9.5 Ft. Wide NY Townhouse for $2.75M

Can you imagine a townhouse that is just nine and a half feet wide? And the interior only clears just over eight feet and it runs 42 feet deep. Definitely Pullman-style; it would fit quite nicely in Amsterdam.

The 990 square-foot skinny dwelling is located in the West Village area of New York City and is expected to sell near the list price of $2.75 million, or $2,777 a square foot.

To say that it is one of a kind is an understatement. The New York Daily News reports just how unique.

Built in 1873, the diminutive house is squeezed between 75 and 77 Bedford St. and has been home to a who's-who list of luminaries, including anthropologist Margaret Mead and Pulitzer Prize-winning poet Edna St. Vincent Millay.

Author Ann McGovern lived there briefly and the red-brick house inspired her to co-write the novel "Mr. Skinner's Skinny House."

Corcoran's [listing company] Web site claims that actors Cary Grant and John Barrymore also once called the thin house home.

Click here to read the entire article.

New Home Sales Continues to Rise

The news today from the Census Bureau on new home sales for July was up 9.6 percent from the revised June sales. July sales however were 13.4 percent less than the same period in 2008.

The really good news is the drop in the inventory level, which at the end of July was 271,000 homes. This represents, based on the current sales pace, a supply of 7.5 months, down from 12.4 month supply at the end of May. The inventory supply is approaching acceptable territory.

The median sales price of new houses sold in July 2009 was $210,100, down from $231,600 in June. The average sales price was $269,200 for July, down from $290,600 in June.

The new home sales numbers are based on contracts signed, not closings, so a push at the near end of the tax break for first time homebuyers probably had some effect on the numbers.

CNBC reported that there was an increase in July of 33 percent for houses yet to be built and a decrease of 6 percent in the number of sales of spec inventory. This is probably because builders are focusing on new builds because their margins are better and the product smaller and less expensive, better meeting current market demands.

Calculated Risk predicted that there would be two housing bottoms, one for sales and one for prices. That is being born out in a bottom for the number of sales, which now has several months’ backing. Except for the Case-Shiller Home Price Index, most real estate data shows a slowing, but still decreasing values.

The lack of activity in the $250+ price range is mainly due to the lack of move-up buyers to start the sales chain. Unemployment and foreclosures bear heavily on all market segment and drives the average prices south.

Here in Atlanta, the local data collector and numbers' cruncher for new construction is expecting a positive year-over-year increase in closings for single-family for July ... IF SINGLE-FAMILY ATTACHED IS EXCLUDED. Yes, we're anxious for some good news.

Unexpected Good News From June Case-Shiller Home Price Index

It's after 5:00, at least on the east coast, and I'm as ready as anybody else for some good news. The source of relief? The usual bad news bears at Case-Shiller actually had a pretty good June National 20-City Home Price Index report today, at least month-over-month. That's good enough for me. I'm heading for the champagne bottle.

The index rose 1.4% month-over-month, the 2nd month in a row of M-O-M gains.

Even though there remains a year-over-year home price decline of 14.9 percent, it's a substantially better comparison than the record decline of 19.1 percent in Q1 Y-O-Y.

Need more to dust off the good bottle of champagne? Sales of new and existing homes rose for three consecutive months through June. Housing starts were up in June, and an index of builder sentiment rose in July, though both remained at low levels.

Take a look at this beautiful graph from Calculated Risk showing the 20- city price comparison for the last three years:


But just to keep the bubbles under control, here is a comment from a Wall Street Journal article on today's housing news:

The latest readings don't necessarily herald a full-blown recovery for the housing market or broader economy. Consumer confidence remains near record lows. The U.S. unemployment rate, at 9.5% in June, is expected to hit double digits before year end, making swift growth and an expanding labor force unlikely anytime soon.

I have to stop now. Not only do I need to chill the champagne (wasn't expecting the Case-Shiller good news) but I also have to turn off the TV where Cramer is in an absolute rant about his call of a June 30 housing market bottom. Idiot.

"After hell, purgatory isn’t so bad.”

Insanity Invades the Stock Market - Fannie Mae Stock Run-Up Defies Logic

Thank you Washington Post for doing a piece today on the puzzling phenomena of Fannie Mae and Freddie Mac shares trading up almost 50 percent yesterday. I am not an expert on the stock market, far from it. But I don’t trust a market where a company is losing money so fast the Hoover dam couldn’t withhold the red ink and yet their stocks are being bought like it was water in the desert.

In addition home builder stocks and airline stocks were hot trades. Massive losses. Such an upside down market is not for me. Something is wrong.

On Monday, Fannie Mae jumped 41.7 percent, to $1.70 per share, with nearly 824 million shares bought or sold during regular trading hours. Freddie Mac rose 18.5 percent, to $2.05 per share, with almost 384 million shares trading hands. Activity in the two companies' stocks accounted for nearly a fifth of trading on the New York Stock Exchange on Monday, when 6.3 billion shares were bought and sold.

Now for a spot of perspective, Fannie and Freddie owe the government nearly $100 billion, “must pay massive dividends each year to the U.S. Treasury” and are looking at a future which, at least in my lifetime, doesn’t have a chance to turn a profit.

There was no news involving either company that could have explained the moves.

The government took a nearly 80 percent stake in each company, but left the stock outstanding. The shares of each settled below $1, and the New York Stock Exchange warned the firms that they'd be removed from the exchange if their stock did not rise above that threshold.

Still, most analysts say that because the companies owe the government far more than they are able to generate in profits, the real value of the shares is zero. Analysts said much of the trading volume has come from retail investors and day traders.

"This is a bullish market mode, and people are scouring big-time stocks that are trading at very low levels," he said.

The trading in Fannie Mae and Freddie Mac was reminiscent of unusual shifts in the stocks of other companies that have received government bailouts. American International Group jumped 63 percent on one day this month despite the fact that it is being sold in pieces to pay back the government. Shares of the old General Motors continue to be heavily traded since the automaker's bankruptcy filing in June, even though the stock represents the debt and old factories left after GM's restructuring and not the reorganized company, which has yet to issue new stock.Washington Post

Insanity. But what do I know. I thought you needed profits to make money. I guess AIG proved that wrong.

Bank Holding Companies Ranked by Commercial Real Estate Loans

In a new analysis, Moody’s explains why commercial real estate loans held by banks could be riskier than both mortgage securities backed by CRE or CRE loans made by life insurance companies. It’s all in the timing.

Commercial mortgage backed securities and life insurance CRE loans usually carry a 10-year term. CRE loans made by banks are generally only for five years. Most of the bank CRE loans would have been made during the peak bubble years and are likely to come due before a recovery in the commercial real estate markets. Therein lies the angst about an anticipated tsunami.

With few opportunities available for refinancing the mature loans, the future looks bleak. Take a look at bank exposure in the rankings below or click here for the list of 150 Bank Holding Companies Ranked by Commercial Real Estate Loans.

ResearchRecap provided the following excerpts from Moody’s report. Alternatively, you can purchase the entire analysis for $550 by clicking here.

Given where we are in the economic cycle, it is important to point out that there is a marked difference in performance by loan vintage and term. For example, CMBS loans are typically ten year loans, and the current lower delinquency rates encompass performance of those loans originated as early as 2000. These early vintage loans have seasoned and benefit from cash flow and value appreciation over the years.

Thus, CMBS loans originated earlier in the cycle are likely to help offset higher delinquencies from more recent vintage originations. A similar situation exists for life insurance companies as they hold loans with longer maturities. Bank loans tend to have maturities of five years or less. As a result, bank loan portfolios exhibit greater concentration in years representing the peak of the real estate cycle. They lack seasoned loans on their books to offset the higher delinquency rates expected from this time period.

Bank loans have an additional burden over CMBS at refinance due to their shorter remaining term. The economic downturn is just beginning to have a negative impact on real estate loan performance. As a lagging sector, real estate delinquencies are expected to rise over the next two years. For a bank loan with less than five years remaining, the potential to refinance in a more robust economic period is lower than for a comparable CMBS or life insurance company loan, with more than five years remaining.

A higher level of refinance risk for bank loans should contribute to higher delinquency rates over time.

Click on listing for a larger view of the partial list of bank rankings by commercial real estate:

Ripping the NAR

Ripping the National Association of Realtors should be a national sport. But where's the sport? It's just so EASY to tear down their smokin' mirror rhetoric; it's like shooting fish in a barrel.

Barry Ritholtz of the The Big Picture, and the author of Bailout Nation, did a number on the NAR in a post today about the spin put on the July Existing Home Sales report. As you know the data showed a 7.2 percent increase month-over-month. True enough. but Lawrence Yun, the NAR chief economist, presented this as a resounding, thrilling moment in the annals of real estate history. The news was far better than a stick in the eye, but the panacea for the market, it isn't.

Although I think Ritholtz goes a bit too far , he makes many, many excellent points in analyzing the data. Here's an excerpt, but take the time to read the entire piece.

The latest housing consensus as sung in three part harmony amongst the media and green shoots crowd. Their song goes something like this:

1) The worst of the housing trouble is now behind us;
2) Only recently, Housing was “Getting worse more slowly;”
3) That has transitioned to “Housing is getting better.”

I don’t believe it. IMO, all 3 are misleading or outright wrong. This post explains why...

A close look at the data reveals this to be a false premise. If you only read the NAR spin, its easy to fall into their web of happy talk. (We’ve said it so many times, it still bears repeating: The National Association of Realtors are a highly misleading news source. Look past what they say to the actual numbers if you seek economic truth).

In the past, I have gone so far as to imply the Realtors group are spinmeisters. This month, I will be more blunt: Their actual data has become untrustworthy, their spokesmen lie for a living, and their “news releases” is little more than misleading junk.

Investors who rely on the NAR version of the news do so at their own great financial peril.

With that intro, lets dig intot he actual data to show why the real estate trade group happy talk is misleading bunk. IF YOU ARE INTERESTED IN HOUSING, then you need to thoroughly fisk the NAR data, put it into context, and strip the lipstick off the pig...

Read the comments as well.

I just received an invoice for my membership into the NAR. The sad news is I'll pay it sans the large contribution for the NAR Political Action Committee.

7% Surge in Existing Home Sales a Mixed Bag

Same old story – good news…bad news. How I long for the days when any real estate news was good by default.

The National Association of Realtors released today the existing home sales numbers for July. The good news is that existing home sales rose for the fourth straight month in a row, something that hasn’t happened in two years.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate1 of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.

The bad news is the growth in sales was only on the very low end spurred by the federal tax credit for first time homebuyers and falling prices on distressed sales. See the following breakdown (birddogged by CNBC) that demonstrates the extreme pressure on housing above $250,000.

Total housing inventory remained basically unchanged at a 9.4 month supply (4.09 million existing homes) as more houses were brought to market offset by the gain in sales. Raw inventory totals are 10.6 percent lower than a year ago when the number of unsold homes was at a record.

Regional breakdown:

• Northeast sales rose 13.4 percent month-over-month and are 3.3 percent higher than July 2008. The median price was $236,700, down 15.0 percent from a year ago.
• Existing-home sales in the Midwest jumped 10.9 percent in July and are 8.0 percent above a year ago. The median price in the Midwest was $157,200, which is 5.9 percent less than July 2008.
• In the South, existing-home sales rose 7.1 percent in July and are 5.4 percent higher than July 2008. The median price in the South was $164,500, down 7.1 percent from a year ago.
• Sales in the West slipped 1.7 percent in July, but are 1.8 percent above a year ago. The median price in the West was $202,300, which is 28.0 percent below July 2008

We'll only find a bottom when foreclosures abate and prices stop falling.

MBA: Foreclosures to Peak by End of 2010

Indicators for months have pointed to prime loans as the next shoe to drop in the foreclosure free fall. The Mortgage Bankers Association is confirming the bad news in prime fixed-rate mortgages in their Q2 2009 Delinquency Survey.

Based on MBA records dating back to 1972, the delinquency rate breaks the record high set last quarter.

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

And from a statement on foreclosures by Jay Brinkmann, MBA's Chief Economist:

“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five....”

While prime fixed-rate loans showed the biggest increase in delinquencies, they are only a small percentage compared to subprime delinquencies. Prime fixed-rates make up 65.5 percent of all US loans outstanding, but only 32.4% of all new foreclosures. But with so much of the mortgage market made up of prime fixed rate loans, the increase is a disturbing trend.

Ominous rumblings resound in the report. Of the top twenty states with the biggest increases in Foreclosure Starts Rate, ten states are newcomers to the high rankings. In other words, the default net is expanding into heretofore lesser effected markets. The new big losers? Washington, Maryland, North Carolina, New York, Idaho and Hawaii.

MBA’s Brinkmann does not expect delinquencies to peak until mid-2010 and foreclosures to peak at the end of 2010.

The good news, if it can be called such, is that half of all negative equity (and therefore delinquency potential) in the U.S. is concentrated in three states - Florida, Arizona and Nevada.

Increasing foreclosures and unemployment prevents any realistic expectation of a housing bottom. Beware also of the second wave of subprime ARM loans that will be resetting to unsustainable rates over the next few years.

How many shoes can one market drop?

How Big is Social Media?

If you are still trying to get your arms around Social Media, you might want to take a look at this video - and try a little harder.

The video will at least give you the breadth of the subject in a fast paced statement that goes something like this ... "If you don't get this, you're missing out."

Case in point, on Saturday this video had 1,700 hits. By Wednesday afternoon there had been 122,388 hits.

Welcome to the World of Socialnomics...



If the video does not appear above, click here.

Thanks LB!

Where in the Hell is Matt?

Totally off subject today ...

I don't have any idea who Matt is, but I'll tell you he can't dance worth a damn and is fabulous anyway.

Matt says, "14 months in the making, 42 countries, and a cast of thousands. Thanks to everyone who danced with me."




Click here if video doesn't appear.

Insider Survey - Real Estate Agents Respond to Housing Market

Inside Mortgage Finance sponsored an informal nationwide survey of 1,556 real-estate agents in June. The anecdotal responses, while not surprising, are still interesting.

• The low end of the market - driven by foreclosures, first-time buyers, and investors - cranking. Prices are low, but velocity is high.
• The high end of the market is dead. Sellers are still in price denial, existing homeowners aren't trading up, and there are fewer foreclosures and forced sales at the high end - at least for now.
• For those who already own houses, "affordability" is not a particularly meaningful measure of housing-market health.
  

Here are some more highlights:

• The market for home purchases (listings) can be divided into segments of 26% for damaged REO (bank-owned properties, not move-in condition), 23% for move-in ready REO, 14% for short sales, and 36% for non-distressed properties.
• Forty-three percent of homebuyers are first-time homebuyers, 29% are current homeowners, and another 29% are investors.
• First-time homebuyers account for the majority of move-in ready REO sales while investors account for the majority of damaged REO sales.
• Real estate agents expect appraisal issues to be the No. 1 reason for cancellations of signed Purchase and Sales agreements over the coming summer months.
• Only 31% of non-REO home sale listings are unforced or optional; other major reasons for listings include financial stress (including short sales), long distance relocation, and divorce or estate sales.
• Homeowners are choosing to not list homes primarily because of “falling prices”, followed by “competition with distressed properties”.
• For first-time homebuyers, “Government incentives to buy (tax credits, mortgage deduction)” is the No.1 motivation to buy.
• For current homeowners buying homes, “Retirement relocation” and “job relocation” are the No.1 and No. 2 motivations to buy, respectively.
• “Sale of residence” is the No. 1 impediment to current homeowners seeking to buy another home.
• “Downpayment for mortgage” is the No. 1 impediment to first-time homebuyers seeking to buy a home, followed by “Slow answers on short sale offers.”
• On average, mortgage servicers take 9.5 weeks to provide a “yes” or “no” response to an offer to buy a short sale property.
• According to real estate agent respondents, “Mandated one-week response time on short sales offers” is the No. 1 rated action that the government could take to increase home sales and stabilize prices.
• According to real estate agent respondents, “Provide consistent one-week ‘yes’ or ‘no’ response to offers” is the No. 1 rated action that the mortgage servicers could take to increase short sales.
• According to real estate agent respondents, “Provide consistent one-week ‘yes’ or ‘no’ response to offers” is the No. 2 rated action that the asset managers could take to sell REO properties with lower overall losses; the No. 1 rated action is “Turn on utilities for inspections.”

Click here to see the report in its entirety.

New Record Set for July Foreclosures - Yet Again

U.S. Foreclosure Activity Up 32 Percent from July 2008

RealtyTrac® today released its July 2009 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 360,149 U.S. properties during the month, an increase of nearly 7 percent from the previous month and an increase of 32 percent from July 2008. The report also shows that one in every 355 U.S. housing units received a foreclosure filing in July.

“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”

...the deep reservoir of distressed loans kept spilling over any and all attempts to dam up foreclosures...


Four states account for more than half of total foreclosure activity ...
The top four state foreclosure activity totals in July were reported by California, with 108,104 properties receiving a foreclosure filing; Florida, with 56,486 properties receiving a foreclosure filing; Arizona, with 19,694 properties receiving a foreclosure filing; and Nevada, with 19,535 properties receiving a foreclosure filing. Together these four states accounted for nearly 57 percent of the nation’s total foreclosure activity.

• For the 31st consecutive month Nevada documented the nation’s highest state foreclosure rate, with one in every 56 housing units receiving a foreclosure filing in July — more than six times the national average. Nevada’s foreclosure rate rose despite a new law requiring lenders to offer mediation to homeowners facing foreclosure at the front end of the foreclosure process.
• Initial defaults (NOD) in California spiked 15 percent from the previous month, and the state registered the nation’s second highest state foreclosure rate for the third month in a row. One in every 123 California housing units received a foreclosure filing in July, nearly three times the national average.
• One in every 135 Arizona housing units received a foreclosure filing in July, the nation’s third highest state foreclosure rate and more than 2.5 times the national average.
• Other states with foreclosure rates ranking among the nation’s 10 highest were Florida, Utah, Idaho, Georgia, Illinois, Colorado and Oregon.
  

Click here for state foreclosure data.

Hitting Bottom? Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

“All real estate is local” is borne out by a new study by the Center for Economic and Policy Research and the National Low Income Housing Coalition. The report addresses two housing issues across 100 U.S. markets: the home price-to-rent relationship in certain housing markets, and the likelihood that homeowners in today’s market will gain equity in the next five years.

With home prices falling (according to the Federal Housing Finance Agency’s House Price Index, prices have declined in 79 of the 100 metropolitan areas studied), homeownership is becoming more affordable as compared to rents in most housing markets. But how long will it take for new buyers to regain equity territory?

The report estimates that homes purchased today in 21 markets won’t have positive home equity by 2013.

Click on the map to enlarge:

Considering the income producing economic model, a home’s sale price is derived from the rents it can generate, home prices in the United States have moved more in line with rental prices.
Beginning in 1995, however, this seemingly stable relationship between home prices, rents, and inflation radically diverged from the historical trend. Home prices shot up while rents continued to move in line with inflation. Where the ratio of median sales price to median annual rent had hovered close to 15 to 1 in recent decades (i.e. it took $150,000 to buy a house that would rent for roughly $10,000 per year) at the peak of the bubble in 2007, it went above 25 to 1 in many inflated markets.

This analysis indicates that in a growing number of metropolitan housing markets, the costs of homeownership are falling back into their historical relationship with rents. As this occurs, it seems likely that housing values have or will soon reach bottom and stabilize. This analysis also illustrates, however, that in order to expect this market stabilization to occur and to be able to achieve increases in affordability (a potential upside from a declining real estate market), the broader economy must also recover. In essence, we should be wary of a false bottom to the housing market and with this in mind, not wait to see if a reversal in home prices is sufficient to pull up the rest of the economy.

Since prices appear to be bottoming out, the most sustainable housing market recovery will come from making certain the floor under prices does not falter. This is done most directly by stimulating demand for housing through increasing employment and incomes. This will lead to the creation of new households and the reformation of independent households to absorb excess housing, be it for rental or ownership. At this point in the downturn, trying to stimulate the economy by incentivizing existing home purchases through homebuyers’ tax credits is at best putting the cart before the horse and at worst rearranging the deck chairs on the Titanic, to use the clichés.

In many communities, existing homeowners will continue to be underwater, owing more on their home than it is worth, for some time to come. Negative equity and high loan-to-value ratios in general are logically and empirically the best predictor of foreclosures we have. While in some instances this may be corrected by existing refinancing efforts, given the lack of success thus far, the size of the problem, and the potential for stagnation or even further decline in the economy, coupled with the fact that many markets clearly remain inflated, policies should be enacted that emphasize the avoidance of displacement as well as foreclosure.

What is the conclusion of the report?

When foreclosure cannot be avoided, homeowners should be given an option to remain in their homes as tenants at a fair market rent, for a substantial period of time (e.g. five to ten years) to preserve community continuity and stability, as well as minimize the disruption to the market caused by vacant and abandoned buildings. The Right to Rent would provide homeowners facing foreclosures in hard-hit areas an important degree of housing security and stability in the neighborhoods as a whole.

Policy makers must also find ways to transition households with few options in the private market into permanent affordable rental housing, including additional housing vouchers. Not only will new affordable rental options be necessary to ease the burden of households caught in foreclosure and the recession, but even if housing markets stabilize and the economy broadly improves, rising property prices and rents will be part of any such recovery. In this regard, the bottom of the crash is likely a good time to lock in affordable prices and establish long-term affordability to address the long-term affordable housing crisis that has only been exacerbated by the most recent boom and bust cycle.With state and local coffers empty, the National Housing Trust Fund should be funded to enable the purchase and preservation of affordable housing for those who will continue to need this assistance even after a recovery such as the elderly, the disabled, and low wage workers. This is also the sort of investment that will provide jobs and absorb excess housing, further accelerating the recovery.

Click here to see the report in its entirety with comparisons of the 100 housing markets.

Tip: WSJ

Home Builders - Will Work for Food (when working for money doesn't pan out)

Contracts up for new home sales but revenue for home builders is down. Seeking a bottom to falling prices ...

Toll Brothers Inc. said Wednesday fiscal third-quarter home-building revenue fell 42% as the housing market continued to sag.

In a prepared statement, the builder of luxury homes said home-building revenue for the three months ended July 31 fell to $461.3 million* from $796.7 million a year earlier.

Net signed contracts rose to 837 units from 812 units. In dollar terms however, net signed contracts fell to $447.7 million from $469.9 million.

"The increase in net contracts was generated despite our having approximately 22% fewer selling communities during FY 2009's third quarter than during FY 2008's third quarter: On a per community basis, our net contracts were up approximately 32%.

"Many markets feel better than they did six months ago. The consumer interest we saw in April and May leveled off a bit from mid-June through mid-July, but has regained momentum more recently. As the supply of unsold housing inventory shrinks nationwide and, if consumer confidence continues to improve, we should see stronger demand: It has already positively impacted our pricing power as we are reducing incentives in many markets."

Robert Toll, Chairman and CEO of Toll Brothers, puts a smiley face on the market in the company’s statement: “Although our industry continues to face significant challenges, we are encouraged by the increase in the number of net contracts signed this quarter."

The company had said in June that cancellations appeared to be leveling off, adding that the improving stock market and increased availability of mortgages for larger homes gave the company reason to be cautiously optimistic about the future.

The company's backlog at the end of the third quarter was about 1,626 units, down 37% from a year earlier. In dollar terms it fell 47% to $930.7 million.

*The company also said it estimates pretax write-downs related to operating communities, land and land options, and joint ventures in the third quarter to be between $90 million and $160 million. Included in the impairments are significant write-downs on certain land parcels targeted for disposition, it said.

Update 2:43 P.M. - CNBC is full of news of surging home builder stocks on the wings of Toll Brothers' increase in orders. Traders. Call me crazy but where is the profit potential if revenues fell 42 percent year-over-year with a 3 percent increase in contracts. BTW, the adjusted closed price in August '08 was $24.88. It is now trading at $23.41. Yesterday the adjusted closed price was $20.48. Nothing to do with profits.

Trend to "Jewel Box" Houses - Smaller and Smarter

Martha Stewart/KB Homes "Jewel Box"

Will the recession finally put to rest what Smart Growth advocates have failed to squash? That is, of course, the McMansion.

With the economy in full retreat and jumbo loans in hiding, downsizing is the call of the day. But sooner or later, this too shall pass. Since when have Americans shown a willingness to live frugally in times of prosperity? When a strong economy returns, and it will, homeowners may begin to once again seek more of everything. Larger houses, more privacy, more comfort, more luxury.

Call me a cynic if you must, but plenty of money in the pocket has a way of altering even the best of fiscally conservative principals.

But for now, the bigger-the-better houses are suffering from fewer buyers. Is it because nobody wants them, or nobody can afford them? Or is it that they are just out of vogue at the moment? Along with Hummers and mega yachts.

In the meantime, “jewel box houses” are the new buzz - a trend that doesn’t bear price-per-square-foot comparisons. The National Association of Home Builders published in their August Building News, the following "jewe box" trends from the Orlando Sentinel.

The current recession, the downturn in the housing market and the emphasis on energy-efficiency all are playing into the “jewel box house” trend in which small homes are designed with top-quality materials, upscale detailing and custom built-ins.

Tailored to the owners’ way of life, smaller houses suit a variety of demographic groups — including newlyweds, young professionals, empty-nesters and retirees.

Huge houses with hotel-scale foyers, formal dining and living rooms and vast master suites with spa-style bathrooms are out of sync with the informal way Americans live today, says architect Sarah Susanka, author of “The Not So Big House.”

In most houses, the kitchen is the heart, the place where family and friends gather. Americans take quick showers, they don’t luxuriate in soaking tubs. Not surprisingly, the home-furnishings industry is attuned to the downsizing trend, says Jackie Hirschhaut, vice president of marketing at the American Home Furnishings Alliance.

Increasingly, manufacturers are making furniture that is smaller and more multipurpose: love seats instead of sofas, expandable dining tables, home-office armoires with fold-down work stations and compact corner units for big-screen TVs.

Banks Turning to Receivers for Defaulting Properties

With banks amassing more foreclosed properties, both residential and commercial, many are turning toward receivers to cushion the pain of management through liquidation. By moving distressed properties to the custodial hands of receivers, banks can bypass foreclosure and avoid taking title to these collateralized assets by court direction.

With foreclosed properties, banks are thrown into the real estate management business, a direct antithesis to their business model of loaning money. While holding defaulted properties before liquidation, banks are liable for everything associated with the property including code violations, taxes, and liability. That explains why one bank in Victorville, CA chose to bulldoze unsold homes. Receivership is a way to offset that liability.



Without a hands-on manager, abandoned properties can be stripped of anything valuable one day and become a meth lab the next.

Many banks are asking courts to appoint receivers for developments especially in the bubble hotspots like California, Arizona, and Florida. Business is booming for receivers. The Wall Street Journal reports that California Receivers Forum, a trade association, has seen its membership increase to 550 today from 300 in 2007.

But receivers are expensive. “Spokesmen for Citigroup Inc. and GMAC LLC said they don't use receiverships often because of the expense,” reports the WSJ. “But Wells Fargo & Co. and Bank of America Corp. are giving lots of new work to receivers, according to industry participants. Wells Fargo declined to make anyone available for comment, but a Bank of America spokeswoman said the bank uses receivership because it is efficient and avoids disputes among multiple creditors.”

Last week I posted a piece on the liquidation of properties under the WL Homes’ Chapter 7 bankruptcy. The Wall Street Journal reports further on the receivership process for those properties at the behest of creditor, Bank of America.

The bankruptcy of WL Homes LLC exemplifies the trend. The company, parent of John Laing Homes, was one of the West Coast's biggest home builders during the real-estate boom. But after its Dubai-based owner, Emaar Properties PJSC, cut off funding, it filed for Chapter 11 bankruptcy-court protection in February, then Chapter 7 liquidation in June.

After the bankruptcy, Bank of America found itself with collateral comprising 31 separate assets in 19 locations across California, Arizona and Colorado from one $130 million loan. The properties ranged from raw land to partially completed developments to half-filled condominium buildings, meaning the bank would have to deal with everything from hiring contractors to wrangling with upset and cash-strapped homeowners' associations if it foreclosed.

And by taking the title on the building, Bank of America could be liable for any construction defects for a decade in California or for any injuries on unsecured construction sites.

Rather than deal with the litany of issues, Bank of America turned to Taylor B. Grant, a veteran real-estate receiver based in Newport Beach, Calif.

Since his June 10 appointment, Mr. Grant has visited the properties and hired asset managers, and is deciding how to dispose of the holdings.

He also will begin deciding whether he can get a better value from hiring contractors to finish partially completed homes or from tearing them down and selling vacant lots. After that, he will be able to sell the properties and distribute proceeds proportionally among creditors.

The Infamous Watergate Hotel Gets No Bids on the Aution Block

The Watergate Hotel, synonymous with President Richard Nixon's downfall, attracted no bids at auction Tuesday. Not only did the iconic property garner no bids, the auction barely made today's headlines. But if you were around in the 70s, Watergate calls up memories of nation-splitting political intrigue, scandal, and a corrupt President.

It was this once posh hotel that the Watergate Burglars broke into the Democratic Party's National Committee offices on June 17, 1972. If it had not been for the alert actions of Frank Wills, a security guard, the scandal may never have erupted. But that's another story, retold by many.

Thankfully Diane Orlick, CNBC, offered up the auction story and yet another tale in today's succession of distressed properties. But this one is special. Click here if the CNBC Video does not appear below.

Visit msnbc.com for Breaking News, World News, and News about the Economy

And from CNN:

According to Paul Cooper, vice president of Alex Cooper Auctioneers, some 10 bidders ready to provide a $1 million deposit were registered for the auction.

But the hotel fell back into the hands of its lender, PB Capital, after no one advanced the $25 million opening bid, the auction company said.

The auction was sponsored by PB Capital, which holds a $40 million note on the hotel after the previous owner, Monument Reality, defaulted on its loan. Monument's 30-day foreclosure note expired Thursday.

Cooper said PB Capital will most likely sell the hotel privately after it takes over the title and will not try to operate the hotel itself.

Developers estimate the hotel could need up to $100 million in renovations. The Watergate complex was built in the late 1960s and consists of the hotel, two office buildings, and three apartment buildings.

Only the hotel building was up for auction Tuesday. It closed two years ago for renovations, and possible conversions into co-op apartments.

More info on Watergate

Dealing With Expensive Loan Modifications On The Cheap

Writing for the New Yorker, James Surowiecki looks at difficulties stemming the tide of foreclosures with loan modification programs.

“Even though direct aid would likely keep more people in their homes than current measures, the idea hasn’t gained much traction, not just because Americans are wary of spending more money but also because it would exacerbate our concerns about fairness. When Obama’s current plan was floated, public support was widespread but grudging; by a two-to-one margin, voters described it as unfair to ordinary homeowners. There’s a phenomenon in charity called the “identifiable victim” effect: the best way to get people to give is to focus on one person who’s going to benefit from the donation, rather than on a large group. When it comes to government programs, though, identifiability seems to be more a curse than a blessing. No one was happy about bailing out big financial institutions, after all, but the news that a group of A.I.G. employees were going to get bonuses really set people off. In a similar way, while voters may reluctantly support making refinancing easier or helping people lower their interest payments, they’re likely to balk at the idea of literally paying the mortgage of the guy down the street.”

The Treasury Department released the first monthly progress report on its plan to aid homeowners through loan modifications. The findings merit less than a "D" as only 9% of homeowners eligible for the program have received trial modifications.

The Treasury also released a breakdown of modifications, by loan servicers as shown by the WSJ chart below. Click here to see a sortable list from the Treasurer and other charts.

A parting word of warning from Surowiecki on the viability of the Administration's loan modification efforts:

It seems more likely, though, that we’ll just keep muddling through with the current approach, which offers us the sense that we can get quite a lot without spending much. Maybe it’ll work. But the housing bubble was very expensive. It’ll be surprising if we can deal with its consequences on the cheap.

Wider Consequences of a Weak Market at the Top

A few notes from the Wall Street Journal (reprinted by the National Association of Home Builders), on the pain in the luxury housing market:

Sales of existing homes priced over $750,000 accounted for 2.3% of all sales in the first quarter of this year, compared to 4.4% of the housing market in 2007, according to the National Association of Realtors®. But the distress in the high-end market has implications for consumer spending because the top 10% of U.S. households in terms of income accounted for 23% of all consumer spending in 2007, according to government statistics; as these households watch their home equity evaporate, they are more reluctant to spend on housing upgrades or other items.

Overall, the nation’s inventory of unsold homes in June was enough to last 9.4 months at the current selling pace, down from 11 months a year ago, according to the Realtors®. But the supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year earlier.

A recent J.P. Morgan Chase & Co. forecast said it would take until at least 2012 for the expensive-home market to recover. Among prime mortgages, jumbo mortgages are now leading delinquencies and defaults and are the fastest-rising category for defaults of all types of mortgages. The rate of 60-day delinquencies on prime-jumbo mortgages jumped to 7.4% in May, from 4.5% in November, according to First American CoreLogic.

By comparison, 60-day delinquencies on prime-conforming loans reached 4.9% in May, from 3.6% in November. In a recent survey by the Realtors®, nearly three-quarters of real-estate agents said buyers were purchasing smaller houses due to tighter credit requirements. “We’re in a ‘trade-down’ environment for the first time since the 1930s,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley.

Who thinks it would be worthwhile to pass this along to Obama as an illustration of the trickle-down effect of stress at the top?

Final Days - Corus on the Chopping Block

Corus Bankshares Inc., the Chicago lender, also known as the Condo King, warned it is “critically under capitalized” and that it is “highly unlikely” it can raise capital on its own. This should not be a news flash, or come as a surprise at this point in the real estate meltdown, especially in the condominium arena. Corus has looked like toast for some time now.

But as of Friday, they had not been shuttered.

Corus disclosed a $487 million second-quarter loss in a filing with the Securities and Exchange Commission. Tier 1 capital, a measure of its cushion against bad loans, fell to negative $157 million at its banking unit at the end of June, a condition that usually triggers seizure.

Of the five banks that have reported negative Tier 1 levels for the second quarter, four have been seized by regulators, according to Foresight Analytics.

The WSJ reports that bank regulators are shopping assets trying to find buyers for the bank that can’t be saved. “Some analysts thought Corus would be taken over by regulators and its best assets sold after it failed to shore up its capital position ahead of a June deadline. Several private-equity and real-estate funds are looking at buying the bank's assets, which include 76 condo construction loans, including 12 for buildings that Corus is in the process of acquiring through foreclosure.

“That sales process has dragged on longer than many analysts expected, as would-be buyers look for a loss-sharing agreement with the Federal Deposit Insurance Corp.” Buyers are deeply discounting the assets faced with the difficulty of pricing value of the nonperforming construction loans.

"Anytime you have a situation like this where the equity hole is so deep and the loan loss is so severe...[buyers] will want protection and assistance from the FDIC in a fairly significant way," said Peyton Green, a senior analyst at Sterne, Agee & Leach Inc.

As reported in previous weeks, potential bidders for Corus include real-estate developer Related Cos., real-estate investor Lubert-Adler and private-equity firms Starwood Capital and Colony Capital.

Corus concentrated heavily on condo-construction lending, and more than half of the $3.9 billion in condo-construction loans weren't generating payments or were in foreclosure at the end of March. Construction loans accounted for 88% of the bank's outstanding loans at the end of the first quarter, the largest share among any U.S. bank with more than $100 million in loans, according to Foresight Analytics.

Source: Wall Street Journal