Tuesday, July 31, 2007

Chicago RE at Risk

Forbes Magazine has us at #9 for Riskiest U.S. Housing Markets.

9. Chicago, Ill.



Chicago is a traditionally stable market, but is currently under pressure. Its 2.3% vacancy rate isn't unmanageable, nor is its price-to-earnings ratio, which is the 12th highest nationally. Chicago's problem is a very high share of adjustable-rate mortgages (45%) and a middle-of-the-road share of mortgages with loan-to-value ratios above 90%. Having a high share of one is sustainable if there's a low share of the other, but in a scenario like this, both lenders and borrowers have elevated risk.



These numbers spell trouble for Chicago. We are in the foreclosure nightmare cross-hairs. With almost half of all mortgages as ARMs just shows that many Chicagoans could not afford the house they bought with out the teaser loan rate. Once these loans adjust, they really will not be able to afford them. Soon the loanowners will walk the keys right into foreclosure. With such high LTV, many of the foreclosures will be passed by on the action block. Crain's describes the formula quite well here:

ADDING TO GLUT



That's bad news for the city's housing market. Foreclosed properties that don't sell at auction revert back to the banks, which pass them off to a real estate agent to sell, exacerbating Chicago's glut of unsold homes and threatening to push down home values.



Ya, I'd say we are at risk, too.

Thursday, July 26, 2007

Mikey DOSEN'T Like it!!

China shying from shaky US mortgage market



By Olivia Chung

HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said.

During a recent trip to Beijing, US Department of Housing and Urban Development (HUD) Secretary Alphonso Jackson tried to sell China on the idea of buying more MBS. Investing in MBS Offers better returns for China than US Treasury bonds, and at the same level of risk, Jackson claimed.

[ Ya, good luck! Poor guy....]

...

However, it promises to be a tough sell for Jackson. The Chinese government may decline the offer given the current surge in mortgage defaults in the US, Chinese economists said. Moreover, China has invested most of its foreign reserve funds in US-dollar assets and wants to diversify its investment.

[I bet!]

...

Yi Xianrong, a senior economist and finance professor with the Chinese Academy of Social Sciences, a central government think-tank, attributed the previous surge of mortgage-backed securities bought by Chinese companies to inexperience in conducting risk assessments and their miscalculation of the US property market.

[He basically says here that the previous purchases of U.S. Mortgage Backed Securities were a mistake.]

...

Economist Shi Weigan echoed Yi's comments. "With a possible burst in the housing bubble in the US, it's not the right choice for Beijing to spend foreign-exchange reserve funds on the US mortgage-backed securities," Shi said.

[Thank you, but no thank you.]






Americans are so eager to buy Chinese crap, but the Chinese are not so eager to buy American crap. What does this tell Americans about the current status of the housing bubble? Wait for us to try to sweeten the pot.

Tuesday, July 17, 2007

That's One Way to Handle It

Metro briefs



EVERGREEN PARK:

Home fires suspicious
A home under construction in Evergreen Park was burned down over the weekend in a suspicious fire -- the latest of several such blazes in the southwest suburb. Last summer, several other homes under construction in Evergreen Park were set on fire, officials said. The latest fire, which occurred early Sunday, also damaged two adjacent homes.



I think we will see allot more of this stuff in the coming years. In an earlier post, I wrote about Naperville Fires. Seems like they are spreading!

Monday, July 9, 2007

The Logical Progression

The silver lining



SLUMP IS GOOD | Wannabe homebuyers see happy ending in dropping prices

July 8, 2007
BY ALEX VEIGA
Kurt Montufar isn't stressing over the housing slump. He's actually hoping things get worse.

Like many wannabe homebuyers who were priced out of the market during the last boom, Montufar spends time these days scanning real estate ads and news reports to determine if it's time to take the plunge and buy.

...

Meanwhile, price gains of just 1.4 percent or less were reported in New York, Chicago and Washington.

Those numbers have left many people trying to ''time'' the market to take advantage of the slump. But experts said that can be risky because there is little consensus on how long the current doldrums might last.

In addition, the market forces that helped drive the housing boom -- affordable financing and the alluring prospect of escalating home values -- are no longer a given. Potential price breaks could be wiped out if interest rates rise any higher.

...

Even if prices fall further, it could be tough for buyers to find affordable financing if interest rates increase much more.

In addition, lenders have tightened standards in response to a surge in defaults by subprime borrowers, and a number of subprime lenders have gone out of business altogether.

A number of wannabe buyers are pinning their hopes on foreclosures, which some studies predict will explode during the next two years as adjustable mortgages reset to higher interest rates.

Foreclosure activity jumped 62 percent nationwide in April from the year-ago period, according to Irvine-based RealtyTrac Inc. Among the states with the highest foreclosure rates were Nevada, Colorado, Connecticut, Florida and California.

Gino Barragan of La Puente, Calif., a lifelong renter, was among the hundreds of people who attended a recent auction looking for a good deal on a foreclosed home.

Barragan, 34, was hoping to find a condo costing less than $300,000. He found only one that he liked within his price range.

''I am willing to wait, but I'm keeping my eyes open,'' said Barragan, a teacher.




I like how they try to tag him a "wannabe" homeowner! Like, he's a dork because he didn't screw up the biggest financial decision of his life! What a LOSER!!!

Friday, July 6, 2007

"Best" Market?

Best Markets for Buyers

Best market? Until prices drop enough to line up with the Rent/Own Ratio and Median Home Price/Median Income Ratio, this market is far from best. The housing bubble should have popped two years ago. However, to keep things going, mortgage lenders started handing out toxic adjustable rate mortgages. And like consumption addicted hypes that they are, the American populace continued to buy far past their purchasing power. Now the chickens are coming home to roost and foreclosures are up.



By Matt Woolsey, Forbes.com
June 25, 2007

...

The easiest way to judge our list is to examine the area's housing supply vs. demand. A good measurement? Take the current rate of sales and figure out how long it would take to burn off the excess inventory at that rate.

...

Likewise, Chicago, at No. 5, has felt the effects of a housing supply growing in excess of demand. Brokers there say it's been a slow year thus far, and Moody's data supports that. Chicago ranked seventh worst for listings outpacing sales and fifth worst for the tightening rate of the market.





Because prices are still too high, the market is in a standstill. What will start the fall?

Tuesday, July 3, 2007

Not Just the South Side

Foreclosures are not just hitting the lower level of the economic spectrum.


New Developments in the Foreclosure Trend: The Rise of Middle-Class Foreclosures




While foreclosures are typically considered to occur mainly to low income homeowners, new data shows that the foreclosure surge is spreading into middle class areas as well. Exploring the causes for this can help buyers better understand the foreclosure trend.

Miami Beach, FL (PRWEB) June 18, 2007 -- As the housing market continues to move along sluggishly in the wake of falling home values, ForeclosureDataBank.com, a leading foreclosure information provider, has noticed a new trend emerging in the rising rate of foreclosures. Whereas the past few years saw the booming foreclosure rate mainly affecting borrowers with lower income, the analysts at ForeclosureDataBank.com are now predicting a drastic increase in foreclosures on middle class American homes all over the country.

The reason this new trend is so noticeably interesting is two fold. For starters, the statistics themselves don't lie. Recently, the Chicago Defender revealed some telling statistics about this popular city's foreclosure situation. During 2006, the state of Illinois experienced a 55% increase in its rate of foreclosure, with a great deal of homes in the Chicago area accounting for the hike. While foreclosures in poorer neighborhoods have been high during the past few years, it seems that in 2006 some of the biggest jumps came in traditionally middle class areas of the city. These include locations such as the Jefferson Park area, which saw a 90% increase, and the Bridgeport area on the southern side of the city, which experienced an incredible 112% increase in its rate of foreclosure.

Another interesting fact is that three neighborhoods that average close to the median income for Illinois residents ($48,000), Roseland, Gresham and Lawn-Gage Park, all currently have foreclosure rates that are seven times the national average.





Ouch! Those adjustible rate loans are staring to hurt.

Chicago So. Suburbs High on a List

But, it's not a good list.

4 suburbs on U.S. foreclosure list



Sunday, July 1, 2007 12:12 AM CDT
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BY KIRSTEN SRINIVASAN
kirsten.srinivasan@nwitimes.com
219.933.4158

Some south suburban ZIP codes rank high for foreclosures, but officials say they are part of a larger regional and national trend.

CNNMoney.com recently ranked Chicago Heights, Harvey, Calumet City, and Dolton ZIP codes among its top 500 ZIP codes for foreclosure filings nationwide. The problem is more widespread, said Ed Paesel, executive director of the South Suburban Mayors and Managers Association.

"Traditionally, (these communities) have had fairly high foreclosure rates," he said, but the increase in foreclosures is actually a lower percentage compared to other Chicago areas in the last two years. "It's not only a south suburban problem anymore."

Communities across the Chicago area have had "a large jump in foreclosures" in the last two years, said Beth Devers, housing director of Metropolitan Mayors Caucus.



So much for "The Ownership Society". Wait until the banks get over-loaded with these foreclosures. When they finally drop them like a cold potato, the local comps will destroy what is left of the Chicago Housing Bubble.