Ed McMahon Finds Solution to Beverly Hills Housing Crisis

We’re sure you’ve heard about Johnny Carson’s former “Tonight Show” side-kick Ed McMahon’s financial troubles and the near foreclosure of his Beverly Hills estate.

You’ve probably also heard the news that Donald Trump offered to buy McMahon’s house and let him continue to live there.

Now the news is that the home was sold, but not to Trump.  When the sale is complete, the McMahons will move on to live somewhere else.

The home was offered for $4.6 million, marked down from an original asking price of $7 million.  McMahon had apparently taken out a loan of $4.8 million to buy the home in 1990.  According to CNN.com, he was $644,000 in arrears.

The home is located at 12000 Crest Court, Beverly Hills, CA 90210.  According to the website of real estate agent Alex Davis, the house is 7,013 square feet and on a 14,736 square foot lot with ocean views.

The agent’s website notes that “The foreign imported doors and meticulously chosen fireplaces are unlike any other. The master suite with his and hers baths and closets, overlooks the yard and sweeping canyon.” 

It is an amazing home — and you can see pictures of the house here and here.

Just this week, the New York Times published an article on the trend toward real estate downsizing by the wealthy in Los Angeles.  The article focused on Candy Spelling, widow of the television producer Aaron Spelling, who is downsizing from a 56,500-square-foot French chateau-style home called The Manor (compete with a wine-tasting room, a bowling alley, a silver room, a china room and a gift-wrapping room) to a $47 million, 16,500 square foot condominium. 

Perhaps Ed McMahon read the article and thought “Gee, if Candy Spelling can move into a condo, maybe I can, too.”

It is nice to know that there is a solution to the Beverly Hills housing crisis.

State of Washington Fines Countrywide for $1 Million for Discriminatory Lending — Will Seek to Revoke Countrywide’s License to Do Business in State

Washington Governor Christine Gregoire today announced plans by her state to fine Countrywide Home Loans $1 million for discriminatory lending.

In addition, the company will be required to pay more than $5 million in back assessments the company failed to pay.

Gregoire also announced the state is seeking to revoke Countrywide’s license to do business in Washington for its alleged illegal activity.

Joining Gregoire at today’s announcement was Deb Bortner, director of consumer services at the Washington state Department of Financial Institutions (DFI), and James Kelly, president of the Urban League of Metropolitan Seattle.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,” Gregoire said. “And I hope to learn eventually just how much this may have contributed to foreclosures in our state. The allegation offers evidence that Countrywide engaged in a pattern to target minority groups and engage in predatory practices.”

“That’s why we intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages,” the governor noted. “My job is to protect hard-working Washingtonians, and protect them we will.”

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The Urban League is seeing far too many families caught up in the mortgage crisis who are being steered into bad loans,” stated James Kelly. “Today’s announcement from the governor is consistent with her message of protecting Washingtonians from national mortgage instability.”

DFI sent Countrywide a statement of charges on June 23, notifying the company of the fine and the back assessments the state plans to pursue.  Washington says that the investigation continues.

We have written on the disproportionate impact that the mortgage meltdown and housing crisis has had on minorities.

Washington’s action against Countrywide comes on the heels of lawsuits for fraud, deception, and unfair trade practices filed against Countrywide by the states of Illinois, California, and Florida.

 

Home Prices Slip Again in Biggest Fall on Record

Home prices in 20 U.S. metropolitan areas fell in April 2008 by the most on record.

The Case-Shiller Index of 20 large cities for April 2008 shows housing price declines are accelerating, and are now falling at a rate of 15.3% from last year’s levels.

The report also showed that home prices fell 1.4 percent in April from a month earlier after a 2.2 percent decline in March.

There’s one bit of “good” news in the report: home price declines were less than expected.  According to economists surveyed by Bloomberg News, the index was forecast to fall 16 percent from a year earlier.

Not surprisingly, the housing bust continues to be most severe in previous boom areas in the West and Florida. 

Here are the markets where prices are falling fastest:

Las Vegas: -26.8%
Miami: -26.7%
Phoenix: -25.0%
Los Angeles: -23.1%
San Diego: -22.4%
San Francisco: -22.1%

Average of 20 large cities: -15.3%

The decline in home prices appears to be spreading.  Chicago showed a 9.3 percent decline and prices in New York City declined by 8.4 percent.  Charlotte, North Carolina, showed a decline for the first time.

According to Bloomberg.com, “One bright spot in the report was that more cities showed a gain in prices in April compared with the previous month. Houses in eight areas rose in value, compared with just two in March. Month-over-month gains were led by Cleveland and Dallas.”

 

More Housing Blues — U.S. Homeownership in Sharp Decline as Housing Crisis Forces More Families into Rentals

Even in the midst of the most serious housing and foreclosure crisis since the 1930s, the United States is still a nation of homeowners not renters. 

But recent data released by the U.S. Census Bureau show that Americans are now renting their living spaces at the highest level since 2002, and the percentage of households headed by homeowners has suffered the sharpest decline in 20 years

Households headed by homeowners fell to 67.8 percent from 69.1 percent in 2005. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.

According to the New York Times, these figures “while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.” 

“Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall.”

“We’re not going to see homeownership rates like that (the 1990s and the early 2000s) for a generation,” said Mark Zandi, the chief economist at Moody’s Economy.com.

“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001.  Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments.

Zandi said minority and lower-income homeowners had been hardest hit. Nearly three million minority families took out mortgages from 2002 to the first quarter of this year. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.

As we’ve noted before, the collapse of the housing market and the rise in foreclosures have created an ideal market for apartment owners, especially in economically depressed regions.

As the demand for rental housing has increased, so has the cost of renting.  Nationally, rents are up about 11 percent from 2005.

Christopher E. Smythe, the president of the Northeast Ohio Apartment Association, which represents landlords in the Cleveland area, said the collapse of the housing market had improved the economic climate for apartment owners.

“Our apartment traffic is up, people are renting again and occupancies are up,” he said in a letter to members this year.

The Times also reports that in high-end markets like Los Angeles, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals.

On the other hand, “those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.”

In other words, the housing crisis is hitting the most economically vulnerable families the hardest. 

As we’ve discussed in an earlier post, minorities have been the most seriously affected by the subprime crisis and the bursting of the housing bubble.  Not surprisingly, the Census Bureau data shows that the percentage increase in renter households from 2005 to 2008 was nearly twice as high for Black families than for Whites.

We’re reminded of the old Billie Holiday song, God Bless the Child, written at the end of the Great Depression:

Them that’s got shall get
Them that’s not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

Yes, the strong gets more
While the weak ones fade
Empty pockets don’t ever make the grade
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

 

 

Pending Home Sales Rise — But Don’t Expect the Housing Market to Recover Soon

There was some unexpected positive news on the housing front today: pending home sales rose in April 2008 to the highest level since October 2007, according to the National Association of Realtors (NAR).

NAR complies a monthly “Pending Home Sales Index” (PHSI), which tracks housing contract activity based on signed real estate contracts for existing single-family homes, condos and co-ops. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The PHSI gives figures for the nation and four regions, and includes seasonally adjusted as well as not seasonally adjusted figures.

A reading of 100 on the PSHI is equal to the average level of sales activity in 2001.

April’s PHSI figures show that the seasonally adjusted index of pending sales for existing homes across the nation rose to 88.2 percent from a March reading of 83.0 percent.

March’s figure of 83.0 percent was the lowest since the index was started in 2001.

Moreover, the April 2008 figure of 88.2 percent is still 13 percent below April 2007’s reading of 101.5 percent.

Some regions fared much better than others.

The region that did best was the West — with a seasonally adjusted figure of 98.8, its highest level since June 2007.  The West also showed an 8.3 percent increase from last month and a 4.0 percent increase from 95.0 percent a year ago. 

The Midwest — at a seasonally adjusted rate of 83.7 percent — posted a 13.0 percent increase from last month, but a 13.1 percent drop from last year’s figure of 96.4 percent.

The South — at a seasonally adjusted rate of 88.8 percent — showed a moderate 4.6 percent increase over last month, but that was still a stunning 22.5 percent decline from last year’s figure of 114.6 percent.

The worst region in regard to pending home sales was the Northeast — with a seasonally adjusted rate of 79.3 percent — which indicated both a monthly decline ( -1.9 percent) and a sharp decline (-12.2 percent) from 101.5 percent a year ago.

As usual, NAR strained to see these very modest national gains in the most positive light, claiming that they show that “the underlying fundamentals point to a pent-up demand.”

NAR chief economist Lawrence Yun again predicted that an upturn in the housing market is just around the corner.

“Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” Yun said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely.”

Other analysts are not nearly as optimistic about the meaning of the PHSI figures. 

They point out that banks are dumping properties at fire-sale prices, and that inventories will continue to grow as foreclosures continue to rise.  NAR’s PHSI does not differentiate between full-market sales, short-sales, and foreclosures.

Even NAR’s economist Lawrence Yun acknowledges that much of the increase in pending home sales comes from “bargain hunters” who have “entered the market en mass.”

The New York Times reports that Mark Zandi, the chief economist for Moody’s economy.com, believes that April 2008 marks the bottom for home sales, but he also believes that home prices won’t bottom out for another year. ”It’s the beginning of the end of the housing downturn, but it will be a long painful ending,” he said.

We think that Zandi is being overly optimistic — when the housing downturn ends depends on many factors, including straightening out the mortgage and credit industries, that are still a very long way off.

 

Housing Meltdown Continues as Home Prices Fall 14.1 Percent

Despite a slight uptick in the sales of new homes, there is new evidence that the U.S. housing slump will not end anytime soon. 

Yesterday the Standard & Poor’s/Case-Shiller Index showed that national home prices fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.

And even though the sales of new homes were up slightly in April, they remained near their lowest levels since 1991.

New home sales were up 3.3 percent from March, but were down a stunning 42 percent from a year ago.

April’s new home sales were the second-lowest since October 1991, behind only March of this year.

The National Association of Realtors, in its typically disingenuous fashion, spins these bleak figures as an “easing” of home sales.

According to the New York Times, “Even markets that once seemed immune to the slump, like Seattle, are weakening. Prices nationwide might fall as much as 10 percent more before a recovery takes hold, economists said. As the home-buying season enters what is traditionally its busiest period, there are simply too many homes in many parts of the country, and too few people with the means to buy them. The situation is likely to get worse because a rising tide of foreclosures is flooding the market with even more homes, while a slack economy and tight mortgage market are reducing the pool of potential buyers.”

Those who can hold on to their properties are not selling at current prices and those who can buy are waiting for prices to fall still lower.

And they will get lower.

With more than 4.5 million homes on the market, and with a rising tide of foreclosures that continues to add dramatically to that figure, prices are certain to continue to fall even further.

There is plenty of money waiting for prices to stabilize, but that won’t happen for quite a while.

First, something must be done to stop the flood of foreclosures that are adding to the nation’s already overloaded housing supply.

Second, the banks and lenders must respond to the Federal Reserve’s lowering of interest rates by passing these lower rates on to more borrowers.

Our guess is that little or nothing will happen on these fronts until after the presidential election.

Meanwhile, the meltdown continues.

 

 

Home Sales Set Record Low (Again) — Prices Decline and Inventory Sets Another Record

Existing home sales fell again to another record low in April.

The National Association of Realtors (NAR) reports that “Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 1.0 percent to a seasonally adjusted annual rate of 4.89 million units in April from an upwardly revised pace of 4.94 million in March, and are 17.5 percent below the 5.93 million-unit level in April 2007.”

The figures represent another record low since NAR has began keeping records in 1999.

The biggest decline was in sales of apartments and condominiums, which plunged 5.2 percent after two months of rising sales.

Demand for single-family homes dropped 0.5 percent in April.

NAR also reported that the national median existing-home price for all housing types was $202,300 in April, an 8.0 percent fall from April 2007 when the median price was $219,900.

Perhaps the worst news is that the inventory of homes for sale has continued to rise and is now at its highest level in more than 20 years. 

Inventory rose 10.5 percent to 4.55 million existing homes available for sale, an 11.2-month supply.  With so many homes on the market, it is likely that prices will continue to decline.  And with foreclosures continuing to flood the real estate market, it is expected that price declines will continue for at least several more months.

In addition, continued home price declines are keeping homebuyers, as well as investors, out of the market, as they expect even cheaper home prices in the near future. 

In other words, despite (and, to a large extent, because of) sharply declining prices, supply continues to rise while demand continues to fall.

Not a pretty picture for real estate.

As is usually the case, some regions fared better than others:

April sales dropped 6 percent in the Midwest and 4.4 percent in the Northeast, but rose 6.4 percent in the West (see our post on rising home sales in Orange County, California). 

Sales stayed steady in the South. 

Median prices fell across all regions.

In the West, the median price was $285,700, 16.7 percent lower than April 2007.  In the South, the median price was $170,800, down 5.1 percent from a year ago.  The median price in the Northeast was $262,000, 7.7 percent below April 2007.  The median price in the Midwest was $159,100, down 2.9 percent from April 2007.

NAR points the finger at the mortgage industry, blaming “restrictive lending practices” for the decline in sales, the lower home prices and the increasing inventory.

Always the optimist, NAR chief economist Lawrance Yun said that recent changes in lending would help homebuyers. “I would encourage buyers who were disappointed by poor mortgage options to take another look at the market because the lending changes are significant,” he said. “Also, a recent notable drop in interest rates on conforming jumbo loans will help consumers in high-cost markets like California and New York.”

We’re not holding our breath.

 

Seasonal Boost in Southern California’s Home Sales Lowest in 20 Years — Median Home Prices Continue to Fall as Foreclosures Rise

According to DataQuick, “The onset of spring did little to thaw Southern California’s semi-frozen housing market: The seasonal boost in sales between February and March was less than half its normal level and a record low.”

The data shows that 12,808 new and resale homes and condos sold in Southern California Los Angeles, Orange, San Diego, Riverside, Ventura, and San Bernardino Counties in March. 

Although that figure was 18.8 percent higher than the 10,777 sales reported in February, it was down 41.4 percent from March 2007.

In addition, while DataQick’s statistics show an average seasonal increase of 38 percent in sales between February and March for the last 20 years, the 18.8 percent increase for March 2008 was the lowest seasonal sales boost in DataQuick’s records, which go back to 1988.

As expected, the data showed a continued increase in foreclosure resales and a decline in median sale prices.

More than one out of three Southern California homes that resold last month, nearly 38 percent, had been foreclosed on at some point in the prior year.  Last year such sales were only 8 percent of the market.  At the county level, foreclosure resales ranged from 28.8 percent in Los Angeles County to 56.4 percent in Riverside County.

The median price for a Southland home last month was $385,000, the lowest since $380,000 in April 2004. Last month’s median was down 5.6 percent from February’s $408,000, and down a record 23.8 percent from $505,000 in February 2007.

Significantly, the psychology of the current real estate market is creating its own downward drag on prices, as potential sellers are waiting for the market to hit bottom and potential buyers are waiting for prices to fall further. 

DataQuick president Marshall Prentice explained: “We continue to believe a lot of people who could be buying or selling right now are opting to sit tight until they sense we’ve hit bottom. Often what we’re left with, especially in inland areas, are sales driven by foreclosure or the threat of it.”

Here’s what we know:

Those who can hold on to their property are holding.

Those who can buy are waiting.

Like scene before the climax in an old Hollywood Western, the California real estate stand-off continues…

Or as Commander Bart Mancuso says in The Hunt for Red October: “The hard part about playing ‘chicken’ is knowing when to flinch.”