Housing Bubble What's The Trouble?

New Jersey Business News is talking about Owners having trouble unloading homes.

For James Bednar, the 29-year-old founder of the blog New Jersey Real Estate Report, there's nothing like a game of "Lowball!" to get a sense of how buyers and sellers are behaving these days.

For those new to the game, it works like this: Every time a buyer makes an offer on a home that's at least 20 percent below the original listing and the seller accepts it, Bednar takes note of it. Then, every month or so, he takes the most dramatic lowball deals and posts them on his blog.

"Two years ago ... it was difficult for me to get even a handful of lowballs, maybe a dozen at most," Bednar said. "But when I do the same analysis today, I get back 10 times that number."

Despite the sharp slowdown in sales and the drop in home prices, Sean Maher, a housing analyst with Moody's Economy.com, said it would be a stretch to characterize the housing slump in New Jersey as a "crash."

No Crash Huh?!

Let's take a look at Lowball! January 2008



The above is a partial list.

The Unsold Inventory Index for New Jersey now stands at 15.6 months. With that inventory, I sure am relieved to find out New Jersey home prices haven't crashed yet. Given that 38%-65% off simply isn't crash level, I am now figuring 85% off is the minimum requirement before we can call an "official" crash unless I receive clarification from Sean Maher at Moody's.

More About Lowball Bids

Tonight I received this email from "DD" about lowball bids.

Mish,

Really enjoy your work. I live in Hinsdale, Illinois not far from you. The housing market here is basically frozen, with very few transactions taking place, so it's very hard to gauge what the market is like.

Last week my brother in law bought a house that originally was listed a 3.5 million for 2 million even. Down 40%. The listing price had dropped to 2.25 million and he low balled with a 2 million bid that had his agent all freaked out as being too low. Five minutes later, "sold to you". Now I am sure there were issues, a divorce, etc. It's just one sale but I think it could rock the high end of the market. Things are getting very interesting around here.

Regards,

DD

Five minutes later "sold" makes me think the lowball bid wasn't low enough. In this market, any bid accepted in 5 minutes is likely to be be outrageously high.

The Interest Rate Sucker Trap

The Sacramento Bee is reporting builders are attempting to unload homes with with low rates.

Sacramento home builders have tried practically everything to move product in a slow market: lower prices, auctions, luxurious upgrades and so on. Now they're offering cheap money. Working in tandem with lenders, two home builders are offering mortgage financing for new homes at below-market rates.

JMC Homes of Roseville and Lennar Corp. offered properties with 30-year fixed-rate mortgages of 4.875 percent in newspaper advertisements Friday. The offer by Miami-based Lennar offer is nationwide.

Those rates are considerably below the U.S. average of 5.68 percent, according to mortgage company Freddie Mac. The average rate hasn't fallen below 5.23 percent in Freddie Mac's 37-year history.

Buydown Bingo

That interest rates sounds cheap. It's not. The deal is an expensive sucker trap.

I asked David Donhoff at No Bull Mortgage and Michael Dorff at Trans World Financial how much that buydown is worth. I was told 2.25-2.50 points for a buydown to 5% by Dorff and 2.5-3 points for the buydown to 4.875 by Donhoff. Assuming 3 points and a $400,000 house, that buydown amounts to a maximum of $12,000.

In this market, $12,000 of incentives is clearly peanuts. My advice is to wait until Lennar gets desperate. At that point make a truly lowball bid or better yet wait some more. The longer you wait the better the deals will get. You might have to wait a long time. Click here for an estimate as to when housing may bottom.

Lawsuits Over Commissions

You know builders are desperate for cash when when Developers Sue Realty Firms over previous paid commissions.

With numerous condo buyers walking away from sales contracts, developer Related Group has begun suing real estate brokerages to get back commissions on those busted deals.

Related has filed at least 15 lawsuits in Miami-Dade Circuit Court since last month to recover more than $460,000 in commissions on at least 19 sales contracts in the 389-unit Hallandale Beach Club Tower III property at 1800 Ocean Dr.

In suing, Related risks alienating realty firms that bring prospective buyers to its developments, some brokers said.

“If somebody is suing you, do you do business with them?” asked Edward Roberts, owner of Beachfront Realty in Miami Beach, which is being sued for the return of about $53,000 in commissions. “We’re furious that they are doing this. We have made them billions of dollars in the last five or six years.”

The lawsuits mark the latest legal spats in the fallout from the overheated real estate market. Up until now, most of the litigation has been spawned by dozens of buyers trying to escape contracts with their deposits.

“Buyers put up 20 percent deposits. Where did that money go?” said Roderick Coleman, a Boca Raton lawyer representing three brokerages being sued by Related. The developer “didn’t give it back to the buyer. It shows Related must have some business difficulties if they are trying to get back commissions on deposits they have kept.”

Housing Bubble Trouble



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Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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