“The 10-City Composite Index was down 0.4% during October and 0.9% for the most recent three-month period. The Index started the year in January at $470,017 and reached $509,030 in July before falling to $501,377 in October. The downturn would likely have been worse were it not for historically low mortgage rates and the federal government’s $8,000 first-time home buyer tax credit which is likely to be renewed in some form. Listing prices fell in 23 of 26 markets during October. The largest monthly decline occurred in Salt Lake City with asking prices down by 3.3%. Prices fell by more than two percent in Phoenix and Los Angeles. The rate of decline has slowed in Las Vegas but that market continues to show the largest decline during the downturn. In October, 2007, the median asking price was $354,347 but fell to $169,958 in October, 2009 – a drop of over 52%. Asking prices increased in just 3 of 26 markets. Prices rose at the fastest rate in the Bay Area markets of San Francisco and San Jose which experienced increases of 1.1% and 1.0% respectively. Prices in the Miami market were effectively flat with an increase of just 0.3%.
The Altos 10-City Composite presents the most current perspective on housing market conditions across the country. The Composite median price fell by 0.4% in October 2009.”

“One proposal by Sen. Johnny Isakson (R., Ga.) and others to extend the credit and make it available to all home buyers through June 2010 carries a price tag of about $16.7 billion. That proposal would raise the income ceiling for eligible home buyers to $150,000 per year for an individual and $300,000 for a couple. Currently the credit phases out for individuals earning more than $75,000 and married couples earning more than $150,000.”

Of course, there is the usual whining from those who claim this program, as well as the standard mortgage deduction, is nothing more than welfare for the middle and upper classes.

Dallas Realtors tell me the program has helped keep our local market hopping, particularly with affordable homes and in such entry-level neighborhoods as Little Forest Hills and others bordering Lakewood, east of Central.

“The under $300K market is really showing improvement,” said David Brown with MetroStudy. “The biggest weakness is in the $500,000 and up market, because there’s no secondary market for jumbos.”

“Tim Jackson, a Collin County custom builder who is president of the Home Builders Association of Greater Dallas, predicts new-home prices will rise next year unless starts increase.

“We just can’t get the funding to start new houses,” Jackson said. “I’m fortunate to have a good relationship with a local lender, and they allowed me to start a speculative home four or five months ago.

“But I doubt they would allow me to start another one,” he said. “Even if we have a customer who wants to build, they are oftentimes finding it difficult to find construction financing, too.”

What’s my fear? That all the elements putting the brakes on the market — in effect, constipating it — will ultimately raise prices on construction costs, new homes, taxes, closing costs, materials and labor so much that homes will be out of the average or lower-income individuals grasp.

“Ms. Goodman uses data from the Mortgage Bankers Association to estimate there are 55.9 million American homes with mortgage debt. She notes that at the end of the second quarter, an MBA survey found that more than 13% of single-family home mortgages were at least 30 days delinquent or in foreclosure.

Then Ms. Goodman looked at “cure” rates, the percentage of delinquent loans that return to current status. Those cure rates lately have been puny. The report assumes that about 99% of loans that are 90 days or more overdue will result in homes lost to foreclosure. The assumption for those 60 days or more delinquent is that 96% are toast, and for 30 days or more, 72%.  All in all, she estimates that 12.4% of the mortgages outstanding as of June 30—representing about 7 million homes—are going to end up changing hands on the courthouse steps.”

Thought: using 1.25 million during the peak of the real estate boom may not be the greatest of benchmarks, however: 7 million homes in foreclosure is almost mind-boggling. That’s like one whole city the size of Chicago of foreclosures!

Update: Looks like Bloomberg knows how to monetize their site — the video has a shelf life that has apparently run dry!

Update: Time posted a story on the looming commercial real estate crisis yesterday.

No inflation is going on right now, the government is trying to stop de-flation. Almost all the experts agree that we may see eventual inflation because of the economic stimulus — that money pumping into our systems. We may have a window of about 12 to 16 months before interest rates will have to rise to control it.  The Fed can and will monitor inflation tightly 24/7 and may in fact want to see a bit of inflation, say 2 to 4%, anything but hyperflation or deflation.

The banks still aren’t lending, what will it take to move them? Maybe higher interest rates. Cox doesn’t think you can pass laws forcing banks to lend money.

“When the risks and rewards are in balance, they will lend,” he says.

Our day of reckoning for the stimulus package will be when we convince China and Japan that treasuries are worth buying.

Why are the banks doling out TARP funds to the “troubled” banks rather than the solid banks, so the solid banks could lend the funds?

Good question, said Cox.

Unemployment is starting to affect everyone, even in the higher net worth classes. Though Texas thankfully lags the nation in unemployment, layoffs may not be over yet. Two solid businesses now: healthcare and education.

And these men think Americans’ spending habits have changed dramatically, maybe forever for a generation. Just as they did after the Great Depression, people are tightening their belts. Whether they keep them tight and how many years they live lean depends on how affected they are by this economic downturn, how long it lasts. We may not see mega leverage for another twenty years.

Higher taxes may force people out of states like New York and California, and we could see another wave of  sunbirds heading here for our sensibly valued homes. Watch: commercial real estate failings. Be glad we live in a city that continues to attract business and generate jobs as well as technology (intelligent medical systems being developed at Texas Instruments) and varied corporate headquarters. Buffalo, New York was home to the largest number of wealthy individuals in the U.S…  once upon a time.

I’m almost bullish.

I ask you: what price range home can you afford with $7500 a month?�

“Regardless of political mudslinging, the crux of the discussion is this section
“Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage point premium is dropped.”

So Candy, how many of the current defaulters used that program? I am sincerely asking the question. Is it 1% of the current defaulters, 10%, 50%, 0%? What is it?

Don’t go pointing fingers without having some answers.”

Anyone have the answers?

A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase. 

F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.

Not fair, folks.

C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?

Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.

P. O’B Montgomery & Company

“We are looking at doing whatever makes sense,” Phil Montgomery told me today, when asked if the residences would resume construction. “The market has clearly changed.”

Prescott’s Jud Pankey says the garage is complete and open, and construction attention will now focus on the courtyard. This month’s Architectural Digest feature on the hotel and colorful designer, Carleton Varney and his mentor, Dorothy Draper, has generated national interest in the project; Varney is coming back to Dallas in the spring to create more buzz.

If another developer were going to be engaged for this project, the most likely time would be when construction financing is being negotiated, said Pankey by email.

“Phil Montgomery introduced me to Apollo almost ten years ago, and we all try and assist each other when faced with a challenge,” wrote Pankey.

What we are doing, said Montgomery, is fairly routine.

According to sources, Al Coker is no longer handling marketing for The Stoneleigh Heritage Residences; Cynthia Pharr is handling media relations.

But what about people who bought with zero down? Didn’t they have to pay P.M.I? Or were they, instead, encouraged to get second mortgages so that instead of having an insurance policy on default, they would screw over two banks instead of one?

May I make a modest suggestion: whoever initiated the dumping of P.M.I. helped make a significant contribution to the mortgage crisis and current financial meltdown. Agree?

“If you’ve got less in your pocket and you’re worried about putting food on the table, you’re not going to be buying new throw pillows just because Pottery Barn has a new color.”

Or new faucets, or even placemats. Thursday I’m having lunch with someone from our Design District to see what gives in the Dallas design world. Meantime, Gerald Peters is shuttering and Laura Kostelny reports that At My Table in Snider Plaza is calling it quits.

“Loan originators were able to divorce themselves from risk by selling loans to Wall Street investment firms that bundled them into securities that were sought after by investors looking for better returns than Treasurys. When home prices collapsed and borrowers began defaulting, the losses on those investments and others tied to them rippled through the financial system, curtailing all types of lending.”

But I gasped yesterday when one panelist said that hidden in the fine print of the securitization process of the bundled ARMs was a non-default warranty from the loan originator of 90 days!   

To understand how we got into this trillion dollar financial mess, Shiller said we had a number of merging factors: rare events, complacency, over reliance on conventional wisdom, herd behavior, and more respect for sophisticated methods rather than substantial evidence. (”Quantitative technology?”) Finance and real estate have become much more sophisticated disciplines, but data we used didnt include historical episodes such as The Great Depression. Since the 1929 crash, we had 3 major stock dips — 1929, 1987 and 2008. Shiller thinks this latest episode is more like 1929 than 1987, and he doesn’t think recovery will be rapid. But for the first time in our economic history, we had a real estate bubble. Americans went gaga about real estate as an investment. In Miami, for example, housing prices were stable from 1987 to 2000. 2001 to 2007 prices tripled — the Miami condo market overbuilt by hundreds of thousands of units. We got carried away: irrational exhuberance, herd mentality. Long term solution? Market transparency, better information, but as Shiller pointed out, you can present buyers with all kinds of warnings — sometimes people just don’t pay attention or figure it out. Very interesting comment: what if, he asked, medical professionals did not exist and all we had were drug company sales reps telling us which drug to take? (Would the Wellbutrin folks would tout the benefits of Prozac or push their product?) Shiller believes every family needs a financial physician that the government should subsidize. (Reality check: the government does provide health benefits for some through Medicaid and Medicare, but both programs reimburse physicians at minimal rates and are teetering financially.) These advisors would vow to not take commissions or other distractions to affect the advice they give their clients.

In this country, we have failed to manage real estate risk, which is devastating to familes. Shiller proposes a futures market for single family homes. We need more hedging of real estate risk, something he is focusing on in his company, Macroshares. We need to think creatively about our mortgage institutions. Why are we so married to 30 year conventional mortgages? (And why was the wheeled suitcase only invented in 1972?) Why can’t a work-out be built into a mortgage — in case of default, safety measures would kick in to prevent foreclosure. Why not have home equity insurance? Livelihood insurance? Payroll deductions for mortgages that would adjust up or down with the market? Harvard’s Elizabeth Warren has proposed a Financial Product Safety Commission to protect consumers from financial products, much like the Consumer Product Safety Commission protects consumers from concrete products.

 We are living in very uncertain times, says Shiller. To people close to retirement or living off equities, be careful — the market could fall in half again this year. Job creation did not drive the housing boom — credit did. And it’s going to take much more than just a finger-snap to get us out of it.