In unveiling a plan to help more than one million struggling homeowners, the Bush administration and the mortgage industry have embarked on a controversial project: picking winners and losers from the rubble of the subprime-mortgage meltdown.
Under the deal, formally released yesterday, the industry would voluntarily help as many as 1.2 million homeowners who are heading for trouble paying their subprime mortgages but aren't yet lost causes. For some homeowners, loan-servicing companies will agree to freeze mortgages at their low introductory rates. In other cases, credit counselors or loan servicers will walk mortgage holders through refinancing processes.
The deal won't provide relief to many subprime-mortgage holders: These include borrowers who are now in foreclosure, have already refinanced their homes or are more than 60 days delinquent on more than one payment over the past year. In some cases, people with good credit scores will be excluded. Also left out are those deemed able to afford the higher interest rates scheduled to replace their introductory rates over the next The initiative could help stabilize falling home prices and rising foreclosure rates, buoy the mortgage market and provide a modicum of comfort to investors watching the housing crisis bleed into the broader economy.
But it also sets what promises to become a battle line as the subprime crisis plays out over the coming election year. Some critics, especially Democrats, say the plan doesn't go far enough to protect vulnerable homeowners against foreclosure. Others, including some homeowners, as well as those who have watched from the sidelines as home prices have soared in recent years, charge that the plan amounts to a bailout for financially reckless borrowers.
The agreement covers homeowners who have taken out subprime mortgages, those offered typically to high-risk borrowers. About 1.8 million subprime loans are adjustable-rate mortgages, or ARMs, that carry low introductory rates that are set to expire in the next two years and adjust upward. These ballooning mortgage payments would threaten to produce a wave of foreclosures and a spiral of lower home prices and tightening credit.
The housing crisis is spreading beyond this relatively small subprime universe, causing turmoil on Wall Street and raising the specter of an economic slowdown. In the third quarter, home foreclosures hit their highest rate since at least 1972, according to the Mortgage Bankers Association. Prime adjustable-rate loans -- not covered in the industry's rescue plan -- accounted for 18.7% of mortgages starting foreclosure, the second-highest proportion behind subprime adjustable-rate loans. The overall delinquency rate is the highest since 1986, with some 2.64 million borrowers nationwide behind on payments for their first-lien mortgages for residences. more...
Friday
Greenspan Says Forcing Lenders To Alter Terms Would 'Tax' Economy
Former Federal Reserve Chairman Alan Greenspan said that compelling lenders to alter mortgage contracts would be a damaging tax on the economy and it would be less harmful to simply give the homeowners money.
Mr. Greenspan, clarifying remarks he made on television Sunday, said in an interview with The Wall Street Journal yesterday, "I'm saying instead of in effect 'taxing' financial institutions and giving the funds to the homeowners, we'd be far better off, as far as the future structure of our financial markets are concerned, to do it strictly with cash. Do it out in the open. Do it cleanly and with transparency, not by hidden processes."
Mr. Greenspan said on ABC News's "This Week" that "cash is available and we should use that in larger amounts, as is necessary, to solve the problems." But he wasn't specific about what form that cash would take, and some have interpreted his comments as advocating a massive fiscal bailout, a stance at odds with his longstanding reputation as a fiscal hawk.
Assuming the government is going to act to help out homeowners, Mr. Greenspan clarified that he would like it to do so in a way that minimizes the distortions to private behavior, which economists say can result in the misallocation of resources, less efficient markets and a lower standard of living.
He said, "Emergency aid is what I'm talking about, similar to what government does in natural disasters. I would make the criteria for who gets payments exactly the same for who would get rate relief. You still have the problem of drawing a line between those who were irresponsible and those who are innocent victims. That's a tough political value judgment to make." But once that judgment is made, "it is far less damaging to the economy and far simpler, without the ongoing consequences for the markets, if you give homeowners cash." more...
Mr. Greenspan, clarifying remarks he made on television Sunday, said in an interview with The Wall Street Journal yesterday, "I'm saying instead of in effect 'taxing' financial institutions and giving the funds to the homeowners, we'd be far better off, as far as the future structure of our financial markets are concerned, to do it strictly with cash. Do it out in the open. Do it cleanly and with transparency, not by hidden processes."
Mr. Greenspan said on ABC News's "This Week" that "cash is available and we should use that in larger amounts, as is necessary, to solve the problems." But he wasn't specific about what form that cash would take, and some have interpreted his comments as advocating a massive fiscal bailout, a stance at odds with his longstanding reputation as a fiscal hawk.
Assuming the government is going to act to help out homeowners, Mr. Greenspan clarified that he would like it to do so in a way that minimizes the distortions to private behavior, which economists say can result in the misallocation of resources, less efficient markets and a lower standard of living.
He said, "Emergency aid is what I'm talking about, similar to what government does in natural disasters. I would make the criteria for who gets payments exactly the same for who would get rate relief. You still have the problem of drawing a line between those who were irresponsible and those who are innocent victims. That's a tough political value judgment to make." But once that judgment is made, "it is far less damaging to the economy and far simpler, without the ongoing consequences for the markets, if you give homeowners cash." more...
Tuesday
U.S. Mortgage Crisis Rivals Savings and Loan Meltdown
To ease the pain, the Federal Reserve has cut short-term interest rates twice and is expected to cut them further tomorrow. The Bush administration has also pressed for private-sector curative measures. First, it urged big banks to create a new entity to buy some mortgage-linked securities that don't have a ready market now. And a plan finalized last week calls for freezing interest payments on perhaps hundreds of thousands of qualifying homeowners whose mortgage notes are set to rise. (See a primer: Will the Rate Freeze Help You?) Both ideas are controversial. They are hailed by some as well-conceived financial first aid and criticized by others as inadequate -- or an impediment to crisis resolution.
Buying Time
When the Fed began to raise interest rates in 2004, mortgage rates also began to climb. Initially, home prices kept rising as home buyers turned to mortgages with low initial payments, assuming they could sell or refinance before the mortgage rate adjusted higher. Borrowers who had trouble making payments could easily buy more time by refinancing into bigger loans, thanks to higher prices. That kept defaults low and encouraged rating agencies to continue blessing securities backed by such mortgages with high ratings.
Then, in places like Florida, buyers stopped coming. Mr. Delzio listed one home, on which he spent $203,000, at $210,000. He then cut the price repeatedly, finally to $175,000, barely more than the mortgage. He now rents it for $800 month, well short of the $1,400 monthly carrying cost.
Selling is made all the more difficult by the ample supply of homes and vacant land for sale in the area. Nationally, there were 2.1 million vacant homes for sale in the third quarter, equal to 1.6% of all the homes in the country -- a record.
At the end of 2006, the value of all homes in the U.S., excluding rentals, peaked at 153% of gross domestic product (or about $21 trillion) -- the highest level in at least six decades. By Sept. 30, that had edged down to 150% of GDP as home prices began to drop. With huge inventories of unsold homes soon to swell with foreclosed properties, that is likely to continue.
Falling home prices make consumers poorer and less ready to spend, and they make it harder to borrow against home values -- even if consumers are current on their payments....more
Buying Time
When the Fed began to raise interest rates in 2004, mortgage rates also began to climb. Initially, home prices kept rising as home buyers turned to mortgages with low initial payments, assuming they could sell or refinance before the mortgage rate adjusted higher. Borrowers who had trouble making payments could easily buy more time by refinancing into bigger loans, thanks to higher prices. That kept defaults low and encouraged rating agencies to continue blessing securities backed by such mortgages with high ratings.
Then, in places like Florida, buyers stopped coming. Mr. Delzio listed one home, on which he spent $203,000, at $210,000. He then cut the price repeatedly, finally to $175,000, barely more than the mortgage. He now rents it for $800 month, well short of the $1,400 monthly carrying cost.
Selling is made all the more difficult by the ample supply of homes and vacant land for sale in the area. Nationally, there were 2.1 million vacant homes for sale in the third quarter, equal to 1.6% of all the homes in the country -- a record.
At the end of 2006, the value of all homes in the U.S., excluding rentals, peaked at 153% of gross domestic product (or about $21 trillion) -- the highest level in at least six decades. By Sept. 30, that had edged down to 150% of GDP as home prices began to drop. With huge inventories of unsold homes soon to swell with foreclosed properties, that is likely to continue.
Falling home prices make consumers poorer and less ready to spend, and they make it harder to borrow against home values -- even if consumers are current on their payments....more
Monday
U.S., Banks Near a Plan to Freeze Subprime Rates for Borrowers
WASHINGTON -- The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.
An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.
Many subprime loans carry a low "teaser" interest rate for the first two or three years, then reset to a higher rate for the remainder of the term, which is typically 30 years in total. In a typical case, the rate would rise to around 9.5% to 11% from 7% or 8%. That would boost an average borrower's payment by several hundred dollars a month.
Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year. more...
An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.
Many subprime loans carry a low "teaser" interest rate for the first two or three years, then reset to a higher rate for the remainder of the term, which is typically 30 years in total. In a typical case, the rate would rise to around 9.5% to 11% from 7% or 8%. That would boost an average borrower's payment by several hundred dollars a month.
Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year. more...
Wednesday
The foreclosure market continues to boom as no relief appears in sight for stretched subprime mortgage holders.
As the economy shows more signs of a slowdown, this trend is likely to continue.
Although the real estate industry would prefer otherwise, foreclosures continue to make headlines. The latest data showed superficial relief, with September foreclosures down 8% from some 243,000 in August, but still more than double last year -- and still with more to come.
It may be a harsh analogy, but I often think of foreclosure buyers as the forest-floor ants consuming the dead wood to clean the forest. That means three things. First, as I see it, the sooner we get through this credit mess, the better. Second, the faster properties get through the foreclosure process and find buyers, the sooner we'll get through the mess. So third, foreclosure buyers clean out the dead wood (I like) and get great bargains in the process (I also like)....more
Although the real estate industry would prefer otherwise, foreclosures continue to make headlines. The latest data showed superficial relief, with September foreclosures down 8% from some 243,000 in August, but still more than double last year -- and still with more to come.
It may be a harsh analogy, but I often think of foreclosure buyers as the forest-floor ants consuming the dead wood to clean the forest. That means three things. First, as I see it, the sooner we get through this credit mess, the better. Second, the faster properties get through the foreclosure process and find buyers, the sooner we'll get through the mess. So third, foreclosure buyers clean out the dead wood (I like) and get great bargains in the process (I also like)....more
Thursday
Interest Rates Defy Fed's Recent Cuts...
Interest-rate cuts by the Federal Reserve are normally bad news for savers and good news for borrowers. But that scenario hasn't been playing out fully since the central bank began cutting rates in September.
The Fed has trimmed a total of three-quarters of a percentage point from short-term rates in recent weeks. However, rates on such popular savings products as money-market funds, savings accounts and certificates of deposit haven't fallen anywhere near that much, and some have even held steady. Meanwhile, rates on certain types of borrowings, including home-equity loans and auto loans, remain stubbornly high.
Behind the discrepancies is continuing tightness in credit markets, where many banks raise much of their capital. Instead, banks remain especially eager to attract consumers' deposits, and are willing to pay savers handsomely to keep the money coming in the door. At the same time, banks' higher cost of raising capital is keeping many of them from lowering rates on some kinds of loans
"Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten between 0.25% and 0.50% of that easing," says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago. "If you look at it from a saver's and borrower's side, it shows you that the market is still not functioning properly."
That's fine with savers. Average yields on money-market mutual funds, for example, whose yields typically move in line with changes in the Fed funds rate, are hovering at 4.76%, compared with 5.06% in mid-September -- roughly half the amount they'd be expected to drop, says Peter Crane of Crane Data LLC.
Declines in CD rates also are relatively modest. One-year CDs currently average 3.61%, down from 3.78% in mid-July, and five-year CDs are at 3.92%, down from 4%, according to Greg McBride, a senior financial analyst at Bankrate.com. By contrast, he says, comparable Treasurys have dropped a full percentage point over the same period. "Normally, CD yields would drop like a stone, and now, they've been dropping like a feather," he says.
To be sure, banks may still trim yields on deposits in the wake of this past Wednesday's Fed cut in the federal-funds rate, charged on overnight loans between banks. The move, aimed at bolstering the economy amid plunging home construction and eroding real-estate values, pushed the Fed rate down a quarter point to 4.5%. However, market experts expect consumers will continue to enjoy favorable yields on many savings products in the 4% to 5% range, with the highest yields on savings products still above 5%. "Yields are going to drop a little bit, but won't drop as much as we would expect in normal circumstances," Mr. McBride says. more...
The Fed has trimmed a total of three-quarters of a percentage point from short-term rates in recent weeks. However, rates on such popular savings products as money-market funds, savings accounts and certificates of deposit haven't fallen anywhere near that much, and some have even held steady. Meanwhile, rates on certain types of borrowings, including home-equity loans and auto loans, remain stubbornly high.
Behind the discrepancies is continuing tightness in credit markets, where many banks raise much of their capital. Instead, banks remain especially eager to attract consumers' deposits, and are willing to pay savers handsomely to keep the money coming in the door. At the same time, banks' higher cost of raising capital is keeping many of them from lowering rates on some kinds of loans
"Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten between 0.25% and 0.50% of that easing," says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago. "If you look at it from a saver's and borrower's side, it shows you that the market is still not functioning properly."
That's fine with savers. Average yields on money-market mutual funds, for example, whose yields typically move in line with changes in the Fed funds rate, are hovering at 4.76%, compared with 5.06% in mid-September -- roughly half the amount they'd be expected to drop, says Peter Crane of Crane Data LLC.
Declines in CD rates also are relatively modest. One-year CDs currently average 3.61%, down from 3.78% in mid-July, and five-year CDs are at 3.92%, down from 4%, according to Greg McBride, a senior financial analyst at Bankrate.com. By contrast, he says, comparable Treasurys have dropped a full percentage point over the same period. "Normally, CD yields would drop like a stone, and now, they've been dropping like a feather," he says.
To be sure, banks may still trim yields on deposits in the wake of this past Wednesday's Fed cut in the federal-funds rate, charged on overnight loans between banks. The move, aimed at bolstering the economy amid plunging home construction and eroding real-estate values, pushed the Fed rate down a quarter point to 4.5%. However, market experts expect consumers will continue to enjoy favorable yields on many savings products in the 4% to 5% range, with the highest yields on savings products still above 5%. "Yields are going to drop a little bit, but won't drop as much as we would expect in normal circumstances," Mr. McBride says. more...
Selling Your Property In A Slow Market
Look at the prices of homes getting sold, and the property market's decline seems no worse than a rough day in the stock market. Look at the number of unsold homes, and you realize there's a world of financial pain out there.
True, these unsold homes may eventually get bought at decent prices. But in the meantime, the owners are often bleeding money -- and many of them would be smart to slash their asking price and go for the quick sale.
• home prices are down just 4.5% from their July 2006 peak.
Yet even as prices appear pretty much unchanged, the number of unsold homes has soared. At the current pace of sales, it would take more than 10 months to clear this backlog, according to the National Association of Realtors.
Sure, it would be emotionally draining to have your home on the market for more than 10 months. But it probably wouldn't be a financial disaster -- as long as you're still in the house and you can comfortably cover the mortgage.
Maybe, however, you have an adjustable-rate loan that's now unaffordable. Maybe you're trying to unload a vacation home. Maybe you moved cross-country for a new job, but your old house still hasn't sold.
The monthly cost of carrying a vacant home could equal 1% of a home's value, figures Charles Farrell, an adviser with Denver's Northstar Investment Advisors. After all, you still have to pay utilities, insurance, property taxes, maintenance and, of course, the mortgage.
What if the mortgage is paid off? There's still an opportunity cost. The equity in your home could instead be invested in, say, bonds yielding 5%.
To make matters worse, "prices could be lower a year from now," Mr. Farrell warns. "There's also the risk of owning a physical asset. I'm thinking about things like fire, broken pipes, theft." more...
True, these unsold homes may eventually get bought at decent prices. But in the meantime, the owners are often bleeding money -- and many of them would be smart to slash their asking price and go for the quick sale.
• home prices are down just 4.5% from their July 2006 peak.
Yet even as prices appear pretty much unchanged, the number of unsold homes has soared. At the current pace of sales, it would take more than 10 months to clear this backlog, according to the National Association of Realtors.
Sure, it would be emotionally draining to have your home on the market for more than 10 months. But it probably wouldn't be a financial disaster -- as long as you're still in the house and you can comfortably cover the mortgage.
Maybe, however, you have an adjustable-rate loan that's now unaffordable. Maybe you're trying to unload a vacation home. Maybe you moved cross-country for a new job, but your old house still hasn't sold.
The monthly cost of carrying a vacant home could equal 1% of a home's value, figures Charles Farrell, an adviser with Denver's Northstar Investment Advisors. After all, you still have to pay utilities, insurance, property taxes, maintenance and, of course, the mortgage.
What if the mortgage is paid off? There's still an opportunity cost. The equity in your home could instead be invested in, say, bonds yielding 5%.
To make matters worse, "prices could be lower a year from now," Mr. Farrell warns. "There's also the risk of owning a physical asset. I'm thinking about things like fire, broken pipes, theft." more...
Saturday
The United States of Sub-Prime Loans
As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.
The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.
High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.
Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations...more
The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.
High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.
Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations...more
Where Are All the Real Estate Deals?
During a housing downturn, buyers may start looking out for big bargains, but for reliable investments consider the whole economic picture...
You may have heard that now is the time to buy real estate—if you can afford to. As contrarians point out, demand is weak, sales are slow, and inventory is high. Homeowners and homebuilders are slashing prices desperately, and savvy investors are snatching up cheap foreclosure properties. The real estate market is teeming with bargain-priced homes, just waiting for that next lucky buyer to come along.
Or so it seems. Most experts agree the era of home flipping is over and believe homes should be looked at foremost as shelter and secondarily as a long-term investment. But, as always, there are some areas of the country where homes are affordable, price appreciation is imminent, and the underlying economy is strong. In these places, you might just have an easy time finding a great bargain.
Along with economists at Fiserv (FISV), Lending Solutions, and Moody's (MCO) Economy.com, BusinessWeek put together a list of the best metropolitan areas for bargain homes by looking at affordability, forecasts for price appreciation and job growth, and recent price fluctuations. These areas are not for high-risk investors; they are perfect hunting grounds for smart buyers looking for decent home price appreciation and a pleasant place to live at a discount. ..more
You may have heard that now is the time to buy real estate—if you can afford to. As contrarians point out, demand is weak, sales are slow, and inventory is high. Homeowners and homebuilders are slashing prices desperately, and savvy investors are snatching up cheap foreclosure properties. The real estate market is teeming with bargain-priced homes, just waiting for that next lucky buyer to come along.
Or so it seems. Most experts agree the era of home flipping is over and believe homes should be looked at foremost as shelter and secondarily as a long-term investment. But, as always, there are some areas of the country where homes are affordable, price appreciation is imminent, and the underlying economy is strong. In these places, you might just have an easy time finding a great bargain.
Along with economists at Fiserv (FISV), Lending Solutions, and Moody's (MCO) Economy.com, BusinessWeek put together a list of the best metropolitan areas for bargain homes by looking at affordability, forecasts for price appreciation and job growth, and recent price fluctuations. These areas are not for high-risk investors; they are perfect hunting grounds for smart buyers looking for decent home price appreciation and a pleasant place to live at a discount. ..more
U.S. Housing Chill Grows
Overall, sales of existing homes tumbled 4.3% in August to an annual pace of 5.5 million, the slowest in five years, the National Association of Realtors said yesterday. More worrisome: The number of homes for sale is enough to satisfy 10 months of demand at the current pace. Two years ago the figure was below five months. Analysts cite excess supply in forecasting that an upturn in sales and prices may not come until 2009.
Home prices in July fell 3.9% from a year earlier, according to the S&P/Case-Shiller home-price index. The index, which tracks prices in 20 U.S. metropolitan areas, hadn't measured that big of a decline since just after the 1990-91 recession.
The bottom is "not yet in sight" for housing, said Mr. Shapiro, the economist. He said the growing number of unsold homes "argues for accelerating declines of prices."
The worsening housing slump and turmoil in the credit markets is beginning to take a toll on retailers. Lowe's Chief Executive Robert Niblock, addressing analysts and investors at a conference in Charlotte, N.C., yesterday, refused to hazard a guess on when the housing slowdown will bottom. "The only thing that is consistent is the inaccuracies of the economic forecasts," he said. Late Monday, Lowe's reduced its earnings outlook for this year and 2008. Its shares fell 6.7% yesterday. more
Home prices in July fell 3.9% from a year earlier, according to the S&P/Case-Shiller home-price index. The index, which tracks prices in 20 U.S. metropolitan areas, hadn't measured that big of a decline since just after the 1990-91 recession.
The bottom is "not yet in sight" for housing, said Mr. Shapiro, the economist. He said the growing number of unsold homes "argues for accelerating declines of prices."
The worsening housing slump and turmoil in the credit markets is beginning to take a toll on retailers. Lowe's Chief Executive Robert Niblock, addressing analysts and investors at a conference in Charlotte, N.C., yesterday, refused to hazard a guess on when the housing slowdown will bottom. "The only thing that is consistent is the inaccuracies of the economic forecasts," he said. Late Monday, Lowe's reduced its earnings outlook for this year and 2008. Its shares fell 6.7% yesterday. more
Tuesday
Despite data, Fed leaves rates steady
Wall Street turbulence, Main Street credit problems and a nationwide housing slump pose increasing risks to the economy, the Federal Reserve said Tuesday, even as it left interest rates unchanged.
Although Federal Reserve Chairman Ben Bernanke and his central bank colleagues acknowledged challenges that have intensified since their last meeting in late June, they nonetheless expressed hope that the economy will safely make its way.
The policymakers also clung to their belief that the biggest potential danger to the economy is that inflation won't recede as they anticipate.
Against these economic crosscurrents, the Fed left an important interest rate at 5.25 percent on Tuesday. In turn, commercial banks' prime interest rate for certain credit cards, home equity lines of credit and other loans -- would stay at 8.25 percent.
The central bank's key rate hasn't budged for more than a year. Before that, the Fed had raised rates for two years to fend off inflation.
On Wall Street, investors overcame their initial disappointment and bid stocks higher. The Dow Jones industrials gained 35.52 points to close at 13,504.30.
The Fed policymakers didn't signal that a rate cut -- as an insurance policy against undue economic weakness -- would be imminent. Analysts believe the Fed probably will leave rates alone at its next meeting on Sept. 18. But economists and investors think the odds are growing that the Fed might lower rates by the end of this year, if the economy shows signs of faltering and if inflation isn't worrisome.
"Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses and the housing correction is ongoing," the Fed said. "Downside risks to growth have increased somewhat," it added...more
Although Federal Reserve Chairman Ben Bernanke and his central bank colleagues acknowledged challenges that have intensified since their last meeting in late June, they nonetheless expressed hope that the economy will safely make its way.
The policymakers also clung to their belief that the biggest potential danger to the economy is that inflation won't recede as they anticipate.
Against these economic crosscurrents, the Fed left an important interest rate at 5.25 percent on Tuesday. In turn, commercial banks' prime interest rate for certain credit cards, home equity lines of credit and other loans -- would stay at 8.25 percent.
The central bank's key rate hasn't budged for more than a year. Before that, the Fed had raised rates for two years to fend off inflation.
On Wall Street, investors overcame their initial disappointment and bid stocks higher. The Dow Jones industrials gained 35.52 points to close at 13,504.30.
The Fed policymakers didn't signal that a rate cut -- as an insurance policy against undue economic weakness -- would be imminent. Analysts believe the Fed probably will leave rates alone at its next meeting on Sept. 18. But economists and investors think the odds are growing that the Fed might lower rates by the end of this year, if the economy shows signs of faltering and if inflation isn't worrisome.
"Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses and the housing correction is ongoing," the Fed said. "Downside risks to growth have increased somewhat," it added...more
Monday
No Housing Turnaround for Two Years?
First, it was the second half of 2007. Then it was 2008. Now analysts are saying the national housing market may not rebound until 2009. On July 25, the National Association of Realtors reported that sales of existing homes fell 3.8% in June to a seasonally adjusted annual rate of 5.75 million units, contributing to the bleak-and-getting-bleaker outlook.
Mixed Signals Confuse Buyers. The NAR believes consumer psychology is to blame. "Homebuyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," said NAR Senior Economist Lawrence Yun in a statement. Rising mortgage rates and tighter lending standards aren't helping, either, Yun said. According to Freddie Mac (FRE), the national average commitment rate for a 30-year fixed-rate mortgage rose to 6.66% in June, from 6.26% in May.
Two "bright spots" in June, Yun said, are the decline in housing inventory and the "modest gain" in home prices. Total housing inventory fell 4.2% in the month, to 4.2 million existing homes for sale, representing a supply of 8.8 months. In the same period, the national median existing-home price edged up 0.3% year-over-year, to $230,100. For single-family homes, the median price rose only 0.1%.
"This increase is an aberration," says Patrick Newport, an economist with Global Insight in Waltham, Mass. "Current inventory levels make it almost a sure thing that prices will continue to slide." On July 11 the NAR said existing-home prices would recover in 2008, rising 1.8%, to a median of $222,700 after a 1.4% decline this year. But Newport thinks otherwise. "Our view is that the downturn [in sales] will continue into 2008," he says. "Given the level of unsold homes, however, nominal home prices will probably not rebound until 2009." ...more
Mixed Signals Confuse Buyers. The NAR believes consumer psychology is to blame. "Homebuyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," said NAR Senior Economist Lawrence Yun in a statement. Rising mortgage rates and tighter lending standards aren't helping, either, Yun said. According to Freddie Mac (FRE), the national average commitment rate for a 30-year fixed-rate mortgage rose to 6.66% in June, from 6.26% in May.
Two "bright spots" in June, Yun said, are the decline in housing inventory and the "modest gain" in home prices. Total housing inventory fell 4.2% in the month, to 4.2 million existing homes for sale, representing a supply of 8.8 months. In the same period, the national median existing-home price edged up 0.3% year-over-year, to $230,100. For single-family homes, the median price rose only 0.1%.
"This increase is an aberration," says Patrick Newport, an economist with Global Insight in Waltham, Mass. "Current inventory levels make it almost a sure thing that prices will continue to slide." On July 11 the NAR said existing-home prices would recover in 2008, rising 1.8%, to a median of $222,700 after a 1.4% decline this year. But Newport thinks otherwise. "Our view is that the downturn [in sales] will continue into 2008," he says. "Given the level of unsold homes, however, nominal home prices will probably not rebound until 2009." ...more
The new exit strategy: A short sale
For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that's resetting higher), up to now the only option was, well, letting the bank foreclose. That's not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a "short sale." This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank's blessing, they agree to eat the loss (although they could still demand the homeowner make some kind of payment or share the loss).
That's the really short version of how it works. ..more
That's the really short version of how it works. ..more
Thursday
Home prices fall at fastest rate in 16 years
WASHINGTON (MarketWatch) -- Home prices in 10 major U.S. cities dropped at the fastest pace in 16 years during the 12 months ending in April, according to Standard & Poor's Case-Shiller home price index released Tuesday.
Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year...more
Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year...more
Monday
Mortgage Brokers: Are They Friends or Foes for Borrowers?
The political debate over how to deal with a surge in defaults on home loans is raising a question that consumers ought to consider: Is my mortgage broker really working for me?
Borrowers often see mortgage brokers as their allies, searching far and wide for just the right home loan at an attractively low price. But many brokers are making it clear they don't see things that way. They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers' interests first, as lawyers, real-estate agents and financial planners generally are required to do with their clients.
To protect yourself, one strategy is to shop for a home loan directly at a few lenders and then see whether a broker can find a better deal. When choosing a broker, borrowers should ask tough questions first. Among them: In searching for loans, do you feel obliged to put my interests ahead of yours? Exactly how much will you earn on this loan? And how many lenders do you check regularly for rates and terms?lanners generally are required to do with their clients....more...
Borrowers often see mortgage brokers as their allies, searching far and wide for just the right home loan at an attractively low price. But many brokers are making it clear they don't see things that way. They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers' interests first, as lawyers, real-estate agents and financial planners generally are required to do with their clients.
To protect yourself, one strategy is to shop for a home loan directly at a few lenders and then see whether a broker can find a better deal. When choosing a broker, borrowers should ask tough questions first. Among them: In searching for loans, do you feel obliged to put my interests ahead of yours? Exactly how much will you earn on this loan? And how many lenders do you check regularly for rates and terms?lanners generally are required to do with their clients....more...
Saturday
U.S. Home Prices Fall For First Time Since 1991
U.S. home prices dropped 1.4% in the first quarter compared with a year earlier, the first year-over-year decline in national home prices since 1991, according to the S&P/Case-Shiller index released Tuesday. A year ago, home prices were rising at an 11.5% pace. Prices have been falling for the past three quarters. The Case-Shiller indexes cover three geographical areas. The national index is released quarterly, while the 10-city and 20-city indexes are released each month.
The national decline "is reaffirmation of the pullback in the U.S. residential real estate market," said Robert Shiller, chief economist for MacroMarkets LLC, and co-inventor of the index.
"This fall is consistent with the ongoing trend that has developed over the past year," wrote Goldman Sachs economists, who said they believe the Case-Shiller index is the best gauge of home values. "We remain comfortable with our forecast of house prices falling by 5% over 2007." more...
The national decline "is reaffirmation of the pullback in the U.S. residential real estate market," said Robert Shiller, chief economist for MacroMarkets LLC, and co-inventor of the index.
"This fall is consistent with the ongoing trend that has developed over the past year," wrote Goldman Sachs economists, who said they believe the Case-Shiller index is the best gauge of home values. "We remain comfortable with our forecast of house prices falling by 5% over 2007." more...
Friday
New-home sales soared in April!
New-home sales soared in April, an unexpected surge marking the biggest climb in 14 years, according to a report that showed declining inventories and signaled hope for the long-suffering housing sector.
Separately, demand for expensive goods rose mildly in April, according to a government report Thursday that also showed capital spending by businesses grew again.
Sales of single-family homes increased for the first time in four months, rising by 16% to a seasonally adjusted annual rate of 981,000, the Commerce Department said Thursday. March new-home sales decreased 1.4% to an annual rate to 844,000, a figure revised down from an earlier estimated 858,000. Sales fell 3.8% in February and 13% in January. Year-to-year, new-home sales were 11% lower than the level in April 2006.
The average price of a home last month decreased to $299,100, down from $324,700 in March and $310,300 in April 2006. The median price was $229,100, lower than $257,600 in March and $257,000 in April 2006. more....
Separately, demand for expensive goods rose mildly in April, according to a government report Thursday that also showed capital spending by businesses grew again.
Sales of single-family homes increased for the first time in four months, rising by 16% to a seasonally adjusted annual rate of 981,000, the Commerce Department said Thursday. March new-home sales decreased 1.4% to an annual rate to 844,000, a figure revised down from an earlier estimated 858,000. Sales fell 3.8% in February and 13% in January. Year-to-year, new-home sales were 11% lower than the level in April 2006.
The average price of a home last month decreased to $299,100, down from $324,700 in March and $310,300 in April 2006. The median price was $229,100, lower than $257,600 in March and $257,000 in April 2006. more....
Saturday
Where Home Prices Are Hot Now Despite the Housing Slowdown
The housing news isn't all grim. Even as prices sag nationwide, there are several cities in the country where home values are climbing smartly.
Portland, Ore., Boise, Idaho, Seattle, Salt Lake City, Houston, Austin, and Charlotte and Raleigh, N.C., are among the cities bucking the national trend. Homes' appreciation there between the fourth quarters of 2005 and 2006 far exceeded the national average of 5.9%, according to the Office of Federal Housing Enterprise Oversight. In some markets, like Boise and Seattle, the appreciation jumped well into the double digits.
There's no single secret of these cities' apparent success, but many of them missed the housing boom of the past five years. From 2001 to 2005, annual appreciation in these cities was between 2% and 5%, far slower than the 7% to 12% national average, according to the Office of Federal Housing Enterprise Oversight. (OFHEO calculates appreciation based on repeat sales or refinancings of the same single-family properties.) Now, prices are playing catch-up.
Location, Location
• In Portland, Ore., Seattle, Salt Lake City, Boise, Idaho, Houston, Austin, Charlotte and Raleigh, appreciation has exceeded the U.S. average.
• These areas missed out on the recent housing boom and are now playing catch-up.
• Most of the cities have educated workers and solid economies with strong central industries. All seem to be luring buyers from depreciating markets. more...
Portland, Ore., Boise, Idaho, Seattle, Salt Lake City, Houston, Austin, and Charlotte and Raleigh, N.C., are among the cities bucking the national trend. Homes' appreciation there between the fourth quarters of 2005 and 2006 far exceeded the national average of 5.9%, according to the Office of Federal Housing Enterprise Oversight. In some markets, like Boise and Seattle, the appreciation jumped well into the double digits.
There's no single secret of these cities' apparent success, but many of them missed the housing boom of the past five years. From 2001 to 2005, annual appreciation in these cities was between 2% and 5%, far slower than the 7% to 12% national average, according to the Office of Federal Housing Enterprise Oversight. (OFHEO calculates appreciation based on repeat sales or refinancings of the same single-family properties.) Now, prices are playing catch-up.
Location, Location
• In Portland, Ore., Seattle, Salt Lake City, Boise, Idaho, Houston, Austin, Charlotte and Raleigh, appreciation has exceeded the U.S. average.
• These areas missed out on the recent housing boom and are now playing catch-up.
• Most of the cities have educated workers and solid economies with strong central industries. All seem to be luring buyers from depreciating markets. more...
Securing a Loan Gets Tougher....
Mortgage lenders are beginning to scrutinize borrowers more closely, causing some loan applicants, even those with good credit, to face higher costs and more hassles.
As the number of delinquent mortgages climbs, lenders have tightened their standards for issuing loans, including such well-publicized moves as raising minimum credit scores and cutting back on 100% financing and low-documentation loans. Now, some lenders are probing more intently would-be borrowers' finances. They are taking a tougher look at how much the property a borrower wants to buy is worth.
Tighter lending standards are adding pressure to an already soft housing market. Last week, the National Association of Realtors forecast the first annual decline in the median price of an existing home since the group began tracking home prices in the late 1960s, in part because mortgages are more difficult to get. more...
As the number of delinquent mortgages climbs, lenders have tightened their standards for issuing loans, including such well-publicized moves as raising minimum credit scores and cutting back on 100% financing and low-documentation loans. Now, some lenders are probing more intently would-be borrowers' finances. They are taking a tougher look at how much the property a borrower wants to buy is worth.
Tighter lending standards are adding pressure to an already soft housing market. Last week, the National Association of Realtors forecast the first annual decline in the median price of an existing home since the group began tracking home prices in the late 1960s, in part because mortgages are more difficult to get. more...
Sunday
Spring Is In the Air! and Love is Everyhere!
It must be spring. Love is in the air.
"O! how this spring of love resemblethThe uncertain glory of an April day!"
--William Shakespeare
"O! how this spring of love resemblethThe uncertain glory of an April day!"
--William Shakespeare
Supply of Homes Continues to Grow, Reflecting Weak Sales
The supply of houses and condominiums available for sale continues to grow quickly in much of the U.S., reflecting weak sales. The number of homes listed for sale in 18 major metropolitan areas at the end of April was up 7% from March, according to data compiled by ZipRealty Inc., a national real-estate brokerage firm in Emeryville, Calif. The data cover listings of single-family homes, condos and town houses on local multiple-listing services.
The increase was above the seasonal norm. Over the past 22 years, home inventories nationwide have increased an average of 4.5% in April from March, according to Credit Suisse Group. Spring is the busiest time of year for home shopping, as families with children try to get settled ahead of the next school year.
The National Association of Realtors yesterday again lowered its forecast, predicting that sales of previously occupied homes will total 6.29 million, down 2.9% from 2006. A month ago, the trade group projected that sales this year would slip 2.2%. Lawrence Yun, a senior economist for the Realtors, said many speculators have fled the market. more....
The increase was above the seasonal norm. Over the past 22 years, home inventories nationwide have increased an average of 4.5% in April from March, according to Credit Suisse Group. Spring is the busiest time of year for home shopping, as families with children try to get settled ahead of the next school year.
The National Association of Realtors yesterday again lowered its forecast, predicting that sales of previously occupied homes will total 6.29 million, down 2.9% from 2006. A month ago, the trade group projected that sales this year would slip 2.2%. Lawrence Yun, a senior economist for the Realtors, said many speculators have fled the market. more....
Happy Mothers Day!
Oh, mama! You've treated us so well. You hauled our friends to gymnastics class, iced one-hundred sugar cookies for the school's bake sale and even paid for all those extraneous classes toward our liberal arts degrees. Yep, we owe you a big one this Mother's Day, so that's why we're going to treat you to these sumptuous brunches and divine dinners. Need some brunch ideas...try these...more...
They Do Love their Mommies
NEW YORK -- MOTHER'S DAY Vicious toward the rest of mankind, mobsters from Capone on down have always had one fierce loyalty -- and this is their holiday
Each and every Mother's Day until he landed behind bars, mobster Jimmy ''The Gent'' Burke performed a sacrosanct ritual.
Burke, the mastermind behind the $5.8 million Lufthansa heist immortalized in ''Goodfellas,'' dropped a few C-notes on dozens of red roses. He then toured the homes of his jailed Luchese crime family pals, providing their mothers with a bouquet and a kiss. He never missed a year, or a mom. more....
Each and every Mother's Day until he landed behind bars, mobster Jimmy ''The Gent'' Burke performed a sacrosanct ritual.
Burke, the mastermind behind the $5.8 million Lufthansa heist immortalized in ''Goodfellas,'' dropped a few C-notes on dozens of red roses. He then toured the homes of his jailed Luchese crime family pals, providing their mothers with a bouquet and a kiss. He never missed a year, or a mom. more....
Tuesday
U.S. House Prices Slide
Tighter credit and a growing glut of properties are depressing an already weak U.S. housing market, wrecking the industry's hopes for an early rebound.
That leaves buyers in a strong position to negotiate for bargains during the spring home-shopping season, the busiest time of the year for housing sales.
Yesterday, the National Association of Realtors reported that sales of previously occupied homes in March dropped 8.4% from the prior month to a seasonally adjusted annual rate of 6.12 million units -- the largest monthly drop since 1989. The trade group said the median price for homes was $217,000 in March, down 0.3% from a year earlier.
That leaves buyers in a strong position to negotiate for bargains during the spring home-shopping season, the busiest time of the year for housing sales.
Yesterday, the National Association of Realtors reported that sales of previously occupied homes in March dropped 8.4% from the prior month to a seasonally adjusted annual rate of 6.12 million units -- the largest monthly drop since 1989. The trade group said the median price for homes was $217,000 in March, down 0.3% from a year earlier.
The data reflect sales that closed in March; most of those were negotiated in January and February. The Realtors said bad weather in February hurt March sales. The drop in March followed three months when home sales increased nationally.
Since March, the market appears to have deteriorated further in many parts of the country. Reports from builders show that sales in the past few weeks "have really plunged," says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. She says prices of new homes also are falling as tighter credit eliminates some potential buyers and builders struggle to shed excess inventory.
Since March, the market appears to have deteriorated further in many parts of the country. Reports from builders show that sales in the past few weeks "have really plunged," says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. She says prices of new homes also are falling as tighter credit eliminates some potential buyers and builders struggle to shed excess inventory.
Stricter lending standards will reduce demand for housing by 10% this year from where it would have been had credit remained loose, estimates Thomas Lawler, a housing economist in Vienna, Va. He expects housing prices, as measured by the national S&P/Case-Shiller index, to fall 7% in the fourth quarter of 2007 from the year-earlier level.
Standard & Poor's reported yesterday that the S&P/Case-Shiller 20-city composite index in February was down 1% from a year earlier. The metro-area price changes ranged from drops of 7.8% in Detroit and 5% in San Diego to rises of 10.6% in Seattle and 7.7% in Portland, Ore. In 15 of the 20 cities, March prices were down from a month before.
Not all delinquent payments or defaults lead to foreclosures, of course, but most experts are expecting a sizable increase in foreclosures over the next year or two as home prices weaken. That will add to the glut of homes for sale.
In areas near new construction, sellers of older homes are up against builders determined to cut prices as much as necessary to shed inventory. "We're marking our inventory to market across the country," Donald Tomnitz, chief executive of D.R. Horton Inc., said in a conference call with analysts last week. more...
In areas near new construction, sellers of older homes are up against builders determined to cut prices as much as necessary to shed inventory. "We're marking our inventory to market across the country," Donald Tomnitz, chief executive of D.R. Horton Inc., said in a conference call with analysts last week. more...
Go Bulls!
They're not Done doing the rounds...
When the Washington Wizards ousted the Bulls to advance in the 2004-05 postseason, the team had buttons made up that read, ''2nd Round.'' No need for the Bulls' promotions staff to worry about such fluff. This team wants to add another trophy to the six that sit in the case at the Berto Center. more...
When the Washington Wizards ousted the Bulls to advance in the 2004-05 postseason, the team had buttons made up that read, ''2nd Round.'' No need for the Bulls' promotions staff to worry about such fluff. This team wants to add another trophy to the six that sit in the case at the Berto Center. more...
Thursday
Sub-Prime Lenders Rescued...
The risky-mortgage meltdown appears to be heading for a softer landing thanks to a new $20 billion safety net thrown up by Freddie Mac yesterday. As foreclosures on home mortgages peaked - soaring 47 percent in March - leaders in Congress and the banking industry applauded the aggressive rescue move, the largest yet to curb the crisis for slow-paying mortgage holders.
Freddie Mac - a government-created money pool that finances most American mortgages - said it would buy at least $20 billion of troubled mortgages to curb their collapse, and give homeowners a chance at keeping up with mortgage payments.
Washington Mutual also said yesterday it would refinance $2 billion in shaky mortgages to prevent borrowers from losing their homes. Fannie Mae, the No. 1 mortgage financer, announced it also is offering new options so that lenders can help subprime borrowers refinance out of high-interest adjustable-rate mortgages or other difficult loans.
More than 149,000 of the risky mortgages went into foreclosure last month - triple the level of a year earlier and the highest mark since market watchers began collecting such data in 2005. more... PAUL THARP,April 19, 2007
Freddie Mac - a government-created money pool that finances most American mortgages - said it would buy at least $20 billion of troubled mortgages to curb their collapse, and give homeowners a chance at keeping up with mortgage payments.
Washington Mutual also said yesterday it would refinance $2 billion in shaky mortgages to prevent borrowers from losing their homes. Fannie Mae, the No. 1 mortgage financer, announced it also is offering new options so that lenders can help subprime borrowers refinance out of high-interest adjustable-rate mortgages or other difficult loans.
More than 149,000 of the risky mortgages went into foreclosure last month - triple the level of a year earlier and the highest mark since market watchers began collecting such data in 2005. more... PAUL THARP,April 19, 2007
Looking Ahead at Morgage Rates
Mortgage rates are coming in, making it a good time to get a fix, so to speak, and so says John Crudele in the New York Post. Crudele has won more than a few awards for his Business reporting over the years, and that means being right, even if it's out of step with the main line press.
He writes:
"Since late January the rate on the government's 30-year bond, the one that most resembles long-term mortgages, has dropped from 5 percent to around 4.80 percent. Many things could go wrong, but unless something changes dramatically that should translate into good news for mortgage seekers in the months ahead. So this time around the less than perfect economy could really be better for the housing market than a strong one."
He writes:
"Since late January the rate on the government's 30-year bond, the one that most resembles long-term mortgages, has dropped from 5 percent to around 4.80 percent. Many things could go wrong, but unless something changes dramatically that should translate into good news for mortgage seekers in the months ahead. So this time around the less than perfect economy could really be better for the housing market than a strong one."
Million Dollar Babies - The Market for Jumbo Homes
June Fletcher, writing for the WSJ.com sorted out the recent data dump of housing figures to draw a few conclusions about markets and what I am calling "Million Dollar Babies", or jumbo, starter Luxury homes. These homes are said to be sitting in a market niche that is suffering greater price declines than other segments. Writing about Chicago and the mid west, she wrote:
"The Sunbelt cities that attracted droves of buyers and builders during the boom have fared poorly. Overheated and overbuilt markets finally slowed down by the end of 2006: prices fell 4.2 percent, to $876,250, in Miami and flattened in Phoenix at $887,660 and in Charleston, S.C., at $937,500. Some Midwestern markets also performed badly. Prices were down 3.3 percent in Chicago, due in part to the loss of manufacturing jobs there. Things were even worse in St. Louis, which lost 3,300 jobs in the year ending November, second nationally only to Detroit. Prices in St. Louis were down 7.2 percent, the largest decline in the survey."
With all due respect (she does a great job reporting on real estate markets), I always wonder just how much research goes into such broad statements about price moves as "due to the loss of manufacturing jobs".
For example, how much speculative buying and selling, or lack of actual sales, factor into that 3.3 percent decline? Fletcher went on to explain how speculation meshes with Chicago Real Estate market trends with an anecdote about a family who traded down in a falling market for homes in the 1 million dollars range. She observed that the market seems fueled more by need than speculation, which was the trend until now.
During the boom, many buyers bought the biggest house that they could because they saw that as a way to increase their investment in real estate without buying rental property. But now that the market is softening, that strategy no longer makes much sense. Lawyer Beth Joffe and her husband, a physician, recently sold their three-bedroom Chicago home for $760,000 and have moved to a much smaller two-bedroom condo in Madison, Wis., that they bought for $300,000. Though both are far from retirement age, neither wants the hassle or added expense of a bigger place. "We don't need that any more," Ms. Joffe says.
The view from 30,000 feet is that it appears that sellers are in a sort of race to the bottom mode, where they price their houses lower right out of the gate in order to make sure they are getting a good number of bids from the start, whereas, up to now, sellers listed just above current comp. prices with the expectation that they would get plenty of offers. As she put it:
"Agents say that in many cities, the shifting psychology is causing sellers to reverse their tactics. During the run-up, sellers usually priced their homes slightly above the market knowing that someone would buy them, even if the price tag later had to be lowered somewhat. Now sellers are trying to undercut the market to sell while their listings are still fresh."
Again, every seller's situation is unique, just as every property has its' own special features or challenges, and "result will vary" as they say. However, it helps to look at the big pictures when trying to make sense of the conditions when buying and selling real estate. And according to Fletcher's report, that big picture is as follows.
In the fourth quarter of 2006, only 32 metro markets had 100 or more sales in the "starter luxury" category -- new and existing single-family homes costing between $750,000 and $1.25 million -- down from 65 markets in 2005. Here's what's happened to the median prices of starter luxury homes in selected metro areas.
4TH QTR 4TH QTR METRO AREA(1) 2006 2005 percent CHANGE
St. Louis $858,500 $925,000 -7.2
Edison, N.J. $875,000 $937,500 -6.7
Miami-Miami Beach-Kendall, Fla. $876,250 $915,000 -4.2
Chicago-Naperville-Joliet, Ill. $870,000 $900,000 -3.3
San Francisco-San Mateo-Redwood City, Calif. $870,000 $880,000 -2.0
Richmond, Va. $990,000 $960,000 +3.1
Salt Lake City, Utah $929,670 $896,420 +3.7
Minneapolis-St. Paul, Bloomington, Minn. $935,000 $899,000 +4.0
New York-White Plains, N.Y.-Wayne, N.J. $906,750 $870,000 +4.2
Santa Ana-Anaheim-Irvine, Calif. $917,750 $880,000 +4.3(1)
Areas with 100 or more "starter luxury" sales.
Saturday
It's Official-- The Buyer's Market is Here
It's Official-- The Buyer's Market is Here
Ellen Florian Kratz, reporting for Fortune and syndicated... everywhere, asserts that it is now, officially a "buyer's market". In recent weeks, the national media reported that "drama pricing" was sweeping large markets such as Washington, DC, where sellers are being advised to cut their asking prices dramatically (and we have heard the phrase used a few times here in the Chicago real estate market).
The "buyer's market" theory stems from the notion that the cost to carry real estate is too great for new home builders, and other holding mortgages beyond a point where it makes sense to wait for the best price, making it favorable for buyers who want to low ball seller for a good deal. Large builders have been spotted giving between 6 to 33 percent off asking prices, and some are including way new cars, closing costs, and even vacations (just be sure to research your destinations). So, perhaps it Tis' the season for deep discounts, but I'm telling my buyers to be sure to research neighborhood prices, and talk to an appraiser before locking in that package home purchase with a trip to a condo in Mexico for New Years.
The "buyer's market" theory is turning up more and more, full on.
www.buyinchicago.com - Search the MLS Free
List Your Property For Sale; chicago real estate home buying, sellers/investors income. Including relocation services.
www.marionpropertymanagement- Specializing in off-site condominium management
posted by Diannah Evans, Broker
January, 2007
Ellen Florian Kratz, reporting for Fortune and syndicated... everywhere, asserts that it is now, officially a "buyer's market". In recent weeks, the national media reported that "drama pricing" was sweeping large markets such as Washington, DC, where sellers are being advised to cut their asking prices dramatically (and we have heard the phrase used a few times here in the Chicago real estate market).
The "buyer's market" theory stems from the notion that the cost to carry real estate is too great for new home builders, and other holding mortgages beyond a point where it makes sense to wait for the best price, making it favorable for buyers who want to low ball seller for a good deal. Large builders have been spotted giving between 6 to 33 percent off asking prices, and some are including way new cars, closing costs, and even vacations (just be sure to research your destinations). So, perhaps it Tis' the season for deep discounts, but I'm telling my buyers to be sure to research neighborhood prices, and talk to an appraiser before locking in that package home purchase with a trip to a condo in Mexico for New Years.
The "buyer's market" theory is turning up more and more, full on.
www.buyinchicago.com - Search the MLS Free
List Your Property For Sale; chicago real estate home buying, sellers/investors income. Including relocation services.
www.marionpropertymanagement- Specializing in off-site condominium management
posted by Diannah Evans, Broker
January, 2007
Subscribe to:
Posts (Atom)
