July, 2007

David A. Kaminsky & Associates, P.C. is pleased to announce that in addition to sending our newsletter by mail, we will now be using email as well. Please contact the office to update your email address and to add others to our list.
Real-estate agents have been leaving the trade and opting for alternative career paths as a result of the downturn in the housing market. The Wall Street Journal reported that David Lereah, chief economist of the National Association of Realtors, expects memberships in the trade group to decrease by about 6% to 8% from the 1.4 million reached in 2006. The number of agents leaving the trade is due to the decrease in sale of homes that started around mid-2005. Sales of previously occupied homes last year declined 8% to 5.7 million, even as the number of real-estate agents continued to increase for the whole year.
The Wall Street Journal reports that even before sales slowed, people in the industry said that far too many agents were chasing far too few deals. Ronald Peltier, chief executive of Home Services In., a Minneapolis chain that owns brokerages in nineteen states, says that the industry probably has 20% to 25% more agents than it needs.
Many companies are trying to increase productivity and are determined to do so by removing agents who are merely experimenting with being an agent. Boom economies encourage those seeking to make a big “hit” to rush to join the ranks of real estate brokers. Tighter economies cause the non-professionals to flee, leaving the real brokers to get the job done.
The Wall Street Journal reported that Countrywide Financial Corp., one of the largest U.S. home-loan lenders, said fourth quarter net income fell 2.7% on slower loan volumes, and it expects to see continued profit pressure this year as a result of slow home sales, intensifying competition and rising delinquencies. Many large mortgage lenders, including those owned by banks such as Washington Mutual Inc. recently predicted falling net income as well.
The biggest worries over higher defaults involve borrowers who have taken out adjustable-rate mortgages as the Mortgage Bankers Association estimates that about $1.1 trillion to $1.5 trillion of adjustable-rate mortgages are due to adjust to higher payments this year. About half of this amount is expected to get refinanced into fixed-rate mortgages or other types of loans before the higher payments begin, but some buyers, especially the financially stretched, are finding it more difficult to refinance or sell their homes, leading to more delinquencies.
Countrywide is expected to face continued pressure on volumes, margins, and housing prices as well as increased defaults and foreclosures. These factors will also result in a number of smaller lenders closing their doors. Countrywide said in October 2006 that it would cut 2,500 jobs in an effort to generate $500 million in annual cost savings.
Although 2007 will likely be a rough year, Mr. Mozilo told the Wall Street Journal that 2008 should represent the beginning of upward trends associated with the next cycle.
Vacant U.S. homes for sale have risen to the highest level in four decades, adding to the concerns about the housing market. As of December 2006, there were 2.1 million vacant homes for sale, at a rate of 2.7%. The Wall Street Journal reports that before 2006 the rate had never broken 2.0%. The south had a homeowner vacancy rate of 3.0%, the Midwest rate 2.9% and the Northeast had a vacancy rate of 2.0%. This report sparked fresh concerns about the housing market. Goldman Sachs economist Jan Hatzius concluded in a report that rising vacancies signal that excess housing supply continues to grow and that new construction has to decline further this year than the 1.3% decline in new homes construction in 2006.
J.P. Morgan economist Haseeb Ahmed said that the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Mr. Ahmed says the concern is that there could be downward pressure on prices for awhile. These worries could dash hopes for a swift housing rebound.
The Wall Street Journal reported that so far, prices have fallen in relatively few markets. In fact, median home prices nationally were up 1.1% in 2006 according to the National Association of Realtors. The Federal Reserve’s Federal Open Market Committee said in a statement in early February 2007 that recent indicators have suggested a somewhat firmer economic growth.
Many economists agree that rising vacancies have likely been fueled by speculators, the group that is proving to be the wild card of the housing market. During the boom they flooded the market and flipped homes for a profit. When sales slowed, speculators were stuck with vacant homes that have lingered on the market. Speculators may not act like typical home sellers. When they sell their vacant homes in a down market they do not necessarily purchase another home. On the other hand, people selling the homes they live in will most often buy another home, fueling a healthy market of buying and selling.
Mr. Hatzius expects homeowner vacancies will slow as builders cut back on production and owners convert their units to rental to take advantage of rising rents.
We would like to welcome our new Associate Mariya Gurevich. Mariya is a Brooklyn Law School Graduate and is Admitted in New York and New Jersey.