Ctl-Delete:Atl-A lenders, Not holding back Sub Prime down slide.
Analyst David DePhillips
Published. 7/30/2007 5:33 PM
Implications:
The Alt-A Lenders I thought would be the levee which held back the erosion of the sub-prime meltdown. Mortgage stocks sold off Monday July 30th 07, after American Home Mortgage(NYS:AHM) failed to make a dividend payment. The news sent down shares of other primarily Alt-A lenders, such as IndyMac dropped 5%, Impac Mortgage fell 12%. Countrywide Financial(NYS:CFC) the largest independent mortgage lender, dropped 2%. Luminent another mortgage-related company, fell 3% Monday even after it reaffirmed its dividend plans.
Analysis:
Mortgage stocks sold off again Monday after American Home Mortgage failed to make a dividend payment.American Home said late Friday it was delaying paying quarterly dividends because of margin calls and write downs. The news came just a month after American Home warned of a second-quarter loss but pledged to maintain its 70-cent common-stock dividend rate.
How far the affects of the Country Wide(NYS:CFC) reports and now American Home Mtg. spread into other like lending institutes may be a barometric of how far the sub prime affects will speed or contained.
This news may have an addition psychological rumblings in the home sellers and buyers market and it appears more bad news is the vogue.
Posted: 7/27/2007 4:15 PM
Ability to Borrow for Home Ownership overlooks Insurance cost.
analysist author David DePhillips , it has not been edited or endorsed:
Key Implications:
Ability of borrowing overlooks the soaring insurance costs. Home owners and renters housing cost facing huge increases as a result of increased insurance premiums. In some cases more than 10 times what they paid last year. Casualty insurance cost will be a factor in home ownership. The replacement cost continue to rise regardless of slumping prices.
Analysis:
Those of us home owners and realtors who weathered Hurricane Andrew in S. Florida in 1992 and it’s aftermath of rebuilding ignored the additional high cost of insuring our property. Property insurance premiums tripled and in some cases quadrupled Insurance companies who paid more than $57 billion to cover damage from additional storms in last few years. At that time an outcry by residents quickly subsided as home prices and home valuations rocketed higher grabbed our attention.
In recent years I had clients take a wrap around 2nd mortgage to avoid PMI along with a very high insurance deductible to lower premiums and control payments.
David Lereah, former chief economist for the National Association of Realtors, said “In the South, the insurance issue is having a meaningful negative impact on sales; insurance is definitely becoming a factor in sales.”
The higher premiums shock is being felt by all, including renters and investors owners who have been forced to take on a much larger share of the risk of hurricane damage through higher deductibles in some cases jumps in cost of a few thousand per month.
There are no real alternatives for homeowners. While premiums on the homes of individuals have doubled or tripled, real estate and insurance people say the cost of coverage has risen because their value routinely represent a much higher concentration of risk for insurers . The increased short-term interest rates has caught many home owners in a “can’t pay, can’t sell, can’t refinance” vise in which increases in their adjustable rate mortgage payments are outpacing their income growth while their homes have not appreciated enough to cover the cost of a refinanced mortgage or to allow them to sell and walk away. Some of these borrowers who bought homes with ARMs have seen house values rise sharply in recent years, providing ample room to switch to a loan with higher interest but less risk. Some borrowers whose loans are being reset are simply taking out new ARMs that carry a fixed rate for three years or less. But others are seeking to avoid further increases in the future.
Increased request from past buyers to restructure their existing mortgages point out in some cases their inability to qualify for a fixed conventional loans. They are faced with devaluation of their property and can no longer avoid the PMI premiums when wrap around mortgage is blended into a new loan. They forgot our advise when speculation of 2nd home purchase and flipping, buy real estate as if you are going to own it, because, you may have to.
Credit Seizure flood gates being Breached.
11/20/2007 3:50:00 PM
Author: David DePhillips
Orlando’s a Mouse Trap.
Author: David DePhillips
Posted: 10/25/2006 4:12 PM
Competition for tourist dollars provides other alternatives to relocation.
Prices continue to reflect a cost to develop, without support growth at any cost.
Speculation has moved on.
This is what a buyers market looks like.
Analysis:
The numbers in the article reflect an overall market readjustment playing out in many other over-heated markets across the country, especially in areas such as South Florida. The report lists the continued strength of moderate priced units in condos and town homes – this reflects a continued market for those types of homes. The dips in the housing market, specifically in Orlando, should not be measured by the overall housing inventory which includes existing home sales and new construction, and single family and multi-family developments. Each number should be observed and evaluated on its own not as part of the overall market place.
The inventory of existing homes for sale, while down compared with August’s total, still represented a 10.3-month supply in September. Anything more than six months’ worth of inventory is generally considered a “buyers” market. A BUYERS MARKET is what is taking place, a natural trend which takes place after such an unsustainable pace over the last 10 yrs.
My advice to my relocation customers still remains the same in a buyers market as it was during the crazy atmosphere which proceeded: “buy a home as if you are going to live in it and use it, because at some point you may have to.”
NAHB Forecast. Orderly adjustment in housing market, what where they thinking?
Implications Posted: 10/9/2006 2:33 PM Author: David DePhillips
Housing adjustment taking place not as catastrophic event as being portrayed.
Pull back to 2003, a banner year in it’s own right.
Housing activity and valuations to adjust in selective over loaded markets by Overvaluation of 35%.
Mortgage Equity withdraws was not driver for consumer spending
Analysis:
National Association of Home Builders Teleconference – 09/27/06
Presentations by NAHB Executives and invited Economist.
NAHB forecasts an orderly adjustment in the housing market with smaller affects on GDP than what had been suggested. New and existing home sales expected to decline 26% from 1st quarter of this year into end of 2008. As expected the areas in the Northeast, Florida and California will pull back from overvaluation of 35%. It is expected that nationwide excess in the housing downswing will continue to work off excess inventory with builders pulling out all the stops with incentives and trying to minimize cancellations. Until those actions are widespread, I don’t see many who are into their contracts to sit on the sidelines looking at devaluations in their pre-constructed units as new buyers are coming in at a lower price.
Some historical points of view:
Housing has never been on the leading edge into a recession. Prior housing downturns followed recessions and were a result of higher rates or other economic factors such as employment downturns or financial crisis. Most of the price adjustments have occurred and the flippers and speculators have already moved on after creating an excess of purchased units this is most apparent in South Florida, Vegas, California, and Arizona. I would expect a rapid adjustment in price will flush out contract holders on new units in the coming months and project housing construction to pick up after this event takes place in the 4th Quarter of 08.
Builders are buttoning down and trimming expense side of operations and plan to make capital adjustments short term. They believe that the housing activity is in line with 2003 housing activity which was a banner year. They feel a pull back from 2006 construction pace is needed, and an orderly correction of new home inventory is expected in 2007 as we work through inventory that was far above previous peaks.
Expect the buyers to come back into the market in 2008 as net worth affect and consumers using home equity to build assets by paying off debt to strengthen their portfolio. Consumers have not used their equity as a piggy bank for consumption but instead reduced debt payments and made home improvement to bolster the value of their homes.
Home Price “Booms” Always followed By “Bust”?
Posted: 10/6/2006 1:47 PM Author: David DePhillips
No! And, nationally, home prices have never declined.
According to a study released in May 2005 by the Federal Deposit Insurance Corporation (FDIC), most local market price booms in the past were followed by periods of price appreciation slowdowns that allowed other economic factors – including household income and housing supply – to catch up. Check out the study, Historical Evidence of U.S. Home Price Booms and Busts 1978-2003 for more detail on the subject.
Analysis:
Further, the limited number of FDIC-documented price “busts” occurred in markets where the local economy was under considerable stress and job losses were heavy, such as in the mid-1980s in Houston and other oil patch markets when oil prices collapsed. Could the employment tracking growth and in the case of Detroit be a prelude to the housing market. Or as the following article points out the increase in affordable housing with respect to minority home ownership.
Home Sick Mortgages.
Analysis Authored by Mr. David DePhillips
Implications, Posted: 9/21/2006 7:08 AM
Ofheo, Fannie’s regulator, has noticed company increased its sub prime exposure in recent years, not an enormous part of their business but it has been increasing. Ofheo report due out later this year is expected to show Fannie’s sub prime exposure is moving up.
Gilchrist Berg founder of $2billion hedge fund firm Water Street Capital said in recent newsletter to investors that Fannie Mae could lose $22-$29 Billion if foreclosures increase to 6%-8% Berg said it’s not implausible that 15% of Fannie’s mortgage exposure is sub prime. That’s more than half of the roughly $40 Billion in capital Fannie had at the end of March.
Analysis:
A great deal of discussion about the housing downturn (Bubble) has focused on inventory and new home builder slow down. However Sub Prime lending and ARM’s maturity in the next few months have my attention and expect it to have a significant negative influence on the housing markets.
Home loan lending readjustments heading up ward will have a greater motivation to the home owner to sell as the valuations of the homes continue to pull back. My buyers concerns weigh in on the side of caution to remain on the side lines for more assurances that their fears of buying a declining investment or low equity appreciation. Add this to the consumer sentiment pull back and jobs reports from affects of the auto industries will be played out across Americans collective living rooms. This creates a bearish scenario that few realtors and consumers have seen in the housing markets.
From the Realtor community it is one thing to be attentive to the buyer vs. seller motivations, but rarely has there been events where this volume of homeowners mortgage readjustments are to play out over the next few years as mortgage valuations go negative on their primary homes. These events will take years not months to work its way through the market that has been operating on an irrational false wealth affect that has come to its end.
Here are some facts to consider. Quoted from Comstock Partner.
·32.6% of new mortgages and home equity loans in 2005 were interest only.
·43% of first-time home buyers in 2005 put no money down.
·15.2% of 2005 home buyers owe at least 10% more than their home is worth.
·10% of all home owners have no equity in their homes
·$2.7 trillion in loans will adjust to higher rates in 2006 and 2007.
·70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.
·According to Reality Trac, August foreclosures up 53% over a year ago.
·The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.
·The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.
·The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.
·Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.
Some studies show that the housing industry and all its related activities have accounted for 30% to 40% of the entire employment growth in the current cyclical expansion. In addition it has been well demonstrated that mortgage equity extractions have been a cash cow providing home owners with hundreds of billions of dollars that have gone into consumer spending. With housing already in a hard landing, it will be extremely difficult to avoid a disruption in other sectors of the economy.
24 months ago analyst dubbed the housing market as a Goldilocks scenario. Low mortgage finance, abundant supply of existing and new homes, home ownership over 70%. Not to cold, not to hot, just right. That analogy did not conclude how the the nursery rhyme finished with the bears coming home in the end.
Comment: The flood gates of the housing markets credit seizure are being breached with the recent Fanie and Freddie announcements. Losses at Fannie and Freddie constrain their ability to perform their role of funneling money into the mortgage market when other investors are leery of home loans, early this year Gilchrist Berg founder of $2billion hedge fund firm Water Street Capital said in recent newsletter to investors that Fannie Mae(NYS:FNM) could lose $22-$29 Billion if foreclosures increase to 6%-8% Berg said it’s not implausible that 15% of Fannie’s mortgage exposure is sub prime. As Fannie and Freddie shop for additional very near-term capital-raising alternatives.” Last week, Fannie raised $500 million with a sale of preferred stock reported 11/20/07. The two lenders must be saved. Slamming the door on the consumers home buying process will prolong the housing crisis.
Will the Sub Prime Crisis be diluted?
Posted: 7/27/2007 4:25 PM
Author: David DePhillips
Implications:32.6% of new mortgages and home equity loans in 2005 were interest only. 43% of first-time home buyers in 2005 put no money down. 15.2% of 2005 home buyers owe at least 10% more than their home is worth. 10% of all home owners have no equity in their homes $2.7 trillion in loans will adjust to higher rates in 06/07 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan. According to Reality Trac, foreclosures up 53% over a year ago. The number of homes for sale is at record highs, and inventories are higher than a year earlier. The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values. Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, prices have been dropping in the North East, West and Mid-West.
Ofheo, Fannie’s regulator, has noticed company increased its sub prime exposure in recent years, not an enormous part of their business but it has been increasing. Ofheo report due out later this year is expected to show Fannie’s sub prime exposure is moving up.
Gilchrist Berg founder of $2billion hedge fund firm Water Street Capital said in recent newsletter to investors that Fannie Mae(NYS:FNM) could lose $22-$29 Billion if foreclosures increase to 6%-8% Berg said it’s not implausible that 15% of Fannie’s mortgage exposure is sub prime. That’s more than half of the roughly $40 Billion in capital Fannie had at the end of March.
A great deal of discussion about the housing downturn (Bubble) has focused on inventory and new home builder slow down. However Sub Prime lending and ARM’s maturity in the next few months have my attention and expect it to have a continued significant negative influence on the housing markets.
Home loan lending readjustments heading up ward will have a greater motivation to the home owner to sell as the valuations of the homes continue to pull back. My buyers concerns weigh in on the side of caution to remain on the side lines for more assurances that their fears of buying a declining investment or low equity appreciation. Add this to the consumer sentiment pull back and jobs reports from affects of the auto industries will be played out across Americans collective living rooms. This creates a bearish scenario that few realtors and consumers have seen in the housing markets.
From the Realtor community it is one thing to be attentive to the buyer vs. seller motivations, but rarely has there been events where this volume of homeowners mortgage readjustments are to play out over the next few years as mortgage valuations go negative on their primary homes. These events will take years not months to work its way through the market that has been operating on an irrational false wealth affect that has come to its end.
Here are some facts to consider. Quoted from Comstock Partner.
32.6% of new mortgages and home equity loans in 2005 were interest only
43% of first-time home buyers in 2005 put no money down
15.2% of 2005 home buyers owe at least 10% more than their home is worth.
10% of all home owners have no equity in their homes
$2.7 trillion in loans will adjust to higher rates in 2006 and 2007.
70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.
According to Reality Trac, August foreclosures up 53% over a year ago.
The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.
The house price-to-income (rents) ratio is off the charts. According to HSBC(NYS:HI), in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.
The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.
Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.
Some studies show that the housing industry and all its related activities have accounted for 30% to 40% of the entire employment growth in the current cyclical expansion. In addition it has been well demonstrated that mortgage equity extractions have been a cash cow providing home owners with hundreds of billions of dollars that have gone into consumer spending. With housing already in a hard landing, it will be extremely difficult to avoid a disruption in other sectors of the economy.
24 months ago analyst dubbed the housing market as a Goldilocks scenario. Low mortgage finance, abundant supply of existing and new homes, home ownership over 70%. Not to cold, not to hot, just right. That analogy did not conclude how the the nursery rhyme finished with the bears coming home in the end.
Does 80/20 rule apply to today’s real estate firms?
Posted: 7/27/2007 4:53 PM
Author: David DePhillips
Have the agents truly taken advantage of new technological changes. Do the current agent population understand the affects of the internet and possible new applications provided by search providers? Are Brokers/Owners/ Franchise Brands on the forefront of the market uses for home purchase. Will training and agent selections address marketing needs for local firms.
Analysis:
It is time for an industry shake out? With the low barrier to entre to obtain a license to practice real estate in most states a sociological shift may begin to take affect in the traditional real estate offices. Most real estate offices operate a business model of managing and maintaining top producers in a field of independent contractors.
There appears to be a shift in younger and better educated agents, armed with abilities to understand current public buying habits and the attitudes needed to embrace new applications developed for the internet 3.0. Will the national and local real estate associations provide the needed tools to continue their strong (paying) membership population, or will the new web base adaptations for listing or searching for real estate continue take hold of not only the public but the local agents who may see a better avenue to generate income and services.
Technology Statistics
REALTORS®’ use of email for business – 44% of REALTORS® communicate with their clients by email more than 50% of the time
Real Estate Web Pages -Does your company have a website?yes – 87% no – 9%
Technology Products used by REALTORS®:
1. The typical REALTOR® plans to spend $858 on technology products, $254 on technology services and $257 on technology training in 2004
2. 97% of REALTORS® own and use a personal computer for real estate purposes and 95% use a mobile phone
3. The most frequently used operating system is Windows XP (54%)
Top 5 Websites where REALTORS® place their listings:
1. Realtor.com (82%)
2. Local Realty Firm Website (76%)
3. Local REALTOR® Association Website (50%)
4. Franchiser’s Website (30%)
5. Broker IDX/Broker Reciprocity Website (29%)
REALTOR® Statistics
1. Hours worked by all REALTORS® (nationwide): 46 per week
2. Gross personal income by hours worked: $62,300 (median for 40 hrs.)
3. Percent of business generated by REALTOR® personal web site (all REALTORS®): Zero – 28%; over 25%- 12%
4. Real estate experience of all REALTORS® (median): 9 years
5. REALTORS® by gender: Male 46%; Female 54%
6. Formal education of REALTORS®: Some college/associate degree: 45%; Bachelor’s degree: 26%; High school graduate: 9%; Graduate degree and above: 11%; Graduate study: 9%
7. Affiliate membership of REALTORS ®: RLI(NYS:RLI): less than 1%; WCR: 4%; CRE(NYS:CRE): 1%; REBAC: 9%; CRS(NYS:CRS): 11%; CCIM: 2%
8. Sides per agent: For all REALTORS® in 2004, the typical brokerage specialist completed 12 transaction sides
Source:National Association of REALTORS® Member Profile