Builders ask: where are the buyers?
Where are the buyers?
Section: Real Estate And Home Life
Date: 06/24/07
It's a new world for builders; 'The fall is so great because the height was so great.'
By Sally Duros
"When they ain't coming there's no stopping em," says Steven J. Hovany, president of Strategy Planning Associates, speaking of buyers of new homes in the greater Chicago area.
Strategy Planning Associates monitors about 280 projects by Chicago-area builders-- about 40 percent of the Chicago market.
"With Chicago-area builders, it looks like it will be next spring before we get positive upward movement in housing sales," Hovany says. "I just looked at the figures that came out on Monday. We are not seeing any real change. Things are in turmoil, and there are fewer jobs in the pipeline.
Real Estate Editor/sduros@suntimes.com
A lawsuit against Chicago-area mortgage broker One Source Mortgage Inc. is the starting point for an investigation by Illinois Attorney General Lisa Madigan into possible fraudulent lending practices by Countrywide Financial Corp.
A subpoena was served on Calabasas, Calif.-based Countrywide, the biggest U.S. mortgage lender, seeking documents related to its home mortgage unit, according to Madigan’s consumer protection head, Deborah Hagan.
‘‘We’re looking at Countrywide’s origination practices in Illinois,’’ Hagan said Thursday of her office, the state’s top law enforcement agency.
The investigation into Countrywide follows the Attorney General’s filing of a Nov. 26 lawsuit alleging broker One Source Mortgage Inc. and its president, Charles G. Mangold, duped borrowers into signing complex loans without regard to their ability to repay these loans.
One Source had operated primarily on Chicago’s Northwest side near the Lincoln Square neighborhood.
“We looked at a slice of [One Source] loans,” Hagan said. “Half were coming from Countrywide, and almost all of those loans were pay option ARMs.” An option ARM mortgage is an adjustable rate mortgage that allows a borrower to pay a minimum monthly payment that is only a small portion of the interest owed, and does not pay down any principal. A borrower using this mortgage can pay faithfully month after month and wind up owing more than he or she borrowed.
The subpoena seeks data on the life of Countrywide loans, from origination through their bundling for resale as asset-backed securities, she said.
“Pay option ARMs will not show problems until 2009 and beyond because the borrower can keep making the minimum payment,” Hagan said.
Countrywide brought in $11.4 billion in revenue last year, and in the past 12 months has financed almost $5 billion in loans, of which 45 percent were adjustable rate mortgages, Hagan said.
Countrywide has lost approximately 76 percent of its value this year as subprime mortgage borrower defaults triggered a surge in loan foreclosures.
In November, foreclosures doubled from rates a year earlier, the company said today in a statement. Company spokeswoman Amber Cousins didn’t immediately return a call seeking comment.
Contributing: Bloomberg News
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"Little by little, builders are coming to the understanding that 2005 is not coming back," he says. "It will be a new world."
Hovany says that we'll see new CEOs stepping in at the helms of building companies, and there will be layoffs. He also says that low consumer confidence is contributing to the slow down.
"Buyers think this is the wrong time to buy," he says, but in truth, it's a good time for those with the means and the motivation. Builders are offering incentives and, in some cases, reducing prices to move inventory, he says. They are also redesigning their models to include smaller, lower-priced housing.
Kane, Kendall and McHenry counties saw gains in attached housing sales first quarter 2007 compared with first quarter 2006, Hovany's company reported in its quarterly newsletter. DeKalb, DuPage, Grundy, Lake, Will and suburban Cook all posted double-digit drops in sales first quarter 2007 vs. first quarter 2006.
"The fall is so great because the height was so great," Hovany said.
