Darkest before the Dawn? Experts Call for another Year of Down Market

Courtesy of RISMEDIA:

By Eugene L. Meyer

RISMEDIA, September 5, 2007–Call it the perfect storm: Declining sales of new and used homes, huge inventories, price reductions, a credit crunch, and foreclosures. What seemed only months ago to be a long overdue and necessary correction, a return to a normal, more balanced market following years of giddy appreciation and home sales fueled by easy money, has turned sour, according to leading real estate industry experts.

And there is no soft landing in sight. Instead, the widely held view is that things will get worse before they get better.

“We’re going to have to live through the pain,” says Mike Bradshaw, Bank of America Senior Vice President for Realtor and Builder Mortgage Services. “We will unfortunately see more fallout of lenders. It will trickle down to both the real estate and the building industry.”

During the era of relaxed credit, many consumers who could not otherwise purchase homes were able to do so by making lower monthly payments for a period of time, after which interest rates and payments would dramatically increase. Such home buyers and the investors who bought such mortgage-backed securities counted on rising incomes and appreciation to offset any increases. While interest rates remained low, refinancing was also an option.

Over time, the number and percentage of such subprime mortgages rose. They were usually bundled and sold on the secondary market to investors seeking higher returns. But the risk was also greater. As the subprime market imploded, the fallout has spread to other sectors. Lenders have tightened eligibility requirements, not just to subprime borrowers but to others with good credit ratings. Jumbo mortgages, for amounts over $417,000, have become more difficult to obtain, with significant consequences for credit-worthy, upper-income buyers as well.

“The last 30 days have been kind of extraordinary, as you watch lenders exit the business and scaling back significantly on products,” says Bill Cary, executive vice-president and chief operating officer of Florida-based HFN, a division of Fidelity National Information Services that creates and manages mortgage companies for homebuilders and real estate firms. “Right now, the mortgage market is in a state of shock.”

“The fact that credit is tighter and not as available to as many people under the same terms will make it more difficult for individuals to get loans and could lead to further declines in the real estate market,” says James R. Panepinto, president of Pinnacle Professional Consulting Services, of Red Bank, New Jersey, which advises financial institutions, real estate firms and home builders. “Entire segments of the market have dried up for certain types of home buyers

“I think there’s plenty of blame to spread around, to the investor side of the business that bought the paper, the Wall Street firms that were securitizing the paper, the lending industry that was originating the paper. It’s clearly a situation where many participants were involved in extending credit on terms that were too generous.

“When the economy is strong and values are rising, there are pressures to increase home ownership from a lot of different stakeholders. Appreciation in the market certainly covers up a lot of excesses and practices in loan underwriting and origination. Clearly also in the market were instances where individuals or employees of lenders or various purchasing instruments ignored the rules that were there.”

The long-term good news, Panepinto believes, is that the “higher quality of [loans] being written and the tightening of standards should bode well for the market in general.” Eventually, he adds, “concerns about further deterioration in the quality of loans made, reflected in rising delinquencies and foreclosures, should ease off.”

How long will this take? Bradshaw estimates the real estate and mortgage industry is in for another 12 to 18 months of hard times. Then, he said, “There will be some stabilization and a healthier housing and lending market. The market will move forward on what’s better for the consumers.”

Large lending institutions, such as Bank of America, which retain and service many of their home loans, are faring better than mortgage brokers and others who sell their loans on the secondary market to securities firms, which in turn sell them to investors. The big banks are further cushioned because, having largely stayed out of the subprime market, they are not facing the need to foreclose on delinquent homeowners.

“We decided [subprime loans] were not prudent,” said Bradshaw, recalling a comment by Kenneth D. Lewis, his company’s CEO, that his institution is in the business of making homeowners, not taking homes back from people to whom it has extended credit.

The credit crunch has also affected new homes, with many builders canceling or ratcheting down projects they believe they could not now quickly sell. This, in turn, could have a domino effect, leading to layoffs in the large construction workforce sector.

However, cautions Panepinto, “Certainly, new home sales are very, very significant, but trends in existing home market are really the key thing to watch. Let’s remember that close to 90 percent of homes sold in this country are re-sales of existing homes. That’s really what drives the market.”

Says HFN’s Cary: “I think the light at end of the tunnel for everybody is when inventory gets back in line with demand. The markets have way of correcting themselves. This is not the first time we’ve gone thru a real estate downtown, and it won’t be last.”

The current crunch has underscored the importance for brokers of offering a multitude of core services to consumers, not just selling properties but also providing title insurance, home warranties, appraisals, and even mortgages. As with any investment portfolio, diversification can soften the blow if one sector falters, said Jeff Mandel, president of Prism Professional Solutions, a Charlotte, North Carolina firm advising financial services and real estate companies.

“Broker-owners used to like to talk about how it would be nice to have these value added services–such as mortgage, title, escrow,” Mandel says, “but the real estate market has slowed so rapidly, faster than brokers are able to shed fixed assets and expenses, that it’s absolutely essential.”

For brokers already facing lower revenues from declining sales, the credit crunch has hit hard. “Their need for positive returns out of these [other] services such as mortgages has never been more important to sustain their operations,” Mandel says. “But all of a sudden the money doesn’t exist in their mortgage operations. Many have seen either their partners go out of business or profits eroded to the point where they’re not deriving the returns expected or needed. The constituents I represent are having tough times…

“Number one, on the real estate side, companies need to buckle down, focus on their core strengths, make hard decisions to eliminate fixed overhead unnecessary for current market conditions, and apply fiscal discipline in ways not done before, to position themselves not only for today but for the future. They have to change what they can control.”

As with any economic upheaval, there will be winners and losers. While more than 100 mortgage loan companies have folded, large banks that have traditionally held onto most of their loans are getting more referrals from real estate brokers who had previously relied on less substantial lenders.

At J.P. Morgan Chase Home Loan Lending, loan originations are up 41 percent since July, and up 30 percent during the first two quarters of 2007, according to Sue Barber, senior vice-president for business development.

“We are seeing a good news story out of this current environment,” she said, “There is a very serious need for a lender who can still provide a full array of mortgage products, who has ability to directly lend as well as sell to the secondary market, a partner who has financial strengths and liquidity. Certainly we are receiving lot of inbound calls from lot of the national real estate companies, and there are a lot of the large regional independents reaching out to us.

“We are certainly happy Chase has the balance sheet and liquidity to fund directly, because conditions in the secondary market are challenging today. A lot has to do with the Chase brand. It signifies stability, financial strength. I think the consumer and real estate community are recognizing now more than ever they really need that. I think consumers are realizing they really want a long-term lending relationship.”

That is not to say that Chase hasn’t tightened its lending requirements. It has. “The main focus of all the tightening of credit standards we’ve done and the focus on strategy with sales force is to educate our consumers,” Barber said. “We are working on a simplified disclosure so customers completely understand how [their loan] works, how affects their monthly payments…

“I think the overall industry impact of tightening of credit standards will take some consumers out of the market. But tightening standards certainly will result in better performing mortgages and in turn have a more positive effect on the housing market.”

The subprime mortgage meltdown has had the paradoxical effect of bolstering some intermediary companies that can provide brokers with several lending sources.

“We run a multi-lender mortgage platform, so if you do business with us you’re not tied to just one lender or source of money,” said HFN’s Cary. “We have six [lending sources], including American Home Mortgage, which went bankrupt last month. We were able to take loans placed by our customers there and within a week we had those loans placed with other investors. So we were able to provide a solution.

“We kind of look at the market right now and say there are going to be winners and losers,” Cary said, “and we’re trying to become winners.”

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.

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Main Problem With Subprime Debt Is That It’s Hidden

Courtesy of John Browne, Financial Intelligence

There is growing evidence of subprime contagion, from within our domestic banking system and from banks as far away as Europe, Japan and Australia.

Meanwhile, legions of “cheerleaders” keep repeating that the subprime problem is small.

One recent CNBC item showed the subprime problem likened to just a small cupboard in a large house. Well, in size that may be correct.

The problem is that history is littered with examples of size being no indication of results. Two notable ones that come to mind are Lenin and his Bolsheviks who were very few in number, and Castro and his 17 henchmen in Cuba.

The problem with the subprime is that its tentacles are largely hidden, for three reasons.

Editor’s Note: Special Report: 5 Highest Yielding, Safest Investments
for 2007.

Firstly, derivatives such as Collateralized Debt Obligations (CDO’s) are sliced and diced so that the “toxic” subprime credits were mixed up, or bundled, together with triple-A credits.

This “bundling” confused not just the rating agencies but also many of the investors, who are still uncertain as to how much toxic waste they have and even who ultimately holds it.

This causes the assets of many highly leveraged financial institutions to become suspect and cause for great concern by potential lenders.

It is like the discovery of toxic waste in a giant batch of food. No one wants to eat any of the batch, no matter how impassioned the appeals and assurances of the producer that, “all is under control!”

Secondly, much of the investment in subprime mortgages and CDO’s was done by hedge funds and in the accounts of institutions, where valuations were done at cost or “informed estimate”, rather than at market, as no public market existed for such “privately” placed instruments.

The adjustment to a true “market price” of many of the assets of certain major financial institutions is a second cause of deep concern, out of proportion to the probable degree of subprime infection.

No one likes to come into physical contact with anyone close to someone who has succumbed to an infectious disease. The fear may eventually prove to be false, but for a time at least, it is all too real. Social contact, like financial markets, tends to seize up.

Finally, despite adopting genuinely independent investment strategies, many investors, including hedge funds, end up investing with a “common approach”. Today’s New York Times (NYT) contains a most interesting article on this very subject entitled, “Just How Contagious Is That Hedge Fund.”

The NYT article goes on to quote Lawrence G, Tint, an investment consultant and retired vice chairman of Barclays Global Investors as saying that he suspects that, “some hedge fund investors will be surprised that their funds lost money and because of problems in the subprime mortgage arena. That’s because those investors have been falsely assuming that just because their funds focused on completely different strategies—commodities, for example—they have no exposure to the subprime mortgage market.

So there you have it. The subprime market may be relatively small, but it is intertwined with the vastly greater credit and derivative markets.

Just as in CNBC’s “house” analogy, the room may be relatively very small, but if it is linked to the rest of a vast, tinder dry wooden house, a small fire in that room could soon affect the whole house.

We therefore urge our readers to ignore the siren voices of the cheerleaders, especially those representing interests that are either “long” the market or credit institutions.

We repeat our forecast made throughout the last year and more, that the housing bust will prove not just contagious but disconcertingly so.

Columbus Board of Realtor Statistics - July 2007

10 Tips for a Sleek Home Office

Decorate for an Efficient Work Space
© Victoria Foley

Feb 9, 2007

Using a little creative thinking can turn your home office into a modern and attractive work space that will be sleek enough to blend in with your decor and inspire you!
When setting up a home office, there are some things you know you need: pens, a printer, a telephone, a computer and a desk to put it all on. But how all of the necessities come together is what makes a work space your own. Organization and decoration are key tools in your home-office toolbox, so use them wisely.

No matter your budget, you can design a work space that will be as beautiful as it is functional. Many items you already own can be reassigned to desk duty if buying new doodads isn't on the agenda. Remember to follow your own taste before any trend - the idea is for your home office to be an extension of your home. Here are some tips for creating the right office for you.

LAYOUT First, look at the layout of the room. Think about where your desk should fit - will a window view distract you, or do you crave sunlight? Place furniture accordingly.
DESKTOP REAL ESTATE Your desk should be sized appropriately to the kind of work you do - if you mostly use the computer, a smaller table may suffice. If you like to spread out projects and use the desktop for writing, look into larger desks or tables.
COLOR SCHEME If your office is in a room of its own, think about a color scheme that will inspire you. Bright but tasteful colors such as french blue or spring green can creative a happy atmosphere without overwhelming your senses.
ACCENT COLORS If the walls are a more subdued hue and you can't paint, think accents. A piece of patterned or textured paper from an art store can dress up a bulletin board or tabletop. A colorful bedspread or slipcover can camouflage the guest bed or sofa and brighten the room.
BLENDING IN For home offices that need to blend into a larger room, consider the theme of the space. An upholstered armchair may work for a living room, while a simple wooden stool might be just right for the kitchen. Choose a desk or tabletop that complements the other pieces in the room without fading into the background.
STORAGE To streamline the look of your work space, look for storage options that hide your excess paper and files. A small plastic box in the closet can hold less-used supplies like tape and note cards.
ACCESSORIES Look for desktop accessories that can be repurposed from things you already have. Pretty glasses can double as pencil cups, serving dishes can hold paper clips and pushpins, and deeper pottery bowls can hold cords for electronics. Keep the items you use most in easy reach so you don't waste time searching for them.
BOOKS Decorative bookends can dress up your reference book collection. You can make almost any pair of heavy objects into a corral for your dictionary and thesaurus. Statuettes or trophies can substitute for more ordinary bookends if you like the look.
ART Wall art can add an extra dose of personality to your home office. Choose images that inspire you. Frame degrees and special photographs. Add a bulletin board where you can pin up motivational quotes or funny cards.
KEEP IT SLEEK However you choose to decorate, remember to keep clutter under control. Piles of disorganized papers make an otherwise stylish office seem unkempt and out of control. Likewise, try not to overload your desktop with photos and knickknacks. Keep it simple and clean to make the most of your home work space!

Home Prices: Steepest Drop in 20 Years

Courtesy of AP
Tuesday August 28, 9:58 am ET
By Vinnee Tong, AP Business Writer

S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987

NEW YORK (AP) -- U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.

The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.

MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."

The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.

The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier .

A separate index that covers 20 U.S. cities fell 3.5 percent in June from a year earlier. A 10-city index fell 4.1 percent from a year earlier.

Housing is among the economic indicators closely watched by Federal Reserve policymakers.

After five years of rapidly rising home prices, the market stalled last year, with prices holding steady or falling as sales slowed. Since then, lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates facing higher payments they can't meet.

Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.

The Fed has taken a number of steps aimed at stabilizing the situation, and market watchers look further for a possible cut in the federal funds rate, which is the rate commercial banks charge each other for short-term loans. That rate has been kept steady at 5.25 percent for more than a year.

The Fed has its next regularly scheduled meeting on Sept. 18.

Fifteen of the cities surveyed for S&P's 20-city index showed a year-over-year decline in prices in June.

Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend that started at the beginning of the year. In April 2006, Boston was the first metropolitan area to show a year-over-year decline, so any turnaround there could be an early sign of recovery.

S&P said it needed more data to determine whether Boston would be the first area to improve.

Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year. Other cities with falling prices included Tampa, Fla., San Diego and Washington, D.C., which all recorded drops of at least 7 percent.

Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period. Seattle prices rose 8 percent in June while Charlotte saw a 6.8 percent increase.

In Monday's report, the National Association of Realtors said sales of existing homes dipped by 0.2 percent in July from June to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

Home re-sales fall as inventories soar

Courtesy of Reuters
By Joanne Morrison

WASHINGTON (Reuters) - The pace of sales of pre-owned U.S homes fell slightly in July but the inventory of unsold properties soared to the highest level in over 15 years as troubles in the subprime mortgage market continued to wreak havoc on the housing sector.

Home sales slid 0.2 percent in July to a seasonally adjusted 5.75 million unit annual rate, according to the National Association of Realtors.

That brought the supply of unsold homes at the current sales pace to 9.6 months' worth, the highest level on record since 1999, when the association began tracking all types of properties, such as condominiums, together with single-family homes.

The supply of single-family homes, the bulk of the inventory included in the association's data, rose to 9.2 months' worth, which was the biggest supply on hand for sale since October 1991.

"This shows that the housing downturn continues to intensify. It shows no sign of abating. Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

Worries over the housing market coupled with high energy costs have eroded investor confidence, with the UBS/Gallup Index of investor confidence falling for the third straight month, bringing it down to the lowest reading in a year.

This sentiment also held true for a panel of key business economists who in a survey released on Monday concluded that the risk of massive defaults on subprime mortgages and heavy debts is a bigger threat to U.S. economic prosperity than terrorism.

"The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy," the National Association for Business Economics said.

That panel's conclusion was based on a survey of 258 NABE members conducted between July 24 and August 14. In that survey, only 20 percent of members said terrorism was now their top concern, compared with 35 percent surveyed in March.

U.S. Treasury debt prices rose on Monday following the housing data but trading volume in Treasury securities was particularly thin due to a market holiday in London and with many U.S. players out on summer vacation.

U.S. stocks were down amid concerns housing market troubles would impact the economy and corporate profits. At midday, the benchmark Dow Jones Industrial Average was down more than 40 points (.DJI), or 0.3 percent.

HOUSING IMPACT ON ECONOMY

Even with a somewhat dismal picture continuing on the housing front, National Association of Realtors economist Lawrence Yun maintained that this key segment of the U.S. economy is still holding on.

"In the aggregate, we don't see the subprime market damaging the economy," Yun said.

Bob Moulton, president of the Americana Mortgage Group, a mortgage brokerage firm in Manhasset, New York, said there is still a steady stream of mortgage business.

"We are still writing our fair share of business. We are still seeing transactions. We still see homeowners buying houses," Moulton said, noting that declining home prices will ultimately boost home sales.

According to the latest home sales data from the Realtors association, median home prices fell 0.6 percent from a year ago to $228,900.

"Volatility creates transactions and with median home prices falling, it's great for first-time home buyers," Moulton said.

Last month's decline in existing home sales was smaller than expected. Economists polled ahead of the report forecast home resales to drop to a 5.70 million-unit pace.

(Additional reporting by Glenn Somerville in Washington and Richard Leong in New York)

Home sales hit slowest pace in 5 years

Courtesy of AP

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - Sales of existing homes dropped for a fifth straight month in July, falling to the slowest pace in nearly five years, while home prices fell for a record 12th consecutive month.

The National Association of Realtors reported that sales of existing homes dipped by 0.2 percent last month to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.

The steep slump in housing has trimmed overall growth for the past year and recently the economy has been shaken by spillover effects in financial markets. Rising defaults in subprime mortgages have triggered a serious credit crunch as investors have worried that hedge funds and other big investors in securities backed by subprime loans could suffer serious losses.

The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.

By region of the country, sales fell by 2.2 percent in the Midwest and were unchanged in the South. Sales rose by 1.8 percent in the West and 1 percent in the Northeast.

The increase in the Northeast, which also saw the median home price increase, was seen as possibly hopeful sign that the worst of the housing downturn may be ending.

"The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom," said Lawrence Yun, senior economist for the Realtors. "Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path."

However, many analysts believe it could be months before housing stabilizes because of the threat that rising delinquencies could dump further homes onto an already glutted market.

The inventory of unsold homes rose by 5.1 percent at the end of July to a record of 4.59 million units.

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Declining home prices - Four ways to cope with a sluggish market

Friday, August 10, 2007

By Bernice Ross
Inman News

The subprime fiasco, tougher underwriting standards, and increasing foreclosure rates and interest rates are all exerting additional pressure on the slowing market many places in the country. Are you prepared to survive a declining market?

A buyers' market, where the prices are declining, is the worst possible market in which to be a commissioned sales person. Price deflation is bad for everyone. Buyers are reluctant to purchase because they fear that prices will decrease further. Sellers are unable to sell, which results in more foreclosures. Lenders end up taking back more property, and brokers end up doing fewer transactions.

If your market is declining, here are four steps that you can take to avoid being caught in the downward price spiral.

1. Price properties below the comparable sales

Declining prices make obtaining an accurate CMA difficult. Assume that a seller's property is currently worth $400,000. If property is declining at an annual rate of 5 percent per year ($20,000), then the seller's property 180 days from now is worth only $390,000. Given that few sellers price their property exactly at market value, their list price of $410,000 is now $20,000 higher than the property's value. Thus, even with a $10,000 price reduction, the list price would still be $10,000 over the new market value. This is exactly where the seller started at the beginning of the listing period. If a price that was $10,000 over market value did not result in a successful sale, it is even less likely to produce a sale as the market continues to decline.

To avoid this trap, list the property below the comparable sales. The reason for this is simple -- today's comparable sales represent what the prices were 60 to 90 days ago. If the market is declining, then the property is actually worth less than the comparable sales suggest.

2. Avoid letting the sellers "test the market"

Persuading your sellers to be realistic is challenging in any market. This is especially true when the market has been very good and is now transitioning into a buyer's market. As a result, sellers often want to "test the market." This is a huge mistake. Many sellers mistakenly believe that the initial activity on their property will continue throughout the listing period. Nothing could be further from the truth. When they first list their property, there is pent-up demand among the current buyers who haven't found a property. Once this initial surge ceases, showings will be limited to new buyers coming into the marketplace. Missing this initial "honeymoon period," which normally lasts the first 21 days a property is listed, usually results in longer market time and a substantially lower price. Do everything within your power to keep sellers from making this costly mistake.

3. When it comes to price reductions, you need a chain saw, not a pair of nail clippers

When property values are declining, reducing the price to the current market value is not sufficient. Instead, you must be slightly below market value to sell the property. To persuade the sellers about the wisdom of this approach, show them how much they lose each month they hold their property. To illustrate this point, assume that a seller is paying $3,000 per month in principal, interest, taxes and insurance (PITI) and that the prices are decreasing by $1,000 per month. The actual cost to the seller of not being accurately priced is $4,000 per month ($3,000 in PITI + $1,000 in depreciation.)

4. Tap into the seller's motivation to sell

In a declining market, many people are selling because they must. It may be a divorce, financial difficulties, a job transfer, or some other event where the seller has no choice. An important part of providing the seller with excellent service is to understand his or her motivation. While a seller's market is difficult for buyers because prices are constantly climbing, a buyer's market is tough on sellers because prices are declining. If the sellers have to sell and are reluctant to accept a reasonable offer, you can ask, "Which is more important, getting on with your life or waiting for the real estate market to improve?"

If the sellers are purchasing a more expensive home, remind them that they will be making additional money on the deal. For example, the owner of a home worth $300,000 who experiences a 5 percent price decline will see a $15,000 reduction in value. If that same individual is purchasing a $600,000 home, that home will experience a $30,000 reduction in value. Thus, the seller comes out $15,000 ahead. In fact, the higher price ranges usually experience greater drops than entry-level homes.

Helping your clients understand the psychology of a changing market will make the job of selling their home easier. More importantly, it can save your clients plenty of money as well.

Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of "Waging War on Real Estate's Discounters" and "Who's the Best Person to Sell My House?" Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.

***

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Columbus Residential Resale Statistics for June 2007

Franco Is Still Dead, and Housing Is Still Bust: Caroline Baum

Courtesy of Bloomberg.com
By Caroline Baum

Foreclosure resolutions ad displayed in front of a home July 27 (Bloomberg) -- The latest round of housing statistics -- sales, starts, homebuilders' outlook surveys and earnings reports -- offered little hope that residential real estate would be back on its feet anytime soon.

``Housing is bust, and wishful thinking cannot unbust it anytime soon,'' says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Just to recap what we learned this week: New home sales plunged 6.6 percent in June to 834,000, just above the seven- year low set in March. Sales are down 22 percent from a year earlier, even with builders throwing in the kitchen sink to sweeten incentives and lighten the load (inventories).

Home resales fell 3.9 percent last month to 5.75 million, a five-year low. They're down 11 percent in the last 12 months.

The only surprise is that prices haven't fallen more. The median price of an existing home was unchanged from a year earlier while new home prices fell 2.2 percent, removing the refinancing/cash-out option for strapped homeowners but not much of a real loss given soaring home prices from about 2001 through 2005.

Shepherdson warns against taking any comfort in the stabilization in home prices for two reasons: one, the deterioration in the supply picture; and two, the lack of adjustment in median prices for either seasonal variations or the mix of properties sold from one month to the next.

Because most of the problems have been in the subprime and Alt-A sectors, and because non-prime borrowers probably buy lower-priced homes, ``their absence from the market will limit the speed of the decline in the median home price,'' he says.

`Challenging'

Moving along to the builder side, things are equally glum. (The outlook is ``challenging,'' in homebuilder speak.) Six U.S. homebuilders, including D.R. Horton Inc. and Pulte Homes Inc., reported losses in the second calendar quarter this week. The chief executives of these companies were not optimistic about the rest of this year. Many weren't optimistic about next year either. Homebuilders' stock prices, which early this year saw a housing renaissance, plunged, with the Standard & Poor's Supercomposite Homebuilding Index dropping to a three-year low.

Yet the real blow this week seemed to come from someone outside the homebuilding industry. Countrywide Financial Corp., the biggest U.S. mortgage lender, did to the stock market this week what HSBC Holdings Plc did to the subprime loan market back in February. Countrywide's road-side bomb, delivered with its second-quarter earnings report, was news that the stress in the home-loan market was spreading from deadbeats to folks with good credit histories.

Rising delinquencies on mortgage payments on prime loans contributed to the company's third consecutive quarterly loss and a one-day 10 percent loss in its stock price.

Technology Redux

On top of rising late payments, Chief Executive Officer Angelo Mozilo said on a conference call that the U.S. was experiencing ``home price depreciation almost like never before, with the exception of the Great Depression.''

The Dow Jones Industrial Average fell 226 points, or 1.6 percent, following the news, and another 312 points yesterday.

``We've been looking at the same data on housing for months, and it took the CEO of a lender to make everyone say, ouch,'' says Joe Carson, director of global economic research at AllianceBernstein in New York.

Carson says Mozilo's comments were not unlike those of Cisco Systems Inc. CEO John Chambers when technology companies woke up in late 2000/early 2001 to find their order books had evaporated (at least that's when companies owned up to it).

Chambers rattled the stock market in early 2001 when he admitted that the previous quarter had been ``a little bit more challenging than expected.''

Visibility, Hindsight

One year earlier, when capital spending and the economy were plowing headfirst into a brick wall, Chambers said he had ``never been more optimistic about the market opportunities for our industry as a whole and for Cisco within that market.''

Just call it visibility in hindsight.

While everyone from the Federal Reserve chairman to the Treasury secretary has been talking housing containment, the damage has started to seep out from under the foundation and spill over to other parts of the economy. Home improvement retailers such as Home Depot and Lowe's Cos. are feeling the pinch. Consumer spending slowed markedly in the second quarter. Wall Street is having trouble finding buyers for loans to finance leveraged buyouts. Investors are starting to reprice risk.

The yield curve has inverted again as the yield on the 10- year Treasury plummeted 50 basis points in the last six weeks.

Rerun Time

Haven't we seen this movie before? Every bubble has a credit kicker when the price of whatever asset folks were chasing stops rising. Banks find religion when it comes to making new loans. Regulators step in to make sure there will be no repeat of the last bubble. Consumers save more; businesses invest less.

Housing has been the economy's weakest link for some time, subtracting about 1 percentage point from growth in every quarter from the second quarter of 2006 through the first quarter of 2007.

Residential investment, as it's referred to in the gross domestic product accounts, may not be the real threat to the U.S. economy. The danger lies in the fact that ``there's a lot more household debt associated with housing'' than there was with the stock-market bubble, Carson says.

Maybe you can take housing out of the economy for analytical purposes (see ``GDP ex-housing''). But when it comes to the real world, the two are inextricably linked.

(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net

Last Updated: July 27, 2007 00:03 EDT

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The housing market: How bad will it get?

Part 1: Midyear housing update
Monday, July 23, 2007

By Glenn Roberts Jr.
Inman News

Editor's note: How bad will the real estate market get before it gets better? Inman News compiles the facts and analysis in this five-part series.

Speculation, rampant building, risky loans, overborrowing and escalating prices propelled the housing market to an unprecedented peak -- and are now counted among its greatest failings.

The "soft landing" that so many analysts and economists had predicted has given way to a record number of foreclosures, an implosion in the subprime lending market, an oversupply of housing, and home-price declines in many market areas. The dreamy days of the housing boom have received a cold slap of reality.

Real estate markets are historically cyclical -- that's nothing new. But in this case, the nation is in the midst of a downturn following a long-lasting and massive real estate run-up, and it remains to be seen whether this period will become known as one of the greatest real estate slumps in history.

How bad will the real estate market get before it gets better? Many experts have said they don't expect a quick return from these doldrums, and this outlook could turn dire if the overall U.S. economy hits a snag. While there is not a nationwide epidemic of job loss, there are worries about rising inflation and energy prices, and declining consumer spending.

David Shulman, of the Anderson Forecast at the University of California, Los Angeles, said in his latest report that he expects a 10 percent peak-to-trough home-price decline that could extend into 2009, with the swell of foreclosures growing "well into 2008." His forecast report bears a one-word title: "Turbulence."

Real estate industry consultant John Burns said during a housing conference in May that the buyer's market will continue for at least two more years, and "we're heading into a year with more price declines," with builders dropping prices by about 20 percent in some markets.

The National Association of Home Builders expects a 21 percent drop in total housing starts and an 18 percent drop in new-home sales this year compared to last year, and the National Association of Realtors expects a 4.6 percent drop in existing-home sales, a 1.3 percent drop in median existing-home prices and a 2.3 percent drop in new-home prices this year compared to 2006.

'Market-fed downturn'

The sensational rise of the housing boom may be a key factor in its demise.

"This was sort of a market-fed downturn," said Jay Q. Butler, director of Realty Studies at Arizona State University's Morrison School of Management and Agribusiness. The rapid upswing in home sales and pricing was not sustainable, he said.

"A lot of the system was being stretched, both legally and illegally to some degree, with the idea that this was going to continue. So people got in over their heads. It really sort of turned in on itself. You usually find a (real estate) downturn associated with a downturn in the economy -- we really haven't seen the downturn in the economy."

Likewise, the latest annual housing market report by Harvard University's Joint Center for Housing Studies stated that the housing downturn "has been driven largely by the market's own excesses," including an oversupply of new homes that was artificially inflated by activity among investors and speculators.

Some familiarities exist now from past cycles, Butler said. For example, in a real estate boom there are always people who overextend themselves financially to purchase homes during a real estate boom, perhaps thinking that they will be able to sell the home for a profit based on the appreciation trends.

"I don't think we really ever learn. The lenders and real estate agents and everybody else is more than willing to help people achieve this goal (of home ownership) because they make a commission for you to achieve this goal," Butler said.

But the housing market's stellar performance leading up to the downturn was unique, he said, in featuring historically low interest rates, a massive subprime market, and the Wall Street concept of packaging mortgages and selling them off.

It may take awhile for the market to return to the bustling days of the boom, Butler said, and he expects a gradual recovery. The home-price bubble that took on air in some markets has gone away, he said, and more normal conditions seem to be prevailing.

In Arizona, "all the markets that were well above normal are returning to more of what would be expected of the housing market," he said, noting that the state is home to a high tide of foreclosures in comparison to other states.

The inventory of for-sale homes remains bloated, he said, and will take awhile to work off. The population centers that are farthest away from the job centers will face the toughest challenges, he said, as long commutes, inadequate transportation systems and rising energy costs are working against housing sales in those markets.

While some home builders reported that they were taking steps to avoid sales to speculators and overbuilding, the strategy wasn't 100 percent effective, Butler added. "They claimed that they were stopping the investor by multiple means -- that they were only selling to people who qualified for homes. Then it ... appeared that maybe they weren't doing what they were saying they were doing. I've seen booms and busts before, and home builders always seem surprised (by the downturn)."

Public home-building company Lennar Corp., in its latest quarterly earnings report, reported a second-quarter net loss of $244.2 million, and KB Home reported a $148.7 million loss for the same quarter. Builder Pulte Homes announced a net loss of $85.7 million and MDC Holdings announced a net loss of $94.4 million in the latest earnings reports this year, and other builders, too, have announced quarterly net losses this year to the tune of tens of millions of dollars.

Foreclosures climbing

Meanwhile, foreclosure rates are soaring, according to foreclosure data companies and the Mortgage Bankers Association. The association reported last month that the rate of loans entering the foreclosure process in first-quarter 2007 reached a record high, due mostly to increases in Florida, Nevada, California and Arizona. An estimated 1.28 percent of all loans outstanding were in a foreclosure process at the end of the first quarter, the trade group reported, and the delinquency rate jumped 43 basis points compared to last year's rate while dropping 11 basis points compared to fourth-quarter 2006.

Ohio, Indiana and Michigan accounted for 19.9 percent of the nation's loans in foreclosure during the quarter -- the region is notable for significant job losses. Foreclosures data company RealtyTrac reported a 90 percent jump in foreclosure filing sin May compared to the same month last year, for a rate of one foreclosure filing for every 656 U.S. households.

A surge in proposed condo projects and apartment-to-condo conversions has slowed, said Richard Swerdlow, CEO for Condo.com, a Web site that features information about for-sale condo properties. "You're not going to see this giant overbuild again. It's hard to image that you'd see in the next decade what we just saw," he said.

The rush to build condos led to speculation and oversupply in some markets. Swerdlow noted that in some markets prospective buyers camped in front of a development site for the chance to buy units.

"Real estate brokers and the developers were in almost a ticket-collecting mode. They were processing orders because there was so much business to go around. Now that sort of investor phenomenon has gone away," he said. "That phenomenon has stopped."

Some investors who bought multiple units hoping for a profitable sale are now returning them to the market as rental units, he said, and some projects never got off the ground or have converted to apartment buildings. In hindsight, some apartment-to-condo conversion projects may have been better off as apartment buildings, Swerdlow said.

There are still projects that are being built, he said, though far fewer new development proposals these days. "In the next six to 12 months we'll see a lot of the projects being completed. We don't have a sense of what the market will look like until those projects (are completed), as it's uncertain whether all of the condo sales of units in those developments will successfully close.

Lending rules for condo buyers have tightened in an effort to screen out speculators from end-user occupants, he said, and international interest in U.S. condos may help to work off any oversupply.

Steve Jacobson, president for Fairway Independent Mortgage Corp., a brokerage with 105 branch offices that handled $1.6 billion in loan volume last year, said that there is definitely fear in the industry, as a wave of loans are scheduled for a reset in rates in the next six to 12 months.

The variety of high-risk loan products "got away from a make-sense standpoint," and contributed to the current market problems, he said. "As long as inflation stays low and unemployment stays low we should be able to come back," he said of the down market. "I don't see us going down to a deep depression."

Lessons learned?

The lesson to be learned from this market cycle is that there was "way too much flexibility" in the loan products offered to consumers, which ultimately led some consumers to buy homes that they couldn't afford, Jacobson said. "Sometimes that's not the right house ... they may not like what they hear but that's the right answer."

What makes this market cycle different than previous cycles, he said, is that the economy is far more globally dependent today.

Author and mortgage banker Richard Cohen, said that a contributor to the market's problems is that too many people have shopped for a house like it's a commodity, and he said it's up to the industry to remind consumers that there can be disastrous consequences for home purchases that do not pencil out financially. "It's part of our culture to buy stuff, and it's even more part of our culture to own your own home. How do you tell someone, 'You are not supposed to buy a home because you can't afford it and it's going to hurt you, potentially'?"

He said he would support a giant banner with a statement to consumers: "Stop going out and shopping like it's a bottle of catsup." He added, "There are a lot of people who are encouraging people not to do the right thing. During those boom years there were a lot of people getting into programs that were risky for them as well as the lender (and) were putting people really on the margin," he said.

While the rising foreclosure rate has been making headlines, Cohen said the story that is less told is about all of the people who are forced to sell to avoid foreclosure and end up as renters again.

Bill Lyons, founder and CEO for LEI Financial, a mortgage and real estate company based in San Diego, Calif., said he expects that prices must stabilize and the interest rates for short-term and adjustable loans must drop or there could be a "major blow up in early to mid-'08" in the real estate market. If one of the two does not happen there will be a blow up that will make the subprime blow up look like a firecracker compared to a scud missile," he said, as option-ARM loan sales peaked in mid-2005 and borrowers may find themselves upside down in the coming year.

Easy credit days over

This real estate cycle will certainly be remembered for its abundance of unconventional mortgage products, said Neil B. Garfinkel, a real estate and banking lawyer who serves as a lawyer for the Real Estate Board of New York, a real estate trade association for New York City's building industry. "We probably saw more creativity in mortgage products than we ever have before," he said.

While Garfinkel said the Manhattan real estate market is "always a strong marketplace," some of the Outer Burroughs are seeing properties sit longer on the market. "There is less of an urgency in the marketplace. Two years ago, the marketplace was crazy."

In those days, for-sale properties were moving almost immediately, but that has changed. "The mortgage market is certainly not helping them right now," he said, as credit restrictions have made it more difficult for people to qualify for a home purchase." Garfinkel, like some other industry officials, said he blames the media, in part, for instilling fears about the real estate marketplace. "I think it does affect people -- it's almost like a self-fulfilling prophecy."

While people had been using their home equity as a piggy bank, that scenario is less likely now, Garfinkel said. And rising interest rates could be "really problematic" when coupled with credit tightening -- if interest rates rise up to 9 percent, for example, it "would really push people over the top," he said.

The "easy credit" environment that preceded the downturn makes this housing cycle unique, said Joseph Ventura, president of William Tell Financial Services in Latham, N.Y., which offers mortgage, insurance and other financial services.

The problems stemming from this easy credit "should last about another 12 months until everything is 'washed' out of the cycle, allowing common sense to return to the lending market," Ventura said.

If unsold home inventory levels off for several months in a row that may be the first sign of a market recovery, he said. "Any interest rate rise will delay this phenomenon."

He shies away from labeling the housing market's boom and decline as a bubble. He said it's "more of a turning point in American personal finance history as the economy is relatively strong and unemployment and interest rates are at historically low levels -- this will keep things percolating."

Will any lessons be learned from this latest housing market cycle? "People unfortunately will always be attracted to bargains that are too good to be true, which in a nutshell has been what's happened with the latest mortgage debacle," he said. "Tighter lending laws may help but others will argue that easy credit has enabled many borrowers to successfully invest in home ownership."

While Ventura said that some fallout in the subprime market may be inevitable because it is by nature a high-risk business, he also stated that mortgage lenders that pass loans on to Wall Street firms "are often less responsible to whom they lend," as they may "operate in a virtually risk-free environment since they generally do not 'hold' the loan for a long period."

***

Foreclosure damage to be worse than expected

Real Estate Articles from Inman News
Mortgage market commentary
Friday, July 13, 2007

By Lou Barnes
Inman News

Mortgages are relatively steady in the 6.75-6.875 percent band, but they are the only semi-stable financial instrument out there. The money world is thrashing around, trying to identify the true extent of the housing/mortgage trouble.

June retail sales fell a surprise .9 percent -- maybe the often-forecasted, ultimate fade by consumers, maybe just a modest pullback from an outsize 1.5 percent gain in May.

Markets always oscillate across baseline, overdoing it one way, then another. However, the last year has been unusual in that all the lurching has had one cause, re-played again and again, one long Groundhog Day.

A year ago, as the Fed reached its current 5.25 percent, many bright and well-informed financial operators were just sure that the housing market would knock over the economy. Over and over and over again, the "just sure" bought bonds in anticipation of the recession to come, and within a week or a month were clobbered by resilient data.

Now it's changing. This week the rating agencies acknowledged error, and are re-rating with tougher methodology. That's the trigger for the two-part end-game: If we have huge losses, where are they? Who is exposed? And, if housing distress is as bad as it looks, where is the effect?

Part one, the mortgage losses. Very little money has been "lost." The market value of the securitized mortgages in question has fallen 30-70 percent, but if you don't sell, you don't have to recognize loss. The re-rating of this stuff to junk will force institutional investors to sell, to recognize, and probably depress value farther. We will also learn who has lost, and it's going to be an embarrassing and painful parade. This week, S&P, Moody's and Fitch downgraded no more than 1 percent of the trash outstanding; the outcome for the other 99 percent is sure as sunrise, the holders in frozen panic.

Market losses from forced sales are near, but there is still little actual credit loss from defaulted mortgages -- that's still ahead, and the loss magnitude will depend on the depth and length of the housing recession.

Part two, the housing market. Housing moves slowly, in an aching grind. Sellers resist discount, preferring to hold vacant, or to rent at a loss, or to stay put. Loan servicers are slow to foreclose: they are not staffed to do so (or to do anything except to send you all that mail trying to get you to buy insurance and pre-pay programs), fiddle endlessly and pretend to negotiate workouts of hopeless cases.

The housing picture is changing -- not selling, just changing. Foreclosure data is notoriously bad (every county and state has different procedures and law), but RealtyTrac's trend is probably about right, if only in consistency of error. The pattern is stark: national foreclosure filings are up 56 percent year-to-date, but mortgage defaults are up 86 percent -- foreclosure lag. Based on housing markets early to the distress party, Colorado the leading example, Bubble Zone foreclosures will increase for at least the next three years (announcements of bottom in 2008 are fantasy-based).

Do some math. Home resales run a tad over 6 million annually, plus another 1 million new-builds. Re-sellers still want to re-sell, and builders, desperate to unload land and to maintain survival volume, are still building at undercut prices. Demand is off (un-affordability and anxiety), but a new seller has arrived: first-half '07 foreclosure filings just short of 1 million. Pull-through from filing to foreclosure is unpredictable, but it looks as though re-sellers and builders will soon be joined by another million foreclosure re-sellers (or two, or three...). That's market saturation, not clearing.

We are going to get spillover into GDP. Book it. And we're going to see a serial credit panic. However, the disaster mongers are mistaken. Credit losses are distributed globally, and there is great long-term strength in housing (population growth, land scarcity, wealth...). The forecast here continues to be for a long period of flat prices in the Bubble Zones, but vastly more foreclosure damage from flat prices than previously modeled or imagined, the Great Hangover from the '01-'06 Mortgage Credit Party.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Finding The Right Contractor -- Home Improvement Survey Points to the Best Ways

Wednesday July 11, 2:23 pm ET

How You Find Your Contractor Makes a Difference

GERMANTOWN, TN--(MARKET WIRE)--Jul 11, 2007 -- In a recently national study of 1,015 US homeowners, Consumer Specialists found that 66% of them had used a contractor for a home improvement project in the past. Overall levels of satisfaction were high with 76% saying that they were either extremely or very satisfied with the project. On a 7 point scale, the average rating was a 5.9 -- almost to the level of very satisfied.

It is the 5% who reported that they were very or extremely dissatisfied that we hear about. The question often raised is how to improve your odds of being one of the highly satisfied customers? According to this survey, how the contractor was located had a marked impact on homeowner's overall satisfaction with the project.

Those who used a contractor with whom they had previous personal experience were the most satisfied -- significantly besting all other methods of finding a contractor. Referrals from family, friends and neighbors placed second in satisfaction followed by getting a recommendation from another contractor.

Having the contractor supplied by a home improvement store, finding them in a telephone directory or via advertising turned out to be significantly less satisfying than the top two locating methods.

"Nothing beats personal knowledge or independent referrals to get the best results for home improvement projects," said Fred Miller, President of Consumer Specialists. "Surprisingly, those that used a home improvement store provided contractor did about the same as those that used advertising as they way they found their contractor."

This data comes from "In the Beginning," a special research project focused on understanding how homeowners approach that critical starting period in their projects. Included is the identification of three groups of consumers with different focuses to seeking information. They are (followed by the % of homeowners they represent): online (17%), personal network (23%) and contractor (23%) focused. The report on this study is available in a unique combined presentation/report format. For a more detailed release go to http://www.consumerspecialists.com/thebeginning.htm

Consumer Specialists is ten-year-old marketing consulting firm with a focus on the home improvement industry. The firm has industry studies for sale and does a broad range of custom research and consulting projects for its clients.

Contact:
For more information please contact:
Fred Miller
President, Consumer Specialists
(901) 757-5865

How to Invest in Preforeclosures

By Ralph Roberts
RISMEDIA, July 10, 2007

Some of the best bargains in the foreclosure market are actually in the preforeclosure market—weeks or even months prior to the time when the property ends up on the auction block. The earlier you can locate a distressed property or homeowners facing foreclosure, the less competition you have and the better your chances of ultimately acquiring the property at a great price. In this article, I cover the basics of investing in preforeclosures.

Networking for leads

The earlier you can find out about a property in preforeclosure, the better. You may even be able to discover properties before the foreclosure notice is posted. Choose the area where you want to buy preforeclosures and then network heavily in that area. Create your own business cards and hand them out to everyone you meet, and then network with people who are likely to have early leads:

- Real estate agents
- Foreclosure attorneys
- Divorce attorneys
- Bankruptcy attorneys
- Title companies
- Loan officers
- Reading the foreclosure notices

Call or visit your county’s register of deeds office and find out where the foreclosure notices are published. Usually, they’re published in the county’s legal news or one or more local newspapers. Find out where they’re published, and then subscribe to that publication. Each week, you should be reviewing the notices, marking promising candidates, and tracking any properties you marked during the previous weeks. (The foreclosure notice can change from week to week).

Foreclosure notices contain an assortment of valuable information, including the case or reference number; the insertion date; the county; the legal lot, subdivision, and city (which you can use to obtain the property address); the name of the mortgagor (usually the homeowners); the name of the mortgagee (the lender who’s foreclosing); the amount owed on the mortgage; the interest rate of the loan; the name and contact information for the lender’s attorney; the sale (auction) date; the length of the property’s redemption period (if any); and the liber (book) and page number of the recorded mortgage.

Tracking promising properties

As soon as you find out about homeowners who are or may be facing foreclosure, start tracking the property. If your discovered the property prior to the posting of the foreclosure notice, then contact the homeowners and work with them to keep track of where they stand in the foreclosure process. If you discovered the property by reading the foreclosure notices in your county, then use the following schedule to track the property (you may need to adjust the schedule based on the process in your area):

Week 1: Find the first foreclosure notice or NOD (notice of default), do some preliminary research on the property (see the next section for details), send a letter to the homeowners introducing yourself and what you can do to be of assistance.

Week 2: Find the second foreclosure notice. If a notice does not appear, send a congratulations letter to the homeowners. If a notice does appear, review the title work, contact the homeowners by phone, knock on their door to attempt a face-to-face meeting, and send a second foreclosure letter. (Your second letter should convey a sense of growing urgency and let the homeowners know that the clock is ticking.)

Week 3: Find the third foreclosure notice. If a notice does not appear, send a congratulations letter to the homeowners. If a notice does appear, attempt to contact the homeowners by phone, do a little more research on the property, and send your third foreclosure letter, stressing the growing urgency. At this point, you should also contact the foreclosing lender’s attorney to find out if the property is still going to auction, what the opening bid amount is likely to be, whether they are considering adjournment, and if they have any additional background information about the property.

Week 4: Find the fourth (and probably final foreclosure notice). If a notice does not appear, send a congratulations letter to the homeowners. If the foreclosure notice does appear, drive by the house, take photos of it, and note whether the condition of the property has changed significantly; attempt to contact the homeowners by phone; send your fourth foreclosure letter, stating when the property is scheduled for sale; and organize your property dossier for the auction.

Building a property dossier

Part of the process of tracking a property consists of building a property dossier in which you organize all relevant information about the preforeclosure or foreclosure property you are interested in. Your property dossier should contain the following items:
8-by-10-inch photograph of the property taped to the front of the folder for quick reference.

The foreclosure notices:

- A foreclosure information sheet with all the details from the foreclosure notice and your research of the title, deed, and mortgage. (You can research these items at your county’s register of deeds office.)
- An exterior home inspection form. (You should always inspect all four sides of the property with your own two eyes and record your observations.)
- Neighborhood inspection, complete with photos.
- Information on any other properties that are listed for sale in the area, so you can track their sales prices and how long it took them to sell.
- A map showing the location of the property.
- The title commitment and 24-month history in the chain of title or the minimum last two recorded documents. (You can obtain this from a title company.)
- The last recorded first mortgage, so you know how much the homeowners currently owe on the property. (You can obtain this from the register of deeds office.)
- Records of other liens on the property, such as second mortgages, construction liens, and tax liens. Property tax liens are especially important, because if you buy the property, you’re responsible for paying any back property taxes. (This information should show up on the title commitment.)
- A copy of the deed with the current homeowners’ names. These names should match the names on the title. (You can obtain this from the register of deeds office.)
- The city worksheet on the property showing the history of the property. (Your city or town should have a worksheet on file for every property in the area.)
- The SEV (State equalized value). (You can obtain this from the register of deeds or the tax assessor’s office.)
- Estimating your maximum offer

Whether you plan on buying the property directly from the homeowners or at auction, you need to sit down and crunch the numbers. Your goal should be to earn 20% or more on your total investment. Begin with the estimated sales price of the home after repairs and renovations and work backward:

- Guesstimate how much you can sell the house for after repairs and renovations. (Base your guess on the recent sales prices of comparable homes in the same area. Guess low on price and high on costs.)
- Multiply the amount from step 1 by one of the following:
o .80 in a market where homes values are rising
o .70 to .75 in a market where home values are steady
o .65 to .75 in a market where home values are declining
o .50 to .65 depending on the percentage profit you want to make
- Subtract the amount of money required to pay off back taxes and other liens.
- Subtract the closing costs for purchasing the property.
- Subtract renovation expenses x 1.2 (to add 20% for unexpected cost overruns).
- Subtract monthly holding costs (interest, insurance, property taxes, utilities) times the number of months you plan on owning the house. Figure on at least 3 months.
- Subtract agent commissions and/or marketing and advertising costs.
- Subtract closing costs for selling the property.

For a calculator that can handle the calculations for you, visit http://www.getflipping.com.

Tip: If the numbers don’t work for you, you may be able to negotiate short sales with lenders, especially junior lien holders, who may lose everything if the property is sold. With a short sale, the lenders agree to accept less than the full amount they are owed.
This article provides a brief overview of what is a very complex process.

For more information about buying and selling preforeclosure and foreclosure properties, check out my book Foreclosure Investing For Dummies
.
Ralph R. Roberts, official spokesperson for Guthy-Renker Home and author of Flipping Houses For Dummies and Foreclosure Investing For Dummies (John Wiley & Sons), can be contacted at 586.751.0000, or by e-mail at RalphRoberts@RalphRoberts.com.

For more information, visit http://www.aboutralph.com.

Still afloat despite worst housing recession in 15 years

Mortgage market commentary
Monday, July 09, 2007

By Lou Barnes
Inman News

Mortgages have been remarkably stable in the 6.75 percent-6.875 percent area while the all-powerful 10-year T-note has run in a much wider range: 10 days ago touching 5.32 percent, on Tuesday trading briefly at 4.99 percent, and today an early burst to 5.22 percent.

Two lessons here. First, inject volatility into a system, as did the 10-year's rocket in June from 4.6 percent to the levels above and you'll have high volatility for quite a while. By "volatility" I mean true up-and-down action, not the Wall Street standard explanation to a client who has lost his shirt in a straight-line move.

Second, Treasury volatility versus stable mortgages is the signature of market uncertainty about the inflation/growth outlook, and grave concern about credit quality. In this week alone we've gone from strong buying of Treasurys in response to revelations of the magnitude of the mortgage-derivative mess to sell-everything-you've-got on news of a healthy economy.

The economic health is a bit of a puzzle. We've got the worst housing recession in at least 15 years (pending sales in May fell to the lowest level since September '01, a tough month), but its effects are still confined. Mortgage rates jumped a half percent in June, yet applications for mortgages are rock steady. The twin surveys by the purchasing managers' association appeared to be tailing, but both rebounded well in June, manufacturing to 56 from 55, services from 58 to a strong 60.7.

How are we pulling this off with oil at $70? Personal incomes are stagnant, in May a net loser after inflation. One big propellant in the early '00s was home-equity extraction: the Fed's newest numbers show home-equity-line-of-credit balances shrinking in the 1st quarter this year for the first time in modern memory. In Friday's news, June payrolls gained an as-expected and healthy 135,000 jobs, but April and May were revised way up, driving credit-frightened money back out of bonds just bought.

I do not have an answer to the "why" in our still-good economy, except that the globe overall is in the best economic health ever and helping to float our boat.

In the housing-mortgage furball, one of the deep fears for this stage was/is that a rapid retrenchment in credit standards would make a bad situation worse. When the credit pendulum swings all the way to one side, the return move rarely stops on sensible center. However, this time may be a first-ever. Mortgage terms and pricing are tougher than six months ago, and underwriters are running scared (especially in appraisal review), but pretty much everything available then still is today.

If you want a subprime horror, you can still have it: the FICO bar has gone from the 500s to 620-ish, roughly the minimum range that experienced landlords will consider acceptable for a tenant. The off-the-shelf piggybacks are as they were, except the 1st-to-2nd rate spread is about 1 percent wider (2 percent for sub-680 FICOs), causing little damage because the 2nds are so much smaller than the 1sts. "No-Docs" are still out there, spreads to "A" paper about a half-percent wider.

Stated-income, interest-only, "option" ARMs with negative amortization feature -- all unchanged except for FICO-rate relationship at the outer edge of applicant/deal strength. One hundred percent financing in general is harder to find, and pricey, but it should be.

Supply is still good for three reasons. First, most mortgages are good and safe investments. Second, the global credit markets are still desperate for yield and still don't grasp the extent of risk in edgy mortgage product; FICO-rate re-pricing will continue as that risk comes clear.

Third, the regulators, bless them, have failed altogether to tighten standards. Whether wise inaction during pendulum-swing, or near-total ineptitude, the mortgage underwriting "guidances" promulgated in the last year by the Fed (at the head of a puzzled mob: OFHEO, the FDIC, the Comptroller, the Office of Thrift Supervision, the National Credit Union Administration) have been completely ignored by the mortgage industry. A reasonable response, given equally complete lack of enforcement.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

U.S. Housing Sales to Tumble to Six-Year Low on Rates (Update1)

By Kathleen M. Howley

July 9 (Bloomberg) -- U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001, as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.

Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world's second-largest mortgage buyer. It would be the lowest since 6.20 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the McLean, Virginia-based company said in today's forecast.

Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average U.S. rate for a 30-year fixed rate home loan probably will be 6.7 percent this quarter, according to the forecast. That's the highest level so far this year, and it's half a percentage point above the 6.2 percent average in the first three months of the year.

``Several risks -- the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers -- point to continued weakness in the months ahead,'' Freddie Mac Chief Economist Frank Nothaft said in the forecast.

The number of previously owned homes on the market reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualized pace, the lowest in four years, the real estate trade group said in a June 25 report.

Foreclosures Rise

The share of all mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest in a survey that goes back to 1972, the Mortgage Bankers Association said June 14. Subprime loans entering foreclosure rose to a five-year high of 2.43 percent, up from 2 percent, and prime loans rose to a record 0.25 percent.

The average U.S. fixed rate was 6.63 percent last week, up almost half a percentage point from 6.15 percent in early May, according to data from Freddie Mac, whose larger rival is Washington-based Fannie Mae.

U.S. home sales rose to a record 7.46 million in 2005 before dropping to 6.76 million last year, according to Freddie Mac. Demand will begin to rise next year, with about 6.39 million sales in 2008 and 6.63 million in 2009, the mortgage buyer said today.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

Last Updated: July 9, 2007 15:00 EDT

Strong jobs growth? Thank a tourist

Fri Jul 6, 2007 12:08PM EDT
Power. Price. Service. No Compromises.By Emily Kaiser

WASHINGTON (Reuters) - The housing sector is in a funk, auto sales are weak, and manufacturing jobs are drying up. So why were Friday's employment numbers surprisingly strong?

Merrill Lynch analyst David Rosenberg says at least some of the credit should go to tourists who are flocking to the United States to capitalize on a weak dollar, helping to fill bars and restaurants.

"Where is all the employment being created? Try the leisure-hospitality sector -- the weak dollar has worked its magic in this space," Rosenberg wrote in a note to clients.

Friday's employment report from the Labor Department showed an overall gain of 132,000 jobs in June, beating economists' expectations for 120,000 in a Reuters survey.

Payroll figures for April and May were also revised higher, confirming stronger second-quarter economic growth following a soft start to the year.

Not surprisingly, nearly all the growth came in the services sector, which includes everything from nurses to bartenders and has been the sweet spot in an economy struggling with persistent weakness in manufacturing and housing.

Health care gets most of the attention in the services sector as aging baby boomers drive up demand for nursing, but a closer look at the latest numbers shows that food service and drinking places accounted for 34,600 new jobs in June, outpacing the 29,700 gain in health care employment.

"Foreigners cannot believe how cheap it is now to visit the U.S., with the U.S. dollar down 15 percent year-over-year against the Australian dollar and Thai baht; 10 percent against the (British pound) and 7.5 percent against the euro," Merrill's Rosenberg said.

While the data suggest that consumers were happily eating and drinking, the revelry did not extend to the shopping mall. The retail trade lost some 24,200 jobs, in part due to weakness at car dealerships and building supply stores but also because of declines at clothing and accessories stores.

"The mystery is they're adding folks in the food court and not the stores," said Ken Goldstein, labor economist with The Conference Board in New York.

Goldstein said that although the data is seasonally adjusted, it's not an exact science and the retail job losses may have as much to do with timing as demand.

He said restaurants probably beefed up staffing in response to signs the economy improved in the second quarter, and some people who had worried about a steep decline found reason to celebrate or travel.

Retailers are still a few weeks away from the back-to-school shopping season and will likely add jobs again in July, he said.

© Reuters 2007. All rights reserved.

Foreclosure Zip Codes: Foreclosures drift to Sun Belt from Rust Belt

A new survey shows foreclosure clusters are on the move from industrial centers to coastal and southern states.
By Les Christie, CNNMoney.com staff writer,

NEW YORK -- For sheer volume, housing foreclosures across the nation appear to be moving from the Rust Belt to the Sun Belt.

A study for CNNMoney.com by RealtyTrac, an online marketer of foreclosure properties, showed that 139 of California's ZIP codes fell within the top 500 for total foreclosure filings in the United States. The next highest count for any state is less than half that at 72 and is in another sun-belt state - Florida.

Top 10 Foreclosure ZIP Codes
Zip City State Total Filings
44105 Cleveland OH 783
30310 Atlanta GA 709
80219 Denver CO 705
48228 Detroit MI 679
95823 Sacramento CA 634
48205 Detroit MI 634
48224 Detroit MI 583
89031 N. Las Vegas NV 575
80239 Denver CO 553
48219 Detroit MI 549

The geographic shift shows up in the mix of properties listed by the auction web site RealtyBid.com, which mainly features foreclosed homes.

RealtyBid spokeswoman, Daphne Shannon, said, "The Midwest has always been very solid for us, but the properties we're seeing are moving across the country - they're from California, Arizona and Nevada."

The number one ZIP code in the nation for foreclosures is still, however, in the Rust Belt. It's Cleveland, 44105, with a total of 784 filings during the three months ended June 15, according to the RealtyTrac study.

The hardest hit ZIP in California was Sacramento, 95823, where there were 634 default notices, repossessions and auction notices. It had the sixth most foreclosure filings for any zip code in the nation.

California boasts a vibrant economy and a fast growing population. According to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), foreclosures, overwhelmingly, used to come courtesy of serious underlying economic problems such as job layoffs or plant closings.

But the California foreclosure spike, as well as those in Florida, Arizona and Nevada, was set up by runaway appreciation that boosted home prices beyond affordability.

Double-digit price increases had attracted hordes of investors, who added to swiftly rising values. Developers bid up land prices in a scramble to get product to market. When markets cooled, speculators added to downward price pressure by unloading their properties onto already lengthening inventories.

"In many of these markets," said Duncan, "prices fell below what investors paid. Many have simply walked into their banks' offices and handed in their keys."

Many Sun-Belt buyers bought their high-priced houses using 2/28 adjustable rate mortgages (ARMs) which featured very low initial, or "teaser," rates that reset much higher after the first two years of fixed payments.

But ARMs are best used, according to Duncan, as credit-repair products. They're set up for borrowers to show they can keep up mortgage payments and then refinance out into affordable fixed-rate loans after two years.

Many buyers used ARMs to get into a house with little regard for whether they could afford the payments, betting that rising prices could build enough home equity they could tap for cash.

When prices stabilized or fell, that safety valve disappeared. Owners couldn't pay monthly bills, and they had no equity to draw on.

In the Rust Belt, it was the ripple effects of a dying industrial economy instead of rampant speculation that crushed the finances of many borrowers in states like Michigan, Ohio and Indiana.

Neighborhoods of Cleveland 44105 were once filled with Eastern European immigrants and their descendents. Residents worked in nearby woolen factories and steel mills.

Today it's a mixed-race area with lower than average income, higher than average unemployment and a large stock of older, single-family homes. Many of them sell for less than $100,000, some for under $30,000.

According to Cleveland city councilman, Tony Branchatelli, who represents the district, more than 600 homes in the neighborhood are vacant and boarded up. Many have little value because the rehabilitation costs would exceed their selling prices. Some have had their plumbing, wiring and other hardware stripped.

In Sacramento, 95823, by contrast, residents depend more on government jobs and service industries for employment, although wages are still below average for the state.

Homes there are more modern and more valuable than in 44105; even modest three-bed/two bath houses go for several hundred thousand dollars.

Neither the Rust Belt nor Sun Belt are likely to see easier conditions any time soon. In the Sun Belt, the subprime mortgage mess will take many months to work through as the many borrowers who took out 2/28 and 3/27 ARMs during 2005 and 2006 will hit their reset points this year and next.

And the rust belt appears likely to endure more economic trouble before conditions turn around in heavy industry.

"Delinquencies," said Duncan, "will probably peak by the end of the year and foreclosures in 2008."

© 2007 Cable News Network LP, LLLP. A Time Warner Company ALL RIGHTS RESERVED.

Real Estate Sees the Best of Times and the Worst of Times

TradingMarkets.com
Thursday July 5, 8:55 am ET
By TradingMarkets Research


Cheap debt and a boom in private equity have been key drivers for equities this year, even as the U.S. economy faces a stiff headwind from the deflation of the housing bubble. But all good things must come to an end. The outlook for deal flow is dimming as it gets harder for underwriters to place high-yield debt. Subprime problems at Bear Stearns (NYSE:BSC - News) have soured investors on high-yield debt, and the latest casualty came on July 5. A private equity firm had to resort to a bridge loan for $1.1 billion in financing for the leveraged buyout of ServiceMaster Co. (NYSE:SVM - News). This is a troubling sign, since U.S. equities will suffer if

Since real estate has been the key driver of this credit cycle, this week we look at REITs, which represent a broad range of subsectors. Even a cursory glance shows that real estate in America is now a tale of two cities, with boom times for downtown office space even as the suburbs go bust.

With apologies to Dickens, you could say that it is the best of times and the worst of times for U.S. real estate. Residential real estate continues to sag after peaking in 2005, while commercial real estate is hitting new highs. Office space on Park Avenue in Manhattan sold this week for $510 million, which comes to $1,600 per square foot. That is a record for commercial space in the U.S. Meanwhile, delinquencies on residential mortgages climbed to an 18-month high in the first quarter, and housing prices continue to decline.

The PowerRatings for REIT industries reflects this bifurcated outlook. The REIT industries with higher ratings are in Healthcare and Office space, both of which have bright fundamental outlooks. Pulling up the rear are Residential REITs. This group has a PowerRating of 2, which makes it one of our Industries to Avoid. Hotel/Motel REITs also have high exposure to the U.S. consumer, and it has a PowerRating (for Industries) of 2. In the short run, however, the Hotel/Motel industry got a boost on July 5 when Blackstone Group (NYSE:BX - News) announced a deal for Hilton Hotel (NYSE:HLT - News).

For investors who insist on exposure to real estate, it makes sense to stick with REITs that have the highest PowerRatings (for Industries). Right now this means commercial REITs such as Offices or Healthcare Facilities. Granted, these industries don't have high PowerRatings on an absolute basis. But they make better alternatives than the consumer-driven REITs at the bottom of our industry ratings. Our quantitative data from 1995 through 1996 have shown that PowerRatings do an excellent job for investors who seek high annualized returns over the next three months.

Unwinding Big Positions

Credit problems take a long time to fully emerge. Weaker borrowers suffer first, and then the problem spreads to stronger borrowers. And many mortgage derivatives are complex products, so it takes a while for credit defaults to show up in more complex products. That may be why subprime lending problems originally showed up at HSBC in February, yet it took until June for the hedge funds at Bear Stearns to take a hit.

Another issue is scale. Many bond investors have placed huge directional bets. High leverage is common in fixed income, and some hedge funds have levered their bond portfolios 10-to-1 or even 20-to-1. This means that even tiny declines in bond prices can have a devastating effect on capital.

This is a combustible situation. Bonds are less liquid than stocks, especially when prices are falling. Many of the more exotic bonds are not regularly priced, and portfolio managers don't want to create "fire sale" conditions that force them to mark to market at the worst possible time. This is another reason that it will take investors quite a while to fully unwind their positions.

Sticky Downward

There is yet one more reason that it takes a long time for real estate cycles to turn. People hate taking losses on their homes, so they just take them off the market. This makes real estate prices "sticky downward," which is how Keynes described wages (people don't like pay cuts, either). So the combination of forces is going to make this real estate cycle a protracted, messy affair. Real estate was the engine that drove the U.S. economy for many years. The engine stalled last year, and now it has become a slow-motion train wreck with no caboose in sight.

Rob Martorana, CFA, is Director of Content for PowerRatings.net.

Rob was most recently at TheStreet.com as the Director of Content for Professional Products. Rob has spent 22 years on Wall Street, and was a portfolio manager and head of U.S. equity research at Barclays Private Bank. Robert also managed small-cap stocks at Schroder Capital Management International, was an equity analyst at Vontobel USA, and was an editor and senior industry analyst for The Value Line Investment Survey.

Legends and tales taking blame for housing downturn

Mortgage market commentary
Friday, June 29, 2007

By Lou Barnes
Inman News

The 10-year T-note fell this week all the way to 5.05 percent from its 5.26 percent top two weeks ago. Long-term mortgage rates have settled today near 6.75 percent.

The interest rate decline has had several contributors. In approximate order of importance: fear of default on widening classes of ill-advised debt has pushed money to high-quality paper; a "retracement" from the crest of a big move is normal; and gradually improving inflation data are tilting the Fed from a tight stance toward balanced.

Lastly, regarding an accelerating U.S. economy: wait a minute fellas. Home sales are still falling, and unsold inventories are up to 8.9 months' supply, a 15-year record. Weakness in both consumer confidence and orders for durable goods put the second half of 2007 in question for anything much beyond 2 percent GDP growth.

Everyone is trying to form a housing forecast: how long, how deep, how bad will the collateral damage be? That is, everyone except for those who participated in the Great Derivatized Mortgage Train Robbery, who are doing their level best to keep everyone confused.

The forecasters have run out of metaphors. I'm waiting for these headlines: "Canary Found Dead in Iceberg," followed by "Tip of Coal Mine Feared." Meanwhile, the cover-uppers are selling a variety of urban legends and Tales of The West.

Legend Number One: Loosened standards in late 2005 and 2006 are responsible for the subprime damage, which will be limited to those loans. This is nonsense. We (and all other retailers) were offered the first suicide loans back in 2000, which then and now fall into two generic groups: 100 percent loan-to-value ratio in any form, with or without borrower documentation, and adjustable-rate mortgages with last-cigarette adjustment structure. The roll-out of these loans coincided exactly with Wall Street's discovery of "credit derivatives."

The ultimate foreclosure damage was masked by a decline in interest rates to a 50-year low, and a roaring, self-reinforcing run-up in home prices.

Legend Number Two: Fraud by Main Street lenders has been the main problem. It is a problem; it has always been a problem, and its depth is always discovered when home prices go flat. In today's parade of mortgage horrors, fraud is not even a secondary cause. Rather, the authentic causes (back to those two generic loan types) are: if you have no equity at purchase, and prices go flat, and anything goes wrong in your household, you're cooked. Prices went flat in 2005; that's the problem in '05-'06 loans, not easier credit.

Then there are the ARM-structure effects. In 2006, the Fed took short-term rates from the 1 perent bottom in 2002-2004 to 5.25 percent. ARM indices follow the Fed: in 2002-2004 a subprime borrower adjusting to 5 percent over Libor at the end of year two or three (the despicable "2/28s and 3/27s") only went to a 6 percent or 7 percent pay rate. Now, it's to 10 percent or 11 percent, a disaster having nothing to do with "eased standards" in 2005 and 2006 originations.

Tales of The West

Tale Number One: Housing will bottom out when home sellers finally reduce their prices enough. We better hope not because that would extinguish the equity in another 15 percent of households beyond the 15 percent that have little or none now.

Tale Number Two: Workouts, or negotiated loan modifications, will control the foreclosures. Foreclosure hotlines and counseling are doing excellent work, saving many families, but there is little negotiating room. One classic workout: add delinquent payments to the mortgage. It works if there is equity, but without any, the borrower is toast. Another is rate-reduction, which worked beautifully in the '80s (the FHA and VA "streamline refi") to rewrite 14-15 percent loans down to 8-9 percent. However, rate-reduction requires a lower market-rate world; today, rates are far higher than when the suicides were assisted. It may be possible to rewrite sky-high ARM adjustments, but only at the cost of deepening panic in the credit markets and cash flow collapsing. Take your poison, indolent regulators.

The next canary to hit the iceberg: S&P and Moody's are soon to be exposed in the worst systemic rating error ever. They are going to have to re-rate hundreds of billions of new-age mortgage paper, forcing institutions to acknowledge losses beyond estimation, and in doing so will admit their own fiduciary failure: fee for blindness.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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