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Sunday, December 23, 2007
Canadians snap up U.S. homes
Two hours after his flight landed in Phoenix, Doug Farley of Calgary, Canada, was cruising the city's vast stuccoed suburbs in search of the one attraction Canadians can't seem to get enough of these days, cheap homes.
There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley — and many of his countrymen — dreaming of winter golf on grass that's always green.
"My dollar's the same as your dollar, finally," Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb.
For moderate-income Canadians like Farley, the race is on to take advantage of the strong "loonie," which in September reached parity with the U.S. dollar for the first time since 1976. Many are combing the Internet for anxious U.S. home sellers and looking with an investor's eye at the condos they rented while on vacation in sunbelt states.
"Now it's more than just the snowbird coming down and staying in a condo. It's people looking for business opportunity," said Frank Nero, president of the Beacon Council, Miami-Dade County's economic development arm in south Florida.
FIND MORE STORIES IN: Phoenix | Canada | Ariz | Calgary | Canucks | Scottsdale | EDMONTON | Canadians | Chandler | Real estate agent
Canadian condo-builder Solterra Group also is riding the surge in the Canadian economy as it plans to snatch large chunks of land in Las Vegas. Michael Bosa, the company's vice president for development and acquisition, said the loonie has bolstered his company's bids.
"We're looking now aggressively," Bosa said. "We think we'll see more opportunities in the next six to eight months."
In Arizona, Jason Sirockman of Edmonton, Alberta, said he watched as the market was flooded with 58,000 homes, more than twice the amount in 2005 when home values peaked.
Now's the time to buy, he said. Alberta, a three-and-a-half-hour flight from Phoenix, is experiencing a modern-day gold rush from booming work in its vast oil sands.
"Fifteen of my friends are on buying trips down here, and we're all cheap," Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.
"I don't want to take advantage of a guy who's having trouble in the market and is losing his shorts," Sirockman said. "But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them."
Single-family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service.
The market has shifted totally in the buyer's favor, especially those offering cash, said Jeff Russell of Alberta. Last month, Russell snapped up a patio home next to a golf course in Scottsdale with a $299,000 check. It was listed at $463,000.
"I was actually going to come down here and buy a seven-series BMW because cars are ridiculously cheap here," he said. "But I discovered that, forget cars, houses are on deep discount. I could never get anything on a golf course as nice in Canada for this type of money."
Real estate agents in Phoenix, especially those with Canadian ties, are hustling to reach potential buyers up north while the U.S. housing market and the U.S. dollar continue to slump.
Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty website, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes.
"There's a real 'Wow' factor here for Canadians," said Morielli, who now lives in Phoenix.
"When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now."
Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the U.S. housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors.
"When (the Canadian dollar) hit a dollar ten, it really created a real buzz for Canadians, not only those looking to buy second homes but we're also seeing it from buying purely from an investment standpoint," Dziedzic said.
Still, with so many homes on the market, the interest by Canadians isn't about to fix the housing slump in Arizona, real estate consultant Elliott D. Pollack said.
"You have a massive oversupply in the face of a lower demand," Pollack said. "And you're going to have to work off those excess units. And to do that you'll need two or three years."
That's fine with investors like Farley, who are still learning the neighborhoods.
As he searched for his new winter home, Farley kept an eye out for condos near a pool. When it got cold in Calgary, that's where his family would be.
"I just want the ability to go outside, you know, the ability to go for a walk," Farley said. He left for Calgary with a few strong choices, but he didn't bid on anything.
Sirockman also returned to Canada without a house after the owner of the Scottsdale home turned down his offer. No worries. Sirockman told the seller there were a thousand other homes like his on the market, and someone was going to deal.
As he was about to get on the flight back to Edmonton, Sirockman called his friends, and they told him it's 28 below zero back home.
"That's what I'm flying into," he said with a sigh. "I brought a big down-filled jacket with me. I'm looking like an idiot getting onto the plane."
source: usatoday.com
There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley — and many of his countrymen — dreaming of winter golf on grass that's always green.
"My dollar's the same as your dollar, finally," Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb.
For moderate-income Canadians like Farley, the race is on to take advantage of the strong "loonie," which in September reached parity with the U.S. dollar for the first time since 1976. Many are combing the Internet for anxious U.S. home sellers and looking with an investor's eye at the condos they rented while on vacation in sunbelt states.
"Now it's more than just the snowbird coming down and staying in a condo. It's people looking for business opportunity," said Frank Nero, president of the Beacon Council, Miami-Dade County's economic development arm in south Florida.
FIND MORE STORIES IN: Phoenix | Canada | Ariz | Calgary | Canucks | Scottsdale | EDMONTON | Canadians | Chandler | Real estate agent
Canadian condo-builder Solterra Group also is riding the surge in the Canadian economy as it plans to snatch large chunks of land in Las Vegas. Michael Bosa, the company's vice president for development and acquisition, said the loonie has bolstered his company's bids.
"We're looking now aggressively," Bosa said. "We think we'll see more opportunities in the next six to eight months."
In Arizona, Jason Sirockman of Edmonton, Alberta, said he watched as the market was flooded with 58,000 homes, more than twice the amount in 2005 when home values peaked.
Now's the time to buy, he said. Alberta, a three-and-a-half-hour flight from Phoenix, is experiencing a modern-day gold rush from booming work in its vast oil sands.
"Fifteen of my friends are on buying trips down here, and we're all cheap," Sirockman said. He brought his family to Scottsdale this month while he submitted a lowball all-cash offer for a three-bedroom home.
"I don't want to take advantage of a guy who's having trouble in the market and is losing his shorts," Sirockman said. "But I have no problem with a guy from California who bought on spec and has five houses in Arizona and never lived in them."
Single-family homes and condos in the Phoenix metro area now sit an average of 99 days before getting sold. That's three times the wait for homes and four times the wait for condos compared with two years ago, according to the Arizona Regional Multiple Listing Service.
The market has shifted totally in the buyer's favor, especially those offering cash, said Jeff Russell of Alberta. Last month, Russell snapped up a patio home next to a golf course in Scottsdale with a $299,000 check. It was listed at $463,000.
"I was actually going to come down here and buy a seven-series BMW because cars are ridiculously cheap here," he said. "But I discovered that, forget cars, houses are on deep discount. I could never get anything on a golf course as nice in Canada for this type of money."
Real estate agents in Phoenix, especially those with Canadian ties, are hustling to reach potential buyers up north while the U.S. housing market and the U.S. dollar continue to slump.
Rick Morielli, a former real estate broker from Toronto, received his green card in November, posted a Canadian realty website, took out some newspaper ads in Canada, and already he has about a dozen clients looking for homes.
"There's a real 'Wow' factor here for Canadians," said Morielli, who now lives in Phoenix.
"When I take them to a brand new subdivision, and for $210,000 can get them four bedrooms, 2,000 square feet, all appliances, brand new, that's something they haven't been able to buy in Canada for 10 or 15 years. In my opinion, everyone should be buying now."
Mark Dziedzic, a former financial planner from Toronto, now sells homes full time in Arizona and holds seminars in Canada to push the U.S. housing market on fellow Canucks. Dziedzic said he's had to hire more staff at his office to keep up with the influx of Canadian investors.
"When (the Canadian dollar) hit a dollar ten, it really created a real buzz for Canadians, not only those looking to buy second homes but we're also seeing it from buying purely from an investment standpoint," Dziedzic said.
Still, with so many homes on the market, the interest by Canadians isn't about to fix the housing slump in Arizona, real estate consultant Elliott D. Pollack said.
"You have a massive oversupply in the face of a lower demand," Pollack said. "And you're going to have to work off those excess units. And to do that you'll need two or three years."
That's fine with investors like Farley, who are still learning the neighborhoods.
As he searched for his new winter home, Farley kept an eye out for condos near a pool. When it got cold in Calgary, that's where his family would be.
"I just want the ability to go outside, you know, the ability to go for a walk," Farley said. He left for Calgary with a few strong choices, but he didn't bid on anything.
Sirockman also returned to Canada without a house after the owner of the Scottsdale home turned down his offer. No worries. Sirockman told the seller there were a thousand other homes like his on the market, and someone was going to deal.
As he was about to get on the flight back to Edmonton, Sirockman called his friends, and they told him it's 28 below zero back home.
"That's what I'm flying into," he said with a sigh. "I brought a big down-filled jacket with me. I'm looking like an idiot getting onto the plane."
source: usatoday.com
NYC hotel boom helps to ease room shortage, expense
While planning her vacation to New York, Lisa Werness was so horrified by the prices in Manhattan that she opted for cheaper lodging in Brooklyn — where she scored a room rate of just $400 a night.
"Don't remind me. I'm trying to forget about it," the Raleigh, N.C., resident said of the price shortly after checking in at the New York Marriott at the Brooklyn Bridge. "We're just kind of biting the bullet."
CITY GUIDE: What to see in NYC
In a city where even residents often pay more than half their salaries for a place to lay their heads, visitors in need of lodging have long faced a shortage of hotel rooms and rising prices.
Now, with 8,500 hotel rooms under construction in the city — a growth of more than 10% — that crunch could ease ever so slightly in the coming months. By comparison, it took from 1998 to 2007 to make a leap of the same size.
FIND MORE STORIES IN: New York | Manhattan | Brooklyn | Hotel | Marriott | City Guide | Hotel Group | Sean Hennessey | Lisa Werness
"One of the challenges that New York has always had is having enough rooms for tourists," said Sean Hennessey, CEO of industry consulting firm Lodging Investment Advisors. "Most of the time the corporate travelers are willing to pay more than the tourists, and the tourists kind of get crowded out."
New York sees more overseas and domestic visitors than any other U.S. destination except Orlando, according to analysts at Global Insight Inc. But it has fewer hotel rooms than less-popular spots including Las Vegas, Chicago, the Los Angeles metro area and Atlanta, according to Smith Travel Research.
The resulting shortage leads many travelers seeking an affordable room to head far afield of the usual tourist draws, and hotel developers have taken notice, with new lodging under construction or recently opened in Brooklyn, Queens, the Bronx, Long Island and beyond.
Even with the weak dollar making his trip to New York a bargain, London resident Mike Jones still found the price tag on his Brooklyn hotel room shocking.
"All the hotels in Manhattan are pretty much full at whatever rate they want to charge," said the 56-year-old, whose travel agent advised him to a book a room in an outer borough because of the cost. "They're operating at pretty much capacity, and they can charge pretty much what they like."
Even when he decided to stay in Brooklyn for its cheaper prices, he ended up with a bill for close to $600 a night, he said, adding, "That's crazy."
Indeed, the city's occupancy rate is much higher than elsewhere around the country — averaging 85% in Manhattan during the first nine months of this year, compared with the national average of 65%, according to Smith Travel Research. Manhattan's hotels are at or near capacity most nights of the year, said Hennessey, adding that the current growth is the largest he's seen in the city in 25 years.
While hotel developers are doing well around the country, the high demand and rising prices in New York City have convinced investors that it's a particularly good time to build hotels here. Even the current influx of rooms is unlikely to glut the market and knock down prices, Hennessey said, although he noted that an economic downturn could lead companies to cut back on business travel — a move that could lead to cheaper rates.
As of October, New York had 59 hotels under construction — more than any of the 26 other U.S. cities with the largest number of hotel rooms, according to Smith Travel Research. It also had 103 hotels in the planning stage, beating out all those other markets.
With most of those new properties expected to charge what Hennessey called "mid-market" prices, the new hotels should be a boon for tourists, although mid-range in New York — $200 to $300 per night — may still seem far too expensive for some.
In part, the building boom has been driven by developers like McSam Hotel Group LLC, which has made a business of buying properties not zoned for residential use but too small to be attractive as office space, then converting them into functional hotels with small rooms, Hennessey said. As of September, the company had nearly 30 hotels expected to open around the city by 2009, according to city tourism office NYC & Company. Representatives of McSam Hotel Group were unavailable for comment.
While properties already under construction are unlikely to be called off, the mortgage crunch has some in the industry wondering if future projects might be slowed by the rising price of financing. Either way, it seems unlikely that a city with such high real estate prices will soon be offering truly cheap hotel rooms.
And, says New York City Marriott spokeswoman Kathleen Duffy, they're unlikely to find such prices in Brooklyn, where, she says, rates are increasingly competitive with Manhattan. The Brooklyn Marriott where Werness and Jones were staying recently added a new tower with 280 rooms to keep up with demand, Duffy said.
A short drive away, on a stretch of Brooklyn's Fourth Avenue that is home to auto body shops and discount liquor stores, the boutique Hotel Le Bleu, which opened last month, charges upward of $300 a night.
That, says general manager Robert Gaeta, is a "good value."
"There's no foreseeable decrease in the demand for New York City as a destination for travelers," he said. "I have no doubts that we'll be at 90% occupancy on a consistent basis."
source: usatoday.com
"Don't remind me. I'm trying to forget about it," the Raleigh, N.C., resident said of the price shortly after checking in at the New York Marriott at the Brooklyn Bridge. "We're just kind of biting the bullet."
CITY GUIDE: What to see in NYC
In a city where even residents often pay more than half their salaries for a place to lay their heads, visitors in need of lodging have long faced a shortage of hotel rooms and rising prices.
Now, with 8,500 hotel rooms under construction in the city — a growth of more than 10% — that crunch could ease ever so slightly in the coming months. By comparison, it took from 1998 to 2007 to make a leap of the same size.
FIND MORE STORIES IN: New York | Manhattan | Brooklyn | Hotel | Marriott | City Guide | Hotel Group | Sean Hennessey | Lisa Werness
"One of the challenges that New York has always had is having enough rooms for tourists," said Sean Hennessey, CEO of industry consulting firm Lodging Investment Advisors. "Most of the time the corporate travelers are willing to pay more than the tourists, and the tourists kind of get crowded out."
New York sees more overseas and domestic visitors than any other U.S. destination except Orlando, according to analysts at Global Insight Inc. But it has fewer hotel rooms than less-popular spots including Las Vegas, Chicago, the Los Angeles metro area and Atlanta, according to Smith Travel Research.
The resulting shortage leads many travelers seeking an affordable room to head far afield of the usual tourist draws, and hotel developers have taken notice, with new lodging under construction or recently opened in Brooklyn, Queens, the Bronx, Long Island and beyond.
Even with the weak dollar making his trip to New York a bargain, London resident Mike Jones still found the price tag on his Brooklyn hotel room shocking.
"All the hotels in Manhattan are pretty much full at whatever rate they want to charge," said the 56-year-old, whose travel agent advised him to a book a room in an outer borough because of the cost. "They're operating at pretty much capacity, and they can charge pretty much what they like."
Even when he decided to stay in Brooklyn for its cheaper prices, he ended up with a bill for close to $600 a night, he said, adding, "That's crazy."
Indeed, the city's occupancy rate is much higher than elsewhere around the country — averaging 85% in Manhattan during the first nine months of this year, compared with the national average of 65%, according to Smith Travel Research. Manhattan's hotels are at or near capacity most nights of the year, said Hennessey, adding that the current growth is the largest he's seen in the city in 25 years.
While hotel developers are doing well around the country, the high demand and rising prices in New York City have convinced investors that it's a particularly good time to build hotels here. Even the current influx of rooms is unlikely to glut the market and knock down prices, Hennessey said, although he noted that an economic downturn could lead companies to cut back on business travel — a move that could lead to cheaper rates.
As of October, New York had 59 hotels under construction — more than any of the 26 other U.S. cities with the largest number of hotel rooms, according to Smith Travel Research. It also had 103 hotels in the planning stage, beating out all those other markets.
With most of those new properties expected to charge what Hennessey called "mid-market" prices, the new hotels should be a boon for tourists, although mid-range in New York — $200 to $300 per night — may still seem far too expensive for some.
In part, the building boom has been driven by developers like McSam Hotel Group LLC, which has made a business of buying properties not zoned for residential use but too small to be attractive as office space, then converting them into functional hotels with small rooms, Hennessey said. As of September, the company had nearly 30 hotels expected to open around the city by 2009, according to city tourism office NYC & Company. Representatives of McSam Hotel Group were unavailable for comment.
While properties already under construction are unlikely to be called off, the mortgage crunch has some in the industry wondering if future projects might be slowed by the rising price of financing. Either way, it seems unlikely that a city with such high real estate prices will soon be offering truly cheap hotel rooms.
And, says New York City Marriott spokeswoman Kathleen Duffy, they're unlikely to find such prices in Brooklyn, where, she says, rates are increasingly competitive with Manhattan. The Brooklyn Marriott where Werness and Jones were staying recently added a new tower with 280 rooms to keep up with demand, Duffy said.
A short drive away, on a stretch of Brooklyn's Fourth Avenue that is home to auto body shops and discount liquor stores, the boutique Hotel Le Bleu, which opened last month, charges upward of $300 a night.
That, says general manager Robert Gaeta, is a "good value."
"There's no foreseeable decrease in the demand for New York City as a destination for travelers," he said. "I have no doubts that we'll be at 90% occupancy on a consistent basis."
source: usatoday.com
Paris, Texas: Prices, sales hold steady in 'big little town'
Paris, Texas, has a surprisingly strong industrial base for a city with a population of only about 25,000. Campbell Soup, Sara Lee and Kimberly-Clark all have manufacturing plants there.
There's also a regional medical center. These employers also draw workers from the surrounding area, which is why Paris has several large retail stores, including plans for a new Petco next year.
"You wouldn't expect to see an OfficeMax and a Home Depot and a Chili's and an Appleby's in a town our size," says Vic Ressler, a broker at Century 21 Executive Realty.
"It's a big little town," Ressler says. Popular annual events listed on the Visitors and Convention Council's website include the Tour de Paris bike race, Uncle Jesse's Memorial Big Bass Classic and the All Police Rodeo.
Paris, less than 20 miles from the Oklahoma border and about 100 miles northeast of Dallas, remains one of the most affordable towns in Texas and the country.
FIND MORE STORIES IN: Texas | Paris | Home sales | Coldwell Banker | Sara Lee | Campbell Soup | Officemax | Kimberly-Clark | Home construction
For the first 10 months of the year, home sales and prices were roughly flat with year-ago levels, says Chad Brown, broker-owner of Coldwell Banker Regional Realty.
Home construction has "really slowed," Brown says, in part because it's harder to pass on to customers the rising costs of materials.
source: usatoday.com
There's also a regional medical center. These employers also draw workers from the surrounding area, which is why Paris has several large retail stores, including plans for a new Petco next year.
"You wouldn't expect to see an OfficeMax and a Home Depot and a Chili's and an Appleby's in a town our size," says Vic Ressler, a broker at Century 21 Executive Realty.
"It's a big little town," Ressler says. Popular annual events listed on the Visitors and Convention Council's website include the Tour de Paris bike race, Uncle Jesse's Memorial Big Bass Classic and the All Police Rodeo.
Paris, less than 20 miles from the Oklahoma border and about 100 miles northeast of Dallas, remains one of the most affordable towns in Texas and the country.
FIND MORE STORIES IN: Texas | Paris | Home sales | Coldwell Banker | Sara Lee | Campbell Soup | Officemax | Kimberly-Clark | Home construction
For the first 10 months of the year, home sales and prices were roughly flat with year-ago levels, says Chad Brown, broker-owner of Coldwell Banker Regional Realty.
Home construction has "really slowed," Brown says, in part because it's harder to pass on to customers the rising costs of materials.
source: usatoday.com
Single-family home starts lowest in 16 years
Housing construction fell in November and single-family housing starts dropped to the lowest level in more than 16 years as a severe housing slump showed no signs of a turnaround.
The Commerce Department reported that construction of new homes and apartments dropped 3.7% last month to a seasonally adjusted annual rate of 1.187 million units.
MORTGAGE MESS: Fed plan reins in dicey loan practices
Construction of single-family homes fell 5.5% to an annual rate of 829,000 units, lowest level since April 1991, while multi-family construction was up 4.4% to an annual rate of 332,000 units.
In a bad sign for future activity, the government said applications for building permits fell for a sixth straight month, dropping 1.5% to a seasonally adjusted annual rate of 1.15 million units, slowest pace for building permits since June 1993.
FIND MORE STORIES IN: Fed
The overall construction decline left home building 24% below the level of activity a year ago. Housing has been in a serious downturn the past two years following five boom years in which sales and home prices soared.
The slump has raised concerns that the economy could be pushed into a recession. Starting this summer, some of the nation's largest banks and investment firms declared multibillion-dollar losses stemming from a surge of defaults on subprime mortgages, loans offered to borrowers with weak credit histories.
Those defaults have resulted in a severe credit crunch as banks and other lenders tightened up on loan standards, making credit hard to come by for many businesses and consumers. The Federal Reserve, worried that the credit crunch will add to the economy's other problems, is searching for ways to pump more money into the financial system, including two unprecedented auctions this week totalling $40 billion.
The overall economy is expected to slow to a growth rate of 1% or less in the current quarter. A similarly weak growth rate is forecast for the first three months next year — the point of maximum danger, many economists believe, that the country could dip into recession.
The new housing report shows that construction activity was down in all regions of the country except the South, which saw a small 0.3% rise. Construction plummeted 16.3% in the Northeast, 6.9% in the West and 1.5% in the Midwest.
The National Association of Home Builders reported Monday that its index of builder sentiment remained at a record low in December for a third straight month.
The index remained at 19, lowest reading since this gauge of builder optimism was created in 1985. The index has been below 50 since May 2006. Index readngs above 50 indicate positive sentiment among builders about future sales.
Builders have been slashing construction plans and offering incentives in an effort to reduce record levels of unsold homes.
The concern is that the rising number of mortgage defaults will dump even more homes on an already glutted market.
source: usatoday.com
The Commerce Department reported that construction of new homes and apartments dropped 3.7% last month to a seasonally adjusted annual rate of 1.187 million units.
MORTGAGE MESS: Fed plan reins in dicey loan practices
Construction of single-family homes fell 5.5% to an annual rate of 829,000 units, lowest level since April 1991, while multi-family construction was up 4.4% to an annual rate of 332,000 units.
In a bad sign for future activity, the government said applications for building permits fell for a sixth straight month, dropping 1.5% to a seasonally adjusted annual rate of 1.15 million units, slowest pace for building permits since June 1993.
FIND MORE STORIES IN: Fed
The overall construction decline left home building 24% below the level of activity a year ago. Housing has been in a serious downturn the past two years following five boom years in which sales and home prices soared.
The slump has raised concerns that the economy could be pushed into a recession. Starting this summer, some of the nation's largest banks and investment firms declared multibillion-dollar losses stemming from a surge of defaults on subprime mortgages, loans offered to borrowers with weak credit histories.
Those defaults have resulted in a severe credit crunch as banks and other lenders tightened up on loan standards, making credit hard to come by for many businesses and consumers. The Federal Reserve, worried that the credit crunch will add to the economy's other problems, is searching for ways to pump more money into the financial system, including two unprecedented auctions this week totalling $40 billion.
The overall economy is expected to slow to a growth rate of 1% or less in the current quarter. A similarly weak growth rate is forecast for the first three months next year — the point of maximum danger, many economists believe, that the country could dip into recession.
The new housing report shows that construction activity was down in all regions of the country except the South, which saw a small 0.3% rise. Construction plummeted 16.3% in the Northeast, 6.9% in the West and 1.5% in the Midwest.
The National Association of Home Builders reported Monday that its index of builder sentiment remained at a record low in December for a third straight month.
The index remained at 19, lowest reading since this gauge of builder optimism was created in 1985. The index has been below 50 since May 2006. Index readngs above 50 indicate positive sentiment among builders about future sales.
Builders have been slashing construction plans and offering incentives in an effort to reduce record levels of unsold homes.
The concern is that the rising number of mortgage defaults will dump even more homes on an already glutted market.
source: usatoday.com
Fed's goal: Avoid repeat of mortgage mess
The historic changes to the mortgage market that the Federal Reserve unveiled Tuesday are designed to stop many of the predatory and abusive lending practices that fueled the foreclosure crisis. But they won't help homeowners already in trouble.
The new rules aren't retroactive and so won't affect millions of homeowners who have a subprime mortgage they can no longer afford or who were victims of predatory lenders. Nearly one in five borrowers with an adjustable-rate subprime loan is at least one payment behind, a record high, according to the Mortgage Bankers Association.
DETAILS: The Fed's press release
"There will be no help to anybody who already has a subprime loan," said Robert Lawless, a law professor at the University of Illinois, said of the Fed changes. "They are trying to prevent a repeat of what we've seen."
The sweeping changes, to take effect early next year after a 90-day public comment period, will impose new restrictions on all of the nation's mortgage lenders, brokers and loan servicers. The new rules also signal a major shift for the Fed, which has never before taken such broad action to protect borrowers and is still under fire from consumer advocates for doing too little.
"On the core provisions, the rules are weak and very burdensome to consumers," said Alys Cohen, staff attorney at the National Consumer Law Center. "However, there are some other provisions that appear to be helpful."
For subprime ARMs, lenders would now have to verify a borrower's income and ability to repay the loan. Penalties for paying off a loan early would have to expire 60 days before any rate increase.
"This is a much better Christmas gift for borrowers and the mortgage market than the silly (loan) modification plan" announced two weeks ago by the Treasury Department to freeze interest rates on some subprime ARMs, because the Fed aims to cover virtually all subprime loans and then some, said Joseph Mason, finance professor at Drexel University's LeBow College of Business.
But the rules aren't tough enough on the lending industry for Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, who had nothing merry to say:
"We now have confirmation of two facts we have known for some time," Frank said. "One, the Federal Reserve system is not a strong advocate for consumers, and two, there is no Santa Claus. People who are surprised by the one are presumably surprised by the other."
source: usatoday.com
The new rules aren't retroactive and so won't affect millions of homeowners who have a subprime mortgage they can no longer afford or who were victims of predatory lenders. Nearly one in five borrowers with an adjustable-rate subprime loan is at least one payment behind, a record high, according to the Mortgage Bankers Association.
DETAILS: The Fed's press release
"There will be no help to anybody who already has a subprime loan," said Robert Lawless, a law professor at the University of Illinois, said of the Fed changes. "They are trying to prevent a repeat of what we've seen."
The sweeping changes, to take effect early next year after a 90-day public comment period, will impose new restrictions on all of the nation's mortgage lenders, brokers and loan servicers. The new rules also signal a major shift for the Fed, which has never before taken such broad action to protect borrowers and is still under fire from consumer advocates for doing too little.
"On the core provisions, the rules are weak and very burdensome to consumers," said Alys Cohen, staff attorney at the National Consumer Law Center. "However, there are some other provisions that appear to be helpful."
For subprime ARMs, lenders would now have to verify a borrower's income and ability to repay the loan. Penalties for paying off a loan early would have to expire 60 days before any rate increase.
"This is a much better Christmas gift for borrowers and the mortgage market than the silly (loan) modification plan" announced two weeks ago by the Treasury Department to freeze interest rates on some subprime ARMs, because the Fed aims to cover virtually all subprime loans and then some, said Joseph Mason, finance professor at Drexel University's LeBow College of Business.
But the rules aren't tough enough on the lending industry for Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, who had nothing merry to say:
"We now have confirmation of two facts we have known for some time," Frank said. "One, the Federal Reserve system is not a strong advocate for consumers, and two, there is no Santa Claus. People who are surprised by the one are presumably surprised by the other."
source: usatoday.com
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