This post first appeared on Minyanville and on our sister site Dawn Patrol.
Reports are out this morning opining that Stockton, California represents a new hope for housing recovery. Hoping Stockton will lead the housing recovery is about like saying Alex Smith will lead the niners to the Super Bowl. It lacks a link to reality.
The recent rise in home sales transactions, especially in high foreclosure areas, is primarily attributable to the billions of dollars raised by hedge funds and other distressed investors. They're starting to get pressure to put the money to work. It's not evidence homebuyers are stepping back into the market.
Funds are trying to arbitrage the house, buy it at 60 cents on the dollar from a desparate bank and sell it for 80 on the open market.
The problem is, the marginal homebuyer in those areas does not have the 20% down payment it now takes to buy a home, even at 'discounted' prices.
Transactions may rise, but mortgage backed securities don't pay bond holders with realtor sales commissions.
If the bottom is called by the right media outlets, sellers still waiting on the sidelines will flood the market, trying to get out in a market that's not completely frozen.
Woosh, part deux, coming to a housing market near you in early 2009.
Thursday, July 31, 2008
Tuesday, July 29, 2008
Housing Inventory Eases, But No Recovery In Sight
This post first appeared on Minyanville, and our sister site, Dawn Patrol.
Another month, another attempt to use a single data point to foretell the bottom in the housing market.
On the same day the Case Shiller Home Price Index reported the fastest drop in home prices on record (again), the Wall Street Journal released analysis indicating beaten down markets are beginning to work through inventory overhangs.
Shrinking supply in the most troubled markets is likely a blip, however, as volatile trading in distressed assets is driving the real estate market in these areas.
According to the Journal, metro areas like Sacramento, California, Denver, San Diego and Las Vegas actually reported a decline in housing inventory from a year earlier. Supply is still well above historical averages but, the report argues, if this trend continues it could usher in the end to the real estate slump.
But in cities like Portland, Oregon, Seattle, Charlotte, North Carolina and New York, where home price declines are just beginning, the backlog of unsold homes is piling up. Supply in New York and Portland is up 31% and 28% respectively. Stagnant prices and swelling inventory are signs of a market that's about to crack.
Even in markets poised for a correction, real estate brokers desperate for sales commissions are frantically pounding the table, calling this the buying opportunity of a lifetime.
Meanwhile, back in a world still loosely based on reality, easing inventory is a result of changing market dynamics, not an imminent bottom.
First, in troubled areas like California’s Central Valley and Inland Empire, (east of Los Angeles) Phoenix and Las Vegas, foreclosure and other distressed sales account for almost half the total transactions. As vulture funds and other investors swoop in to purchase delinquent mortgages and abandoned houses, such opportunistic buying has reduced inventory.
Small boutique investment firms, big hedge funds and Investment banks like Lehman Brothers (LEH), Goldman Sachs (GS) and Merrill Lynch (MER) are driving these markets. Some are buying foreclosed homes en masse, while others are snapping up delinquent mortgage at a deep discount. As the new owner of the loan tries to sort things out with the borrower, homes previously for sale come off the market.
The majority of these properties, however, will just end up for sale again: Almost half the delinquent mortgages traded in this market ultimately end up in foreclosure. Investment banks and hedge funds aren’t in the business of owning portfolios of residential real estate, so in a few months they’ll start punting homes at further discounted prices.
Second, year-over-year comparisons for real estate and mortgage data are about to get a lot easier. Think back to the beginning of the credit crunch last summer - the mortgage market all but shut down. Real estate transactions ground to a halt, inventory spiked and price declines began to accelerate.
For as bad as the real estate market is today -- and while prices have certainly come down -- activity last year around this time was even worse.
In the next few months, new calls for a bottom will ring out. But given that so-called experts have been calling for a bottom since, well, the top, Minyans would be wise to continue to wait patiently for real signs this has occurred.
Another month, another attempt to use a single data point to foretell the bottom in the housing market.
On the same day the Case Shiller Home Price Index reported the fastest drop in home prices on record (again), the Wall Street Journal released analysis indicating beaten down markets are beginning to work through inventory overhangs.
Shrinking supply in the most troubled markets is likely a blip, however, as volatile trading in distressed assets is driving the real estate market in these areas.
According to the Journal, metro areas like Sacramento, California, Denver, San Diego and Las Vegas actually reported a decline in housing inventory from a year earlier. Supply is still well above historical averages but, the report argues, if this trend continues it could usher in the end to the real estate slump.
But in cities like Portland, Oregon, Seattle, Charlotte, North Carolina and New York, where home price declines are just beginning, the backlog of unsold homes is piling up. Supply in New York and Portland is up 31% and 28% respectively. Stagnant prices and swelling inventory are signs of a market that's about to crack.
Even in markets poised for a correction, real estate brokers desperate for sales commissions are frantically pounding the table, calling this the buying opportunity of a lifetime.
Meanwhile, back in a world still loosely based on reality, easing inventory is a result of changing market dynamics, not an imminent bottom.
First, in troubled areas like California’s Central Valley and Inland Empire, (east of Los Angeles) Phoenix and Las Vegas, foreclosure and other distressed sales account for almost half the total transactions. As vulture funds and other investors swoop in to purchase delinquent mortgages and abandoned houses, such opportunistic buying has reduced inventory.
Small boutique investment firms, big hedge funds and Investment banks like Lehman Brothers (LEH), Goldman Sachs (GS) and Merrill Lynch (MER) are driving these markets. Some are buying foreclosed homes en masse, while others are snapping up delinquent mortgage at a deep discount. As the new owner of the loan tries to sort things out with the borrower, homes previously for sale come off the market.
The majority of these properties, however, will just end up for sale again: Almost half the delinquent mortgages traded in this market ultimately end up in foreclosure. Investment banks and hedge funds aren’t in the business of owning portfolios of residential real estate, so in a few months they’ll start punting homes at further discounted prices.
Second, year-over-year comparisons for real estate and mortgage data are about to get a lot easier. Think back to the beginning of the credit crunch last summer - the mortgage market all but shut down. Real estate transactions ground to a halt, inventory spiked and price declines began to accelerate.
For as bad as the real estate market is today -- and while prices have certainly come down -- activity last year around this time was even worse.
In the next few months, new calls for a bottom will ring out. But given that so-called experts have been calling for a bottom since, well, the top, Minyans would be wise to continue to wait patiently for real signs this has occurred.
Friday, July 25, 2008
New Countrywide Suit Tries To Foreclose Foreclosures
This post first appeared on Minyanville.
When Bank of America (BAC) agreed to buy Countrywide, it didn’t just take on a mountain of questionably valued mortgage-related assets. It also took on huge legal liability.
San Diego City Attorney Mike Aguirre, who has a penchant for punitive lawsuits that rarely result in much more than a media frenzy, is accusing Countrywide of defrauding thousands of San Diego homeowners. A lawsuit has already been brought at the state level by California Attorney General Jerry Brown, as well as in several other states, including Washington and Illinois.
San Diego's suit takes aim at Countrywide’s alleged practice of coercing borrowers into risky adjustable rate mortgages (ARMs). Aguirre hopes to make San Diego a “foreclosure sanctuary” by preventing foreclosure proceedings on any property secured by a subprime ARM where the borrower owes more than the home is worth. (For more on what the glut of upside-down homeowners means for the future of the housing market, please read Finding the Bottom in Housing.)
The litigious City Attorney isn’t satisfied with just taking aim at Countrywide (and, by extension, Bank of America). Aguirre said he’s planning similar suits against Washington Mutual (WM), Wells Fargo (WFC) and Wachovia (WB).
While Aguirre’s heart may be in the right place, foreclosure moratoriums aren’t part of the road to recovery for the housing market. Opportunistic mortgage market participants are buying delinquent mortgages on the cheap, forgiving some part of the debt and giving borrowers a fresh start. Government intervention in this process will simply scare off lenders, since they'll have limited recourse if the loan goes sour.
At best, such suits will simply drive up the cost of new mortgages. At worst, they'll bring the recovery process to a standstill.
Foreclosures are nasty, painful and tragic. They are, however, a necessary part of the mortgage process, enabling lenders to recoup losses on bad loans.
Mandating an end to foreclosures is like telling the IRS it can’t go after tax evaders or preventing cops from chasing down burglars. This is not to say victims of foreclosures are criminals or necessarily deserve to be thrown out on the street, but living in a law-abiding society means that contracts must be enforced.
The moment we waive one group’s obligation to honor their collective word, the floodgates are open.
This certainly isn't the last lawsuit we’ll see following the collapse of the mortgage market. In fact, it’s just the tip of the iceberg. A couple years from now, when Option ARMs begin to reset, class action lawsuits will bear down on lenders like a rumbling avalanche rolling down a steep slope.
Banks would be wise to get long some lawyers.
When Bank of America (BAC) agreed to buy Countrywide, it didn’t just take on a mountain of questionably valued mortgage-related assets. It also took on huge legal liability.
San Diego City Attorney Mike Aguirre, who has a penchant for punitive lawsuits that rarely result in much more than a media frenzy, is accusing Countrywide of defrauding thousands of San Diego homeowners. A lawsuit has already been brought at the state level by California Attorney General Jerry Brown, as well as in several other states, including Washington and Illinois.
San Diego's suit takes aim at Countrywide’s alleged practice of coercing borrowers into risky adjustable rate mortgages (ARMs). Aguirre hopes to make San Diego a “foreclosure sanctuary” by preventing foreclosure proceedings on any property secured by a subprime ARM where the borrower owes more than the home is worth. (For more on what the glut of upside-down homeowners means for the future of the housing market, please read Finding the Bottom in Housing.)
The litigious City Attorney isn’t satisfied with just taking aim at Countrywide (and, by extension, Bank of America). Aguirre said he’s planning similar suits against Washington Mutual (WM), Wells Fargo (WFC) and Wachovia (WB).
While Aguirre’s heart may be in the right place, foreclosure moratoriums aren’t part of the road to recovery for the housing market. Opportunistic mortgage market participants are buying delinquent mortgages on the cheap, forgiving some part of the debt and giving borrowers a fresh start. Government intervention in this process will simply scare off lenders, since they'll have limited recourse if the loan goes sour.
At best, such suits will simply drive up the cost of new mortgages. At worst, they'll bring the recovery process to a standstill.
Foreclosures are nasty, painful and tragic. They are, however, a necessary part of the mortgage process, enabling lenders to recoup losses on bad loans.
Mandating an end to foreclosures is like telling the IRS it can’t go after tax evaders or preventing cops from chasing down burglars. This is not to say victims of foreclosures are criminals or necessarily deserve to be thrown out on the street, but living in a law-abiding society means that contracts must be enforced.
The moment we waive one group’s obligation to honor their collective word, the floodgates are open.
This certainly isn't the last lawsuit we’ll see following the collapse of the mortgage market. In fact, it’s just the tip of the iceberg. A couple years from now, when Option ARMs begin to reset, class action lawsuits will bear down on lenders like a rumbling avalanche rolling down a steep slope.
Banks would be wise to get long some lawyers.
Wednesday, July 23, 2008
Don't Be a Hero, Wait it Out
The San Diego Union Tribune reports that San Diego home prices have fallen over 25% in the past year, reaching levels not seen since mid-2003. The median home price in San Diego County now sits at $370,000. Monthly sales volume is down 12.3% from this time last year.
These numbers are a stark reminder of how bad things have gotten in the residential real estate market. Many brokers, television personalities and media outlets are hailing the drop in prices as a once-in-a-lifetime opportunity. Conventional wisdom says its a buyer's market.
Nothing could be further from the truth.
The downward trend in prices these numbers represent is still in full swing, and the underlying forces that caused the downturn show no sign of amelioration. Foreclosures are still occurring at rates not seen for 20 years, meaning that real estate markets will remain flooded with bank-owned properties for the foreseeable future. Lending practices are tight and will remain as such as banks continue to lose money on their loan portfolio's and other real estate investments.
Only those fortunate enough to have saved a sizeable down payment will even be able to consider a home purchase. These conditions alone mean supply far outstrips demand in most markets around the country.
What does all this mean for anyone thinking about buying a home but without any compelling reason to do so immediately?
Wait.
The bottom has been wrongly predicted for months, with each successive group of brave buyers wading into the market, only to be upside down the moment they receive their keys.
It is impossible to call the bottom and predict when home prices will return to a more natural, upward projection. But what is certain is that this “bottom” is many months away at the least, and with the exception of a few well-connected and well-provisioned investors, now is certainly not a buyer’s market.
Wednesday, July 16, 2008
House of the Day Results: Saint San Ramon
Click here for details on this House of the Day
Value: $1,750,000
Projection: Depreciating
San Ramon is a desirable part of the East Bay that is located conveniently close to business centers and Pleasanton and Walnut Creek. In recent years, it has attracted Silicon Valley executives looking for bigger homes that they could not afford or are not available in the San Jose area. The subject is specifically located in one of the more desirable locations within San Ramon.
The subject is a large home located in a high end Toll Brothers (TOL) development, where most houses exhibit a high pride of ownership. Area property values are declining, due to the overall decline in the local economy and the lack of available credit. There are two equivalent properties listed within 0.5 miles for less than $1.9 million, which would represent the maximum value for the house.
There are 7 properties listed in the subject's development, with only 2 sales in the past 6 months. The lack of comparable sales in the development suggests a lack of qualified and willing buyers in the area.
Due to the large amount of supply and few sales in the area, even though the property is one the nicer homes in the development, it will still have a hard time selling. We value it at $1,750,000, the lower bound of recent listings, although higher than recent sales, which are all of inferior quality.
Click on the image below for the CLEAR for this property.
Value: $1,750,000
Projection: Depreciating
San Ramon is a desirable part of the East Bay that is located conveniently close to business centers and Pleasanton and Walnut Creek. In recent years, it has attracted Silicon Valley executives looking for bigger homes that they could not afford or are not available in the San Jose area. The subject is specifically located in one of the more desirable locations within San Ramon.
The subject is a large home located in a high end Toll Brothers (TOL) development, where most houses exhibit a high pride of ownership. Area property values are declining, due to the overall decline in the local economy and the lack of available credit. There are two equivalent properties listed within 0.5 miles for less than $1.9 million, which would represent the maximum value for the house.
There are 7 properties listed in the subject's development, with only 2 sales in the past 6 months. The lack of comparable sales in the development suggests a lack of qualified and willing buyers in the area.
Due to the large amount of supply and few sales in the area, even though the property is one the nicer homes in the development, it will still have a hard time selling. We value it at $1,750,000, the lower bound of recent listings, although higher than recent sales, which are all of inferior quality.
Click on the image below for the CLEAR for this property.
House of the Day: Saint San Ramon
Click here for the results of this House of the Day
Today's property is located in the San Ramon hills, in a high-end Toll Brothers (TOL) development.
(Click for a larger image)
Home Details:
- 3340 Ashbourne Cir., San Ramon, CA 94583
- 5 Bedrooms
- 5 Bathrooms
- 5,320 square foot living area
- 19,010 square foot lot
- Built in 2006
- Recent (only) sale 12/26/06 for $2,030,000
Although this home is not for sale, here is some information about a home down the street in the same development.
"Nestled in the western hills of the San Ramon Valley, Norris Canyon Estates is a guard gated community offering hundreds of acres of open hillsides with the Las Trampas Range as a backdrop. The spacious homesites are complemented by a neighborhood park, creek-side trail, majestic oak trees, and spectacular hillsides, providing a perfect blend of natural and urban lifestyles."
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
Today's property is located in the San Ramon hills, in a high-end Toll Brothers (TOL) development.
(Click for a larger image)
Home Details:
- 3340 Ashbourne Cir., San Ramon, CA 94583
- 5 Bedrooms
- 5 Bathrooms
- 5,320 square foot living area
- 19,010 square foot lot
- Built in 2006
- Recent (only) sale 12/26/06 for $2,030,000
Although this home is not for sale, here is some information about a home down the street in the same development.
"Nestled in the western hills of the San Ramon Valley, Norris Canyon Estates is a guard gated community offering hundreds of acres of open hillsides with the Las Trampas Range as a backdrop. The spacious homesites are complemented by a neighborhood park, creek-side trail, majestic oak trees, and spectacular hillsides, providing a perfect blend of natural and urban lifestyles."
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
Gas Prices Effects On the Home
This post first appeared on Minyanville.
I came upon an interesting report out from Deutsche Bank on the effect high gas prices are having on home prices. Below are some highlights:
I came upon an interesting report out from Deutsche Bank on the effect high gas prices are having on home prices. Below are some highlights:
- Gas prices are up 167% in the last five years, 32% in the last year.
- Monthly gas expenditure is up to $519 in June '08 from $173 in June '02.
- $54,000 in home price purchasing power has been lost in the last five years; $22,000 in the last year alone (Inland Empire, CA is the worst at 46% lost in the last five years).
- As measured by increased monthly expenses and translated into mortgage payment terms, the impact of rising gas prices is equivalent to a 2.47% increase in mortgage rates over the last five years; 0.98% in the last year (Inland Empire is again the worst at a 4.35% effective increase over five years).
- Deutsche sees non-bubble areas like Texas and the South more exposed to gas price increases than bubble states, due to long commute distances and low relative home prices.
- Homebuilders are being negatively effected by this trend, particularly in developments far away from the city center.
- Builders will likely switch strategies and focus on urban "infill" and closer-in townhome projects.
- According to Deutsche, Meritage Homes (MTH), Ryland (RYL) and Lennar (LEN) have the most exposure to highly impacted areas; MDC Holdings (MDC), NVR (NVR) and Toll Brothers (TOL) have the lowest exposure.
Tuesday, July 15, 2008
Mortgage Reform: Why Government Intelligence is Oxymoron
This post first appeared on Minyanville and our sister site Dawn Patrol.
After leading the banking sector to its largest ever one-day drop yesterday, Washington Mutual (WM), in an effort to assuage concerns that it's facing a cash crunch, released a statement claiming that the bank is "well-capitalized."
Though the stock bucked the trend this morning as the broader financial complex continued its unrelenting sell-off, shareholders aren’t likely to be comforted by the WaMu’s pleas for calm.
The largest savings-and-loan in the country has seen share prices fall below $4 following the seizure of IndyMac (IMB) by benevolent federal banking regulators; investors fear WaMu could be next.
IndyMac was reopened on Monday to handle endless lines of depositors hoping to recover their pennies from the bank’s coffers.
In a stark reminder of just how dicey bottom-picking can be, Bloomberg reminded us that private-equity firm TPG led a consortium of investors in providing the bank with $7 billion in much-needed cash in April, when the stock traded at $13. Those daring saviors have seen most of their investment wiped out.
TPG did, however, slip a protective clause into the deal: If the stock drops below $8.75 -- which it clearly has -- TPG is owed the difference, effectively putting the bank on the hook for its own equity losses. While protecting TPG's investment, this feature also makes it considerably more costly, if not impossible, for the bank to raise more capital, which would further dilute shares.
As more details emerge about these and other onerous terms with which banks have been forced to agree in their efforts to raise capital, it's becoming clear just how misguidedly optimistic investors were when such deals were first announced. Banking expert Minyan Peter wrote of the WaMu deal:
“I think the problem for most market participants right now is the assumption [that] what we're experiencing looks something like 'their prior experiences in banking crises.' And to me, that's why we have seen such a big rally over the past two weeks -- because, based on prior experience, a rally feels very right, right about now.
But for all the reasons I shared before, this one is different.”
We’re now seeing just how different this one is.
Professor Depew explained Friday how the Fannie Mae (FNM) and Freddie Mac (FRE) crisis is different from the Long-Term Capital Management failure in 1998: In this case, massive losses by financial institutions around the world are a symptom, not the cause.
A few misplaced bets aren’t to blame for the market turmoil; neither is rumor-mongering. The financial system’s problems, and by extension the economy’s, are rooted in years of mispriced risk and excessive leverage. Markets are now witnessing the destruction of that debt at a rate that’s stomach-churning to the traditional buy-and-hold investor.
The process, though painful, is necessary. The debt will be destroyed, firms will go out of business and the economy will slow, if not contract. All this is healthy. Agonizing, to be sure, but healthy.
As Toddo wrote yesterday on the Buzz and Banter, “The big picture blues will lead to an unfortunate destination, but that’s necessary to rebuild the foundation for sustainable economic growth. Once we get there, those with capital will be in a fantastic position to prosper.”
After leading the banking sector to its largest ever one-day drop yesterday, Washington Mutual (WM), in an effort to assuage concerns that it's facing a cash crunch, released a statement claiming that the bank is "well-capitalized."
Though the stock bucked the trend this morning as the broader financial complex continued its unrelenting sell-off, shareholders aren’t likely to be comforted by the WaMu’s pleas for calm.
The largest savings-and-loan in the country has seen share prices fall below $4 following the seizure of IndyMac (IMB) by benevolent federal banking regulators; investors fear WaMu could be next.
IndyMac was reopened on Monday to handle endless lines of depositors hoping to recover their pennies from the bank’s coffers.
In a stark reminder of just how dicey bottom-picking can be, Bloomberg reminded us that private-equity firm TPG led a consortium of investors in providing the bank with $7 billion in much-needed cash in April, when the stock traded at $13. Those daring saviors have seen most of their investment wiped out.
TPG did, however, slip a protective clause into the deal: If the stock drops below $8.75 -- which it clearly has -- TPG is owed the difference, effectively putting the bank on the hook for its own equity losses. While protecting TPG's investment, this feature also makes it considerably more costly, if not impossible, for the bank to raise more capital, which would further dilute shares.
As more details emerge about these and other onerous terms with which banks have been forced to agree in their efforts to raise capital, it's becoming clear just how misguidedly optimistic investors were when such deals were first announced. Banking expert Minyan Peter wrote of the WaMu deal:
“I think the problem for most market participants right now is the assumption [that] what we're experiencing looks something like 'their prior experiences in banking crises.' And to me, that's why we have seen such a big rally over the past two weeks -- because, based on prior experience, a rally feels very right, right about now.
But for all the reasons I shared before, this one is different.”
We’re now seeing just how different this one is.
Professor Depew explained Friday how the Fannie Mae (FNM) and Freddie Mac (FRE) crisis is different from the Long-Term Capital Management failure in 1998: In this case, massive losses by financial institutions around the world are a symptom, not the cause.
A few misplaced bets aren’t to blame for the market turmoil; neither is rumor-mongering. The financial system’s problems, and by extension the economy’s, are rooted in years of mispriced risk and excessive leverage. Markets are now witnessing the destruction of that debt at a rate that’s stomach-churning to the traditional buy-and-hold investor.
The process, though painful, is necessary. The debt will be destroyed, firms will go out of business and the economy will slow, if not contract. All this is healthy. Agonizing, to be sure, but healthy.
As Toddo wrote yesterday on the Buzz and Banter, “The big picture blues will lead to an unfortunate destination, but that’s necessary to rebuild the foundation for sustainable economic growth. Once we get there, those with capital will be in a fantastic position to prosper.”
Monday, July 14, 2008
The Silent Killer
What's the silent killer that's been largely ignored by the financial media as it tries to keep up with the quickly unraveling mortgage crisis? Fraud.
While there are many causes for the current meltdown, the most unexplored and and least discussed is fraud. FraudBlogger.com reported yesterday that there were $1.7 billion active cases of criminal and civil fraud reported in the second quarter of 2008.
While large, this number is painfully low and doesn't come close to capturing what was really going on in the mortgage origination business from 2005-2007. Every time a loan officer put a borrower into a loan he couldn't afford or didn't understand, the loan officer committed fraud. The vast majority of these loans are still out there, and the tabulated fraud data doesn't pick them up.
Every time an appraiser valued a property based on the lender's demand for an overstated value, the appraiser committed fraud. You and I, the taxpayers, will now get to foot the bill for all that equity appraisers created out of thin air to maintain the facade of unbiased property valuations.
Every time an accountant booked the fully amortized interest payment as income for an Option-ARM borrower making the minimum payment, while adhering to GAAP, we can all agree there isn't any chance that money will find its way to the bank's coffers. By the time the loan's written off, it will be lost in a web of billions in writedowns, and the accountant will be on to mis-pricing some other asset sitting on the bank's books.
And people still wonder why the mortgage mess keeps getting worse than even the most boogly bears have expected.
New Mortgages ... Rule!
Below are some details on the Fed's proposed new mortgage rules courtesy of Briefing.com:
- New final mortgage rules ban prepayment penalties if payment can rise in first 4 years.
- New rules create category of 'higher-priced mortgages' including virtually all subprime loans.
- Lenders must verify repayment ability from income, non-home assets for higher-priced mortgages.
- Lenders must assess repayment ability on highest scheduled payment in first 7 years of mortgage.
- Lenders must establish property tax, insurance escrow on higher-priced first-lien mortgages.
- Lenders may offer borrowers opportunity to cancel escrow account after one year.
- Creditors must provide estimate of mortgage costs, payment schedule,within 3 days of application
If mortgage regulators can enforce their new rules on "higher-priced mortgages," at least as well as they do for "high-cost mortgages," (which they actually do surprisingly well) this new category of home loan means one thing: don't bother applying for a mortgage unless you have nearly spotless credit and money in the bank.
And while many would argue this is a much needed change in the mortgage market, it does raise a few questions:
- Won't this further increase demand for rental units?
- Won't this force people to save if they want to own a home?
- Isn't money saved different than money spent?
- Where was this legislation in 2006, at the height of the boom, even when regulators knew what was going on?
- Why do regulators seem to focus so much on making new rules, rather than enforcing the old ones?
- If the mortgage market figured out how to get around the old, "high cost loan" limitations, won't it eventually work its way around these as well?
House of the Day Results: Swinging into Stanton
Click here for details on this House of the Day.
Value: $350,000
Projection: Depreciating
The subject property is located in Orange County, which is experiencing a slump in the local economy due to the collapse of the mortgage market. In addition, the subject should expect to see further declines in value because it has only one bathroom.
You will notice we often mention property's with only one bathroom negatively. In a market flush with supply of homes, prospective buyers will be much more attracted to homes with more than one bathroom. Thus, we believe one bathrooms homes are at an extreme disadvantage and must be priced much more aggressively to sell. From our research, this fact is overlooked by most brokers and as a result one bathroom homes are typically over listed.
10301 MacDuff St, a superior home, sold for $370,000 in April. Due to the fact that the property has only one bathroom, coupled with the weak economy and rising fuel prices, we don't see strong demand for this type of property. Most listings in the area are substantially higher than our subject's estimated value, and we expect those homes to sell below the listing price.
We value the subject property at $350,000 and expect it to see declines in the coming months.
Value: $350,000
Projection: Depreciating
The subject property is located in Orange County, which is experiencing a slump in the local economy due to the collapse of the mortgage market. In addition, the subject should expect to see further declines in value because it has only one bathroom.
You will notice we often mention property's with only one bathroom negatively. In a market flush with supply of homes, prospective buyers will be much more attracted to homes with more than one bathroom. Thus, we believe one bathrooms homes are at an extreme disadvantage and must be priced much more aggressively to sell. From our research, this fact is overlooked by most brokers and as a result one bathroom homes are typically over listed.
10301 MacDuff St, a superior home, sold for $370,000 in April. Due to the fact that the property has only one bathroom, coupled with the weak economy and rising fuel prices, we don't see strong demand for this type of property. Most listings in the area are substantially higher than our subject's estimated value, and we expect those homes to sell below the listing price.
We value the subject property at $350,000 and expect it to see declines in the coming months.
Friday, July 11, 2008
House of the Day: Swinging into Stanton
Click here for the results of this House of the Day.
Today's property is located in Stanton, CA a suburban neighborhood smack in the middle of Orange County.
(Click to enlarge image)
Home Details:
- 8511 Chanticleer Rd, Stanton, CA 90680
- 3 Bedrooms
- 1 Bathrooms
- 1347 square feet living area
- 0.17 acres
- Built in 1956
- "Recent" sale 2/27/1987 for $120,000
Property is not currently listed, no description available.
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
Today's property is located in Stanton, CA a suburban neighborhood smack in the middle of Orange County.
(Click to enlarge image)
Home Details:
- 8511 Chanticleer Rd, Stanton, CA 90680
- 3 Bedrooms
- 1 Bathrooms
- 1347 square feet living area
- 0.17 acres
- Built in 1956
- "Recent" sale 2/27/1987 for $120,000
Property is not currently listed, no description available.
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
Thursday, July 10, 2008
Lone Voice Calls for Intelligent Mortgage Reform
While Congress deliberates on the future of the nation’s mortgage market, some within the government are calling for restraint in regulatory reform. Housingwire.com reports William Emmons, an economist at the St. Louis Fed, is calling for patience and social support as the clearest way to economic recovery.
Wednesday, July 9, 2008
House of the Day Results: Stuck on Stockton
Click here for details on this House of the Day
Value: $120,000
Projection: Depreciating
Stockton is arguably the most publicized declining real estate market in the United States. Foreclosure and REO (Real Estate Owner, or Bank Owned) activity is very high, and values have declined precipitously in the past 12 months. The subject's neighborhood itself is aging, with many new developments in the vicinity providing an alternative to these older homes.
The subject property has not been immune to these declines and is further hampered by its location on a major four-lane street on the Northeast side of the city. This section of the city is dominated by 2 bedroom, 1 bathroom properties, compared to the property’s 3 bedrooms, 1.5 baths.
1901 Bradford Ave sold in January for $105,000, but is inferior to the subject based on its smaller lot and one fewer bedrooms. 1220 Sycamore St sold in April for $150,000 but is superior to the subject based on location and curb appeal.
1240 Wilson St is currently listed at $109,900 but is inferior to the subject based on its larger lot size.
The subject has bars and windows on its doors, reducing curb appeal and forcing us to be more conservative than normal. We value the property at $120,000 to reflect a middle ground between the two sales listed above, erring on the side of caution.
Value: $120,000
Projection: Depreciating
Stockton is arguably the most publicized declining real estate market in the United States. Foreclosure and REO (Real Estate Owner, or Bank Owned) activity is very high, and values have declined precipitously in the past 12 months. The subject's neighborhood itself is aging, with many new developments in the vicinity providing an alternative to these older homes.
The subject property has not been immune to these declines and is further hampered by its location on a major four-lane street on the Northeast side of the city. This section of the city is dominated by 2 bedroom, 1 bathroom properties, compared to the property’s 3 bedrooms, 1.5 baths.
1901 Bradford Ave sold in January for $105,000, but is inferior to the subject based on its smaller lot and one fewer bedrooms. 1220 Sycamore St sold in April for $150,000 but is superior to the subject based on location and curb appeal.
1240 Wilson St is currently listed at $109,900 but is inferior to the subject based on its larger lot size.
The subject has bars and windows on its doors, reducing curb appeal and forcing us to be more conservative than normal. We value the property at $120,000 to reflect a middle ground between the two sales listed above, erring on the side of caution.
Credit Contraction Continues
In further evidence of the ongoing credit contraction, Mortgagedaily.com reports Lehman Brothers is shuttering its Small Business Finance unit. The division made small commercial mortgage loans to individuals and corporations. The closure is the latest in Lehman's efforts to shrink its mortgage business and reduce exposure to the US housing market.
Lenders everywhere are reducing access to credit, even as struggling consumers need it most to make ends meet. As banks and other financial companies delever, credit-dependent Americans will find it harder and harder to maintain their spend-happy ways.
Lenders everywhere are reducing access to credit, even as struggling consumers need it most to make ends meet. As banks and other financial companies delever, credit-dependent Americans will find it harder and harder to maintain their spend-happy ways.
House of the Day: Stuck on Stockton
This morning's property's is located in Stockton, CA -- what more needs to be said? Guess the value by adding a comment at the bottom of this post.
(Click for a large image)
Home Details:
- 1740 West Lane, Stockton, CA 95205
- 3 bedrooms
- 1.5 bathrooms
- 1,224 square feet
- 0.23 acres
- Built in 1951
- Recent sale: 4/6/06 for $300,000
"This 1/4 lot with a huge backyard w/ alley access. RV access and storage. Must see!! Do not disturb occupants - sold as is, sellers not providing any reports or clearances."
Good luck!
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
(Click for a large image)
Home Details:
- 1740 West Lane, Stockton, CA 95205
- 3 bedrooms
- 1.5 bathrooms
- 1,224 square feet
- 0.23 acres
- Built in 1951
- Recent sale: 4/6/06 for $300,000
"This 1/4 lot with a huge backyard w/ alley access. RV access and storage. Must see!! Do not disturb occupants - sold as is, sellers not providing any reports or clearances."
Good luck!
**Periodically, Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm that afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
Monday, July 7, 2008
California, New York Lend a Hand to Struggling Borrowers
The real estate and mortgage industries are busy battening down the hatches for the inevitable tidal wave of regulatory reform. Meanwhile, Housingwire.com reports government officials are already hard at work trying to outdo each other as the protector of the “everyday common household victim” of our “national crisis.”
Both measures are designed to ease pressures on distressed borrowers, but the New York plans go well beyond those in California. The California laws are designed to ensure increased communication between borrower and lender. The New York law is designed to put a halt to the process of foreclosure, presumably to await more extensive reforms or bailout plans still to come.
In both states, these measures mark the tip of the iceberg in the process of reforming regulatory frameworks for mortgage lending. In this election year, public support is swelling for pieces of legislation like these and even larger moves are likely on their way.
The challenge for regulators -- and the lobbyists so generously pleading their case -- is to enact rules and enforcement schemes that prevent fraud and predatory lending, without being too constrictive to legitimate business. Many such rules already exist; it remains to be seen if the fallout from the collapse of the mortgage industry can convince regulators to enforce their own rules.
House of the Day Results: Falling Over Fallbrook
Click here for details on this House of the Day
Value: $250,000
Projection: Depreciating
Fallbrook is located in Eastern San Diego County, just south of Temecula along Interstate 5. The city and the surrounding area are being adversely effected by the economic slowdown, as much of the growth in the area was due to new home construction. High gas prices are also weighing on consumer spending in an area dominated by commuters. As a result, home prices have fallen dramatically from their peak in late 2005 and continue to fall.
Our property is centrally located, making it more desirable than those on the outskirts of town. There are, however, many listings in the subject's immediate vicinity. The property also requires some "TLC," which indicates its condition is likely inferior to its neighbors. Listings in the area range from $273,900 - $549,000. Only three properties have sold in the area since April 15th, all of which are superior in quality to the subject.
515 Shady Glen road - aside from having a suspect address - is a similarly sized home, but in turn key condition. It sold for $265,000 on 6/19/08. The subject is on a slightly larger lot, but the inferior condition, combined with the weak local economy, high gas prices and an oversupply of houses place the value of the subject property at $250,000. Further declines are likely in the near future.
Value: $250,000
Projection: Depreciating
Fallbrook is located in Eastern San Diego County, just south of Temecula along Interstate 5. The city and the surrounding area are being adversely effected by the economic slowdown, as much of the growth in the area was due to new home construction. High gas prices are also weighing on consumer spending in an area dominated by commuters. As a result, home prices have fallen dramatically from their peak in late 2005 and continue to fall.
Our property is centrally located, making it more desirable than those on the outskirts of town. There are, however, many listings in the subject's immediate vicinity. The property also requires some "TLC," which indicates its condition is likely inferior to its neighbors. Listings in the area range from $273,900 - $549,000. Only three properties have sold in the area since April 15th, all of which are superior in quality to the subject.
515 Shady Glen road - aside from having a suspect address - is a similarly sized home, but in turn key condition. It sold for $265,000 on 6/19/08. The subject is on a slightly larger lot, but the inferior condition, combined with the weak local economy, high gas prices and an oversupply of houses place the value of the subject property at $250,000. Further declines are likely in the near future.
Thursday, July 3, 2008
House of the Day: Falling Over Fallbrook
Click here for the results of this House of the Day
This morning's House of the Day is located in the inland hamlet of Fallbrook, CA. Guess the value by adding a comment to this post.
(Click for a larger image)
This morning's House of the Day is located in the inland hamlet of Fallbrook, CA. Guess the value by adding a comment to this post.
(Click for a larger image)
Home Details:
- 968 La Vonne Ave, Fallbrook, CA 92028
- 3 Bedrooms
- 2 Bathrooms
- 1,755 square feet
- 0.23 acres
- Built in 1982
"Located at the end of cul-de-sac, quiet street, close to village but far enough with country feel. Open floor plan. Master bedroom has large walk-in closet and spacious bath. Lots of potential, needs some TLC. This is a great buy for a first time buyer. Bank owned."
The Cirios Real Estate Zip Code Report can be found by clicking the image below.
**Each morning Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm each afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
- 968 La Vonne Ave, Fallbrook, CA 92028
- 3 Bedrooms
- 2 Bathrooms
- 1,755 square feet
- 0.23 acres
- Built in 1982
"Located at the end of cul-de-sac, quiet street, close to village but far enough with country feel. Open floor plan. Master bedroom has large walk-in closet and spacious bath. Lots of potential, needs some TLC. This is a great buy for a first time buyer. Bank owned."
The Cirios Real Estate Zip Code Report can be found by clicking the image below.
**Each morning Cirios Real Estate posts a home listed in California as its "House of the Day." At 4pm each afternoon, we post a full valuation assessment completed by our team of property value experts. We encourage our readers to post comments and participate in a discussion about the home's value.
Cirios Real Estate has no buying or selling interest in any of the homes we evaluate, they are posted here for the benefit of our community. This analysis is a broker's opinion of value and is not to be construed as an appraisal.
HOPE when?
Washington’s war on foreclosures, the latest in a string of sycophantic attempts to sway public opinion back in the favor of the very regulators that turned a blind eye to rampant irresponsible lending, is now being waged with carefully crafted press releases.
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