It’s the battle of new home sales vs. existing home sales. Existing home sales are thus far winning.

Seems sales of new homes fell last month 0.6 percent, according to the Commerce Department—-that apparently came as a surprise to some “experts” who had predicted the rate of new home sales would actually rise. Oh well.

Over the course of the past year, new home sales are now down 32.8 percent, in fact.

This is in contrast with the sale of existing homes–the sales rate there actually went up in May by 2.4 percent.

Pretty easy to see what is going on here.

Most of the existing homes are foreclosed properties and cheaper, therefore, than they would otherwise be.

But sales of such homes do not bring with them increased employment–at least not to the degree that newly constructed homes do.

Those who see “hope” for an economic recovery in the sales of existing homes are chasing a false dream.

The real sign of a turnaround will come when we start seeing sales of newly constructed homes increase on a steady and monthly basis.

Clearly, we are not there as yet!

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Tags: Economy, New Home Sales, United States, United States Department of Commerce

A little bit of a different take on this week’s mortgage market data. Gotta change it up sometimes ya know?

Tags: Economy, mortgage, Mortgage Market, mortgage rates

Looks like some banks have stolen some ideas from their own customers…after months of worry about homeowners walking away from foreclosed properties, more and more banks are now apparently doing the same thing, leaving the property owner holding the bag.

According to a New York Times report, “the so-called bank walkaways rarely mean reflief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches.”

The report highlights the case of a woman who had lost her rental property to a foreclosure.

Well, she thought she had, anyway.

Turns out that even after a date for a sheriff’s sale had been set,and after her tenants had already left, the city in which she resides contacted her to demand that “she resume maintenance on the property.”

Seems the sale had been called off and that meant the property title, despite the foreclosure, remained in the woman’s name!

And you thought banks couldn’t come up with even more ways to screw their customers!

Says one lawyer quoted in the piece, “the soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decision to walk away.”

Says another person quoted, “the whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can. It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

The current economic disaster is bringing out the best in some people and institutions, but, more often than not it would seem, it is bringing out the worst.

Housing Crisis Drives GM Boss Away

Meantime, who would have thought even six months ago that the so-called sub-prime mortgage mess (which never really was about the mortgages as much as it was about the investment bundles made of these mortgages that no one really understands) would lead to the removal of the head of General Motors?

Clearly, Obama is in the driver’s seat here and apparently recognized a little appreciated fact of American business: just being a majority shareholder in a company means nothing unless you can replace the company’s Board of Directors.

Which is pretty much what the Obama administration set out to do with GM in exchange for an infusion of even more taxpayer dollars.

In the late 50s, Americans were promised two cars in every garage as pent-up demand for consumer goods exploded in the aftermath of Word War Two.

Who would have thought that we’d get to the point where, not only can’t many Americans afford two cars, but the company that makes a lot of those cars may go bankrupt and there is no garage anyway because the occupant lost it to foreclosure?

Tags: Economy, foreclosure, housing

Don’t pop those corks just yet. We may have ducked a few thunderheads, but we still have enormous storm clouds ahead.

The news that existing home sales rose in February at the fastest rate in some six years, certainly brings with it the hope that the bottom (or end) to this mortgage caused misery is nearing.

While hope is good, false hope is not so good.

Let’s take a closer look.

Forty to fourty-five percent of the sales last month were “distressed sales” –according to the National Association of Realtors. And these homes tend to sell at about 20 percent less than the so-called “normal” market place, says NAR chief economist Lawrence Yun in an interview with Reuters.

The people buying these bargains are atypical in numerous ways…they have really good credit ratings, jobs or personal wealth, and the ability to plop down upfront money.

The Obama administration, of course, hopes its just revealed plan for a joint private investor/government effort to buy up $1 trillion in toxic assests will further stimulate the housing market (and every other market) by unfreezing credit.

Although Wall Street reacted with great joy to this announcement, it is not at all certain the plan will work (which is not to say it shouldn’t be tried…just that it might not work!)…

The key question remains whether banks will be willing to sell assests a the lower prices set by bidding, or hold on to them hoping to weather the storm?

There is also no way of knowing yet how the public will react to this plan….The A.I.G mess didn’t go over big, did it?

Already one leading critic, New York Times columnist Paul Krugman, a Nobel-Prize- winning economist, is blasting the plan claiming investors will be able to profit should asset values increase but walk away if they fall, says a Reuters report quoting Krugman’s column.

So, much can go wrong..and, considering the laws that seem to govern the universe, probably will.

Hope, yes. Blind hope, no.

Photo Credit: ToastyKen

Tags: bankruptcy, Economy, Foreclosures, housing

Almost 291,000 homes across the US received at least one foreclosure-related notice last month, up 6 percent from January, says RealtyTrac.com, a compiler of foreclosure data.

The big question in the minds of pundits is when the Obama administration is going to officially own the economic and housing crisis. Fifty days into his administration, the President continues to remind us at every opportunity that he inherited this crisis, and that it is the fault of Bush and anyone other than him. Now that the President has made his Housing plan, his multi-trillion dollar budget, and more bailouts official, isn’t he officially running the show? Isn’t he the one whose policies dictate what is to happen in housing, the stock market, and every other facet of the economy?

My Way News reports “nearly 12 percent of all Americans with a mortgage - a record 5.4 million homeowners - were at least one month late or in foreclosure at the end of last year, according to the Mortgage Bankers Association. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.”

Now that the Obama plans are officially up and running, we should be seeing a slowdown in the foreclosure data, right?

Only time will really show whether these various plans are effective, and we must give it some time, but I have an important question (amongst many others) . . .

Who is in Charge?

I believe that the current President is now fully responsible for what happens under his watch. If his plans don’t work, then he needs to step up and re-work them. If his stimulus isn’t effective, then he should take it back to the drawing board. If the foreclosure plan makes no sense, then man up and do something about it.

I’m tired of the whining and the blame game. If we’re going to blame people, we’re going to have a big list that includes in many ways, practically all Americans, including the President, Congress, Wall Street, Lenders, Agents, Home Owners, and on and on.

Lets focus our energy on ending the housing/foreclosure/economic crisis and stop telling everyone “it wasn’t my fault”, because it was. Most people just don’t care . . . they want to stop living in fear.

Lets do something about that!

Tags: Economy, Foreclosures, housing, obama

The Obama budget announced this week - in the middle of biggest housing crisis since the Great Depression - seeks to raise tax revenue by removing the mortgage interest tax deduction for those that are in the 33% and 35% income tax brackets.

What? You’ve got to be kidding, right?

I can’t count the ways this is bad for housing. The one big reason renters all across this country make the decision to become home owners is the extra incentive the tax code gives them. Sure they have the, “I can paint the walls any time I want without getting permission from anyone” reason, but that is no where near as motivating as $1,000’s they get via the deduction every year.

Obama limiting this to the “wealthy” may think he’s not hurting those home owners in the lower tax brackets, but he’d be wrong. The housing market is a connected market. In other words, what hurts home values at the top eventually spreads lower depressing all home values.

Aren’t home values depressed enough?

Another big problem with this proposal is that those “wealthy” folks buy homes in the areas of the country still getting ravaged by massive foreclosures. Places like Arizona, California, New York, and Florida need this like they need a hole in the head.

These States are still reeling from a glut of homes due to the foreclosure crisis. Many of which are of the “luxury home” variety. I guess Obama forgot that only the rich can afford a luxury home.

Don’t get me wrong, I’m not crying for the rich. I’m crying for the housing recovery. Choking it off before we even get started is just plain dumb.

So Obama and his removal of the mortgage interest deduction wins my “Dumbest Idea of the Week” award.

Can’t wait for next week!

Good Luck!

Photo Credit: SEIU International

Tags: Economy, Foreclosures, housing, mortgage interest, mortgage interest deduction, obama

Probably the most succinct to the point explanation of the difference between economic forecasting and astrology was summed up when John Kenneth Galbraith said:

“The only function of economic forecasting is to make astrology look respectable.”

Since, of late, I’ve been propounding one be an expert in one’s local economics if one wants to be successful in the real estate investing business, I thought I’d write a word or two about what I’ve been preaching. You see, it is my opinion, economic forecasting in the micro versus the macro is the key.

I’ve also said using your local newspaper as a piece of the barometer will be useful in your endeavor. Mind you, if your paper is like mine, you can also find the astrology section and use it too.

Here is an extract from a story in the 2-22-09 online version of the Reno Gazette Journal. It talks about our retail vacancy rate which is one of the factors I believe is useful in determining not only what but how much my audience can afford.

Extract

The story opened with the news of already shuttered businesses. Those closed include Mervyns, Gottschalks, Krispy Kreme, T.G.I. Friday’s, Circuit City, CompUSA and On The Border (a local huge Mexican cuisine restaurant).

Mind you these weren’t the only retail establishments to close. They were just the big names. There actually were dozens more. The article did not include the 3 casinos that closed and let about 1,000 people enter the unemployment line.

It was so bad that our 7.9 percent retail vacancy rate in 2006 rose to more than 14 percent by the end of 2008. The term “vacancy rate” always means unemployed people. Granted some of them found work in other establishments and some moved out of town. But, that is still a hole for those of us who plan on selling, renting or leasing real estate, right?

The article also pointed out that people were frequenting restaurants less, buying fewer clothes and other consumer products. The truth is, no one knows for sure how many of the restaurants, for example, that are still open will be open by the end of the 3rd quarter of this year.

That is important because people who work in restaurants, and other small retail operations, generally don’t buy, they rent. And, they rent from you and I who own the rental homes and apartments. Without a job, they can’t pay their rent. I believe you know the rest of the story.

The Key

Here‘s the key in this scenario and it doesn’t take a great understanding of either astrology or economic forecasting to understand. Rents in all sectors of the real estate niche are coming down.

Not only are they coming down, but the rate of retail closings are expected to continue in 2009. Closings is another word for unemployed people. Unemployed people don’t buy, rent or lease real estate. I bet you can tell me what that portends for rent rates.

Your Area

I don’t put these words to paper to lament about Reno/Sparks, Nevada. We are resilient and have popped back before. I write this stuff because I’d bet if you don’t live in Washington, D.C. (it is the only city that hasn’t experienced the recession according to an article in the WSJ), the same type of “closings” are happening in your area. I write this stuff because now, more than ever, you may have to pay closer attention to economic forecasting.

Of course, if your astrology chart is already doing that for you, wonderful. I also believe you should keep using whatever is working for you-:).

By the way, Galbraith had some other doozies but I’ll leave that for another post.

Photo Credit: GrahamWilliam

Tags: Economy, forecasting, housing