Housing Bubble Bursting?

[Randolph Kinney]

But the owners, Model Homes Investors LLC, a group of Los Angeles-area lawyers, apparently would need about 80 percent of the asking price in order to clear their own debt with the banks holding the mortgages.

It appears from the news story that what was being auctioned were model homes bought by investors. Now, it is known that the developer will sell his model homes in the beginning phase to investors and leased them back. That helps the developer two ways: 1) establishes a selling price 2) the developer defrays the holding cost of completed homes.

Maybe the developer has defaulted on the lease or the lease is now terminated?

 

[Randolph Kinney]

Home Builder Caught With Inventory, Cancellations, Price Declines

http://news.morningstar.com/news/DJ/M10/D24/200610240954DOWJONESDJONLINE000484.html?t1=1161718745

Profit Falls 60% At Home Builder M.D.C. Holdings

[FONT=Trebuchet MS, Arial, Helvetica][SIZE=-1]10-24-06 09:54 AM EST[/SIZE][/FONT]

The "operating environment in most markets became increasingly competitive in the face of continued expansion of unsold new and existing home inventories," said Larry A. Mizel, chairman and chief executive, in a statement.

M.D.C. said home orders in the third quarter fell 40% to 2,120 from 3,551 in the year-earlier period. The cancellation rate jumped to 48.5% from 25.7%.

"We expect cancellations to remain high as long as home prices deteriorate," wrote Banc of America Securities analyst Daniel Oppenheim in a research note Tuesday morning.

 

[murray stroupe]

Re; increase

http://www.realestatejournal.com/buysell/mortgages/20061020-simon.html?rejpartner=mktw

Lenders Loosen Standards Even as More Loans Go Sour


By Ruth Simon
From The Wall Street Journal Online

Mortgage lenders are making it easier to get loans even as the housing market cools -- and as the number of borrowers struggling to make their payments continues to rise, new studies show.

The increase is particularly notable because bad loans normally climb when the economy weakens and job losses rise, leaving more borrowers unable to make their monthly payments. By contrast, the latest increase appears to be more closely tied to looser lending standards, borrowers tapping their equity and slowing home-price growth.

"We're seeing rises in delinquencies and loan losses that are unrelated to what's going on in the job market," says Mark Zandi, chief economist of Moody's Economy.com. "It's very unusual."

Some 2.33% of mortgages were delinquent at the end of the third quarter, the highest level since 2003, according to Equifax and Moody's Economy.com. Among the areas that saw the biggest jump in the delinquency rate since the end of last year were Stockton and Merced, Calif., and Las Vegas-Paradise, Nev. Delinquency rates were highest in McAllen-Edinburg-Mission, Texas; Brownsville-Harlingen, Texas; and Detroit-Livonia-Dearborn, Mich.

A separate report released yesterday by the federal Office of the Comptroller of the Currency found that lenders continued to ease credit standards over the past year.


Over the same period, 26% eased their mortgage-lending standards, most often by increasing the use of nontraditional mortgage products. These include loans that allow borrowers to pay interest and no principal in the early years or make a minimum payment that can lead to a rising loan balance. Yesterday, regulators released a booklet designed to help consumers understand these exotic mortgage products.



Agencies that counsel homeowners with mortgage problems say that many borrowers are running into problems because of the terms of their loans, not their personal circumstances. "It's mostly people with adjustables" who are having trouble paying their loans, says Pam Canada, executive director of the NeighborWorks HomeOwnership Center in Sacramento, Cal

=======================
2.33 % delinquent rate on mortgages may be on the low side, due to double didget % states,& many states above 2 & 3% as noted on a state by state foreclosure %[As noted elsewhere on this website]

Not that makes a bubble though.

 

[Brad Ellis]

From Randolph's post,

"Some 2.33% of mortgages were delinquent at the end of the third quarter, the highest level since 2003..."

Since 2003??????????? Was that not right in the midst of the price runup?

Brad

 

[Randolph Kinney]

Existing-home sales fall for 6th month in a row

Existing-home sales fall for 6th month in a row

Median sales prices down 2.2% in past year, while inventories begin to shrink

By Rex Nutting, MarketWatch
Last Update: 10:01 AM ET Oct 25, 2006

WASHINGTON (MarketWatch) - Sales of U.S. existing homes fell for the sixth month in a row in September while median sales prices fell for the second straight month, the National Association of Realtors said Wednesday.

Inventories of unsold homes fell for the second straight month, a sign that the market is correcting, said Laurence Yun, a senior economist for the realtors group.

Sales fell 1.9% to a seasonally adjusted annual rate of 6.18 million in September, the lowest since January 2005. The decrease was slightly larger than the consensus expectation of a drop to 6.23 million, according to a survey conducted by MarketWatch. See Economic Calendar.

"This is likely the trough in sales," said David Lereah, chief economist for the realtors group.

Sales are down 14.2% in the past year.

The median sales price fell 2.2% year-on-year to $220,000. Median prices have been down on a year-over-year basis for two months in a row for the first time in 16 years.

Yun said median prices would not begin to rise until the market is rebalanced between buyers and sellers, likely in the early spring, based on the 2.4% fall in inventories to 3.75 million, a 7.3-month supply at the September sales pace.

"The peak in inventories has likely passed," Yun said.

The realtors say a six-month supply represents a balanced market.

Sales of single-family homes fell 1.6% to a 5.42 million annual pace. Single-family-home sales are down 13.8% in the past year, while median prices are down 2.5%, the fastest decline on record. Inventories of single-family homes are up 33.9% in the past year to a 7.1-month supply.

Condominium-unit sales fell 3.2% in September to a seasonally adjusted annual rate of 763,000. Condo sales are down 16% in the past year, while median prices are down 2.8% to $219,800. Inventories of condos are up 42.9% in the past year to an 8.6-month supply.

Sales fell 3.7% in the Northeast, 3.1% in the West and 2.8% in the Midwest. Sales rose 0.4% in the South.

Rex Nutting is Washington bureau chief of MarketWatch.

 

[Brad Ellis]

Randolph,

Thanks for posting the article.

Do you know where the actual spreasheet of facts is located? I like to download that so I can study the actual data myself.

I did cruise around their site yesterday and noticed a new economist- Yun, I think, who is prognosticating. Interesting. He predicts that 2007 Q1 and Q2 will continue to show minor average price declines and then average selling prices starting modestly upward in Q3 (I may be off a quarter- getting OLD!).

He may be a bit optomistic but we shall see. What I found to be of particular interest is that existing home inventory is coming down.

Brad

 

[Randolph Kinney]

Randolph,

Thanks for posting the article.

Do you know where the actual spreasheet of facts is located? I like to download that so I can study the actual data myself.

I did cruise around their site yesterday and noticed a new economist- Yun, I think, who is prognosticating. Interesting. He predicts that 2007 Q1 and Q2 will continue to show minor average price declines and then average selling prices starting modestly upward in Q3 (I may be off a quarter- getting OLD!).

He may be a bit optomistic but we shall see. What I found to be of particular interest is that existing home inventory is coming down.

Brad

Here is the link to NARs spreedsheet for housing data:

http://www.realtor.org/Research.nsf/files/EHSreport.XLS/$FILE/EHSreport.XLS

Here is Yun's forecast from NAR:

http://www.realtor.org/reioutlook.nsf/pages/forecast

Lawrence Yun, Ph.D., Senior Economist
NATIONAL ASSOCIATION OF REALTORS®

 

[The Warrior Monk]

Home Price Drop Is Largest in 35 Years

WASHINGTON - The median price of a new home plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.

http://www.optonline.net/News/Article/Feeds?CID=type%3Dxml%26channel%3D32%26article%3D19965796

 

[George Hatch]

It appears from the news story that what was being auctioned were model homes bought by investors. Now, it is known that the developer will sell his model homes in the beginning phase to investors and leased them back. That helps the developer two ways: 1) establishes a selling price 2) the developer defrays the holding cost of completed homes.

I know quite a bit about this project, having reviewed a good number of the appraisals from it. The residential portions of Bressi Ranch consist of about 900 units, divided into 7 projects, of which 6 are being built by Lennar. Model Homes LLC bought all the models in the Lennar portion of the subdivision back in the early stages, then they leased them back to Lennar for use as model homes.

When they sold the sale prices were maxed out, ostensibly because of the extra options, upgrades, landscaping and furnishings. Of course, being the first closed sales they were subsequently used by some of the appraisers as comps; sometime with the appropriate adjustments and sometimes without, depending on how dumb the appraiser was.

The project is about built out now and the LLC is trying to sell off the homes. They've had them listed in the MLS at prices that would mostly represent a small loss (after including the cost of sale) from their original sale prices in 2004 and early 2005.

The reports I've heard about that auction are that there were about 8 serious bidders, maybe a dozen other casual bidders, and about 80 residents of the project looking to see how bad it was going to be. Most of the serious bidders were apparently looking to pick one of these homes up at a big discount off of market value. Probably a flipper or two amongst them. The auctioneers got close on the biggest house, which was the 1st one they auctioned; they were reportedly only about 10% shy of their reserve, but things just went downhill from there. The top bids on the others were well short of the reserves. I guess that's what happens when you try to auction off average quality subdivision homes ranging from $700k - $1,300k.

Offhand, I'd say the leaseback agreements have expired and the investors are now paying the carrying costs on the financing out of pocket. So the investors will either sell at a loss or their creditors will take those 16 units back and sell them as REOs. You can't even come close to debt servicing a $700k mortgage with a market rent of $2500/month.

 

[JSmith43]

You can't even come close to debt servicing a $700k mortgage with a market rent of $2500/month.

Of course, that is correct....except someone somewhere is offering a 3.9% Option ARM that will cash flow....for a month or two and an economic theory that gives some people hope Edit: It would have to be interest only, of course