Sunday, April 27, 2008

Prices Starting to Slip

So the local media have discovered that real estate prices have gone flat in Salt Lake and Davis Counties and declined in Utah County. No surprise to anyone who bothers to watch, but since they're only looking at MLS numbers, the stats are a bit skewed. No foreclosures, no short sales, no deals in the ward parking lot, all of which are becoming more common. That explains why Draper shows a respectable increase even though every third house is for sale, prices on the bench are spinning in, and Suncrest is bankrupt. These are the same figures that were used to create all the celebrating about a 6% decline in inventory for Q1 without bothering to account for seasonal adjustments or sellers who gave up and pulled their homes off the market. Lies, damned lies, and statistics, folks.

It also doesn't account for a painful fact about this market. A flat market, even a slightly increasing market, is no better than a declining market for these sellers. They leveraged to the hilt with outrageous terms, expecting quick appreciation for a quick flip. It isn't happening, and they're sunk. Prices haven't really started slipping yet, but the market can't support this inventory.

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A Tip of the Hat to the ABA

The American Bar Association has decided to demonstrate some proactivity concerning the current lending mess. It has set up a site called, providing a lot of consumer information about mortgages, student loans, credit cards, and auto financing. Check it out.

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Thursday, April 17, 2008

Building Permits at 20-year Low

Or close to it. Building permits in March dropped to the lowest level since at least 1990. Builders have such a backlog, they're having to stop building to clear it out. Which really means they can't get new construction financing until they clear some of their old construction financing off the deck. Which really really means that their cash flow, the life blood of any business and especially construction, has come to a standstill. I think the Chapter 11s are just getting started.

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Now I'm REALLY Concerned

Wachovia, which has always been known as a conservative player, announced nearly $400 million in Q1 losses Monday and that it is trying to raise $7 billion through a stock sale. And the markets yawned. Folks, how bad is it when a player we never thought would get caught sideways in a speculation bust gets caught sideways in a speculation bust, and the markets just say, "Oh well, another one."

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Monday, April 14, 2008

Suncrest Going Downhill

Well, not physically. At least not yet. Financially is another matter. It has defaulted on $58 million in loans from Zions Bank, and on Friday it dived into Chapter 11. The developer is shopping the project, and Zions says it will continue to fund it (Little choice there. Unless the development is built out, it won't come close to securing the loans.), so the homeowners up there don't have to worry about those issues for now. They should worry, though, about the causes of the bankruptcy.

The recent real estate downturn had an impact on SunCrest, but it isn't what sank it. SunCrest is embroiled in a series of lawsuits arising from the fact that the whole thing is built on a sandpile. There's a reason there are sand and gravel pits all around Traverse Ridge (There's a fault line up at the east end, too, but I'm not going there right now.). But the project was greenlighted anyway, and the inevitable result was a pile of lawsuits over deteriorating streets, inadequate water retention and drainage, and whether the houses themselves will one day come slaloming down the hillside. Default and bankruptcy loomed from the start.

Over 20 years ago, as the houses went marching up the benches in the Avenues and Olympus and Canyon Coves, people talked blue-lining (setting an arbitrary "do not build" mark at a certain elevation). I told them not to bother because such restrictions always get tossed out in court. What was needed was an engineer putting his liability insurance behind the geological stability of a project. That and bonding would have stopped the riskier projects or at least provided funding for fixes. Wasn't done, though, and now the bench communities are finding that Yeats was right and things really do fall apart.

I seem to recall a parable about building your house on sand.

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Friday, April 11, 2008

Meanwhile, Back in the Mortgage Mess

Last week Salt Lake Credit Union announced it was merging into Mountain America Credit Union. This week the condition of SLCU's adjustable-rate residential construction loan portfolio came to light. In September SLCU reported that it had $0 in 2-6 month delinquencies; in December it reported $824,604. In September it reported $315,857 in less than 2 month delinquencies; in December it reported $22.6 million. Does anyone else see a problem here, especially with a lot more ARMs set to reset this year? SLCU's first quarter report is due in about a month. I think people need to be watching for it.

The Feds are "Helping" Again

The local market is sitting on an 18-month backlog of houses, much of the country is far worse, and Congress and the White House propose to "fix" this by giving another $6 billion to homebuilders. What do you suppose they will do with that money? Build more houses, of course, thus further deflating the market. Let's not forget either that most of those large homebuilders had in-house mortgage shops that wrote those subprime and alt-A loans that fueled this mess, pocketing substantial profits in the process. Wow, let's reward bad behavior and exacerbate the problem in one shot. If the Feds wanted to throw money away, they could have paid homebuilders simply not to build until the market absorbed some of the inventory. Instead, we're getting what may be the worst possible response.