Sorry for the scarcity of recent posts; I’ve been busy with a couple of charitable projects that should be finishing up later in May. Until then, I’ll try to excerpt the best of the real estate and financial press coverage of the accelerating decline in housing and mortgages.

Following is from Scott Goldstein, NJBIZ, April 28, 2008. Not a pretty picture…and the 1929 comparisons/analogies don’t help:

When it comes to creating private-sector jobs, New Jersey was a laggard in 2007 as compared with neighboring states and the rest of the country, according to a Rutgers University report released last week. Authors of the report say the state’s job growth will not improve this year while the nation enters a “deep recession” and a financial crisis that will be “arguably the worst since the Great Depression.”
New Jersey gained just 3,700 private-sector jobs last year, an increase of only 0.1 percent over 2006. That was significantly lower than the increases in New York and Pennsylvania, which saw private-sector employment gains of 1.2 percent and 0.6 percent respectively, according to the study.

“In terms of job growth, New Jersey fell significantly behind its economic peer states in 2007. The state has lost its role as regional economic dynamo,” says the report, which was titled “Reversal of Economic Fortune” and co-authored by James W. Hughes, dean of the Edward J. Bloustein School of Public Policy at Rutgers, and economist Joseph J. Seneca.

Overall, New Jersey ranked 41st among the states in percentage of private-sector job growth last year, according to the Rutgers report. That was unchanged from 2006. New York ranked 17th, up from 28th in 2006, while Pennsylvania ranked 29th, up from 34th.

The Garden State may have suffered recession-related layoffs earlier than its neighbors because Wall Street job cuts hit back offices in North Jersey first, Hughes said in an interview. He says the state lost 7,900 financial sector jobs in 2007, mostly in the second half of the year.

The entire Northeast will likely falter in 2008, the study says. New Jersey lost 10,500 private-sector jobs in the first quarter of 2008, according to the state Department of Labor and Workforce Development. “That’s a reflection of the national downturn,” says Hughes.

He says the pharmaceutical and biotech sector accounts for about 41,000 jobs in New Jersey, while financial businesses ranging from banks to Wall Street brokerages account for 269,000 jobs in the Garden State. The importance of these sectors to New Jersey puts the state at particularly high risk of layoffs, says Hughes. “We are going to get hit hard,” he says.

Behind the national recession are factors including the bursting housing bubble, the subprime mortgage crisis, growing turmoil in the credit markets and soaring energy and commodity costs, according to the report.

Hughes says New Jersey and the Northeast are feeling a backlash from the lending boom that lasted from 2001 through 2006—a period when “we had cheap global credit, lending standards disappeared, there were record Wall Street profits and great job growth.”

There’s little that Gov. Jon S. Corzine and the rest of state government can do to ease the pain of the recession, adds Hughes. “They are prisoners of forces that may have built up over a 10-year period,” he says.

The following is not an endorsement of any party or specific Presidential candidate. Still, it’s nice to see some candidate make a statement on the current housing mess that at least mentions basic personal and corporate responsibility. This issue has been- and will be- demagogued to death in the coming months. Pandering to the masses and to fat, lazy bankers is not going to solve the current meltdown of credit and real estate markets.

McCain Rejects Broad U.S. Aid on Mortgages

By LARRY ROHTER and EDMUND L. ANDREWS
The New York Times; published: March 26, 2008

SANTA ANA, Calif. — Drawing a sharp distinction between himself and the two Democratic presidential candidates, Senator John McCain of Arizona warned Tuesday against vigorous government action to solve the deepening mortgage crisis and the market turmoil it has caused, saying that “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

http://www.nytimes.com/2008/03/26/us/politics/26mortgage.html?_r=1&oref=slogin

NAR, TMac and the Kool-Aid Brigade have sounded the “all clear”.  “Prices have stabilized, mortgage rates are low…it’s a great time to buy” is the mantra.  Too bad that all the mortgage lenders are bleeding out and would rather hold on to their cash than lend it: 

From The Wall Street Journal, Page A3, Tuesday, February 5, 2008:

Credit Tightens, Demand Falls
By KELLY EVANS and DAVID ENRICH

Banks are tightening lending standards for businesses and consumers — even beyond real-estate loans — and companies’ demand for credit has weakened, a new Federal Reserve survey of senior bank-loan officers shows.

The January survey offers the hardest evidence yet that the credit crunch is spreading. Although banks also reported some tightening of lending requirements on credit cards and other consumer loans, commercial and industrial loans have been the most severely affected.

One-third of the U.S. banks and about two-thirds of the foreign banks responding told the Fed they had tightened lending standards on commercial and industrial loans during the three months ended Jan. 31. About half the banks said they have widened the spread between their cost of funds and what they are charging borrowers.

“Bankers are becoming more cautious,” said Keith Leggett, economist at the American Bankers Association in Washington, “but also borrowers are getting more cautious.”
…
“The downturn in housing markets is having a ripple effect into the commercial real-estate market,” said the ABA’s Mr. Leggett. “It’s going to create some challenges for community banks,” he added, especially in parts of the country where real-estate prices have plunged the fastest.

With bad loans piling up on banks’ balance sheets, some lenders are finding themselves strained for capital. As a result, banks — especially community lenders with big portfolios of commercial real-estate loans — are balking at making new loans, even to clients with solid credit histories, said Jerry Blanchard, a partner in the financial-institutions practice at law firm Powell Goldstein LLP in Atlanta.
…
On the consumer side, about 55% of the banks said they had tightened lending standards for mortgages and about 60% said they had done so on home-equity lines.

From the Wall Street Journal:

Wall Street, Bear Stearns Hit Again
By Investors Fleeing Mortgage Sector
By KATE KELLY, LIAM PLEVEN and JAMES R. HAGERTY

August 1, 2007; Page A1

From the NY Post:

HEDGE HORROR
SUBPRIME MELTDOWN COULD WIPE OUT BILLION$

As home foreclosures ricochet through Main Street in rising junk mortgage meltdowns, Wall Street is facing a separate barrage that could swamp its first rich victims - hedge funds for the wealthy.

The financial industry yesterday got more unhinged following a shake-up a day earlier when two credit-rating agencies stripped away the fragile masks of shaky mortgage securities, exposing their worthless sides.

The stunning formal disclosures, which eventually could affect as much as $2 trillion in various mortgage securities, is expected to trigger widespread revaluation of the paper, which some analysts believe could wipe out 40 to 50 percent of their values.

For hedge funds, it would mean having to cover losses by giving back money to clients, even if it means selling off other good assets at a discount to raise money.

“The hedge funds are so over-leveraged, they’ll be the first to crack,” said Peter Schiff, CEO of Euro Pacific Capital.

Even Wall Street banks such as Merrill Lynch are vulnerable, with analysts saying the crisis could wipe out $132 million, 1.6 percent, of its profits this year.
…
Alarms also were sounded yesterday for the nation’s banks when the Federal Deposit Insurance Corp. chief said it is looking “very carefully” at how many banks are holding junk mortgage paper, particularly a tainted and repackaged version of the risky junk bonds, known as collateralized debt obligations (CDOs.)
…
“Its going to get worse before it gets better. How much worse, I don’t know,” Bair said.

First, my apologies for the lack of content the past couple of weeks. The reason is, in a nutshell: I’ve been very busy. Not only have I been working intently with current clients to achieve sales during this time, but a new wave of clients has approached- almost all at once- looking to sell. The end of June/beginning of July is not normally an active listing period in the Realtor’s year, but this market has brought us new buying and selling patterns…along with a whole host of new challenges and needs for both our buyers and sellers.

In the next few days, I’ll be posting the final numbers for May closed sales in Branchburg. Expect to see a continuation of the trend toward more days-on-market and closing prices averaging about 87-90% of the original asking price. To go a step further, be aware that our local inventory of homes offered for sale has now exceeded last year’s high (reached in September, 2006), and this year’s Spring market did little to sell through much of our standing inventory; the local supply has crawled up to nine months’ worth…up from September ’06’s previous high of eight months.

Many past and present clients have also asked me about the implications of the “subprime meltdown”, the latest example of which has been the collapse of two Bear Stearns internal hedge funds that borrowed heavily against large holdings of CDOs (collateralized debt obligations) that were securitizations (a fancy word for “bundles”) of subprime mortgages. To that, my answer is simple: this is just the tip of the iceberg. Any securities that are based upon thousands of delinquent and defaulting loans is a security that is in deep trouble. If enough mortgages within the security go belly-up, that security’s rating will be downgraded. If the company holding that security has borrowed heavily against it, that company’s lenders will issue margin calls (which is exactly what happened to Bear Stearns). It’s whistling past the graveyard to believe that this problem is isolated only to Bear Stearns; many other investment banks, hedge funds and insurance companies either directly or indirectly own these CDOs. Many of these other holders may have also borrowed against the CDOs and will be subject to margin calls when the quality of the collateral deteriorates.

What does all this mean to you and me? In the long run, it means tightening credit. As many of the “toxic” loans made to poorly-qualified buyers go belly-up and roil the end markets for the holders of this debt, institutions who are issuing credit today and tomorrow will naturally tighten their lending guidelines. Already, lenders who in the past were eager to allow 100% financing, easy credit to questionable borrowers and loans without full documentation are suddenly demanding 5-10% minimum downpayments and full documentation of income…plus proof of the ability to make regular loan payments (what a concept!). As the subprime crisis deepens, lenders will continue to raise their qualification requirements for new borrowers.

From Bloomberg News, May 8, 2007:

U.S. homeowners entered the foreclosure process last month at more than double the rate of a year ago as tightening credit made it more difficult to refinance and a swelling supply of unsold homes made it tough to sell.

The number of homeowners in all three phases of foreclosure rose last month over the same period a year ago, according to Sacramento, Calif.-based Foreclosures.com, which gathers data from county courthouses nationwide. Those receiving their first notice of foreclosure from a bank climbed 127 percent, those with homes going up for sale by auction jumped 164 percent and those whose homes were repossessed by banks went up 40 percent.

Eight of 10 subprime loans, given to borrowers with bad or limited credit histories, adjust over time to higher interest rates, and many homeowners can no longer afford their mortgages. With existing home sales at a four-year low, it’s more difficult to sell because there are so many homes on the market.

“The housing boom was a house of cards,” said Alexis McGee, president of Foreclosures.com. “A lot of people who are living beyond their means and borrowing from Peter to pay Paul find that it’s starting to catch up with them.”

The number of foreclosure filings decreased last month in all three categories compared with March, Foreclosures.com said. Notices of default dropped 16 percent, auctions decreased 12 percent and bank repossessions fell 14 percent.

The March 2007 numbers compared with a year earlier were similar to the increases of April 2007 over April 2006. First filings increased 126 percent in March 2007 compared with March 2006, notices of auction climbed 121 percent and the number of bank repossessions grew 51 percent, Foreclosure.com said.

From “Housing Panic”, April 14, 2007:

Subprime woes take toll on GE results

The US subprime mortgage crisis hit General Electric on Friday, wiping $373m from the industrial conglomerate’s first quarter profits and prompting its executives to warn of an incipient “bubble” in global credit markets.

GE said it had replaced the senior management team at its mortgage unit, and would reduce its workforce by around 1,000 people, or 40 per cent.

GE will also cut by half the loans it makes to less than $15bn this year - a sign of its belief that the subprime market has yet to hit the bottom.

“We have got to get our house in order,” Keith Sherin, GE’s chief financial officer, told the Financial Times.

Mr Sherin said the problems in the subprime sector, which targets borrowers with weak credit histories, were being replicated in the market for “Alt-A” loans for borrowers with slightly better credit scores.

From Forbes:

Yes, But Bet The House

By a margin of almost 2-to-1, economists surveyed by WSJ.com last month judged that the worst of the residential real estate slump was history. House prices will soften in 2007, the sages predicted, but by only a little bit. In fact, 20 of the 49 respondents forecast a rise.

Ebenezer Scrooge was a mortgage banker, and the arguments I am about to marshal for a hard landing in housing might sound un-Christmaslike. But during the just-pricked bubble, it wasn’t the Scrooges and the Marleys who lent more than 100% of the purchase price of a house without bothering to verify the income or employment of the applicant, or even to insist that he or she pay down a little bit of the principal now and then. House prices soared on the wings of the modern, optimistic, growth-obsessed mortgage industry.

All can agree that the housing data are grim enough today. From their recent respective peaks, single-family home sales are down by 15%, single-family housing starts by 35% and single-family home prices by 3.5%. The question is whether the stock market and the famously resilient U.S. economy will continue to shrug off the bad news.
…
The fundamental problem, Gordon observes, is that the typical American home buyer can’t afford a home at today’s prices. “We Americans have tested the limits of affordability over the past five years,” he says. “Since the end of 2001, disposable personal income is up about 25% and mortgage rates are little changed. That argues for 25% higher home prices. Instead, home prices rose by an average of 50% and in many markets by 100% or more.” In fact, according to data compiled by Yale economist Robert Shiller, inflation-adjusted house prices in the past five years logged the second-fastest cumulative growth since the administration of William McKinley 110 years ago (the late 1940s hold the record for the fastest rise in real house prices over a half-decade).

Falling house prices in isolation would constitute no grave peril. A housing-induced downturn in job growth is what would cause a bear’s pulse to race. Gordon insists it’s coming, because the formerly potent stimulus of above-trend borrowing growth is about to be removed. Consider, he notes: “Americans pulled out nearly $500 billion of equity in their homes last year in order to buy other stuff. That number shot up from about $100 billion in 2001.” The source of this borrowing? Why, the 12%–or $2 trillion–bump-up in the appraised value of the 2005 U.S. housing stock, double the 2002 increase. Reduce or reverse this appreciation and you stymie the borrowing boom.
…
Already, despite a still low jobless rate, delinquencies, foreclosures and other signs of distress are surfacing in the subprime segment of the nonagency market. Even a mild business downturn could cause a revulsion against the kind of easy credit that put so many houses within financial reach (or seemed to).