Boom2Bust.com

Two Sides To Every (Housing) Story

Some time ago I was interviewed by Tony Sclafani, an MSNBC.com contributor, for a piece he wrote regarding the decline of newspapers. From the article:

Chicago financial research analyst Christopher Hill says he let his newspaper subscription lapse and prefers instead to scour a variety of news sources online. That way, he says, he’s assured of seeing “both sides of the stories.” The 35-year-old, who runs the financial blog Boom2Bust.com, says he’s noticed that his blog’s commenters will call him out when he fails to present a balanced overview of a particular issue.

“There might be a story that focuses on the U.S. housing market and the source might be the National Association of Realtors — and that might be the only side of the story you hear,” Hill says.

Last weekend, I came across an article in the Chicago Tribune which I thought was a pretty good example of what I was referring to in that interview. Nicholas Riccardi wrote on June 7:

Phoenix’s housing bust has turned into a quasi-boom, a sign that its market might have hit bottom and a preview of what a housing recovery could look like.

More homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers again are in bidding wars — only this time over foreclosed houses selling at deep discounts rather than ranch homes listing for vast sums.

Riccardi’s sources? Individuals who could stand to gain from a rebound in the Phoenix housing market. From the piece:

“The free market is at work,” said Shannon Hubbard, a real estate agent and blogger. “Prices got driven down so much that people said, ‘I’m going to come out and play.’ “

Hubbard writes on BlogArizona.com:

I’m a Realtor-Investor, maintaining an active real estate license with Great American Realty, Inc. I’m also Co-owner of Homewerx Home Inspections, and Owner of BlogArizona.com.

Next, Riccardi quoted a real estate consulting firm. He wrote:

John Burns Real Estate Consulting in February identified Phoenix as “the most unique market in the nation,” where affordability was better than at any time since 1981.

While looking through the consultant’s website, I came across the following in a recent newsletter:

Will tax credits, low mortgage rates, low prices, and continued aggressive government lending turn around the housing market? We HOPE.

Sounds like they can’t wait for a housing turnaround. Here’s another one:

Mike Orr, a Phoenix real estate analyst, thinks the housing market already has hit bottom.

Mr. Orr is not only a real estate analyst, but also an agent, according to the Arizona Republic’s Catherine Reagor in an April 2009 housing-related article.

Finally, there’s the real estate professor. Riccardi wrote:

Arizona State University business professor Karl Gunterman noted the incremental slowing in a report late last month, saying it could be a sign of the market bottoming.

Professor Gunterman, who is also an officer for the American Real Estate Society, talked about the Phoenix real estate market back on October 20, 2008. From the Phoenix Business Journal:

ASU real estate professor Karl Gunterman believes depreciation is beginning to level off, but says prices still are not at rock bottom. He expects the downward trend to continue as August and September are released, but not as steeply.

Was Gunterman correct about his “theory of depreciation?” See for yourself:

Phoenix (AZ) Housing Market
Source: ActiveRain.com

I’m not writing this to bash the author of this Tribune article, or his sources. However, as I indicated in that MSNBC interview, I believe readers deserve to be given access to both sides of the story, where applicable. By that, I mean it’s one thing to write a story about the activities of the local gardening club, and it’s another to pen an article about the perceived direction of residential real estate sales and prices. One point of view is not enough for the housing piece.

Unfortunately, this is what readers are left with many times.

By not addressing both sides of the story when warranted, the journalist may be left with nothing more than a press release or sales pitch on behalf of the source(s) used.

So, is there another side to the Phoenix housing story? Well, consider the following from Bloomberg’s Kathleen Howley and Erik Schatzker today:

U.S. home prices may continue to tumble for years, according to economist and Yale University professor Robert J. Shiller.

“Our sense that housing is a wonderful investment is really damaged now,” Shiller said in an interview with Bloomberg Television today…

The Standard & Poor’s/Case-Shiller national index of home prices, named after the professor, has fallen 32 percent from a high in the second quarter of 2006.

Shiller is famous for having warned of the housing bust while most other housing “experts” didn’t see it coming. In fact, he was often ridiculed for his comments about an impending housing bubble.

Based on Shiller’s latest outlook, it makes one wonder if we’ve really reached a bottom in housing.

Who knows? But having access to both sides of the story sure is nice.

Source:

“Bidding wars are back — at low end”
Nicholas Riccardi
Chicago Tribune, June 7, 2009

“Housing price declines head for record territory”
Jan Bucholz
Phoenix Business Journal, October 20, 2008

“Shiller Says U.S. Home Prices May Decline for Years (Update1)”
Kathleen M. Howley, Erik Schatzker
Bloomberg, June 9, 2009

Adventure Realtor?

Just how far will real estate agents go to sell property these days?

VERY FAR, as this May 22 post on Craigslist (Dublin) shows:

Washington DC Realtor coming to Ireland

Washington DC greater area professional Realtor coming to Ireland. Coming on May 24th and leaving June 1st 2009, will be in Shannon, Galway, and Dublin. If you are interested in investing, relocation, buying, leasing a Real Estate in Washington DC metro area please email me at…

Hope things worked out for this enterprising individual. Then again, there was always a Plan B…

Kidnap a leprechaun and force him to show you where his gold is.

Source: FreeClipArtNow.com

Boom2Bust Turns Two Years Old

Memorial Day Weekend 2007. Sure seems like yesterday….

Friday, May 25, 2007.

The Dow Jones Industrial Average closed out the week at 13,507.28. The S&P 500 index finished up at 1,515.73.

The median house price is $222,700, according to the National Association of Realtors.

Family net worth is at an all-time high of $64.36 trillion for the quarter.

The number of unemployed persons is 6.8 million and the unemployment rate is 4.5 percent.

Total public debt outstanding in the United States is $8.8 trillion.

Talk of the “Goldilocks economy” rules the day, and Washington and Wall Street are in “don’t worry, be happy” mode.

Federal Reserve chairman Ben Bernanke doesn’t believe the nation will slip into a recession, and he rejects the notion raised by his predecessor, Alan Greenspan, that the economy’s expansion could be in danger of fizzling out…

The Fed chief testified on Capitol Hill amid growing concerns that problems with risky mortgages and a painful housing slump could send the economy into a tailspin. Greenspan recently said there’s a one-in-three possibility of a recession this year.

But Bernanke — while acknowledging there are risks — told Congress’s Joint Economic Committee that the Fed does not see such negative forces pushing the economy into a recession.

“I would make a point, I think, which is important, which is there seems to be a sense that expansions die of old age, that after they reach a certain point, then they naturally begin to end,” Bernanke said. “I don’t think the evidence really supports that. If we look at history, we see that the periods of expansions have varied considerably. Some have been quite long.”

-Associated Press, March 29, 2007

…a new SUV in every McMansion’s garage

Fast forward to today…

The Dow Jones Industrial Average closed at 8,473.49. The S&P 500 index finished up at 910.33.

The median house price in the first quarter of 2009 is now $169,000, according to the National Association of Realtors.

Banks and businesses worldwide have lost $1.47 trillion in write-downs and credit losses in the past 22 months stemming from the collapse of the subprime-mortgage market.

Household net worth dropped a record 9 percent in the fourth quarter of 2008, pushing total net worth down to $51.48 trillion. It was the sixth straight quarterly decline from the peak of $64.4 trillion in the second quarter of 2007. Also, the drop in net worth in the fourth quarter of 2008 was the largest drop in dollar terms on record, going back to 1951, when the U.S. government began keeping quarterly records. The 9 percent drop was also the largest drop as a percentage change on record.

In April (the last month data is available for), the number of unemployed Americans reached 13.7 million persons and the unemployment rate was 8.9 percent. According to the Bureau of Labor Statistics, 5.7 million jobs have been lost since the recession began in December 2007.

The total public debt outstanding in the United States is now $11.3 trillion. Furthermore, as Bloomberg’s Mark Pittman and Bob Ivry pointed out on March 31:

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

Goldilocks made a fine meal for the bears.

But I’m convinced our fuzzy friends still want more.

Thank you all for reading and contributing comments to Boom2Bust.com, and for inspiring me to post about some of the financial research I come across on a daily basis.

Personally, I think that while we may get out of this recession soon enough, I fear all the additional obligations accrued since 2007 will only have made the house of cards that is the U.S. financial system weaker, thereby setting ourselves up for more pain when the eventual crash comes.

You can only kick the can down the road for so long before you have to call it a day.

Year three, here we come!

Christopher E. Hill
Editor

First Quarter Median Home Prices Slide Year-Over-Year

“Housing rebound seen by end of 2007”

-MSNBC website, December 21, 2006

“Will Home Prices Hit Bottom by June?”

-Wall Street Journal, December 21, 2007

“Will Home Prices Hit Bottom in 2008? Yes, but . . .”

-Kiplinger, January 2008

“Bottom appears to be near for housing prices”

-St. Petersburg Times, March 7, 2008

“Bottom’s Up: This Real-Estate Rout May Be Short-Lived”

-Barron’s, July 14, 2008

The carnage continues. From Reuters this morning:

The National Association of realtors said Tuesday that home prices dropped in 134 out of 152 metro areas on a year-over-year basis during the first quarter of this year.

The national median price for an existing single-family home was $169,000, some 13.8% below the price in the first quarter of 2008. The median is the half-way point, with half the prices above and half below this level.

The realtors’ lobby group said foreclosures and short sales were keeping prices down.

“Many buyers sought deeply discounted distressed sales — foreclosures and short sales — which accounted for nearly half of transactions in the first quarter and weighed down median prices in most markets,” the realtors said.

Source:

“Median Home Prices Slide From Year Ago”
Reuters, May 12, 2009

U.S. Housing Market On The Way To Recovery?

Is it possible that the gravely-ill housing market in the United States is actually starting to recover? Bloomberg’s Kathleen M. Howley wrote this afternoon:

U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, a sign that low interest rates may be moderating declines in real estate values…

Mortgage rates have tumbled 1.6 percentage points in six months, making houses and condominiums more affordable. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 5.3 percent last week as Americans took advantage of interest rates near record lows. Home sales rose 5.1 percent in February from a month earlier, the National Association of Realtors said March 23…

The inventory of properties on the market fell to a 9.7 month supply in February at the current sales pace, down from April’s high of 11.3 months, and sales rose 5.1 percent from a month earlier, the Realtors group said.

The number of Americans signing contracts to buy previously owned homes rose 2.1 percent in February, led by a 14.5 percent jump in the Midwest and a 10.6 percent increase in the Northeast, the National Association of Realtors said in an April 1 report.

Despite all this recent good news, the patient might not be out of danger just yet. Howley added:

U.S. banks owned $11.5 billion of foreclosed homes in the fourth quarter, up from $6.7 billion a year earlier, according to the Federal Deposit Insurance Corp. in Washington. California and Florida metropolitan areas led the U.S. in foreclosures in the first quarter as unemployment and falling property values deepened the housing recession, according to RealtyTrac Inc., based in Irvine, California.

“Whatever damage has been done in California is only going to get worse because there is a glut of homes owned by lenders that aren’t yet on the market,” said Bruce Norris, a principal with the Norris Group, a Riverside, California-based real estate investment firm. “These homes are like a shadow inventory that is likely to drag down prices further when they come onto the market.”

Freddie Mac, along with larger rival, Washington-based Fannie Mae and banks including New York-based Citigroup Inc., have slowed or delayed foreclosures using various moratorium plans in the hopes that homeowners in default will be able to modify their loans.

And now, foreclosures are starting to accelerate. The New York Times’ David Leonhardt wrote Tuesday:

Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.

Which could mean more falling prices ahead. Leonhardt added:

The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.

This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.

Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive. So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, the difference isn’t enormous.

Not only are foreclosures ramping up, but it appears they’re spilling out beyond the primary metropolitan areas into the secondary markets now as well. From the American Banker website today:

Foreclosure rates continued to climb in the first quarter in many parts of the country, casting doubt on the effectiveness of the Obama administration’s foreclosure prevention plan, a private foreclosure listing company said Wednesday.

“Industry efforts to date really haven’t put a dent yet in the wave of foreclosures,” said Rick Sharga, a senior vice president at RealtyTrac, an online foreclosure listing service that releases quarterly reports on foreclosure activity. “Despite the press reports we’ve had about the many hundreds of thousands of loans that have been modified or worked out or rearranged, the numbers have just kept going up.”

Sharga said that new municipalities had appeared on the map during the most recent period as areas with rising foreclosure rates, including Boise, Id., Fayetteville, Ark. and Charlotte.

“It appears we’re starting to see the problem spread beyond the primary metropolitan areas into the secondary markets,” he said, adding that while foreclosures in Detroit, Mich., were down, rates in Ann Arbor, Lansing and Grand Rapids had risen.

RealtyTrac is your destination for housing foreclosures.

Going back to the Times piece, David Leonhardt ended his article on a personal note and brushed aside any notions that the housing bust may be near a bottom. He concluded:

I’ll confess that this bearish picture isn’t exactly what I had hoped to find. A year ago, as part of a move from New York to Washington, my wife and I bought our first house. We did so fully expecting prices to continue falling (though perhaps not as much as they ultimately will, given the severity of the financial crisis). But we decided they had fallen enough for us to take the plunge. We preferred buying before the bottom of the market instead of renting and having to move again in a year or two.

Still, when I wrote about that decision last spring, I argued that anyone who didn’t have to move probably should not buy yet. Prices still had a way to fall.

They don’t have as far to fall today, but the great real estate crash is not over, either. So if you are part of the 30 percent of American households who rent and you’re trying to decide when to buy, relax.

The market is still coming your way.

Sources:

“Home Prices Gain 0.7% in February From January (Update1)”
Kathleen M. Howley
Bloomberg, April 22, 2009

“For Housing Crisis, the End Probably Isn’t Near”
David Leonhardt
New York Times, April 21, 2009

“RealtyTrac Sees Problems with Obama Mod Plan”
American Banker, April 22, 2009

Recession Almost Over? Show Me The Evidence

Here’s a cheery headline making the rounds today:

“New signs emerge that recession may be near bottom”

Too bad the “evidence” put forth in the accompanying article isn’t exactly what I’d call compelling. The Associated Press’ Christopher S. Rugaber wrote today:

New signs that the recession could be nearing a bottom emerged Thursday, as factory orders were far better than expected and the Dow industrials surged over 8,000 for the first time in two months.

The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop. Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.

The Associated Press piece suggested the recession could be near a bottom based on “far better than expected” factory orders that were up 1.8% in February from the previous month. Pulling up Commerce Department data for orders of manufactured goods from the beginning of this recession (December 2007) reveals that since that time, orders for manufactured goods were up a total of 7 out of 15 months for which data is available for. Factory order levels even went on a tear and went up month-over-month from March through July of last year. In fact, February’s reading of 1.8% was surpassed back in December 2007 and June 2008, which saw increases of 1.9% and 2.1%, respectively.

All of this during the ongoing recession.

Based on these findings, I find it hard to argue that a one-month increase in factory orders means we’re near a bottom.

The AP piece also suggests we could be nearing a bottom based on surging stock prices. Long-time readers of this weblog might remember something I wrote back on October 14, 2007:

Wall Street As An Economic Barometer

The Wall Street Journal’s Economics Blog caught up with Merrill Lynch economist David Rosenberg back on October 2 as he examined the effects of Federal Reserve interest rate cuts on the U.S. stock market. Rosenberg found that the stock market always rises in the first month after an initial interest-rate cut, and the average increase is almost 4%. It’s interesting to note that since the federal funds rate cut back on September 18, the Dow Jones Industrial Average and the S&P 500 are up 2.6% and 2.8%, respectively.

Rosenberg also looked at whether or not recessions happen while the stock market is booming. In looking at the 1990-91 recession, he saw that the S&P 500 peaked on July 16, 1990, after rising 3.4% over the previous month. The recession also happened to start that July. Looking back further, Rosenberg studied the recession of the early 1980s and found that the stock market peaked on February 13, 1980, even though a recession had started the month before.

As Rosenberg’s findings demonstrate, surging stock prices don’t exactly correlate with a robust economy. Stock indexes may even peak— just as the economy starts to nosedive.

Once again, the Dow Industrials heading over 8,000 for the first time in two months isn’t a convincing argument that we’re about to see an economic turnaround.

Rugaber also threw in two more indicators for which I had problems seeing a correlation. He wrote:

Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.

Take a look at the following chart for U.S. construction spending from the beginning of the recession:

Source: New York Times

As you can see, monthly construction spending actually improved month-over-month in March, May, August, and September of last year. And still, recession. I’d be hesitant to declare a bottom is near from one month of “better than expected” construction spending data.

Finally, we come to pending home sales. From an AP colleague of Rugaber’s, Alan Zibel, on Wednesday:

An index that tracks signed contracts to purchase previously occupied homes rose in February from a record low a month earlier as buyers took advantage of deeply discounted prices and low interest rates.

The National Association of Realtors said Wednesday said its seasonally adjusted index of pending sales for previously occupied homes rose 2.1 percent — in line with expectations — to 82.1 in February from January’s record low of 80.4.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

However, Zibel dispelled the notion of a U.S. housing market recovery taking place anytime soon when he wrote:

Prices, however, are expected to keep falling for at least another year. Tens of thousands of homes are tied up in the foreclosure process and not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.

The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.

Pending home sales up? Yep, but almost half are being sold at deep discounts. Not exactly the sign of a healthy real estate market, or offering hope for a consumer spending rebound, if you ask me.

Folks, I hate recessions as much as the next guy. But if you’re going to tell me we’re coming close to a bottom, you darn well better have better evidence than this.

And before I forget, Rugaber also wrote the following in a separate piece today:

Fresh signs that factories are coming back to life and a bank CEO’s encouraging outlook fueled more hopes Thursday that the economy may soon emerge from the cellar, briefly lifting the Dow Jones industrials over 8,000 for the first time in two months…

Bank of America CEO Ken Lewis also bolstered the financial markets when he told CNBC that the recession is “getting close to the bottom.”

You remember Ken Lewis, don’t you? Back on June 21, 2007, I wrote on Boom2Bust.com:

In an interview with Bloomberg on Tuesday, Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters,” and the slowdown in home sales is “just about to be over.” He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.

That was summer 2007. A year later, on July 21, 2008, I wrote:

This morning, I read a piece by Marshall Eckblad of the Dow Jones Newswires on the CNN Money website. Bank of America Corp. Chief Executive Ken Lewis shared his outlook on the U.S. economy and housing market earlier today, after which Eckblad wrote:

Chief Executive Ken Lewis said Monday that the U.S. economy would see “sluggishness” through the rest of 2008 but eventually would stabilize this year and then begin its recovery in the early part of next year. Lewis made the comments during a conference call with analysts to explain the bank’s second-quarter earnings results…

Lewis said one component of those optimistic forecasts is his projection that the peak of the housing crisis is growing closer. “We see housing price depreciation being mostly over this year, maybe going into next year,” Lewis said.

I’ll leave you all with the following excerpt from that July 2008 post:

The Wall Street Journal’s Mark Gongloff pointed out yesterday that some individuals keep calling for a turnaround in the economy, housing market, what have you, only to be proven wrong time and time again. Gongloff said:

Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.

According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it’s just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.

And now, $400 billion in losses and one bear market later, they’re still calling for the rosy outcome…

Sources:

“New signs emerge that recession may be near bottom”
Christopher S. Rugaber
Associated Press, April 2, 2009

“US Factory Orders-STATS-Historical, New Orders”
FXStreet.com, April 2, 2009

“Pending home rise 2.1 percent in Feb. from Jan.”
Alan Zibel
Associated Press, April 1, 2009

“More signs of economic hope; grim jobs report due”
Christopher S. Rugaber
Associated Press, April 2, 2009

Low Rates Don’t Matter If You Can’t Get A Mortgage

Today I spotted the following on the Florida Association of Realtors website:

Why It’s a Great Time To Buy Real Estate in Florida!

Favorable interest rates: Do the math. Lower rates multiply a buyer’s financial power, especially now when rates are near a 40-year low. Even one/half of one percentage point difference means a buyer could save more than $1,000 per year on a median-priced home. Buyers get more home for the money – a perfect scenario for families looking to upsize.

Yep. Those pushing homes will tell prospective homebuyers now is the time to buy, partly because of low mortgage rates. Problem is, the aspiring homeowner might not qualify for a home loan. According to Bloomberg’s James Sterngold last week:

Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.

The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.

“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”

Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.

The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported…

“Underwriting standards have changed from lax to too tight,” said Lawrence Yun, chief economist at the Chicago-based National Association of Realtors. “The pendulum is swinging too far the other way. We can’t stabilize the housing market if buyers can’t get reasonable mortgages.”

Sterngold pointed out a number of obstacles for those looking to get mortgages these days. From the piece:

Those not covered by the Obama plan will have to contend with lenders requiring higher FICO scores than in the past or charging upfront fees to borrowers with scores once considered excellent. San Francisco-based Wells Fargo & Co., the second- largest U.S. home lender, boosted the minimum score for Federal Housing Administration and Veteran Affairs loans it makes through brokers to 620 on Jan. 27 from 600…

Another strain on consumers is a planned increase by Fannie Mae of add-on fees called loan-level price adjustments, which lenders often pass on to borrowers. Someone with a 699 FICO score borrowing 80 percent of the value of a home used to pay 1 percent in price adjustments. As of April 1, Fannie Mae will raise that to 1.5 percent. For a borrower with a 659 score, the adjustment will climb to 3 percent from 2.25 percent…

Another issue is that mortgage lenders have eliminated jobs, slowing down the approval process.

So much for low mortgage rates…

Source:

“Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens”
James Sterngold
Bloomberg, February 27, 2009

Tough Times For Housing Industry Trade Associations

From the Chicago Tribune’s real estate columnist Mary Umberger this weekend:

The National Association of Home Builders announced it’s cutting $11.5 million from its operating budget and eliminating 52 jobs. The Washington-based trade association, citing declining income from membership and trade shows, said, “The stark realities confronting our association and industry cannot be ignored.”

A spokesman said the organization is in the process of tallying its membership and won’t have final numbers until January; it previously reported 235,000 members.

Meanwhile, the National Association of Realtors says its membership is down by 125,000 since this time last year. Nonetheless, in early December, the trade group reported a still-hefty membership roster of 1.2 million. When the housing boom began in 2002, the group had 800,000 members.

Source:

“A little gift of Zen for the holidays”
Mary Umberger
Chicago Tribune, December 21, 2008

One-Third Of First-Time Home Buyers Use No Money Down In 2007-2008

You’d think some people would learn a thing or two from the Great American Housing Bust. Chicago Tribune real estate columnist Mary Umberger wrote this past weekend:

Each year, the National Association of Realtors meticulously surveys thousands of real estate consumers in order to get an idea of which ones, exactly, got to the closing table, and how they did it.

The 10,000 consumers who responded to the latest survey revealed a couple of things about first-time buyers. Their numbers grew in this 2007-08 study—not terribly surprising, given that first-timers were unencumbered by having a house to unload. First-time buyers accounted for 41 percent of all transactions, up from 39 percent the year before, and up from 36 percent in the 2005-06 study.

But many first-timers managed their deals in a way that I find troubling, given that we’re now reminded every single day that easy credit is what led us into our current national financial bind: A huge number of them bought with no money down—34 percent of all first-time buyers financed 100 percent of their purchases. (Among all types of buyers, 23 percent purchased with 0 down.)

Hope these new homeowners keep their jobs in the 2008-? U.S. Recession. Otherwise, there’s going to be a lot more jingle mail down the road…

Find your place at Apartments.com. View photos, floor plans, take a virtual tour and more!

Source:

“No down payment? Buyers still able to score homes”
Mary Umberger
Chicago Tribune, November 30, 2008

Quotes For The Week

2007 is like 1929 or World War II, a very important year. It’s the year when the credit bubble burst, and when the credit bubble burst the economic implications are very negative.

-Marc Faber, in a CNBC interview from Tuesday, October 21

Thank you realtors. Thank you mortgage brokers. Thank you bankers. Thank you Congress, SEC, Bush, Dodd, Mozillo, Perry, Fuld, FBI, flippers, appraisers, homebuilders, MSM, housing porn shows, and above all, thank you Alan Greenspan and the Fed. You Wrecked America.

-HousingPANIC’s Keith, in a post from Friday, October 24, 2008

Signs Of The Time, Part 25

From the Chicago Tribune’s Art Barnum last week:

A DeKalb lawyer was suspended for 15 months Thursday for arranging to have a female client perform nude dances for him in exchange for credit on her legal fees, a state commission said.

Scott Robert Erwin, a lawyer since 1980, will begin his suspension Oct. 7, according to the Illinois Attorney Registration and Disciplinary Commission, a branch of the state Supreme Court that conducts investigations into attorney misconduct…

The relationship began in 2001 at Heartbreakers, a Compton, Ill., strip club where, after Erwin talked to an exotic dancer, both realized they had talked to each other over the telephone about some pending legal matters, according to the commission’s report of the allegations.

Erwin agreed to represent her on several legal matters, and they mutually agreed that she perform nude dances for him in his office as a way to cut down on the legal fees, according to the report…

The woman, who is no longer an exotic dancer, is married with three children and is a real estate agent, according to the report.

Ladies, start being suspicious when your man starts pushing you to buy one of her listings…

“Michael, stop drooling on my circuits”
“Knight Rider Stripper”
YouTube Video Link

Source:

“Stripper’s private dancing lands DeKalb lawyer in hot water”
Art Barnum
Chicago Tribune, September 19, 2008

Realtors Getting Kicked When They’re Down

These days, I may not be so happy, after all
After all that I have gained
I still feel sad when I’m all alone
I may have felt that path? Decay?
I may not be so swift, after all
All the chances you have given me
I just let you go

-The Rentals, “These Days” (1995)

As if the times weren’t tough enough already for Realtors, I came across the following by Mick Weinstein on Yahoo! Finance:

Realtors, Kiss Your 6% Goodbye!

This week, the Justice Department and the National Association of Realtors reached a settlement in the antitrust case against the NAR’s monopolistic hold on home listing information. It’s a victory for Internet-based and discount listing services and another stake in the back of traditional brokers attempting to recover from this downturn.

And then it got ugly. Weinstein added:

Media expert Jeff Jarvis says this means good riddance to real estate agents’ familiar 6% commissions: “The only reason… that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. This new economy can now come to real estate sales as information become freer. Oh, it’s not fully freed yet. But I do believe that the combination of this settlement and what it does to empower discount players and the depressed real estate market will combine to finally shove dynamite up Realtors’ rears.”

It’s interesting to note that, according to Mary Umberger of the Chicago Tribune, the national median income for a member of the National Association of Realtors was $42,000 in 2007, down about 11% from 2006. Umberger noted:

For newbies, the numbers were worse: NAR members with two or fewer years of experience earned a median of $10,500 last year.

Tough times indeed…

Sources:

“Housing: A Train Wreck in Slow Motion”
Mick Weinstein
Yahoo! Finance, May 30, 2008

“Assessing the wages of a downturn”
Mary Umberger
Chicago Tribune, June 1, 2008

When Juries Actually Work

Ever serve on a jury? I have, and didn’t enjoy one particular experience that took place in 1996. That year, I was picked to serve on a traffic court jury for Cook County, Illinois. The case was about a man who was arrested for drunk driving when he was stopped at a Chicago Police Department roadblock. According to witnesses, police officers at the roadblock motioned for the man to come forward with his car. Seeing that there was no response, one of the officers walked up to the vehicle and discovered the defendant incapacitated, his car wreaking of alcohol, and a nice, big bottle of booze by the man’s side. Police officers turned the vehicle off for the driver, helped him out of his car, and informed him of his arrest. However, the arresting officers turned their back on the man for one moment (big mistake), at which point he declared, “Well, if I’m going to jail, I might as well have another drink.” The motorist then proceeded to grab his bottle and down the remaining contents. After hearing the case, my fellow jury members decided to ignore the breathalyzer results, as the procedure was administered shortly after he chugged the bottle. And the rest of case? Open and shut, right? Wrong. A number of jury members started to feel “sorry” for the man, and argued that he wasn’t really drunk, he was just “scared” of the big, bad, policemen (which, they rationalized, would explain why he didn’t pull forward at the roadblock when he was instructed to). Never mind that he was a pile of crap at the roadblock, his car stunk of alcohol, and the smoking gun was on the seat right next to him. To make a long story short, the trial ended up in a hung jury, and a mistrial declared.

I often wonder if someone lost their life down the road because jury members felt “sorry” for this individual.

Well, I recently read something in the North County Times that helped restore my faith in juries… a little. You may have heard of Marty and Vernon Ummel, who sued their real estate agent because, they argued, the $1.2 million they paid for their Carlsbad home in 2005 could not be justified when other houses on the street were selling for much less at the time. The Ummels claimed their agent failed them and thus owed the couple $150,000, the amount they felt they overspent.

Well, on April 10 it took a jury less than two hours to unanimously clear the real estate agent, Mike Little. According to the North County Times’ Teri Figueroa:

After about a week of testimony at the Vista courthouse, the panel of 10 women and two men rejected Marty and Vernon Ummels’ arguments that they overpaid $150,000 for their home near the Four Seasons Resort Aviara…

“Mr. Little did what he was supposed to do,” jury forewoman Wendi Brick said. “The bottom line is that you (as a buyer) are responsible when you sign a contract and purchase something.”

Now, if only those who are pushing for a mortgage bailout could grasp this simple concept…

Source:

“CARLSBAD: Jury clears real estate agent”
Teri Figueroa
North County Times, April 10, 2008

Housing Spindoctors

This morning I came across an interesting post on the New Jersey Real Estate Report blog (hat tip The Mess That Greenspan Made). In “Tracking Realtor Spin,” a chart depicting existing homes sales is paired with comments made by the National Association of Realtors. From reading these, you’d think it’s always a great time to buy a home. Some notable sales pitches, I mean, comments include:

Summer 2005- “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.” – David Lereah, NAR Chief Economist
Spring 2006- “Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector which remains at historically high levels.” – David Lereah, NAR Chief Economist
“After five years of booming sales, we are now experiencing normal market conditions across most of the country… most owners can expect steadier gains in home values for the foreseeable future.” – Thomas M. Stevens, NAR President
Fall 2006- “…the worst is behind us as far as a market correction — this is likely the trough for sales. When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market” – David Lereah, NAR Chief Economist
Spring 2007- “Buyers who’ve been on the sidelines may want to take a closer look at current conditions in their area – if they wait for sales to rise, their choices and negotiating position won’t be as good as they are now.” – Pat V. Combs, NAR President
Spring 2008- Existing-Home Sales to Stablize Before Upturn in Second Half of 2008 – NAR

Dead or Alive, “You Spin Me Round (Like a Record)” (1984)
YouTube Video Link

Source:

“Tracking Realtor Spin”
New Jersey Real Estate Report, April 9, 2008