Friday, March 09, 2007
Wednesday, March 07, 2007
From Sarah Prohaska @ the Palm Beach Post.
'FORT PIERCE — For months, a ceaseless routine has gripped the St. Lucie clerk of court's civil office: New mortgage foreclosure lawsuits arrive in unprecedented numbers - huge stacks, some a foot or 2 tall. But as soon as one stack is processed and emptied from the in-box, another dozen or more foreclosures show up the next day.
On really busy mornings, process servers drop off banks' boxes filled with these documents, which set into motion a process that often means homeowners who haven't paid their mortgages will lose their homes.'
Wow - this is the first, honest-to-goodness picture of the true state of housing in our state. Of course, Foreclosure.com and RealtyTrac have also been talking about it, but this really illuminates. And the comparisons to very recent history (when the REIC was blathering on and on that there was no bubble and the sky-high valuations were supported by "solid fundamentals") are spot on.
'The clerks who process the cases shake their heads when they think back to the days when maybe two or three mortgage foreclosure lawsuits arrived each day. They don't have to stretch their memories much: That was only about a year and a half ago.
But now, it's a different scene inside the clerk's circuit civil division across the street from the St. Lucie County Courthouse. As 2006 unfolded, the number of new St. Lucie mortgage foreclosure filings surged upward, culminating in a yearly total of 1,329 cases. That's a more than a 170 percent increase from 2005's total of 485 cases, according to the clerk's office.
Take this snapshot: On Wednesday, the last day of February, the St. Lucie clerk's office received 30 new foreclosure cases. That single day accounted for more cases than the office received in the entire month of October in 2004, according to the office's records.
The trend is playing out across the nation, but some analysts say markets such as St. Lucie County, which enticed a lot of speculative buyers during the sizzling real estate boom a few years ago, are experiencing the biggest increases in delinquencies and foreclosures.'
Exactly. Along with Arizona and California, the state of Florida is the third member of what I like to call the housing bubble-bust triumvirate. All three states had the greatest appreciation over the past 5 years, and as a result all three created the greatest disparity between median incomes and median prices. It takes no rocket scientist to forecast that the triumvirate are also going to experience the greatest shock as the supply and demand curves snap back together.
Back to St. Lucie. Some causes and effects of the fallout.
'St. Lucie officials offer several reasons why the real estate boom has given way to a foreclosure boom:
• Adjustable-rate mortgages, which drew in buyers with initial low interest rates that recently have increased substantially;
• Rising insurance rates and property taxes.
Those are the catalysts, many say, for the record number of lawsuits banks have filed to recover their money - and the fallout in St. Lucie, and many other Florida counties, has landed squarely on the clerk office's doorstep.
Tuesday, March 06, 2007
From Dina ElBoghdady @ the Washington Post.
'Freddie Mac, one of the biggest investors in U.S. mortgages, plans to toughen its standards and stop buying certain types of risky loans that have been linked to a high number of delinquencies and defaults.
The decision, announced yesterday, is the latest sign of the deep problems roiling the subprime mortgage market, which caters to borrowers who could not qualify to buy a house with a conventional loan, including people with blemished credit records.
During the recent housing boom, subprime lenders eager to cash in on the home-buying frenzy relaxed their standards. They allowed borrowers to take out mortgages with low teaser rates that ballooned after the first few years. Now that the higher rates are kicking in, many borrowers are struggling to make their monthly payments, and dozens of small lenders are losing money, shutting down or filing for bankruptcy protection.'
Well put. One thing I didn't mention is yet another source of agony on the market - existing homeowners who discovered their new-found "paper wealth" due to the bubble evaluations on their homes. Many turned around and refinanced their once inexpensive residence. Sure, it seemed like a good idea, but many of these folks were guided into toxic loans that are now biting them in the a$$.
Back to the article - some discussion on the importance of Freddie Mac's announcement. How serious is the situation?
'Freddie Mac's decision to clamp down on these types of mortgages signals heightened alarm about the course of events. If the damage is not contained, a crippled mortgage industry could destabilize the economy, several economists said.
"This is one of the biggest voices in the mortgage market saying in a very public way that the mortgage and housing markets are very troubled," said Mark Zandi, chief economist at Moody's Economy.com.
The trouble is most apparent in the fourth-quarter mortgage delinquency rate, which climbed to its highest level in four years, the Federal Reserve said yesterday. The portion of loan payments at commercial banks that were at least 30 days overdue rose to 2.11 percent in the quarter, up from 1.72 percent in the previous three months. Other measures of mortgage delinquencies have also increased recently.
All indications are that delinquencies are rising faster in 2007. Typically, if there's a surge in delinquencies, defaults follow. Many blame the surge on subprime mortgages, which, according to the Mortgage Bankers Association, made up about one-fifth of all new mortgages last year.
That's why Freddie Mac plans to apply stricter standards to subprime mortgages written on or after Sept. 1, 2007, that have "a high likelihood of excessive payment shock and possible foreclosure."'
So, you see - Freddie Mac will continue to purchase low quality loans for another 6 months. I think this is waiting a little too long, but at least they're giving the market time to adjust.
By the way, I beg to differ on that 1/5 number being quoted by the MBA - the number is much higher, but should we be suprised that they are quoting flawed statistics? Like the NAR, the MBA's employment of denial, cooked numbers, and outright lies to the public are the last defense in keeping their gravy boat from sinking.
Now, as to the particulars of the new restrictions....
'The company will buy securities backed by the 2/28 and 3/27 loans only if the borrowers qualify for the highest rate the loan can have. For instance, if the teaser rate is 2 percent but eventually kicks up to 8 percent, the borrower must qualify for the 8 percent loan.
To protect future borrowers from "payment shock," Freddie Mac will no longer buy securities backed by subprime loans that lack documentation of the borrower's income and the value of the property being financed.
The company also is developing a standard to limit the purchase of securities backed by loans in which the income was stated but not documented.
Freddie Mac also wants lenders to consider the cost of taxes and insurance when they write mortgages.'
This is a very good start. We will all benefit in the long run when credit is extended on the ability to re-pay, not on the perceived inflation of the underlying asset.
Unfortunately, the previously mentioned jagoffs who've been making a boatload of money from this scam are now sounding the alarm, all in the name of "helping" first-time buyers. Complete and utter bull$hit.
'The Mortgage Bankers Association questioned Freddie Mac's decision, saying the people who will be hardest hit will be first-time, underserved or minority homebuyers who will suddenly find themselves without access to credit.
"We worry that people who could buy a home today won't be able to qualify for credit in the future if these kinds of subprime loans are driven from the market," said Kurt Pfotenhauer, one of the association's senior vice presidents.
Hogwash. We're now heading towards a record number of foreclosures and people losing their homes, yet Kurt wants to make it easier for more people to fall into the same trap?
More realistically, it sounds like he owns some overpriced bubble real estate that'll become even more difficult to unload with the implementation of better lending practices. Also, less scam mortgages means less scam money in Kurt's (and his brethren's) bank account. Poor guy - he needs a hug!
Time for yet another reality update: when prices drop to realistic valuation levels, then people WILL be able to qualify for homes. Until then, it's just a sucker's market, with a continually decreasing supply of IBs (idiot buyers).
Monday, March 05, 2007
'Three years after Central Florida's housing market turned red hot -- prompting families and investors to buy, buy, buy -- thousands of people are in danger of losing their homes because they can't make their monthly payments.
The number of mortgage foreclosures is soaring this year. Foreclosures had been increasing -- first steadily, then sharply -- for months during the past year.
But in January, lenders filed 1,787 foreclosure suits in Central Florida, more than twice the number compared with a year earlier, according to research by the Orlando Sentinel.
And early results for February are even worse: In the first two weeks of the month, the number of suits climbed 63 percent compared with all of February 2006.
"Clearly, we are in a cooling of what once was a red-hot housing market," said Sean Snaith, a professor of economics and director of the Institute for Economic Competitiveness at the University of Central Florida.'
"Cooling?" Yes, I suppose you could call it that. But "cooling" in this state sounds way too nice, like "I was so happy to be cooling down, after walking across the Florida Mall parking lot." Sorry, it just doesn't fit the circumstances.
How about a more accurate phrase, such as "beginning of a free-fall", "first stages of a total melt-down", or "start of a long ride to normalcy in supply and demand"?
'The pace of foreclosures is what sets Central Florida apart -- although the same thing is happening across the state and, more modestly, across the nation.
And the worst may be yet to come, according to some experts.
That's because there are so many adjustable-rate mortgages on the verge of pushing up monthly payments.
What's going on?
Many homeowners simply took on more debt than they could manage.'
That, my fellow Romans, is the key to our situation. Too much easy credit created a house of cards in this state. Far too many overpriced homes owned by people who simply cannot make the payments.
Like a spoiled rich kid who finds out that he's no longer in the will, the culture shock of our return to actual house valuations is going to be a long, painful, and traumatic process. The denial is real and entrenched - one doesn't recover from these things easily.
'Until recently, homeowners could often sell their way out of problems. Home prices were rising, and the market was full of buyers, especially speculators.
But prices have stagnated. Homes in Orange and Seminole counties now sit unsold an average of 90 days -- three times what it took to sell a residence a year and a half ago. And many speculators who helped buoy the market have disappeared.
That means local homeowners are stuck.
"You feel so trapped," said Jennifer McCall, 30, who bought a $220,000 house near Winter Park in May, then quickly fell behind on her payments and was sued by her mortgage company in January. "It's frightening," she said. "You have a family you're trying to take care of and a mortgage that's eating you alive."
She and her husband, Jason, had never owned a home before and didn't have much in savings, but they found a mortgage company willing to use creative financing, McCall said.
"That's a huge mistake," she said.
They wound up with a first and second mortgage and monthly house payments of $1,986, she said.'
$2K a month for a $220K house? My gosh, that is really, truly a sad statement on the state of our state. And you know what? This is just one example. Multiple this couple's situaton by the tens of thousands, and then you'll get the big picture of our impending crisis.
And, I'd like to point out that I lost all respect for that guy from UCF when he made the following statement. (note, I am a graduate from that fine institution, BSEE '91)
'Although foreclosures are on the rise in Central Florida, they are not at unprecedented levels, and the local real-estate market is not about to collapse, said Snaith, the UCF economist.
Home prices remain far higher than before the run-up, he pointed out.'
Wow - no $hit, Sherlock. The key is the trends - take a look at these, and you'll be likely to see that prices are heading towards those that existed before the run-up.
Friday, March 02, 2007
In the supposedly altruistic notion of converting more people into homeowners (regardless of creditworthiness), all sorts of exotic instruments were employed over the past 5 years. They are collectively known as "sub-prime", and they include:
ARMs (adjustable rate mortgages) - Typically start at a low introductory rate, and then 1 to 3 years later the rate resets to LIBOR (London Interbank Offered Rate) + a small %.
Balloon Mortgages - A mortgage that must be paid in full within a set time, typically 5 years. Often used in cases where refinancing or sale of the property is expected before the balloon is due.
IOs (interest only loans) - Used in conjunction with ARMs and/or balloons, the homeowner only pays interest, and does not build equity during an initial trial period. This makes the initial payments even lower.
Negative IOs - Similar to IOs, but to further drop the initial payments, the homeowner pays less than the actual interest for the trial period. Thus, when the balloon and/or ARM resets, the total amount owed on the property has actually increased. As in all the other above-mentioned instruments, this is not a problem if the property has increased in value faster than the principal.
And the worst of all,
No-Doc (No Documentation required, aka, "Liar Loans") - once used in rare cases where documentation of pay history is difficult (self employed persons), the loan is granted without a credit check or verification of ability to repay. In exchange, this type of loan carries higher interest rates. For obvious reasons, this route is the easiest way to commit fraud, and that's exactly what happened.
It should also be noted that all of the above types of loans carry high fees, which go directly to the mortgage brokers who sold them. Finally, the vast majority of these mortgages are bundled up by the thousands and sold on Wall Street as MBS (mortgage-backed securities), thus freeing the brokers to sell even more mortgages and perpetuate the fee-generating machine.
Two of the largest purchasers of these MBS are Freddie Mac (FMC) and Fannie Mae (FNMA), both quasi-gov’t entities whose purpose is to increase American homeownership (and to make a profit along the way).
Back in the "olden days" (pre 2001), such exotic loans comprised a very small % of overall home-loan volume (5-6%). However, by 2005, it is estimated that 40% of all mortgages were underwritten with sub-prime/exotic riders in them.
All of this combined to generate a proliferation of mortgage companies, all pushing exotic mortgages to get the high fees and then passing on the "hot potato" loans into MBSs on the financial market.
It all worked great, especially as house prices skyrocketed, and valuations generated ever-increasing "paper equity". With so much credit available, people who had no intention of ever living in a house ("flippers" and outright criminals) were also bidding on houses, condos, and pre-build properties, pushing prices even higher.
But there was an issue. Every purchaser of an MBS bundle from these front-line mortgage companies puts various stipulations on the purchase - the most important of which is % of defaults (non-payment in the first 90 days). If this % of defaults (non-payment in the first 90 days) is exceeded, the front-line mortgage company is required to buy the defaulted mortgages back.
This issue transformed into a certified problem when it turned out that many of the flippers and fraudulent loan applicants never had any intention of making payments on their loans. Defaults, defaults, and more defaults.
Furthermore, as time wore on, the ARMs and balloons started to trigger, greatly inflating the payments that honest homeowners had to pay to keep current on their mortgage. Often, this increase in mortgage payment far exceeded the homeowner’s ability to pay.
This resulted in the default triggers being exceeded everywhere, particularly in the exploding-bubble states (Florida, Arizona, Colorado, California). Instead of being able to pass them onto other banks and securities, mortgage companies were increasingly getting "return to sender" on their crap-o-la loan portfolios.
The certified problem then metastasized into an outright disaster. As foreclosures started mounting (the foreclosure rate is still increasing as you read this), the smaller lenders began to implode, and the larger lenders have begun charging off huge losses.
And the worst part of the tragedy: people who thought they were living the American Dream are now experiencing a nightmare as their house payments suck their finances dry. Finally, they "throw in the towel" and get foreclosed on. Their credit ruined, they are pretty much denied the opportunity of owning another home for the next 7 years.
Okay, so we have a serious mess on our hands. You can almost here it on the PA system, "We need cleanup on aisle 3!". Our next post will deal with Freddy Mac's proposals to deal with the situation.
I just wonder if they are a "day late and a dollar short" on their response.
Thursday, March 01, 2007
'TAMPA - The Tampa Bay area experienced its steepest home price slump in recent memory in January, while the number of home sales continued to drop. Sales activity in the area stands in stark contrast to national data that showed sales of existing homes rose by the largest number in two years.
"The housing market in Tampa doesn't look good at all," said Per Gunnar Berglund, senior economist for Moody's Economy.com. "This is the sharpest drop in pricing since the early 1990s."'
And as goes Tampa, goes the rest of the state. Maybe in the far north interior things haven't changed, but for the majority of the population, consider this to be the starting gun to our multi-year race to the bottom.
And lest we forget, it's always good to hear the cooked numbers from FAR (Florida Ass. of Realtors) as well as "we're just around the corner from recovery" droning from the NAR. The fairy tale just wouldn't be complete without involvement of our evil (yet charmingly simple) giant. First, FAR.
'The median sales price of existing single-family homes in the Tampa-St. Petersburg-Clearwater area was $214,000 in January, down 7 percent from December and significantly below the real estate market's $239,900 peak in June, according to data released Tuesday by the Florida Association of Realtors.
The association said the area's median sales price in January was 1 percent below the same month a year ago. In December, the median sales price was $230,800.'
Wrongo-bongo. I've been tracking median prices for over a year in the bay area, and currently it is still around $270K. So, unless the median home is selling for $55K less than the listing price, these numbers are cooked, baked, and diced. Onto the NAR - cheerleading time from economist Lawrence Yun!
'Yun said he does not think the Florida housing market will suffer too much. The job market remains strong, and many people continue to move to Florida from the Northeast, which should continue to drive demand for real estate, he said.
"This is a short-term correction," Yun said. "The local fundamentals are good."'
WHAT THE F is this guy talking about?!!! More people are leaving the state than are moving in, sales are way down, prices are way down (crooked accounting by FAR notwithstanding) and median incomes are still far below median prices. Mr. Yun, tear down this wall! (of lies and deceipt!) The local fundamentals are not good - the laws of supply and demand say they are very, very bad.
And hey, while we're at it, let's hear the same drivel from our local liars-club.
'Carlos Fuentes, president of the Greater Tampa Association of Realtors, said that despite the drop experienced by the larger metropolitan area, local data on prices in Hillsborough County are trending upward.'
Trending upward in his mind, maybe. Trending upward in one or two super-wealthy neighborhoods, maybe. Trending upwards if you're standing on your head, maybe.
Tuesday, February 27, 2007
'First, the good news from housing consultant MetroStudy:
• New-home starts in Palm Beach County hit a four-year low in the last three months of 2006. They dropped 62 percent just from the fourth quarter of 2005.
• Total inventory - including model homes, finished vacant homes and homes under construction - fell to a four-year low in the last three months of 2006.
• Housing supply declined 4 percent in the fourth quarter of 2006 compared with the same period in 2005.
Decline, decline, decline, decline. This is the good news?'
Hey, it beats the alternative. Though a 4% decline from record levels is not likely to cause a sea change in the housing market.
'Yes, in these topsy-turvy times - when it's quite possible to be "upside down" on your house (to owe more than it's worth) or to lower your asking price by $1 million and still not get an offer - declining housing starts, construction and inventory are all good news; signs that the distressed new-home markets in Palm Beach County and the Treasure Coast are trying to recover.
Any recovery, however, could well be postponed into the second half of the year. Most analysts don't even agree on whether the market has hit bottom.'
I don't know exactly why, but it appears the builders are much more bearish on the market than the realtors. Granted, the realtors aren't required to tell the truth because the NAR (National Ass. of Realtors) isn't a publically traded company. If it was, a few things known as the SEC and Sarb-Ox would cause the NAR to provide forecasts more closely aligned with that of the builders (i.e.; truthful).
'Just last Thursday, luxury-home builder Toll Brothers Inc. said its first-quarter profit dropped 67 percent due to hefty write-downs and other costs, and Chief Executive Robert Toll said "there are (still) too many soft markets."
The inventory of existing homes, which was up 71 percent Palm Beach County alone in December, may grow as "re-listers" - people who couldn't sell in 2006 - are likely to try again in the spring. And analysts expect a further uptick in the region's new-foreclosure filings as high-risk borrowers continue to default on loans and lenders tighten credit standards.'
More foreclosures = More distressed inventory
More distressed inventory = Lower Prices
And to continue our boolean logical progression,
Lower Prices = More Sales
More Sales = Lower Inventory
But we're still at the very beginning of this clearance process. The article continues with a description as to how this situation was created.
'Many of those borrowers were investors who artificially pumped up demand - and prices.
"Builders ramped up production to meet surging demand during the housing boom," said Michael Larson, a real estate analyst with Weiss Research in Jupiter. "But it turns out a big chunk of that demand surge wasn't 'real' demand.
"It was investor demand - people buying up one, two, three or more homes at a time to flip, rather than people just looking for a place to live."
That artificial demand is gone now, Larson and others say. Investors have pulled out of the market, causing new-home sales to plummet.
In Palm Beach County, new-home sales dropped 36 percent in just one year - comparing the fourth quarter of 2006 to the same period in 2005 - according to MetroStudy in West Palm Beach.
Further proof the local housing boom has gone bust: Palm Beach County buyers closed on only 976 new homes in the fourth quarter of 2006 - down drastically from its boom-time peak of 3,123 closings in the third quarter of 2003, MetroStudy said.'
The situation is not pretty, and much more bad medicine is in store.
Monday, February 26, 2007
Alan Westfall was betting he could break even on a six-bedroom home he invested in right before the local market went south last year.'
Of the first 10 properties on the auction block, Westfall said his two properties drew the highest bids - $215,000 for a 3,000-square-foot home in the golf course community of Heritage Isles; another $215,000 for 56 acres in Riverview.
"That doesn't make us feel any better," he said. Not when the mortgage on the Heritage Isles place is $150,000 more than that. Not when he was looking for $2.5 million on the parcel in Riverview.
Westfall, like many other hopeful sellers at the mass auction, didn't accept the offers. Each invested $2,500 per property toward advertising costs.'
"It was weird and wonderful," he said of the event, where 46 properties went on the auction block.
At first, Bailey was disappointed - both with the crowd, which he said numbered less than 300, and with the bids.
The auction ended at 2:30 p.m., a couple of hours before the scheduled 5 p.m. close of bidding.
Then something strange happened, Bailey said. People started cutting deals.
"It's like they were trying to learn how to bid first. I think they reverted back to conventional real estate buying," he said.
Bailey, of Bailey's Real Estate and Estate Auctions, said he doesn't have a tally on Saturday's transactions. Several properties sold. The largest, a 453-acre tract in Levy County, sold for $5,000 per acre in an online bid - $4,000 more than the reserve, or minimum required by the seller.
Other contracts were hammered out after the auction. "We're in real negotiations now with 15 to 20 others," he said.'
Friday, February 23, 2007
Thursday, February 22, 2007
'TAMPA - Just as the real estate market was starting its downturn in the fall of 2005, Alan Westfall slipped into the investment game.
He paid $365,700 for a six-bedroom home in Heritage Isles, a golf course community in north Tampa. He mortgaged the property at 100 percent, painted, installed wood flooring and quickly relisted the home for $425,500.
After more than year of price reductions and unsuccessful attempts to sell or rent the house, Westfall is getting anxious. So he has decided to try his luck with an auction.
"The weight lifted off my shoulders would be tremendous if this home sells," Westfall said. "I just didn't expect the market to take a downward turn so quickly."'
And some details about the auction itself.
'Westfall is among 50 Florida property owners choosing to gamble big this Saturday at the Seminole Hard Rock Hotel & Casino in Tampa and sell their homes in the All In Mega Auction. There are single-family homes, condos and vacant land for sale. It's planned for 11 a.m. to 5 p.m. and will be broadcast online.'
As the real estate market cools further, a record 34,000 homes are listed for sale in Hillsborough and Pinellas counties. Frustrated sellers are increasingly turning for help to the auction block - once the domain of distressed or institutional sellers - and experts predict many more will follow this year. However, when the gavels fall, some may be shocked to discover what potential buyers are willing to pay. '
How much is this going to cost, and how many have reserves preset?
'Combining the properties into one auction and charging a $2,500 entry fee for each one allows for mass marketing, Bailey said. There have been TV and radio advertisements and billboards to get the word out. "It normally takes $5,000 to market a single home," he said.
Still, Bailey said, he hasn't received the number of entries he had hoped for. "I think a lot of people are waiting to see what happens with this auction. You are taking a risk, but it's your best shot."
Some sellers worry they might not get a good price, so none in Bailey's auction have opted to sell their property "absolutely" to the highest bidder, Bailey said.'
Okay. But with every house set with a reserve sales price, I'll be very curious to see how many homes actually sell. Personally, I've witnessed several houses here (in N. Tampa) go up for "auction" (with plenty of signs advertising the fact) last year, and guess what? They're still sitting empty, because the reserve price was the same as the listing price. If they truly want to close, sellers need to get real.
'While the popularity of auctions increases among private home owners, many sellers may be in for a hefty reality check.
Marty Higgenbotham of Higgenbotham Auctioneers International in Lakeland said sellers are still having a tough time in today's market.
"Sellers aren't willing to accept today's property value," he said, noting that he has seen six real estate booms and busts in his 48-year career. "They'll get over it."
Three weeks ago, Higgenbotham auctioned 115 Cape Coral and Fort Myers properties. Seven hundred buyers showed up, and nearly every property had a contract by the end of the auction. There was $24 million in contracts, Higgenbotham said, but sellers accepted just 15 bids.'
I rest my case. So, my question is: are auctions like this a marketing gimmick or (as foreclosures mount and spec-u-vestors bail out) a sign of more to come?
Tuesday, February 20, 2007
The basic concept: all homeowners would no longer pay taxes on their primary residence, and all other properties (rental, commercial, investment, vacation) would still have property taxes, but have an annual cap on increases. The difference would be made up by increasing the sales tax to 9%.
From today's St. Pete Times.
'TALLAHASSEE - House Republicans are developing a proposal to eliminate property taxes for all homesteads while increasing the sales tax by a few pennies to make up the difference.
The plan, which has quietly gained favor among House leaders in recent days but lacks detail and has yet to be announced, also calls for capping property taxes on businesses, second homes and other nonhomestead property.
The cap would likely be tied to population growth and inflation.
"Everyone's pretty excited about it," Rep. Anitere Flores, R-Miami, said after emerging from a property tax summit in the House on Monday afternoon.'
Like we've said, it's been a bear of an issue, because I can personally attest to how f-ed up the current system is. The house that I'm currently living in (a starter home built in 1994) is paying $5500 a year in taxes, while a neighbor across the street is paying only $2200 a year. This is just plain wrong - in so many ways. They have to do something.
'Property taxes promise to be the most challenging issue in the Legislature's upcoming session, in part because of the inequities in the current system, which favors long-term homeowners over new residents while pushing more of the burden on nonhomestead property.'
Right - so here we go!
'An increasing number of lawmakers feel the best remedy is to simply get rid of property taxes homestead owners pay to schools, cities, counties and special taxing districts. The idea is contained in House Speaker Marco Rubio's book 100 Innovative Ideas for Florida's Future.'
On the surface, it sounds like a very intriguing idea, but there are numerous drawbacks. Starting with the fact that a consumption tax is regressive, whereby the poorer you are, the higher % of your income goes to the government. So, out goes the reasoning for the SOH tax system that protects the old ladies on fixed incomes.
That aside, there are other concerns.
'But an increased sales tax could hurt businesses in North Florida, where shoppers could go to Georgia or another state. Also, sales taxes hurt the poor more than other income groups. Vacationers, too, would pay more to visit Florida.'
Can you imagine being an appliance seller or car dealer anywhere within 200 miles of the border? Those businesses would get killed with a 9% sales tax. Also, do we dare tinker with tourism, our #1 business?
Still, I like the idea - thinking way outside the box is a good thing, especially in times of crisis. Don't know if the voters will go for it or not. What do you think?
Monday, February 19, 2007
'NEW YORK (CNNMoney.com) -- The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.
Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter a year earlier, according to the report from the National Association of Realtors (NAR). That's the biggest year-over-year drop on record and follows a 1.0 percent year-over-year decline in the third quarter.
The most recent median prices are down even more: 3.4 percent since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the past six months, with eight reporting double-digit declines.'
And what about those aforementioned bloated markets?
'Vacation markets, where investor-buyers had driven up prices during the building boom of 2005, were particularly hard-hit.
The Sarasota-Bradenton-Venice, Fla., market saw the biggest year-over-year decline in the fourth quarter, with prices plunging 18 percent.
When looking at the change between the fourth quarter and the second-quarter peak, the Palm Bay-Melbourne-Titusville, Fla., market saw the biggest drop, with median prices plunging 19.5 percent.'
Really, is anyone surprised? Unfortunately for those in the larger metro areas of our state (Orlando, Tampa, Miami-Palm Beach), the realtors have been dramatically UNDER-reporting the median sales prices for the past 2 years. Now that prices in these markets have started to fall dramatically, it won't make the news because the previous year comparison numbers have been cooked (to a crisp!).
In the smaller Florida markets however, the realtors haven't been able to disguise the sales prices so easily, and that's where we've seen the biggest news reports of declines.
Back to the article. Despite all the bad news, the used-car salesmen from NAR (National Ass. of Realtors) keep on shovelling the bull$hit.
'Examination of data within the quarter shows home prices stabilizing toward the end," said a statement from David Lereah, the NAR's chief economist. "When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.'
Remember, this is the same guy (I always get a chuckle when I see others refer to him as "David Lie-area") has been predicting a "soft landing" and a "quick turnaround" since 2005. During this time period, sales have continued to drop, inventory has climbed to new records every quarter, and foreclosures have skyrocketed. I just want to know - how does he do it, lying to the public, over and over and over again? But wait, there's more - this time from the president of NAR.
'NAR President Pat Vredevoogd Combs, a Grand Rapids, Mich., realtor, admitted the group doesn't expect to see a big gain in 2007 statistics.
"Right now, buyers are responding to seller pricing and incentives, and there's a bit of a pent-up demand as a result of buyer hesitation during the second half of 2006," she said in the group's statement. "We're not looking for big changes, but a gradual rise in sales and home prices is projected - that will be good for the overall housing market and related industries."'
Where does she come up with these figures? Again, inventories are at an all-time high, 2.1 million homes are sitting empty, and every major historical indicator says home prices (especially in Florida) must drop at least 30% before getting back in line with median incomes.
The facts: prices are NOT going to rise in 2007, sales are going to continue to drop, and the overall housing market is going to be in bad shape until prices get back to historical trend lines. At this point, the only real question is how long before the price correction goes into full swing.
Wednesday, February 14, 2007
'NEW YORK (CNNMoney.com) -- Just as the struggling real estate market seems to be stabilizing, a fresh problem is brewing far from real estate offices or home construction sites: a jump in defaults by higher-risk borrowers.
News of rising default rates by buyers with less than stellar credit could put a crimp in financing for home purchases - and prices. That's because the rapid growth of new types of mortgages was one of the key factors behind the boom that sent home buying, and prices, to record highs for five straight years through 2005.'
What? Do they mean to say that the skyrocketing prices of the past several years wasn't organic? You mean it was (gasp!) an artificial situation, created by loose underwriting, crooked appraisers, and realtor hype? And WHAT stabilization of the market are they speaking of? The last I checked, there is record inventory and record defaults and a sharp decline in nearly every major market (in Florida, that would be EVERY market).
Monday, February 12, 2007
In other words, in exchange for lowering rates now, if another catastrophic year like 2004 or 2005 happens again, the state will pay the majority of the insurance claims.
Does the state currently have the money to pay these claims? No, they do not. From the Tampa Tribune, some "downside risk" associated with the reform package.
'Insurance reform legislation that passed last week shows what's possible when lawmakers seek "ideas that help Floridians," Gov. Charlie Crist said in a weekly newsletter sent to supporters.
"Help for the people of Florida is on the way! Help is on the way in the form of lower homeowners insurance rates for every Floridian," Crist wrote Friday.'
So far, so good! But....(and it's a big 'BUT'....)
'And it might work, too, unless the state gets hit by a strong hurricane in the next few years.
"We are screwed if that occurs," said Senate Democratic Leader Steve Geller of Cooper City, one of the plan's architects.
A few worst-case scenarios are tempering some of the enthusiasm over what Crist and others bill as a bipartisan triumph:
• What if Florida gets hit by a costly storm before it can build up a bigger, new public catastrophe fund, designed to lower premiums by relieving insurers of some risk?
• What if new rules against "cherry picking," the practice of offering the most profitable types of insurance but not property insurance, send automobile insurers packing from Florida?
• What if a bulked-up Citizens Property Insurance Corp., the public insurer of last resort that's now empowered to offer other types of insurance, steals customers from private businesses?'
Aye, so there's the rub. And Charlie is worried about another one-time event.
'Crist even added his own scenario, which he plans to address at a Cabinet meeting this morning:
What if private insurers try to rush through rate hikes now, while the reform plan is being implemented?
Crist has an answer for that one: offer an emergency ruling to prohibit policy cancellations and require rate changes to incorporate the new legislation.'
So, back to the first point: in this blind pursuit of lowering insurance rates, what kind of risk is Florida taking on?
'Insurance industry officials accept the reforms as a political reality but caution they put state finances on precarious ground.
The eight storms that hit Florida in 2004-05 created $36 billion in insurance claims. Insurers warn this could be a drop in the bucket if the right storm hits the wrong part of Florida.
They insist that Citizens' premiums are irresponsibly low and won't be able to cover all of its claims in a future storm. That could lead to another taxpayer-financed bailout such as the one approved in 2006 and more assessments on all insurance policies.'
So what happens if we get wacked by another storm (or series of storms) and the state is on the hook for a bill that it can't pay?
' Floridians would also be hit with huge assessments on their property, auto and other insurance policies to cover any damages charged to the newly expanded public catastrophe fund.
Private insurers are responsible for the first $6 billion of payouts in a storm under the new reforms. The state's catastrophe fund covers the next $16 billion. If additional claims remain, as in an especially powerful hurricane, a second tier of the public catastrophe fund covers the next $20 billion in losses.
The state would have to issue bonds to finance all of that.'
Oh, and by the way, how much money does the state currently have socked away for catastrophic coverage?
'The catastrophic fund now has less than $2 billion.'
So, the next time a hurricane hits, get ready to pay for all those beach houses, waterfront mansions, and 2nd, 3rd and 4th homes of wealthy people. It's all now being subsidized by you.
Friday, February 09, 2007
His latest struggle: Unloading a ranch in Ocala, Fla., with three bedrooms, two baths and a two-car garage.
He thought it would be a quick buy, rehab and sell transaction. Instead, it's been buy, rehab...and sit. For 10 months.
Thursday, February 08, 2007
' ORLANDO — The real estate market hasn't hit bottom yet, three of the nation's top housing economists told the world's largest building trade show Wednesday.
Always one of the International Builders Show's highlights, the annual economic forecast has featured the same trio of top housing analysts for the past few years: David Seiders, chief economist for the National Association of Home Builders; and David Berson and Frank Nothaft, chief economists for mortgage giants Fannie Mae and Freddie Mac, respectively.
But this year's highly anticipated message was a sobering one: Home prices will continue to slide for the rest of 2007, Berson said. Still, he said the biggest price drops probably are over.
Nothaft predicted that the housing market will hit bottom the first half of this year, with a gradual improvement in the second half that will continue through 2008.'
I don't agree with the last statement - first it's still too far off for such a prediction. 2nd, in addition to the record # of homes for sale right now, 2.1 million of them are empty. Third, the REIC is experiencing record layoffs and job freezes - that's an entire segment of the economy that is shrivelling up faster by the day. Fourth, a trillion $ in mortgages are being reset this year, with record foreclosures expected. Add these facts, and it becomes intuitively obvious that a quick turn-around is not happening this year.
'"We're not at the trough yet for single-family home sales," Nothaft said, noting that home prices will have to fall further to burn through the current high levels of housing inventory. "We are still a few years away from obtaining the robust activity of 2005."
A few years? Maybe if you define "a few years" = "5-10 years".
That's not what the more than 100,000 home builders, Realtors and other industry representatives attending the four-day show at the Orange County Convention Center wanted to hear. But most acknowledge that today's near-record level of homes follows a five-year run-up in home prices, fueled by low mortgage rates and investor dollars.
Nowhere was that more true than in Palm Beach County and the Treasure Coast. The median price of an existing single-family home in Palm Beach County soared to a peak of $421,500 in November 2005, plunged to $365,600 in October 2006 and ended the year at $368,200, according to the Florida Association of Realtors.'
And then this little gem about South Florida,
'But even as the housing market continues its slide this year, Palm Beach County and the rest of South Florida will fare better than other parts of the country, Berson said.
"You have a very large contingent of foreign investors from Europe and Latin America, and their goals are different," Berson said after his presentation on the economic panel.
"They invested as a way to hedge where they keep their money," Berson said. "If there's price weakness, they may not pull out as fast as domestic investors who are looking only for a good return."'
In other words, these foreign investors won't sell cheap, and that'll prop up the prices? Errrrrrrr.....!
Tuesday, February 06, 2007
One of the first is whether you are considering purchasing a home. Okay, fair enough.
But then they follow that question with this atrocity:
How would you rate the overall condition of the housing market in the area where you are hoping to purchase a home in next six months? Would you rate it as (please select the rating that best describes the housing market in this area):
- Very hot (there are very few homes for sale in my price range; house prices are rising very rapidly)
- Somewhat hot (there is a limited selection of homes in my price range; house prices seem to be rising faster than usual)
- Stable (there is an adequate supply of homes in my price range, and house prices have been flat or moving up slowly)
- Cool (there are a lot of homes for sale in my price range, and house prices have been slowly edging down)
- Very cool (there is an abundance of homes for sale in my price range, and house prices have been dropping)
- Not sure; I haven't been tracking the housing market that closely
This is horrid marketing at it's deepest and lamest. Notice how the choices all mutually exclude the fact that prices are too high, and that they are dropping just about everywhere. How about adding the following choices, you lying dill-holes?
- Crappy (there are a lot of homes for sale that WERE in my price range 3 years ago)
- Sucks to be a Seller (there is an abundance of homes that are expected to enter foreclosure in the next 3 years)
- Laughable (I am enjoying renting while watching the REIC implode)
- But My Neighbor Made a Killing (I can't sell my current Mc$hitbox for what my neighbor did in 2005, and I refuse to budge on price)
- What Was I Thinking? (I bought into the hype over the past 3 years that "real estate always goes UP!", and now I'm stuck with upside-down investment property that I can't unload)
- Comfortably Numb (there are more houses for sale than I've ever seen in my long life, and I expect to find a bargain as prices drop 30+% over the next couple years)
- Not Sure (I am about to make one of the biggest financial decisions of my life, so I'm going to hand this job over to some "professionals" who aren't required to even possess a college degree and whose ethics lie somewhere between used-car salesmen and starving hyenas)
Editor's note: It's good to be back - I'm in a "great" mood today, as you can probably tell.
Tuesday, January 30, 2007
A year ago, 1.57 million homes were vacant and awaiting a sale.
The vacancy rate for owned units jumped to a record 2.7% from 2.0% a year earlier. From 1965 to 2005, the homeowner vacancy rate had never been above 2%. The long-term average is 1.4%.'
Wednesday, January 24, 2007
From the Orlando Sentinel.
'TALLAHASSEE -- Lawmakers approved a sweeping package aimed at cutting the cost of homeowners insurance in storm-battered Florida but quickly drew heat from consumer groups that say it fails to go far enough to help those staggered by two years of soaring increases.
The wide-ranging legislation is expected to cut rates for property coverage anywhere from 5 percent to more than 40 percent.'
Wow - sounds great! But how does this get paid for?
'But with the state poised to shoulder a larger role in hurricane rebuilding, homeowners could face far bigger bills if another round of major storms pounds Florida.
"At first blush, it's kind of frightening," Senate Banking and Insurance Committee Chairman Bill Posey, R-Rockledge, said of the state's balancing act.
Still, he insisted higher risk was needed to lower bills now."
If you assume there wasn't going to be any relief, these people were going to be bled to death in the next year or so," Posey said. "We tried to stop the bleeding."'
In other words, you took a short-term minor gain for long-term major risk. Like everyone else.
'The House approved the legislation 116-2 and the Senate 40-0, ending a weeklong special session. Republican Gov. Charlie Crist, who repeatedly promised rate cuts during last fall's campaign, is expected to sign the measure into law.'
The last time I witnessed a state legislature vote so overwhelmingly on a hugely important, far-ranging issue? California's deregulation of their electricity market in 1996. And now a history lesson from the recent past...
Similar to our current insurance crisis, people in the Golden State were constantly complaining about their electricity rates being too high. In actuality, it was the commercial users of electricity that did the most complaining. On a per household basis, residential californians use less electricity than in any other state - purely due to the mild climate.
Enron, then a growing tiger in the gas and electricity trading markets, was only too happy to step in and provide the state with a heavy-duty lobbying campaign, telling the state everything they wanted to hear, "Open markets will create competition, and competition will mean lower rates for all!". So, when it came to a vote on giving away the franchise and opening the state's electricity lines to competition, how did it go? Senate 40-0, Assembly 80-0, and passed shortly thereafter by governor Pete Wilson (R).
Unfortunately, just like the baboon-ass monstrosity that just passed in Tallahassee, the lawmakers simply didn't know what they were getting into. It wasn't true deregulation - it's just not possible when everyone has to use the same power lines. It was purely a gamble, based on doctored numbers and charts presented by private parties (Enron) who stood to gain the most from legislation.
As it happened, rates did NOT go down for residential users, and only the largest commercial/industrial users were able to negotiate lower rates. Enron, on the other hand, made a BOATLOAD of money from the scheme, manipulating the grid, causing market rates to sky-rocket. The fox was guarding the henhouse, and getting plenty fat from it.
Fast forward to 2000, due to "gaming" of the power grid by private marketers and a record heat wave, rates went through the sky, while large segments of the state experienced blackouts. In 2001, the new governor Grey Davis (D) started the year with a state of emergency (which stayed in effect for nearly 4 years), and a new round of rolling blackouts and skyrocketing rates hit during the surmmer, while the state's largest incumbent electric utility, Pacific Gas & Electric, ended up in bankruptcy.
Finally, the game was over - the state was forced to buy out the numerous contracts for huge sums of money. In the end, rates were jacked up for everybody (much more than they were paying before the deregulation experiment) and Grey Davis got booted out for a perceived "lack of response" during the crisis.
California Energy Crisis
Think something like this won't happen in the Sunshine State? Be honest. El Diablo just got himself another big fat contract.
Full Sentinel Article
Sunday, January 21, 2007
'With the huge drop-off in the state's formerly hot housing market, Latinos are leaving Southwest Florida for places offering more work or taking jobs that pay less.
Construction permits across the region were down as much as 66 percent in recent months, and with 50 percent of Southwest Florida's construction industry staffed by Latinos, the shift is likely to have a big impact on that industry and perhaps the region's general economy.
The impact goes beyond construction companies to rental managers and shops catering to Latinos.'
Up to this point in the article, I keep seeing the word, "Latinos" mentioned, but nothing about their residential status. Then this.
'"The majority of us here are illegal," said Benjamin Ramirez, a 34-year-old framing subcontractor from Bradenton, who has worked in the United States illegally for about eight years. " For us, when the work is gone, it's just no more."'
So, what are the options for this "silent workforce"?
'Many Latinos are moving to other areas, such as Louisiana and other Gulf Coast states where residential construction is still strong.
At the same time, lower-paying jobs in agriculture, food service and retail are reclaiming workers as they wait out the construction downturn.
About six weeks ago, Ramirez was called to a meeting with Lennar Homes, the big Miami-based developer and the biggest home builder in Southwest Florida.Ramirez, who had subcontracted for Lennar for three years, was told there would be no more work.'
And as predicted here, the loss of jobs for these guys is not being reported. Because, then the employers would have to admit they were breaking the law this entire time.
'Though the overall unemployment level has remained relatively unchanged in Florida, unemployment claims in construction have risen 63.37 percent since June.
That measure greatly underestimates what is going on because of the vast number of undocumented workers in the sector and its heavy reliance on subcontractors.
"Many of these workers may never have been included in the jobs figures," said Mark Vitner, a Wachovia Bank economist, who focuses on the Southeast. "Many may be working as independent contractors and still have jobs but just not be as busy."'
And the personal tale of the Ramirez subcontractor is very interesting.
'The best documentation of what is happening comes from the workers.
Benjamin Ramirez and his 31-year-old brother, Ricardo, said construction jobs in Southwest Florida have evaporated.
"Last year was nice. Everybody had a job. And there were a lot of houses to build," Ricardo Ramirez said. "This year there's no work."
The brothers came to the United States about eight years ago from Toluca, a congested industrial suburb of Mexico City, known as Mexico's Detroit because it is home to DaimlerChrysler, Nissan, General Motors, BMW and Mitsubishi plants.
They learned the construction trade on the job in Indiana, and moved to Southwest Florida three years ago.
Together, they formed The Brothers Ramirez Construction Co. of South Florida. They built up a base of 60 full-time independent contractors and began working with Lennar
With the downturn, the brothers thinned their crews to a handful of close friends and immediate family.
One crew went to Indiana, one crew went to Miami and one crew went to Tampa," Ricardo Ramirez said. "Others wait. They are sleeping on the couch or playing soccer -- not much of anything -- until there's more work."'
And surprisingly, enforcement of illegal labor laws had a banner year in 2006.
'Last year, employers and workers saw unprecedented enforcement of immigration laws, with more arrests for immigration violations at job sites nationwide than any other period in recent memory
Add to that new rules from Homeland Security designed to prevent employers from hiring undocumented workers, by checking for mismatched Social Security numbers. Employers are now becoming leery.
Wendy Smith, an attorney with employment law specialist Fisher & Phillips, knows why. Her firm began counseling clients about six months ago to be cautious in hiring decisions. Picking up an undocumented worker carried the threat of criminal charges
"We told our clients, 'You have to tighten up and get your house in order,'" Smith said. "We said, 'You know what? This is coming. And with the no-match letters, it's going to be: You can run but can't hide.'"'
And what's happening in these immigrant communities when the jobs have dried up?
'Property managers and owners in Southwest Florida catering to Latinos have been hit with unexpected vacancies
About 25 percent of the 1,400 units that Harvey Vengroff owns are rented to Latinos, and he has more than 40 vacancies
"I'm getting a lot of stories. It's really a very different world than it was last year," said Vengroff, also the owner of one of the world's largest collections companies, Vengroff & Associates. "Last year, people had more money because there were plenty of construction jobs".
Evictions are up.
"We have a huge problem of people who are nice people, but they are taking in other family members. And we are evicting them. It's not because they are not nice people. It's just not conducive to having a good neighborhood," Vengroff said.'