Realty Tag

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Goldman Sachs Group, which avoided much of the subprime mortgage morass and posted record profits in 2007, is now looking for opportunities to scoop up securities backed by subprime loans, Dow Jones Newswires reports.

Bear Stearns Cos., which posted an $854 million fourth quarter loss thanks to $1.9 billion in mortgage write downs, now has $1 billion in short positions on subprime mortgage securities, Bloomberg says.

Who says bears don’t travel in herds?

Here’s Bloomberg quoting financial consultant Mark Adelson:

Adelson said he would pay more attention to Bear Stearns’s strategy shift if it were coming from Berkshire Hathaway Inc. Chairman Warren Buffett.

“I think of Warren Buffett as a guy who’s almost always right, and at this stage of the game I don’t think of Bear that way,” Adelson said.

Ouch.

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Live auctions of residential real estate grew 5.3 percent in 2007 to about $16.8 billion, the National Auctioneers Association reported, following a 12.7 percent gain in 2006 to $16 billion.

Growth in auctions is a sign of the slowing housing market, as auction sales can serve as an alternative to standard sales methods as prices and sales drop and the foreclosure rate grows.

The auctioneers’ group even launched an online site last year that it dubs a multiple listing service for auction properties, at: http://www.naarealestateauctions.com/consumer/index/mls.

Overall auction activity, including real estate and other goods and services, grew 5.3 percent in 2007 to $270.7 billion, following growth of 7.1 percent in 2006, to $257.2 billion.

Some Realtor MLSs allow the listing of auction properties, as Realtors can represent consumers in auction sales, and the National Association of Realtors (see Inman News article) and some real estate companies (see Inman Blog post) have sought to forge stronger ties with the auction industry.

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Wow, it’s been quite a few months of serious real estate news in these parts — some good, most of it bad. Thankfully, some in our online real estate realm have taken the time to lighten up for Friday:

Kris Berg has some fun with the Real Estate Blame Game.

Teresa Boardman throws a pig.

SocketSite serves up a small dish of real estate porn.

Curbed has a Funky Friday Listing.

Althol Kay serves up yet another Bad MLS Photo of the day, spotlighting the home’s cute baby (which we assume is not included with purchase).

Feel free to tag on any other fun links below.

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(See Inman News article.)

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Home ownership means you no longer pay monthly rent for the roof over your head. You can do what you want with your house (within reason). When you leave, you can sell it to recoup the purchase price and - with any luck - earn a profit too.

But don’t kid yourself. home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.

So before going any further, consider whether your lifestyle and finances make homebuying a smart move.

TIP: High costs mean you should be prepared to say put. Except in a roaring real estate market, it usually doesn’t make sense to buy a home you’ll own for less than three or four years. Reason: the high transaction cost of buying and selling property means you could lose money on the deal. If you do make money, you’ll pay capital gains taxes if you’re in the house less than two years.

So ask yourself if you can really stay put for that long. Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school?

TIP: It may make more sense to rent On the financial side, one key question is whether it costs more, on average, to rent or own in your area. The rule of thumb is that if you pay 35 percent less in rent than you would for owning - including the monthly mortgage, property taxes, and any home owner’s fees - then it’s smarter to continue renting.

Only if all those answers still point towards owning should you proceed to the next step - getting the money right.

“Denial is a defense mechanism in which a person is faced with a fact that is too painful to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence.” –Wikipedia entry.

Zillow leaked some survey results today showing that 77 percent of homeowners polled nationwide said they believe their home has held or increased value in 2007, despite all the news reports of the sagging market, credit crunch and depressed values.

At last month’s Real Estate Connect conference in New York, Barry Ritholtz, chief market strategist of Ritholtz Research and CEO and director of equity research for Fusion IQ, noted the similarities between the market and the five stages of grief learned in college psychology class.

As in grief, Ritholtz pinned denial as the first stage. When the market began to slow, some analysts and experts, and especially industry groups like the National Association of Realtors, said the slowdown would be short-lived.

At the next stage, there was an admission that there was a housing problem but a denial that it was impacting the overall economy. (Read the full Inman News story.)

One would think that we’ve been past this denial stage for some time, but Zillow’s survey conducted by Harris Interactive, paints a different picture among homeowners. About a third of homeowners surveyed (36 percent) said they believe their homes had actually increased in value during 2007.

This positive attitude on the surface seems like a good thing. Market psychology plays a role in housing. But if you’re a Realtor dealing with a homeowner who’s out of touch with how his market is performing, this is actually more like a devil in sheep’s clothing. Realtors know how difficult it can be to work with unrealistic sellers.

Bernice Ross, a real estate coach and author, addressed this in a recent column, explaining ways agents can use technology to persuade unrealistic sellers into the right listing price. Read, “How to tell if a listing is overpriced” for more.

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We’re just about ready to pull the covers off a new Inman News Web site and we’re anxious to show our loyal readers just what we’ve been up to. Stay tuned for the reveal coming soon! Meanwhile, here’s a taste of our new logo:

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Good news about the economy and housing markets is scarce these days, but peer into the mouth of this gift horse offered up by the Associated Press on the improving outlook for ARM borrowers and you may spot a couple of rotten teeth.

The gist of the article is that the recent, dramatic drop in the London Interbank Offered Rate, or LIBOR, had reduced the payment shock borrowers with adjustable-rate mortgage (ARM) loans face face when their interest rates reset.

Most ARMs are tied to LIBOR, which in the last six months has fallen from 5.31 percent to 3.1 percent (thanks, at least in part, to the dramatic cuts the Federal Reserve has made to the federal funds overnight rate in recent weeks).

That means subprime ARM borrowers will see their monthly payments go up an average of 10 percent when their interest rates reset, instead of 30 percent, AP reports.

That should make it easier for ARM borrowers who have been able to keep up payments on their loans at the introductory rate to stay current. If LIBOR keeps falling, ARM borrowers could even see their monthly payments go down with a rate reset.

That’s the good news. The bad news is that the margin subprime ARM borrowers pay on top of LIBOR after a reset averages 5.76 percent. In other words, after a reset, a subprime ARM buyer is still going to be paying 8.86 percent interest where LIBOR is now — at least 3 percent more than they would for a prime, fixed-rate loan.

As FDIC chairwoman Sheila Bair has warned lawmakers, even freezing the introductory rates on subprime ARM loans won’t help some borrowers, because the introductory rates aren’t exactly a bargain, either. Bair is warning that in order to stem the tide of foreclosures, lenders may have to forgive part of the principal on some loans (see previous post).

About 1.3 million owner-occupied households with subprime ARM loans are facing interest rate resets this year, and another 422,000 in 2009, the FDIC estimates.

A home owner in a declining market who’s seen their house become worth less than what they owe on their mortgage may have little incentive to stay current on their loan no matter what their interest rate is.

But it’s hard to imagine that an interest rate of nearly 9 percent would seem like enough of a bargain to change the minds of many who are now walking away from homes in which they have little, no, or negative equity.

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Real estate brokerage and franchise company Realogy has launched an ad campaign that promotes low mortgage interest rates, improving affordability, and the availability of home loans.

“Think you can’t get a home loan?” the ad states. “Well, think again. You may be pleasantly surprised.”

The ad also states, “Now is the time to make your move. If a home purchase is in your future plans, now may very well be the time to act. There is ample inventory on the market for you to capture that ‘dream’ home you’ve always wanted at a price and terms you can handle. But don’t wait too long, because another qualified buyer may capture it first.”

The battle is on to kick consumers off the fence and back into spending mode. And it could be an uphill battle, with news piling on of a possible recession, Wall St. losses and layoffs, and declining home prices.

Realogy is referring to its campaign as “consumer confidence ads.” The first ad ran today in USA Today, with other installments planned on Feb. 13 and Feb. 20. The company launched a similar campaign in October 2006.

Another ad campaign, launched by the National Association of Realtors trade group in late 2006, carried the message: “It’s a great time to buy or sell a home.” NAR critics had a field day with that seemingly contradictory slogan.

A more recent television campaign by NAR focuses on family reasons and long-term wealth-building for buying a home. “When it comes to buying a home, family conditions often outweigh market conditions,” one ad states. And another: “If you’re on the fence, the National Association of Realtors wants you to know that a home isn’t just a great place to raise a family, it’s also the key to building long-term wealth.” One of the ads also states that “interest rates are low and buyer opportunities have never been better.”

That campaign drew some flak, too, in the form of a scathing AdAge article (see Inman News blog post) and some online commentary.

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