John Murphy Reports

I am not a big user of the StarTribune.com real estate site, but I spent some time on it today. The thing that stood out in my mind was how prominent the logos were for the brokers. The brokers logos are bigger and stand out more than the photos for the homes which we are hired to sell. Do buyer really care if the home is listed by Coldwell Banker or Re/Max? Based upon the design and layout of the search page shown below, the broker appears to be most important. The agent’s name is 1/10th the size of the logo at best.

Perhaps this design was done to lure real estate brokers back to the Star Tribune. By the looks of the print component, real estate agents and brokers have all but abandoned the traditional print classified ad in the Sunday paper.

There are currently 66 distress sales in Plymouth right now.  That’s 11.5% of the total inventory for sale.

The MLS started allowing agents to check a box on the MLS if the property is in foreclosure or is lender owned.  I know there are many who have signed up to receive listings on Edina Realty.com, Coldwell Banker.com and Re/Max.com etc.  If you are, you are getting an extremely limited view of the distress sales available in the market.

For example, I ran a search this morning on EdinaRealty.com and came up with 19 properties for sale in Plymouth, MN that are in foreclosure or are lender owned.  My custom search turned up 66!

If you want access to this kind of information on an automated basis, just sign up at my web site.  I can customize it to only deliver the specific cities, price ranges and kinds of housing your might be interest in.

Also in the CNNMoney article about the changes being implemented by Fannie and Freddie to curtail the mortgage market, is the mention of the elimination of Alt-A loans by the end of 2008.  (My sense is if they have decided to eliminate by the end of 2008, it’s probably difficult to get these kinds of loans approved today).

CNN Money reports that Alt-A loans accounted for about 11% of Fannie’s loans.  Alt-A is a category for no-doc/low-doc mortgages.  The street name for this is “liar loans.”  However, this was also that way for many independent business owners were able to get mortgages.  For example, you might have a business owner who makes more than $200,000 but because of his/her write offs, they may only show an income of $80,000.  The reality is he/she can afford a home much greater than what his/her $80,000 income could qualify for.  These kinds of buyers were perfect for Alt-A loans.  Not any more.

Did the market just lose 11% of the buyers yet again?  Probably not, but a certain percentage of these people certainly will go away.  Based upon this move, we probably have just lost another 5-8% of home buyers out there.  While that might not sound like a lot, in the U.S. we are on pace to sell approximately 5,000,000 homes this year down from 7 million homes sold in 2005 during the peak.  (See Calculated Risk for some excellent analysis and charts).  At a pace of 5,000,000, if we lose 5% that’s another 250,000 buyers gone.  If it’s 8%, that’s another 400,000.

“In wake of huge losses, Fannie Mae announces changes that will make home loans harder and more expensive to obtain.”

CNNMoney.com has a story about the rising costs of obtaining a mortgage.  Higher interest rates are only part of the story.  Fees will be going up as well.

The National Association of Realtors chief Economist, Lawrence Yun had this to say about the coming changes from Fannie Mae and Freddie Mac:

It’s very negative,” said Lawrence Yun, chief economist for the National Association of Realtors. “Any time there’s an additional imposition of fees in obtaining a mortgage, it knocks some potential buyers out of the market.

In my opinion these changes will likely have greater immediate impact on homes priced under $400,000.  However, since every property is part of a food chain, if sellers have greater difficulty finding qualified buyers for their $300-$400k home, it makes it more difficult for them to move up to a $600-$800k home.

These are yet more hurdles for the real estate market to overcome as the great unwind continues from the debt and mortgage bubble.

Twin Cities building continue to scale back their building projects.  According to this Star Tribune story:

During July, 255 permits were issued to build 650 units. That’s a 42 percent decline in the number of permits and a 33 percent decline in the number of new units. So far this year, the number of permits and planned units were down nearly 50 percent.

Even this numbers overstate the number of new residential structures being built as the article goes on to point out that:

More than a third of the planned units last month were to build two large multi-unit buildings in Bloomington, which hasn’t made an appearance on the top-five list all summer.

It would be nice to see if the builders basically mothballed virtually every development for one more year as the marketplace makes an attempt at burning off the existing inventory.