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Apr 24 09 7:24 PM
Apr 26 09 8:59 PM
May 3 09 4:10 AM
May 3 09 8:41 PM
By Erik Holm and Andrew Frye
May 2 (Bloomberg) -- Billionaire investor
Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc.,
said he's seen no indication of recovery from the real estate slump that helped cause the U.S. recession.
"There's no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing," said Buffett, 78, in a
Bloomberg Television interview before the Omaha, Nebraska-based company's annual shareholder meeting today. "You never know for sure, even if
there's a leveling off, which way the next move will be."
Paul Volcker, one of President
Barack Obama's economic advisers, said this week that the economy was "leveling off at a low level" and doesn't need a second fiscal
stimulus package after the $787 billion plan signed by Obama in February. The U.S. economy contracted at a 6.1 percent annual rate in the first quarter, weaker
than forecast, making this recession the worst since 1957-1958.
The annual meeting gives Buffett and Vice Chairman
Charles Munger a platform to discuss markets, the economy and Berkshire's businesses. Shareholders were expected to attend in record numbers this year after Berkshire
reported five straight quarters of profit declines, ratings companies took away the firm's top AAA credit grade, and Buffett confessed to an ill- timed
investment in oil producer ConocoPhillips.
The loss of the top credit grade in the last two months from Moody's Investors
Service and Fitch Ratings "has no economic impact" on Berkshire, Buffett said.
"It just doesn't," he said. "We don't use borrowed money in any real significant sense. My pride may be wounded just a bit."
Berkshire, with a U.S. stock portfolio of $51.9 billion, has been pressured as equity
markets dropped and U.S. unemployment rose to its highest in 25 years. Berkshire shares
have plunged 31 percent in the past 12 months.
More than 500 U.S. financial institutions have won approval for government bailouts with the total value exceeding $390 billion, and federal programs are
buying distressed assets, backing debt and insuring customer deposits to prop up the economy and encourage banks to lend.
Buffett, in his most recent letter to shareholders in February, said he
supported the U.S. government actions, while predicting bailouts will cause "unwelcome aftereffects" including inflation.
Known as the "Oracle of Omaha," Buffett has grown into a cult figure among investors who admire him as much for his homespun aphorisms as for his
stock-picking savvy. Visitors from 43 countries were expected to fill the arena and the overflow rooms, and students from 45 universities have been invited to
watch from a ballroom in the Omaha Hilton across the street.
Buffett and Munger have used recent meetings to promote Berkshire as a buyer of non-U.S. businesses and distinguish their operations from what they consider the sometimes
reckless behavior they see on Wall Street. Their pronouncements reach shareholders, potential customers and ratings firms.
Berkshire's profit has fallen on deteriorating results at insurance units and liabilities from derivative bets on world stock markets. Buffett will
announce first-quarter results May 8, the company said this week. Berkshire said Feb. 28 that book value, a measure of assets minus liabilities, had dropped by
about $8 billion from $109.3 billion on Dec. 31.
Book value per share, a measure Buffett highlights in his yearly letter to shareholders, slipped 9.6 percent in 2008, the worst performance since Buffett
took control in 1965, on the declining value of the derivatives and holdings in financial companies including Wells Fargo & Co. The Standard & Poor's 500 Index has declined about 38 percent in the past 12 months.
Shareholders at today's meeting have a chance to browse booths at the Qwest Center where Berkshire units including See's Candies, R.C. Willey Home
Furnishings and car insurer Geico Corp. hawk their wares. The meetings in recent years have started with movies where Buffett hobnobs with celebrities
Susan Lucci and basketball player LeBron James. Then Buffett and Munger sit for five hours and take questions from the floor.
Shareholders haven't been screened in past years, and some people took the opportunity to ask Buffett about baseball, abortion and Buffett's
personal relationship with Jesus Christ. Buffett, in his "Visitor's Guide" for this year's attendees, cited the paucity of inquires about
Berkshire at the 2008 gathering as the reason for restructuring the question-and- answer session.
The new arrangement, in which half the questions are pre- screened by reporters, may ensure more discussion on planning for Buffett's replacement as
chief executive officer, Berkshire's $37.1 billion in derivative bets tied to stock markets and ratings cuts.
"It will probably be the most worthwhile annual meeting in recent times," said
Jeff Matthews, the founder of hedge fund Ram Partners LP, in an interview before the meeting.
Matthews, who wrote in his book, "Pilgrimage to Warren Buffett's Omaha," about the lack of inquiries about Berkshire businesses is among
investors who publicly compiled lists of potential
topics of inquiry. Their questions cover the firm's 20 percent stake in Moody's parent company, an investment in Chinese rechargeable-battery maker
BYD Co., and Berkshire's reliance on
Ajit Jain at its reinsurance operation.
The three reporters --
Carol Loomis from Fortune magazine,
Andrew Ross Sorkin of the New York Times and CNBC's
Becky Quick -- took questions via e-mail and were under instruction from Buffett to ask only about Berkshire.
May 7 09 1:17 AM
Plummeting home values have left more than one-fifth (21.9 percent) of all Americans under water on their mortgages in the first quarter of this year,
according to a newly released report from Zillow, an online real
estate information company.
That's up from the 17.6 percent who owed more on their mortgage than their property was worth in the fourth quarter.
The rate of homeowners who are upside-down is higher in the Miami-Fort Lauderdale market, where 29.3 percent owe more than their mortgage is worth.
Home values in the Miami-Fort Lauderdale market have fallen 23.7 percent, year-over-year, to $182,847. During the fourth quarter, home values fell 24.9
Homes in the Miami-Fort Lauderdale area lost $15.7 billion in value during the first quarter and a total of $107.6 billion in the last year.
Broken down, home values in Broward County fell 24.3 percent, year-over year, to $169,101, while values in Miami Dade County were down 25.2 percent,
year-over-year, to $206,087.
In the Palm Beach County market, home values fell 23 percent, year-over-year, to $169,514.
Deerfield Beach-based real estate analyst Jack McCabe predicts prices will continue to drop an additional 10 percent to 15 percent, on average, in South
Florida, with more homeowners becoming upside-down.
"It's our estimate prices will hit bottom in the middle of next year, and then stay there for the next two years," McCabe said, noting that
prices in South Florida have fallen about 41 percent since their peak in November 2005.
Nationwide, foreclosures and short sales remained steady in the first quarter. About one-fifth, or 20.4 percent, of all transactions were foreclosures in
the previous 12 months, compared with 19.9 percent in the fourth quarter. Short sales made up 11.9 percent of all transactions in the last 12 months,
compared with 10.9 percent in the fourth quarter.
However, McCabe expects the rate of foreclosures in South Florida to skyrocket as toxic adjustable-rate mortgages reach their first-term change and more
people become unemployed.
There have been some early signs of improvement in some of the harder-hit markets in California, where there have been smaller year-over-year
"Slowing declines in select markets are a bright spot - or, at least, what passes for one, given current market conditions, said Stan Humphries,
Zillow vice president of data and analytics, in a news release.
However, he added that we're still many months away from the bottom and an even longer wait before there's a meaningful recovery in home
Meantime, those who are thinking about selling their homes are still holding off until they see better evidence of an improved housing market, according
One-third of all U.S. homeowners said they would be at least somewhat likely to put their home up for sale in the next 12 months, if they saw signs of a
recovery. Twelve percent said they would be "very likely" to put their home on the market, eight percent said they would be "likely" and
12 percent said "somewhat likely."
McCabe said those who think they can sell generally have greater equity and smaller mortgages. But, for those who bought their homes at the peak of
pricing "there is no hope for these people, McCabe said. "When they go to sell, they will have to turn in the keys and go into foreclosure."
May 13 09 12:48 PM
By Brian Louis
May 13 (Bloomberg) -- California home prices may decline by another 36 percent over the next year to 18 months, more than any other state, Fitch Ratings
Florida and Arizona home prices are projected to plunge another 20 percent, the credit rating company said in a statement today. Prices in California,
Florida and Arizona fell by an average of 40 percent after a surge from 2002 to 2006, Fitch said.
"Declines will continue for at least a year before home prices reach bottom," Huxley Somerville, head of Fitch's U.S. residential
mortgage-backed securities group, said in the statement. The forecast won't lead to "widespread negative rating actions" on residential
mortgage-backed securities, Fitch said.
Prices for the whole of the U.S. will fall an additional 12.5 percent on average, Fitch estimates. Home prices in the U.S. dropped the most on record in the first quarter from a year earlier, led by
California and Florida, as banks sold foreclosed properties, the National Association
of Realtors said yesterday. The median price fell 14 percent to $169,000, and prices
dropped in 134 of 152 metropolitan areas.
Black Blade: Economic recovery eh? Doesn't look good but I have to agree that housing prices will have to fall further to sell in a market where most
people have lost nearly 50-70% of their wealth since just before the presidential election. I would say a drop of at least another 20% in housing prices at a
May 18 09 7:51 AM
The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration's
efforts to stabilize the housing market.
The increase in the number of such "underwater" borrowers comes amid signs that falling prices are making homes more affordable for
first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into
financial trouble to refinance or sell their
homes, and for others to take advantage of lower interest
For instance, fewer will qualify to take advantage of a key component of the Obama administration's plan to stabilize the housing market. Under the
plan, announced in February, as many as five million homeowners whose loans are owned or guaranteed by government-controlled mortgage giants Fannie Mae
and Freddie Mac can refinance their mortgages, but only if the mortgage loan is a maximum of 105% of the home's value.
Government officials are considering an increase in that limit. "It's a question that we're looking at," said James Lockhart,
director of the Federal Housing Finance Agency, which regulates Fannie and Freddie.
Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first
quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in
the fourth quarter and 14.3% in the third quarter.
"What's going on here is that you don't have any markets that have turned around and you have new markets, like Dallas, that have joined the ranks" of communities
where home prices have fallen, said Stan Humphries, a Zillow.com vice president.
Borrowers who owe far more than their home is worth may also be less likely to participate in another part of the government's housing plan, which
provides incentives for mortgage companies to modify loans to make payments more affordable. Thomas Lawler, an independent housing economist, said
borrowers who owe 30% more than their homes are worth are far more likely to walk away from their property than those who owe just 5% or 10% more and
expect prices to rebound. More than one in 10 borrowers with a mortgage owed 110% or more of their home's value at the end of last year, according
to First American CoreLogic.
There are some recent indications that the housing market could be beginning to stabilize. The National Association of Realtors pending home-sales
index, for instance, increased 3.2% in March.
Just how many borrowers are underwater is a matter of some dispute, with the answer depending in part on assumptions regarding home values and
mortgage debt outstanding. Variations in home-price estimates can make a major difference in the number of borrowers who are underwater. In addition,
borrowers who are already in the foreclosure process may be counted as being underwater if the title to their property hasn't changed hands.
Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said underwater
estimates can be too high if they use price data that includes a large number of foreclosures. Foreclosed homes tend to sell at a discount, he said, making it appear that prices have fallen more than they
Moody's Economy.com estimates that of 78.2 million owner-occupied single-family homes, 14.8 million borrowers, or 19%, owed more than their
homes were worth at the end of the first quarter, up from 13.6 million at the end of last year.
Part of the reason Zillow's numbers are higher may be that it looks at mortgage debt taken out at the time the home was purchased and
doesn't adjust for any payments since made toward the outstanding mortgage balance. It also assumes that borrowers who took out home-equity lines of credit at the time of
purchase have fully tapped the amount they can borrow. That approach can overstate the portion of borrowers who are underwater, Mr. Zandi said.
Mr. Humphries of Zillow calls his methodology conservative and said Zillow's use of pricing for individual homes provides a better measure of
home valuations than Mr. Zandi's approach, which relies on market-level estimates of home values. He adds that Zillow doesn't include
foreclosures in its pricing models.
Write to Ruth Simon at [email protected] and James R. Hagerty
at [email protected]
May 19 09 11:06 PM
By Bob Willis
May 19 (Bloomberg) -- Builders broke ground on the fewest homes on record in April as a plunge in work on condominiums and apartment buildings overwhelmed
the second straight gain in starts on single-family properties.
Housing starts slid 13 percent to an annual rate of 458,000, a lower level than forecast, Commerce Department figures showed today in Washington. The drop
was led by a 46 percent tumble in multifamily starts, a category that tends to be more volatile.
The slump in homebuilding has brought the supply of new properties below the rate that new households are being created, offering prospects of a recovery in
the second half of 2009, analysts said. Surging unemployment and the continuing credit crunch mean the recovery is likely to be weak, they added.
"This continues to support the story that new construction probably bottoms by early summer," said
Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. "We're getting closer but that doesn't mean we're looking for a
strong rebound" he said, adding that "obviously, financing remains difficult for builders and buyers alike."
Home Depot Inc. and Lowe's Cos. this week both posted first-quarter earnings that exceeded analysts' estimates, underscoring signs of a turn in the
industry. Confidence among U.S. homebuilders in May rose to the highest level since September, a National Association of Home Builders/Wells Fargo survey
Stock-index futures surrendered gains after the report, while the Standard & Poor's 500 Index opened little changed and was down 0.1 percent at
908.53 as of 9:45 a.m. in New York. Treasuries also were little changed, with yields on benchmark 10-year notes at 3.24 percent.
Starts were projected to increase to a 520,000 annual pace from a 510,000 previously estimated pace the prior month, according to the median forecast of 74
economists surveyed by Bloomberg News. Estimates ranged from 465,000 to 564,000.
Building permits, a sign of future construction, fell 3.3 percent to a record low pace of 494,000; permits for single- family properties increased. Total
permits were forecast to rise to a 530,000 annual rate, according to the survey median.
Starts by Type
Construction of single-family homes rose 2.8 percent to a 368,000 rate, today's report showed, the second straight monthly gain. Work on multifamily
homes, such as townhouses and apartment buildings, plummeted to an annual rate of 90,000 from 167,000 the month before.
"Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from,"
Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, wrote in a note to clients today. "This will undoubtedly be a game
changer for inventories and prices."
The decrease in starts was led by a 31 percent decline in the Northeast and drops of 21 percent in the South and the Midwest. Starts in the West rose 43
Home starts have plunged from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades. Falling construction
has weighed on economic growth and plunging home prices helped ignite the global credit crisis that exacerbated the economic slump.
Still, housing data in recent weeks have shown signs of stabilization. Sales of existing homes, which in January reached the lowest since records began,
have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks,
have bounced from a record low set in January.
Foreclosure-driven declines in prices have helped the resale market settle. Distressed properties have made up as much as 50 percent of existing-home
purchases in recent months, according to the National Association of Realtors.
The biggest contraction in residential construction on record helped builders trim their excess supply even as sales faltered. The number of unsold new
houses dropped in March to the lowest level since 2002, according to Commerce figures.
Still, construction companies are feeling the pain of having to slash prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value,
on May 5 reported a quarterly loss that exceeded analysts' estimates as orders plummeted 45 percent from a year earlier.
"Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and
existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence," Chairman
Donald Horton said in a statement.
Financing also remains scarce, a quarterly survey of banks by the Federal Reserve showed last month. A larger share of lenders tightened terms on
residential mortgages compared with the prior survey, the Fed said on May 4. At the same time, about 35 percent of domestic respondents saw increased demand
for prime mortgages, the first gain in at least two years.
May 26 09 11:02 PM
NEW YORK (CNNMoney.com) -- The home price slide accelerated during the first three months of 2009, according to a report issued Tuesday.
The S&P/Case-Shiller National Home Price index, a bellwether of real-estate market direction, plunged a record 19.1% during the quarter compared with
the first three months of 2008. That followed an 18.2% drop last quarter.
The Case-Shiller 20-city index dropped 18.7% year-over-year, also a record. It fell 18.5% during the last three months of 2008. This index has plummeted
32.2% from its July 2006 peak and has fallen 32 straight months.
The national index covers almost all homes sold throughout the United States and is reported quarterly, while the 20-city index reports sales in 20 major
metro areas and represents a cross section of the national market. The 20-city index comes out every month.
"Declines in residential real estate continued at a steady pace into March," said David Blitzer, chairman of the Index Committee at Standard
& Poor's in a prepared statement. "All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the
metro areas having record annual declines."
The ugly report was somewhat unexpected, according to Mike Larson, a real estate analyst for Weiss Research.
"The market was anticipating better results," he said. "There had been some signs of increased sales in post-bubble markets."
But that sales increase has not translated into higher prices. Bargain hunting - bottom fishing really - for foreclosures and other distressed properties
has driven sales volume up while further depressing prices.
The foreclosure sales,
which many appraisers used to ignore when they evaluated home prices because they represented outliers rather than typical sales, now have to be accounted
"These used to be anomalies," said Larson. "Now, when sales are dominated by foreclosures, where they represent 50% or more of
[transactions], they are the market."
The market plague has burst far beyond its Sun Belt epicenter, as the latest month's data reveals. In March, Minneapolis recorded the largest monthly price loss of any
metro area in the 20-city index, losing 6.1% compared with February. That is the biggest single-month decline for a city in index history.
Sun-Belt cities still had the largest year-over-year declines in March, with Phoenix prices down 36%, Las Vegas off 31.2% and San Francisco dropping 30.1%.
Two cities have now have fallen more than 50% from their peak prices: Phoenix is down 53% since June 2006 and Las Vegas is off 50.4% from its August 2006
high. Dallas prices suffered the smallest loss
from peak, just 11.1% since June 2007.
Economist Mark Zandi, the founder of Moody's Economy.com, is optimistic that the market will stop falling sometime this summer or fall. "We need
to focus on the mortgage-modification program," he said. "If that plan doesn't work or only works as well as the other modification programs
have, we've got a problem."
Black Blade: Oddly enough - real estate prices are still grossly overvalued. There should be at least another 20-30% decline before I can even consider real
estae fairly valued.
May 28 09 11:17 PM
By Kathleen M. Howley
May 28 (Bloomberg) -- Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March
this week as the government's effort to fix the housing slump lost momentum.
The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering
foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today. Both figures are the
highest in records going back to 1972. Fixed rates rose to 4.91 percent, Freddie Mac said, and an increase in bond yields earlier this week shows rates may
The three-year housing decline is proving resistant to efforts by the Federal Reserve and the Obama administration to keep homeowners current on mortgages
by allowing them to refinance or sell to buyers enticed by affordable terms. Prime fixed-rate home loans to the most creditworthy borrowers accounted for the
biggest share of new foreclosures at 29 percent, MBA said, a sign job losses are hurting homeowners.
"If people don't have a paycheck they can't support a mortgage,"
Jay Brinkmann, the MBA's chief economist, said in an interview. "The longer the recession lasts the more people run through their savings
reserves, leading to higher delinquencies and higher foreclosures."
One in every eight Americans is now late on a payment or already in foreclosure as mounting job losses cause more homeowners to fall behind on loans, the MBA said.
About half of the new foreclosures were in four states: California, Florida, Arizona and Nevada, according to the report. Measuring both old and new
defaults, 11 percent of all mortgages in Florida were in foreclosure at the end of the first quarter, the highest in the U.S. In Nevada, it was 7.8 percent, in
Arizona, it was 5.6 percent, and in California, it was 5.2 percent. New Jersey's foreclosure inventory was 4.3 percent, New York was 3 percent, and
Massachusetts was 2.8 percent.
The average rate for a 30-year loan jumped from 4.82 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today in a
statement. The rate was 5.1 percent at the beginning of the year.
New home sales fell 34 percent in April from the year earlier period, the Commerce Department said today. The unemployment rate increased to 8.1 percent in
the first quarter, the highest since the end of 1983, according to the Bureau of Labor Statistics.
The inventory of new foreclosures and those already in the process of being foreclosed upon jumped to 3.85 percent, the MBA said. Half the loans now in
foreclosure, adding the new and existing defaults, are held by prime borrowers, according to the trade group's report. About 43 percent are subprime
mortgages, and 7.1 percent are Federal Housing Administration loans. A year ago, subprime mortgages accounted for 54 percent of the U.S. foreclosure inventory.
Prime fixed rate mortgages accounted for 19 percent of new foreclosures in the year earlier period.
Prime adjustable-rate mortgages accounted for 24 percent of new foreclosures, up from 23 percent, Brinkmann said. The figures show that the mortgage crisis
has shifted from subprime to borrowers holding the safest type of mortgages.
Subprime adjustable mortgages accounted for 27 percent of new foreclosure, falling from a share of 39 percent a year ago, Brinkmann said.
Delinquencies are continuing to rise even as forecasts show the economy may start improving later this year. The U.S. economic recession probably will end
in the third quarter, a survey of business economists showed yesterday, even as rising joblessness indicates the recovery will be weaker than previously
estimated. The world's largest economy will begin to expand next quarter, according to 74 percent of economists in a National Association for Business
Home sales may reach a bottom by mid-year, according to 72 percent of the panelists, and more than six in 10 predicted housing starts will hit a trough by that time. The survey showed home prices have further to fall, with
40 percent of the respondents forecasting that declines will continue into 2010 or later.
New home sales fell 34 percent from April 2008, the Commerce Department said today, while home resales gained as foreclosure auctions enticed bargain
hunters, the Chicago-based National Association of Realtors said yesterday.
Existing Home Sales
Purchases of existing homes increased 2.9 percent to an annual rate of 4.68 million
from 4.55 million in March, the trade group said. The median price slumped 15 percent
from a year earlier, the second-biggest drop on record, and distressed properties accounted for 45 percent of all sales.
The Realtors said in a May 12 report foreclosures dragged down the first-quarter
median U.S. price by 14 percent to $169,000 from a year earlier, the biggest decline on record.
The U.S. median home price tumbled 9.5 percent last year, the most ever recorded, according to the Realtors' group. That's more than six times the
1.4 percent drop in 2007, the first decline in the national median since the 1930s.
This year, prices probably will fall 4.9 percent before posting a 4.4 percent gain in 2010, according to
Lawrence Yun, the trade group's chief economist.
Jun 7 09 4:13 AM
HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time.
Even the federal government has projected price decreases through 2010. As a baseline, the
stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010.
Their "more adverse" forecast projected a drop of 48 percent - suggesting that important housing ratios, like price to rent, and price to
construction cost - would fall to their lowest levels in 20 years.
Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and
that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the
cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would
be much shorter.
But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home
sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.
There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan's major cities fell every single
year for 15 consecutive years.
Why does this happen? One could easily believe that people are a little slower to sell their homes than, say, their stocks. But
Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who
are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving
Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don't have a speculator's sense
of urgency. And they don't like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.
Among couples sharing a house, for example, any decision to sell and switch to a rental requires the assent of both partners. Even growing children, who
may resent being shifted to another school district and placed in a rental apartment, are likely to have some veto power.
In fact, most decisions to exit the market in favor of renting are not market-timing moves. Instead, they reflect the growing pressures of economic
necessity. This may involve foreclosure or just difficulty paying bills, or gradual changes in opinion about how to live in an economic downturn.
This dynamic helps to explain why, at a time of high unemployment, declines in home prices may be long-lasting and predictable.
Imagine a young couple now renting an apartment. A few years ago, they were toying with the idea of buying a house, but seeing unemployment all around
them and the turmoil in the housing market, they have changed their thinking: they have decided to remain renters. They may not revisit that decision for
some years. It is settled in their minds for now.
On the other hand, an elderly couple who during the boom were holding out against selling their home and moving to a continuing-care retirement community
have decided that it's finally the time to do so. It may take them a year or two to sort through a lifetime of belongings and prepare for the move, but
they may never revisit their decision again.
As a result, we will have a seller and no buyer, and there will be that much less demand relative to supply - and one more reason that prices may continue
to fall, or stagnate, in 2010 or 2011.
All of these people could be made to change their plans if a sharp improvement in the economy got their attention. The young
couple could change their minds and decide to buy next year, and the elderly couple could decide to further postpone their selling. That would leave us with
a buyer and no seller, providing an upward kick to the market price.
For this reason, not all economists agree that home price declines are really predictable. Ray Fair, my colleague at Yale, for one, warns that any trend
up or down may suddenly be reversed if there is an economic "regime change" - a shift big enough to make people change their thinking.
But market changes that big don't occur every day. And when they do, there is a coordination problem: people won't all change their views about
homeownership at once. Some will focus on recent price declines, which may seem to belie any improvement in the economy, reinforcing negative attitudes about
the housing market.
Even if there is a quick end to the recession, the housing market's poor performance may linger. After the last home price boom, which ended about the time of the
1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.
Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.
Jun 8 09 2:02 PM
More than 600,000 seniors are delinquent in their mortgage payments or already in foreclosure, USA Today reports.
Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.
"I've got a lot of seniors who have just been nailed," mortgage specialist Dean Wegner told the newspaper.
"They're upside down (owing more on their mortgage than their homes are worth), they can't refinance and they're on a fixed
Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes. But the reality is, hundreds of
thousands of older homeowners are suffering in the housing crisis.
A recent report from AARP showed that 25.5 million seniors ages 50 and older have a mortgage - and that older Americans with subprime first
mortgages are nearly 17 times more likely to be in foreclosure than Americans of the same age with prime loans.
Senior mortgage woes are creating challenges for retirement communities and assisted-living centers, which are finding that new members can't
move in because they are saddled with homes they can't sell because people usually sell their homes to finance the entry fees.
Worse yet, a study done by the Employee Benefit Research Institute found that 36 percent of workers ages 55 and over have less that $25,000 in
savings and investments aside from the values of their homes.
The National Delinquency Survey from the Mortgage Bankers Association found foreclosure activity was at an all time high in the first quarter of
2009, when the delinquency rate - which excludes homes already in the foreclosure process - hit 9.12 percent.
Jun 9 09 3:56 AM
Home prices in the United States have been falling for nearly three years, and the decline may well continue for some time.
Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a
total fall in housing prices of 41 percent from 2006 through 2010. Their "more adverse" forecast projected a drop of 48 percent - suggesting
that important housing ratios, like price to rent, and price to construction cost - would fall to their lowest levels in 20 years.
Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act
rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not
sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years,
and these cycles would be much shorter.
But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending
home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.
There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan's major cities fell every
single year for 15 consecutive years.
Why does this happen? One could easily believe that people are a little slower to sell their homes than, say, their stocks. But years slower?
Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people
who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really
leaving the market.
Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don't have a speculator's
sense of urgency. And they don't like shifting from being owners to renters, a process entailing lifestyle changes that can take years to
Among couples sharing a house, for example, any decision to sell and switch to a rental requires the assent of both partners. Even growing children,
who may resent being shifted to another school district and placed in a rental apartment, are likely to have some veto power.
In fact, most decisions to exit the market in favor of renting are not market-timing moves. Instead, they reflect the growing pressures of economic
necessity. This may involve foreclosure or just difficulty paying bills, or gradual changes in opinion about how to live in an economic downturn.
Imagine a young couple now renting an apartment. A few years ago, they were toying with the idea of buying a house, but seeing unemployment all
around them and the turmoil in the housing market, they have changed their thinking: they have decided to remain renters. They may not revisit that
decision for some years. It is settled in their minds for now.
On the other hand, an elderly couple who during the boom were holding out against selling their home and moving to a continuing-care retirement
community have decided that it's finally the time to do so. It may take them a year or two to sort through a lifetime of belongings and prepare for
the move, but they may never revisit their decision again.
As a result, we will have a seller and no buyer, and there will be that much less demand relative to supply - and one more reason that prices may
continue to fall, or stagnate, in 2010 or 2011.
All of these people could be made to change their plans if a sharp improvement in the economy got their attention. The young couple could change
their minds and decide to buy next year, and the elderly couple could decide to further postpone their selling. That would leave us with a buyer and no
seller, providing an upward kick to the market price.
For this reason, not all economists agree that home price declines are really predictable. Ray Fair, my colleague at Yale, for one, warns that any
trend up or down may suddenly be reversed if there is an economic "regime change" - a shift big enough to make people change their
But market changes that big don't occur every day. And when they do, there is a coordination problem: people won't all change their views
about homeownership at once. Some will focus on recent price declines, which may seem to belie any improvement in the economy, reinforcing negative
attitudes about the housing market.
Even if there is a quick end to the recession, the housing market's poor performance may linger. After the last home price boom, which ended
about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.
Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.
Jun 17 09 11:47 PM
June 17 (Bloomberg) -- Mortgage applications in the U.S. fell last week to the lowest level since November as a jump in borrowing costs discouraged refinancing
and threatened to deepen the housing slump.
The Mortgage Bankers Association's index of applications to purchase a home or
refinance a loan dropped 16 percent to 514.4 in the week ended June 12, from 611 the prior week. The group's refinancing gauge declined 23 percent, while the purchase index fell 3.5 percent.
"Higher mortgage rates will keep 'refi' activity under pressure,"
Tom Porcelli, a senior economist at RBC Capital Markets in New York, said before the report. "That removes a source of what some had hoped would be an
added kicker to consumer spending."
Rates began rising in May on concern increases in government borrowing to finance the record budget gap will prompt investors to seek higher yields, and
Federal Reserve efforts to revive the economy will unleash inflation. Higher costs stunted a rush to lower mortgage payments as Americans tried to cope with
the highest jobless rate in 25 years.
Homeowners and prospective buyers are also being thwarted by signs that the housing market isn't improving. U.S. home prices may fall another 14 percent before reaching a bottom as an increase in
unemployment offsets lower prices, Deutsche Bank AG said in a report this week.
Further Price Declines
"Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices
reach their trough," Deutsche Bank analysts led by
Karen Weaver wrote in the report. "The bottom is getting closer, but we are not there yet."
The biggest price declines are likely to occur in the New York and Orange County, California, metropolitan areas, Deutsche Bank said.
Rates are rising as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are trying to spur a housing recovery. Obama has pledged to spend
$275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as
$8,000 for first-time homebuyers that wouldn't require repayment.
The Fed said in March it would purchase as much as $1.25 trillion in securities from mortgage-buyers Fannie Mae and Freddie Mac to help drive borrowing costs lower.
Obama said yesterday U.S. unemployment may reach 10 percent and he's expected to create a new agency to oversee consumer financial products, such as
mortgages and credit cards.
The mortgage bankers' refinancing gauge decreased to 1,998.1 from 2,605.7 the previous week, today's report showed. The purchase index dropped for
the first time in a month, falling to 261.2 last week from 270.7.
The share of applicants seeking to refinance loans fell to 54.1 percent of total applications last week from 59.4 percent.
The average rate on a 30-year fixed-rate loan fell to 5.50 percent, the first decrease
in a month, from 5.57 percent the prior week, when it reached its highest level since November.
Still, at the current rate, monthly borrowing costs for each $100,000 of a loan would be $567.79, or about $72 less than the same week a year earlier, when
the rate was 6.62 percent.
The average rate on a 15-year fixed mortgage fell to 4.99 percent from 5.10 percent the prior week. The rate on a one-year adjustable mortgage decreased to 6.54 percent from 6.75 percent last week.
Housing starts jumped more than forecast in May, adding to evidence the worst
housing slump in 70 years is abating, figures from the Commerce Department showed yesterday.
The Washington-based Mortgage Bankers Association's loan survey, compiled every week, covers about half of all U.S. retail residential mortgage
Jun 21 09 3:01 PM
Jun 22 09 11:18 AM
By Ilaina Jonas
NEW YORK (Reuters) - The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for
Deutsche Bank Securities (DBKGn.DE: Quote, Profile, Research, Stock Buzz) said on
"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities
Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the
1990s and potentially worse."
U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.
Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus
"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.
The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their
monthly mortgage payments.
"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most
loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over
the next four years.
Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.
"We are not only not approaching stability, we are at a period of maximum deterioration," Parkus said.
"All Is Well"
Jul 7 09 5:48 PM
Jul 8 09 4:21 AM
SAN FRANCISCO, July 7 (Reuters) - U.S. mortgage fraud reports jumped 36 percent last year as desperate homeowners and industry professionals tried to
maintain their standard of living from the boom years, the FBI said on Tuesday.
Suspicious activity reports rose to 63,713 in fiscal year 2008, which ended last September, from 46,717 the year before. California and Florida, centers of
the housing bust, had the highest numbers of suspicious reports as foreclosures jumped, the stock market dropped and credit dried up.
"These combined factors uncovered and fueled a rampant mortgage fraud climate fraught with opportunistic participants desperate to maintain or increase
their current standard of living," the Federal Bureau of Investigation said in its report.
"Industry employees sought to maintain the high standard of living they enjoyed during the boom years of the real estate market and overextended
mortgage holders were often desperate to reduce or eliminate their bloated mortgage payments," it said.
Reports filed through March put fraud reports on track to top 70,000 in the current fiscal year, the agency said. (Reporting by Peter Henderson, Editing by
Jul 12 09 4:20 PM
Jul 19 09 11:32 AM
Fraudulent property flipping ran rampant during this decade's housing boom, with $10 billion in suspicious deals in Florida alone, a Herald-Tribune
investigation has found.
The deals -- many of them inflated sales among friends, family and business associates -- drove up property values and tax bills during the boom, fed bank
bailouts and failures after the boom, and fueled the foreclosure wave that has gutted property values.
Unscrupulous property flippers would buy houses or condos, then drive up the price in a few days or weeks by selling it to someone they knew. Buyers used the
inflated price to get bank loans for more than the property was worth, leaving money for flippers to split as profit.
Despite their role in one of Florida's largest white-collar crime sprees, the vast majority of unscrupulous real estate flippers will never be
prosecuted. Most Florida law enforcement agencies have done little to investigate property flip fraud. The FBI has been left to chase far more cases than it
But evidence of illegal deals is available in the public records filed when a property changes hands.
The Herald-Tribune spent a year gathering and reviewing nearly 19 million Florida real estate transactions for red flags that can help identify flipping
fraud. Using public records, including land deeds and mortgage filings, it found that:
• Since 2000, more than 50,000 Florida properties flipped under circumstances that fraud investigators identify as suspicious -- where homes, vacant land
or commercial properties were bought and resold in 90 days or less and increased in value by at least 30 percent. Even during the hottest days of the housing
boom, average home prices increased at half that rate. More than a dozen fraud experts interviewed by the Herald-Tribune said such large price increases
within 90 days are an indicator of fraud.
• In June 2005, when flipping hit its peak, more than 2 percent of all Florida real estate sales fit the criteria for potential fraud.
• Many of the questionable flip deals were orchestrated by real estate professionals. A close review of several thousand flips in Sarasota and Manatee
counties showed that 40 percent of the flippers were industry insiders -- real estate agents, mortgage brokers and attorneys.
• Lenders facilitated fraud by approving mortgages on suspicious transactions. In deal after deal, loan officers either failed to make the most basic
checks to flag risky loans or ignored what they found. In some cases, the Herald-Tribune found, bank employees knew deals were suspect but approved mortgages
• Lenders continued to finance flips even after the boom, when property values were declining and price increases should have raised suspicion. Across
Florida, more than 10,000 flips involving significant price increases occurred from 2006 to 2008 -- after the market peaked in the second half of 2005. In
2007 alone, nearly $1 billion in suspicious flip deals took place.
The actual amount of fraudulent land deals in Florida is likely more than $10 billion, according to several fraud experts, who believe the newspaper's
findings are understated.
While some of the 50,000 deals identified by the Herald-Tribune may be legitimate, many more fraudulent deals were not counted because they involved
smaller price increases or took place over longer periods, said Bill Black, a University of Missouri economics professor and bank fraud expert who helped the
World Bank develop anti-corruption initiatives.
"It isn't even close to the bare minimum," Black said. "You have been so conservative in your technique. Just in the world of flipping
fraud, it's many times that number."
Quick property flips accompanied by price increases have long been used as an indicator of fraud.
In 2003, the U.S. Department of Housing and Urban Development announced that the federal government would no longer insure mortgages on properties resold
in 90 days or less -- regardless of the increase in value. A report issued by HUD stated that the sales were likely to involve mortgage fraud and therefore
too risky to insure.
At least as far back as 1999, the FBI began using computerized land records to create a national database of suspicious flips similar to the one created
by the Herald-Tribune for Florida.
FBI officials would not provide details about their database, but mortgage fraud experts familiar with the project said it helps identify patterns of
flipping with large price increases over short periods.
Despite the unusual price increases that accompanied their sales, many of the flippers identified by the Herald-Tribune said they did nothing wrong. They
described themselves as victims of a real estate downturn and said their actions had not hurt anyone.
But their manufactured sales distorted real estate prices and drove up property tax bills. The inflated sales led some homeowners to borrow more and more
money against their own homes because skyrocketing sales prices had made their houses appear to be worth more. And when the bubble popped, the flippers'
bad loans saddled banks with properties worth far less than what was owed, threatening the stability of the entire banking system.
Flipping has long been a part of the real estate business.
Smart investors find bargain properties, fix them up or simply wait a few months and resell at a profit.
But during the past decade, changes in the way mortgages were funded virtually eliminated the incentive banks had to screen people applying for loans.
Mortgages were transformed into a commodity that could be sliced up, then bought and sold on Wall Street. Banks that once wrote mortgages carefully,
knowing they could lose money, found they could pocket fees for initiating the loan and then sell it, making someone else the loser if the loan was not
Strict screening was replaced by an entirely different banking tenet -- volume.
As a result, bank executives ignored warnings from employees whose job was to weed out questionable loan applications, said Jill DeLormier, executive vice
president of Diligence Solutions, a Florida consulting firm specializing in bank fraud protection.
"I can't count the times I heard, 'Just close it, we already have it committed for sale,'" DeLormier said. "Volume is all that
The relaxation of lending standards combined with historically low interest rates to superheat the housing market.
And flipping was transformed into a national pastime, with Florida becoming one of the key playgrounds.
From 2000 through 2008, thousands of Florida properties doubled in value in a single day, the Herald-Tribune's statewide analysis found. In some new
subdivisions, investors from cold-weather regions snatched up entire streets of new homes. Many were back on the market the same day, waiting for the next
speculator to come along.
The number of suspicious flips began a steady climb in early 2004 and had tripled by the time sales peaked in summer 2005.
In June that year -- a month before "Flip This House" premiered on television -- the state averaged 80 suspicious flips a day. That month alone,
real estate flippers pocketed $242 million more than they originally paid for their properties, a transfer of wealth nearly equal to every flip completed in
The speculation drove every aspect of Florida's economy. Lenders and real estate companies made millions in fees and commissions. Contractors had more
work than they could handle. Governments, collecting record property taxes, hired new employees and awarded raises to everyone from police officers to code
The volume of real estate sales provided perfect cover for fake sales and manipulated property values.
"It became easy to do any type of mortgage fraud," said Scott Friedman, a special agent with the Florida Department of Law Enforcement.
"Even people who never thought they'd do that type of thing found themselves caught up in it."
FROM FLIPS TO FRAUD
At its heart, illegal flipping is a mechanism to artificially drive up the value of properties. It becomes mortgage fraud when those artificial values are
used to justify bank loans.
During the past decade, flippers honed schemes that allowed them to secretly inflate the value of homes. Often everyone involved was a willing
participant, leaving few victims to complain to authorities.
Sarasota real estate investor Neal Mohammad Husani is one of Florida's most notorious property flippers.
From 2004 through 2006, Husani bought seven pieces of land in the Sarasota area for $42.5 million. In each case he increased the price by millions, then
flipped them on the same day to his then-partner, Michael Tringali.
According to federal prosecutors, who indicted Husani and Tringali last July on charges of mortgage fraud and money laundering, Tringali never actually
paid for the properties.
Instead, the men faked the sale to qualify for loans that covered Husani's original purchase price and left $40 million to split as profit.
Not long after his deals, which are among those captured by the Herald-Tribune database, Husani left the country. Mortgage payments on the loans stopped,
leaving banks with more than $70 million in defaults on property worth a fraction of that amount.
Husani's flips remain among the most egregious to spill out of Florida's real estate bubble.
But similar approaches were used by thousands of real estate players going back as far as the mid-1990s.
In the Herald-Tribune's review of flips statewide and in Sarasota and Manatee counties, the newspaper found that some investors brought their own
twist to flipping.
One group in Sarasota held on to properties for several years, trading among the same buyers only when someone in the circle needed cash through a
Another flipper pulled together investors to repeatedly trade properties back and forth so he could collect real estate agent and mortgage broker fees on
At least one other flipper sold property as part of an investment partnership. He would buy a home, recruit investors through real estate seminars, then
promise to pay the monthly mortgage if the investors would purchase the property in their name. The goal was to sell the house again and share the profit.
But when the real estate market turned, the original flipper simply walked away.
AIDED BY BANKS
Banks were in a unique position to recognize and stop questionable property flips. But like millions of property investors during the boom, many lenders
believed real estate values would continue to rise.
Even when sales began to slow in the second half of 2005, banks continued to approve loans on questionable flips between related parties.
In fact, the Herald-Tribune's analysis shows, the inflated values for suspicious flips became even larger as the real estate market got worse.
In 2005, the median difference between what a flipper paid for a house and what he sold it for was $65,000. A year later, after the real estate market had
begun a noticeable decline, that amount increased to more than $73,000. And by 2007, the spread between the original purchase price and the flip was still
more than $70,000.
This intensification occurred, in part, because banks allowed struggling builders and real estate investors to bail themselves out by taking out larger
and larger bank loans against their properties.
That is what happened to Shlomo Manor, a real estate agent in Hollywood, Fla., who for years worked with Israeli nationals wanting to invest in Florida
Manor was one of the flippers identified by the Herald-Tribune. His deals would not be fraudulent if he disclosed to banks his relationship to those
selling him property. But they do help illustrate lax lending practices by banks.
In 2004, deeds show, Manor and his investors started buying new homes and vacant buildings in St. Lucie and Lee counties. The market was so hot that Manor
easily flipped the properties to willing buyers, Manor said during a telephone interview from Israel.
But he said buyers disappeared in late 2005. He and his clients were left holding 10 unsold houses and dozens of vacant lots.
Hoping the market would turn and in need of a short-term fix, Manor said he and several investors participated in a number of sales to each other.
Mortgage records show those sales allowed Manor and his associates to get $1.38 million in fresh bank loans.
He said he also had his wife buy one of the properties because of pressure from an investor who was not happy that the house would not sell.
Manor eventually defaulted on six loans totaling $1.65 million. He defended the flips, saying they were necessary to protect his clients.
"When you bring in investors, you can't throw them in the garbage," Manor said. "If you are not loyal to your customers, you will lose
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