Wednesday, April 12, 2006

Drop In Mortgage Apps Signal The End Of Spring Bounce

The past three weeks saw an increase in mortgage and refinance applications, however this week saw a sharp dropoff that begs the question, "Could this mark the end of the spring bounce?"

Home loan demand falls for 1st time in 3 weeks

U.S. mortgage applications fell for the first time in three weeks, an industry trade group said on Wednesday, as a near four-year high in interest rates dissuaded consumers from taking out home loans.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended April 7 decreased 5.5 percent to 579.4 from the previous week's 612.8.
The MBA's seasonally adjusted purchase mortgage index fell 4.7 percent to 417.7 from the previous week's 438.2.

The index -- considered a timely gauge of U.S. home sales -- was also below its year-ago level of 474.5.

The group's seasonally adjusted index of refinancing applications decreased 6.6 percent to 1,532.4 compared to 1,640.8 the previous week. A year earlier the index stood at 1,899.6.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.50 percent, up 0.01 percentage point from the previous week, its highest level since the week ended June 14, 2002 when it reached 6.53 percent.

The 30-year fixed-rate mortgage, the industry benchmark, was also substantially above its 2005 low of 5.47 percent in late June of 2005 and above last year's high of 6.33 percent in the week of November 11.
Fixed 15-year mortgage rates averaged 6.17 percent, up from 6.15 percent. Rates on one-year adjustable-rate mortgages increased to 5.97 percent from 5.96 percent.

Caveat Emptor!


Blogger bairen said...

The fed is finally taking away the punch bowl. Party's over. I wonder how the folks who took out 3 year arms in 03 and 04 are feeling right now with Arms resetting 40% higher and record inventory. Oh I forgot. This time's different.

4/12/2006 08:17:00 AM  
Blogger Richie said...

What I find hysterical is how all real estate professionals (especially their leader) say that the large rise in home prices was "fueled" by low interest rates. This caused home prices to increase at double-digit appreciation rates.

But, when the interest rates rise, they never say that the price of the homes will fall. They just say that the appreciation will still increase, just at a slower rate.

Uhh, why is black not the opposite of white here?

If something sounds too good to be true...well, you know the rest.


4/12/2006 09:07:00 AM  
Anonymous Anonymous said...

i hate most RE agents. Seems they went to the same schools as used car salesmen.

4/12/2006 09:11:00 AM  
Anonymous Anonymous said...

I agree and I'm wondering if we can come up with a list of what agents are required to do by law for buyers and/or sellers.
I'm daydreaming about lowballing $100,000 less and finding out the realtor didn't present my offer (which, thanks you I now know is illegal), but wondering what I am able to do about it.
It would be nice to have some sort of list that would help the lay person when dealing w/ those used car salesmen, uh i mean realtors...

Can anyone suggest a required reading to help with this?

4/12/2006 09:23:00 AM  
Blogger grim said...

Find an agent that has exclusively been a buyers agent for 20 or more years. Even better if this person owns or works at an agency that is an exclusive buyers agency.

Explain your situation and be honest. Tell the agent you are only interested in presenting lowball offers. Make it clearly known that you are only interested in purchasing under your own terms.

You'll immediately know if that agent is right for you. Many agents do not like to do this because it gives them a bad rep with other agents.

The alternative is to approach the broker directly and attempt to enter into a disclosed dual agent relationship. In this type of relationship the broker will represent both parties and will get the full commission. It should be readily obvious why this type of relationship is advantageous to the buyer, but not the seller.

Also, more and more homes are hitting the market via FSBO and discount broker (in an attempt to preserve equity through reduced commission). Feel free to go out and make these sellers whatever offer you see fit.


4/12/2006 09:36:00 AM  
Anonymous UnRealtor said...

"It would be nice to have some sort of list that would help the lay person when dealing w/ those used car salesmen, uh i mean realtors."

Here's my list: Don't use a ®ealtor.

When I decide to purchase, I'll make the offer directly to the listing agent, avoiding any middle-man confusion, obfuscation, and also sweetening my offer by 3% since the listing agent will get the full 6%.

Who better to negotiate what I'm willing to pay, and interpret what the seller is willing to take, than myself.

So much guesswork removed without a middle-man in the deal.

I think with the Internet, there's zero value added by using a "buyer's agent" in most cases.

4/12/2006 09:41:00 AM  
Anonymous UnRealtor said...

"Many agents do not like to do this [lowball] because it gives them a bad rep with other agents."

That's probably true for most, if not all agents. I say remove them from the equation.

No need to wonder if they really submitted your offer, if they're not in the picture.

I've dealt with some listing agents directly, and they completely sell out their clients, which can be a good thing when presenting a deal -- play on their complete lack of integrity and greed. To them, their client (seller) is nothing more than a commission check. Use that to your advantage.

4/12/2006 09:45:00 AM  
Anonymous Anonymous said...

Listen to this.

The realtor representing a house I wasted my time looking at 3 months ago called and was looking for a bid.
Being polite I said I may be interested when prices are off 25%.
The response. The seller "probably" wouldn't accept.
Deny deny deny.


No bid no interest no nothing.



4/12/2006 09:57:00 AM  
Anonymous Anonymous said...

A must read article.

Anyone who says we are not in a bubble is either an industry insider or clueless.

4/12/2006 10:09:00 AM  
Anonymous Anonymous said...

The last line says it all.... wonder what the articles will look like 1 yr from now.

Tulips, and now real estate.


Hot Homes Get Cold

In Once-Booming Markets
Such as the Florida Coast,
Housing Sales Languish
April 12, 2006; Page B1

MIAMI -- Todd Linsley, a 37-year-old investor, bought a three-bedroom house in Stuart, Fla., for about $318,000 in late 2005. His original plan was to quickly flip the property -- which is in a new housing development about 40 miles north of West Palm Beach -- by selling it for as high as $425,000. But when he saw that the market was turning, he decided to list the home for $379,900. It's been on the market since early January with no takers.

Mr. Linsley says home builders keep discounting unsold houses in the neighborhood -- sometimes axing as much as $100,000 off the original asking price. He says he can't afford to go that low. "If I got in a jam I would have to drop the price, but I am not at that point," he says.

So now he's renting his investment house out for $1,000 a month, while paying a $2,045 monthly mortgage and a $108 monthly homeowner's association fee. "My Plan B was always to rent it out. I am not going to lose my shirt," says Mr. Linsley, a salesman for a medical-products company.

Mr. Linsley is far from the only housing-market investor who has been forced to go to Plan B in recent months. Many cities that experienced fast run-ups in home prices during the past five years are now seeing sales cool the fastest.

Homes that just last year were selling so rapidly that they stayed on the market for just days or even hours -- condominiums on the Florida coastline, desert haciendas in California and Arizona, town houses in Washington, D.C. -- are now languishing without buyers or even prospects. Many once-booming markets are seeing double-digit declines in sales.

Home sales have been slowing for several months, but real-estate agents in some of these formerly red-hot markets have been surprised at how suddenly market conditions have deteriorated in the past few months. The Florida Association of Realtors reported recently that sales of existing single-family homes were down about 20% in February when compared to the same month a year ago -- and they were off as much as 47% in Naples. In California, sales dropped 15% in February compared with last year, led by a 30% decline in Sacramento, according to the California Association of Realtors. February sales were off year over year by about 19% in Washington, D.C., and down about 25% in and around Phoenix.

Nationally, housing sales are a mixed picture. While nationwide sales of existing homes increased 5.2% from January to February on a seasonably adjusted basis, new-home sales dropped 10.5%. Right now, economists say the housing market will have only a modest negative impact on the overall economy, which has been robust. They note that while sales are slackening, they aren't collapsing -- they are, in many cases, simply settling into a normal market pace. Inventories are rising but they haven't reached an alarming amount. And while demand for homes is easing off in markets that previously sizzled, they are posting gains in cities where prices are still considered bargains, including Indianapolis, Albuquerque, N.M., and Houston.

But for cities like Fort Lauderdale, Fla., Phoenix and San Diego, the dropoff in sales and rising supply of homes on the market could soon put downward pressure on prices.

"In some places prices might fall. In others, price gains will slow," says David Berson, chief economist at Fannie Mae, the mortgage-finance company. The price gains over the past five years, which caused home values to double in many of the hottest markets, "were not sustainable," he says.

The current slowdown reflects three broad trends, according to real-estate agents and economists. One of the most important is that many speculators have started to dump homes that were purchased as investments. In addition, high prices and rising interest rates have reduced affordability for middle-class families. Finally, the intensity of recent hurricanes has prompted potential buyers of second homes to pull back in places like Florida. Some even blame media coverage that has warned of a possible downturn for triggering a real downturn.

Nowhere are these trends more vivid than in Florida. There were more building permits issued for single-family and multi-family homes in Florida last year than in any other state, according to the National Association of Home Builders. Five of the 10 metropolitan areas with the strongest one-year price appreciation last year were in Florida, the Office of Federal Housing Enterprise Oversight reports.

"You could consider Florida to be ground zero for the housing market," says Mark Zandi, chief economist at Moody's, an economic consulting firm in West Chester, Pa. He says the factors that caused the housing market to overheat nationwide -- such as "creative financing" offered to credit-risky buyers -- were exacerbated in Florida. "There were more lenders, more realtors, more foreign investors," than anyplace else, he says.

How investors react will have a big impact on how Florida's correction will unfold. According to San Francisco-based LoanPerformance, which tracks mortgages nationwide, 15% of Florida homes last year were purchased by investors, the most of any state. Investors are also critical, economists say, because in a slowing market they could be quicker to drop their prices to cut their losses than typical homeowners.

Speculative buying helped drive up prices in many Florida cities and shut out many nonspeculative buyers. Recent upticks in interest rates have put homeownership even further out of reach.

To be sure, the slowing in Florida could prove to be temporary. The state remains one of the fastest growing in the nation. It's growing, on average, by 1,000 people a day. Florida's economy is relatively strong and it continues to create new jobs. And while many Florida cities are seeing declines in sales, a smaller group of Florida markets is holding steady. Sales in Jacksonville were essentially unchanged in February year over year, and they were up in Tallahassee. But in many other parts of the state "things have slowed to a crawl," says Mike Morgan, a broker in Stuart, Fla.

Another factor that may be affecting sales is the appearance of some investor-dominated housing developments, some of which were built with minimal landscaping next to highways, cemeteries and mobile-home parks. Several of the housing developments snapped up by investors now look like ghost towns, with "For Sale" or "For Rent" signs in many windows. In some cases, the builders "were building for investors, not for homeowners," says Mr. Morgan, who is trying to resell several investor-owned homes with mixed success.

About a year ago, when the market was stronger, Mr. Morgan sold homes to several out-of-state investors, who never saw the property in person. "It's really no different from the dot-com [bust]," Mr. Morgan says. "The people who bought the [low-quality homes] got clobbered." He says he refused to sell poor-quality homes to his clients. "If I didn't have any ethics, I could have made a million dollars last year."

The swelling supply of condominiums is also causing concern. In Miami-Dade County alone, there are roughly 70,000 new condos either under construction or nearing construction, and an additional 25,000 units that have been announced but don't have final approval, says Michael Cannon, managing director at Integra Realty Resources-south Florida, which analyzes the local market.

"We believe that the condo market is more distressed," says Hank Fishkind, principal at Orlando-based Fishkind & Associates, an economic and financial consultant. "We are seeing a mismatch in timing. The projects started two years ago -- the delivery is accelerating, while closings are slowing."

Adding to that supply are the rental apartments that have been converted into condominiums. Mr. Cannon says roughly 150,000 rental apartments in South Florida have been converted or have begun to be converted to condos in recent years. Typically, the condo converter buys the rental unit, renovates it and then sells it to an individual, often an investor.

Paul Zani, an investor, is trying to resell two converted units he purchased in Orlando. He bought one condo unit in November for $137,000 and had it listed for $185,000; he bought the other for $147,000 and it was listed for $195,000. But he's been unable to resell either one. "We will probably come down on the price," says Mr. Zani, who lives in Nashville, Tenn. Some pockets of the condo market may fare better than others. Mr. Cannon says parts of Miami's downtown business district and the area north of downtown, which aren't directly on the ocean, "have the signs of being overbuilt. The jury is still out. We have to wait until they are completed," he says. Meantime, John Warsing, a broker of high-end Miami-area condos at Turnberry International Realty in Aventura, Fla., says "anything oceanfront is going to be fine," in part because well-heeled consumers from across the world are attracted to buying oceanfront property.

Other problems are rattling Florida's market. Home-insurance costs are rising, after the active hurricane season of the past few years. And real-estate agents say some homeowners are spooked by the storms themselves.

"A lot of people have that view of New Orleans in their minds and they are getting nervous. They are putting houses on the market," says Melissa Watkins, a sales agent with Michael Saunders & Co., near Sarasota. "They are not living here full time and [their home] is an investment. They want to pull their money out and hold on it."

Ms. Watkins says sales are slow, inventory is rising and listing prices are being reduced slightly. She says one recent deal almost fell through at the last minute when the buyer balked at the insurance premiums on a high-end, waterfront home.

Some Floridians blame the media and even Wall Street for scaring people away. Mr. Linsley recalled a headline in a local paper declaring that the local housing market was overvalued. The headline type was so bold that it looked as if the nation had just declared war. "The media is killing the investors," Mr. Linsley says.

Despite the current turmoil, some Floridians remain bullish, including Stuart Miller, the chief executive officer of Miami-based Lennar, one of the largest home builders in the U.S. But Mr. Morgan, the broker, says for him the market has slowed considerably. He wrote in an email late last week that "we went three days this week with not a single showing. That's incredible. I have 35 listings. We usually get 2-6 showings a day....I received more desperate calls from sellers than ever. One lady broke down into tears. Her husband bought two investment properties, and they are now going to lose their 'life savings' if they sell the homes in today's market."

4/12/2006 10:22:00 AM  
Anonymous UnRealtor said...

Anon 11:09, that's a nice story:


Oct. 7, 1948: Johnny Moon Sr. born, the son of a Baptist minister. He will drop out of high school and work briefly as a carpet installer. During his adult lifetime, he will be arrested more than 30 times.

1977-1989: Served four stretches in prison, for convictions for heroin, cocaine, arson and assault.

June 1998: Charged with shoplifting a can of tuna and a steak from Winn-Dixie. Told judge he had no assets, last worked 18 years ago and subsisted on Social Security income of $494 a month. Sentenced to 45 days in jail.

Nov. 5, 2002: Signed for an $85,000 mortgage loan to purchase home at 2204 E Chipco St. for $85,000.

Nov. 11, 2002: Charged with shoplifting headache tablets and razor blades from Publix. Sentenced to 60 days in jail. Arresting officers list his address as "at large."

Feb. 26, 2003: Released from jail, reported to probation. Said he gets $505 a month in Supplemental Security Income and $108 a month in food stamps.

Nov. 7, 2003: Signed for two mortgage loans: $150,100 to buy the home at 905 25th Ave. E for $158,000, and $137,700 to buy the home at 3801 N Dartmouth Ave. for $153,000.

Nov. 14, 2003: Signed for $147,000 mortgage loan to buy the home at 2714 12th St. N for $147,000.

Nov. 21, 2003: Signed for a $94,500 mortgage loan to buy the home at 1410 31st Ave. E for $105,000, the fourth home he bought that month. Total mortgages: $529,300.

April 27, 2005: Sold home at 1410 31st Ave. E for $180,000 - $75,000 more than he paid 17 months earlier.

July 30, 2005: Died of pneumonia due to malnutrition. Police found meager personal effects, including a single dollar bill in his wallet. His real estate later goes into foreclosure after no relatives come forward to establish an estate for him.

Doesn't seem like a bubble to me, don't all homeless people have 6 mortgages?

At least the guy made $75K on a flip before he died...

4/12/2006 10:26:00 AM  
Anonymous UnRealtor said...

"So now he's renting his investment house out for $1,000 a month, while paying a $2,045 monthly mortgage"

Nice, $1,100+ a month negative cash flow.

4/12/2006 10:28:00 AM  
Anonymous Rich In NorthNJ said...

Off topic:

I picked up New Jersey Monthly at the grocery store last night. It lists the "Best Places To Live" and ranks the state's 566 towns.
Even has an article titled "What Bubble".

But, I haven't had the chance to read it yet. Thought I'd let others know about the magazine's cover "story" about NJ housing.


4/12/2006 10:45:00 AM  
Anonymous Anonymous said...

How do you give that study any credibility? They voted Roosevelt as the #1 town in NJ!

4/12/2006 10:58:00 AM  
Blogger grim said...

Thanks Rich, I'm going to post that list up on the main page, maybe if I have some time I'll do a google maps mashup of that info.


4/12/2006 11:02:00 AM  
Blogger Grim Ghost said...

"I'll make the offer directly to the listing agent, avoiding any middle-man confusion, obfuscation, and also sweetening my offer by 3% since the listing agent will get the full 6%."

?? What do you mean "sweetening" by 3% ? You could ask the listing agent to rebate part of their commission to you, but most are very reluctant to do that unless the market is really dead. 6% is very rare this days, incidentally. 5% is much more common.

I think using a buyer agent makes sense for a first time buyer, and probably makes sense for non FSBO offers. You're paying the money anyway.

4/12/2006 11:22:00 AM  
Blogger bairen said...

I think anyone who wants to take out an arm or buy an investment property should be required to take a basic math test as well as a test to see if they understand their mortgage.

Would people really be using teaser arms if they knew their payments could go up 40% or more the first time it resets?

Do these speculators understand that being cashflow negative means they are gambling the appreciation rate will be higher then their burn rate? And that if the spread between owning and renting continues to increase, people will either move to a cheaper area and/or rent?

I'm angry that responsible people will get stuck with the bill for flippers and short term arms holders. Either through higher interest rates, higher income and property taxes, or special HOA assesments as people can't cover their costs or simply turn in their keys and move to another state as they go upside down.

4/12/2006 11:27:00 AM  
Anonymous Anonymous said...

These morons should be sent in to debt slavery for life. Then they jerks would think twice before buying something they can't afford.

4/12/2006 11:52:00 AM  
Anonymous Anonymous said...

I posted this on thread below, but feel compelled to post again:

Which came first: The snake oil seller or the snake oil buyer?

Behind every homeowner making a dumb decision is a duplicitous banker/realtor/mortgage lender using every trick in their book to make the sale, and a government turning its head the other way.

When given the choice of smacking down a dumb homeowner or the devious moneyman, I choose the latter. Because we do not hold these snake oil salesmen to account, this will happen again and again and again.

I do think the free market game can work brilliantly, but only with active, independent free-market referees calling out bad plays. The ones in this game slept on the benches, and we will all pay the price for their inaction.

4/12/2006 12:10:00 PM  
Blogger Grim Ghost said...

About the NJ MOnthly -- they voted Watchung in Somerset County as no. 457 or something like that. Cant' take that seriously.

4/12/2006 12:35:00 PM  
Blogger delford said...

Some of the rankings are absolutely laughable. However what I did find interesting is that several towns that passed massive school referendums, because of increased enrollment etc, had almost no increase in population from 2000 through 04. Go figure.

4/12/2006 12:50:00 PM  
Blogger njresident286 said...

Here is a direct link to chatham, which is #2 on the list. Please note the change in home prices from 2000 to 2005, and then reply here and explain to me why people do not think this is a bubble market.

For those to lazy to click the link, i will paste the info:

2000 median price -355,00
2005 median price - 625,00
% change - 176%

4/12/2006 12:53:00 PM  
Blogger Shailesh Gala said...

Two-Thirds of Lenders Nationwide Say U.S. in Midst of Real Estate Bubble - and Half Say Burst Has Begun or Will Shortly, According to Phoenix Lending Survey Results; 93 Percent of Lenders Predict Housing Prices Will Drop 10 - 20 Percent

Two-thirds of lenders nationwide believe a real estate bubble currently exists in the United States - and half of them believe it has already begun to burst or will burst in the next six months, according to the results of this quarter's Phoenix Management "Lending Climate in America" Survey.

4/12/2006 01:38:00 PM  
Anonymous UnRealtor said...

"What do you mean 'sweetening' by 3% ?"

A scenario:

The seller has 2 offers on the table, mine with a full 6% commission for the listing agent, and another offer with a buyer agent, who will take half the commission.

Which offer would the listing agent push to the seller? My offer, which gives them the full commission.

4/12/2006 01:49:00 PM  
Anonymous UnRealtor said...

"I think using a buyer agent makes sense for a first time buyer, and probably makes sense for non FSBO offers. You're paying the money anyway."

Perhaps in less crazy times.

Also, it's not about paying out the money, it's about getting your offer accepted.

4/12/2006 01:51:00 PM  
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4/12/2006 02:09:00 PM  
Anonymous Anonymous said...

Housing Bust!!

Those in over their heads should be worried. Those with risky ARMs should be worried. those that bought with 20% down or more and did not squander away home-equity have little to worry about.



4/12/2006 02:57:00 PM  
Blogger delford said...

Bob said those who put 20% down etc, wil have nothing to worry about, except for the fact, that they may lose the 20% they put down, and not see that money again for years.

4/12/2006 03:57:00 PM  
Anonymous Anonymous said...

Regarding NJ Monthly;
On their home page the 3 biggest ads are K. Hovnanian (a NJ builder), REMAX (a realtor) and Wood Mode (Kitchen maker).
I can just picture the poor sob, with the nagging, nesting instincting, woman in his life saying see such and such town is on the list, if you don't buy us a house...blah blah blah. If he does it, he's a spineless jelly fish, empty suit dummy and deserve's to lose his chips.

4/12/2006 04:02:00 PM  
Anonymous Anonymous said...

Another observation from the NJ monthly data;
How is it that in some towns Englewood Cliffs, Tenafly and Alpine that you have median incomes of around $100,000 and median house prices of 1 or 2 million dollars???????

4/12/2006 04:10:00 PM  
Anonymous Anonymous said...

Sure they are going to lose 20% or more, but they can afford the house in the first place and ride it out for 10-15 years until they are lucky to break even!!!!!!

Do NOT buy a house at these high prices.


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