Category: Real Estate

Sales of newly built homes fell in September for the first time in five months. New single-family home sales dropped 3.6 percent from the previous month, according to the U.S. Commerce Department. It was brow-popping news to market watchers, who'd been expecting sales to increase by 2.6 percent in the month.

Now, wait a minute. Weren't consumers and investors (oh, and yes, real-estate agents) just cheering reports of a surprising leap in existing-home sales? The National Association of Realtors announced Friday that sales of single-family town homes, condominiums and co-ops jumped 9.4 percent in September. The rise in home sales, almost double the increase expected, had people speculating that the long-awaited housing-market rebound had finally arrived.

Then boom ... new-home sales tank. What happened?

When you've covered the real-estate markets as long as I have, you begin to notice certain things. One thing I watch for in a down economy is what I like to call the "give up" phase. That's the point in an already-plunging marketplace where earlier buyers finally say "I give up" (or my likely "Get me out!!!"). And it's only after the "give up" phase that a market has truly bottomed.

Some think that "bottom" may now be in place for the nation's glutted condominium markets.

Many of the markets around the country all have one thing in common - a huge condo lender by the name of Corus Bank. Early in the decade, the Chicago bank plunged headlong into lending to condo developers and never looked back... until "the Boom" went "Ka-Boom." Corus became insolvent in September and was taken over by the FDIC. A bank named MB Financial got all the deposit accounts, while the FDIC figured out what to do with the portfolio of condo loans. Early this month, Barry Sternlicht's Starwood Capital Group won a 40-percent stake of that portfolio (the FDIC is keeping the rest), for the grand price of $550 million. The portfolio was once valued at up to $5.5 billion during the real estate boom.

Robert Shiller, the Yale economist best known for predicting the housing-market implosion, did an interesting piece in the New York Times yesterday that suggested homebuyers may be reverting to "bubble thinking" when it comes to home prices.
Shiller and Karl Case, a Wellesley economics professor, conduct an annual survey to assess the mood of home buyers. The 2008 survey showed home buyers believed home prices would rebound after the housing market bottomed out, a new president was elected and the recession ended. "What has changed in 2009," Shiller writes, "is that they suddenly see this anticipated scenario as actually playing out."

The latest housing-market data appear to back them up: The Standard & Poor's/Case-Shiller Home Price Index, which tracks prices of single-family homes in 20 metropolitan areas, rose in the second quarter of 2009. Though sales of homes -- particularly existing homes -- continue to remain sluggish, prices appear to have stabilized.

There's a fine line between encouraging loan modifications and encouraging people to try to get a deal from their lender. The Obama Administration's foreclosure prevention plan requires borrowers to be at risk of "imminent default" to qualify for a loan modification. At the same time, the government wants to encourage borrowers and lenders not to wait until people are in foreclosure to address the problem, so borrowers can be current on their mortgage and still be eligible to have their loan modified. In those cases, the mortgage servicer has to document when someone will no longer be able to make their payment.

We're now four years from the peak of the housing market. Perhaps that is enough time to graduate. Housing economist Tom Lawler says what's different about this housing slump is how rapidly prices deteriorated. In previous housing downturns, prices were slow to come down as people who didn't need to move stayed put. But the foreclosure crisis changed that equation; and as we've witnesses, prices have plunged in the last couple of years. While a third of home sales were distressed in the last month, that's an improvement from the 50% rate at the beginning of the year. There's a wildcard though. How much inventory are the banks holding off the market? Mark Zandi of Moody's economy.com expects another wave of foreclosures later this year, but he sees the market improving after that.

When I started researching tonight's story back in February, I put in calls to a number of local credit unions. I wanted to see what they had to say, since south Florida is one of the nation's most foreclosure-prone regions. One call I made at the time was to Eastern Financial Florida Credit Union, one of the largest credit unions in the country, but no one there ever returned my call. A few months later, I found out why: Eastern Financial became insolvent and had to be rescued by state and federal regulators in April.

Then, in late June, the Credit Union Times broke a story about the exposure of credit unions to the so-called "exotic" mortgages that have gotten so many homeowners into foreclosure trouble. It turns out Eastern Financial made that unfortunate list too, having written $156 million in exotic mortgages to members.

Despite glimmers of hope, the real estate market is still very much in distress. The combination of falling home prices and rising unemployment is creating stress for many homeowners who reached to buy a home when prices were high. Those who have heard the messages of "hope" and reached out to their lenders are in many cases left frustrated and disappointed. Restructuring a loan or negotiating a short sale is a complex, time consuming process. Banks and loan servicers are overwhelmed with the numbers of distressed borrowers. Reaching someone on the phone can be a struggle and keeping good records is important since many borrowers won't talk to the same person twice.

When consumer groups warned of predatory lending, the financial services industry talked about "innovation." The Consumer Federations Travis Plunkett says, "a lot of what the financial industry called innovation actually harmed consumers." Take for example, one of the most toxic products, the payment option adjustable rate mortgage.

At the height of the housing boom, in high cost markets like California, these mortgages made up nearly a third of new loans. I recall speaking with a financial planner about these loans when they first became popular. She said they didn't make sense to her and she wouldn't recommend them for most borrowers. Problem was their key feature, paying only interest, made it difficult to build wealth without home prices continuing to go up. And in the event prices were flat, a borrower could end up owing more than they borrowed in the first place.

No one is more the face of the financial crisis than Angelo Mozilo. The complaint by the Securities and Exchange Commission sheds some light on Mozilo's Countrywide Financial. While the public face of the company was pushing the "benefits" of homeownership for all, the private e-mails show a company scrambling to deal with "toxic" assets.

As we've learned, one of the most toxic were the payment option ARM loans. In one e-mail exchange dated September 26, 2006 Mozilo writes, "The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales." Trouble for us is that these loans continue to have high rates of default and are a source of uncertainty in the financial markets. It appears Mozilo saw the handwriting on the wall, writing in 2006, "timing is right" to "sell all newly originated pay options and begin rolling off the bank balance sheet."

If you've been itching to buy a home but have been waiting for mortgage rates to fall even more, I've got some bad news for you. The ship has sailed, the plane has departed, the train has left the station, and whatever old cliché you can think of has occurred.

Don't despair over the recent jump in rates, up a third of a percentage point in just the last week. S&P's David Wyss says it's just the sign of a recovering economy and a return to "normalcy" in the interest rate market. He says "where we are now yields look a lot more realistic" and may well have bottomed for the year. But he doesn't expect them to run-up much higher in the near term.