Housing Bubble Bursting?

[Randolph Kinney]

Housing is falling much faster than reported

http://www.inman.com/hstory.aspx?ID=63172

Monday, May 14, 2007


The housing market has softened much more than is being reported. We have been advising our retainer clients for more than one year about misleading national sales information, both with the existing-home sales and new-home sales data. We are now going public with our concerns because we are concerned that policy makers are relying on national data to conclude that the housing market correction has not been severe.


Here is our support:

Closing Data: We purchase and compile actual home closing data for approximately 181 counties across the country, which captures the counties where about 55 percent of the U.S. population lives and a significant percentage of all of the counties where the large home builders are active. This data shows that sales have fallen 22 percent if you compare sales over the last 12 months to the prior 12 months. On a straight year-over-year comparison, the decline is much more.


Mortgage Bankers Association (MBA) Data: The MBA seasonally adjusted purchase application index, which is a measure of the number of people filling out loan applications to buy a home, is down 18 percent from its peak in September 2005. With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18 percent?


Builder Data: The nation's two largest home builders, D.R. Horton and Lennar, are reporting that orders have declined 27 percent to 37 percent year-over-year. D.R. Horton and Lennar have dropped prices significantly in many markets to generate sales, while the resale market has not. How could their sales have fallen more than the resale market, even if new-home communities tend to be in fringe areas?


Realogy Corp. Data: Realogy, which is the parent company of Century 21, Coldwell Banker and ERA, participated in roughly 1.9 million brokerage-related transactions in 2006 compared with 2.3 million in 2005, representing a year-over-year decline of 18 percent nationwide.


2005-2006 NAR State Data: The National Association of Realtors state data does show sharp year-over-year corrections in major states: 28 percent drop in Florida, 24 percent drop in California, and a 28 percent drop in Arizona. Our data, however, shows the sales have probably dropped by 34 percent, 27 percent and 38 percent, respectively. The national numbers include some large states where sales volumes have not corrected substantially, such as in Texas and Ohio, but we believe these markets are not very healthy for other reasons. Interestingly, our calculations were tracking very closely with NAR data through 2005, as illustrated above. We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested.

New-Home Data: The Census Bureau calculation of new-home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now, which is why the sales numbers overestimate actual sales.

The preponderance of evidence shows that the housing market in vibrant areas where home building is prevalent has corrected much more than some people believe it has.


In summary, we believe that the Fed should know that the housing market correction has been quite steep and is also not showing signs of bottoming out, as evidenced by all of the above information, as well as significant additional research we have conducted. While the Fed has far more to consider than housing, it should know that the housing market could sure use some lower interest rates to help achieve stability soon.

 

[Randolph Kinney]

Mortgage woes force banks to take hits to sell homes

http://www.moneyweb.co.za/mw/view/mw/en/page94?oid=91044&sn=Detail

Mortgage lenders are having to accept huge discounts in some cases to unload properties...

James R. Hagerty, Wall Street Journal
14 May 2007

SAN DIEGO -- An auction of nearly 100 foreclosed homes here Saturday showed that mortgage lenders are having to accept huge discounts in some cases to unload such properties.


A surge of foreclosures over the past year or so has left lenders struggling to sell a growing backlog of homes. Rather than relying on real-estate agents, the usual practice, some are turning to large-scale auctions to speed up the sale process.


Real Estate Disposition Corp., the Irvine, Calif., company that organized Saturday's auction of lender-owned homes, plans similar sales May 19 in Los Angeles and May 20 in Riverside, Calif.


At the San Diego sale, houses and condos typically sold for about 30% below the previous sale or appraisal prices. In a few cases, the discounts were around 50%.


A four-bedroom home in Oceanside, Calif., attracted a high bid of $495,000 at the auction, 33% below the sale price recorded in November 2005 for the property. One condo in San Diego sold for $120,000, less than half of its previous value.

Jeffrey Frieden, chief executive officer of REDC, called the auction a success. About 90% of the homes offered were sold, he said. Some deals fell through because buyers couldn't qualify for financing. He estimated that 1,000 bidders attended the sale in San Diego's Convention Center, where REDC workers in tuxedos shouted and whooped in the aisles to fire up bidders.


But Ramsey Su, a San Diego investor and former real-estate broker specializing in foreclosed properties, said prices were surprisingly low on some homes and the auction showed that "demand is not that strong."

Many of the bidders were looking for homes to occupy themselves, but investors also turned up. Don Bickel bought two town homes in Chula Vista, Calif., that he plans to use as rental units.


San Diego was one of the hottest housing markets in the country in 2003 and 2004, but prices generally have been drifting lower over the past year. The soaring prices of the first half of the decade priced many people out of the market, and lenders' recent tightening of standards has made it harder for others to get loans. A glut of condominiums also is weighing on the market. Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a research firm here, estimates that at the current sales rate there are enough condos on the market to last about 29 months.


But he and many others expect the market to recover within the next few years, partly because the balmy weather here remains a big draw. "The basic fundamentals of the region are still pretty positive," Mr. Dennehy said.

 

[Randolph Kinney]

Fitch revises IndyMac outlook

http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-16124288.htm

NEW YORK (AP) - IndyMac Bancorp.

Fitch trimmed its outlook to 'Stable' from 'Positive' while also affirming a lower-medium grade rating of 'BBB-' for the company's long-term issuer default rating. Fitch's BBB- rating is the agency's lowest investment-grade designation.

Fitch cited the company's financial performance in a challenging mortgage environment as a reason for the affirmation, while the rating revision is due to the expectation that 2007 will be a transitional year for the company and industry.

Although subprime production was less than 3 percent in 2006, IndyMac is not immune to subprime contagion and secondary market risk aversion.

 

[Randolph Kinney]

Randolph,

OK- I guess we under-reserved.

So that would be why S+P just raised its rating on our stock from sell to hold?

And that would be why our paper is rated (within the last 60 days) as full investment grade by Fitch, Moody's and S&P?

We have all been expecting increased defaults, foreclosures and increased credit losses- but it is all planned out (since mid 2006).

No- the OC Register got it wrong- that is all.

Brad

Brad, the OC Register may have something wrong but what it is, I cannot tell from what you post.

According to the news report I read, Fitch has rated Indymac Bancorp BBB-, which is the lowest investment grade it has. Its reason?

Although subprime production was less than 3 percent in 2006, IndyMac is not immune to subprime contagion and secondary market risk aversion.

Here is a portion of the questions Mathew Padilla who wrote the OC Register article asked.

To begin with, IndyMac executives, via a spokesman, declined an interview with me, but answered my questions via email, or some of them anyway.

Q. IndyMac’s allowance for loan losses of $67.6 million on March 31 amounts to a 44.11% coverage of non-performing loans held for investment. That’s down from 57.51% on Dec. 31, 2006 and 106.12% on March 31, 2006. Why is the company decreasing that ratio amid a housing market correction? Don’t executives expect more delinquencies going forward as well as higher costs to deal with non-performing loans and REO?


Q. In a related question to above, some analysts say IndyMac has insufficient reserves for present and future delinquent loans. What’s the company’s response?


Q. I understand from the first quarter conference call the company is moving from market-to-market accounting to portfolio accounting. Please elaborate on why it’s doing this. If nonperforming loans are held longer on your books amid a housing correction, won’t they just cost the company more in the long run?


Q. During the call one analyst noted that IndyMac did not write down the value of residual interest in securitizations to the extent of other lenders. Please explain this.


Q. Also during the call, a question was asked about IndyMac’s loan delinquencies for Alt-A fixed and Option Arms made last year as having greater delinquencies than the market, and that Alt-A hybrids made last year were performing better but with a steep curve of delinquencies. CEO Mike Perry’s response is that 80-20 loans were the problem. My question is, didn’t the company have reservations last year about making 80-20 loans, which are by definition 100% financing of a home and also allow a home buyer to avoid paying mortgage insurance? After all, government data (OFHEO) show housing price appreciation peaked in the first half of 2005.


Q. The overall theme of the accounting issues I have raised is that IndyMac may be postponing its recognition of losses. Please respond. Finally, the death spiral of New Century Financial began with its admission of accounting errors related to loan losses. Is IndyMac making any of the same mistakes?

Here is the link: http://blogs.ocregister.com/mortgage/archives/2007/05/lenders_and_their_creative_acc_1.html#more

Brad, Indymac would look better to the public, analysts, and news reporters if they would at least own up to what they are doing. Next quarter, if Indymac reports, again, loan losses and write downs that were not reserved for, it means that either the management can't see the problem coming or is trying to buy time with under reserving for bad loans. The net will be a loss of confidence by the public, investors, and secondary market.

All the data and news I read tells me the level of the problems with housing is being under reported. As we go through the summer months, weak sales along with rising inventory, rising default and foreclosure levels, all translates into bigger problems for lenders.

 

[Greg Bell]

Bankruptcy is not a problem , just refi and spend , spend , spend...
outofbk.com

 

[Greg Bell]

www.outofbk.com

 

[Randolph Kinney]

Foreclosure Filings Jumped 62 Percent in U.S. Last Month, RealtyTrac Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8IPzXdjD06o&refer=worldwide

May 15 (Bloomberg) -- U.S. foreclosure filings jumped 62 percent in April from a year earlier and the number of households falling behind on mortgages probably will climb further this year as home prices fall and lending standards rise, RealtyTrac Inc. said.


California, Florida and Ohio led the U.S. in filings. There were 147,708 default notices, auction sale letters and bank repossessions last month as declining prices made it harder to refinance, particularly for borrowers with poor or limited credit, the Irvine, California-based seller of foreclosure data said today. April's total compares with 91,168 filings a year earlier.


Foreclosures are being ``fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation,'' said James Saccacio, chief executive officer of RealtyTrac, in a statement.


Mortgage lenders are raising credit standards after the number of loans entering foreclosure rose to an all-time high in the fourth quarter. The 2007 median price for an existing home likely will decline 1 percent to $219,800, the National Association of Realtors said last month, the first drop since the real estate group began keeping records in 1968 and probably the first decline since the Great Depression.

 

[Randolph Kinney]

HSBC Finance's First-Quarter Net Income Falls 39%: Rising Defaults

http://www.bloomberg.com/apps/news?pid=20601208&sid=aY4lkJTdZ3fA&refer=finance

May 15 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank by market value, said first-quarter profit at a U.S. unit slumped 39 percent as mortgage loan defaults surged.


Net income in the three months through March fell to $541 million from $888 million last year, mainly as HSBC Finance Corp. had to almost double the provisions set aside for credit losses to $1.7 billion, the Prospect Heights, Illinois-based company said today in Regulatory News Service statement.


``The delinquencies in adjustable mortgages are going to increase into the year,'' Krista Yue, an analyst at Deutsche Bank AG, said by telephone from Hong Kong. The ``continued drag of the U.S. mortgage portfolio is going to limit any meaningful earnings expansion in 2007'' for HSBC Holdings, she said.

The ability of HSBC Finance's customers to repay the mortgages could be affected this year as interest rates on the remainder of their loans rise, the company said.


``Many adjustable rate loans are expected to require a significantly higher monthly payment following their first adjustment'' given that interest rates have risen in the past three years, the company said in the statement.


``A customer's financial situation at the time of the interest-rate reset could affect our customer's ability to repay the loan after the adjustment,'' it said, referring to loans offered at lower rates in the first few years of repayment that are subsequently increased.


This year, interest rates will be reset for the first time on about $9 billion worth of HSBC Finance's adjustable mortgage loans, followed next year by adjustments on $4.7 billion of the loans, the company said.

 

[Randolph Kinney]

Home Depot Net Falls 30 Percent, More Than Forecast, on U.S. Housing Slump

http://www.bloomberg.com/apps/news?pid=20601206&sid=aR7gQ4XU7yDA&refer=realestate

May 15 (Bloomberg) -- Home Depot Inc., the world's largest home-improvement retailer, said first-quarter profit fell more than analysts' estimates and yearly earnings will be at the low end of forecasts because of the U.S. housing slump.

Sales at the company's retail stores declined 4.3 percent. Chief Executive Officer Frank Blake, who took over in January after Robert Nardelli was ousted over compensation, tried to boost store sales by adding staff and hiring skilled trades people at about $30 an hour.


The U.S. housing market has been slipping since the end of 2005, and sales of previously owned homes may fall 2.9 percent this year to 6.29 million, the National Association of Realtors said last week. Fewer home sales mean consumers spend less on renovations and remodeling.


Sales at Home Depot stores open at least a year fell 7.6 percent in the quarter, the fourth straight decline. Michael Cox, an analyst with Piper Jaffray, had estimated a 6 percent drop. The average customer purchase fell $1.74 to $59.01, and the number of retail transactions dropped to 318 million from 322 million.

 

[Greg Bell]

Home depot has missed the station.However , watch the stock market go up on this news , look out 1929..

Home Depot Net Income Falls 30% on Housing Slump (Update3)

By Mark Clothier

May 15 (Bloomberg) -- Home Depot Inc., the world's largest home-improvement retailer, said first-quarter profit fell more than analysts' estimates and yearly earnings will be at the low end of forecasts because of the U.S. housing slump.

Net income dropped 30 percent to $1.05 billion, or 53 cents a share, missing estimates by 6 cents. A year earlier, profit was $1.48 billion, or 70 cents. Sales rose 0.6 percent to $21.6 billion, the smallest gain in four years, Home Depot said today.

Sales at the company's retail stores declined 4.3 percent. Chief Executive Officer Frank Blake, who took over in January after Robert Nardelli was ousted over compensation, tried to boost store sales by adding staff and hiring skilled trades people at about $30 an hour.

Home-improvement will ``remain soft'' this year, Blake said in a statement.

``Home Depot is like a battleship, and it's going to take a while to turn around,'' said Keith Davis, a Washington-based analyst with Farr Miller & Washington LLC, which owns Home Depot shares among the $540 million it manages. ``They're starting to work on it, but it won't happen overnight.''

The shares fell 92 cents, or 2.4 percent, to $38.09 at 9:40 a.m. in New York Stock Exchange trading. The stock declined 2.9 percent from Blake's Jan. 3 appointment through yesterday.