008 will continue to be challenging for the mortgage and housing markets and for IndyMac,’ IndyMac CEO Michael Perry said. ‘We expect competitive pricing pressures on our [mortgage banking] margins to continue.’”

“‘In addition, we expect that the current, temporary volatility and reduced liquidity in the secondary markets will adversely impact secondary market execution, putting further pressure on MBR margins.’”

The Boston Globe. “Sowood Capital Management, a $3 billion Boston hedge fund launched just three years ago by former Harvard endowment manager Jeffrey Larson, sold most of its holdings in troubled debt markets yesterday after telling investors that it had losses of more than 50 percent this month.”

“Sowood told Bloomberg News last week that it did not hold any subprime mortgage debt in its portfolio. Nonetheless, it said its devalued bond holdings thrust it into a liquidity crisis and it was forced to sell securities to meet margin calls.”

“Last night an investor said Sowood had told clients it had lost 57 percent of its value and was being ‘completely liquidated.’”

“‘A loss of this magnitude in such a short period is as devastating to us as it is to you,’ Larson, said in a letter to investors. ‘We are very sorry this has happened.’”

From Bloomberg. “Shares of MGIC Investment Corp. and Radian Group Inc. tumbled the most since 2002 after the two home- loan insurers said their combined stakes of more than $1 billion in a subprime mortgage company may now be worthless.”

“MGIC and Radian said yesterday ‘unprecedented’ disruptions in mortgage markets this month may have destroyed their stakes, each valued at more than $500 million on June 30. The joint venture has received ‘an unprecedented amount of margin calls from our lenders,’ said today’s statement.”

“‘I’m surprised. It’s a very quick time frame to have that change in valuation,’ Mark Patterson, a managing director at Los Angeles-based NWQ Investment Management, said before C-Bass’s announcement. NWQ was one of the three biggest investors in both MGIC and Radian as of March 31. ‘There’s been incrementally bad mortgage news every day, but the magnitude of this is quite severe.’”

“Climbing monthly payments for borrowers with adjustable-rate mortgages ‘forced many homeowners to default without the ability to refinance their mortgages,’ Radian CEO S.A. Ibrahim said in a conference call July 25.”

From CNBC. “GMAC posted a 63% decline in second-quarter profit Monday, hurt by subprime mortgage losses at its home lending unit. Results included a $254 million loss at Residential Capital LLC, or ResCap, compared with a year-earlier $548 million profit, amid what GMAC called ’severe illiquidity’ in subprime mortgages, or home loans to people with weaker credit.”

“ResCap slashed second-quarter U.S. nonprime mortgage production to $700 million from $6 billion a year earlier. It also kept fewer riskier loans on its balance sheet. GMAC CEO Eric Feldstein nevertheless projected that ‘widespread weakness’ in housing and mortgages will persist this year.”

The Associated Press. “Trading in American Home Mortgage Investment Corp.’s stock remained halted Tuesday. If things grow more dire, Citigroup analyst Donald Fandetti said bankruptcy is possible. In some cases, a company in this situation would sell itself at a big discount to the value of its assets.”

From Smartmoney. “The warehouse debt dealers to whom AHM used to sell its loans, the likes of Deutsche Bank, Wells Fargo and Countrywide Financial, have fewer buyers for their ’structured’ products these days, and none at all interested in anything but the choicest cuts except at 50 cents on the dollar.”

“Such dealers had extended $4 billion in credit to AHM, and with the securities stuck on the originator’s books depreciating by the day, the warehouse crew demanded more collateral. Hence no dividends for AHM shareholders.”

“‘I think this could drag out into the fall,’ says Paul J. Miller of Friedman Billings Ramsey. ‘The issue is that the market is frozen. I don’t know when it’s going to get unfrozen. I think people will get comfortable with credit at some point, but we don’t know how bad it’s going to get. Liquidity crunches like these tend to work themselves out, but we’ve never seen one like this. What’s going to happen is that there will be better mortgages originated, because that’s the only stuff that’s trading.’”

The Daily Telegraph. “Sales of bonds that finance the $US1.2 trillion ($1.42 trillion) US subprime home loan market have ground to a halt, as delinquencies by borrowers continue to rise and credit rating agencies downgrade the securities.”

“‘Moody’s and Standard & Poor’s finally got it into gear, downgrading hundreds of subprime issues and threatening more to come,’ Bill Gross, manager of the world’s biggest bond mutual fund.”

“‘When these loans reset, IO periods are over, what makes you think things are going to go favourably?’ said Darcy Morrison, an analyst at Evergreen Investments. ‘So the (new issue) market is kind of frozen.’”

“‘Rating actions caught the attention of investors who thought that if you bought a ‘AAA’ rated bond that it would stay ‘AAA,’ said Morrison. ‘Who knew it could get dinged as bad as it was.’”

“The market for new subprime bonds ‘has practically ceased activity’ because of the ABX sell-off and wider spreads on the underlying bonds, said Christopher Flanagan, head of ABS research at JPMorgan Securities in New York.”

“Big lenders including Countrywide Financial Corp and Wells Fargo & Co have stopped offering some subprime ARMs that customers with low credit scores may rely on to save their homes. Some 40 per cent of borrowers may no longer be able to refinance before their ARMs reset to higher interest rates, Mr Flanagan wrote in a note.”

The San Francisco Chronicle. “New data seem to confirm fears that Countrywide Financial is not the only lender facing problems with prime home-equity loans. Industrywide, the percentage of prime home-equity loans at least 60 days delinquent has more than doubled to 1.14 percent in May from 0.51 percent in May 2006, according to new data from First American LoanPerformance.”

“Until last week, most analysts weren’t focusing on the home-equity market. Countrywide’s announcement was the first clear evidence that mortgage problems could spread to prime.”

“‘I don’t think (Countrywide’s announcement) should have been a surprise, but up until a month and a half ago, the majority of people were saying this was just a subprime problem,’ says Joshua Rosner, managing director of research firm Graham Fisher & Co.”

“Joseph Mason, an associate finance professor at Drexel University, expects to see more problems with mortgages that were disguised as prime.”

“‘Much of prime is not really prime. The Alt-A base (has) been found to be really subprime. And much of the subprime has turned out to be flat-out fraud,’ Mason says.”

“‘Borrowers over-borrowed, brokers over-lent, investment banks oversold performance and rating agencies overrated (mortgage-backed securities). What we thought was quality was not quality,’ he says.”

“The highest level of defaults in 10 years on subprime mortgages and a $US33 billion pile-up of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms.”

“‘The market is being driven by fear,’ said Mark Kiesel of California-based Pacific Investment Management, manager of the world’s biggest bond fund.”

“‘They’ve got a problem,’ said Daniel Fuss, vice-chairman of Loomis Sayles & Co. ‘It’s pretty bad. They’re going to have to go back to the private equity people’ to renegotiate their lending commitments, he said.”

“Scott MacDonald, director of research at Aladdin Capital Management, said: ‘Fundamental credit research does not mean anything at all in this environment. People are just trying to get out of the way.’”

The BBC News. “The UK housing market is slowing as interest rates begin to bite, the UK’s biggest homebuilder has said. Taylor Wimpey added that short-term conditions in the struggling US housing market ‘remained difficult to predict.’”

“In the US, the firm said that plunging land values in Florida and California had forced it to write down £60.9m from its books, on top of a £25m provision announced in May.”

“M/I Homes Inc. said Tuesday it flipped to a second-quarter loss, including tens of millions of dollars in write-offs, as delivery of new homes fell by nearly a quarter.”

“The homebuilder posted a loss of $42.6 million compared with the same period a year ago. Included in the second quarter figures are pretax charges of $72.1 million. These include $64.2 million in land-related impairment and abandonment charges.”

“The company, which focuses on the Midwest, Mid-Atlantic and Florida markets, said the ongoing housing slump and falling prices make it difficult to predict demand or margins.”

“Brookfield Homes Corporation today announced financial results for the second quarter ended June 30, 2007: Net income for the three months ended June 30, 2007 was $10 million, compared to $43 million in 2006. The decrease is primarily a result of fewer home and lot sales, and a decrease in the gross margin earned on housing to 18% from 27% for the same period in 2006.”

“Housing revenue for the three months ended June 30, 2007 totaled $155 million, compared to $193 million for the same period in 2006. The decrease in housing revenue is primarily due to fewer home closings during the quarter in the Southland/Los Angeles market.”

From MarketWatch. “Home prices in 15 of 20 major U.S. cities were lower in May compared with the previous May, Standard & Poor’s reported Tuesday. The Case-Shiller 20-city index fell 2.8% compared with a year earlier, S&P said. That’s the biggest decline in the seven-year history of the index.”

“In 10 major cities, prices were off 3.4% from the previous year, the largest decline since 1991.”

“‘At a national level, declines in annual home price returns are showing no signs of a slowdown or turnaround,’ said Robert J. Shiller, chief economist at MacroMarkets LLC., and the co-inventor of the price index.”

 

 

 

July 30, 2007  - USA

The Palm Beach Post reports from Florida. “The Briny Breezes sale is off. Ocean Land Developers sent certified documents this morning telling the corporate board the deal to buy the mobile home park for $510 million and convert it to a resort had fallen through, Ocean Land VP Logan Pierson said.”

“Real estate experts suggest Ocean Land’s demand for an extension was just a convenient way to make the deal go away because in today’s real estate market this deal no longer made as much sense.”

“‘Financing has become so incredibly difficult for just about any size developer. Huge developers are in a world of trouble, they are not even looking at new deals,’ said one expert, who didn’t want to be identified.”

“Joseph Good of ComNet Realty has worked with Ocean Land and saidhe believes the decision to walk away was market driven. ‘It’s terrifying; there seems to be an absence of buyers and to do a high-rise multi-unit project, any lender is going to require pre-sale sand right now– it’s hard to get presales,’ Good said. ‘It’s a boom bust world.’”

The Orlando Sentinel from Florida. “Condominium hotels may go down as one of the briefest fads ever to sweep the real-estate industry as the market slumps in Central Florida, only a year after it peaked. Potential buyers are disappearing and financing commitments are falling flat, leaving condo-hotel developers with an uncertain future.”

“Last week, the first such hotel to open in downtown Orlando filed for bankruptcy protection, a failure the developer blamed on a rapidly changing market.”

“‘Our sales were good in the beginning, but it got bad, bad, bad and then even worse,’ said Barry Greer, an owner of The Lexington at Orlando CityPlace. ‘The market was red-hot when we started this, but it folded up before we could close it out.’”

“‘There is essentially no condo-hotel market left this year,’ said Dante Alexander, CEO of the National Association of Condo Hotel Owners. ‘Eighty-five percent of the buyers were relying on second mortgages to buy their units, and that is gone. The mad money is gone from the market.’”

“Mark Lunt, a senior manager with Ernst & Young Hospitality Advisory Services, said condo-hotel units are real estate, and interest in them has fallen with the unraveling of the real-estate market. ‘Condominium hotels are an extremely risky asset class,’ Lunt said. ‘I think the market is falling apart in the condo-hotel sector in much the same way that it is falling apart in the condominium sector in general.’”

The Miami Herald. “In Florida, the number of foreclosures is up 77 percent compared to the same six months last year, RealtyTrac said. In South Florida, foreclosures have tripled in Miami-Dade County and Broward County in the first six months of the year, according to data from the counties.”

“Payment shock recently hit Rene Asor, who lives in Key West. Caught unaware, his monthly payment soared from $2,400 to $3,799. Asor fell behind, then caught up. But he doesn’t think he can hang on much longer.”

“He said his lender, Countrywide Home Loans, has offered little help but to refinance. ‘I’m going to go into foreclosure,’ Asor said. ‘Even to do a refinance it costs more money, the closing and all that.’”

Frtom WTVJ. “Homeowner Robert Dodds is not unlike many others in South Florida. ‘I wanted to get the house on the market at a good price and see if I can be out of here before anything would progress such as foreclosure,’ he said. ‘I need to sell the house.’”

“Ron Sheffield, president of Esslinger-Wooten-Maxwell Realtors, told NBC6, ‘If half your neighborhood is in foreclosure, half your condominium buildings in foreclosure, that will certainly impact your value.’”

“Zip code 33160, Aventura/North Miami Beach, ranked No. 19 in the nation and highest in South Florida. In that area, 480 properties went into foreclosure this year. ‘Not really what you’d expect when you look at the socio-economic picture in the North Miami Beach/Aventura area,’ said Sean Donahue of lender HomeBanc.”

“‘You can look at all the statistics and they are pointing to more and more foreclosures coming and that will drive down prices,’ said realtor Felix Tristani.”

“‘I think we are seeing significant deals in all zip codes now,’ said Sheffield.”

The Sun Sentinel. “Mounting mortgage defaults across South Florida threaten to hurt more than just those homeowners who lose their properties to lenders.”

“In the Tree Tops development in Wellington, one property near the entrance is in foreclosure and has been on the market for months. The vacant house has a rickety wooden fence, missing roof tiles and, until recently, a front yard full of weeds.”

“A buyer just walked away from a $190,000 contract on the home, where comparable homes go for as much has $240,000. As a result, neighbors trying to sell their wood-frame homes built in the early 1980s could have a hard time getting their asking prices, said Deanne Lee, a real estate agent who lives one street from the house in foreclosure.”

“‘It’s a scary thought,’ Lee said. ‘I see this as just the beginning.’”

“The number of Palm Beach County homeowners behind on their mortgage payments topped 1,000 in June, almost a fourfold increase from 259 a year ago.”

“In Floral Park, a foreclosed house went on the market down the street from Joe Rodriguez. It sold recently for just more than $263,000. As a result, Rodriguez is worried that he could have a hard time getting his $369,900 asking price, even though his four-bedroom corner property is bigger and includes a pool table as an incentive.”

“‘It’s a bad sign,’ Rodriguez said of foreclosures. ‘If the banks turn around and sell them for less, sure, it’s going to hurt [other sellers nearby.]’”

“Because lenders don’t want to be in the real estate business, they’ll likely sell those properties quickly and at a loss that will reduce home values. ‘They’ll be bought by investors who will try to rent them out at a profit,’ said said Alan Hunter, a senior market analyst with Metrostudy.”

“Regardless, the downward pressure on prices actually will be good in the long run for overpriced markets, including South Florida, said Mark Vitner, senior economist for Wachovia Securities.”

“‘It’s going to help speed up the adjustment process,’ Vitner said. ‘More homes will get into the hands of more willing sellers, the banks or whomever. It’s a necessary thing.’”

From Florida Trend. “As Florida’s housing boom rolled along, Michael Wood read investment books and went to weekend real estate seminars to learn how to cash in. At the seminars, he was approached frequently by mortgage brokers offering loans to help him build a home and flip it.”

“Wood saw little risk. ‘It was strongly suggested that it was going to be 20% to 30% profit and that people were putting homes on the market and selling before construction was even complete,’ he said.”

“In early 2005, Wood signed up to build not one, but two homes, both in North Port. He had so much confidence in his friend that he let him handle everything from choosing the lots to the building plans. He took on more than $400,000 in debt and even started convincing his friends and family to sign up. ‘I’ve got seven or eight family members in this deal,’ Wood says.”

“But toward the end of 2005, Wood’s heavily mortgaged friends and family members began to harangue him with phone messages. They’d seen little or no construction activity on their lots, yet interest was piling up monthly on their loans.”

“In 2006, Construction Compliance finally broke ground on Wood’s first home. By August, it was nearly finished. But then ‘everything just stopped.’”

“Liens started pouring in on the house that was nearly complete, filed by subcontractors and suppliers who had never been paid. Then, Wood discovered that (the) firm had drawn $80,000 of his Coast Bank loan for work on his other home but had never started construction.”

“‘The bank allowed the builder to draw $80,000 without ever touching the lot,’ Wood says. ‘I am now out close to $90,000 for a lot that was never cleared — I don’t think anyone ever even walked on it.’”

The Independent Mail from South Carolina. “You’ve found the house you want but can’t seem to sell the one you have. It’s become an all-too-familiar problem for many people. As residential building and new home sales slow across the Upstate, housing is a buyer’s market, said Debbie Dorn, a Realtor in Anderson.”

“One of her clients, who wanted to move from Florida to Anderson, dropped the asking price on a home from $450,000 to $375,000 after 120 days on the market.”

“Ms. Dorn often hears similar stories, and local Realtors say the increasing number of people tied to their old houses is one of several reasons that a slowdown in the housing market nationally finally is reaching the Upstate.”

“‘There’s not too many people who can afford to buy a new house before their old house sells,’ said Tom Carr, a Realtor in Anderson.”

“The drop in sales could be…a sign that the baby boomers who have been driving the marketplace for lake homes, second homes and resort properties have reached the tipping point as buyers, said Dave Chamblee, owner of Anderson Area Properties.”

“At some point, baby boomers’ buying will slow. Then they’ll become sellers, Mr. Chamblee said.”

From WPDE in South Carolina. “The number of those who lose their homes to foreclosure is on the rise in South Carolina, up more than 50% since last year. The Homeownership Resource Center reports that there have been 224 active foreclosures in Horry County this year alone.”

“Realtors said the housing market went up in 2005 and has since adjusted, but not all investors are adjusting well.”

“Joni Burleson with Century 21 said, ‘A lot of investors come in buying at high peak, and now they’re selling for 10’s of thousands of dollars less, and they’re having a hard time making payments.’”

 

 

Flippers flop as housing market cools

 

By RYAN NAKASHIMA,  Associated Press

 

April 29, 2007

In the rampant real estate speculation of the Las Vegas valley three years ago, people lined up outside Pulte Homes sales offices overnight as if they were waiting for the release of the latest video game console or hot new movie.

Having seen his house in an upscale part of suburban Henderson, Nev. jump $200,000 in value in 18 months, Sam Schwartz felt he couldn't miss any part of the boom.

He spent the night in the parking lot with TV, snacks and drinks, along with about a hundred other people.

Schwartz intended to buy a new home and then quickly sell it within the year — for a huge profit. Most people waiting were flippers just like him, he said.

"We had seen real evidence of what was possible in this crazy, inflated market, and we just wanted to get a piece of that investment equity," Schwartz said.

But when home prices unexpectedly took a backward step, many investors seeking to cash in quickly were left "upside-down," or owing more on their mortgages than what their homes were worth.

The result was a glut of homes in the marketplace, communities spotted with empty houses and for sale signs — and a foreclosure rate in Nevada that leads the nation as owners unable to sell became saddled with unbearable debt payments.

Foreclosure filings across the United States rose 47 percent last month from a year ago to 149,150 — one for every 775 households, according to statistics from Realty Trac Inc., a foreclosure listing service. And for the third straight month, Nevada's foreclosure rate led the nation when it rose 220 percent from a year earlier to 4,738 filings, or one in every 183 households.

In Clark County, which encompasses Las Vegas, one of every 30 homes began the process toward foreclosure last year.

The day Schwartz reserved his home, the sales staff was raising prices $20,000 after every fifth buyer came inside. The $500,000 house he and his wife were eyeing had shot up to $540,000 by the time they sat down. Somehow, it still seemed like a good deal.

"Everybody was thinking, 'Hey it's not the end of the world, because the homes across town are selling for $720,000. We have almost $200,000 in equity in the house and it isn't even built yet,'" Schwartz said.

He and his wife put down $5,000 on a home that would end up costing $560,000 with upgrades.

While the Schwartzes were able to cancel before closing on a property that suddenly was worth only $490,000 — and recoup their deposit on a legal technicality — others were less fortunate.

Schwartz, a 44-year-old life coach, said he "narrowly escaped financial disaster." But the effects of the housing crunch would reverberate for years, he said, something he expects to see among the clients he coaches to succeed in their lives and careers.

"There's going to be a lot of depression, a lot of anger. A lot drinking, gambling, and desperate stuff going on."

More than other states hit by the mortgage lending crunch, the high foreclosure rate in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac.

"It was a combustible mix of risky loans and risky real estate deals," he said.

Russ Valone, the chief executive of research firm MarketPointe Realty Advisors, said speculators in San Diego were putting deposits on downtown condo units under construction, assuming they could sell them at a profit when they were finished.

"There were guys out there that were rolling the dice just as if they were going to Las Vegas," Valone said.

When the market slowed, many buyers forfeited their deposits, or let their properties get repossessed by the banks. As a result, the inventory of unoccupied condo units downtown since early 2005 has soared fivefold, he said.

New home builders are slowing down the pace of new projects in Las Vegas and are giving agents commissions of up to 12 percent and up to $100,000 in upgrades such as pools, granite countertops and appliances.

"The speculators completely dried up," said Paul Murad, a real estate observer and author of "Manhattanizing Las Vegas."

In Miami, the rush of condo building and speculative buying has slowed to a crawl, said real estate agent Penni Hurley. Florida's foreclosure filings rose 54 percent from a year ago to 14,303 in March, or one filing for every 511 households.

"The market was on steroids and now it's going through a much-needed correction," Hurley said.

With forecasts of a nationwide 1 percent home price decline this year, there's no way to flip for a profit now, said Jay Brinkmann, vice president of research and economics with the Mortgage Bankers Association.

"One would have to logically assume that (flippers) are no longer in the market," he said.

But some are still feeling the pain.

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.

That summer, the housing market began to soften. He nervously put the house on the market for a break-even price the same day escrow closed. He got no offers.

A tight market had suddenly become flush with resale homes as investors sought to cash out. Pulte was one of several builders to slash new home prices, in some cases by as much as $80,000 in a single day. Beaver and others are suing, but the company has said it was simply reacting to new conditions in an overheated market.

Beaver has been renting the home out for about a $1,000 a month, despite monthly expenses around $2,000.

And the supply of available homes is growing.

In March, the number of resale listings for single family homes, condos and townhouses in the Las Vegas valley grew 30 percent from a year ago to 27,282, according to the Greater Las Vegas Association of Realtors. Sales and the value of homes sold were both down 38 percent from a year ago. About half the homes available have been on the market for more than two months.

"Two years ago, you'd set a price that looked right and you'd get offers that were $20,000, $30,000, $40,000 over your list price. You have to be more realistic today," said Devin Reiss, president of the Realtors association.

With Nevada's fast-growing population and an estimated 8,000 net new residents coming to Las Vegas every month, experts predict the glut of housing will be cleared in six months to more than a year.

State lawmakers are considering a range of bills that clamp down on the easy mortgage lending that helped heat up the market, including making it a crime for lenders to issue mortgages with little or no verification of a borrower's ability to pay.

"The biggest loan I ever saw, a person bought a $1 million property and only had to come up with $1,000 in cash," said Scott Bice, the state's commissioner of mortgage lending.

"I don't think anything will ever prevent speculation," he said, but added that new regulations and tighter credit requirements by lenders will eventually return the market to the good old days: "When it takes good credit and money in a transaction to close it."

For those caught up in the frenzy of a few years ago, the changes come too little, too late.

Beaver figures he has spent $50,000 on his investment home, and will have to come up with $30,000 more to pay off the mortgage after he sells it at a loss.

While he's not completely sworn off real estate investing, Beaver said next time he'll try a more traditional approach — to buy and hold for the long term.

 

By MARTIN CRUTSINGER, AP Economics

April 24, 2007

Sales of existing homes plunged in March by the largest amount in nearly two decades, reflecting bad weather and increasing problems in the subprime mortgage market, a real estate trade group reported Tuesday.

The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent plunge in January 1989, another period of recession conditions in housing.

The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year's big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

David Lereah, chief economist at the Realtors, attributed the big drop in part to bad weather in February, which discouraged shoppers and meant that sales that closed in March would be lower. Existing home sales are counted when the sales are closed.

Lereah said that the troubles in mortgage lending were also playing a significant part in depressing sales. Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, N.Y., said the dismal March performance reflected in part better sales in January and February, which were driven by warmer-than-normal temperatures in the previous months.

"This looks awful but it is surely just a reversal of the favorable weather effects which boosted January and February sales," he said.

There was weakness in every part of the country in March. Sales fell by 10.9 percent in the Midwest. They were down 9.1 percent in the West, 8.2 percent in the Northeast and 6.2 percent in the South.

"The negative impact of subprime is considerable," Lereah said. "I expect sales to be sluggish in April, May and June."

Lereah said he didn't expect a full recovery in housing until 2008. He predicted that sales of existing homes would drop by about 3 percent this year with the decline in sales of new homes an even steeper 15 percent.

He said that the median price for homes sold in 2007 would fall by 1 percent to 3 percent, which would be the first price decline for an entire year on the Realtors' records, which go back four decades.

The steep slump in housing over the past year has been a major factor slowing the overall economy. It has subtracted around 1 percentage point from growth since mid-2006.

 

Subprime mortgages 

When the tide goes out

 

Mar 22nd 2007 
From The Economist



Rising house prices have hidden a multitude of sins

 

IT SHOULD have been a warning sign to Britain's mortgage lenders, but news of the meltdown in America's subprime market (see article) has prompted only self-congratulation. With straight faces, lenders, rating agencies and investors have counted the reasons why mortgage lending in Britain is as neat and orderly as the terraced Victorian houses it often finances.

 

One sign of confidence was the bond sale last week by Kensington Group, a British mortgage lender, to people with dubious credit records. While New Century, America's second-biggest such mortgage lender, was shuttering its offices as clients defaulted on their loans, in Britain investors queued to throw cash at Kensington. Bond buyers wanted twice as much as the £800m-worth ($1.5 billion) of mortgage-backed bonds on offer and blithely accepted a lower rate of interest than they had demanded on similar bonds sold by the firm last June.

 

At first glance, such enthusiasm for subprime lending in Britain (where it is tastefully called “non-conforming” or “adverse-credit” lending) looks justifiable. This is a profitable market that has grown from about 6% of all new mortgage lending in 2005 to as much as 10% last year (though estimates differ). Interest rates on such loans are usually at least 50% higher than those charged to lenders' best customers. Bond buyers in turn receive yields about 0.2 percentage higher than those on Treasury debt.

 

Despite these rewards, zeal for subprime lending ought, surely, to be tempered by prudence. It is not, because the boom in British house prices has helped drive repossessions to unusually low levels. Even feckless homeowners have made paper gains on their homes and are thus more inclined to pay off their mortgages than to walk away from them. When they have been unable to keep up with their payments, banks have often convinced them to sell their homes, thus avoiding seizure. Kensington Group, for instance, says that although 9% of its loans were more than three months in arrears last year—slightly less than a year earlier—it had to write off only 0.7% of them.

Emboldened mainstream lenders, too, are extending mortgages on looser terms these days. Around 8% of new home loans are “self-certified”—ie, borrowers do not have to prove what their income is—compared with 6% of all existing mortgages.

 

Increasing even faster are interest-only mortgages, which make up almost a third of the total issued to first-time buyers. They are not automatically cause for concern, especially if borrowers have made other plans to repay the capital. But a recent study by the Financial Services Authority, Britain's financial regulator, makes for worrying reading. It suggests that these loans are gaining popularity because people entering the housing market are ever more financially stretched (see chart).

 

About a fifth of interest-only mortgage borrowers said they could not have afforded to repay both capital and interest. Nearly a third said they would struggle to meet all their obligations if interest rates went up by a percentage point. And according to a study for the Council of Mortgage Lenders (CML), a trade body, last year, those taking out interest-only mortgages are more likely to be borrowing over 90% of the value of their homes and to have poor credit records than those signing conventional capital-repayment mortgages.

Buy-to-let mortgages are another fast-growing sort of lending that raises eyebrows. These account now for about a tenth of new mortgages. But house prices have climbed faster than rents, so new buyers pay more to service their mortgages than they receive in rental income. As long as prices keep rising landlords can hope for profits in the form of capital gains, and those who run into cash-flow problems can usually sell their way out of trouble. But what happens if the music stops?

 

Michael Saunders, an economist at Citigroup, a bank, says that taken together these riskier lending practices are cause for worry. Repossessions, though still low by historical standards, rose by 65% in 2006. And many Britons carry a heavy burden of consumer debt as well as their mortgages.

Lenders and rating agencies are heartened by their models, which show that it would take a combination of higher interest rates and falling house prices to make a worrying number of mortgage loans go bad. But this is the exact confluence of events that is causing such woe in America. A little less complacency and a little more prudence are in order.

 

 

 

U.S. home loan fears spark renewed stocks slide

By Lincoln Feast

 

March 14, 2007

 

Reuters

Global stocks tumbled on Wednesday as fears about the impact of U.S. home owners falling behind with mortgage payments hit financial shares, prompting money to flow into safe-haven government bonds.

By 1138 GMT, the pan-European FTSEurofirst 300 index (^FTEU3 - news) was down 27 points, or 1.8 percent, at 1,439 points, within striking distance of year's low of 1,428.2, hit earlier this month.

"This seems to be the second leg of the global fall in equities and there is very little impetus to jump in and buy," said one trader. "It's time to fasten seat belts."

U.S. stock futures were pointing to a lower start on Wall Street, extending Tuesday's 2 percent slide driven by falling financial stocks and weaker-than-expected U.S. retail sales.

Lenders in the United States launched foreclosure actions against more than one in every 200 U.S. mortgage borrowers in the fourth quarter of 2006, the biggest share of homes facing the start of the repossession process on record.

Asian stocks also crumbled after a 2 percent fall on Wall Street overnight, which was rattled by weaker-than-expected U.S. retail sales and falling financial stocks.

Tokyo's Nikkei (^N225 - news) fell 2.9 percent, its second biggest daily percentage fall this year, pulled down by the U.S. fall and strength in the yen. MSCI's index of Asian stocks excluding Japan(^MSCIAPJ - news) fell 2.6 percent.

"If the U.S. subprime mortgage problems get worse, it could begin to hurt U.S. consumers, and that would be very hurtful for exporters," said Kim Yung-min, a fund manager at SH Asset Management in Seoul. "This month could be very bad."

Investors fear troubles in the U.S. subprime market, which deals in loans to people with poor credit histories, will spread to the wider economy.

YEN GAINS AS CARRY UNWINDS

The sharp retreat echoed the slide in equity markets two weeks ago but moves in currency and emerging markets were more muted.

The yen retained a firm bias as investors cut back carry trades, where they had borrowed the low-yielding yen to buy riskier assets.

"The market is likely to tread very cautiously," said Kamal Sharma, currency strategist at Bank of America. "With a renewed bout of risk aversion the likes of the yen and Swiss franc are likely to be in the ascendancy for the time being."

The dollar was steady around 116.25 yen after falling on Tuesday while the euro was 0.1 percent weaker at 153.30 yen. Higher yielding sterling was off 0.3 percent at 223.70 yen.

Government bonds rallied as stocks fell and risk appetite faded.

"People are flapping about the subprime market but it was not helped by Countrywide Financial, one of the biggest quality lenders above subprime status, saying we have a credit crunch," said a bond trader in London.

Countrywide Financial Corp. (NYSE:CFC - news), the largest U.S. mortgage lender, told its brokers last week to stop offering borrowers the option of no-money-down home loans, according to a document obtained by Reuters.

The June Bund future was up 30 ticks at 116.58.

The two-year Bund yield was down 1.2 basis points at 3.887 percent and the benchmark 10-year yield was down 0.7 basis points at 3.88 percent, having fallen to a new low for the year of 3.87 percent.

Corporate debt markets reacted to the slide in equities but moves were largely contained.

The iTraxx Crossover index, a key marker of sentiment for riskier credit in Europe, widening 10 basis points to 238 basis points above government bonds. The index has widened almost 40 basis points in the past two days.

Commodity prices were mostly lower, with gold down around 1 percent to a one-week low and copper under pressure.

U.S. light crude oil rebounded above $58 a barrel after a sharp fall the previous session and ahead of data expected to show a fall in U.S. fuel inventories.

 

 

 

London property 

Gazumped

 

Nov 2nd 2006 
From The Economist



Buyers squabble for properties as London's housing market heats up 


IMAGINE this page of The Economist lying face up on the polished walnut floor of a sumptuous furnished house near London's Dorchester Hotel, in Mayfair. The 84 square inches it would cover is worth just under £1,200 ($2,280). The asking price of this recently renovated Georgian house, with its seven bedrooms, ornate reception rooms and indoor swimming pool, is £16m.

 

The house is at the top end of London's rapidly rising property market but it is not unique. Farther out from the centre, even a quite ordinary three-bedroom home in Fulham, for example, is likely to cost around £750,000.

 

House prices in the capital increased by 4% in 2004, by 7% last year and are now rising at an annual rate of almost 9%. They have gone up fastest in the most expensive areas. In Kensington and Chelsea the average price of a flat has risen by 11% a year since 2000 and now stands at £590,000, according to CBRE Hamptons, a property consultancy. A rung up the ladder, demand is growing for homes that cost £10m or more.

 

British property prices have zoomed upwards for a decade, powered by low interest rates and planning regulations that sharply limit supply. Why they are still rising now that interest rates are heading up is less obvious. But prices in the capital are driven by factors other than the cost of money.

 

Britain's hospitable tax rules, which exempt foreigners from tax on income earned elsewhere, have lured the super-rich, supporting demand for extravagantly priced properties. “Britain is Monaco for the non-British,” says Paul Davies, whose newest project is converting six flats into a £30m apartment.

 

Booming business in the City means that properties whose prices are merely exorbitant are selling well too. The Centre for Economics and Business Research, a consultancy, estimates that investment bankers and fund managers will collect almost £9 billion in bonuses this year. “Now that bonuses are on their way, people are putting in their orders for Porsches and looking for houses where they can park them,” says Nick Jopling of CBRE Hamptons. He reckons there are about nine buyers for every home coming on to the market.

 

With sellers firmly in the ascendant, some of the worst tricks of the late 1980s—when London house prices were rising by as much as 26% a year—are back in vogue. Sellers are once again “gazumping” buyers with whom they have agreed a deal in favour of a better one. Even more common are mini-tenders, in which a clutch of interested buyers make sealed offers for a property. These now take place in almost half of all sales, up from about one in ten a year ago, says Marc Goldberg of Hamptons.

 

Yet residential prices are already high, compared with incomes and rents, and London's upwardly mobile property prices look precarious. PricewaterhouseCoopers, a consultancy, reckons there is a one-in-three chance that British house prices will be lower in 2010 than they are now. When the go-go 1980s gave way to a property bust in 1989, prices did not recover for almost a decade.


 

 

Monopoly money

 

Nov 23rd 2006 
From The Economist



The game of commercial-property investment has gone global


THE barbarians are at reception. No longer are private-equity firms attempting merely to turn round ailing industrial giants. This week, the Blackstone Group bid $36 billion, including debt, for Equity Office Properties Trust, America's biggest owner of office buildings. In nominal terms, it was the largest buy-out ever.

The deal showed that the commercial-property market remains piping hot, even as housing shivers. According to David Harris of Lehman Brothers, the Blackstone deal is just the latest “privatisation” of the American property market, a trend that has seen 22 companies worth more than $100 billion disappear from public ownership since the start of last year.

 

Such companies look ideal from the point of view of buy-out groups. Today's property barons can borrow against the value of the assets and use the cashflow from rental income to meet the interest payments. With property values rising fast in some sectors (the American office sector has returned 38% to date this year), they can afford to strike the deals above their stated asset value.

This Monopoly-like craze is not confined to America. Just as bonds and shares are freely traded across borders, property is now a global asset too. According to Jones Lang Lasalle, an estate agent, cross-border property investment in the first half of this year hit $290 billion, a 30% increase on the same period in 2005. International deals now comprise 44% of the volume of sales.

 

In the process, once-obscure markets have been swept into the mainstream. In 2004-05, the new entrants into the European Union benefited from the “convergence” trend as investors took advantage of high property yields. As yields fell, the same money that chased Warsaw office buildings began looking at Sofia warehouses, betting on Bulgaria's entry into the EU in 2007.

 

This is really all part of the same “search for yield” that has seen investors pile into other high-income assets, such as corporate bonds and emerging-market debt. Andrew Jackson of Standard Life Investments, a British fund-management company, says office yields in China have fallen from 12-13% a couple of years ago to 8% today. The gap between yields on the highest-quality properties and the second-tier sites has narrowed everywhere.

 

Property is a hybrid asset. It offers a high yield, giving it bond-like characteristics. But like shares (and unlike bonds), investors can expect that income to grow, at least in line with inflation.

 

Enthusiasm for the sector waned in the 1980s and 1990s thanks to fat stockmarket returns. Pension funds, however, are now desperate to diversify from shares and bonds, and property is benefiting from the same inflows that are boosting hedge funds and commodities. The catch—and it is a serious one—is the lack of liquidity. It takes time to buy and sell a building, and recruiting and managing tenants involves a lot of hassle.

 

So the key to the globalisation of the property market has been the growth of the REIT, or real-estate investment trust. These are stockmarket-quoted companies that bundle together portfolios of buildings, allowing investors to buy and sell whenever they wish. REITS have existed in America for decades but in recent years they have spread into new markets, such as Japan and Hong Kong. From January they will be available in Britain.

 

As the market develops, investing is becoming more sophisticated. A joint venture between GFI Group, a broker, and CB Richard Ellis, an estate agent, has introduced derivatives on property indices in America, Europe and Hong Kong, allowing investors to hedge their portfolios and to bet on falling prices.

Not that prices are falling at the moment. The National Association of Real Estate Investment Trusts says its All-REITS index has quadrupled since the start of the decade. Of the 15 national markets monitored by IPD, a data provider, 12 achieved double-digit returns last year.

 

In the process, valuations now look toppy. Yields on the most commonly held American REITS are lower than those on treasury bonds, while prime British properties yield less than gilts. In both cases, enthusiasts say there is no need to worry since rents are set to rise, bringing the prospect of higher yields.

Relying on prospective valuations is exactly what stockmarket investors were forced to do in the late 1990s. And it is worth recalling that previous surges of cross-border property investment (Japan in the 1980s, for instance) did not end well. But the peak in commercial property is probably at least a year away—the barbarians still have huge war chests.


 

The global housing market 

Checking the thermostat

 

Sep 7th 2006 
From The Economist



Property prices are cooling fast in America, but heating up elsewhere 


HOUSES are not just places to live in; they are increasingly important to whole economies, which is why The Economist started publishing global house-price indicators in 2002. This has allowed us to track the biggest global property-price boom in history. The latest gloomy news from America may suggest that the world is on the brink of its biggest ever house-price bust. However, our latest quarterly update suggests that, outside America, prices are perking up.

 

America's housing market has certainly caught a chill. According to the Office of Federal Housing Enterprise Oversight (OFHEO), the average price of a house rose by only 1.2% in the second quarter, the smallest gain since 1999. The past year has seen the sharpest slowdown in the rate of growth since the series started in 1975. Even so, average prices are still up by 10.1% on a year ago. This is much stronger than the series published by the National Association of Realtors (NAR), which showed a rise of only 0.9% in the year to July.

 

The OFHEO index is thought to be more reliable because it tracks price changes in successive sales of the same houses, and so unlike the NAR series is not distorted by a shift in the mix of sales to cheaper homes. The snag is that the data take time to appear. Prices for this quarter, which will not be published until December, may well be much weaker. A record level of unsold homes is also likely to weigh prices down. The housing futures contract traded on the Chicago Mercantile Exchange is predicting a fall of 5% next year.

 

Elsewhere, our global house-price indicators signal a cheerier story. House-price inflation is faster than a year ago in roughly half of the 20 countries we track (see table). Apart from America, onlySpain, Hong Kong and South Africa have seen big slowdowns. In ten of the countries, prices are rising at double-digit rates, compared with only seven countries last year.

 

European housing markets—notably Denmark, Belgium, Ireland, France and Sweden—now dominate the top of the league. Anecdotal evidence suggests that even the German market is starting to wake up after more than a decade of flat or falling prices, but this has yet to show up the index that we use, which is published with a long lag (there are no figures for 2006). If any readers know of a more timely index, please let us know.

 

Some economists have suggested that Britain and Australia are “the canaries in the coal mine”, giving early warning of the fate of America's housing market. The annual rate of increase in house prices in both countries slowed from around 20% in 2003 to close to zero last summer. However, the canaries have started to chirp again. In Australia average prices have picked up by 6.4% over the past year, although this is partly due to a 35% surge in Perth on the back of the commodities boom. Likewise British home prices have perked up this year, to be 6.6% higher, on average, than they were a year ago. Thus it is claimed that housing markets in Britain and Australia have had a soft landing.

 

Better still, their economies shrugged off the abrupt slowdown in prices last year. Consumer spending slowed sharply, but did not slump. If the British and Aussie canaries have survived, it is argued, then this bodes well for American homes—and for the American economy.

 

That might be the wrong lesson to draw. The housing boom has been responsible for a bigger chunk of growth in America than it was in Britain. America's saving rate has plunged, and consumer spending surged as homeowners borrowed with gusto against their capital gains. Britain's saving rate fell more modestly, so when prices flattened, the impact on consumer spending was smaller than it is likely to be in America. In Australia the slowdown in housing did make a big dent in construction and consumer spending but this was masked by the commodity boom and exports toChina. The risk is that a flattening of house prices in America could prove much more painful it has been so far in Britain or Australia.

 

 

 

 

 

Not yet on terra firma

 

In any case, it is misleading to talk about a soft landing for house prices in Britain and Australia. The market has not really landed yet: prices are still sky-high relative to incomes and rents. The ratio of house prices to rents is a sort of price/earnings ratio for property. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income or as rent saved by an owner-occupier. Calculations by The Economist show that in Britain and Australia the ratios of prices to rents are respectively 55% and 70% above the long-term average (see chart). By the same gauge property is “overvalued” by 50% in America. Lower real interest rates than in the past would justify higher ratios, but nowhere near all of the rise in house prices.

 

 

An OECD study published last year adjusted the price/rent ratio for interest rates and other factors, to estimate how overvalued home prices were around the globe. Updating those figures to take account of price rises since then suggests that housing is now 35-50% overvalued in Britain and Australia and perhaps 20% too dear in America. A return to fair value will mean either rising rents or falling prices. If rents continue to rise at today's pace, many years of stagnant prices will be required to bring the price/rent ratio back to its long-term average. Especially after a giddy ascent, it is too soon to talk about a soft landing before a return to firm ground.


 

House prices in America 

Gimme shelter

 

Aug 24th 2006


From The Economist



Now that the party is over, how bad will the hangover be?


 


 

AMERICA'S housing market has banged its head on the ceiling; now investors and homeowners alike are wondering how soon—and how hard—it will hit the floor. On August 23rd the latest figures showed that in July prices of previously owned homes rose at their slowest pace in more than 11 years. In the past 12 months they are still (just) up in nominal terms (see chart), but down in real terms. The number of units sold fell by 11.2% from a year earlier, and the stock of unsold homes reached its highest level since 1993. Markets were waiting for figures on prices of new homes, due out the following day. But the softness was enough to stoke the worries that have been mounting about how badly the end of America's housing boom will hurt the rest of the economy.

 

Falling demand is already pounding the construction industry. Housing starts, seasonally adjusted, fell by 2.5% in July and were 13.3% lower than a year earlier. Building permits for privately owned houses were down by 20.8%, year on year. And although the number of homeowners applying to refinance their mortgages has risen over the past five weeks, the demand for loans to buy new homes has fallen by nearly a quarter in the past year. It is little wonder, then, that an index of housebuilders' confidence has plunged by 56% since June 2005 to a 15-year low.

 

The slump has been especially harsh at the high end, because rich buyers were at the forefront of the housing boom over the past few years. Toll Brothers, the biggest builder of luxury homes, said this week that in the latest quarter its orders for new units were almost half those of the previous year. The slowdown is also a worry for home-improvement chains such as Home Depot and Lowe's, as well as for other businesses that have benefited from the housing boom.

 

If most of the pain remains confined to those bits of the economy, America will probably emerge from the end of the housing boom in decent shape. What has spooked investors of late is the risk that slowing demand for homes will be severe enough to blast a wider hole in consumer demand.

 

The biggest worries involve the parts of America that have seen the frothiest price increases over the past few years. Those include cities in the south-west with fast-growing populations, such as Las Vegas, and places that attract lots of wealthy elderly people who want to retire. Over the past five years, house prices have more than doubled in California, Nevada, Hawaii and Florida, for example, but have increased by less than one-third in some parts of the south and the Great Plains, according to a house-price index kept by the federal government. In some places, such as Detroitand other hard-hit towns in the rust belt, prices are falling year on year.

 

That regional variation is comforting, because it suggests that parts of the country are in good shape. The trouble, says Ethan Harris, Lehman Brothers' chief economist in America, is that, measured by value, the regions that have experienced frighteningly rapid house-price increases account for about one-third of the country's residential property. So if prices were to fall sharply in those areas, it would take a bite out of Americans' wealth.

 

How far might prices fall? Since house-price fundamentals depend so much on the wider economy, especially incomes and borrowing rates, opinions vary. Housing bears chiefly fret over two important measures. One ratio—house prices now equal 3.8 times median income—seems too high by historical standards. The other—rental income to house prices—seems too low to offer property owners a decent return, suggesting again that houses are badly overpriced.

 

Nearly everyone now expects prices to level off for a bit and slow the economy, but optimists find those valuation measures only modestly worrying. The high ratio of house prices to incomes is less alarming, they argue, because low mortgage rates have held down the real cost of owning those homes. That has not changed much, despite a rise in interest rates over the past couple of years. American homeowners remain exposed to a sharp rise in long-term interest rates—say, if foreign investors in American treasury bonds head for the exits—but otherwise are not obviously in trouble.

 

Also, although rents have failed to keep pace with the rising price of “equivalent” houses, that comparison partly reflects a failure to adjust for the growing quality of the homes Americans have been buying—these are increasingly being fitted with better creature comforts, such as marble countertops. As house prices peak, moreover, Americans seem now to be more willing to rent; so long as incomes keep growing, rising rents could raise the floor under the value of many houses.

Another argument of optimists is that house-price weakness in Britain and Australia, two other countries that worried bubble watchers, has proved much less damaging than many expected. Tim Bond, of Barclays Capital in London, points out that both countries' economies performed so well after house prices peaked that their central banks found it necessary to raise interest rates again afterwards. Yet America has depended particularly heavily on buoyant house prices as a source of jobs and cash that can be extracted through equity withdrawals.

Even if prices do fall in some regions, forecasters do not yet think that will trigger a recession. But everyone on the housing ladder is hoping that the floor will not turn out to be a long way down.



 

America's house-price bubble 

What's that hissing sound?

 

Aug 24th 2006


From The Economist

 

 



A slowing, perhaps even falling, housing market spells trouble for the American economy

 

IF YOU could watch just one indicator to gauge America's economic prospects over the next few years you should pick house prices. A year ago most economists thought that average prices were unlikely to fall across the nation. Now many of them have begun to worry about the consequences of falling prices for America's economy. Figures out this week from the National Association of Realtors show that average home prices barely rose over the past year, compared with annual growth of around 15% in mid-2005. In some parts of the country, prices are already falling (see article). Adjusted for inflation, the average home is worth less than it was a year ago.

 

The housing boom has been the main engine of America's economic growth in recent years. Indeed, it is the main reason why the American economy held up better than expected after the stockmarket bubble burst at the start of the decade. Since 2000 the real wages of most American workers have barely budged, yet surging house prices have allowed consumers to keep spending. Over the past five years the total value of American homes has increased by more than $9 trillion, to $22 trillion. These gains helped to offset both the slide in share prices and feeble wage growth.

 

This is the biggest bubble in American history: in real terms home prices have risen at least three times as much as in any previous housing boom. In the past average nationwide house prices have experienced year-on-year declines for the odd, isolated month, but they have not fallen on a sustained basis since the 1930s. However, most states have seen prices drop at some time in the past three decades. Since the housing market is looking bubbly in more states than ever before, prices could simultaneously fall in enough places to give America its first nationwide price decline since the Great Depression.

 

On the surface America's housing boom looks more modest than booms elsewhere. Since 1997 average prices have doubled, compared with a gain of almost 180% in Britain. But the economic consequences of a bust could be more severe, because the economy has become so addicted to rising prices.

 

The boom has lifted the economy in three ways: it has boosted residential construction; it has made people feel wealthier and so encouraged them to spend more; and it has allowed home-owners to use their property as a gigantic cash machine, taking out money by borrowing against their capital gains. Merrill Lynch estimates that the three together accounted for more than half of America's total GDP growth last year. Counting construction, finance and estate agency, the housing boom has also been responsible for one-third of all jobs created since 2001. If house-price rises level off, GDP growth could dip below 2% in 2007. If prices fall, expect a steeper slowdown.

 

Ben to the rescue?

 

If house prices do slide, the Federal Reserve will probably slash interest rates so as to save the economy from recession. But the Fed's ability to do this would be limited if inflationary pressures remain strong. And it would surely be wrong for the Fed to support the property market when a slowdown in spending is part of the rebalancing America needs to increase its saving rate. The Fed saw off a fall in spending at the start of this decade after share prices tumbled. To do the same again could damage the long-term health of the economy.

 

The tech bubble left behind a modern capital stock that continues to yield productivity gains. In contrast, the investment stimulated by a property boom does little to boost long-term growth. Expensive houses merely redistribute wealth to home-owners from non-home-owners. Worse still, the boom has diverted resources away from productive sectors and caused households to save less, exacerbating America's economic imbalances. It is surely better for Americans to start saving in the old-fashioned way by spending less of their income rather than relying on rising asset prices. The party has been fun; but it has to end.

 

 

Moscow's boom 

Building a new Rome

 

Aug 24th 2006 | MOSCOW 
From The Economist

 



What Moscow's property boom reveals about Russia's uneven, breakneck growth

 

 “MY MOTHER”, says Oksana, an accountant, “is really happy for me.” Her parents lived most of their lives in housing provided by the Soviet government; she and her husband have just moved into a two-bedroom apartment on the edge of Moscow. In 2003, they agreed a $60,000 price for the flat, then under construction; now it is worth $240,000.

 

Where it isn't a traffic jam, Moscow is a building site. The construction crane is now the city's emblem, the racket of drills its anthem. There is a similar din in many Russian cities, but it is loudest, and the price rises are steepest, in Moscow. According to IRN.ru (site in Russian), a market analyst, residential property prices have almost doubled in a year. Muscovites have become as obsessed with property prices as Londoners. Ira, who works in publishing, is selling the apartment that she bought for $100,000 in 2002 for five times as much. Residential rents are stratospheric; office costs are among Europe's highest.

 

Despite all the cranes, there are too few new buildings or revamped pre-revolutionary ones for all the money chasing them (few moneyed Russians want to live in anything Soviet). And Russians are just learning about mortgages. Igor Kouzine of DeltaCredit Bank, Moscow's first mortgage lender, says that, although the number of borrowers doubles every year, only 5-8% of purchases are backed by mortgages. Most buyers pay cash.

 

Not so long ago, many Muscovites lived in grotty communalki, or communal apartments, sharing bathrooms and kitchens. The property boom is a symptom of Russia's economic resurgence, and of the growth of its middle class. But as with Russia's breakneck development as a whole, the rush has losers and victims too.

Earlier this month, Russia's prosecutor-general instigated a probe into price-fixing among Moscow construction companies. The politicians, understandably, feel obliged to so something. The average monthly wage in Moscow is officially only around 17,000 roubles ($630); elsewhere, it is less. A big chunk of the population has been left behind by the new prosperity. Vladimir Putin, Russia's president, has made the provision of affordable housing a main priority.

 

“Impossible”, says the Moscow city government of the price-fixing. Perhaps; but other kinds of graft are rife. An investigation by a newspaper found that more than 10% of the cost of a new apartment went on bribes. “That's too low,” says Alexei, a contractor. The huge number of permits, plus legal gaps and contradictions, create endless possibilities for obstructions, delays—and kickbacks. Some claim that the city is not always impartial in its allocation of projects. Others note that the wife of Yuri Luzhkov, Moscow's mayor, co-owns one of the city's biggest construction firms.

 

As usual, the police are in on it too. Of the million-odd people in the Moscow construction industry, many of those labouring on the city's 4,500 building sites are immigrants. “The Tajiks are the best,” says Alexei, because they work hard for little money and don't drink. They may live in on-site barracks, surviving (says one) on potatoes, bread and macaroni. Because they often work illegally, they are vulnerable to harassment by corrupt police, mistreatment by employers, and collusion between the two. Oksana the accountant's happy story had a sad twist: the Moldovans who were living in her apartment while they decorated it paid a share of their wages to crooked policemen.

 

There are indigenous losers too, let down by suborned courts or hazy, outdated property laws (“in our country,” Alexei says nervously of property rights, “everything can change”). The village ofButovo, on Moscow's southern edge is a wonky Russian idyll of rickety fences, rusty roofs and fruit trees. Tatiana Kupolova lives in the house her family built in 1934, when many Muscovites were relocated under Stalin's violent urban redesign. But the city has reached Butovo: high-rise buildings overlook Ms Kupolova's plot, and the planners want another. In June, riot police turned up to enforce a contested removal order. “They beat everyone,” she says. The authorities, she claims, told her that she was “nobody, you have no chance.” She has written to Mr Luzhkov and Mr Putin, but they haven't answered.

 

In the city centre, a common ruse is to have buildings condemned, then replace them with lucrative new ones or dubious replicas of the originals—bad news for anyone who happens to live in them. Emilia Souptel and her mother, who have lived in an historic building since 1974 and opened a restaurant in it in 1989, are battling (perhaps related) threats of condemnation and a developer's plans to build luxury flats at their address. Ms Souptel beat the developer in court—“a miracle”, she says—but she now fears extra-legal methods. “Silence doesn't mean peace in Russia.”

 

Architecturally, says David Sarkisyan, of the Shchusev State Museum of Architecture, the result is a glass-and-steel city, becoming “more and more spectacular, but more and more ugly.” Classy modernist buildings, as well as older ones, have been torn down, not all as unlovely as the giant Rossiya hotel now being demolished next to Red Square. Today's ruling class, says Mr Sarkisyan, is as uncultured as were the Bolsheviks.

 

Still, things are better than they were in the 1990s, when apartment-related murders were common. A new law is intended to protect homebuyers from fraud: thousands have handed over deposits, only for their apartments to stay unbuilt or be sold to others. A protest by defrauded buyers was broken up by riot police in May; the city promises to compensate them. “It was a big risk,” says Oksana of her own investment, but now “I am very proud”.


 

Property prices 

Going flat

 

May 25th 2006 | WASHINGTON, DC 
From The Economist Magazine



America's housing market is losing its effervescence

 

 

 

“NEW Price”; “Just Reduced”; “Priced to Sell”. Once unheard of, these tags are cropping up ever more often in the property sections of America's newspapers. They denote a shift that is becoming clearer in the national statistics, too: the fizz is going out of the once-bubbly housing market. Compared with last year, inventories of unsold houses are up and the pace of sales is down. Prices have slowed and in some areas have even fallen.

 

The questions now are how deep the slowdown will be and whether it will be gentle or abrupt. Ben Bernanke, the chairman of the Federal Reserve, summarised the conventional view recently when he noted that the cooling seemed “very orderly and moderate at this point.”

 

Just how moderate depends on the statistics you look at. America's most reliable measure of house prices, a quarterly index produced by the Office of Federal Housing Enterprise Oversight, is published with a long lag. Its most recent report, which covered the last three months of 2005, showed little sign of a slowdown. The median house price was 13% higher than a year earlier. Figures for the first quarter of 2006 will not come out until June 1st.

 

Quarterly figures from the National Association of Realtors, American estate agents' trade body, suggest that prices are slowing, but still rose by 10.3% in the first three months of 2006 compared with a year earlier. Monthly figures on the prices and pace of new and existing home sales have been more volatile, but the market is clearly slower than it was last year. According to figures released this week, the pace of new-home sales has bounced back since February, but is still 6% lower than in April 2005. The median price of new houses is less than 1% higher than a year ago. For the country as a whole, the era of double-digit price increases is over.

 

Perhaps most telling, builders have recently become a lot glummer. With Wells Fargo, a big bank, the National Association of Homebuilders publishes a monthly index of builders' perceptions of the housing market. This index fell by six points in May to 45, its lowest since 1995. (A score below 50 suggests that more builders reckon the market is poor than think it good.) Economists at Goldman Sachs estimate, from the fall in the homebuilders' index, that construction will fall at an annual rate of 10-15% in the next four quarters.

 

Builders are breaking far less new ground than they were. Housing starts fell at an annual rate of 56% between January and April this year, the sharpest slowdown since the early 1990s. The deceleration may have been exaggerated by the strong figure for January, when the weather was unseasonably warm, but the overall trend is clear.

 

Less frenetic building will be the most direct way that a weaker housing market affects the economy. Residential construction now makes up more than 6% of GDP. This suggests that a 10% drop would shave some 0.6 percentage points off economic growth. A bigger question, however, is how slower prices might affect consumer spending. Goldman Sachs's economists expect thatAmerica's house prices will have stopped rising by the end of the year. Mainly because Americans will have no extra equity against which to borrow and because a flat market will put a brake on residential building, this is expected to reduce GDP growth by about 1.5 percentage points. “Just Reduced” might soon be a fitting label for the whole economy.


 

The global housing boom 

In come the waves

June 16, 2005


From The Economist

 

The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops 



NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stock market bubble burst in 2000. What if the housing boom now turns to bust?



According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.



The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stock markets plunged, making property look attractive. Will prices now fall, or simply flatten off? And in either case, what will be the consequences for economies around the globe? The likely answers to all these questions are not comforting.



The increasing importance of house prices in the world economy prompted The Economist to start publishing a set of global house-price indices in 2002 (see article). These now cover 20 countries, using data from lending institutions, estate agents and national statistics. Our latest quarterly update shows that home prices continue to rise by 10% or more in half of the countries (see table). America has seen one of the biggest increases in house-price inflation over the past year, with the average price of homes jumping by 12.5% in the year to the first quarter. In California, Florida, Nevada. Hawaii, Maryland and Washington, DC, they soared by more than 20%. 



In Europe, prices have long been at dizzy heights in Ireland and Spain, but over the past year have also spurted at rates of 9% or more in France, Italy, Belgium, Denmark and Sweden. BothFrance (15%) and Spain (15.5%) have faster house-price inflation than the United States.



By contrast, some housing booms have now fizzled out. In Australia, according to official figures, the 12-month rate of increase in house prices slowed sharply to only 0.4% in the first quarter of this year, down from almost 20% in late 2003. Wishful thinkers call this a soft landing, but another index, calculated by the Commonwealth Bank of Australia, which is based on prices when contracts are agreed rather than at settlement, shows that average house prices have actually fallen by 7% since 2003; prices in once-hot Sydney have plunged by 16%.



Britain's housing market has also cooled rapidly. The Nationwide index, which we use, rose by 5.5% in the year to May, down from 20% growth in July 2004. But once again, other surveys offer a gloomier picture. The Royal Institution of Chartered Surveyors (RICS) reports that prices have fallen for ten consecutive months, with a net balance of 49% of surveyors reporting falling prices in May, the weakest number since 1992 during Britain's previous house-price bust. The volume of sales has slumped by one-third compared with a year ago as both sellers and buyers have lost confidence in house valuations. House-price inflation has also slowed significantly in Ireland, the Netherlands and New Zealand over the past year.



Since 1997, home prices in most countries have risen by much more in real terms (ie, after adjusting for inflation) than during any previous boom. (The glaring exceptions are Germany andJapan, where prices have been falling.) American prices have risen by less than those in Britain, yet this is still by far the biggest boom in American history, with real gains more than three times bigger than in previous housing booms in the 1970s or the 1980s. 



The most compelling evidence that home prices are over-valued in many countries is the diverging relationship between house prices and rents. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier.


Calculations by The Economist show that house prices have hit record levels in relation to rents in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. This suggests that homes are even more over-valued than at previous peaks, from which prices typically fell in real terms. House prices are also at record levels in relation to incomes in these nine countries.



 

 

America's ratio of prices to rents is 35% above its average level during 1975-2000 (see chart 1). By the same gauge, property is “overvalued” by 50% or more in Britain, Australia and Spain. Rental yields have fallen to well below current mortgage rates, making it impossible for many landlords to make money. 



To bring the ratio of prices to rents back to some sort of fair value, either rents must rise sharply or prices must fall. After many previous house-price booms most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5%, house prices would need to remain flat for 12 years to bring America's ratio of house prices to rents back to its long-term norm. Elsewhere it would take even longer. It seems more likely, then, that prices will fall.



A common objection to this analysis is that low interest rates make buying a home cheaper and so justify higher prices in relation to rents. But this argument is incorrectly based on nominal, not real, interest rates and so ignores the impact of inflation in eroding the real burden of mortgage debt. If real interest rates are permanently lower, this could indeed justify higher prices in relation to rents or income. For example, real rates in Ireland and Spain were reduced significantly by these countries' membership of Europe's single currency—though not by enough to explain all of the surge in house prices. But in America and Britain, real after-tax interest rates are not especially low by historical standards.

 

 

Betting the house


America's housing market heated up later than those in other countries, such as Britain and Australia, but it is now looking more and more similar. Even the Federal Reserve is at last starting to fret about what is happening. Prices are being driven by speculative demand. A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising—the very definition of a financial bubble. “Flippers” buy and sell new properties even before they are built in the hope of a large gain. In Miami, as many as half of the original buyers resell new apartments in this way. Many properties change hands two or three times before somebody finally moves in. 



New, riskier forms of mortgage finance also allow buyers to borrow more. According to the NAR, 42% of all first-time buyers and 25% of all buyers made no down-payment on their home purchase last year. Indeed, homebuyers can get 105% loans to cover buying costs. And, increasingly, little or no documentation of a borrower's assets, employment and income is required for a loan. 



Interest-only mortgages are all the rage, along with so-called “negative amortization loans” (the buyer pays less than the interest due and the unpaid principal and interest is added on to the loan). After an initial period, payments surge as principal repayment kicks in. In California, over 60% of all new mortgages this year are interest-only or negative-amortization, up from 8% in 2002. The national figure is one-third. The new loans are essentially a gamble that prices will continue to rise rapidly, allowing the borrower to sell the home at a profit or refinance before any principal has to be repaid. Such loans are usually adjustable-rate mortgages (ARMs), which leave the borrower additionally exposed to higher interest rates. This year, ARMs have risen to 50% of all mortgages in those states with the biggest price rises. 



The rapid house-price inflation of recent years is clearly unsustainable, yet most economists in most countries (even in Britain and Australia, where prices are already falling) still cling to the hope that house prices will flatten rather than collapse. It is true that, unlike share prices, house prices tend to be somewhat “sticky” downwards. People have to live somewhere and owners are loth to accept a capital loss. As long as they can afford their mortgage payments, they will stay put until conditions improve. The snag is that eventually some owners have to sell—because of relocation, or job loss—and they will be forced to accept lower prices.



Indeed, a drop in nominal prices is today more likely than after previous booms for three reasons: homes are more overvalued; inflation is much lower; and many more people have been buying houses as an investment. If house prices stop rising or start to fall, owner-occupiers will largely stay put, but over-exposed investors are more likely to sell, especially if rents do not cover their interest payments. House prices will not collapse overnight like stock markets—a slow puncture is more likely. But over the next five years, several countries are likely to experience price falls of 20% or more.

 

 

 

 

While America's housing market is still red hot, others—in Britain, Australia and the Netherlands—have already cooled (see chart 2). What lessons might they offer the United States? 


The first is that, contrary to conventional wisdom, it does not require a trigger, such as a big rise in interest rates or unemployment, for house prices to decline. British home prices started to fall in the summer of 2004 after the Bank of England raised rates by a modest one and a quarter percentage points. Since 2002, the Reserve Bank of Australia has raised rates by exactly the same amount and unemployment is at a 30-year low, yet home prices have fallen. The Federal Reserve's gradual increase in rates by two percentage-points over the past year has done little to scare away buyers, because most still have fixed-rate mortgages and long-term bond yields have remained unusually low. But as more Americans have been resorting to ARMs, so the housing market is becoming more vulnerable to rising rates. 

 

Rung at the bottom

British and Australian prices have stalled mainly because first-time buyers have been priced out of the market and demand from buy-to-let investors has slumped. British first-timers now account for only 29% of buyers, down from 50% in 1999. And, according to the National Association of Estate Agents, buy-to-let purchases are running 50% lower than a year ago. As prices become more and more heady in America, the same will happen there. 


British experience also undermines a popular argument in America that house prices must keeping rising because there is a limited supply of land and a growing number of households. As recently as a year ago, it was similarly argued that the supply of houses in Britain could not keep up with demand. But as the expectation of rising prices has faded, demand has slumped. According to RICS, the stock of houses for sale has increased by one-third over the past year. America has faster population growth than Britain, but its supply of housing has also been rising rapidly. Economists at Goldman Sachs point out that residential investment is at a 40-year high in America, yet the number of households is growing at its slowest pace for 40 years. This will create excess supply.


Another mantra of housing bulls in America is that national average house prices have never fallen for a full year since modern statistics began. Yet outside America, many countries have at some time experienced a drop in average house prices, such as Britain and Sweden in the early 1990s and Japan over the past decade. So why should America be immune? Alan Greenspan, chairman of America's Federal Reserve, accepts that there are some local bubbles, but dismisses the idea of a national housing bubble that could harm the whole economy if it bursts. Americahas in the past seen sharp regional price declines, for example in Boston, Manhattan and San Francisco in the early 1990s. This time, with prices looking overvalued in more states than ever in the past, average American prices may well fall for the first time since the Great Depression.


But even if prices in America do dip, insist the optimists, they will quickly resume their rising trend, because real house prices always rise strongly in the long term. Robert Shiller, a Yale economist, who has just updated his book “Irrational Exuberance” (first published on the eve of the stock market collapse in 2000), disagrees. He estimates that house prices in America rose by an annual average of only 0.4% in real terms between 1890 and 2004. And if the current boom is stripped out of the figures, along with the period after the second world war when the government offered subsidies for returning soldiers, artificially inflating prices, real house prices have been flat or falling most of the time. Another sobering warning is that after British house prices fell in the early 1990s, it took at least a decade before they returned to their previous peak, after adjusting for inflation.


Another worrying lesson from abroad for America is that even a mere leveling-off of house prices can trigger a sharp slowdown in consumer spending. Take the Netherlands. In the late 1990s, the booming Dutch economy was heralded as a model of success. At the time, both house prices and household credit were rising at double-digit rates. The rate of Dutch house-price inflation then slowed from 20% in 2000 to nearly zero by 2003. This appeared to be the perfect soft landing: prices did not drop. Yet consumer spending declined in 2003, pushing the economy into recession, from which it has still not recovered. When house prices had been rising, borrowing against capital gains on homes to finance other spending had surged. Although house prices did not fall, this housing-equity withdrawal plunged after 2001, removing a powerful stimulus to spending.


Housing-equity withdrawal has also fallen sharply over the past year in Britain and Australia, denting household spending. In Australia, the 12-month rate of growth in retail sales has slowed from 8% to only 1.8% over the past year; GDP growth has halved to 1.9%. In Britain, too, a cooling of the housing market has been accompanied by an abrupt slowdown in consumer spending. If, as seems likely, home prices continue to fall in both countries, spending will be further squeezed.

Even a modest weakening of house prices in America would hurt consumer spending, because homeowners have been cashing out their capital gains at a record pace. Goldman Sachs estimates that total housing-equity withdrawal rose to 7.4% of personal disposable income in 2004. If prices stop rising, this “income” from capital gains will vanish.



 

And after the gold rush?

The housing market has played such a big role in propping up America's economy that a sharp slowdown in house prices is likely to have severe consequences. Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.

 

 

 

 

One of the best international studies of how house-price busts can hurt economies has been done by the International Monetary Fund. Analyzing house prices in 14 countries during 1970-2001, it identified 20 examples of “busts”, when real prices fell by almost 30% on average (the fall in nominal prices was smaller). All but one of those housing busts led to a recession, with GDP after three years falling to an average of 8% below its previous growth trend. America was the only country to avoid a boom and bust during that period. This time it looks likely to join the club.

 

 

Japan provides a nasty warning of what can happen when boom turns to bust. Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991. Yet the rise in prices in Japan during the decade before 1991 was less than the increase over the past ten years in most of the countries that have experienced housing booms (see chart 3). And it is surely no coincidence that Japan and Germany, the two countries where house prices have fallen for most of the past decade, have had the weakest growth in consumer spending of all developed economies over that period. Americans who believe that house prices can only go up and pose no risk to their economy would be well advised to look overseas.

 

 

 

 

 

Priced to perfection

 

Jun 29th 2006 
From The Economist



An overvalued market is vulnerable to higher interest rates 

DURING the past decade Britain's housing market has had its most sustained boom in post-war history. Between 1997 and 2006, house prices rose by 175%, one of the biggest increases among developed economies (see first chart). At its peak, in 2002 and 2003, house prices were soaring by over 20% a year.

 

A bubble had emerged, as Gordon Brown, the chancellor of the exchequer, acknowledged last autumn. By then, it was already deflating. In 2005 residential-property sales in England fell below a million for the first time since 1996. House prices stopped rising for several months.

 

On past form the slowdown seemed likely to presage a long slump. The boom was the fourth since the early 1970s, and on each of the three previous occasions a bust had followed. At the end of 2005, according to the OECD, house prices were about 30% above their trend level.

 

 

The market staged an unexpected recovery, however. Property transactions picked up. Monthly mortgage approvals for house purchase, which had slumped to 76,000 in November 2004, recovered to 117,000 in May of 2006. House prices have also perked up. Fionnuala Earley, chief economist at Nationwide Building Society, now expects house prices to rise by around 5% in 2006.

 

The housing market appears to have stabilised at much higher valuations than were previously reckoned possible. A common measure of affordability is the ratio of average house prices to average earnings, since income must ultimately pay for the acquisition of a property financed with a loan. Looked at this way, homes are even more overvalued than they were at the peak of the boom in the late 1980s: the ratio stands at 6.0, compared with 5.2 in the third quarter of 1989. Much the same message emerges from another valuation method, which, rather like the price-to-dividends ratio for equities, measures the relationship of house prices to rents.

 

Yet such yardsticks are not the final word. When homebuyers work out whether a property is affordable or not, the cost of servicing a new mortgage as a chunk of take-home pay is more salient. On this basis, valuations are also stretched, but homes are still considerably more affordable than they were at the end of the 1980s (see second chart).

 

The decline in borrowing costs over the past decade goes a long way to explaining why house prices have proven so irrepressible. Most of the fall in interest rates has arisen from the collapse in consumer-price inflation. In itself, that makes no difference to the real cost of servicing a loan over its lifetime. It does affect the timing, though. When inflation is high, the burden is “front-loaded” in the early years of the loan, but then eases as the real value of the debt is swiftly eroded. When inflation is low, the initial payments are more bearable but more of the real debt persists, which shunts a bigger share of the costs into the later years of the loan.

This fall in the initial debt-servicing burden on mortgage borrowers has underpinned the rise in house prices over the past decade. Homebuyers have also benefited from greater competition in the market. This has whittled down the margin between banks' deposit and home-loan rates, so lowering the cost of mortgages.

Buyers have also been encouraged by the Bank of England's quarter-point cut in the base rate to 4.5% last August. This followed a tightening in monetary policy that lifted the base rate from 3.5% in October 2003 to 4.75% in August 2004. A more important relief to homebuyers over the past couple of years, however, has come from unusually low longer-term interest rates.

 

British mortgages have customarily been at variable short-term rates, closely tied to the Bank's base rate. But since the start of 2004, the share of fixed-rate loans being taken out has risen from 30% to 70%. Most of these are for brief terms, typically two or three years, but they have allowed borrowers to exploit the fact that longer-term rates have been lower than short-term ones. The overall effect has been to offset about half the Bank's monetary tightening, estimates David Miles, chief UK economist at Morgan Stanley.

 

Too good to last?

 

The resilience of the housing market owes much to these exceptionally benign credit conditions. The recent upsurge in immigration may also be supporting the market. But purely domestic factors such as planning restrictions, by contrast, are less important than is sometimes suggested. Other countries—notably Australia—have also avoided a bust in their housing markets, and have instead seen price increases flatten out. This suggests a common cause: low interest rates worldwide.

But what has been given can be taken away. Monetary policy around the world is tightening to keep inflation at bay. The Bank for International Settlements—the central banks' bank—said on June 26th that the squeeze must continue. The Bank of England is expected to push the base rate back up to 4.75% later this year.

Britain's homebuyers are vulnerable to quite small increases in the cost of mortgages because they have taken on so much debt during the good times. Overall household borrowing has risen from 110% of disposable income in 2000 to 150% at the start of 2005. The burden of repaying so much more debt means that the total servicing charge is high even at low interest rates.

 

The most frightening words in the financial lexicon are that it's different this time. This refrain, a favourite of boomsters, was much in vogue at the time of the dotcom bubble. It remains just as suspect when applied to a housing market that is unnervingly priced to perfection.

 


 

 

Global house prices 

Soft isn't safe

 

Mar 2nd 2006 
From The Economist



Homebuyers can lose money even if house prices do not fall

 

THERE have been a lot of moves up and down The Economist's global house-price league in the past couple of years. In 2003 Australia and Britain topped the table with 12-month rises of around 20%. But prices there have since levelled off and in the past year have broadly kept pace with inflation (see table). Hong Kong has also tumbled down the league: after a 30% jump in 2004, prices have risen by only 5.8% in the past 12 months and since last summer have even fallen. In the past year house-price inflation has also fallen by more than half in South Africa and China, and slowed from 17% to 13% in Spain. The new high flyer is Denmark, where prices are 17.7% higher than a year ago, followed closely by New Zealand (16.8%).

America's boom also remains strong, with prices up by 13% in the year to the fourth quarter. But there are signs that the market is cooling. Sales of existing homes fell for a fifth month in January, to the lowest for nearly two years, Stocks of unsold homes rose to 5.3 months' supply (from 3.7 a year ago), the most since 1998.

 

Ian Morris, an economist with HSBC bank, calculates that about half of America's housing market is experiencing a bubble, with prices overvalued by almost 40% even after taking account of low interest rates. Homes in California and Washington, DC, are overvalued by 50%.

 

That house prices in Britain and Australia have flattened rather than slumped has encouraged most commentators to expect a soft landing in America too. However, that could still mean a hard bump for the economy and for many homeowners.

 

As British property prices have levelled off, the annual growth rate of retail sales has plunged from 7% to 1%. Mr Morris calculates that even a perfect soft landing in America, with flat house prices across the country, could cause home sales to drop by 30-40%. In turn, mortgage equity withdrawal, which has been financing much consumer spending, would then dry up, creating a drag on growth equivalent to more than 3% of GDP.

 

British homeowners may comfort themselves that, contrary to The Economist's predictions, prices have not fallen. With homes still remarkably dear, prices could yet fall. Next worst, they could stagnate for a long time. And even then, housing investors could lose because transaction costs such as estate agents' and solicitors' fees and stamp duty are so high.

 

Suppose you bought a flat in London for £500,000 ($870,000) and sold it five years later for the same amount. You might think you've got your money back; in fact, you have lost a tidy sum. Suppose that you put down a deposit of £50,000 and took out an interest-only mortgage. Stamp duty, legal fees and other costs on the purchase were almost £20,000; five years' maintenance cost £10,000. Your selling costs were then, say, £15,000. Of your £50,000 deposit, you now have £5,000—a 90% loss. Had you simply put the cash in the bank, you would have made 20%.

Worse, because rental yields are so low, you have paid more in interest over the five years than you would have done in rent. In most other countries, where transaction costs are typically twice as large as in Britain, the loss could be bigger still. Investors be warned: even if prices do not fall, housing is not, so to speak, as safe as houses.

 

 

South Africa 

Barking up the wrong sun-deck

 

May 4th 2006 | JOHANNESBURG 
From The Economist



Foreigners are not responsible for rising property prices

 

THESE are nervous days for foreigners thinking of buying a dream mansion on South Africa's Cape seashore, now a favoured destination for the cash-happy permatan set. For the present they are able to purchase property the same way locals do, with no restrictions. This is changing. South Africa's government is thinking of making it just a bit more difficult for them.

 

In a country trying to heal the wounds of hundreds of years of land dispossession and forced relocation, many people have come to blame outsiders with pockets full of British pounds or euros for pushing up prices, driving locals out of the housing market, or turning farmland into private game parks. In February, President Thabo Mbeki announced that the conditions under which foreigners buy land would be regulated in line with international practices. Later that month, a panel appointed by the government in 2004 recommended that until then there should be an immediate moratorium on all foreign transactions. Although the idea was promptly dismissed, this has created jitters overseas and amongst locals worried about the effects of such action on foreign investment.

 

Property prices have indeed shot up over the past five years, by an average of 20% a year. Foreigners have had little to do with it, however, and slapping on restrictions is unlikely to bring houses or land to those who need them most. Foreign individuals—including those who live in South Africa—own 1-3% of residential properties, and about 2% of farms. Foreign interest probably has pushed prices up slightly in specific areas, such as the posh bits of the Western Cape coast. But, overall, the small numbers are unlikely to have had any significant impact on general prices. The property bonanza has had more to do with a buoyant economy, a growing middle class and declining interest rates. Low-cost housing and dwellings in townships have not been spared from the rising prices either.

 

That has aggravated a more serious problem, the lack of affordable housing at the bottom of the market. Banks have promised 42 billion rand ($7 billion) worth of mortgages for people earning less than 7,500 rand ($1,244) a month by 2008. But there are too few new houses. A recent study from the Banking Association of South Africa argues that developers have lost interest in affordable housing, in large part because municipalities are too slow to earmark and service land for development. In any case, property prices have lost some steam after their run over the past few years. An increase of 10-12% is expected this year, compared to over 22% in 2005 and over 32% the year before.

 

So far, preliminary suggestions from the government-appointed panel on foreign ownership include ministerial approval for certain transactions such as large agricultural holdings, ecologically fragile zones and areas due for restitution or redistribution under the land-reform programme. This would not be very different from what exists in places like Australia, Switzerland or Mexico. The panel's final recommendations are expected later this month or in June. If reason prevails, more punitive measures are unlikely.


 

American banks and property 

Sleeping in the vault

 

Jan 12th 2006 | NEW YORK 
From The Economist



A move into hotels blurs the distinction between banking and commerce


TWO middle-sized American cities, Pittsburgh, Pennsylvania and Charlotte, North Carolina, will each see the rise of new hotels. Whatever significance this has for the cities themselves (and it may be noteworthy, at least for Pittsburgh) it has more for America's financial system. The owners will include two big banks, PNC (once known as Pittsburgh National Bank) and Bank of America (née North Carolina National Bank). The projects, approved last month by the Comptroller of the Currency, a national bank regulator, seemingly fly in the face of restrictions on investment in property dating back to the charter written in 1791 for the First Bank of the United States by Alexander Hamilton, America's first treasury secretary.

 

Hamilton's concerns were hardly unique. They were shared by, among others, Walter Bagehot, editor of this newspaper from 1861 to 1877, and have not been extinguished to this day. Loans and other financial assets, after all, can be blended with other loans and assets to permit diversification. They can usually be sold on fairly easily, either in bits or their entirety. And even “long-term” loans, at least those held by banks, tend to last for only a few years.

 

Conversely, property comes in lumps and can be hard to unload in a slump. Because American banks can raise money cheaply through federally insured deposits, there has always been a concern that by directly owning any kind of business, they could help inflate a bubble. That, along with the justified concern that crippled banks can trigger systemic problems, has resulted in limits being placed on their permissible activities. Even as, in recent years, lines have softened between banking, investment banking and insurance, general commerce has largely been off limits.

 

In response to these reservations, both PNC and Bank of America note that the restrictions have never been absolute. Banks have owned their branches and operational facilities, and prevailed in litigation permitting them to rent out surplus space and receive property pledged as collateral after a default. If this were not so, banking would be a vastly more complex business. Certainly, mortgages could not carry lower interest rates than other bank loans nor have developed as they did without the ability to use property as collateral.

 

To buttress its decision, the Comptroller's office referred to a 1902 Federal Appeals Court decision. The court held that banks would never find suitable places in crowded downtown business districts unless they could have the right to rent out surplus space acquired in a good-faith effort to house their operations. Going a bit further, the Comptroller's office released two previously undisclosed letters from 1993, the first acceding to a bank's request to hold a condominium for its own use and the second allowing the bank to rent it out when it was not needed.

Each of these steps was innocuous. PNC and Bank of America argue that their projects are similarly mere augmentations of their existing operations. PNC will build a $170m hotel-office-condominium project on a derelict site next to its headquarters.

 

Perhaps it could be considered part of those headquarters. Local officials could not be more thrilled. Pittsburgh's mayor and Pennsylvania's governor joined the bank's chief executive to announce the project, and various city and state funds will pick up 30% of the cost. PNC's financial commitment will not, however, be reflected in its occupancy of the new structure. Almost half of the office space will be used by Reed Smith, a law firm. PNC says it will use “some” of the rest.

 

Bank of America's project goes one step further—across the street rather than next door. It is putting up a $60m hotel, one of the swanky Ritz-Carlton chain, with 150 rooms. Critical to the approval by the Comptroller was a pledge that half the rooms would be used by its own employees, thus making the project a bit less like a property speculation and more like the routine addition of a facility. That said, monitoring hotel occupancy is not an activity that bank regulators routinely undertake. Bank of America will, indirectly, be in the property-management business. Given the bank's vast array of offices around the country, might other property schemes be on the drawing board? Surely other banks are looking around too. According to the Charlotte Observer, Wachovia, Bank of America's perpetual rival, hopes to build an office-condominium-arts facility. It would be a surprise were other moves long in coming.


 

 

Retiring Americans 

Go south, old man

 

Nov 24th 2005 | SAN MIGUEL DE ALLENDE 
From The Economist



The gringos are moving where the living is easy


YOU CAN'T really tell you're in Mexico. The menu is in English, so is the music, and seemingly every patron in the place is American—many of them extended families come together to celebrate Thanksgiving. San Miguel, a hillside town three hours north of Mexico City, has long played host to a community of expatriates from the United States, many of whom have chosen to retire there for all or part of the year. Although neither the Mexican government nor the American one keeps statistics on the town's foreign population, anecdotal evidence suggests that it is now growing at a faster pace than ever.

 

Joannie Barcal of Allende Properties, an estate agent from California, who has lived in the town for 16 years, says that the number of foreigners looking for houses in San Miguel has increased hugely over the past year. It is a comfortable sort of place—one might describe it as the opposite of bohemian. Trinket shops sell silver plates embossed with the logos of Louisiana State University and theUniversity of Texas. The houses bought by foreigners are rarely cheaper than $220,000; several go for over a million every year, Ms Barcal says.

 

Many of the American settlers barely speak a word of Spanish. They move south not so much in pursuit of the sun, which they could find just as easily in Florida or Arizona, but in a search for a cheaper way of life, along with the sense of community that foreign enclaves generate. Estimates for the number of Americans of non-Mexican ethnicity who have retired to Mexico, mostly in San Miguel and a handful of other towns, hover around 250,000, with at least as many Americans with Mexican roots more widely dispersed. But the house-price boom they and other foreigners, notably Canadians, have created is now driving others even farther south.

 

Panama, Costa Rica, Nicaragua and Honduras all offer tax breaks to foreigners seeking to retire there. Beachfront developments catering for pensioners have sprung up along both the Atlantic and Pacific coasts, with a house right on the beach often costing just half what you could expect to pay in San Miguel, smack in the middle of Mexico. Even an influx of a few tens of thousands of American “senior citizens” can have a big impact on the small economies of the Central American countries. And the numbers could grow even bigger if America agreed to change its public health-care system for those over 65.

 

At present, Medicare, as the system is called, cannot be claimed abroad. So American pensioners tend to travel back to the United States to get treatment. The possibility of making Medicare “portable” has been talked about for years. But, apart from the introduction of a small pilot project, it has never got much further than just an idea. Yet the advantages are clear: expatriate pensioners would find it easier to get health care; the costs for the crisis-ridden Medicare would be lessened; and Mexico and other Central American countries with American pensioners would benefit not only from a rise in their health-care expenditure, but also from the big increase in their numbers that such a change would certainly bring.


 

 

Japan's property market 

Re-bubble

 

Dec 1st 2005 | TOKYO 
From The Economist



Specialist funds have raised property prices, but the market is still fragile

 

RECENTLY, 18 Japanese hotels have had to close, at least for a while, because of the risk that they will fall down. Several blocks of flats are also under scrutiny, and their residents may have to move out. An architect faked earthquake-resistance data and surveyors supposed to appraise the buildings' construction did not notice.

 

The scandal is especially distressing to those living in or owning these buildings. But it has also sent a shiver through Japan's property market, and may hurt its fast-growing real-estate investment trusts (REITs). The gap between rental yields, around 3-5%, and long-term government-bond yields, around 1.5%, have made property attractive in certain areas, mainly big cities. REITs and private-equity funds specialising in property pool investors' cash to buy portfolios of buildings. They have also been investing borrowed money, on offer ultra-cheaply from Japan's banks, to add extra zip. Some have been promising investors as much as 20%.

 

 

These funds have pushed up the prices of property in some places. Numbers are sketchy, because most funds reveal little, but Mitsui Fudosan, Japan's biggest property developer, puts the total size of REITs and private-equity property funds at ¥10 trillion ($87 billion), or 10-14% of Japan's investment-grade property market. Akiyoshi Inoue, president of Sanyu System Appraisal, a firm of surveyors, calls this a “re-bubble”, reminiscent of the overheating of the 1980s. Collapse, and great distress for Japan's economy and its banks, ensued.

 

Rising property prices, although only in some areas, have led optimists to believe that a 15-year property slump is coming to an end. Not so, says Mr Inoue, who expects the “re-bubble” to burst in roughly a year's time. Competition is intensifying as firms build new properties to lure tenants. Commercial rents in central Tokyo, according to data from Mitsui Fudosan, fell by about one-quarter between 2000 and last year. Toshihiko Okino, of UBS in Tokyo, adds that while REITs tend to be long-term investors, private funds, which have three-quarters of the market, usually intend to sell in six months to three years—hardly a solid base for prices.

 

REITs with high-quality portfolios can console themselves that they are less susceptible to falling rents. They also tend to be less geared than those further down the market: loans comprise about 60% of their finance, against 90% at the weaker funds with less attractive properties.

 

This in turn poses a question of Japan's banks, especially small ones. Most of their loans to the funds have no collateral except property, so lenders cannot call on related companies to step in should borrowers get into trouble. Smaller banks have also been putting money into REITs as equity investors, doubling their risk.

How big a worry is this? Nothing on the scale of the 1980s, to be sure, but it is troubling all the same that no one really knows. Even the banks' regulator admits it has no idea how much most banks have lent to property funds. Despite being badly bitten once, the banks are still not shy.

 

 

Global house prices 

Hear that hissing sound?

 

Dec 8th 2005


From The Economist



Our latest update of The Economist's global house-price indicators

 

 

THE air is slowly leaking from the global housing bubble. In most of the countries that The Economist tracks each quarter the pace at which house prices are climbing has slowed over the past year. An overwhelming majority of experts are still predicting a soft landing with no drop in prices. But property in many countries is so overvalued that even if prices do not fall, they could stagnate for up to a decade.

 

America's market has remained hot for longer than most, but even it now seems to be coming off the boil. The 12-month rate of house-price inflation slowed to 12% in the third quarter of 2005, from 14% in the second. Prices of new homes, however, rose by only 1% in the year to October, down from 16% in early 2004. A glut of new building is forcing developers to cut prices. The best signal of a further slowdown to come is the increase in the stock of unsold homes. The number of existing homes on the market was equivalent to 4.9 months' sales in October, up from 3.8 months' sales in January.

 

For a clue on where prices are heading, American homeowners should keep a close eye on Britain and Australia, where housing bubbles started to deflate in 2004. In Britain the Nationwide building society's price index has risen by only 2.4% over the past 12 months; in the summer of 2004 it was clocking up annual growth of more than 20%. Two other surveys, published by Hometrack and the Royal Institution of Chartered Surveyors, suggest that prices have in fact fallen over the past year. This week one British lender said that it would no longer offer buy-to-let mortgages on new properties.

 

The downturn in the Australian market has now spread beyond Sydney, where prices are already at least 10% below their peak. In the third quarter prices also fell in Melbourne, Brisbane, Hobart andCanberra. Nationally, average prices increased by only 1% in the year to the third quarter. In real terms, they fell.

House-price inflation has also eased in France, Spain, Italy and Ireland. However, Japan's 14-year slide in house prices may at last be nearing an end: prices in central Tokyo are now rising, although the national average is still slipping and is now 40% below its peak in 1991.

 

Japan shows what can happen when home prices lose touch with reality. But exactly how overvalued are property markets elsewhere? A recent report on the rich world's housing markets by the OECD concludes that Australia has the most over-valued housing market, with prices 52% above their “correct” level. Next in line is Britain, where prices are 33% overvalued.

 

To judge the fair value of homes, the OECD uses the ratio of prices to rents, which is a sort of price-earnings ratio for housing. If prices are too high relative to rents, potential buyers will rent not buy, eventually pushing down real prices. In Australia this ratio is 70% above its average level over the period since 1970.

 

However, a higher ratio of house prices to rents may be justified by low interest rates, which make it cheaper to buy a home. The OECD tries to calculate the “user cost” of home ownership, which in addition to interest rates takes account of tax relief, property taxes, maintenance costs and expected inflation. It then compares the actual ratio of prices to rents with a “fundamental” ratio based on user cost. It is by this gauge that the OECD finds Australian property to be 52% too dear. It concludes that only Britain, the Netherlands and Ireland also have significantly overvalued housing (ie, by 15% or more). Spain is modestly overvalued, but America, France, Sweden and New Zealand look reasonably close to fair value. Homes in Germany and Japan are undervalued by more than 20%. So is The Economist wrong to talk about a global housing bubble?

 

One problem with the otherwise excellent OECD study is that its numbers are out of date. It is based on the average for 2004, since when several markets have surged. Using our house-price indicators, we have updated the figures for the third quarter of 2005. For instance, American prices are now 15% higher than the average for last year while rents have risen by 3%, so the ratio of house prices to rents has risen by 12%. Using the OECD's method, this suggests that housing is now 14% overvalued. If we also adjust for the rise in the mortgage rate since 2004, the American market is almost 20% overvalued.

 

 

The chart above shows our updates for other countries (outside America interest rates have barely altered, so we have adjusted the figures only for changes in prices). France, Spain, Denmark,Sweden and New Zealand also now look significantly overvalued. Germany and Japan (not shown) are still notably undervalued.

 

These estimates are highly sensitive to changes in interest rates, especially in euro-area economies, such as Ireland and Spain, where rates are very low (and where most mortgages are at variable rates). A rise of one percentage point (including the quarter-point rise announced by the ECB last week) could make Irish homes overvalued by as much as 50%.

 

Commentators in Britain and Ireland like to talk about the housing market “stabilising” after years of froth. But when you are teetering on a high wire, stability is difficult to maintain. Without a decline in prices, it could take as long as a decade, at current rates of consumer-price inflation, for British property prices to get back to fair value. A decade of falling real prices is not something to relish.


 

Spain's building boom 

Costa del concrete

 

Sep 15th 2005 | MADRID 
From The Economist



The downside of too much construction


SOMETIMES Spain seems to be a huge, cacophonous building site. Construction is even blamed for the drought, because it drains water to sustain a concrete belt along the coast. The practice of illegally setting fire to protected land to get it re-zoned for development has also triggered forest fires.

 

Spain is the biggest consumer of cement in the European Union, sloshing down almost 50m tonnes of the stuff every year. In 2004 some 180,000 holiday homes were built along the coast. A million more are planned on the Costa Blanca alone over the next decade. El País, a daily newspaper, has lamented that Spain's “destructive” construction has already irrevocably scarred much of the country. Satellite photographs show that, in the past ten years, the area of developed land has expanded by 25%. As much as one-third of Spain's Mediterranean coast is under concrete.

 

Spain has a higher proportion of homeowners than any other large rich country. Its holiday-home market has made it the Florida of Europe, with foreigners, mainly Britons and Germans, buying half of all second homes on the coast. The construction boom has enriched those who speculated on land prices on the edge of cities like Madrid. It has also led to endemic corruption. Companies negotiate with municipal or regional governments to reclassify land for residential building. In some places, developers have even managed, dubiously, to wrest title from foreign owners of holiday homes to get land re-zoned for more intensive building.

 

The boom has created a construction industry worth as much as 16% of Spain's economy. But will the glory days last? Frédéric Mangeant, a partner at Knight Frank, an estate agent, in Madrid, says “it is dangerous for an economy to be built almost solely on a construction boom.” He is among many praying for a soft landing for house prices. His firm hopes that demand will be sustained by a growing immigrant population, as well as by first-time buyers.

 

He also notes that Spain's construction giants are diversifying abroad. One of the biggest, Grupo Ferrovial, has bought Swissport International, an airport ground-handling company, only weeks after a $220m deal to buy a Texas-based construction company. Earlier this year another giant, Metrovacesa, took a 30% stake in France's Gecina, one of the biggest such deals in Europe.

 

The diversification reflects another fact of Spanish life: that the annual €7 billion ($8 billion) of EU cash given to Spain is drying up. Interest-rate rises are also a worry. It looks as if the construction cycle is peaking, and Spain's housing boom may be ending. Its legacy will be an enviable network of motorways, a big construction lobby, some rich politicians—and an awful lot of concrete.

 

 

Indian property 

Another boom

 

Aug 25th 2005 | MUMBAI 
From The Economist



Why foreigners are so keen on India's property market


THIS year's monsoon may have brought terrible suffering to Mumbai, but nothing seems to dampen the property market in India's commercial capital. At a recent government auction, the prime eight-acre (3.2-hectare) site of the former Elphinstone textile mill was bought for 4.4 billion rupees ($101m) by Indiabulls Real Estate, a subsidiary of Indiabulls, a local securities broker firm. In recent months Mumbai has seen the pricey sales of five large pieces of land on which its now defunct textile mills once stood; Indiabulls Property, a related company, snapped up another of these, Jupiter Mills, in May.

 

Like those of many other countries, India's property market is booming. The difference is that India's was long out of bounds to institutional investors, particularly foreigners. That appears to be changing: 60% of Indiabulls Property is owned by Farallon Capital Management, a San Francisco hedge fund. This month Indiabulls closed a $150m offering of global depository receipts to fund its recent property acquisitions; Fidelity, Goldman Sachs and Merrill Lynch were large investors.

 

Two forces lie behind the boom. First, investors are betting on the consumption-driven growth of India's economy that is spawning glitzy shopping malls, entertainment centres, multiplexes and luxury hotels. Some reckon that the retail trade will soon be opened to foreign investment and that the likes of Wal-Mart will fuel the demand for commercial property. The second factor is India's emergence as a hub for global outsourcing. Last month GE Commercial Finance, General Electric's investment arm, said it would put $63m into a $350m fund sponsored by Ascendas, a property developer and asset manager from Singapore. The fund will finance information-technology parks; the idea is to make money from capital gains and leases. GE is already a large investor in business-process outsourcing in India; this marks its entry into commercial property.

 

The immediate attraction for foreigners is the easing of restrictions on direct investment in the property market in February this year. Foreign companies can set up subsidiaries or joint-ventures to develop property, provided that their money is locked in for three years and that plots are of at least a minimum size.

Locals have also joined in. HDFC, India's largest mortgage lender, and State Bank of India, the largest commercial bank, closed a seven-year, 10 billion rupee property fund for Indian investors in July. ICICI Venture, a subsidiary of another big bank, is raising a $250m venture fund to finance commercial and residential property development.

 

However, India's property market remains unorganised and underdeveloped. This creates risks for investors. In the absence of clear title to property, the risk of litigation is high, says Gagan Banga, a director at Indiabulls. The Elphinstone property is mired in a high-court action because the previous private owner challenged its nationalisation. And for those who invest in India via real estate investment trusts, there are no rules on the marking of their stakes to market or on whether they must pay stamp duty on transactions, says Renuka Ramnath, who heads ICICI Venture.

 

Also, as property prices have shot up, by over 20% in places in recent months, some give warning of a bubble. Deepak Parekh, chairman of HDFC, says that prices in Gurgaon, a satellite town outsideDelhi that has attracted many outsourcing companies, are now falling, having doubled in the past year. The central bank raised the risk weight assigned by banks to their loans on commercial property to 125% from 100% in late July.

 

For some, the dizzying rise in Indiabulls' shares is an uncomfortable reminder of the dotcom boom. The five-year-old company, founded by three smart engineers and in which Lakshmi Mittal, a steel magnate, was an early investor, floated shares in September at 19 rupees apiece. They now trade at around 225 rupees, having topped 250 this month. The company's market capitalisation has risen from 2 billion rupees to 30 billion. Perhaps it is time to get those seatbelts on.


 

Cross-border property deals 

Building up fast

 

Jul 28th 2005 
From The Economist



Property investors are increasingly ready to buy—and sell—abroad

 

WITH its transparent and liquid market, Britain has long been a favourite with non-European property investors. It still is. But for how long? These investors put $6.5 billion into British property last year, but sold $9.6 billion-worth. The same thing happened in the United States. Investors from outside North America bought $8.6 billion-worth of real estate there, but sold $11.6 billion. In contrast, they invested $1.4 billion in Canada, and sold almost nothing. Japan too was a one-way story: investors from outside the Asia-Pacific region put in $1.8 billion, but barely sold at all.

So, at any rate, says a new study from Jones Lang LaSalle, a global estate agency. Inevitably, the figures are heroic, mingling recorded deals with estimates of others. And pinning a nationality on investors is also brave in these days of easy and massive cross-border capital flows. So add a pinch of salt. But you won't find better.

 

 

Of the $99 billion of deals that crossed national frontiers in these three areas, inter-regional ones—where buyer, seller or both came from outside the region—accounted for $60 billion, if you count in $10.5 billion by Middle Eastern investors. That does not show (as the study argues) that investors ready to diversify across frontiers at all are likelier to go outside their “home” region. If all the people dealing in far-away buildings had been sellers, it would suggest just the opposite. In fact, sales did slightly outweigh purchases; North Americans took $3.2 billion, net, out of Europe, Europeans (less predictably, given the dollar's weakness last year) took $2.2 billion net out of North America.

 

But the figures do prove plenty of activity: that cross-border $99 billion in the three main regions is up from $82 billion in 2003. And it is over a fifth of the $457 billion, with purely domestic deals added in, that the study estimates as the grand total of property deals last year.

 

 

House prices 

After the fall

 

Jun 16th 2005 
From The Economist

                    

Soaring house prices have given a huge boost to the world economy. What happens when they drop?

 



PERHAPS the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.