U.S. Rebound May Be Bumpier Than Fed Expects as Credit Tightens
With what started out as a financing squeeze in the subprime-mortgage market now threatening other parts of the economy, it may be a struggle to achieve the 2.5% to 3% growth rate that most forecasters inside and outside of the Federal Reserve have penciled in for the second half of the year. Borrowing costs for companies are climbing as banks and investors demand more for their money and consumers are feeling the pinch from rising interest rates and sagging house prices. “We’re just starting round two,” says Andy Laperriere, managing director at International Strategy and Investment Group in Washington, which, along with others, sees growth for the period at below 2%. Laperriere, who was among the first to highlight the economic impact of tougher home-loan terms, says that, “Tighter credit appears to be spreading beyond the mortgage market.” “The market is overlooking the slowing effect” of higher borrowing costs, says Alan Blinder, a former Fed vice chairman who is now a professor at Princeton University. He says policy makers may have to cut rates this year to keep the expansion on track. Most economists expect no change in rates this year. (www.bloomberg.com)
Bloomberg.com (7/8/07); Rich Miller
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Florida Foreclosure Future Shock
A tidal wave of foreclosures may be heading toward Florida, according to Duane LeGate, president of House Buyer Network, who arranges quick sales for home owners in distress and claims he can predict where markets will go bad by looking at the traffic on his Web site. “We can tell you what’s going to happen nine months from now,” he said. His most endangered market right now is Orange County, Fla., home of Disney World. “Orlando has blown up,” he said. “There’s been a 700% increase in traffic of people filling out forms. I could put a bull’s eye on Orlando and write the headline for what will be going on in January and February." According to the National Association of Realtors®, Orlando prices for the first quarter rose 2.5% compared with a year ago, which would point to a weak, but more stable market. Nevertheless, LeGate trusts his indicators. Other locales LeGate identified as trouble spots include Clark County, Nev.; Riverside County, Calif.; and Prince Georges County, Md. However, some markets are turning positive, according to LeGate. The number of his client contacts from Maricopa County, Ariz. — the Phoenix area — dropped this year by about 38%. And looking good are Prince William County, Va. in the Washington, D.C. metro area, where client contacts fell 37%, and nearby Fairfax County, where they’re down 40%. (cnnmoney.com)
CNNMoney.com (7/6/07); Les Christie
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Increasing Rate of Foreclosures Upsets Atlanta
Despite a vibrant local economy, Atlanta home owners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation. A big reason that the problem of borrowers not being able to make their mortgage payments when their adjustable rate loans reset at a higher interest rate is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states, declaring a borrower in default and reclaiming a house in as little as 60 days. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods. So far, the pain has been limited to those on the financial margins. An estimated 2.7% of all housing units in the region were in foreclosure at the end of last year, up from 1.1% in 2000, according to an analysis by the Atlanta Regional Commission. Nationally, less than 1% of all housing units were in foreclosure, according to data from the Mortgage Bankers Association and the Census Bureau. While wages have languished, average Atlanta families are shouldering more debt. As of March, residents had bigger credit card balances, mortgages and car loans relative to their income than average Americans, according to data compiled by Moody’s Economy.com. And the equity that Atlanta residents have in their homes has dropped 14% since peaking in late 2005. (www.nytimes.com)
New York Times (7/9/07); Vikas Bajaj
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A Tough Time, But Big Builders Build Share
Despite a decline of 231,000 sales in the new-home sector, the top 100 residential building companies in the country increased their market share in 2006 to 43.6% from 36.6%, according to Builder magazine. Just 10 years ago, their market share was 28%. The top 10 builders registered the largest gains last year, boosting their share of the new-home market to 25.7% from 21%, Builder reported. (www.chicagotribune.com)
Chicago Tribune (7/1/07); Lew Sichelman
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Subprime Lenders on Notice
New guidance from federal financial regulators will almost certainly cut sharply the availability of high-risk mortgages for subprime buyers. In a June 29 policy statement on loans to borrowers with imperfect credit histories, federal financial regulators urged banks, credit unions and their mortgage subsidiaries to verify the income, assets and employment of all borrowers, except when substantial financial reserves can be shown. The guidelines also say that lenders should underwrite adjustable-rate subprime mortgage applicants at the “fully indexed” interest rate, not at a deeply discounted teaser rate. The federal regulators also stressed that lenders should approve subprime adjustable loans based only on “the borrower’s ability to repay the loan according to its terms.” (www.washingtonpost.com)
Washington Post (7/7/07); Kenneth R. Harney
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Modulars Build a Reputation: Communities Welcome Them; Buyers, Builders Praise Looks, Durability
Modular or prefabricated homes have gained a whole new level of respect, and although the sector makes up a small portion of the residential construction business and has been hit by the slowing new-homes market, it is one of the fastest growing segments of the industry, according to NAHB. “The disadvantages to modular are mostly preconceptions,” said builder John Garrett, who owns Virginia Building Solutions in Tappahannock. “People misunderstand the product. They think the houses are boxy or they can’t get the finishes they want.” That may have been true 10 years ago when the choices were limited, but today modulars come with cathedral ceilings, high-pitched roofs, granite countertops and any number of floor plans, “and you can customize,” Garrett said. A client brought Garrett a set of floor plans, which he took to the engineers at Ritz-Craft Homes. They turned the design into a computer-generated modular plan that meets national, state and local building standards. The 3,400-square-foot home was built in a factory in Hamlet, N.C. in four months, where a similar home would have taken a year. Five modules — some as big as 60 feet by 14 feet — were transported to the site and installed by crane. “Modulars are very well built. They go up much faster with quality construction at a more reasonable price,” said Brian Bower, the home’s owner. (www.timesdispatch.com)
Richmond Times-Dispatch (7/1/07); Carol Hazard
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