Archive for the 'Home Prices' Category (Chronologically Listed)

Good News for Mortgage Borrowers: Home Prices to Decrease Throughout 2007

Looking for a new home? 2007 may be an historically great year to take out a mortgage loan.

How come?

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Posted by Jed Moss on May 09 2007 under Home Prices





Home Price Report: Don’t Expect Quick Turnaround

Is the housing slump really that bad?

After all, the S&P 500 last week fell more in a single day (3.5 percent) than home prices have fallen in the past year nationally (3.1 percent).

Still, it could be years before home prices regain the peaks seen before the current stumble - and even that’s optimistic.

“I expect prices and sales to be modestly growing by June in most of the country,” said David Lereah, the chief economist for the National Association of Realtors and perhaps the most bullish housing economist. “But we’ll have to go into 2008, maybe even 2009 before we get even close to the peaks we saw in late 2005 or early 2006.”

Two big factors could prolong the slump: the glut of homes on the market after a record building boom, and the fact that prices saw unprecedented gains during the white-hot real estate market of the first half of the decade.

Another worry is rising mortgage defaults, especially in the bad credit mortgage, that could lead lenders and regulators to choke off the credit that fed the previous booms.

Celia Chen, director of housing economics for Moody’s Economy.com, says she thinks it will take until 2009 for prices nationally to reach the peaks hit in 2005. Take inflation into account, she said, and a full recovery could take more than 7 years.

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Hugh Moore, a partner with money manager Guerite Advisors who has been studying home prices, thinks over-supply is the biggest problem.

New homes completed and available for sale reached a record high of 175,000 in January, up 47 percent from a year earlier, according to the Census Bureau. The Realtors’ trade group reports existing homes for sale was up 23 percent to 3.5 million.

The glut of new homes has hurt major U.S. builders. New Jersey builder Hovnanian Enterprises became the latest to report a loss late Thursday, following operating losses at Pulte Home, KB Home and Centex.

Don Tomnitz, CEO of No. 1 builder D.R. Horton, which has stayed in the black, said earlier this week he doesn’t expect 2008 to be a great year and added, “‘07 is going to suck.”

Moore also points to the latest quarterly Census report showing a record 2.1 million empty homes on the market available for sale. That’s a jump of 34 percent from a year earlier and the sixth straight quarter of record vacant homes. It’s at least good news for home mortgage applicants that should be able to negotiate for reasonable deals.

“That’s a huge run-up in the numbers, that says there’s a very big overhang of inventory,” Moore said.

He said the vacancies are either the result of investors looking to dump a home on an overbuilt market or someone who lived in the home who has moved despite not being able to find a buyer. Either way, he said, “the way the housing market has dealt with it in the past is a long period of price stagnation.”

Moore and others also worry about the growing problems of defaults and delinquencies in mortgages to subprime borrowers.

The problems in the sector are causing lenders to change their standards at the same time that Federal regulators are also proposing a tightening of guidelines.

“People who a year ago could have purchased a house with a subprime mortgage aren’t going to be able to purchase a home,” said Paul Kasriel, chief economist for Northern Trust in Chicago. “And many people who have subprime mortgages that are now subject to rate reset will not be able to [mortgage refinance]. That means increased foreclosures and more inventory on a market that already has too much.”

New Century Financial, the No. 2 subprime lender, which had previously revealed its auditor had doubts about its ability to continue in business, announced Thursday evening it had stopped taking applications for new mortgages because of trouble raising financing.

One bright spot, according to David Stiff, chief economist of Fiserv Lending Solutions, is that so far there hasn’t been a recession or a downturn in the job market, as there was with past housing slumps.

“All previous downturns were caused by economic weakness. This one came about through overbuilding,” said Stiff. But even Stiff says that controlled for inflation it could take three to four years to see price gains.

But Dean Baker, the co-director of the Center for Economic and Policy Research and a leading proponent of the theory that there has been a bubble in housing prices, says that he believes it could take five to seven years before prices get back to their highs on a nominal basis.

If prices are adjusted for inflation, he thinks that prices will never recover their recent highs.

“If you look at historical data, home prices have stayed pretty much flat in real terms, maybe being a few percentage points above inflation or income,” he said. “That’s why the run-up in prices the past eight years was so peculiar. And the run-up is what created the bubble.”

SOURCE: CNN Money




Posted by Jed Moss on Mar 13 2007 under Home Prices





How Can Home Prices Rise and Fall at the Same Time?

What is with all the conflicting reports on housing prices and the direction of the market, syndicated columnist Kenneth Harney asks in the Baltimore Sun. At the end of the day, what’s really going on out there?



If, as the National Association of Realtors reported last month, the median price of an existing home nationwide fell by 3.1 percent in 2006, does that mean that your house lost value as well?

Or do you focus instead on the more upbeat numbers released last Friday by the federal agency that tracks value shifts in America’s largest database of existing dwellings?

The Office of Federal Housing Enterprise Oversight (OFHEO) reported that home values rose by an average 5.9 percent last year, although the rate slowed to just 1.1 percent in the final three months of 2006.

It also found some quarterly deflation in prices in California, parts of Florida, the Midwest and New England, where sales have tumbled in the past year despite home loan rates remaining near record lows.

How could two highly respected gauges of real estate prices and values come up with contradictory conclusions? How can a government report present nearly 6 percent average appreciation on existing homes at the same time the most comprehensive private-sector study of actual selling prices says they’re down 3 percent?

Could they both be right?

The surprising answer is yes - because they are measuring different things. For example, the median price surveys from the National Association of Realtors have an important limitation. The median price is influenced by changes in the geographic composition of where houses are selling.

If high-cost markets experience record home sales - as occurred in California and the Mid-Atlantic states during the boom - while low-cost markets are relatively quiet, the median will be pushed upward.

But if sales are down sharply in high-cost markets - California sales are down by about 30 percent for the year - while Texas mortgage demand rises and sales in lower-priced areas in general are through the roof, that will up the number of lower-cost sales in the mix, and drag the median price down.

So what we’re seeing is that a reported 3.1 percent decline - or a 3.1 percent increase, for that matter - may not be exactly what it appears to be.

Now take the OFHEO survey. Its database, large and impressive as it is, omits much of the country’s highest-cost housing - dwellings with jumbo mortgages.

In other words, higher than the Fannie Mae-Freddie Mac limit; currently $417,000. That’s a very important omission, because higher-priced homes often experience more volatile swings in values.

There are also a lot of such loans in certain parts of the country. Getting a California mortgage for less than that amount is infrequent in a state with median prices pushing half a million.

The OFHEO numbers also omit the condo market - a key segment in Florida and many large urban markets. Leaving out condos in areas where overbuilding and investor panic have depressed values significantly, documented by local realty statistics, inevitably produces rosier conclusions than reality.

So OFHEO’s report that Miami area home prices were up by a stunning 15.3 percent last year should be taken with a giant grain of salt. A big grain of salt.

Still another problem: OFHEO’s data include mortgage refinancing, which frequently yields higher appraised values than purchases.

Despite these limitations, you can look at both surveys and come away with some useful conclusions about the outlook for home mortgage demand:

• If you own or are buying property in any of the dozens of metropolitan areas that boomed during 2002-2005, you can be fairly certain that property values are either giving back some of those fat gains or are flat for the time being.

• If you live or are buying in an area where job growth is strong and you did not see the hyper-inflation of the recent boom years, you’re probably are seeing excellent growth in home values.

• The truly sobering pictures are in the industrial Midwest and portions of New England, where job and population growth has been flat or negative. The number of home mortgage applications isn’t going to pick up until the job market gets out of negative territory and people start moving in.

SOURCE: Baltimore Sun




Posted by Richard Barber on Mar 12 2007 under Home Prices





Follow the Right Index: How to Properly Gauge Home Prices

The next time you read housing statistics in the financial press, make sure you take the information with a grain of salt. Not every index is equal, but each can tell the same story.

For example, the recent Standard & Poor’s/Case-Shilller U.S. Home Price Index (S&P), which features data from either a 10-city or 20-city composite, suggested a harder fall for housing prices than data gathered for the National Association of Realtors’ Existing Home Sales.

The 10-city composite showed the lowest level of home price growth since 1996 at 0.4 percent for 2006. For the same period, the National Association of Realtors found that existing-home sales reached the third highest total on record, with 6.48 million homes sold in 2006. However, home prices rose only 1.1 percent in 2006.

Both seem accurate, but they track home sales quite differently.

The S&P indices compile data of single-family home prices for all nine U.S. Census divisions. In fact, the methodology is considered so accurate, the Census Bureau, a division of the Commerce Department, uses similar methodology in determining its new home price data, with one proviso - that the data can be revised.

Included in the analysis are the cities of Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Franciso, and Washington, D.C.

The 20-city composite includes the above cities along with Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and the Tampa housing markets.
Designed to track the price changes of resale homes, the indices only include homes that have two or more recorded sales transactions at fair market value. How fair market value is determined is unclear, but the data also does not include housing which has gained exponentially in popularity - condos and co-ops, presumably because of historical volatability. Nor does it include new homes.

NAR’s existing home sales, on the other hand, does include condos, townhomes and co-ops, or multifamily homes, and calculates median home sale prices from data in major regions such as the Southwest, Northeast and West. Instead of major cities only, the data can include rural, land-only and small town sales.

“Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings,” explains Walt Molony, spokesperson for the National Association of Realtors. “This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit.

Existing-home sales, which generally account for 85 percent of total home sales, are based on a much larger sample — nearly 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.”

The NAR includes multifamily sales in its single-family homes data if the sales are to single-family households. For example, a single woman buying a condo is a household. Another factor is that monthly single family data goes back to 1968, but monthly condo data only goes back to 1999.

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Posted by Jed Moss on Mar 02 2007 under Home Prices





Housing Prices Decrease as Sales Reach Seven-Month High

Mortgage brokers are finally starting to see hard work pay off: Home sales rebounded in January, reaching the highest level in seven months, the National Association of Realtors said this week.

The unusually warm winter weather helped boost sales, which rose 3 percent. Specifically, single-family homes showed the biggest sales increase, rising 3.5 percent.

However, existing condominiums and cooperative housing sales slipped 0.1 percent. Those sales are stagnant because many more condos and co-ops are available, the NAR said. Despite the dramatic rise in home sales in January, no one should overreact to the gain, analysts say.

“I’m trying to be careful because we could see the next month down a little,” said David Lereah, the NAR’s chief economist. The reason: February winter storms disrupted much of the country, which could cause a near-term home sales dip.

As sales jumped in January, there was a downturn in existing home prices. Last month, prices fell 3.1 percent from January 2006 to $210,600, which follows the logic that buyers will jump on cheaper pieces of property.

The price softness is expected to continue until spring, Lereah said. This should lead to continued mortgage loan activity.

“But that may not be that bad,” said Joel Naroff, chief economist of Naroff Economic Advisors. “The decline in prices is helping sales, but we still have too many homes for sale.”

The inventory of homes for sale rose 2.9 percent at the end of January to 3.55 million, representing a 6.6-month supply. Still, that’s down from the 7.4-month peak in October.

Across the nation, existing home sales in January improved the most in the West, while sales in the Northwest were unchanged. And among states and cities, recent sales have varied. For example, in the Florida housing market, sales fell 27 percent in January.

But the Long Island housing market - along with Boston, Pittsburgh and most of New Jersey - enjoyed solid gains in home sales.

Many experts hope that home sales will continue to improve.

“First-time home buyers are now in a position that they can take their time, and they’re being able to purchase homes,” said Bill Hanley, president of the New Jersey Association of Realtors. Instead of 10 buyers for every home, there are now 10 homes for every buyer, he adds.

At Hanley’s firm, Weichert Realtors in Metuchen N.J., January home sales more than doubled the sales in January a year ago.

SOURCE: USA Today




Posted by Jed Moss on Mar 01 2007 under Home Prices, Housing Market





Home Price Drop Affects Majority of Major Housing Markets

If you’ve been waiting for the most affordable time to apply for a mortgage loan, consider the following information:

Housing prices fell in nearly every major U.S. market in November, though some Northwest markets are bucking the trend, according to the latest numbers from Case Shiller Weiss.

For example:

• Boston housing market prices have swooned by 5 percent for the 12 months through November
• Detroit dropped by 4.5 percent
• Of 20 major cities tracked, all but three showed declines in November and seven recorded 12-month losses

Northwest cities have best weathered the storm with Seattle showing a year-over-year increase of 13 percent and those seeking an Oregon mortgage in Portland facing a gain of 11.6 percent. In November, Miami led all other markets with growth of 7.4 percent.

Case Shiller’s 20-city composite index, which also includes Chicago, New York, and San Diego, dropped 0.4 percent in November, after inching down 0.2 percent in October. For the 12 months, the index was up 1.7 percent, a far cry from its performance in 2005, when the index gained 15.7 percent.

“Country-wide, home price declines appear to show no signs of slowing down,” said Robert Shiller, chief economist at MacroMarkets LLC, in a release. “But while the downward trend is visible on a national level, it is clear that certain cities, like Boston and Detroit, have been more susceptible to the price correction.”

Some of the smart money is betting that the decline will continue. Assuming this is the case, power in negotiations with sellers shifted significantly to home mortgage loan applicants.

The derivatives may, however, exaggerate the market’s pessimism. According to Shiller, not only are the futures too thinly traded still to be a very accurate guide to market sentiment but there is also a risk premium to be taken into account.

At this point, more traders are interested in protecting themselves against loss than are interested in buying into a growing market. That imbalance drives down the prices of the futures.




Posted by Jed Moss on Jan 31 2007 under Home Prices, Housing Market





U.S. Home Prices to Fall in 2007; Buyers, Mortgage Applicants Take Note

Those contemplating the best time to apply for a mortgage loan and purchase, should consider the following report:

US house prices are likely to fall this year after the number of people selling their homes fell by the most in 17 years in 2006, according to a leading real estate broker.

Tom Kunz, chief executive of Century 21, predicted a slight fall in prices this year as figures from the National Association of Realtors on Thursday showed the pace of existing home sales slipped 0.8 percent last month.

The fall in home sales was sharper than expected and underlines the fragile state of the housing sector, reports MSN Money. But industry economists continued to predict a stabilization of the market this year following a protracted slowdown.

The national median price of existing homes was slightly higher than a year earlier, at $222,000, according to the industry association.

Mr Kunz predicted softening ahead: “Sellers have finally figured out that this is a buyers’ market. For too long they were hung up on the couple down the street that put their house on the market at $300,000 and got $350,000. But that is not going to happen anymore.”

“You are starting to see some price reductions. It is already happening in overheated markets like [the Florida housing market], California and Boston,” said Mr Kunz, who heads one of the country’s largest real estate companies.

The sharpest drop in purchases last month was in the West, where sales fell 9.1 percent, while they rose 4.3 per cent in the Midwest.

The industry association has launched a national advertising campaign to persuade Americans that this is a good time to buy, pointing to reasonable home mortgage rates, among other factors. but the Federal Reserve has warned that it continues to monitor the market closely.

Most industry analysts expect sales and construction activity to bottom out before the end of the year, and are forecasting either a slight fall or modest increase in prices.

However, many bank economists argue the outlook is very uncertain, as mortgage applications – a leading indicator of activity – remain volatile despite signs of wider economic growth.




Posted by Jed Moss on Jan 26 2007 under Home Prices





Is “Smart Growth” Really All That Smart?

The following article on the impact of “smart growth” was written by Wendell Cox, a senior fellow with the Heartland Institute and co-author of the “Demographia International Housing Affordability Survey,” an analysis of housing affordability in 100 markets in six nations. It was originally published in the San Francisco Chronicle December 11 and we first saw it in the Hawaii Reporter.

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To the extent that there’s been anything about the economy still worrying some journalists and media analysts in recent months, it has been softness of the housing market.

Several home price declines were noted in October as having contributed to a lack of U.S. economic growth. On November 20, the National Association of Realtors issued a third-quarter report showing a 12.7 percent decline in existing home sales compared to last year.

All of this, of course, will refuel the debate about the “housing bubble.”

Is there one?

If there is, will it burst?

Paul Krugman, an economist and columnist for the New York Times, has argued that there is a bubble, but it is a geographical one. His thesis is that the “zoned-zone” is artificially inflating housing costs.

A zoned-zone is an area that has embraced land-rationing policies, usually under a misleading title of “smart growth.” Policies on development such as Portland, Oregon’s urban growth boundary, and requirements for excessively large lots simply reduce the supply of land for development.

There is little argument among economists that rationing raises prices, and does so with a vengeance.

Take “smart growth” friendly San Diego County — where today the median house price is more than 10 times the median household income (a measure called the “median multiple”). The historic norm has been a median multiple of 3.0 or less. In San Diego, the median multiple was 3.6 in 1995.

• In just 10 years, the total cost (including interest) of the median-priced house in San Diego has risen more than $900,000.
• By comparison, the total cost over a 30-year period of the median priced house has risen only $55,000 in Atlanta, where there is more liberal land-use regulation.
• In just the first half of the decade, 100,000 domestic migrants - people who move from one metropolitan area to another - have left the San Diego. Who can blame them?

State-level home sales tell a stark story. In states with stronger smart growth or other land-rationing policies, the fall-off in existing house sales has been by far the greatest. During the past year, existing house sales have fallen an average of 20 percent in the highly regulated states. All 18 of these states experienced declines, even in historically fast-growing states like Arizona, California, Florida, Nevada, Oregon and Washington.

By contrast, in the less-regulated states, the annual loss was just 4 percent and a third of these states, including Georgia and Texas, experienced sales increases. The escalation of prices relative to incomes in highly regulated markets is not the result of low mortgage rates. The same low rates have not produced the same effect in markets with lighter regulation, such as Dallas-Fort Worth, Houston or Kansas City.

Nor is the escalation a result of demand, as Atlanta, Dallas-Fort Worth and Houston are some of the fastest growing large metropolitan areas in the nation, yet the median house price has remained below the 3.0 benchmark. The problem in highly regulated markets is that the supply of housing is not allowed to keep up with demand.

If housing affordability doesn’t improve, it is not inconceivable that it could at some point have serious effects on the overall economy, perhaps even a “smart growth” induced recession.

The economic and social consequences are ominous. The hundreds of thousands of additional dollars in mortgage loan payments that must be paid to own a home in California, Florida, Oregon or other smart-growth states will mean less money for other needs. Fewer products will be purchased and fewer jobs created.

Worst of all, there will be fewer homeowners. Lower income and many middle-income households will find their way to the mainstream of economic life blocked by artificially high prices resulting from naive urban planning policies. It seems likely these higher prices will lead in the long run to lower rates of homeownership.

In the long run, “smart growth” is simply bad for the economy and for the people on whose enterprise and wealth creation the economy relies.




Posted by Richard Barber on Dec 18 2006 under Home Prices, Housing Market





The Basis for Home Price Decline; What Buyers Should Do About It

2006 was the first year of national median price declines since the National Association of Realtors began keeping figures in 1968.

Moreover, the NAR predicts that 2007 will also be a year of decline, which raises basic questions: What causes home prices to decline? Are buyers being pushed to the sidelines by the media or fundamentals?

A national housing market report? First, The Realty Times explains, there is no “national” market. Sales figures must be local in order to be meaningful, but that doesn’t mean that buyers don’t retreat out of fear, as well as market realities such as job loss, population outflows, and overbuilding.



According to the Joint Center for Housing Studies of Harvard University’s “State of the Nation’s Housing 2006,” overbuilding and job loss are preconditions for metro area housing price declines. Between 1975 and 1999, the percent of times that overbuilding and major employment loss led to price declines was nearly 8.3 percent and 4.5 percent, respectively.

Yet, conditions for buying and/or submitting a home loan application after 1999 changed:

Significant baby boomer wealth was poured into upsizing homesteads and purchasing second homes. GenXers came into their own with white collar jobs and stock market gains and were able to buy homes with less money down due to generous mortgage financing never before provided by lenders to previous generations.

Government subsidies continued in the form of low interest rates, hovering at 30-year-lows since 1998. Home buyer demographics also changed with more households forming, including record legal and illegal immigration. Single women homebuyers are now 22 percent of the market, up from 15 percent in the 90s.

By 2005, one in ten homeowners owned a second home.

Those positive conditions haven’t changed, but home buyers are moving to the sidelines nonetheless, most likely in reaction to double-digit price gains in many metro areas. Not only did affordability hit a wall, particularly for those seeking a California mortgage, but buyers simply lost patience with ever-escalating home prices.

That’s when a variable comes into play that has nothing to do with fundamentals: attitude.

Wall Street is on a roll with a record-flirting DOW, jobs are up, inflation appears to be under control with Federal Reserve rates standing pat, mortgage interest rates are low, and new home-building has slowed significantly.

Each of these is a strong buying signal for housing, yet, encouraged by the financial press and Wall Street pundits, buyers are being told to force home sellers’ prices down, even in areas that sat out the boom. And it’s working - prices are down for the first time since 1968.

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Posted by Jed Moss on Dec 15 2006 under Home Prices, Housing Market





Recent Reports May Overstate Home Price Decline

You probably recall the scary reports just before Thanksgiving: Housing prices fell nationwide last quarter — the first such decline since 1993. Even grimmer, total sales of houses and condos plunged by 12.7 percent across the U.S., compared with the year-ago period.

You might have wondered, is this the long-predicted popping of the housing-boom bubble or the beginning of an extended period of eroding values in American home real estate? How bad could it get in the months ahead? And what might that mean for the equity I’ve got in the home I own?

According to syndicated columnist Kenneth Harney, whose latest appears in the Detroit Free Press, the latest data showed that the price of all single family homes resold in the U.S. in the third quarter was 1.2 percent below the median during the third quarter of 2005. The slippage year-to-year came to $2,700.

How bad is that?

Not very, but it’s still important: Median home price decreases have been unusual in recent years. They signal that something negative is under way in the marketplace. But given the unprecedented run-up in real estate prices during the boom years, plus near-record low mortgage rates fueling those fires, who is shocked by a 1.2 percent decline?

Something else that didn’t get a lot of attention: Of the 148 markets covered by the National Association of Realtors survey, 102 of them actually saw median price increases. In other words, in 69 percent of the local markets where median prices changed, the directional arrow was up. Metro Detroit was one of the areas that experienced a decline (10.5 percent).

Now to the really important news that got lost in the latest statistics: The only real bust under way nationwide is in sales volume, not prices or property values.

But if home sales are down dramatically, why aren’t median prices down more than 1.2 percent?

The answer is that absent severe reversals in national or local economies, home prices and values move glacially in retreat. Most home sellers in stable economies aren’t forced to sell if they don’t get the price they want; they can postpone the sale until market conditions improve.

That’s what you’re seeing right now: Sales volumes in the frothiest markets have tanked, as the mortgage loans are simply unaffordable.

But the statistical fact remains the same: Median prices in 70 percent of the nation’s metro areas are still growing, and are likely to continue to do so. So now is a terrific time to apply for your home mortgage!




Posted by Richard Barber on Dec 11 2006 under Home Prices