Current tax credit program hits the skids

It looks like the $6,500 tax credit for existing homeowners looking to buy another home has been pretty much DOA for a variety of reasons. From an AP story via MSNBC.com:

It sounded like a great idea three months ago: Hand homeowners a $6,500 tax credit to find a new place to live, giving a thrust of energy to the housing market's recovery.

So far, people are staying put.

In November, the federal government extended a tax credit of up to $8,000 for people who hadn't owned a home for three years. This credit had helped boost home sales last summer and fall. Seeking to build on that momentum, the government added a new credit of up to $6,500 for current homeowners, hoping it would transform them into house-hunters this winter and spring...

But real estate agents around the country say the credit is doing little to elevate sales. Reasons vary.

The unemployment rate is still near 10 percent and consumer confidence is falling. Home prices have stabilized in some markets, but are still a third below their 2006 peak. Droves of people who want to sell are stuck because their home is worth less than they paid for it. Harsh winter weather has Americans shoveling driveways instead of preparing their home for buyer visits...

Agents believe the credit's true test will come in the spring, the busiest home-buying season. Concerns about high unemployment could keep buyers on the fence...

Another problem is that homeowners, in many cases, will need to sell their current home to afford a new one and claim the credit on tax returns. That's a major issue for borrowers who owe more than their home is worth. Nearly one-in-three homeowners with a mortgage is currently in that situation, according to Moody's Economy.com.

Also, $6,500 may not mean much to a buyer with enough equity to sell a property and afford another home. The savings will hardly dent down payments or moving costs. Most sellers employ real estate agents who typically receive 6 percent of the sales price...

Economists argue that a tax credit is rarely the sole motivation for a home purchase. Many believe tax credits just accelerate sales that would have happened anyway, leading to a drop off once that demand is exhausted...

To qualify for the $6,500 credit, buyers must have owned and lived in the same home for five consecutive years out of the past eight. They must sign a contract by April 30 and close before June 30. Lawmakers can extend both tax credits, but it's not clear if they will.

The home's purchase price can't exceed $800,000, and it must be used as a main residence. The income limit for single taxpayers is $125,000; for a married couple, it's $225,000.

Can Fannie and Freddie ever exit life support?

A year after the government takeover of Fannie Mae and Freddie Mac, it seems that both mortgage entities would likely fail without the implied guarantee of U.S. taxpayers. First from an AP story via MSNBC Money:

A year after the near-collapse of Fannie Mae and Freddie Mac, the U.S. mortgage giants remain dependent on the government for survival and there is no end in sight.

The companies, created by the government to ensure the availability of home loans, have tapped about US$96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a mortgage.

Many questions remain about Fannie and Freddie's future, but several things are clear: The companies are unlikely to return to their former power and influence, the bailout is sure to cost taxpayers even more money and the government will have a big role in the U.S. mortgage market for years to come...

A year later, the government controls nearly 80 per cent of each company, and their problems are growing as defaults and foreclosures continue to skyrocket.

The percentage of homeowners who have missed at least three months of payments is normally under one per cent for both companies. Now it's nearly four per cent for Fannie and three per cent for Freddie...

It could be another year before the final taxpayer tab for Fannie and Freddie is known, and that outcome will depend on when delinquencies and foreclosures finally crest.

Barclays Capital predicts the companies will need anywhere from $160 billion to $200 billion out of a potential $400 billion lifeline, which the Obama administration expanded from the original $200 billion set last fall. Most analysts don't expect the money to be returned any time soon, if at all...

For its part, the Mortgage Bankers Association is hoping for an overhaul of both GSEs into smaller, more manageable pieces. Can anyone say "turf war?" From a Reuters story via MSNBC:

The U.S. Mortgage Bankers Association said on Wednesday it will ask Congress to transform mortgage lenders Fannie Mae and Freddie Mac into several smaller, privately held companies that would issue mortgage securities with a government guarantee.

The proposed framework from the industry group would give successor entities to Fannie Mae and Freddie Mac the authority to create securities backed by certain types of mortgage...

"The government has an important, limited role to play to ensure a stable flow of funds for mortgages," said Michael Berman, MBA's vice chairman and chairman of the Council on Ensuring Mortgage Liquidity.

The MBA plan calls for government agencies, rather than the new companies, to assume the "mission" of promoting affordable housing that Congress has long assigned to Fannie and Freddie.

The number of new companies would be initially limited to two or three, the MBA said.

Fannie Mae and Freddie Mac were not immediately available for comment.

Housing starts decline again as apartment financing dries up

Due largely to lack of financing for all types of commercial properties -- including apartments -- housing starts fell during April by nearly 13% from March levels to just 458,000 units -- the lowest seasonally adjusted level noted in half a century, although permits for single-family homes rose by 2.8%. On the plus side, such a low level of new construction for a country of over 300 million people will certainly help to clear out inventory levels. From the AP via L.A. Times:

Housing construction plunged to a record low in April as a steep drop in apartment building offset a rebound in single-family construction. Permits for new projects also hit a new low. The Commerce Department said today that construction of new homes and apartments fell 12.8% last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records going back a half-century...

Economists had expected home construction and building permits to post modest increases in April as signs that the worst collapse in housing activity in the post-World War II period was drawing to a close. Even in last month's big decline, there were some signs of stabilization.

Construction of single-family homes rose 2.8 percent to an annual rate of 368,000, following a 0.3 percent gain in March and no change in February. The stability in single-family construction likely will be viewed as a hopeful sign that the three-year slide in housing could be bottoming out...

Housing construction fell 30.6 percent in the Northeast, the largest drop for any region. Housing starts dropped 21.4 percent in the Midwest and 21.1 percent in the South. The West was the only region showing strength with a 42.5 percent jump in housing starts. The National Association of Homebuilders reported Monday that its survey of builder confidence increased for the second straight month in May, reflecting growing optimism on the part of many builders...

But analysts cautioned that the wave of foreclosures hitting the market means that builders still face tough competition to sell new homes...

Manufactured homes go high-tech

One of the little-known facts about manufactured homes (i.e., those built in factories and then assembled on site as opposed to being built from scratch on the lot), is that they're often better built than 'stick-built' homes. Since builders can provide a much more consistent level of quality control in a factory, that certainly makes sense, but of course there's always been the 'trailer park' factor and sketchy financing that's prevented manufactured homes from selling more than 300,000 or 400,000 homes per year.

But in a bid to make such homes more upscale and trendy, builder Clayton Homes -- one of the companies in Warren Buffett's arsenal -- has, in a bid to the iPhone and the iPod, introduced the "iHouse," a souped-up manufactured home with energy efficiency in a decidedly modernistic style. Perhaps now buyers' irrational snobbishness about preferring stick-built homes, no matter the quality, will change, if at least slowly. Clayton even hopes that the new iHouse will make up 10% of their sales within 12-18 months. From an AP story via MSNBC:

From its bamboo floors to its rooftop deck, Clayton Homes' new industrial-chic "i-house" is about as far removed from a mobile home as an iPod from a record player.

Architects at the country's largest manufactured home company embraced the basic rectangular form of what began as housing on wheels and gave it a postmodern turn with a distinctive v-shaped roofline, energy efficiency and luxury appointments...

Clayton's "i-house" was conceived as a moderately priced "plug and play" dwelling for environmentally conscious homebuyers. It went on sale nationwide Saturday with its presentation at the annual shareholders' meeting of investor Warren Buffett's Berkshire-Hathaway Inc. in Omaha, Neb.

"This innovative 'green' home, featuring solar panels and numerous other energy-saving products, is truly a home of the future," Buffett wrote his shareholders. "Estimated costs for electricity and heating total only about $1 per day when the home is sited in an area like Omaha."...

Clayton Homes plans to price the "i-house" at $100 to $130 a square foot, depending on amenities and add-ons, such as additional bedrooms. A stick-built house with similar features could range from $200 to $300 a square foot to start, said Chris Nicely, Clayton marketing vice president.

The key cost difference is from the savings Clayton achieves by building homes in volume in green standardized factories with very little waste. Clayton has four plants in Oregon, Tennessee, California and New Mexico geared up for "i-house" production...

"It does not look like your typical manufactured home," said Thayer Long with the Manufactured Housing Institute, a Washington-based group representing 370 manufactured and modular home-building companies.

And shattering those mobile home stereotypes is a good thing, he said. "I think the 'i-house' is just more proof that the industry is capable of delivering homes that are highly customizable at an affordable price."...

More good news on the housing market?

Given the length of the housing bust, it's easy to see why people would want to declare any good news on the economy as the sign of a rebound. So is the latest news on the rise in construction spending and pending home sales simply a blip or the beginning of a better trend? From an AP story via the L.A. Times:

Hopes that the recession is easing got a boost Monday from reports that construction spending and pending home sales both fared better than expected in March.

The Commerce Department said construction spending increased 0.3% in March, the best showing since a similar rise last September. Economists surveyed by Thomson Reuters had expected spending to drop 1.5% for a sixth straight monthly decline...

Meanwhile, the National Assn. of Realtors said its index of pending home sales rose 3.2% to 84.6 in March, the second straight monthly increase after it hit a record low in January. The pending sales index also is 1.1% above last year's levels. Typically, there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

The demand for new homes appears to be recovering faster than that for previously occupied homes. In March, sales of pre-owned homes fell 3% to an annual rate of 4.57 million from a downwardly revised pace of 4.71 homes in February, the National Assn. of Realtors reported.

Economists called the new data faint glimmers of hope that construction activity might be stabilizing, although at very low levels...

Economists, however, cautioned that the construction rebound could be temporary, given all the problems facing the industry as a severe financial crisis has made it hard for builders to obtain financing.

Spending on private residential projects fell 4.2% in March, the latest in a series of declines that began three years ago when the housing bubble burst with disastrous effects for the home industry and the overall economy...

Have new home sales hit bottom?

Have new home sales in the U.S. finally hit bottom? It's certainly a question on the minds of many in the building industry, and there's certainly no shortage of funds remaining on the sidelines waiting to pounce on the right opportunities. From an AP story via Yahoo! Finance:

After a staggering 74 percent decline from the peak in July 2005, new U.S. home sales appear to be bottoming out.

The pace of home sales, which hit a record-low in January, jumped in February and was flat in March, the Commerce Department said Friday. At the same time, the inventory of new homes for sale dropped a badly needed 5 percent from February levels....

Sales varied dramatically around the country. The best performance was in the West, where sales rose more than 15 percent from February. The worst turnout was in the Northeast, where sales sank more than 32 percent. They were unchanged in the South, and down nearly 8 percent in the Midwest.

Since the data measures signed contracts to buy new homes rather than completed sales, they probably got a boost from the new $8,000 tax credit for first-time buyers passed in mid-February. In addition, California offers a $10,000 state tax credit for buyers of new homes, and that's likely boosting sales in that state.

An index of builders' confidence released earlier this month posted its biggest one-month jump in five years as many homebuyers seized on lower prices and incentives and took advantage of lower interest rates and tax credits...

Pulte Homes to buy Centex

Although many pundits had thought this would be the year that would begin the consolidation of home building companies, they also probably thought it would start small, with large builders picking up smaller, private ones. But in a $1.3 billion transaction, two giants -- Pulte and Centex -- have announced a merger that would create by far the industry's largest home builder, with annual revenues double that of the current leader, D.R. Horton. From an AP story:

Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation's largest homebuilder -- by far -- and could spark further consolidation in an industry that is suffering the worst real estate recession in a generation.

The transaction, which also includes $1.8 billion of debt, will combine Pulte's strength in active-adult and retirement housing with Centex's hefty market share of first-time homebuyers.

The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states and Washington, D.C.

But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif., and Cape Coral, Fla.

The new company, which will keep the Pulte name and headquarters in Bloomfield Hills, Mich., will have cash reserves totaling $3.4 billion and pay off $1 billion in debt by the end of the year...

Pulte and Centex contend that the deal will help them capitalize on what the executives see as the beginning of a recovery in the housing market.

On Wednesday, new data showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom...

But the deal also is being driven by fierce market forces. Homebuilders are struggling to find their footing as credit remains tight and potential customers remain leery of buying a home in the face of rising unemployment. The industry has attempted to stem the bleeding by slashing new construction and prices to unload existing inventory.

Economic woes slowing migration to Sunbelt areas

One important consequence of the housing crisis has been the inability of people to sell their homes in order to move for new opportunities. And that was before the economy started to soften. Now it's becoming an even larger trend, forcing people to stay put until their fortunes revive, and in the cross hairs are the Sunbelt states. From an AP story via BigBuilderOnline.com:

Strapped by the nation's economic crisis, fewer Americans are migrating to Sun Belt hot spots in Nevada, Arizona and Florida, instead staying put for now in traditional big cities.

Census data released Thursday highlight a U.S. population somewhat locked in place by the severe housing downturn and economic recession, even before the impact of rippling job layoffs after last September's financial meltdown...

As a result, rust-belt metro areas such as Buffalo, N.Y., Pittsburgh and Cleveland stanched some population losses, and Boston, Los Angeles and New York saw gains. Well-to-do exurbs around Washington D.C. saw growth slowdowns as people weary of costly commutes moved closer to federal jobs in the nation's capital.

"It's the bursting of a 'migration bubble,'" said William H. Frey, a demographer at the Brookings Institution think tank who analyzed the numbers. "Places that popped up in migration growth in the superheated housing markets earlier in the decade are now just as quickly losing their steam."...

The latest population trends come as state and local governments are deciding where to pour billions of dollars in federal stimulus money to develop schools, roads, bridges and other infrastructure. The nation's decennial head count, used to apportion House seats and redraw congressional districts, also is fast approaching.

Las Vegas, known for its warm climate and wide spaces, had its smallest annual population gain in nearly 20 years...

California had the biggest net loss from people moving to other states. The declines in its interior regions put it at risk of losing a House seat. Los Angeles had major gains, but partly at the expense of Riverside, a sprawling exurb nearby...

Click here for full story.

Why is mortgage fraud still a problem?

Over the weekend I received an email from an editor of the opinion page of the Washington, D.C. Examiner (a conservative publication) asking me about the impact of mortgage fraud on our economy. This was my response (from which he has asked to quote):

A few things come to mind about mortgage fraud:

1. Yes, I do think there was pervasive fraud at all levels of the mortgage process, from agents getting kick-backs from affiliated lenders to appraisers who couldn't get work unless they played along.

I also think there was fraud for construction loans, as I know some rather compliant consulting firms out there who would manufacture just about any story (which you can easily do with data if you know what you're doing) to assist builders and developers either get approval from corporate offices for projects or to include with loan applications to lenders. On further inspection, however, the conclusions were made out of thin air and based on 'rules of thumb' that simply didn't exist.

Believe me, when I dared to proclaim in the L.A. Times in July 2007 that sometimes builders didn't really do their homework and just hoped for the best, I'm sure I lost potential clients in the building industry. But I was also the type to tell clients, "Sorry, bud, this ain't gonna fly!"

2. I also think the fraud continues, and I have very grave concerns that we're not learning any lessons in this country. For example, I had read a story in Business Week that the same companies which sold sub-prime loans to the uninitiated have simply re-worked their business models to sell FHA loans. Well, guess what? FHA loans are also now going sour at a higher rate than anticipated, and could eventually need their own bail-out.

3. Not only that, but some appraisers who actually lost their licenses due to fraud are now back working for 'appraisal management companies' that are supposed to act as an objective liaison between lenders and agents. Only it doesn't quite work that way: agents can simply say, "assign me x appraiser" through this intermediary, and we're back to business as usual.

I don't think we're going to fix the mortgage fraud problem until we see a some perp walks and major scofflaws going to prison. Otherwise I guarantee you we'll just see more of the same, and in that environment, why doesn't everyone just quit their jobs and become appraisers and mortgage brokers?

Lest anything think that response was too harsh, here's a summary from an AP story on mortgage fraud via the L.A. Times:

The mortgage industry, applying far more scrutiny after a tidal wave of defaults, reported a record number of mortgage fraud incidents last year, with Rhode Island making its first appearance as the nation's top fraud hot spot.

The number of mortgage fraud reports among loans made last year grew 26 percent from a year earlier, according to a study released Monday by the Mortgage Asset Research Institute.

The increase came as lenders dramatically tightened their standards, making it more difficult for borrowers to qualify for home loans without large down payments, solid credit and proof of their incomes...

The recession has also increased pressure on shady mortgage lenders and brokers -- as well as borrowers -- to lie on loan applications, according to the fraud report. "There's a lot more desperation, with the economy being what it is," said Jennifer Butts, one of its co-authors.

More than 60 percent of mortgage fraud cases last year stemmed from falsified applications, while 28 percent came from tax returns or financial statements, and 22 percent came from appraisals, the study said.

One fast-growing scheme, the report said, is coming from "foreclosure prevention specialists" who offer to rescue distressed borrowers and sometimes trick the borrower to sign over the deed to their house. While some states have recently toughened penalties for such scams, but only a few state attorneys general are able to seek criminal charges and jail time...

As awareness of the mortgage fraud problem grows, law enforcement agencies are stepping up their efforts to combat it. The FBI created a Washington-based national mortgage fraud team in December and has more than 1,600 open mortgage fraud investigations, more than double the number of such cases just two years ago.

With so many ongoing cases, FBI investigators are not focusing on individual borrowers but industry professionals generating fraud schemes that could total as much as hundreds of millions of dollars.

Looking forward to seeing some perp walks!

Trump + Mexico = Disaster

For buyers purchasing properties outside the U.S. -- and especially in Mexico -- the term 'caveat emptor' (buyer beware) is ringing more and more true. In a PR disaster for Donald Trump and his company, buyers who put down over $32 million in deposits at his Ocean Resort Baja project are now out of luck. From an AP story:

Stephen and Linda Drake cast aside concerns about owning property in Mexico because they believed in Donald Trump.

The Southern California couple paid $250,000 down payment on a 19th-floor oceanfront condo in Trump Ocean Resort Baja in 2006 before the first construction crew arrived.

But admiration for the celebrity developer and star of "The Apprentice" has now turned into anger and disbelief as Trump's luxury hotel-condo plan collapsed, leaving little more than a hole in the ground and investors out of their deposits, which totaled $32.2 million...

All that remains of Trump Baja is a highway billboard with a large photo of Donald Trump that advertises condos for sale. It hovers over a closed sales center and showroom, a paved parking lot, a big hole that cuts a wide swath, drainage pipes and construction equipment.

The failure of Trump Baja is a big blow to a real estate market just south of the border from San Diego that was booming two years ago with U.S. buyers looking for second homes and easy profits but is now similarly swooning. The market has been hammered by Mexico's drug-fueled violence and the global economic crisis.

Other developers completed big projects nearby in recent years and the area remains home to thousands of Americans, but the cliff-lined coast is pocked with partially built towers. The steel frame of one oceanfront high-rise is rusting, with air ducts hanging from one floor and an idled crane out front. A wind-tattered sales sign hangs outside twin towers nearby, one that appears almost complete and the other a much shorter steel skeleton.

Trump Baja demanded about 30 percent down for units that sold from less than $300,000 to $3 million, buyers said.

Deposits on abandoned projects are also at risk in the U.S., even in states like California that prohibit developers from spending the money on construction, lawyers say. The risk may be higher in Mexico because consumer protection laws are generally weak...

In response to a request to interview Donald and Ivanka Trump, the Trump Organization issued a statement that said its partner violated an agreement to license the Trump name, missing deadlines to obtain financing and begin construction...

Yah. Uh-huh. Sure, that's it. Nothing to do with the economy!

12% of all mortgages and 48% of sub-prime mortgages in default

I'm still waiting for a perp walk of those people who were responsible for the sub-prime debacle, because they had to have known how these loans would end -- badly. According to an AP story, 48% of adjustable-rate, sub-prime mortgages and 12% of all mortgages are in technical default. But now the pain has spread to people who can't pay because their lost their jobs as well as those who bought more home than they could afford:

A stunning 48 percent of the nation's homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure, and that's not the worst of it, new data Thursday showed.

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis are no longer driving up the nation's delinquency rate. Instead, the foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs...

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007...

The news comes a day after the Obama administration kicked off a new program that’s designed to help up to 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments.

Borrowers, however, are being advised to be patient in their efforts to get help because mortgage companies are likely to be flooded with calls...

Meanwhile, debt-strapped homeowners unable to afford their mortgages could get their monthly payments lowered in bankruptcy court under a controversial element of President Barack Obama’s housing rescue plan.

The legislation is part of a broader housing package scheduled for a House vote Thursday. It’s the toughest piece of Obama’s efforts to prevent foreclosures — a stick to go with the many carrots he is offering the mortgage industry to help borrowers afford their home loans.

New home starts fall to all-time low

As the excess inventory of new homes built during the boom years continues to be slowly absorbed, the number of new homes started has fallen to an all-time low -- at least since records were first kept in 1959. From an AP story via the LA Times:

New-home construction plunged to an all-time low in December, capping the worst year for builders on records dating back to 1959.

The Commerce Department reported today that construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month. That shattered the previous low set in November...

For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.

The report also showed that applications for building permits -- considered a reliable sign of future activity -- sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month...

The National Association of Home Builders/Wells Fargo housing market index, released Wednesday, dropped one point to a record 8 in January. The index was at 9 for the previous two months. Index readings higher than 50 indicate positive sentiment about the market. But the index has been below 50 since May 2006, and below 20 since April...

Would the last honest person in the U.S. please turn out the lights?

I remember last week my reaction to a report that students who cheat still consider themselves "good people" -- a complete and total lack of surprise. I'm sure the heads of Fannie Mae and Freddie Mac also thought the same thing. At least drug dealers and armed robbers know what they're doing is illegal; in some twisted way, that actually makes them more honest than the so-called professionals who've been running the housing industry over the last decade. From an AP story via MSNBC:

Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House committee.

E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.

Click here for full story.

1 in 10 homeowners with a mortgage now behind on payments

A record 10% of homeowners with mortgages are either behind on their payments or in the process of foreclosure. On the bright side, 90% are current! From an AP story via MSNBC:

A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted from risky loans to the crumbling U.S. economy.

The percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier, the Mortgage Bankers Association said Friday...

With the economy worsening, the much-anticipated bottom of the housing market likely will be pushed further into the future.

"Things are going to get worse before they get better," said Northern Virginia housing economist Thomas Lawler.

Most troubling, he said, is that the mortgage bankers' report reflects conditions before October's stock market plunge and the resulting economic fallout.

"The number of homes that are in the foreclosure process is so high — right before the economy has fallen off a cliff," Lawler said...

Click here for full story.

Some divorced couples still forced to live together due to housing market

I can imagine the scene now. A recently divorced woman invites a date over for movie night, only her ex-husband is cooking a home-cooked meal in the kitchen with his own date. A-w-k-w-a-r-d! According to an AP story, however, the depressed housing market is forcing more and more divorced couples to share living spaces rather to succumb to foreclosure:

With the recession and the collapse of the housing market, more and more couples who have broken up are continuing to live under the same roof, according to judges and divorce lawyers. Some are waiting for housing prices to rebound; some are trying to get back on their feet financially.

The phenomenon is being felt around the country but most keenly in areas hit harder by foreclosure, such as the Sun Belt.

When the real estate market was booming, couples would promptly sell their home, split the profit and go their separate ways.

These days, Florida Judge John C. Lenderman said, about a third of his cases involve homes that are in foreclosure or that a family is struggling to sell. Lenderman said he had never seen anything like it in 40 years as a lawyer and judge...

Sometimes the financial implications of a divorce are so grim that a couple whose marriage is on the rocks decide to give it another try.

Kent Peterson, a longtime divorce mediator in Wayzata, Minn., said a young couple from the Minneapolis area were moving toward separation until they got a look at all the costs involved in getting divorced.

"The thinking was they need to work a little harder and stay together because of the changing asset picture," he said.

Aww, that's sweet. Click here for full story.

Homeowners still engaging in "Homeallucination"

According to a recent AP story, many homeowners throughout the country are still engaging in what economist Chris Thornberg of Beacon Economics has dubbed "homeallucination." It means that although home values around your neighborhood have fallen, somehow you think yours is different. Special. Somehow immune to declines. In other words, what your therapist might gently call "denial." From the story:

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own. And by hanging onto too-high expectations, sellers are unwittingly keeping the market from finding a bottom...

A recent Coldwell Banker report showed that more than three-quarters of its real estate agents surveyed said most sellers have unrealistic initial listing prices for their homes.

Likewise, an unscientific study released last week by real-estate Web site Zillow.com found that half of homeowners polled think their home's price has increased or stayed the same in the past year.

"We expected people to get a little more in touch with reality especially over the summer, because you couldn't turn on the TV or read the newspapers without seeing that home prices are falling," said Amy Bohutinsky, a spokeswoman for Zillow.com. "It was very surprising to see this kind of disconnect."...

Click here for full story.

Obama will likely have to expand housing plan

Due to ongoing turmoil in the housing and credit markets, President-elect Obama's plans to fix the housing mess will probably need some serious expanding. From AP via MSNBC:

President-elect Barack Obama is inheriting the worst housing recession in a generation, and the proposals he outlined on the campaign trail won't fix it, so there will be many tough decisions ahead.

His plan includes a 10 percent mortgage tax credit for homeowners who don't itemize their taxes, and a change in the bankruptcy law to allow judges to modify mortgages for financially distressed homeowners...

But those proposals will have a minimal impact on the more than 4 million homeowners who are behind on their mortgages. They probably won't prop up home prices, which are down 18 percent from the peak. Nor will they bolster the confidence of consumers who have lost their jobs or are afraid they will. And Obama's plan won't make banks more willing to lend to consumers with less than perfect credit scores, or tiny down payments.

Reversing the real estate spiral will be an enormous feat.

Click here for full story.

As stocks and home prices crater, apartment market remains strong

I'd imagine that some apartment investors with long-term bets on the rental market are feeling somewhat vindicated by the news that, at least according to data tracker RealFacts (an alliance partner to MetroIntelligence and Beacon Economics), rents and occupancy levels continued to hold up during the third quarter of 2008. From an AP story via the L.A. Times:

Apartment rents, as well as apartment occupancy, across the country were virtually unchanged in the third quarter of 2008, according to RealFacts, a San Francisco-based apartment data research firm.

And while more than a million homes have been lost to foreclosure in the last two years and with banks readying for another 1.5 million repossessions, apartment buildings have remained solvent. To date, there have been virtually no foreclosures on large apartment buildings, according to RealFacts...

In the San Francisco Bay area, with one of the highest housing prices in the country, average rents for the third quarter were $1,637, or 1.2 percent higher than the $1,618 they cost per month in the second quarter.

In the Riverside-San Bernardino area of southern California, which has one of the highest foreclosure rates in the country, rents were $1,157 in the third quarter, slightly down from $1,162 in the second.

And in the Las Vegas area, also hit hard by foreclosures, rents were $887 in the third quarter and $886 in the second...

The data collected by RealFacts comes from more than 3 million apartments in complexes of 100 units or greater.

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The future of new homes is smaller

Good-bye McMansions in the suburbs -- the new homes of the future are likely be smaller, denser and built closer to jobs (finally!). Some builders have already started downsizing the plans they offer, while others will be slower to adapt because their entire business model (i.e., Toll Bros.) is predicated on luxury, move-up housing. From an AP story via MSNBC:

When the U.S. housing market hit the skids, homebuilders like KB Home that thrived by offering large homes and expensive amenities began to rethink their home designs with an eye toward making smaller, less costly homes.

Three years into the downturn, that trend appears to be intensifying, as many builders scramble to make their wares palatable and affordable to first-time buyers and compete with a trove of preowned homes and deeply discounted foreclosed homes on the market...

The trend in smaller homes is a reversal of more than two decades of expanding floorplans, during which median size single-family went from less than 1,600 square feet to more than 2,200 square feet.

That steady drive by builders to erect increasingly bigger homes peaked during the housing boom. Derided by some as McMansions, these super-sized homes packed with amenities helped drive up home prices even more...

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New home construction falls to 6-decade low

For those folks who think that home builders are only worsening the problem of unsold homes by continuing to add new inventory, new stats out by the Commerce Department show what we've already seen behind the scenes: starts have fallen to a six-decade low. From an AP story via the LATimes:

Construction of new homes plunged by a bigger-than-expected amount in September as builders slashed production yet again, putting the country on track to build the fewest homes this year in more than six decades.

A barometer of future building also dropped, falling to the weakest level in more than 25 years. Analysts blamed the renewed swoon on the financial crisis which erupted with force this fall, raising new anxieties among potential home buyers and making it harder for builders to get construction loans.

The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. It pushed total production to a seasonally adjusted annual rate of 817,000 units. That's the slowest pace since January 1991, when the U.S. was in a recession and going through a similar painful housing correction...

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