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The State of the Slump

by James R. Hagerty and Ruth Simon
Friday, August 3, 2007 provided by the Wall Street Journal Online

Tighter Credit Helps Keep Housing Inventories Rising, Though Some Hard-Hit Cities See Signs of a Turnaround

Tighter credit is prolonging a deep slump in home sales, but a quarterly Wall Street Journal survey of 28 major metro areas shows that the surge in inventories of unsold homes is slowing. In two of those markets -- Boston and Denver -- the number listed for sale has actually declined from a year ago.

The latest trends offer some hope for an eventual recovery in a U.S. housing market that generally has been cooling since mid-2005. Even so, many economists and industry executives say that recovery will be very gradual and won't start before 2008 at the earliest. That's partly because more-stringent lending policies are keeping many potential buyers on the sidelines, while others are holding off in hopes of prices heading even lower. Meanwhile, there is still a glut of homes on the market in much of the country, especially in Florida and parts of Arizona, Nevada and California.

Home sales and prices generally should bottom out around mid-2008, says Mark Zandi, chief economist at Moody's Economy.com, a research firm in West Chester, Pa. "The market will not revive quickly, however," he says. "It won't be until the turn of the decade before housing activity returns to more normal conditions."

The message for home sellers is that they need to be flexible on price and may have to spruce up their house to stand out against plenty of competition, including from builders desperate to shed inventory. In Atlanta's southwestern suburbs, builder Winstar Neighborhoods is offering free Chevrolet Aveo subcompacts to buyers of certain new homes. Given the glut, buyers in most markets can take their time and bargain hard on price.

Yesterday, the National Association of Realtors reported that sales of previously occupied homes in June were down 3.8% from the prior month to a seasonally adjusted annual rate of 5.75 million. The number of homes listed for sale nationwide was 4.2 million, up 12% from a year earlier but down 4.2% from May, the Realtors said. The median home price was $230,100, up 0.3% from a year earlier.

Median prices can be skewed by shifts in the market, however. Lenders are turning down more and more people with weak credit records or high debt in relation to income, and that is hurting sales of lower-end homes. Jeffrey Mezger, chief executive of KB Home, one of the nation's largest mass-market builders, says its average home price has fallen about 12% from a year ago. In some markets, such as Southern California, he says, "there are two markets emerging." While the high-end housing market has remained strong, prices are down in the entry-level and first-time move-up market.

As measured by the S&P/Case-Shiller national index, house prices in this year's fourth quarter are likely to be down about 7% from a year earlier, says Thomas Lawler, a housing economist in Vienna, Va. He expects a further fall of about 3.5% in 2008.

Yet the picture varies greatly by region and even by neighborhood. The well-heeled can still get loans on attractive terms, and demand has held up far better for homes in desirable neighborhoods near city centers than for homes in more distant and humdrum suburbs. In the San Francisco Bay area, prices have continued to rise briskly in Marin County, a posh area with fairly short commutes to the city, and Santa Clara County, buoyed by hiring at Silicon Valley firms, says Scott Kucirek, general manager of Prudential California Realty. But prices generally have fallen in Solano County, which is a longer commute and has more new construction and entry-level homes.

But tight credit is squeezing lots of people still trying to buy a first home. William and Kimberly Glass were preapproved for a mortgage in May and found a $540,000, four-bedroom, three-bathroom home in Santa Clarita, Calif., near Los Angeles. But by the time they made the offer, lending standards had tightened to the point where they could no longer buy the home with no money down. "It's a little frustrating that a month and a half ago we were in a better position than we are now," says Mr. Glass, an actor. Putting "3% to 5% down would have basically drained our savings and put us in a precarious position with the renovations [the house] needed."

Lenders, under pressure from regulators and investors, are continuing to tighten the screws. Countrywide Financial Corp., J.P. Morgan Chase & Co., National City Corp. and others are making it tougher for borrowers to finance 100% or even 95% of their home's value by combining a home-equity loan or line of credit with a mortgage. Lenders had earlier cut back on such loans to borrowers with weak credit records and are now tightening standards for borrowers with better credit profiles, particularly those who aren't documenting their income and assets.

In the Denver area, the number of homes listed for sale is down 5% from a year ago. Contrary to the national trend, Denver's housing market began cooling in 2001 amid losses of jobs in technology and telecommunications. Job growth in the Denver metro area lagged the national average from mid-2001 through late 2004, but has since been above average. "The market is recovering," says Jeff Bernard, a Denver real-estate broker and developer.

But inventories have continued to bloat in Florida, where a speculative binge has led to an enormous glut of condos. Miami-Dade County has enough condos on the market to last 31 months at the current sales rate, says Esslinger-Wooten-Maxwell Inc., a big real-estate brokerage firm there. Still, the rate of increase in unsold homes in the Miami area has slowed recently, says Ronald Shuffield, president of the firm.

Atlanta's inventory of unsold homes is up 43% from a year ago, according to Smart Numbers, a local research firm. It says there are enough homes on the market to last more than 10 months at the current sales rate, up from six months a year earlier. "We haven't hit the bottom yet in Atlanta," says Steve Palm, the firm's chief executive. Job growth in Atlanta remains strong, but many of the jobs aren't very high-paying, Mr. Palm says.

Lewis Glenn, president of Harry Norman Realtors in Atlanta, says he believes lots of potential buyers are waiting to see whether prices will come down. Some of them are marooned because they can't sell their current homes for what they consider a fair price -- or enough to pay off their mortgages.

In the Seattle metro area, the number of listings is up 55% from a year ago. But inventories were unusually lean there last year, and the market is now regaining balance.

In the New Jersey suburbs near New York, listings surged in 2005 and 2006. At the end of June, though, listings in 12 northern New Jersey counties were up just 3% from a year ago, according to Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. In Manhattan, inventories are down 17%, according to Corcoran Group, a real-estate brokerage. A torrent of Wall Street bonuses and foreign buyers lured by the weaker dollar have helped keep the market firm there, says Jonathan Miller, chief executive of Miller Samuel Inc., an appraisal firm in New York. The median sale price for co-ops and condos in Manhattan was $895,000 in the second quarter, up 1.7% from a year earlier, according to Miller Samuel.

Jeffrey G. Otteau, president of Otteau Valuation Group, says the parts of New Jersey popular with commuters into New York are doing best. In those areas, he says, sales are no longer slumping and the number of homes on the market has leveled off. "Proximity to Manhattan is once again becoming the primary force in the market," he says.

S&P Housing Index Shows Decline

Tuesday May 29, 9:09

By Vinnee Tong, AP Business Writer

S&P National Housing Index Shows First Quarterly Drop Since 1990-91

NEW YORK (AP) -- U.S. home prices fell 1.4 percent in the first quarter compared to a year ago, the first time since 1991 prices have shown a quarterly decline, according to a housing index released Tuesday by Standard & Poor's.

"We still don't see anything that looks like a clear bottom," S&P index committee chairman David Blitzer said. "We're still headed down."

The S&P/Case-Shiller U.S. National Home Price Index showed the 1.4 percent drop in the price for sales of existing single-family homes in metropolitan markets in nine U.S. census divisions.

For March, S&P's 10-city and 20-city composite indices, which measure a smaller number of cities than the national index, also fell, by 1.9 percent and 1.4 percent respectively over the last year.

The March sales figures show that 13 of 20 cities reported prices had dropped or remained flat, S&P said.

Boston, Detroit, San Diego and Washington, D.C. showed the greatest year-over-year declines in prices. Meanwhile, Charlotte, N.C., Seattle and Portland, Ore. had strong price appreciation over last year. Compared to February, the gains in those cities were more modest.

Housing is watched by Federal Reserve governors as one of the most important indicators of overall economic health because of its pull on consumer spending and construction activity.

On May 9, Fed governors held the benchmark interest rate in place at 5.25 percent, keeping the prime interest rate used by commercial banks at 8.25 percent, which adds stability and is good for borrowers. The Fed last raised rates in June 2006.

US: Sales of existing homes plummet 8.4%.
More to come.

MaineToday 2007 Apr 25

By MARTIN CRUTSINGER, The Associated Press

WASHINGTON - Sales of existing homes plunged in March by the largest amount in nearly two decades, reflecting bad weather and increasing problems in the subprime mortgage market, a real estate trade group reported Tuesday.

The National Association of Realtors reported that sales fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent plunge in January 1989, another period of recession conditions in the housing market.

The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year's big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

David Lereah, chief economist at the Realtors, attributed the big drop in part to bad weather in February, which discouraged shoppers and meant that sales that closed in March would be lower. Existing home sales are counted when the sales are closed.

Lereah said that the troubles in mortgage lending were also playing a significant part in depressing sales. Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

"The negative impact of subprime is considerable," Lereah said. "I expect sales to be sluggish in April, May and June." Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, N.Y., said the dismal March performance reflected in part better sales in January and February, which were driven by warmer-than-normal temperatures in the previous months. "This looks awful but it is surely just a reversal of the favorable weather effects which boosted January and February sales," he said.

There was weakness in every part of the country in March. Sales fell by 10.9 percent in the Midwest. They were down 9.1 percent in the West, 8.2 percent in the Northeast and 6.2 percent in the South.

NAR doesn't release monthly sales numbers for each state, so Maine's statistical showing for March was unknown. The Maine Real Estate Information System, the real estate industry's statistical group, has not released the March numbers for Maine.

Anecdotally, area Realtors said March was a strong month. Liz Fleury of Remax Heritage in Yarmouth said she doesn't think the subprime problem is having a big impact in the Portland area. And the only weather-related issue she's seen came this past Sunday, she said, when people were enjoying the nice weather rather than attending open houses.

So the national slump didn't make much of an impact here, she asserted.

Jeff Flynn of Flynn & Co. in South Portland said his firm is up this year over last, for each of the months. And March was up in a month-to-month comparison over February, he said. "I think that overall, things are up. There's still a lot of buyers and the rates are quite good," said Flynn. "We've been low on inventory over the past few months, but that's starting to come in." Lereah said he doesn't expect a full recovery in housing until 2008. He predicted that sales of existing homes would drop by about 3 percent this year, with the decline in sales of new homes an even steeper 15 percent. He said that the median price for homes sold in 2007 would fall by 1 percent to 3 percent, which would be the first price decline for an entire year on the Realtors' records, which go back four decades.

The steep slump in housing over the past year has been a major factor slowing the overall economy. It has subtracted around 1 percentage point from growth since mid-2006.

Greenspan says "Slump likely temporary"

Business Section Briefs, Rocky Mountain News
7 November 2006

The current economic downturn is "likely temporary," former Federal Reserve Chairman Alan Greenspan said Monday, noting that the worst of the housing market slump is likely past.

"The economy is obviously going through a significant slowing period, which as best I can tell is more than likely temporary," Greenspan said during a question and answer session at the annual Charles Schwab Impact conference in Washington.

Greenspan said that while the housing market is not out of the woods yet, the current slump may not worsen.

"I think that while we are past most of it there are a lot of negatives . . . but it is no longer subtracting from the (gross domestic product) growth," the former Fed chairman said.

For the broader economy, Greenspan offered tempered optimism, citing strong profit margins and capital goods data that are "showing some potency."

"It's hard to envisage those two key factors coming at the beginning of a recession," he said.

Greenspan also touched on the potential adjustment in loan costs for home buyers with nontraditional mortgage products.

While some individual buyers may feel the pinch as their payments rise, Greenspan said those changes were "very unlikely to have a macroeconomic effect." At the far edges of the economic outlook Greenspan talked about the need for overhauling Social Security and Medicare.

The former Fed chairman was generally sanguine about the prognosis for Social Security, saying "there are 15 or 20 alternate solutions as to how that particular shortfall can be made up."

Greenspan said that a group of nonpartisan policymakers could broker an effective solution for the Social Security shortfall in a mere "15 minutes."

In fact, it would take that long only because the first 10 minutes would be devoted to pleasantries, Greenspan added.

Foreclosures Lead to Auction

Once-common event resurfaces as Colorado's rate again tops U.S

By John Rebchook, Rocky Mountain News
October 31, 2006

A Dallas company plans to auction about 75 foreclosed homes in Denver next month, a sign of the continuing high rate of foreclosures plaguing Colorado.

The auction by Hudson & Marshall will be held at 11 a.m. on Nov. 18 at the Sheraton Tech Center hotel at 7007 S. Clinton St.

Separately on Monday, Irvine, Calif.-based RealtyTrac announced that Colorado's foreclosure rate leads the the nation for the second consecutive quarter.

Colorado has one new foreclosure filing for every 127 households, according to RealtyTrac. That is almost triple the national average.

After declining almost 13 percent from the first quarter to the second quarter, Colorado foreclosure activity jumped 24 percent from the second to the third quarter, with 14,374 properties entering some stage of foreclosure - the eighth-highest foreclosure total in the nation.

Some local experts - including Kathi Williams, executive director of the Colorado Division of Housing, and Chris Holbert, president of Colorado Mortgage Lenders Association - question whether RealtyTrac's numbers are accurate.

"I know it sounds kind of counterintuitive, but we are not trying to make the numbers worse than they are," Rick Sharga, a vice president at RealtyTrac said last week. "But if I were representing a state-based mortgage lenders association or a state political entity of some sort, I would really want to downplay the numbers. But the numbers are what they are."

In any case, the rising number of foreclosures creates a perfect time to hold an auction, according to Hudson & Marshall.

Such auctions were common in the late 1980s, during the last foreclosure crisis. But in recent years, most of the auctions in the Denver area have been for expensive real estate rather than distressed properties.

"It seems like we used to have foreclosure auctions almost on a daily basis during the late '80s," said independent real estate broker Gary Bauer.

The homes in the auction are valued from about $25,000 to $200,000.

Prospective buyers also can bid online (at hudsonandmarshall. com) for the homes before the auction. A lender accepted a bid on the biggest house listed, a 3,002-square-foot home in Westminster, which will be pulled from the auction.

"Basically, they go to the highest bidder," said Dave Webb, co-owner of Hudson & Marshall.

"They can be opportunities in a declining market," he said. "The lenders are motivated to sell. First-time buyers who have been shut out of the market can find opportunities, as well as investors."

He said he expects to hold more large auctions in Denver as the market continues to worsen.

Creed Smith is listing three homes in the auction through his namesake company, including a house at 4829 Beach Court in northwest Denver that had been listed at $129,500.

He said that foreclosed homes aren't the bargains they were in the late 1980s, although he said there likely will be opportunities at the auction to buy homes below the asking price.

"I wish," he said. "Back in those days you could buy a HUD condo for $12,000. If we had deals like that again, everyone would be maxing out their credit cards to buy every property they could."

Housing

Federal Reserve Bank (A Privately Held Corporation) September 2007 Report: http://fms.treas.gov/bulletin/index.html

Federal Reserve Bank (A Privately Held Corporation)
September 2007 Report: http://fms.treas.gov/bulletin/index.html