Litigation Items

• Buyers suing developers for non-performance
  
• Developers suing speculators for flipping properties in violation of contracts
  
• Subcontractors suing developers for non-payment
  
• Subcontractors suing general contractors for non-payment
  
• Class action lawsuits against single family homebuilders and condo developers for faulty roofing, HVAC, electrical, and plumbing systems
  
• Lawsuits against inspectors for not catching code violations
  
• Condo boards and individual homeowners suing developers for shoddy work
  
• Lawsuits against appraisers for inflated values
  
• Lawsuits against banks when project fundings are halted
  
• Lawsuits over completed condo units being substantially different in size, interior finishings, and quality than how they were represented pre-construction
  
• Lawsuits by anyone and everyone against anyone and everyone over various fraud allegations
  
• Of course we can’t forget countersuits by anyone and everyone against anyone and everyone over anything and everything
  

Speculators have totally vanished from the market which of course means there has been an enormous shift in the supply vs. demand ratio. To make matters worse, there are “approximately 25,000 condo units currently under construction in Miami-Dade County alone. Another 25,000 condo units have received building permits and about 50,000 more units have been announced.”

Financing has now dried up, but those 25,000 units under construction will likely be completed along with 75%-80% of the units with valid building permits. The vast majority of unapproved but announced projects will be cancelled. Even so, the completion of 75,000 units or so could make for a 5-10 year supply of condos at a normal sales rates, and sales rates are far below normal.

In addition, expect to see a "sharp increase" in prosecutions for mortgage and real estate fraud as well. Indeed bubbles have a way of exposing all kinds of fraud that people happily ignored as long as prices were rising. When the party ends, the lawsuits begin. We saw the same thing when the dot-com bubble burst. We will see it again over housing. We are going to find a tremendous amount of abuses associated with this boom and the fallout will not be in the millions of dollars either. It will be in the billions.

It’s Not Just Florida

What is happening in Florida, can and will happen in other markets such as Washington, DC, Las Vegas, San Diego, Phoenix and many other bubble markets with rising inventory.

Read more…

Thursday’s bond market has opened in negative territory despite weaker than expected economic news. The stock markets are showing losses with the Dow down 21 points and the Nasdaq down 12 points. The bond market is currently down 10/32, which will likely push this morning’s mortgage rates higher by approximately .125 - .250 of a discount point.

The Lab or Department posted last week’s initial unemployment claims, saying 308,000 new claims were filed. This was close to the 305,000 that was expected and has filed to influence bond trading or mortgage rates this morning.

The Conference Board released its Leading Economic Indicators (LEI) for May late this morning. The New York-based business research group said that the indicators fell 0.6%, indicating that economic activity may slow over the next three to six months. This was a little weaker than the 0.5% drop that was expected, but wasn’t enough of a difference to lead to a bond rally or mortgage rates improvements.

The Commerce Department will announce May’s Durable Goods Orders early tomorrow morning. This data gives us an indication of manufacturing sector strength. It is known to be quite volatile from month to month and is expected to show an increase of 0.4% in May’s new orders after April’s 4.4% drop. A larger than expected increase would likely pu sh stock prices higher and mortgage rates lower. A smaller than expected increase would be an ideal scenario for the bond market and could lead to an improvement in mortgage pricing tomorrow.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode