Housing Slump Pinches States in Pocketbook
State tax revenues around the country are growing far more slowly this year and in some cases falling below projections as a result of the housing market slowdown that has curbed spending on real estate, building materials, furniture and other items. The downturn is most apparent in Florida, where tax revenue is projected to drop this year for the first time since the energy crisis of the 1970s. However, other states are seeing their collections slow, especially in sales and real estate transfer taxes, and the impact can especially be seen in states where housing prices soared in recent years. For example, New Jersey could face a $2.5 billion shortfall by mid-2008 and California could face two consecutive years where tax revenues are $2 billion below projections after coming up $1 billion short in income tax receipts this January. The inability of home owners to extract equity from their homes will also have an impact. At the end of the real estate boom, 16% of new car purchases in Florida were made with home equity loans, compared with 7% nationally, according to CNW Marketing Research. Maryland’s real estate transfer tax has tumbled by 22% this fiscal year, suggesting that fewer homes are being sold, prices have fallen or both. In Connecticut, transfer tax revenue is down by 13.3% so far, compared to the 3.6% decline predicted by state budget analysts. (www.nytimes.com)
New York Times (4/8/07); Abby Goodnough
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Condos Feel the Mortgage Crunch: Behind in Payments, Many Owners Forgo Association Dues
In a sign that the turmoil in the subprime mortgage industry is affecting entire communities and not just individual home owners, condominium association officers, property managers and real estate lawyers through the Washington, D.C. region are noticing more delinquencies in monthly fees. About one in six Americans live in a community run by a condo or home owners association. Fees pay for such services as water, garbage removal, cleaning and repairs. For many subprime borrowers who are struggling to keep up as the interest rates on their mortgages are adjusted and their payments climb, the bill from the condo association becomes easier to ignore. Phil Ochs, a lawyer who represents about 40 condo and home owners associations in Montgomery and Prince George’s counties in Maryland, said he has seen 10 foreclosures since January. In the past 45 days, 15 people living in communities he represents have declared bankruptcy to stave off foreclosure. Most of them bought their condos in the past two years, he said. Delinquencies are also increasing on units that investors had hoped to sell for a quick profit but now are renting out, sometimes for less than their monthly mortgage payment. To make up for the shortfall, some choose not to pay condo fees. (www.washingtonpost.com)
Washington Post (4/7/07); Nancy Trejos
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Moderate-Income Home Buyers Hit by Predatory Lenders
Based on an analysis of the sales and mortgage histories of 15,500 properties, a study by the Reinvestment Fund, a community-development group in Philadelphia, has found that one in 30 home owners in the city have been hurt by predatory lenders who target people who live in moderate-income neighborhoods and whose homes are often their only asset. Among those who have refinanced frequently, the odds of being victimized increase to one in seven. Lax lending in the first half of the decade allowed people to buy homes they otherwise could not have afforded. But when the housing market softened, people who had trouble making their monthly payments got stuck with houses they could not sell or refinance. The most vulnerable were subprime borrowers with blemished credit or low incomes, who pay 2% to 3% more on a mortgage than a more credit-worthy borrower. Predatory lenders add to those already high costs by raising the rates even further and tacking on fees. A predatory loan may have high prepayment penalties, for instance, that strip the equity from a home. A recent study by the Urban Institute based on federal data found that 17.6% of all conventional home-purchase and refinance loans in the Washington, D.C. area were made by subprime lenders in 2005 — a new high for the region. A separate study by the Center for Responsible Lending found that predatory loans stripped families in the area of $24.9 million in home equity in 2001. (www.washingtonpost.com)
Washington Post (4/4/07); Dina ElBoghdady
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Workouts Could Soften Impact of Subprime Lending Woes
Considering that more than 7 million homes are bought and sold each year, First American Corelogic researcher Chrisopher Cagan says that the possible 1.1 million foreclosures among ARM loans originated between 2004 and 2006 won’t put enough inventory on the market to do serious harm. But the latest forecast from the Anderson School of Management at the University of California, Los Angeles, predicts that the “credit crunch” now underway as lenders tighten their standards will trigger a “second leg” of reduced housing production and prices. But the delinquency and foreclosure numbers may not be as dire as they seem because foreclosing on a property can lead to expenses and losses of 30% to 60% of a loan’s outstanding balance, according to groups like the Mortgage Bankers Association. Lenders say they would often rather bring a delinquent loan back into compliance than take possession of the property. In some cases, lenders are working with borrowers to modify loan terms, lowering interest rates or extending terms to lower monthly payments. In instances where borrowers are coping with temporary job losses or health problems, lenders may show temporary “forbearance” by suspending payments for up to 90 days. In other cases, lenders are negotiating longer-term repayment plans that give delinquent borrowers a set time period, such as 18 months, to catch up on their payments. As a last resort, lenders are often agreeing to “short sales” in which they collect all of the proceeds from the sale of a distressed property, in exchange for letting borrowers off the hook even if the sale price doesn’t repay their loan in full. (www.inman.com)
Inman News (4/0/07); Matt Carter
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Volatile Prices Will Cut Copper Demand From Contractors, OEMs
With near-record prices and a late-year decline in housing construction, North American use of copper dipped in 2006 by 0.5% to just under 5 billion pounds. With residential housing construction in the doldrums and a slowdown in commercial and consumer goods, analysts and buyers agree that copper and brass demand in 2007 will be lucky to match 2006 poundage, but probably will dip by a couple of percentage points. “Demand for copper-based products is dropping like a stone,” says a buyer at a plumbing products wholesaler in a recent survey by Purchasing magazine. A typical house in the U.S. and Canada contains 400 pounds of copper and brass. Since the construction industry accounts for around half of total U.S. copper consumption, the collapse in new housing construction is having a direct negative effect on copper demand. “The bearish U.S. housing market will be negative for copper demand,” says Helen Henton, head of commodity research at Standard Chartered Bank in London. “Although its importance has diminished relative to China, the U.S. still accounts for 13% of global copper demand. Therefore, the status of the U.S. housing market is likely to continue to have a significant impact on the world copper market.” (www.purchasing.com)
Purchasing.com (4/5/07); Tom Stundza
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The Clutter Stops Here; As Mudrooms Become Must-Haves, Even the Name Gets an Update
As American houses become larger, less formal and more child-centric, the lowly mudroom is finally having its day. In its new incarnation, it is not some dark corner of the laundry room or a bench in the garage, but a full-fledged room, often decked out with hardwood floors, crown molding, windows and a computer or security station. Stephen Melman, NAHB’s director of economic services, said that a survey by the association of architects last summer found that the mudroom was taking on increased importance in new construction, especially since the laundry room is now often being put on the second floor, near the bedrooms. “Architects are telling us that all upscale homes” built in the last two or three years “have transition rooms,” he said, using one of the terms that has replaced “mudrooms” in some parts of the country. And when something becomes popular in high-end houses, he added, “we expect it to start migrating to average-price homes,” especially those with primarily open floor plans, which need some kind of space where clutter can be organized and stored. These rooms may be called transition stations, commuter stations or friends-and-family entrances, but they all share a common purpose: connecting the side or garage entrance to the house, usually by way of the kitchen, and offering cubicles or lockers for each family member. (www.chicagotribune.com)
Chicago Tribune (4/5/07); Leslie Kaufman, New York Times News Service
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