Tuesday, February 07, 2006

A Glimpse Into Our Future

Sellers juggle mortgages in tough market

Bonnie Cordy, who sold her Apple Valley town home last summer after it was on the market for nearly eight months, agrees. "The Realtors keep saying what a good market it is, but it is changing," she said.

Cordy and her husband moved to Tennessee last year for his job. They rented an apartment until their new $325,000 house was ready in June. All the while they were making a mortgage payment in Minnesota.

The Apple Valley town home they'd originally listed at $329,900 in December 2004 wasn't selling, even after they dropped the price more than $20,000.

"I felt nervous as we were finishing up the house down here," she said. "There was no way to swing it all."

They dipped into retirement savings for the month or two they had double mortgage payments and taxes.

Then they switched to another agent, who slashed the price another $30,000. It finally sold at the end of August for $291,900, which was about $35,000 less than what they paid in 2003. She figures they lost another $5,000 in retirement savings.

"It's money we'll never get back again," said Cordy, 48.

Home sellers making a leap of faith with St. Joseph statue

After their $540,000 house in Prior Lake had been on the market for three slow months, Holly and Sean Ploeger were willing to do anything to sell it.

So in December, they pulled up soil at the base of their For Sale sign and buried a little statue of St. Joseph in a plastic bag upside down and looking away from the house (the direction they want to go). [Ironic.. Is the statue upside down? Or is it their mortgage? -jb]

"At this point, nothing can hurt," Holly Ploeger said. "It gives us something to hope for because nothing else was working."

Default notices are on the rise

It took less than eight months for Dustin Suposs' "American Dream" to become a nightmare.

He and his girlfriend, both in their early 20s, got caught up in the better-buy-now mentality that fueled the Sacramento area's housing market last spring. They bought a $365,000, 1,550-square-foot home in Elk Grove with no money down. The result: A $2,300-a-month payment that was more than 2 1/2 times the rent they were paying.

By December the couple were drowning in bills and debt. Now they're two months behind on the mortgage.

Decline in housing sales grows steeper

The drop-off in Massachusetts home sales last year just got worse.

The Warren Group, a Boston real-estate services firm, reported yesterday that sales of single-family homes declined 7.6 percent last year. That is much larger than the 3.5 percent drop in 2005 sales reported recently by the Massachusetts Association of Realtors in its year-end report.

Caveat Emptor!


Blogger njresident286 said...

Looks good for everyone who has been sitting on the sidelines. Seems like all of us who are waiting to buy will make a killing when the home prices fall.

My question is this, if a lot of people can not afford their houses and fall behind in the payments, and the houses go into forclosure but are not bought, what happens to them? As a buyer, would I be able to get get an ever better deal?

Will banks re-sell a house at a loss?

2/07/2006 12:14:00 PM  
Anonymous Anonymous said...

Apparently you want to get in touch with those people before it goes to foreclosure and also work with the bank if the loan costs more than the property.

The banks are in a strange situation. They arent allowed to dump homes that they foreclose on. The reason is simple, it would drag down ALL prices in whatever town it occurs. It is hard to even find Bank Owned Homes, they dont like to advertise the fact that they are repossesing homes...bad PR. You gotta talk to a real estate agent that works with the banks.

I had access to REOs and their asking prices are market value. I havent tried to purchase one or make an offer because I never tracked a property for a long period of time.

2/07/2006 12:33:00 PM  
Blogger Metroplexual said...

They will sell them for whatever the market bears even if they have to take 50 cents on the dollar. They will just write it off (if they don't go under). Anyone remember the S&L scandal when the president was Bush. Well here we go again. Banks don't want to be in the business of landlording.

I think this is only the first wave. As the monetary shocks come to the various types of overextended people (fuel, food, layoffs, unanticipated taxes like the AMT & property, inflationary on food and the like). I saw an article that discussed how much of America needs OT to get by.

First to get hit are those that got in last with stated incomes. As reality sets in like that Sacramento couple has had happen to them.

The second wave is going to be those downsized and those associated with the RE industry i.e. builders, lenders and brokers.

The third wave will be those layedoff because of the recession coming due to the RE biz fizzling. As well as those whose jobs get outsourced.

I think the recession will be a big hole to dig out of. Over at calculated risk, Mortgage Extracted Wealth was analyzed YOY and his conclusion was without the borrowing we have been in a virtual recession.

Throw in the effect that people when they see the size of their house wealth shrink will stop being so profligate. Thus, further exacerbating the cutback in spending that has fuelled our economy during this growth cycle and which I think will be De rigeur in about 2 years.

2/07/2006 12:37:00 PM  
Anonymous Anonymous said...

Article "the Middle Class..."

2/07/2006 12:47:00 PM  
Anonymous Anonymous said...

"make a killing"

There are NO bargains in real estate. Even if they drop 30% it only takes them back to reality or to long term inflation increases. If they go down 50-60% then I would say possible bargain, but unlikely unless we have a long term recession mnor depression. No of us wants that. But house prices need to come down substantially to reflect fundamentals which have weakwned considerably in past several years in regards to stagnant income growth, layoffs property tax increases and record low affordability.

2/07/2006 12:51:00 PM  
Blogger grim said...

The banks are in a strange situation. They arent allowed to dump homes that they foreclose on. The reason is simple, it would drag down ALL prices in whatever town it occurs

What do you mean aren't allowed? Can you point to some kind of law or regulation that states this? As far as I know banks will sell for whatever they can get and write off the losses. Of course with the new bankrupcy laws this will change somewhat. Banks care about protecting their bottom lines, not property values.


2/07/2006 12:54:00 PM  
Anonymous Anonymous said...

wow telling real estate and mortgage people the prices will come down is like publishing a cartoon that a certain group of crackpots, that happen to be causing a great deal of problems now. so soon they will be burning information sources.

sad but true

2/07/2006 12:57:00 PM  
Blogger Metroplexual said...

BTW I know alot of the shorthand RE stuff on blogs but I am not familiar with REO Anonymous 12:33.


Would it be possible to compile a glossary onto maybe one of your pages for reference or maybe we can make a blog devoted to deciphering these terms. JTOL.

I know alot of stuff is thrown out there and many people know them but sometimes we all run into a new one. It took a while for me to figure out HELOC as home equity oline of credit. It would also be good for newbies.

2/07/2006 01:03:00 PM  
Anonymous Anonymous said...

The banks are in a strange situation. They arent allowed to dump homes that they foreclose on. The reason is simple, it would drag down ALL prices in whatever town it occurs

Golly, are we just making stuff up or what? The fact is there is a line (widely watched by Wall Street types) called "non-performing assets" Banks have in the past and will dump any property at any price to keep the "non-performong assets" # down; otherwise it is game over for them and they can't raise money from the street.

2/07/2006 01:15:00 PM  
Blogger RentinginNJ said...


“Dumping” specifically refers to a predatory pricing strategy where a company sells something below its cost or significantly below market rates with the intent of driving out competitors. For example, lets say Centex sells homes in North Jersey for $100k (when it costs them $200k to make) for the purpose of driving Toll Bros out of the market. This would be illegal. This is different from what you described, (“banks will sell for whatever they can get and write off the losses”), which is selling at market value, even if “market value” happens to be much less that what the bank paid for it originally.

2/07/2006 01:25:00 PM  
Blogger Metroplexual said...


Article "the Middle Class..."

12:47 PM

Very disturbing article. I think it may be a rallying cry for the middleclass to finally get some representation in politics in this country, instead of special interests.

And that part at the end about the banks and credit card issuers and the rules that they have written into their agreements. They are just all evil.

2/07/2006 01:30:00 PM  
Anonymous Anonymous said...

Hi, it seems that Weschester is not going to go down in price very soon according to the Westchester County Business Journal on Feb 6, 2006. Can anyone tell me how come the condo market is so strong here?

Median house price hits $675,000
Westchester's median price for a single-family house during the fourth quarter of 2005 climbed 4.7 percent over the previous year to $675,000, according to the quarterly Westchester-Putnam Multiple Listing Service report issued Feb. 1 by the Westchester County Board of Realtors.
That gain was smaller than the double-digit annual increases of most recent quarters, reflecting both the traditional cold-weather sales dip and rising mortgage interest rates combining to cool off the once white-hot market.
The number of houses sold during the fourth quarter (2,404) dipped 5 percent from 2004 and 2 percent from 2003 levels. And the inventory of all types of Westchester homes available for sale finished last year at 4,776 units, about 21 percent above the same quarter a year ago.
However, the county's condominium, co-operative apartment and two to five-family house markets all rose by greater than 10 percent year-to-year, as buyers priced out of single-family homes found cheaper alternatives
The fourth-quarter median price of a Westchester condo climbed 10.5 percent over the year-ago quarter, to $375,000. And the median for co-ops hit a record-high $172,000, up 15.4 percent over the final three months of 2004.
Medians for 2-5 family homes zoomed nearly 19 percent to $570,000, and the number of multi-family houses sold in all of last year rose 17 percent, to 842.
"The surge of sales in this sector was more attributable to investment considerations than to new interest in this housing type as a lifestyle choice," the Westchester-Putnam MLS concluded in its quarterly report.
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copyright 2006 Westfair Communications Inc.

2/07/2006 03:27:00 PM  
Anonymous Anonymous said...

Metroplexual you are right on.

In Nov 2001 we found out on a Monday we were going to have another kid.

That Thursday Uncle Sam called in a chit and I was back in uniform for a year. I had 10 days to show up for active duty.

Now I am not complaining.
I am proud to have served and will do it again in a heart beat!!

In fact, we survived by cutting back. We lost her wages to some degree and I took a paycut of about 75%. We paid all our bills and between SEP and NOV I paid some ahead thinking that things would heat up.

Now, we prepared for this and my guess is that most have not. Coupled with the new rules for Chapter 7 and 13 if someone if overleveraged they are toast. Also I was protected under federal law not to lose my home.

It was a lesson for us that many will have to learn the hard way. And we have prepared for this to happen again, funny thing is I just started a business so even if I was called up no sum difference at this point.

As always-- GO GRIM


2/07/2006 03:29:00 PM  
Blogger grim said...

Westchester Anon,

Sit back, relax, and continue to watch the data.

First. The data is Q4. That is sales closed in October, November, December. Add in the lag between contract and closing and it's very possible that contracts from September are part of that data.

Second. They acknowledge the slowdown everyone else saw at the end of the year. Sales dropped off and inventory skyrocketed.

The number of houses sold during the fourth quarter (2,404) dipped 5 percent from 2004 and 2 percent from 2003 levels. And the inventory of all types of Westchester homes available for sale finished last year at 4,776 units, about 21 percent above the same quarter a year ago.

Don't expect stock market-like movement of home prices, it won't happen. It's going to take time. Some areas may show signs of weakness before others do. Compounding this issue is the fact many regions release data quarterly.

The records set at the peak 2005 may seem like something to cheer now. But they make YOY declines in 2006 a given. Nothing scares the market more than hearing about declines. The same momentum that pushed prices up will drag them down.

Caveat Emptor.

2/07/2006 03:46:00 PM  
Blogger grim said...

Not a good day for the home builders. Seems like the market thinks real estate is done..

Toll Bros -5.5%
Hovnanian -3.4%
Centex -2.4%
Lennar -3.8%
Pulte -2.5%


2/07/2006 04:05:00 PM  
Blogger grim said...

Cash-out refinancings near 6-year high

With interest rates rising, tapping home equity and taking the cash is looking better to many homeowners than just a line of credit on their house.

Freddie Mac's quarterly refinancing report says 80 percent of refinanced mortgages in the final quarter of the year were for amounts at least 5 percent higher than the mortgage they replaced. That's up from 73 percent in the third quarter, and the highest cash out percentage since the third quarter of 2000.


2/07/2006 04:16:00 PM  
Anonymous Anonymous said...

Good article on vacancies and overextended borrowers.


2/07/2006 04:32:00 PM  
Anonymous Anonymous said...

Thanks for the prompt reply and analysis about Westchester. You are great. I will sit tight and watch the falling knife instead of catching one.

2/07/2006 05:19:00 PM  
Anonymous Anonymous said...

Regarding banks and foreclosures, I recall reading not too long ago that banks' attitudes towards a troubled mortgage portfolio might be a bit softer than what we saw in the early 1990's. They will probably be more inclined to refer bad loans to their workout officer.

This way, they can still call the asset "performing*."

Of course this assumes the bank even holds the loan - which they probably won't. Lots of these loans were sold off into MBSs, etc.

I guess it will be the responsibility of the loan correspondent or servicer to do the dirty work. And since the chosen servicer is likely the lowest bidder, who knows how they'll handle it or what's going to happen.

2/07/2006 06:13:00 PM  
Blogger njresident286 said...

I thought I read last week that President Bush has called for Fannie and Freddie to stop buying up loans. I may be mistaken, but if so, will this also steer prices lower?

2/07/2006 06:33:00 PM  
Blogger skep-tic said...

"Westchester's median price for a single-family house during the fourth quarter of 2005 climbed 4.7 percent over the previous year to $675,000"

keep in mind that these are year over year gains. the Westchester median actually DROPPED between 3d and 4th quarters 2005 from about $711,000 to $675,000. so we were already below the peak as of December. prices have likely continued to drop since then.

2/07/2006 09:15:00 PM  
Blogger Roadtripboy said...

NJResident286 If Fannie & Freddie curtail their purchase of mortagages I think it will have an ultimate effect of helping to lower real estate prices more. This will happen because banks will begin to be more judicious about giving out mortgages. Here we might finally see an end to the "stated income" and no money down mortgages (or at least a reduction). Since the banks will have to actually assume the risk of the mortages they sell (rather than sell it off to Fannie and Freddie) they will in all likelihood be more selective in who they give mortgages to.

And if there are less mortgages being issued, this will certainly help to decrease the viable buyer pool.

2/07/2006 10:39:00 PM  
Blogger grim said...

Fannie and Freddie will likely demand higher risk premiums as compensation. Mortgage rates will increase on both the long and short ends.

There are a great many organizations that will still feel that mortgage backed securities are a necessary investment, however, only with adequate risk premiums.

It's going to become an issue of rate. Exotic paper will still exist, but will rates be so high that takers all but disappear?


2/08/2006 07:18:00 AM  
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4/18/2006 11:18:00 PM  

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