Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Sunday, April 30, 2006

It's the Data Stupid!

Interesting Sonoma County Facts:

* Adjustable-rate mortgages accounted for nearly 70 percent of all new purchase loans in the county in 2005 compared with 15 percent in 2001.

* Interest-only loans accounted for about half of all home purchase loans last year compared with 2 percent four years earlier.

* Also, popular are loans featuring minimum payment options and 40-year mortgages to keep down monthly payments.

The Press Democrat recycled an article they already ran last month and added some minor touch ups. Their claim is that it is now a balanced market.

Sometimes you just want to say... "Don't be a horse's ass!"
I mean really. If it were a balanced market, more than 7% of the population of the county would be able to afford to buy a median priced house. If it were a balanced market there would be buyers for all the houses sitting on the market. I do emphasize the word sitting...

If it were a balanced market the cost of ownership would roughly be in the same ballpark as the cost of renting. At this time the cost of ownership is at least double the cost of renting, and the prices of homes long ago outpaced wages and job growth in the county. They have lost their grip on reality.

It is not rational, reasonable or based in reality for home prices to double in five years. That is a bubble. The bubble peaked in August 2005. We are now on the decline. This is the stage known as the knife falling. Your father may have given you that advice when you were young... don't run with scissors and don't catch a falling knife.

Sonoma County
'"The pendulum is in the middle and it's more of a balanced market between the buyers and sellers. I think our market will show positive signs of growth this year," said Ross Liscum, a broker in the county for nearly three decades and co-owner of Prudential California Realty in Santa Rosa."

'"The California real estate market is beginning to experience the soft landing that we expect," said Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors."

"A year ago, the county's housing market was hot with bidding battles that pushed prices to new highs, reaching $619,000 in August. But federal money managers have raised rates the past year to curb inflation. That, in combination with record high prices, is enough to push more buyers out of the market. Then rising mortgage rates and already sinking affordability triggered a slowdown."

"What has worsened is the ability of more buyers to crack into the homeownership ranks. Affordability has long been a hurdle to homeownership in Sonoma County and the Bay Area. With the run-up in home prices, only 7 percent of county households are able to afford the median home price here, according to the latest studies."

"The combination of high prices and rising interest rates has pushed buyers out of the market."It does hurt. That's part of the reason the market is slowing a little bit," said Dale DeGennaro, president of the North Bay Chapter of the California Association of Mortgage Brokers."

"Slowing price gains also have buyers more cautious about stretching their finances to get into a home. In the past, they could count on soaring prices to build up equity. Prices have flattened. Sales so far this year have dropped off more than expected."

"One reason could be buyer concern that interest rates will continue rising, making monthly mortgage payments even more costly."I think it's a psychological thing," said Robert Kleinhenz, deputy chief economist for the realtors' association."

"With appreciation slowing, foreclosure activity is on the rise because households facing financial trouble may have more difficulty selling homes. The number of default notices sent by lenders to California homeowners increased more than 15 percent at the end of last year compared with a year earlier."

"The number of foreclosure notices in Sonoma County increased 32 percent, according to DataQuick Information Systems."There's always going to be a certain amount of financial distress."

"Because of the rise in home values, much of that financial distress has been covered by the increasing amount of equity that people have had in their homes. That equity is now being created at a slower pace and default activity is inevitably on the rise," said Marshall Prentice, DataQuick president."

'"I still see us having a great year."said Jeff Schween, a Coldwell Banker agent. Sonoma County's housing market should sustain solid growth this year, Ross Liscum (realtor) said. Prices remain lower here than all but Solano County in the nine-county Bay Area region and Sonoma County remains a desirable place to live, he said."I don't think it's going to hurt up here because we're still a draw," he said."

Sonoma County MLS: 2898
(Bareis MLS)

Sonoma County listings progression
3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868
4/30/06 = 2898

Sonoma Valley MLS: 315

Sonoma Valley listing progression
2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305
4/30/06 = 315

Saturday, April 29, 2006

Housing Bubble = Pyramid Scheme ... Again

Ben over at the Housing Bubble Blog had a snippet from the NY Times:

"The New York Times has this on public awareness."

“A pyramid scheme is a foolproof way to make money, until it isn’t. What is the breaking point? Probably about the time some spoilsport whispers ‘pyramid scheme,’ and there’s a mad dash for the exits.”

“Echoes of housing prices? Not exactly. Still, an almost pyramid-like frenzy has engulfed some areas in recent years, with buyers convinced that within months they will find someone who will pay even more for them.”

“If there are whispers of a ‘housing bubble’..most people still haven’t heard them. As recently as a year ago, Gallup (found) just 23 percent of Americans were even moderately familiar with the term. In the latest survey, that jumped to 40 percent.”

“24 percent now say that a bubble is likely within a year..only 7 percent expect it in their own backyard.”

Below is an encore of a post I made last month regarding how the housing bubble is just that... a pyramid scheme. The NY Times wouldn't really call me a "spoilsport" now would they?

Also, perhaps the New York Times might be interested in a poll that was taken recently: (also posted on this blog and at Ben's place)

"And from a survey of lenders in the US. “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.”

“A significant 93 percent of lenders surveyed expect an anticipated housing correction to result in real estate prices declining 10 to 20 percent across the country.

‘In the minds of lenders, the housing bubble has moved from ‘Loch Ness monster’ myth status to an economic reality that could have a significant, negative impact on the lives of many Americans,’ said Michael E. Jacoby.”

“‘A year ago, 46 percent of lenders believed we were in a housing bubble. Today, that number has climbed to 66 percent, and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20 percent.”

(Reprint of past story Called: Home Debtor Mantra.... Its on the House)
True Story on SFGate

"Last year, homeowners extracted some $600 billion in equity from their homes through refinancing and equity lines."

"But those are mere numbers. That I too have succumbed to this mortgage mania shows just how far it has seeped into the American psyche. I always considered myself a fiscal conservative. Credit cards get paid off to zero each month. Can't afford it? Don't buy it.
How did I change? "

"A decade ago, I remember my mother telling me that after nearly 20 years of residing in their home, which my father had designed and built for about $75,000, my parents had a mortgage of over $500,000."

"What happened?" I asked my mother disapprovingly.
She waved my concerns aside. "This house is a bank," she said. "We'll never pay it off."
A bank?

"After that, I could never think about our lives in quite the same light. My parents were self-made. They were from poor, working-class families with five and eight siblings, and had put themselves through college, worked hard, and never got a dime from any parent or grandparent, dead or alive."

"But suddenly I realized that their college educations and hard work might not have been enough to cover certain ... luxuries."

"Traditionally, money "taken out of one's house" has been used to finance home-renovation projects. But according to an informal survey, more and more people are approaching their homes as their own private bank, with the equity line or refinancing serving myriad purposes."

"Maggie Vaughn of San Francisco used her equity line to get herself off the credit card merry-go-round by using the money to pay them off all at once."

"Marcus Pun of Oakland is considering getting a new equity line to pay off his credit card debt (used to foot the bill for his daughter's private school tuition), to pay for living expenses during a slowdown in work, to pay for remodeling his house to rent or resell it, to attend technical classes and to take his first real vacation in 14 years."

"Lynn Ruth Miller, who bought her Pacifica home for $97,000 in 1985, is living on the equity from her house and investing part of that money to get earned income."

"I could not survive if I didn't do that because my fixed income is $720-plus a month," she wrote. "Because of the rise in property values I am living very comfortably and could not possibly pay my bills otherwise."

"Some even factor the monthly payments of the equity line into the equation. My mortgage broker, Michael Simmons, once had a client who took out a $500,000 equity line to pay for her elderly mother's home care and the monthly payments of the equity line itself."

"Geoff Caldwell of San Francisco, used an equity line to avoid expensive dormitory fees, by buying a house for his daughter to live in during college."

Edward Malouf of Novato funded a condo for his son. "We paid all cash for it, and our son made every payment, as agreed," he explained. "Because of this, we allowed him to keep the appreciation when he sold the condo, so he could buy a larger, three-bedroom one."

"Equity lines and second mortgages haven't always played such an integral role in American life. In the old days, taking out a second mortgage or an equity line had a certain stigma attached.
"It meant you were the sort of person who couldn't pay your bills -- that you were living above your means," Simmons explained. But over the past 20 years, he's seen things change."

No, actually it still means that you are the kind of person who is living above your means. The difference is you may not be the kind of person who cannot pay your bills... but if you live like this... it likely means you are the kind of person who feels entitled to have someone ELSE to pay your bills. You add them to your tab and they are handed to the next fool in your debt, debt, who's got the debt relay game... and you justify it.

Kind of like a reverse pyramid scheme now that I think about it. Instead of the person at the top making all the money and the people at the bottom doing all the work... the people at the top of the homedebtor pyramid scheme are spending all the money... and the last fool on the mortgage train gets the biggest pile of debt disguised as a market priced house. It is NOT market priced. It is debt priced.

"Indeed, treating the home as a bank has grown naturally out of a sea change in our attitudes about debt."

Right... the attitude now is "I can spend all I want and get someone else to be responsible for the debt! Hey... buy that Escalade, buy that Hummer, Let's go to Europe. Its on the house!!! "

"Now, we've become gamblers with our homes. With the rise of equity lines, 40-year mortgages, second-home loans and constant refinancing, it's obvious homeowners are counting on real estate prices continuing to rise."

Now what happens to these people when they try to unload their pile of debt with a roof on a bigger fool when the fools catch on and refuse to play the debt hand off?

think about this for a second.

These posers finance the lifestyle they have become accustomed to by putting it all on the house... and big fool buyer comes along and pays for it. When the fools catch on that the house price isn't actually a reflection of its value in the market, but merely a reflection of the spending habits of the previous owner... how long before THAT reality repulses the buyer? What happens to the overspending fools living under a mountain of debt they never intend to pay off then?

"Last year, the Fed raised interest rates 13 times, and my own equity line has jumped almost two points in six months.

As the short-term interest rates rise, people may begin to be less cavalier about home equity funny money."

Oh and just think about how happy the new owners of your debt with a roof will be when they are burdened with the payments for the lifestyle you enjoyed. Do you think there will be a backlash against the whole darn industry then? You think buyers will keep lining up to take your debt hand off when the reality hits them?

"Ten years ago I was horrified by my parent's use of our family home as a source of cash, but now I see things differently. Would it have been better to have paid off the house and lived mortgage free? Maybe. But going that route would surely have meant curtailing their choices earlier -- never giving their kids college tuition, or working extremely long hours, or having to get corporate jobs instead of working for themselves.

In hindsight, treating our house like a bank worked wonders."

Frightening. Truly Frightening. Welcome to the Land of Hubris and Entitlement.

Friday, April 28, 2006

Rude Shock... Coming to a Borrower Near You

"Despite the lenders' precautions, some borrowers will receive a rude shock starting this year. Repayment terms on about $1.3 trillion of adjustable-rate loans will increase in 2006 and 2007, forcing some borrowers to pay up to 150% more per month."

"In California, where seven of the 10 most expensive U.S. cities are located, one in five buyers already spends more than half of pretax household income on housing -- much more than the 30% recommended by the Housing & Urban Development Dept."

"Mortgage lending standards show little sign of tightening," says Frederick Cannon, bank analyst with New York's Keefe Bruyette & Woods Inc. investment bank. "[Lenders] should have dialed back the aggressive loans by now."

"What's worse, instead of cutting back on the exotic mortgages they've leaned on throughout the boom, many lenders are charging ahead on such high-risk loans full tilt."

"For months doomsayers have been predicting that the slowing housing market, along with rising interest rates, would lead to mortgage foreclosures and bank losses. That hasn't happened yet, but delinquency rates have started to rise."

"The much-feared troubles may finally be arriving. Delinquency rates jumped more than 7%, to 4.7% in the fourth quarter of 2005, from the year before, according to the Mortgage Bankers Assn. Home buyers are becoming over-extended."

"Worries center around the subprime lenders, which make loans to borrowers with less than stellar credit. Last year they issued a record $650 billion of mortgages. Such lenders now have a 23% market share of new loans, vs. less than 5% in 1994, says Brenda B. White, managing director at Deloitte & Touche Corporate Finance LLC. Periods of big profits are often followed by "serious indigestion in the market," she warns."

"Cutthroat competition, say banks, leaves them no choice. Even after then-Federal Reserve Chairman Alan Greenspan admonished lenders a year ago for enticing borrowers to take on more debt, many still require little or no documentation, ask for low minimum payments, offer loans that are high as a percentage of home valuations, and permit borrowers to carry more overall debt than in the past."

'"In the hands of an unsophisticated borrower, [these loans are] dangerous," says Robert W. Visini, vice-president for marketing at San Francisco mortgage tracker LoanPerformance (FAF ). About 10% of U.S. households now face a great risk of running into credit problems, according to research done by Meredith Whitney, senior financial institutions analyst for CIBC World Markets Inc. (BCM )."

"If borrowers start to default on their loans, their lenders could themselves face mounting problems. It has happened before. In the mid-'90s some banks were so desperate to issue mortgages that they were lending as much as 125% of a home's appraised value. When the economy weakened, several filed for Chapter 11 bankruptcy, including United Companies Financial, which was later liquidated. Caution to those lenders who are pushing the envelope today."

'"Both the banks and consumers are stretching," says Peter J. Winter, an analyst with Harris Nesbitt Corp., a unit of BMO Financial Group (BMO )."

"Many large subprime lenders sell their loans to Wall Street to repackage for investors to buy. By doing so, they argue, they move risk from their balance sheets to the broader market."

"Scott R. Coren, a Bear, Stearns & Co. (BSC ) analyst covering mortgage finance, disagrees. He uses the sales at 14 such lenders to judge their appetites for risk, and to determine the quality of the loans they likely keep on the books. "They keep some skin in the game," he says."

"Coren highlights several potential red flags. ECC Capital Corp. (ECR ) and New Century Financial Corp. (NEW ) do big business in California, where the median house price jumped 16% last year, to reach a record $548,430."

"Long Beach Mortgage Corp. (a unit of Washington Mutual) and NovaStar Financial Inc. (NFI ) require only limited documentation and therefore may invite fraud, according to Coren's research. Fieldstone Investment Corp. (FICC ) and First Franklin Financial Corp. write lots of loans called interest-only or option adjustable-rate mortgages, which allow borrowers to postpone making repayments of principal and even add unpaid interest to the debt."

"ECC and Long Beach declined to comment ahead of their earnings announcements."

McMansion Turned McMoneyPit

McNightmare Story from SFGATE

"Come Monday, barring any drastic changes, Jacob Holmes, his wife, Sharmaine, and their three children will pitch a tent in the living room of their $700,000 dream home, spark up the propane stove and start roughing it."

"It wasn't long after they moved into the brand new two-story house at 1018 Promenade St. in Hercules that they discovered a laundry list of problems."

"The house leaked like a sieve. There was no way to get into the attic. And though they didn't know it at the time, there was a gas leak on the property."

"The mold and water experts identified dangerous levels of mold in numerous places and confirmed that at least half of the 48 windows in the house leak. Other leaks sprang from faulty plumbing connections, and Holmes saw water seeping in from an outside pipe. The builders even forgot to cut an opening in the ceiling to reach the attic."

"To top it off, city building officials told the family in September 2005 that Pacific Gas and Electric Co. had found a gas leak on the property."

'"This has been an ongoing situation for coming on to two years, and he's had several problems with the house," Ed Galigher, president of Western Pacific's Bay Area division said." (Owned by DR Horton)

"We've had some construction issues, and that happens with most houses, but he's had more problems than most people have."'

"The family moved out of the house in June 2003, just five months after they moved in, to allow workers to take care of the mold. They returned two weeks later, but it was less than a year before more leaks and more mold forced them out in May 2004."

"That was two years ago. The house, gutted to the framing studs, has been vacant ever since -- and Holmes is still making mortgage payments."

'"We planned on being here till we couldn't walk up the stairs anymore, but these people have turned what was supposed to be our dream home into a nightmare," Holmes, a 37-year-old Oakland firefighter, said. "I spent my life's savings, and I've never enjoyed a single day in that house."'

"They have not lived there since."

"Western Pacific Homes set up the family in a temporary home a few blocks away and promised to fix everything."

"At first, Holmes was patient, sure that Western Pacific would make things right. But when the contractor did an abrupt about-face in July 2004 and offered to buy the place back instead of fixing it, his patience began to wear thin."

"Western Pacific's lawyer sent Holmes a letter saying the company would no longer foot the bill for temporary housing -- or anything else."

"It's easy to see why the Holmes family has held on to its dream home with such determination. The couple moved in after leaving their first home at 75th and Bancroft avenues, by most any measure a rough section of Oakland."

"The family's Victorian house was among nearly 230 new homes during the first phase of a Hercules development that would eventually include more than 900 houses. It sits in a tidy neighborhood that enjoys the picturesque sunset bay views that have become a hallmark of Bay Area living."

"It was everything -- better schools, a painless commute and a brand new home -- they'd been dreaming of for years."

"But it's become a nightmare, and Holmes can't understand why Western Pacific won't step up.
"It seems to me like they've spent more money keeping us out of the house rather than trying to get us back in it," he said."

Speculation & Easy Money Hangover

This is what the housing market's chief cheerleader said to Florida Realtors. Read closely and then imagine what he would say to Sonoma.

'"We're in a cleansing mode right now," Lereah told about 400 people. "It's going to hurt."'

"The region's real estate economy must recover from a hangover wrought by a spasm of speculation and easy money, said David Lereah, chief economist at the National Association of Realtors, during a speech to Realtors at a West Palm Beach hotel Thursday."

'"If you have a healthy local economy, it's almost impossible to have a bubble burst," he said."

"Lereah cited Florida's strong job growth numbers. Palm Beach County and the Treasure Coast are enjoying record-low unemployment, according to state figures released last week."

(Ah- job growth... what's that Sonoma County?)

"For the near future, though, home sellers will have to contend with a glut of properties for sale and less interest from buyers."

"That reality was reflected in a report this week from the Florida Association of Realtors, which said the number of home sales in Palm Beach County in March was down 33 percent from a year ago."

"Lereah called the slowdown healthy: "Prices got a little too high. We got ahead of ourselves. We needed to catch our breath."'

'"Is this a bad year? Yes. Your numbers will be down," Lereah said."

"Lereah dismissed widespread concerns about the lack of affordable homes in Palm Beach County and the Treasure Coast. Following five years of home-price increases that far outpaced income growth, the median price for an existing home in Palm Beach County in March was $393,700."

"But, Lereah said, that number isn't so steep compared to some other parts of the country such as New York and northern New Jersey (median home price of $459,600), Bridgeport, Conn. ($468,500) and Washington ($432,900)."

Makes you wonder what he would say about Sonoma now doesn't it? Average household income of less than $50k a year, and median house prices above $600k. I bet it should sound something like this.....

Is this going to be a bad year? Yes. Most definitely. Your numbers will be down... and no, when your biggest job growth is in the service sector and paying on average of $13 per hour... you are not still affordable. You don't have a healthy economy that can sustain the prices. You have gotten WAY ahead of yourself due to easy money and speculation... there will be pain involved.

Thursday, April 27, 2006

Junk Food Housing News

You know, headlines lately are leaving much to be desired, reminds me of the empty calories of junk food.

Recently, (published April 22, 2006) The Press Democrat published an article about the Sonoma County Condo market. Their headline read: "Condos weather the storm"

The story said:

"Normally, condominium prices are the last to rise during a market surge and the first to fall when sales drop."

"But Sonoma County's condominium market has remained stronger than many had anticipated in the face of slowing home sales and flattening prices. Some still warn the condominium market could soften this year with the addition of new units and apartments converted to condos. But the supply of condominiums continues to grow as developers anticipate more buyers will look to condos as an alternative to high-priced houses."

'"Affordability always is the key for why we're still selling them," said Alice Curtis, Santa Rosa manager for Creative Property Services."

"Increasingly, condominiums have been the most affordable housing to purchase in a county where the typical house doubled in price over five years. Long the choice of singles and couples seeking low-maintenance homes, condominiums have become the starter home for families and other first-time buyers. Condominium prices took off in the wake of house prices as demand drove down the supply of units for sale. The county's condos are concentrated in the largest cities and account for about 15 percent of total home sales."

"Curtis cautioned the market has softened and that condominiums are just as likely as houses to sell for less than they would have last summer, when prices peaked. She noted the average home sold for up to 5 percent above the asking price in recent years, but is now selling for about 3 percent below."

"That says the market is still softening because clients are still lowering their asking prices and we're still seeing them selling for lower than those asking prices," Curtis said. Loan interest rates have steadily increased over the past year and combined with high prices are pushing more buyers out of the market."

Reality of Condo Sales in Sonoma County (March)

County: 73 units sold YoY down -34.80%

Rohnert Park: 17 units sold YoY down -37%

Santa Rosa: 34 units sold YoY down -45.2%

Sonoma: 8 units sold which can hardly account for the headline of Condos weathering the storm. (up from February which had 0 sales) up 33.3%
Sonoma's median price is down -24% and average price down -20.70%

speaking of that "storm" the Sonoma Index Tribune had a bit of a blurb about local real estate:

"PRIME REAL ESTATE at Armstrong Estates on Sonoma's east side may not find a buyer quite as quickly as in past years, when homes would be snapped up within a week of hitting the market."

"Home sales have slowed down over the winter months, but as the weather heats up, so does the housing market, even if agents predict 2006 will be more mellow than past years. Neither buyers nor real estate agents were tempted to slog through the mud over a particularly wet March, but a glint of sunshine has people pounding the pavement."

(There is nobody pounding the pavement in the picture they posted. The MLS is growing daily, as is the price reduced list. When they said "as the weather heats up, so does the housing market" - do they mean the number of houses put up for sale is heating up? Because that is true. The buying isn't heating up though.)

You won't be able to read the rest of it even if you click on the links unless you want to pay for it. They really are arrogant enough to believe that users must pay to read the news on the website. This is Sonoma. Everyone wants to live here, and everyone wants to read our news and will pay for it because it is that good.

Wednesday, April 26, 2006

Tumbling Trends....

"With the rate on the benchmark 10-year Treasury rising above 5.1 percent on Wednesday, mortgage rates climbing and mortgage applications falling, it may get worse for home builders."

"Mortgage applications last week slid to their lowest level since November 2003, according to the Mortgage Bankers Association, and interest rates were still at levels not seen since 2002."

'"The trends in housing are deteriorating," said Raymond James and Associates analyst Rick Murray. "But what's perhaps new is that maybe they are deteriorating faster than people had been anticipating."'

"Pulte Homes Inc. and Centex Corp. two of the largest U.S. home builders, on Wednesday reported higher quarterly profit but saw new orders tumble 11 percent, in further signs of a weakening U.S. home industry."

"After reporting quarterly results and their forecasts after the close of the stock market on Wednesday, Pulte Homes Inc. and Centex shares fell in after-hours activity, and took many other home builder stocks with them."

"Both Pulte and Dallas-based Centex, the No. 4 U.S. home builder, said the number of orders for new homes fell 11 percent in the quarter compared with the year-earlier quarter."

"Centex cut its forecast for the year and its stock was hammered in after-hours trading. Pulte, based in Bloomfield Hills, Michigan, maintained its forecast for 2006 of $6.00 to $6.25 per share."

"In after-hours trading on the Inet electronic brokerage system, Centex shares fell 6.2 percent to $56.97 from their close of $60.75 on the New York Stock Exchange."

"Pulte shares fell 1.2 percent to $38.59 from $39.04. Shares of luxury home builder Toll Brothers Inc. and KB Home both fell more than 2 percent. D.R. Horton Inc., the largest U.S. home builder, and Hovnanian Enterprises Inc. fell 1.6 percent in after-hours activity."

"Beazer Homes USA Inc. (BZH.N: Quote, Profile, Research) on Thursday reported a fiscal second-quarter profit from a year-earlier loss, but a softening U.S. housing market pushed orders down 19 percent and the company lowered its forecast."

"Beazer, which sells homes largely to mortgage-rate sensitive, first-time home buyers, followed Pulte Homes Inc and Centex Corp. who late Wednesday also reported experiencing a decline in home buying as rising mortgage rates and housing prices pressures buyers."

"Closings rose in every region except the West, where a decline in California offset higher closings in Arizona, Colorado and Nevada. Orders for homes, fell 19.4 percent to 4,224, and were off 46.3 percent in the West. Sacramento, California, was particularly hard hit, as orders fell and cancellation rates rose."

Too Bad, So Sad.... Buh-Bye!

As red-hot real estate markets begin to cool, veteran real estate professionals expect that many newcomers to the business will seek out easier ways to make money.

Veteran real estate professional Ray Brown, co-author of the real estate primer “Home Buying for Dummies,” says it's a good thing when the market weeds out the least devoted practitioners.

He's seen it happen many times before as the housing sector expanded and contracted over the past 30 years."If you can imagine a wind going through a forest and blowing all the dead branches off the trees, that is not bad," he says.

"Nature is pruning. The weakest agents will be the first to go. I don't care how tough the market gets, the finer agents will be there."

“When sales are brisk, it’s a lot easier to make a living in real estate. But when inventory grows, part-timers and newcomers are often the first to find another career. Veteran real estate professionals expect that many newcomers to the business will seek out easier ways to make money.”

“‘When the market is hot, agents come out of the woodwork,’ says Diana Lusk, a San Diego, Calif., real estate practitioner. ‘When the market cools down they go back to what they were doing before.’”

Slip Sliding New Home Numbers

"New home sales posted the biggest jump in 13 years in March, but sales got a boost as builders cut prices to cope with higher mortgage rates and a growing backlog of houses on the market."

Also, according to the data, the new houses that are being sold are priced below $300k. How many of those do we have in California? When was the last time you saw new homes below that price point in Sonoma County?

"Despite the strong March new homes sales pace, there were renewed signs the housing boom is losing momentum."

"March sales pace was down 7.2 percent from March 2005."

"Inventories increased as well as new homes available for sale at the end of March reached a high of 555,000."

"The median home price slipped 2.2 percent from a year earlier to $224,200, the first year-over-year decline since December 2003, the Commerce Department said."

"A separate report showed U.S. mortgage applications fell for a third consecutive week, with demand for home purchase loans falling to its lowest level since November 2003 despite a drop in interest rates, an industry trade group said."

"If you dig into the reports, you will begin to see signs of a weaker market."

'"New home sales sprang back to life like a vampire in a cheap horror flick," said economist Bob Brusca. "And like that zombie in the movies, housing really is dead. Don't let all that twitching fool you."'

"Analysts suggested that inventories — the number of new and existing homes for sale — are at multiyear highs, and that's a sure sign that the market is slowing on the demand side. At this point, the country could sell new and existing homes for five-and-a-half months without adding a single new "For Sale" sign. That's a level we haven't seen in more than seven years."

"Many of the new homes sold in March were probably built in a stronger real estate market.
And unlike existing homes, where sellers can live until they get an acceptable price, "builders can't live in these houses unless they have a lot of family."'

"By and large they must finance them at rising interest costs."

"In fact, about one builder in five has reported a jump in cancellations of new home orders, according to a recent industry survey. And Wednesday's report showed that there were 553,000 new homes for sale in March, up 25 percent from a year earlier."

"Median prices for both new and existing homes were flat, or down in March. The median price for existing homes was $218,000 last month — same as in February. New homes saw the median price drop $15,700 to $224,200 during March as builders began to cut prices to get rid of inventory."

The Census Bureau Data:
“Sales of new one-family houses in March 2006 were at a seasonally adjusted annual rate of 1,213,000."

"This is 13.8 percent (±14.9%)* above the revised February rate of 1,066,000, but is 7.2 percent (±12.8%)* below the March 2005 estimate of 1,307,000."

(just want to point out the words used: "estimate" and "revised" and "seasonally adjusted annual rate")

Keep this in mind- from Marketwatch: “The government cautions, however, that its housing data are subject to large sampling and other statistical errors. The margin of error is so large, in fact, that the government cannot say with confidence that sales rose at all in March”

“The median home price slipped 2.2 percent from a year earlier to $224,200, the first year-over-year decline since December 2003.”

Median Prices:
03.05 = 229,3000
03.06 = 224,200

03.05 = 441,000
03.06 = 553,000

“The number of homes for sale at the end of March was a record 555,000. ‘I am worried about the potential for a trailing-down process that gains some momentum’ in the housing market, David Seiders, chief economist of the National Association of Home Builders, said. ‘I hope the Fed doesn’t overshoot’ on raising interest rates.”

Tuesday, April 25, 2006

Not Passing the Smell Test

I am calling big time bullshit” on NAR sales/inventory data. - Marin Real Estate Bubble is making the same call and so is Housing Bubble Blog & Bubbletrack

When NAR wants to minimize a number they report in month to month terms. When they want to maximize they report in YoY.

Meanwhile they have “seasonally adjusted” numbers on a regular basis prior to passing the crap to the public via their press releases. Then of course their numbers get "adjusted" again at a later date, and seem to keep changing the story they tell...

Further, they have revised the historical data back to 1989, obviously to make current trends look more to their liking, but they offer no details about the basis for those revisions.

I love this comment shamelessly stolen from the HousingBubbleBlog made by Robert Cote, blogger of Exurban Nation.

“A seasonally adjusted annual rate of xxxx million units.
NARspeak for “we made up a number because the real number is so scary.”'

NAR Data
"Sales of existing U.S. homes rose to a 6.92 million-unit rate in March from February's downwardly revised 6.90 million-unit pace, according to the National Association of Realtors."

“Total housing inventory levels rose 7.0 percent at the end of March to 3.19 million existing homes available for sale. The national median existing-home price for all housing types was $218,000 in March, up 7.4 percent from March 2005 when the median was $203,000."

"The pace of existing home sales in the United States picked up by 0.3 percent in March."

"I think this steadiness we've seen in the last two months can't be sustained because mortgage rates have risen further since," said David Lereah, the group's economist. "So I do see some more modest drops in home sales."

Reality Check:

I think David Lereah is getting closer to the truth in his statement above.

That being said, after inundating us with the Y-o-Y numbers on the way up, NAR is trying to totally ignore them on the way down.

Sales in March were up 0.3% from Feb, but were down 0.7% from March ‘05.

March median was 218k, and February median was also 218k…. no change.

This is down from the peak of 229k during the August of ‘05

The 7% increase in inventory was a monthly number.

The year over year increase in inventory was 39%.
3.05 = 2,297,000
3.06 = 3,194,000

Last month, the March 05 median price of existing homes on their website was: $193,000.

Now the revised number for March 2005 is $203,000. That’s quite a change, and to what do we owe this change?

NARs revised numbers still show declines, though they now portray a slightly less steep decline than their old numbers.

NAR revised data:
Median sales price, all existing homes:

march 2005: $203,000
april 2005: $214,000
may 2005: $217,000
june 2005: $229,000
july 2005: $228,000
august 2005: $229,000
sept 2005: $225,000
oct 2005: $229,000
nov 2005: $225,000
dec 2005: $222,000
jan 2006: $220,000
feb 2006: $218,000
mar 2006: $218,000

Enough about national data. If we are to believe that there is no national housing bubble, as the so called experts proclaim, then national numbers may serve no other purpose other than as interesting facts. It is much more important to look at state and local data.

The Californian Association of Realtors realeased March data. “The median price of an existing home in California increased 13 percent in March and sales decreased 15.1 percent
compared with the same period a year ago, the California Association of Realtors reported today. Inventory for existing, single-family detached homes in March 2006 was 4.8 months, compared with 2.2 months (revised) for the same period a year ago.”

Sonoma Valley MLS Inventory: 305

Sonoma Valley listing progression
2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305 at the current rate of sales = 10 months of inventory

67 new listings in 30 days

Sonoma County MLS Inventory: 2868

Sonoma County listings progression
3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868 at the current rate of sales = 6.3 months of inventory

1102 new listings in 30 days

Sonoma County March Sales Facts:
Year-over-year home sales were off 14.5%. Condo sales were up 73.8% from February, down 34.8% compared to March 2005.

Median prices rose in March gaining 3.9%

The average price rose 11%.

Year-over-year the picture is different.

The median price was up only 0.8%.

It looks like the days of double-digit appreciation are over.

The number of homes pending has slumped, down 33%.

March Sales (units sold)
Sonoma County: 454 down -14.50%
Sonoma Valley: 30 down -38.60%

Bodega Bay: 4 down -55.60%
Cloverdale: 9 down -43.80%
Cotati: 4 down -20%
Forestville: 8 up 60%
Guerneville: 11 down -42.10%
Healdsburg: 14 down -17.60%
Petaluma: 56 down -22.20%
RP: 25 down 37.50%
Santa Rosa: 221 no change
Sebastopol: 21 down 12.50%
Windsor: 34 up 6.3%

Condo Sales
County: 73 down -34.80%
Rohnert Park: 17 down -37%
Santa Rosa: 34 down -45.2%
Sonoma: 8 (up from February which had 0 sales) up 33.3% though Sonoma's median price is down -24% and average price down -20.70%

Monday, April 24, 2006

Ask Not For Whom The Bell Tolls....

It tolls for thee.

"For much of last year, Wall Street analysts referred to America as having a Goldilocks economy, one that wasn't too hot or too cold. Now into its fourth year of expansion, the U.S. economy might better be described as Dr. Jekyll and Mr. Hyde."

"In any given week, conflicting economic reports emerge that seem to either prove or disprove that inflation threatens, that interest rates must rise or fall, or that the nation's hot housing market is safely cooling or on the verge of collapse."

"These conflicting indicators make it hard for analysts to project the economic future. And if they can't see the way forward, what's a consumer to do?"

"For example, given the uncertain future path of interest rates, should a consumer buy a home now before lending rates rise further or wait a few months in hopes that they'll fall?"

"All expansions eventually end. Even the longest peacetime expansion, which began in March 1991, ran out of steam in March 2001. Few experts think this expansion will last that long, but few see recession just around the corner either."

"Instead, they see a confusing maze of conflicting indicators. The U.S. economy has a split personality worthy of the Jekyll-and-Hyde character in the classic Robert Louis Stevenson tale."

"On Monday, oil prices climbed to record nominal highs of more than $72 a barrel. That stoked fears of inflation and weaker consumer confidence, so Wall Street slumped."

"Then on Tuesday, Wall Street rallied because producer inflation data were tame and minutes from the Federal Reserve's latest rate-setting meeting suggested that it might raise short-term interest rates only one more time. Wall Street cheered; investors thought that after the Fed notched a 16th consecutive quarter-point hike, to 5 percent, on May 10, it would end a credit-tightening cycle that began in June 2004."

"That would put the brakes on mortgage rate increases, which have risen from the 2004 average of 5.84 percent on a 30-year fixed-rate mortgage to a national average of 6.53 percent Thursday. That's the highest mortgage rate since July 12, 2002."

"But the ``one and done'' consensus appears short-lived."

"The Fed minutes from Tuesday had showed that officials believed core inflation was flat or dropping. That no longer seemed true."

"The Fed's primary mission is to fight inflation, so the core data ``raises the likelihood that it's going to be two hikes and not one,'' said Kenneth Beauchemin, chief U.S. economist for Global Insight in Boston."

"Another quarter-point rate hike at the Fed's June 28-29 meeting would push short-term rates to 5.25 percent, influencing bank loan rates for consumers and businesses. That would complicate the housing outlook further."

"The hot housing market and cheap lending rates helped fuel much of the current economic expansion. National Realtors Association data show median home prices grew 53.2 percent between 2000 and 2005. Many economists think that steep rise reflected a speculative bubble fit to burst in the hottest markets on both coasts."

"Just about every indicator now suggests a slowing housing market, especially in California and Florida. New housing starts nationwide fell 7.8 percent in March, prices are weakening, and homes are lingering longer on the market."

"But if mortgage rates rise above, say, 7 percent, to 1999 levels, experts fear it could cause housing prices to fall, which could pull down consumer spending and the U.S. economy."

News from : "The long-anticipated housing slowdown appears to be finally upon us," wrote analyst Margaret Whelan in a research note, citing new-home sales down 21% from their July high, while new-mortgage applications are off 23% from their peak in June."

Whelan has been one of the opinion that the U.S. housing market would enjoy a 'soft-landing' scenario.

"Of late, however, the more rapid rate of decline in demand -- down 21% in eight months -- has led us to rethink our thesis for the near term," she said. "Given tough comparisons and a proliferation in for sale listings in some of the hotter markets, demand has fallen more quickly than we expected."

From Bloomberg: "New home sales fell the most since 1997, mortgage rates rose to a four-year high and inventory of unsold homes is at the highest level in a decade."

"The real estate industry was responsible for more than half the economy's expansion since 2001, according to Merrill research. It's now showing signs of slowing after the Federal Reserve raised interest rates 15 times since June 2004, to 4.75 percent from 1 percent."

"The average 30-year mortgage rate climbed to 6.53 percent last week, the highest since 2002. New home sales tumbled 10.5 percent in February to an annual rate of 1.08 million. At that pace, there are enough new homes on the market to satisfy demand for more than six months, the largest backlog in more than a decade."

"In February, the median price of a new home fell 2.9 percent from a year earlier, to $230,400, the fourth straight monthly decline, the Commerce Department said March 24."

'``Home prices won't go up forever,'' Robert Shiller, the author of ``Irrational Exuberance,'' a book about the stock market bubble of the late 1990s, said in an April 19 interview from his office in New Haven, Connecticut. ``Booms need a story to justify the prices.'' '

", a California based real estate investment advisory firm and nationwide publisher of foreclosure property listings, reported today that foreclosure activity in the first quarter of 2006 increased significantly from the fourth quarter of 2005 in several western and southwestern housing markets."

'"The biggest increases were in major urban centers around the West," said president Alexis McGee."

"She went on to say that such increases were coincident with cooling markets in previously overheated areas, and with the steady rise in interest rates."

'"Our goal has always been to help our investor clients locate distressed homeowners, and teach investors to develop win-win strategies that will benefit both the troubled homeowner and the investor," Ms. McGee stated."

"She pointed to widespread concern over the number of interest only and high negative amortization loans that had been issued by lenders in recent years as homebuyers sought to qualify for ever more expensive homes during the coastal markets' price boom of the last half decade."

'"In San Diego for example," said Ms. McGee, "more than half of home purchases in 2004 and 2005 were financed with these exotic mortgage products. When these loans reset to true market rates the payment shock can be severe and put many households in financial distress."'

In Sonoma County for example- in 2005 69% of purchases were financed with exotic mortgage products, and in 2004 more than half of home purchases were bought with risky loan products.

According to word of mouth, a local mortgage broker claimed that more than 80% of his loans are of the Neg-AM 'take it in the butt' kind of mortgage.

What does that tell you Sonoma County? Is it different here? Is it really?

"She referred to a recent study by Dr. Christopher Cagan of First American Real Estate Solutions. Cagan stated that an option ARM with payments of $800 per month could jump to $3000 per month when reset to market rates. "That's a recipe for financial disaster," said Ms. McGee."

"She added that rampant speculation in some markets, along with a slowdown in price appreciation would lead to an increase in delinquencies and foreclosures."

More Foreclosure news from Ben's place and Inman: "Foreclosures jumped 72 percent in first-quarter 2006 compared to first-quarter 2005, according to RealtyTrac. The first-quarter 2006 foreclosure report revealed that 323,102 properties nationwide entered some stage of foreclosure, up 38 percent from fourth-quarter 2005."

"The nation's quarterly foreclosure rate of one new foreclosure for every 358 U.S. households was higher than in any quarter of last year, the company also reported."

"'The sharp increase in foreclosures, continues a steady upward trend that we've observed since the beginning of last year,' said James J. Saccacio, RealtyTrac CEO, in a statement."

"'With the current market conditions, it's unlikely that foreclosures will return to the historically low levels they were at in recent years when interest rates hit rock bottom and home price appreciation skyrocketed in many areas of the country,' he stated.

"'Foreclosures have now increased in four consecutive quarters and are on track to go above 1.2 million in 2006, which would push the nation's annual foreclosure rate to more than 1 percent of U.S. households.'"

Sunday, April 23, 2006

Buyers, Buyers, Wherefore Art Thou?

My favorite news article of the weekend came out of the Real Estate section of the Sonoma Index Tribune. Each week a realtor writes a column and espouses on what's on the mind of buyers and sellers in the Sonoma real estate market.

This week's article focuses on buyers worried about down payments and closing costs, and the lack of cash for these things, and sellers who are counting on cash in the transaction.

"Many a potential buyer groans at the thought of collecting enough cash to make a down payment on a home. Many a sellers, sitting on highly appreciated property, still finds himself counting those equity dollars carefully as he prepares to purchase his next home."

"While the first idea that comes to mind for acquiring sufficient cash for a down payment is the old fashioned plan of simply saving it, that process has become increasingly challenging for the young professional couple or family."

Right, since less than 7% in Sonoma County can afford a median priced home, it seems to be more than just a challenge at this point.

"Today, if you are not already enjoying the tax relief from homeowner's deductions, even sizable incomes are seriously eroded by taxes. With the always increasing costs of living, many find themselves with no room in the budget for savings."

Read that again. Laugh. Out loud. The price of ownership in Sonoma County is more than double and in some cases more than triple the cost of renting.

So if it is already a stretch to save due to the high cost of living, exactly how is someone supposed to be enticed into "enjoying the tax relief of homeowner's deductions"?

Think about that for a second.

The potential FB (F'd Borrower) will be paying MORE than they are currently paying for rent EVERY month.

The wages have not risen in Sonoma County, in fact high paying jobs have been lost. Those jobs were replaced by service industry jobs paying on average of $13 per hour.

If one were inclined to jump onto the FB party train they would be spending significantly more every single month, but not to worry, they will enjoy a bit of tax relief once a year. Spending is the new saving. Debt is really wealth.

Who benefits from such counter-intuitive advice? Oh, right... the real estate agent who sold the FB the property and the lender that gave them a suicide loan, with a smile no less.

"All is not bleak. These days, lenders, who seem to be holding substantial amounts of cash, have become more and more creative in styling loans that require very little cash from the buyer/borrower."

Right- there is the Liar's Loan, the I/O ARM (aka suicide loan), oh and don't forget the ever popular Neg-AM (negative amortization) Loan- and as Linda in La-La land calls it.... "The take it in the butt" loan. Aren't lenders wonderfully creative? Lenders are your friends. Money grows on trees. Tinkerbell makes it so.

"For those who qualify, the VA loans still afford the opportunity for a purchase with very little out of pocket expense on the part of the buyer."

Ah... this is really a realtor's call for buyers: "come out, come out, wherever you are? Vets? Have you all bought houses yet? Anyone... Anyone.... Buehler... we've got a loan for you....olley olley oxenfree!!!!"

"The seller will have some mandated expenses in such a loan, but those can be anticipated in many cases by offering the seller full price. Then the required costs to the seller become part of the total transaction"

Well it just wouldn't read like a true realtor column if there wasn't a reason for why a buyer needs to offer the full price thrown in.

"In addition to VA loans, there are loans for 90%, 95%, 100% for those with good credit history and very few of the elusive dollars. These loans require time, an appraisal at the full purchase price and squeaky-clean credit."

See comment about lender creativity above. Don't forget, it is essential to work with an appraiser that will hit the right number, because the buyer needs to offer the full price so everyone gets their commission. Be sure to use the appraiser the real estate agent and or lender recommend, because this is the person who is playing the game with them and won't throw a turd in the punch bowl with any critical thinking or candid honesty.

"There are also sellers who are willing to participate as lenders by carrying a portion of the value of the property in the form of a note and deed of trust secured by the property. These kinds of sales are particularly interesting to those with a good deal of equity in their property and a possible tax gain if they receive the whole amount."

Translation: "Hint, Hint... sellers sitting on properties with tons of equity, the buyer pool is drying up because they can't afford the prices, and they may not qualify for other creative financing... pony up so the real estate agents can sell some houses. They have mortgages, car payments and HELOCs to pay off too!"

"In addition to the high loan to value packages created by lenders, this is the time to turn to investors, family members, friends who may be interested in participating in a real estate investment with a known borrower."

Translation: "If you can't qualify for any of the no doc/fog a mirror financing offered by creative lenders please please please ask your friends and family to give you some money- so we can make some sales!"

"For those who have cash available to invest these days, finding the right spots for that money can be almost as daunting as not having it at all. The recent stock market continues to be uncertain. Money market and savings accounts have crept up slightly with higher interest rates. Most thoughtful investors are seeking diversity. They want their dollars spread over more than one type of investment. Real estate in California has historically been a dependable alternative. This is particularly true if the investor knows either the property or the borrower personally."

Right, ignore the current market, the unreasonable appreciation and the irrational exuberance that fueled 5 years of phony speculative price increases. The knife is falling... and everyone must try to catch it! Hurry!

" assured that there are lots of folks out there who would welcome a 5%, 6%, 7% return on their money. In many cases they may even be willing to accept "interest only" payments for a perdiod of time, while, you, the buyer become accustomed to your new costs of ownership."

Translation: "It will come as a huge shock how much more expensive it is to own a home rather than rent, so we want to give you time to fully bend over. We have way too many houses sitting on the market and the price reduced list just keeps growing. We will give you time to fully drop your pants, but you must hurry. The spokesperson for California's Association of Realtors said the only thing that will assure price declines is too much inventory. We have too much inventory. Buy something from these sellers we have coached into financing you before we have to drop our pants!"

"How does a buyer find such investors? Ask. Advertise. Let it be known that you really want to purchase your own home and that you are an excellent risk. Talk to recommended mortgage brokers. Then seek counsel on a creative way to structure the ownershisp process so that eveyone comes out well."

Translation: "Buyers, raise your hands so we know who you are. We have too much inventory and prices are going to drop if we don't find some fat fools willing to pay these ridiculous prices!!!"

"Or think about a co-signer. Lenders are often more willing to make a loan if they have more than one party signing all those dotted lines."

Sure, keep it all in the family. The more FB's the better.

"The end result is aloan that may not have been possible without the two party signatures."

Translation: "Even if you can't afford to buy due to your measly salary- drag a friend or family member into being an FB with you. Misery loves company, and the real estate agents and lenders will be forever grateful for your continued financial folly."

"Another cash source is one that we all tend to overlook. Many people have an extra vehicle, an RV, a boat- or even a garage full of a variety of unused equipment. The sale of some or all of these items can create available dollars and in some cases debt relief from monthly payments, making the individual more qualified for the loan he is seeking."

bahahahaha!!!! Stop buying stuff you can afford and sell it all to buy something you can't afford!

"In times like these, it is easy to become focused on our lack of dollars."

This is correct, and as it should be. People... Stop Buying Stuff You Can't Afford! If you don't have the money, don't buy it!

"When looking for a way to increase the cash in your life, look to the places and the people who are working with moving money around."

I will give you this... indeed real estate agents, mortgage brokers, lenders and all of their kind have done a bang up job of moving money around, like a great big ponzi scheme, pyramid scheme, shell game, MLM scheme... fecal matter by any other name would still stink, and don't even think about trying to polish it.

"Get a clear picture of what it is that you want, talk to the experts and you will discover that it is really possible. There is no time like the present for putting yourself in the California real-estate picture."

Just nod and smile and look away. Move along now. Nothing to see here people. Eyes front, eyes front.

Bubble... What Bubble?

Great Commentary on MSN Money From: Bill Fleckenstein

"Reports of falling sales and investors stuck with properties they can't sell are just the beginning. Property owners should worry; so should their lenders."

"To me, it's not debatable that the real-estate bust is starting to gather steam. The top was approximately when Time Magazine published its June 12, 2005, cover story: "Home $weet Home: Why We're Going Gaga Over Real Estate".'

"(For more, check out my June 13, 2005, column, "Straight talk on what the Fed has wrought," and my Aug. 29, 2005, column, "It's RIP for the housing boom.")"

"After having leveled off for a while, the real-estate market is now starting to slide. We're seeing signs of sales slowing and inventory accumulating, which are all quite classic, even though the timing of when this would begin was not possible to predict in advance."

"A recent story in the Wall Street Journal, "Hot Homes Get Cold" (subscription required) offered lots of its useful vignettes that serve as a microcosm of manic markets -- starting with the bravado-cum-denial displayed by a medical-equipment salesman in Stuart, Fla."

"Concerned about his real-estate investment apparently going sour, he can't afford to reduce the price to what homes now sell for in his neighborhood -- which is about $100,000 less than he's asking. Says the salesman: "If I got in a jam, I would have to drop the price, but I am not at that point." His game plan: Rent the house, so as not to "lose my shirt."'

"That's the mentality often seen in manic markets -- the belief that you can't possibly lose, and, when the price goes against you, you don't have to deal with it, because it will come back. This fellow (and millions more like him) is going to find out that his belief is a mistaken one."

"This mentality is an example that many real-estate "investors" seem to share -- heads we win, tails the bank loses. (Some people are sanguine these days because, as the article notes, "while sales are slackening, they aren't collapsing." To that, I would add: "Yet." They will.)"

"It is indeed the financial institutions that are most at risk in the real-estate market (which is not to say that consumers and speculators won't get hurt). The lenders will bear the brunt of the pain, because in many cases, they loaned the entire purchase prices of many homes. As I have said often, the housing bubble has been more a lending bubble. It will be the impairment of the financial institutions that will stop the flow of credit to the real-estate market. In turn, that will accelerate the collapse in house prices somewhere along the way."

"The story went on to note that many formerly hot markets in California, Arizona, Washington, D.C., and Florida are now "languishing without buyers or even prospects. Many once-booming markets are seeing double-digit declines in sales." The magnitude of the drop in Florida home prices (once the frothiest market in the country) is striking. Single-family home sales declined 20% in February, year-over-year."

"Similarly, California sales dropped 15%. Some of the hottest towns in those states were off twice as much."

"I loved the point that what seems to be really alarming is how "real-estate agents in some of these formerly red-hot markets have been surprised at how suddenly (my emphasis) market conditions have deteriorated in the past few months." Of course, that's what happens when manic markets and bubbles turn. Prices change radically and, seemingly, for no reason."

"The story closed with a description of how slow the market has recently become in Florida -- via the following comments in an e-mail by real-estate broker Mike Morgan:"

"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."'

"Ladies and gentlemen, unfortunately, a lot of people around the country are going to be badly hurt as this bubble unwinds. And, after they have taken their losses, the financial institutions that were the engine behind this folly will take their own hits. 'Easy Al' Greenspan at the Fed tried to bail out one bubble with another bubble. While it bought some time, it will end in far-worse pain."

Bill Fleckenstein is president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily "Market Rap" column on his Fleckenstein Capital Web site. His investment positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security.

Debt Investors Eye Housing Sales

"(Reuters) - Soaring commodity prices and US economic data should capture the attention of emerging debt investors this week as any indication of rising inflation could push the
Federal Reserve to keep raising interest rates."

"Emerging market bond prices are likely to trade in tandem with US Treasuries, which have zigzagged according to the strength or weakness of the economic data released."

"Investors will eye US sales of existing and new homes as well as consumer confidence and sales of durable goods, yet the key figure this week should be the advance first-quarter gross domestic product report due on Friday."

"US sales data for existing homes and new construction for March to be released on Tuesday and Wednesday respectively should shed some light on the strength of the economy."

'"Everything that is coming out of the housing market continues to fall. We know there is a slowdown but we still don't know how much of that is going to pass through into the consumer side," Enrique Alvarez, Latin America strategist at IDEAglobal added."

'"New concerns about inflation, especially of oil prices, raises questions about the outlook for inflation in developed economies (that) could certainly upset that equation and drive emerging market spreads higher again," Stracke said."

"Crude oil hit a record high in New York on Friday above $75 a barrel on fears of a possible supply disruption in Iran and low US gasoline supplies."

"The US central bank has raised short-term interest rates 15 times since mid-2004, lifting its fed fund rate to 4.75 percent, aiming to keep the expansion going without allowing inflation to shoot up."

"Higher US rates narrow the gap with high yielding emerging market debt, reducing their appeal over US Treasuries."

Fraud Files IV

Real Estate Fraud Right Here at Home
"Most sellers are also buyers. Sellers are often buying a larger or more expensive house or a house in a different area, and coordinating the sale of the first property with the purchase of the second one can be tricky. A recent California appellate decision illustrates what happens when an unscrupulous or incompetent real estate agent gets involved in one of these situations."

"In Strebel vs. Brenlar Investments, a Sonoma County jury found that fraud was perpetrated on the sellers and buyers. This case, decided Jan. 11, 2006, helps establish what damages a seller or buyer can obtain from a real estate agent (especially a dishonest one)."

Here are the facts:
"In August 1999, when the market was escalating rapidly, John P. Strebel entered into a contract to buy a house in Sonoma for $420,000. Strebel did not know that the property had tax liens and judgments against it that exceeded the purchase price. Haya Smith, working for Frank Howard Allen & Co. (Brenlar Investments), was the dual agent representing the buyer and seller of the property."

"The agent knew about the liens and judgments, but the jury found that she concealed this information from Strebel, the buyer. When Strebel found out about the tax liens, Smith told him not to worry, because the sellers were working to reduce the liens. Smith assured the buyer that the sellers were ``taking care of it and escrow would close; they were moving forward with the transaction.'''

"Believing that his purchase was going through, Strebel put his San Bruno home on the market and ultimately sold it in August 1999 for $424,950. That sale was contingent upon his purchase of the Sonoma property."

"The San Bruno home's escrow was to close on Sept. 3, 1999. After receiving further assurances from Smith that the purchase of the Sonoma house was on track, Strebel sold his San Bruno home as scheduled, moved out, and put his belongings into storage."

"It wasn't until October 1999 that the sellers of the Sonoma house told Strebel they could not sell the property because of the outstanding tax liens. Unfortunately, because of the escalating market, Strebel couldn't find another house, and by September 2001, he was effectively priced out of the Sonoma real estate market."

"Strebel's claim for damages was based on the lost appreciation of the San Bruno house between its sale in 1999 and the trial in 2003. The jury awarded Strebel $183,427 for that lost appreciation."

"What happened in this case happens all the time."

"When you're buying a property while selling your home, make sure the two transactions are connected. If you sell, but then your purchase deal falls through, you're in an awkward position, at the very least."

"On the other hand, it's no better if you succeed in buying a house but can't get your own home sold. Some real estate agents will suggest that you get a bridge loan in order to make payments on three mortgages."

"Generally, that's an unwise choice."

"So, seller and buyer beware -- when you're buying and selling at the same time, it's like trading baseball cards. Make sure you get the card you want before letting go of your card, or you could end up empty-handed."

ABC News
Mortgage woes invite scammers

"Janice McKay supports eight family members by working two jobs in Brooklyn, N.Y., and when she lost one of her jobs, she started falling behind in her mortgage payments."

'"I was stressed and anxious," she said. "I felt like things were closing on me."

"So when a sales team came to her door offering to take over her payments, she jumped at the chance. The catch was that she had to sign her home over to them. They promised it was only temporary. But they did not pay the mortgage and McKay is now facing foreclosure."

"Authorities say scams like this are on the rise as more homeowners find themselves in trouble.
That's because buyers tempted by adjustable-rate mortgages back when interest rates were low are now facing much higher payments."

"That has made them easy prey for unscrupulous lenders."

"Most people are at risk of foreclosure in the first five years of owning their home, experts say. Often unexpected things happen, like having a baby or having to make a major repair in the house."

"Nationally, more than 323,000 homes were in some stage of foreclosure during the first quarter of this year, up 72 percent from a year ago."

"Janice McKay has taken legal action to try and save her home. She warns others that it is easy to get duped when you are vulnerable."

Scammed in Colorado
"Investors from Castle Rock to Fort Collins who have filed a succession of lawsuits alleging real estate fraud by a group of Windsor-based companies specializing in real estate debt relief soon may get help from federal and state officials."

"Dozens of investors -- including Kelly Young, widow of slain Denver detective Donald Young -- have filed lawsuits, hoping to recoup millions of dollars in losses as a result of real estate deals gone sour."

"Now, state and federal regulators and prosecutors are looking into the operations of Darin V. DeVoe, who operated through companies -- including Home Owner's Solutions, Home Owner's Trust and The DeVoe Group -- that are named in a dozen or more lawsuits alleging fraud, breach of contract and deceptive business practices."

"But DeVoe can't be found, leaving investors scrambling to salvage their credit and avoid foreclosures -- and even bankruptcy, attorneys said."

"Danny and Kay Baca of La Salle are among investors who meet in a monthly support group in Greeley to find out the latest. They claim to have been caught up in a "nightmare" of financial dealings with DeVoe and companies, including The DeVoe Group, Home Owner's Solutions, Home Owner's Mortgage, Home Owner's Trust and several other firms that they claim in lawsuits were involved in numerous real estate scams."

"Many investors said they met DeVoe through church groups or friends and, after doling out tens of thousands of dollars each on homes and condo investments, they're wondering how it all unraveled -- and watch as many of the investment properties go into foreclosure.
From 2002 to 2006, investors have filed lawsuits in Denver, Douglas, Grand, Larimer and Weld counties. DeVoe hasn't officially answered most lawsuits, and in many cases, he hasn't been served because he can't be found."

"DeVoe, through his Windsor-based Home Owner's Solution business and others, approached investors and explained how his companies were set up to help people avoid foreclosure and keep their homes. Most investors said they weren't promised a financial windfall, but expected to earn about $50 to $100 in monthly "profits" on each home in which they invested, attorneys said."

"The complaints allege DeVoe and his companies would find people in financial trouble -- often homeowners facing foreclosure. Those homeowners would borrow money -- in an agreement similar to a second mortgage -- and sign a quit-claim deed and promissory note. Contracts noted that homeowners' houses could be taken if payments weren't made, and the homes were leased back to residents with an option to buy, the complaints allege."

"Investors claim in the lawsuits that DeVoe would sell homes to investors at "inflated prices," requiring investors to take out mortgages. He then gained possessions to the homes through little-used "land installment contracts," and purportedly managed them, promising to maintain the homes, find renters if necessary, and pay homeowners' association fees and taxes. DeVoe would pay investors monthly payments, including a small "profit."'

"But when investors stopped getting their payments from DeVoe, according to the lawsuits, they were stuck with homes they couldn't sell. They claim they also ran into trouble with the Internal Revenue Service over federal taxes and were sued by various homeowners' associations for non-payment of dues."

Texas AG warns home buyers of scam
The Texas Attorney General's Office is warning home buyers to beware, saying that companies are placing bogus signs in front of homes that are not for sale.Officials said most of the complaints have come from non-English speaking home buyers.The scammer usually poses as a real estate agent, then convinces the customer to write a check for the deposit on a home that's not for sale.The office said to make sure extensive research is done before handing over any checks or money.If you have been a victim of this scam, contact the Texas Attorney General's Office.

Building Home for Disabled Vet not profitable to Mercedes Homes
"Most nights, Kenneth LaCruz tugs himself into bed in the couch in his living room.
Upstairs, a king-sized bed beckons. But LaCruz, a 44-year-old disabled veteran with multiple sclerosis, can't climb up the stairs to reach that bed."

"He put down a $1,000 deposit to buy a new wheelchair-accessible house in Brandon, with help from a $50,000 grant from the U.S. Department of Veterans Affairs that helps disabled veterans purchase functional homes."

"Instead, LaCruz said, builder Mercedes Homes sold the property he had contracted to buy - and kept his deposit. Another family built on the lot and lives there today."

"Hillsborough County sued Mercedes Homes in 2003 for discrimination based on his disability, saying the builder violated the county's human rights ordinance by refusing to build a home for LaCruz. The case is still pending in Hillsborough Circuit Court."

"As a young man, LaCruz wanted to build a career in the military. In the late 1970s, the Marines sent him to Okinawa, off the coast of Japan, and California. He switched to the Air Force and worked on cargo planes until 1985. But a growing numbness on the right side of his body cut those aspirations short. He joined the U.S. Postal Service. In 1992, LaCruz bought a two-story house in Lakeview Village. The numbness worsened, and doctors diagnosed multiple sclerosis.
By 2001, LaCruz could no longer get upstairs without help. He began looking for a livable, one-story home."

"He met Brandon real estate agent Tommy Lovett, another former Marine. In a training accident, he had been paralyzed below the waist. The two men formed a fast bond.
With Lovett's help, LaCruz found Woodberry, a gated subdivision in Brandon where neighbors take walks on quiet streets."

"In it, they found the perfect home: a four-bedroom Jacqueline Bay model by Mercedes Homes. With grants from the VA, LaCruz planned to build a house on Berry Bramble Drive. It would conform to VA specifications: doorways at least 3 feet wide and hallways 4 feet wide, a wheelchair-friendly concrete platform outside the front door and a roll-in shower."

"LaCruz and Lovett say that those early discussions with Mercedes real estate agent Barbara Lanz came with a warning."

"The men allege that while they were talking about a house for LaCruz, Lanz said that Mercedes Homes had experienced problems working with another disabled client and would not want to work with LaCruz."

"In June 2001, LaCruz reached an agreement with Mercedes to buy the home for $243,000. The contract signed by LaCruz and Lanz has a list of modifications including ramps, grab bars, shower specifications and other amenities. Weeks after the contract, a Mercedes Homes architect showed LaCruz drawings for a standard Jacqueline Bay model, without modifications for a disabled client."

"After LaCruz objected, architects drew another set of plans. LaCruz rejected those too. The redrawn plans bore little resemblance to the modifications that Mercedes had already agreed to make, Lovett said."

"LaCruz and Lovett lodged a complaint with the Office of Fair Housing and Equal Opportunity, part of the U.S. Department of Housing and Urban Development, which investigates complaints of discrimination in housing, and with the county's Equal Opportunity Office."

"In January 2003, the sides met to come to an agreement. Instead, Lovett said, a Mercedes representative told him that the company had sold the property on Berry Bramble Drive.
"Their idea was to crush us," said Lovett, who spent the next two years writing letters to government officials and politicians about the case. He also published a book, Doors Wired Shut, about the case."

"In March 2003, Hillsborough County's Equal Opportunity Office filed a lawsuit against Mercedes Homes with funds supplied by HUD. The county's human rights ordinance and the federal Fair Housing Act prohibit making a home unavailable based on disability or refusing to negotiate. The discrimination suit is the first of its kind that has gone to court, said Gail Williams, a county equal opportunity specialist."

"Williams declined to discuss the county's case against Mercedes Homes, but said that builders cannot legally deny reasonable housing to a disabled person."

"Last July, Mercedes attorney Patrick Roche wrote to LaCruz's attorney offering to build a Jacqueline Bay model home in a different subdivision in Valrico for "a substantial increase" from the $243,000 price agreed to in 2001. He also said LaCruz could accept a less expensive model in the subdivision. LaCruz refused."

"Since then, he's begun to look for another house. He has narrowed his choices down to properties in Valrico and Apollo Beach. "I needed a fresh start," LaCruz said.
Driving home on Lakewood Drive, he inevitably passes the Woodberry subdivision.
Houses in the neighborhood have multiplied since 2001, leaving LaCruz all too aware of the financial windfall he has missed."

'"I think, this is where I'm supposed to be," he said. "This is where my family is supposed to be."
He keeps his eyes straight ahead."

Senior Scammers in Reno
"A Reno investment company is accused of intentionally defrauding seniors out of more than 800 thousand dollars. This is not the first time the people involved have been accused of this scam."

"Nationwide Consulting runs ads in the Reno Gazette-Journal promising 12 to 42 percent returns on investments. The problem is, once investors give the money they claim they never see it again."

"Attorney Ann Hall is representing those investors who answered these ads, which are intentionally targeted towards seniors."

"There's a group of investors who came to see us because they have been bilked out of more than 800 thousand dollars."

"According to the lawsuit, Ernst Behr or Nationwide Consulting promised quick money by investing in currency exchange and revamping distressed real estate to be sold at a profit.
But Hall says no money was ever invested and that the properties never existed."

"The plaintiffs invested money for three years, but say they never saw any return, and when they asked to see proof of where the money went they say they were showed none.
Hall, "This is a serious case of fraud, misrepresentation, breach of contract, breach of good faith, there are several causes of action that we are going after."'

"Behr and Nationwide Consulting have previously been sanctioned in Colorado for similar complaints. They have also been the focus of a federal investigation of cheating people out of more than a million dollars."

Real Estate Fraud Investigations Increase
"In recent years, the booming real estate market has helped increase mortgage fraud and other phony real estate related schemes. The perpetrators of these schemes range from mortgage brokers looking to make a fast buck to drug dealers laundering their ill-gotten gains. Every year, these fraudulent schemes victimize individuals and businesses from many walks of life, including struggling low-income families lured into home loans they can’t afford, legitimate lenders saddled with over-inflated mortgages and honest real estate investors fleeced out of their investment dollars."

"Through federal tax fraud investigations and money laundering charges, the Internal Revenue Service is playing a key role in the fight against real estate fraud."

"The number of real estate fraud investigations initiated by IRS Criminal Investigation (CI) doubled in just two years. Similarly, the average prison term handed out by federal judges to defendants in these schemes nearly doubled over the same period (from 24 months in FY 2001 to 46 months in FY 2003)."

"In addition, the IRS has more than 4,000 returns under audit involving individuals and entities associated with the real-estate business."

Some of the more common schemes seen by IRS criminal investigators include:

'“Property Flipping” — A buyer pays a low price for property, then resells it quickly for a much higher price. While this may be legal, when it involves false statements to the lender, it is not."

"Two Sets of Settlement Statements — One settlement statement is prepared and provided to the seller accurately reflecting the true selling price of the property. A second fraudulent statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators."

"Fraudulent Qualifications — Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history or credit record."

"In these real estate fraud cases, money laundering is often the mechanism used to hide income from the government. Money laundering is the process of attempting to make money earned illegally appear to be legitimate. Many criminal tax investigations focus on money laundering because it is often inseparable from tax evasion."

Case Summaries
"The following case summaries are based on public record court documents on file in the judicial district in which the cases were prosecuted."

"On April 24, 2003, in Indianapolis, Ind., Paul A. Dailey, owner of Platinum Mortgage Brokerage Firm of Indianapolis, was sentenced to 105 months in prison, followed by three years supervised release, and ordered to pay $3.7 million in restitution. Dailey pled guilty to conspiracy to commit mail fraud and money laundering."

"He operated Platinum Mortgage in Indianapolis from 1998 until May 2001, during which time the company brokered more than 100 fraudulent residential mortgages on properties principally in Center Township in Indianapolis. Dailey and other members of the conspiracy, 13 of whom have been convicted, recruited several real-estate appraisers and closing agents to assist in the fraudulent scheme."

"Basically, the properties were appraised for two to three times their true value. Straw purchasers obtained loans on the property well in excess of their true value, the members of the conspiracy shared the profits and the purchasers defaulted on the loans, leaving the properties abandoned and boarded up. After mortgage lending companies refused to lend money to the Platinum Mortgage customers, Dailey moved to Detroit and opened another mortgage brokerage company, Monumental Mortgage, and continued the scheme there. The total amount of loss attributed to the schemes is more than $8 million."

"On July 3, 2003, in Indianapolis, Jeffrey Neely was sentenced to 170 months in prison, three years supervised release and ordered to pay restitution of $2,055,000. He had pled guilty to conspiracy, mail fraud and money laundering. Neely was indicted, along with six other defendants, in a mortgage-fraud and money-laundering conspiracy involving loans obtained through Investors Mortgage Group (IMG) on residential properties in Indianapolis from July 1999 to June 2002."

"Neely was one of the owners of IMG and was the leader and organizer of the criminal activity, who recruited closing agents, appraisers, investors and other persons to assist in the scheme. During the course of the scheme, about 75 fraudulent loans were obtained on properties. Almost all of the loans went into default, resulting in losses to the lender of about $3,000,000."

"On Aug. 18, 2003, in Greenbelt, Md., Alton F. Bivins was sentenced to 57 months in prison, three years of supervised release and ordered to pay restitution of $297,188. As the loan officer for the First Capital Acceptance Corporation and Mortgage Corporation of Maryland, Bivins assisted his sister, Karen Bivins, and Donald Osorio in spending their drug proceeds to purchase real estate."

"As the loan officer, Alton Bivins submitted false loan applications and documentation, including false W-2's and false employment verification, to obtain the mortgage loans. The drug proceeds of Osorio and Karen Bivins were used for down payments and closing costs to complete the transactions. The properties involved were valued at over $1.1 million."

"On Sept. 17, 2003, in Des Moines, Iowa, Steven Tod Davis was sentenced to 37 months in prison on bank fraud and money laundering charges. Davis was also ordered to serve five-years supervised release, fined $10,000 and ordered to pay restitution of $1,860,403.50. At his plea, Davis said he formed a company called Eastgate Development to purchase and develop a 40-acre parcel of land in Ames, Iowa."

"The land was to be developed into commercial lots for resale. During November and December of 1997, he raised a total of $1.2 million from 24 investors, each of whom contributed about $50,000 for the purchase of the land. Davis further admitted that in May of 1998, he obtained a $1.8 million line of credit from the First National Bank, and in June of 1999 obtained a $1.5 million line of credit from the Hardin County Savings Bank."

"He explained to both financial institutions that the purpose of the loans was to develop the infrastructure of the property. Davis said he used about $1.8 million of the loan money for purposes other than developing the property, including using the money for his own personal use and injecting funds into other business ventures. He also admitted that he used $300,000 of the money to make a payment on a jet aircraft loan with another financial institution."

My Zimbio
Top Stories Bloggapedia - Find It!

Estate Real, House New

Housing Crisis

Free Site Submit by