Home Market Took a Costly Subprime Advance
The subprime mortgage industry rushed so many buyers into the housing market that it opened an ownership gap, pulling in people who likely would have bought a home only years later, and that gap is stalling the recovery in the housing sector, according to housing analysts. Subprime loans sped up and burned a class of future home owners, said Freddie Mac Chief Economist Frank Nothaft. “If they had delayed their initial decision to buy, they would have had a higher likelihood of transitioning,” he said. “Now they’ve had a taste of (homeownership) and are back in the tenant pool — maybe forever,” referring to subprime buyers who have recently been driven to foreclosure as their low, early loan rates spiked and became unaffordable. The low interest rates during the boom were also irresistible. “That did pull housing demand from the future into the present,” said NAHB Chief Econoist David Seiders. “When all that demand supply pressure started to push prices up, the whole thing died under its own weight.” In 1996, 18% of home owners were younger than 25, according to the Census Bureau. In 2006, that share grew to 24.8%. (www.reuters.com)
Reuters (5/4/07); Patrick Rucker
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All Balanced on the Housing Market Front
“The market that we’re now in is much more balanced,” said Steve De La Peña, vice president of Oahu operations for Century 21 All Islands. “Buyers have the time to look around and make choices. They have less pressure to jump on something right away. It makes it easier on everybody.” De La Peña said that Hawaii’s heady market began to mellow around the middle of last year, but that today’s level of activity remains healthy. “It’s still a great market,” he said. “Stepping down from the best market in the history of Hawaii real estate — that’s okay.” The number of Oahu single-family home and condominium sales peaked in 2005 at 12,607. Sales dropped 17% to 10,421 last year, and have continued to decline this year at a slower pace. Inventory, which dropped to roughly 1,700 units in mid-2005, has been around 4,000 this year, and the median price for a single-family home was up just 1% for the 12 months through April to $630,000. The year-to-date median condo price was $322,000, up almost 6%, compared with a 15% rise last year. Angie Pasion, an agent with Aloha Hawaii Realty, said one of the bigger recent challenges has been dealing with tighter lending standards as a result of the fallout of several mainland lenders struggling with defaults on exotic mortgages. “It has a tremendous effect,” she said. “I find that more challenging than selling. I have the product, but it’s the mortgage companies now providing the pressure.” (www.honoluluadvertiser.com)
Honolulu Advertiser (5/7/07); Andrew Gomes
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IRS Kicks Home Owners While They Are Down
Home owners who are seriously delinquent on their mortgages and reach an agreement with their lender to modify their loan and have some of their debt forgiven could find that they owe federal income tax on the amount forgiven. According to the Internal Revenue Service, when personal debts are canceled by a creditor, the amount forgiven is treated as ordinary income under the tax code, except in some situations such as insolvency, and the lender is required by law to report the canceled amount to the IRS. Introduced in mid-April, the Mortgage Cancellation Tax Relief Act of 2007 would amend the tax code to exclude debt forgiveness on principal home mortgages from treatment as income. The legislation could assist many home owners in financial trouble who negotiate pre-foreclosure “short sales” or deeds in lieu of foreclosure, or those whose foreclosure proceeds are insufficient to pay off their mortgage debt. Short sales are increasingly commonplace for home owners who are seriously behind on their mortgage payments and can’t solve their problem with a loan modification or rate reduction. As an alternative to foreclosure, the lender might suggest a quick sale of the house, often to an investor who will buy it at a discounted price. If the short sale proceeds are $10,000 less than the outstanding mortgage balance and the lender agrees to forgive that amount, the legislation would allow the relief to be obtained tax-free. (www.washingtonpost.com)
Washington Post (5/5/07); Kenneth R. Harney
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Other Reasons Borrowers Falter
According to a recent study by Freddie Mac, even people with good jobs and good credit are struggling to keep pace with their mortgages. In an analysis of 2006 figures, Freddie Mac found that among borrowers with good credit, rising health-care costs and personal debts were the reasons behind a growing number of mortgage delinquencies and that far fewer delinquencies were tied to job losses or pay cuts. At the end of 2006, job losses or pay cuts caused 36% of delinquencies, compared with 43% for each year between 2001 and 2005, Freddie Mac found. Meanwhile, delinquencies caused by too much personal debt, including insurance premiums, rose to nearly 14%, up from 11%, while delinquencies ascribed to health care and illness rose to about 21%, from about 19%. According to a study last year by the Kaiser Family Foundation and Hewitt Associates, health-care premiums have jumped 87% since 2000 and the percentage of workers covered by an employer’s health plan dropped by three percentage points. Those who are still covered are bearing a greater share of that burden, the foundation said. In the Northeast, for instance, they paid $2,765 for family coverage last year, up from $1,499 in 2001. Rising property taxes are also a hidden cost as counties jack up tax rates to compensate for a slowdown in home values. (www.nytimes.com)
New York Times (5/6/07) Bob Tedeschi
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Celebrity Playgrounds Sometimes a Hard Sell
From Miami to San Francisco, the U.S. real estate market is glutted with the splashy homes of professional athletes. Salaries and signing bonuses have soared and even some first-year players are living in gigantic homes. At the same time, however, trades and free-agency deals have continued at a rapid rate, resulting in more of these properties being put up for sale every year. Over-the-top, customized amenities such as eight-foot doorways, wrought-iron gates emblazoned with uniform numbers and basketball courts with stadium seating aren’t hitting home with prospective buyers. Many of these properties are sitting on the market for a year or more, and if they finally do sell, it’s often at substantially discounted prices. Red Sox slugger Manny Ramirez has yet to sell his 4,500-square-foot condo in Boston. The $6.9 million penthouse in the Ritz Carlton Towers was listed in 2005, when Mr. Ramirez put it up for sale amid postseason rumors that he wanted to be traded. He wound up staying with the team and recently took the apartment off the market, but local agents say it’s still available. The price may be too high for the area, agents say. But potential buyers may also be having trouble seeing themselves in an apartment that has a bedroom decked out like Fenway Park, including a mural of the field with the trademark Citgo sign in the background and twin beds made to look like the Green Monster outfield wall, with authentic painting and netting. (www.wsj.com)
Wall Street Journal (5/4/07); Ben Casselman
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Need It or Want It?
Consumers want things in their homes to last a long time, but they junk their cabinets, faucets and all sorts of appliances long before they wear out because their tastes, desires and lifestyles change and manufacturers are forever catering to and encouraging those changes as they try to improve their sales. For instance, based on comments from about a dozen faucet manufacturers, an NAHB study of the life expectancy of a home’s components concluded that kitchen faucets should last an average of 15 years. Yet only about 30% of residential faucets sold each year replace ones that are broken or worn, said Jack Suvak, marketing research director at Moen. The rest are split between newly built homes and remodeling projects, wherein people typically start replacing their fixtures a couple of years after moving in. “Most home owners are not comfortable with what they inherited,” Suvak said. “They want to make it their own.” Given that people typically don’t remodel piecemeal, lots of fixtures and appliances get replaced simply to match the new fixtures and appliances around them, said David Pringle, chief executive of Broan-NuTone. That’s why the company offers 40 new styles of medicine cabinets each year, Pringle said. Medicine cabinets should last more than 30 years, the builder’s study found, but manufacturers do not want consumers to hang on to them for nearly that long. (www.washingtonpost.com)
Washington Post (5/5/07); Dina ElBoghdady
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