Finding Bright Spots Among the Dark Clouds
Among mortgages made to borrowers with good credit, 97.4% are continuing to be paid on time, according to the latest delinquency and foreclosure numbers released by the Mortgage Bankers Association. In some states, delinquencies among prime borrowers are far lower — just 1.35% in Oregon, 1.39% in Washington state, 1.89% in Virginia and 1.9% in California. Prime-credit borrowers who took out fixed-rate loans in most states are performing even better than prime borrowers as a whole — just over 2% on average nationally and barely more than 1% in California, Oregon, Hawaii and Washington are paying late. However, among borrowers with subprime mortgages, 14.5% nationwide are behind on their payments by at least 30 days. That’s more than five times the rate of delinquency among prime borrowers, but it also means that 85.5% of subprime borrowers are still paying on time each month. The numbers get worse when you look at the performance of subprime borrowers who took out adjustable-rate loans, such as the notorious “2/28” mortgages that allow low monthly payments for the first two years but then reset upward with a big jolt at the beginning of the third. In West Virginia, 26% of owners with subprime adjustables are past due; in Mississippi, it’s almost 27%. The bottom line is that the scary foreclosure and delinquency rates are highly concentrated — among loan types and local and regional economies, and they are expecially prevalent among investors in formerly high-flying markets. (www.washingtonpost.com)
Washington Post (9/15/07); Kenneth R. Harney
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Greenspan Says U.S. Not Headed for Recession: Report
On a book tour to publicize the release of his memoir, former Federal Reserve Chairman Alan Greenspan said on NBC’s “Today” show that the U.S. economy appears set to weather the housing downturn without falling into a recession. He also said that he expects more mortgage delinquencies and home foreclosures in the U.S. and global housing markets. “I think we’re going to have to go through this adjustment, as indeed all the other countries are in the process of going through it,” he said. “There are going to be a lot of people who will have very tragic stories.” In a separate interview with CNBC Television, he warned that the Fed has to be careful to avoid stoking inflation with any future policy moves. “It’s very clear that the trade-offs between inflation and growth have altered,” he said. “The Fed has to be more careful about inflation now than it did when I was chairman." In an interview in the Dutch newspaper NRC Handelsblad, he warned that inflation will rise to about 5% in Europe and the United States. (www.washingtonpost.com)
Washington Post (9/17/07); Mark Felsenthal, Reuters
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The New Money Pit; It Started With Subprime Mortgages
Between November 2001 and April 2005, housing and housing-related industries created 788,300 jobs, or 40% of the total created in the U.S., according to Asha Bangalore, an economist at Northern Trust in Chicago. But since August 2006, employment in housing-related industries has declined 119,400, and the collateral damage is spreading. Because home sales and moves stimulate purchases of appliances, electronics and furniture, the giant chains that catered to house flippers and renovators have reported recession-like results. In the second quarter, same-stores sales were down 5.2% at Home Depot and 4.3% at Sears. Americans who were living high by taking out home-equity loans during the boom have watched their equity drop, and are now faint of heart when it comes to big-ticket discretionary items. The National Marine Manufacturers Association said it expects pleasure-boat sales, down 6% in 2006, to fall 10% more in 2007, largely due to the housing woes. The nation’s biggest retailing sector — automobiles — is likewise feeling the effects. In July, auto sales were down 12% from the year before. When CNW Research asked consumers who were putting off plans to buy new cars why they were doing so, 17.6% cited housing issues like falling home equity or rising mortgage payments. (www.newsweek.com)
Newsweek (9/10/07); Daniel Gross, Eleazar David Melendez, Alice Chen, Lynn Waddell and Temma Ehrenfeld
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Fading American Dream Fuels Rentals
The turmoil in the mortgage market, on top of a shortfall in apartment construction, means that the market for renters could become tighter over the next three to five years than it’s been since 2000, says Hessam Nadji of Marcus & Millichap Real Estate Investment Services. During the real estate boom, a record number of renters bought homes as interest rates fell and lenders eased their standards. If the homeownership rate falls over the next two years from 68.2% back to its 2002 level of 67.9%, Nadji estimates it will translate into 2.3 million households entering or re-entering the rental market. Renters will suffer less in some markets than in others. Apartments should be widely available, for example, in parts of Florida, where the explosion of condos swamped demand. Many of those units are becoming rentals, which tend to be pricey. The vacancy rate in Tampa Bay is up to 10% from 6% a few years ago, and some landlords are offering a month or two of free rent, says Marc Rosenwasser of Meadow Wood Property. Over the next five years, the demand for apartments is expected to swell to 430,000 units a years because of job growth, immigration and children of baby boomers moving away from home. That projection exceeds the expected construction of 250,000 new apartment and condo units a year, according to Marchus & Millichap. (www.usatoday.com)
USA Today (9/30/07); Noelle Knox
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Home Builders Fight Back: New Ads Will Say Market Isn’t as Bad as Portrayed
Blaming growing inventories and reluctant buyers on a relentless tide of bad news about home sales and prices in national and local media, metro Atlanta home builders have launched a media blitz to counteract what they say is a false impression of the area’s market. Steve Palmer, chief financial officer for campaign participant Bowen Homes, said the million-dollar campaign will remind consumers that now is the best time in years to buy a house and reassure them about the long-term stability of Atlanta home prices. “I think the media is doing home buyers a disservice by pounding people with all this negative news,” Palmer said. David Ellis, executive vice president of the Greater Atlanta Home Builders Association, said the real estate boom years of 2005 and 2006 created unrealistic goals for home sales, making Atlanta’s current slow-but-steady numbers appear gloomier than they really are. “We’ve slowed down. There’s absolutely no doubt about that,” Ellis said. “But we’ve slowed down to where we were in, say, 2000, and that was a record year.” The campaign — under the slogan “Get Home Atlanta!” — will employ a variety of techniques to steer attention to its Web site. In addition to offering prizes for visitors such as a week’s resort vacation and skybox seats at the Georgia Dome, the site will spell out 10 reasons a house is a good investment and now is a good time to buy. “Now’s the time to act if you’re looking to take advantage of this buyer’s market,” Ellis said. (www.ajc.com)
Atlanta Journal Constitution (9/13/07); Julie B. Hairston
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Study Shows High Sea Rise Danger for U.S. Coastal Cities
A sea level rise of 1 meter could have catastrophic impact along the 12,000 miles of U.S. coastline, where 53% of Americans live, according to scientific analysis by the environmental nonprofit group Architecture 2030. Such cities as Miami Beach and Hollywood, Fla.; New Orleans; Hampton, Va.; and Point Pleasant, N.J. would have major areas under water with a sea rise of 1 meter. By a 1.5-meter rise, Miami and other Florida communities, along with East Boston, Mass.; Galveston, Texas; and Atlantic City, N.J. are in deep trouble. By 3 meters, San Francisco, New York, Boston, San Diego and Savannah, Ga. suffer severe damage. The new study, based on satellite imagery, tidal patterns and on-location measurements of likely coastal city “breach points,” analyzes the sea level shifts that global warming could trigger at much smaller increments than earlier government and private reports. Images of the potential city-by-city flood impact findings, integrated into Google Earth city images, are available at www.architecture2030.org. (www.postwritersgroup.com)
Washington Post Writers Group (9/9/07); Neal Peirce
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