Saturday, September 01, 2007

Builder's Boom Recipe: Loose Lending + Bailout + Media Silence

From the Lodi News Sentinel:

Three years ago, builder Tom Doucette was "moving at 100 miles per hour" trying to keep up with the demand for new homes at his project sites. Potential buyers were "camping out" at his FCB Homes subdivisions, hoping to snatch up a piece of real estate at the peak of the housing boom.

Business is no longer a blur for Doucette...[A]ctual construction has slowed dramatically. In Lodi, for example, the number of building permits issued for detached single family homes has plummeted from 396 for all of 2005 to just 18 so far this year, according to city records.
The shaky housing market has led Lodi builder Dennis Bennett to build only pre-sold homes...Overall, Bennett said his company has reduced new home construction by 50 percent compared to just a couple years ago.
Bennett, who started his company in 1977, said there are a number of reasons for the building slowdown. The media should take some blame for continuing to highlight the trend, he said. Large, corporate home builders are also part of the problem. They've flooded regional markets with new homes creating "huge inventories." That, in turn, lowers sale prices for smaller builders.
Bennet said new construction won't boom again until the "huge inventories" of homes for sale are bought up. Easing some of the recent mortgage restrictions and offering federal relief to those with expanding subprime mortgages might be two ways to bring buyers back, he added. "If we get a little relief from the lending side of the business, hopefully that will help the inventory out there," Bennett said.
CBS 13 (also video): Developer Says Real Estate Buyers Are Too Worried

From the Sacramento Bee:
Sacramento city leaders have pulled back their offer to loan $10 million to fund construction of a downtown condominium high-rise. Craig Nassi, the Denver-based developer behind the 39-story Aura tower proposed for 601 Capitol Mall, lost the city's commitment after he failed to secure all of his private financing by the end of last month.
Nassi insists that Aura is alive. But besides having the city withdraw its money, he hasn't yet bought the land for it from local developer David Taylor...In June, Nassi said that he would have his lenders lined up within 45 days. This week, he said financing was on the horizon for the $177 million project. "We hope to have the loan ready to fund soon," Nassi said in an e-mail. He blamed the delay on "capital markets (that) have been paralyzed by the subprime fallout and the unknown of secondary market pricing."


aggiealum said...

"The media should take some blame for continuing to highlight the trend..." I love how the media is being blamed by the people in the real estate biz now. I'm willing to be during his "speeding" days, he wasn't criticizing the media for constantly reminding people how much the home prices have been rising. I wonder if Bush's new plan to "aid" people with interest resets in the very near future will do anything. $50B in resets in October. Even if the Fed Funds rate is cut, most people will still be out of a home. Either that or we will soon see the emergence of 50 and 60yr fixed.

Cmyst said...

"Either that or we will soon see the emergence of 50 and 60yr fixed."

I was actually told, back when I was looking for a house in late 2005/early 2006, that people in Europe had multi-generational mortgages.
I don't know if that's true or not, but I can tell you it wouldn't work in the US. We're a huge country, and we're very mobile. There is no way that my kids would want to take over my mortgage when I died.

Patrick Hake said...

The changes that Bush recommended may help a small minority of the home owners in trouble. It will be a marginal help at best and will do very little to change the course of the market. This train has already left the station.

He is in a position where neither side of the political isle will be happy with him. The Democrats will say he has not done enough (complete bail out), while the Republicans will be upset that he has messed with the invisible hand of capitalism.

This is not the first time that everyone has been mad at him for his decisions and it will probably not be the last, even with a year and half to go. Regardless of the effectiveness of this decision, I respect his willingness to get raked through the mud once again.

The fact is that short of giving people free money, there is no really financially feasible way to refinance many of the sellers in trouble. For many the best thing they can do is walk away and start working on building there credit up again as soon as possible. Within 7 to 10 years, they should be able to buy again if they like, but should only do so if they can afford their mortgage payment when fully adjusted and only if they plan on staying for an extended period.

The assumption that people make is that they cannot live without owning their home. With nothing down and reverse amortization they never really owned it to begin with. They were effectively renting from the bank with an option to buy later (refinance).

In many ways the option ARMs were very similar to options on the stock market. They offer the chance to leverage more property than you can normally hold, but they have an expiration date that can wipe you out. I played with options in college and learned very quickly that it was nothing short of gambling.

Gwynster said...

I agree that Bush's plan far short of really helping anyone. We can't even get a basic healthcare initative passed. Politically, the whole bailout is a third rail issue. The Dems just haven't figured it out yet.

What makes Bush's plan so fun is it's going to make for some great headlines as it moves through the houses. The various grandstanding efforts are going to keep comedians and political analysts employed for years and years.

Perfect Storm said...

The plan Bush proposes will actually cause more foreclosures. He specifically wants lenders to forgive debt and in the instance of a short sell the debt forgiven will not become a taxable event. Best of both worlds for a borrower underwater, the bank get stucks with a loss and no tax implication for the borrower. Whether this tatic works for most borrowers remains to be seen, but more borrowers will walk away from the loan because the government said it is ok.

Housing/Mortgage Doom 2007.

Foreclosure Hell 2008.

Were right on track for a 50% decline by 2009.

Perfect Storm said...

Assuming borrowers can meet the loan limit hurdle, there are then five criteria for FHASecure eligibility, as outlined in the press statement:

A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;

Interest rates must have or will reset between June 2005 and December 2009;

Three percent cash or equity in the home;

A sustained history of employment; and

Sufficient income to make the mortgage payment.

The requirements seem to be stringent enough so as to allow only decent borrowers through the pike — no delinquencies prior to hitting reset, they’re going to have to be able to qualify on a full doc basis (employment, income), and must have at least some equity in the home based on a current appraisal.

Wow it seem like this will be a fully documented loan with a real appraisal. How in the hell is this going to help someone who is in a loan originated with no documents and a bullshxx appraisal to begin with.

This plan will not help the Sacramento real estate market.

Were right on track for a 50% decline by 2009.

145 mortgage liar loan outfits are taking a dirt nap and I'm going to Denny's today to get a grand slam breakfast served to me from some ex loan officer.

Gwynster said...

"I'm going to Denny's today to get a grand slam breakfast served to me from some ex loan officer"

That is funny!

New piece on foreclosures which further outlines how the Bush plan isn't going to help anyone out here.

Foreclosures stack up
Frustrated borrowers who lenders to try to work things out say it's a fruitless ordeal

wimpyVO2max said...
This comment has been removed by the author.
wimpyVO2max said...

Patrick Hake: "The Democrats will say he has not done enough (complete bail out)"

Just for the record, Senator Schumer does not advocate a 'complete bail out.' It does not entail the government paying off anyone's mortgage balance. It involves lots of loan restructuring with an aid package with contributions from both the government and private banks. It's designed to help keep homeowners in their homes, which will help stop the spread of blight in hard-hit neighborhoods.

Perfect Storm said...

Since when does the real estate market become a presidential campaign issue. There is nothing the government can do short of allocating tax dollars to fix the issue at hand. Political suicide no more no less. They do not have the "Stugots" to handle this situiation, this is nothing more than a feel good no nothing bullshxx were there for you bunch of a horse crap!

Housing/Mortgage Doom 2007

Foreclosure Hell 2008.

Were righht on track for a 50% decline by 2009.

Oh for all those idiots who do not understand where money comes from, it really comes froms the government printing presses and they can make as much of it as they want to, God help us all!

Perfect Storm said...

I'm going to Dennys in the morning, you know they make a pretty good breakfast, thanks Gwynster.