Housing Doom

Any way you look at it, the New Home Sales numbers were down:

Sales of new one-family houses in January 2007 were at a seasonally adjusted annual rate of 937,000, according
to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban
Development. This is 16.6 percent (±12.8%) below the revised December rate of 1,123,000 and is 20.1 percent
(±9.4%) below the January 2006 estimate of 1,173,000.

Note the high margin of error for these figures.  That does cast some uncertainty as to the extent of the decline.

According to CNBC:

The monthly decline was the sharpest in 13 years, since a 23.8% drop-off in January 1994.

YOY the decline was the largest since July’s 30.54%.

Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd., indicated in an interview on Bloomberg this morning that this refutes other views that housing has hit bottom.  She indicated that new sales lead resales by six months, and this does not bode well for the resale market, in spite of yesterday’s NAR report of a MOM sales increase.

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If you listen to some of the cheerleaders in the real estate industry, they have concluded that the housing industry has "stabilized."  One of the reasons given is that speculators have left the market, and now the market only consists of people buying homes for themselves.

A quick glance at the Arizona Republic classifieds yields a different story.  Here are some of the funding ads from last weekend:

$$$ Private Real Estate Loans That Don’t Cost an Arm & leg Call Dennis 520-XXX-XXXX
  
12% "Hard Money" RE Equity Loans 602-XXX-XXXX
  
Bridge Loans $200,000 to 10 million. Direct lenders National/International. 5-day closing/No advance fees. Lowest rates and Best terms. Brokers fully Protected and Respected. "since 1985" 917-XXX-XXXX
  
  
Fast $ Loans Any purpose Real Estate BK, Pend TDS, Bad Credit: OK Conv & Private Programs Five day COE possible! Req. LTV (Equity) a Must. Visit www.epifund.com 480-XXX-XXXX
 
Fast Mortgage Loans Call 602-XXX-XXXX
  
FAST REAL ESTATE LOANS Any Credit,  Call 480.XXX-XXXX
 
Hard Money Real Estate Loans, Improved Residential Property 70% LTV max, Call 602-XXX-XXXX
  
Investment Real Estate Hard money loans $100k to $5 Million Jim @ 602-XXX-XXXX
  
Mortgages-Low Rates, Fast Closings. NO-DOCS, Good & Poor Credit. Call Tim: 480-XXX-XXXX  
   
Private Lender-immed money for any real estate. Best rates flex terms 480-XXX-XXXX
  
Real Estate Loans Purchase - Refinance Equity Loan - Construction Rehab. - Existing Notes Credit Ratings A to D Bad Credit O.K. NEED MONEY FAST? Private Loans for Special or Unusual Circumstances Funded in 5 Days or Less* (480) XXX-XXXX
  
Real Estate Private Money Loans Specializing in Residential, Fix/Flips, Rehab, Commercial From $100k. 480-XXX-XXXX 

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Lereah’s headline on today’s National Association of Realtors (NAR) press release was "Existing Home Sales Improve in January."  All the Bloomberg pundits this morning were celebrating a 3.5% increase in existing home sales.  According to my version of Excel though, January’s sales number of 6.46 million is LESS than last January’s 6.75 million.  The 3.5% increase was month-over-month.  The seasonal nature of real estate means that year-over-year numbers are always the more significant: Year-over-year sales were down 4.3%.

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It’s Lereah Day.[1] Near the end of each month, NAR’s chief economist releases statistics on the previous month’s existing home sales. The Mainstream media avidly follows these numbers and Lereah’s (often hyper-optimistic) comments. The January analysis has just been released.[2]

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One of America’s greatest 20th Century poets leads off Doom’s week.

Elizabeth Bishop was born in Massachusetts, but spent much of her early childhood in Nova Scotia, at a very small community called Great Village, just east of Lower Economy. Doomers can read this two ways, but it’s really just about a place near the Bay of Fundy.

For M.B.S., buried in Nova Scotia
                                        by Elizabeth Bishop

          Yes, you are dead now and live
only there, in a little, slightly tip-tilted graveyard
where all of your childhood’s Christmas trees are forgathered
          with the present they meant to give,
and your childhood’s river quietly curls at your side
and breathes deep with each tide.

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Last Wednesday the Arizona Republic ran an article on the expansion of Arizona State University’s construction school.  In the print version on page D5 was a list of statistics provided by the Arizona Chapter of the Associated General Contractors. [no link provided]  Here are some of those numbers:

• The constructioin industry employed about 242,800 people in Arizona last year, representing about 1 out of every 11 jobs statewide.  Another 750,000 people work in fields that support the industry.
• The state’s General Fund collected more than $1 billion in sales taxes from contractors in 2006.
• Construction accounted for 9.5% of the state’s gross domestic product in 2005.
• Arizona’s construction industry grew 27% in 2005; nationally, the construction industry grew 10.5%.

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Hat tip to L, and kudos to Catherine Reagor for breaking this story:

Regulators have shut down Mesa-based Eagle First Mortgage and its more than 75 Valley branches, citing illegal lending practices.

The Arizona Department of Financial Institutions pulled the license of the mortgage firm and its broker, David Sanchez, last week. Regulators described more than 100 illegal money transactions, loan activities and hiring practices.

The firm, one of the largest that Financial Institutions has shut down, has until March 14 to finish any outstanding loans and close its doors.

Implode-o-meter currently lists 24 lenders that have shut their doors since December, but I believe that the others have all closed due to funding issues, not due to fraud.

Some of the violations include:
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Maybe Super-Freddie will have to go it alone. A few days ago Freddie Mac CEO Richard Syron was pleading with government and regulators to unleash the big GSEs so they could help "stabilize" the mortgage market in its hour of need. Then last Friday Fannie Mae’s boss, Dan Mudd, assured the markets [1] that Fannie’s exposure to the riskiest mortgages was minimal. This did not sound like a company eager to gorge on the same paper that has sunk two dozen warehouse lenders since last December. Still, with audited Fannie financials up to ten months away, we’ll need to study pronouncements like this carefully for hints as to what’s really going on. Doomers please adjust your tin-foil hats, it’s parsing time …

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This past week was a "Houston we have a problem." scenario for subprime lenders and the wider financial markets.  Mortgage originations are down, poor loan quality has forced a number of lenders to buy back loans, and our friend Aaron at Implode-o-meter has been busy tracking the body count.

As a result of all of this, there are those lenders (not all, but enough) who in their anxiousness to win your business, might not want to interest you in all the messy little details like say, what this loan is REALLY costing you.

Hat tip to L, for sending us the link to a really good article called, 10 Things Your Mortgage Lender Will Not Tell You.  I recommend following the link and reading the whole thing, but here’s the "CliffsNotes" version for Doomers who have a Saturday morning tee time to make or whatever:
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This [1] just posted on the IMH web site.

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Notes and References

[1]: "Impac Mortgage Holdings, Inc. Reports Net (Loss) Earnings of $(66.3) Million for 2006 Compared to $270.3 Million for 2005: Estimated Taxable Income Was $79.5 Million for 2006 Compared to $142.9 Million for 2005", Company Press Release, PRNewswire - Source: Impac, February 22, 2007.

IRVINE, Calif., Feb. 22 /PRNewswire-FirstCall/ — Impac Mortgage Holdings, Inc. (NYSE: IMH) ("IMH", "Impac" or "the Company"), a real estate investment trust ("REIT"), today reported a net (loss) of $(66.3) million or $(1.06) per diluted common share for 2006, as compared to net earnings of $270.3 million, or $3.35 per diluted common share for 2005. The decrease was primarily attributable to a compression of net interest margins which is mainly due to borrowings re-pricing more quickly than the adjustable mortgage assets. Additionally, net interest income decreased as a result of a decrease in the average balance of securitized mortgage collateral. Another primary factor contributing to the decrease in net earnings was the $257.9 million decrease in fair value of derivatives, which was partially offset by a $181.8 million increase in cash receipts from derivatives. Additionally, net earnings decreased by $29.5 million as a result of a lower of cost or market charge primarily related to loans repurchased during the second and fourth quarters of 2006.