Article in July 27, 2006 Detroit Free Press

GM: Turnaround is working
Earnings fuel debate over alliance
BY MICHAEL ELLIS
FREE PRESS BUSINESS WRITER

July 27, 2006

Opponents and backers of a proposed General Motors Corp. alliance with Renault SA and Nissan Motor Co. could agree on one thing Wednesday: There is evidence to support their case within GM's surprisingly strong operating earnings.

The second-quarter operating profit of $1.15 billion, which was well above Wall Street estimates and fueled a rally in GM's shares, is evidence that GM's turnaround from last year's $10.6 billion in losses is working, GM Chief Executive Rick Wagoner said in a statement.

"Our turnaround has not just gained traction, it's accelerating into high gear," Wagoner said. "Conventional wisdom is that you can't turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong."

Without saying it outright, Wagoner's uncharacteristically bold statement implies that GM doesn't need an alliance with the French and Japanese automakers to fix its problems.

As a result of the success of its job-cutting plan, which spurred 34,410 union members -- one-third of GM's U.S. hourly workforce -- to accept early retirement or departure offers, GM raised its cost-cutting rate by $1 billion to $9 billion annually. That's an amount Wagoner said was "unprecedented in this industry."

While GM cheered the results, those who say GM needs an executive like Carlos Ghosn, the CEO of both Renault and Nissan, can point to underlying signs of weakness in GM's North American automotive business.

Higher shipping expenses from increased gas prices and the rising cost of raw materials used in building vehicles offset increased profits from GM's new full-size SUVs, which were launched earlier this year.

Since the excitement over new models may drop off faster than the price of steel or oil, Goldman Sachs analyst Robert Barry warned clients in a note: "This does not bode well for the sustainability of earnings from the new products."

Supporters of an alliance point to long-term benefits, anyway, and won't be swayed by a strong quarter or two.

GM's second-quarter operating profit of $2.03 per share, which excludes several charges, easily beat Wall Street estimates of a 53-cent per-share profit. Total sales hit a record for the second consecutive quarter, rising to $54.4 billion from $48.5 billion in the year-ago period.

The benefits of GM's cost-cutting efforts will accelerate in the second half of the year, GM Chief Financial Officer Fritz Henderson told reporters and analysts.

"The lion's share of our cost reductions in North America we expect to be in the second half of the year. But we did benefit in the second quarter, as well," he said.

GM's stock price, already one of the top performers this year, surged $1.34, or 4.4%, to $32 on the New York Stock Exchange.

Even Jim Cramer, the host of CNBC's "Mad Money" and an influential stock-picker for many Main Street investors, said GM is a screaming buy. "When will people understand that GM is going to 40 bucks? GM is now a very cheap stock," Cramer said on a video on www.thestreet.com.

The stronger second-quarter results could give Wagoner ammunition against the proposal by GM's largest single investor, Kirk Kerkorian, to join the alliance of Japan's Nissan and France's Renault. Some GM supporters see Kerkorian's suggestion as a ploy to put Ghosn, who engineered the successful turnaround of Nissan, at the helm of GM.

David Cole, chairman of the Center for Automotive Research in Ann Arbor and a fan of Wagoner, said the result strengthens Wagoner's position. "Renault-Nissan may need the relationship more than GM," he said.

Including charges totaling $4.3 billion, mostly from job-cutting incentives, GM lost $3.2 billion, or $5.62 per share.

While GM's global automotive business recorded a profit, excluding charges, for the first time since 2004, the North American auto segment lost $85 million.

That's a $1-billion improvement from an operating loss in North America of $1.14 billion in the second quarter last year. But part of those gains resulted from the strengthening Canadian dollar and an accounting change in funds reserved for warranty costs -- items unrelated to how GM's business is really functioning.

In addition, GM's U.S. market share in the second quarter fell to 24.2% from 27.3% in the year-ago period, even as it increased the percentage of sales to fleet customers such as businesses, governments and rental-car agencies, which typically pay lower prices.

Higher gas prices, now averaging more than $3 a gallon across Michigan, could hurt truck sales just as GM launches its new pickups this fall and is counting on improved profits from its new large SUVs.

GM's largest contributor to earnings was an $898-million profit from its GMAC financial services arm. But GM agreed earlier this year to sell a 51% stake in GMAC, which will reduce its share of the profits in the future.

When asked about a partnership, Henderson said the automaker will spend the next 90 days studying the idea. He offered no further details.

A spokeswoman for Kerkorian's investment firm Tracinda Corp. did not return telephone calls seeking comment on Wednesday.

Many on Wall Street are still trying to figure out if an alliance is likely, or necessary.

"It's hard to see really significant benefits" from an alliance, said Joseph Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J.

Article in July 26, 2006 Wall Street Journal

Home Sales Fell
By 1.3% in June;
Inventories Rose

By MICHAEL CORKERY and DONGJIN PARK
July 26, 2006

Home sales declined last month while inventories swelled to the highest levels since 1997, the latest sign that the housing market continues to cool. Consumer confidence, meanwhile, stabilized.

The National Association of Realtors said sales of existing, or previously owned, homes fell 1.3% to a seasonally adjusted annual rate of 6.62 million units in June from a revised 6.71 million in May. When compared with June 2005, sales were down 8.9%.


Realtors' Chief Economist David Lereah says that for now, the housing market appears headed for a soft landing in most markets, meaning that the market will cool in an orderly fashion. But if the Federal Reserve continues to raise interest rates while consumers get hit with higher oil prices, "some local economies could turn sluggish and contract," which could result in a harder landing for housing, Mr. Lereah said.

Home prices, meanwhile, were little changed overall but varied considerably by region. The national median existing home price was $231,000 in June, up 0.9% from June 2005. That was the slowest monthly year-over-year price increase since May 1995.

In the Northeast, where sales declined 3.5% in the month, the median price was $298,000, up 7.2% from a year ago. In the South, where sales were down 2.3% in the month, the median price was down 0.5% from June 2005 to $191,000. In the Midwest, last month's sales were unchanged from May, while the median home price was down 1.7% to $175,000 from a year ago. Last month's sales in the West were unchanged from May and the median price was $342,000, the same as a year ago.


"It's clear that we've seen a very significant slowdown [in price appreciation] and may be approaching an episode of overall declines," says Richard DeKaser, chief economist at National City Corp. in Cleveland. He added that "I would call this, thus far, a very orderly correction."

Meanwhile, inventories rose 3.8% to 3.73 million existing homes for sale in June, which is a 6.8-month supply of homes at the current sales pace. That was the highest inventory level since July 1997 and compares with a 4.4-month supply in June 2005.

Consumer confidence unexpectedly edged up in July as consumers shrugged off rising gas prices and higher interest rates. The Conference Board, an independent business-research group in New York, said its index of consumer confidence rose to 106.5 in July from June's revised 105.4.

Article in July 18, 2006 Wall Street Journal

Has GM Finally
Hit the Brakes
On Sales Slide?

By NEAL E. BOUDETTE
July 18, 2006

DETROIT -- General Motors Corp. placed a huge bet earlier this year that it could stop the company's long U.S. sales and market share decline by fundamentally changing strategy, moving away from big discount deals and stressing what amounts to everyday low pricing.

Now, Mark LaNeve, GM's top North American sales and marketing executive, says the shift is paying off -- even though GM's sales for the first six months of the year are down 12% from last year's discount-driven levels.


Mr. LaNeve argues that although GM's sales are down comparing last year to this year, the worst may be behind the company. If one just looks at the numbers over the last nine months, he says, GM's eight brands have stabilized their share at roughly 24%.

"First you have to stabilize it. Then you can make it go in the right direction," Mr. LaNeve says. GM, he says, "is optimistic about our share prospects for the balance of the year and [about] continuing this trend of stability and modest growth compared to our trailing 12-month rate."

Some analysts aren't convinced that GM is making a comeback. Ron Tadross, an auto analyst at Bank of America in New York, says he "would be very cautious" about the chances of GM gaining market share in the next year or so. While GM has several new models coming this year, he says the pace of launches will taper off in 2007. "They are at the peak of their product cycle right now, and the number of new models after this is only going to go down," he says. "So there's reason for skepticism."

For Mr. LaNeve, and his boss, GM Chairman and Chief Executive Officer Rick Wagoner, a lot is riding on whether their optimism is borne out over the next few months. GM has tried and failed for two decades to stop the steady loss of U.S. market share to Asian and European rivals. When Mr. Wagoner took over as CEO in June 2000, GM's U.S. share was 28.9%. As of June 2006, it had fallen to 24.1%, according to Autodata Corp.

That failure is a key issue for shareholder Kirk Kerkorian and his senior adviser and GM board member Jerome York, who are pushing GM to join an alliance with Renault SA and Nissan Motor Co. Mr. York in a speech this year said GM needed to be "realistic about market share and revenue expectations, and gear the cost and expense structure accordingly." Mr. York urged GM to "cull out the product offerings," and questioned why GM supports eight brands in the U.S., suggesting that both Saab and Hummer should go so that GM could focus its model development and marketing money on a smaller number of high-volume vehicles.

Mr. Wagoner and Mr. LaNeve have defended the eight-brand strategy, and said GM's new pricing strategy, rolled out in January, would start to reverse the damage done to GM's brands by the waves of heavily touted discount plans since October 2001's "Keep America Rolling" 0% financing promotion.

GM's new pricing strategy in certain cases amounted to a price increase compared with the best deals last year. In the first five months of this year, GM vehicles have on average sold for $27,915, $1,360 more than a year ago, according to the Power Information Network. That is within a few hundred dollars of Toyota Motor Corp.'s average transaction price of $28,335, which is down $296 from the first five months of 2005. But Mr. LaNeve says the more stable pricing system has helped to raise resale values for GM models, which is a key factor for many consumers in deciding which car to buy. For example, GM passenger cars sold in the third quarter should be worth 43% of their sales price after three years, up from 34% three years ago, according to Automotive Lease Guide.


GM expects that a string of important new models coming in six to nine months will spur sales, Mr. LaNeve said. Among them: Starting late this year, GM will start rolling out three new eight-passenger "crossover" vehicles that will offer the room and seating capacity of large sport-utility vehicles but ride smoother and consume less gas. These vehicles will be aimed at one of the fastest-growing segments of the market. Sales of crossovers have accelerated, and sales of heavier, less fuel-efficient SUVs have declined, as gasoline prices have risen to around $3 a gallon. But Bank of America's Mr. Tadross says new vehicles won't guarantee share gains for GM. "Everyone's launching new products," he says.

GM's models, however, represent a combination few other manufacturers offer: They seat up to eight passengers but are supposed to get about 25 miles per gallon on the highway, thanks to their lighter, car-based underpinnings. If they take off, GM could have a shot at gaining market share since the company has only a marginal presence in this segment now.

The challenge for GM is that its new family-size crossovers will be going to three of its smallest brands: Saturn, GMC and Buick. Chevrolet, GM's most family-oriented brand, sells more than twice as many vehicles as those three combined. But it won't have its own family-size crossover for about three years. "Chevy is the powerhouse. It is GM's strongest brand," said Michael J. Jackson, CEO of AutoNation Inc., the largest chain of dealerships in the U.S. and a huge seller of GM vehicles. "Chevy should get first call on everything the company has."

Mr. LaNeve acknowledges "it's a good question" whether one of the new crossover vehicles should be a Chevrolet, but he says it makes sense to hold off on a Chevy version because GM's volume brand is already launching new Tahoe and Suburban sport-utility vehicles and Avalanche and Silverado pickup trucks this year.

GM executives say they are committed to Chevrolet, but need to shore up the other brands, too. That's one reason why one of GM's most eye-catching new vehicles, the Sky Roadster, is a Saturn. Chevrolet dealers argue the Sky, or the Saturn Aura, a new midsize sedan with a sleeker look than the competing Chevy Malibu, could sell better in their brand. "They have to feed all the puppies," laments Tommy Brasher, who owns Chevrolet and Buick dealerships in Weimar, Texas.

Mr. LaNeve says GM's eight-brand strategy positions the company to regain market share. Chevrolet is strong in the middle part of the U.S., but weak on the coasts. Saturn, he said, "is the exact inverse." Surveys also show Toyota and Honda customers are willing to consider Saturn, but won't think about driving a Chevy, he said. "Saturn is a great conquest brand for us," he said, using the industry term for taking customers away from rivals.

Article in July 22, 2006 Wall Street Journal

New Headache For Homeowners: Inflated Appraisals

Rosy Valuations, CommonIn Boom, Now Haunt Sellers;'It's Pay-the-Piper Time'

By JAMES R. HAGERTY and RUTH SIMONJuly 22, 2006; Page A1

As the housing market cools, Americans are confronting a problem that was easy to ignore during the boom: inflated appraisals of home values.

Critics inside and outside the appraisal business have long warned that many appraisals are unrealistically high. That's partly because generous appraisals help loan officers and mortgage brokers, who often choose the appraiser, complete more deals. If a home is appraised at less than the buyer offered, the deal is likely to fall through.

Inflated appraisals didn't matter much when home prices were rising at double-digit rates, since market values would quickly catch up. Now, however, prices are leveling off in many places and falling in some. Some homeowners are finding that the market value is below what past appraisals led them to believe.

For sellers, that can mean being forced to drop their asking prices. Some people hoping to refinance, meanwhile, may be unable to lock in new loan terms because they have less equity in their homes than they thought. Lenders and mortgage investors, too, could take a hit if it turns out the collateral backing their loan is worth less than expected.

Most homeowners have enough equity in their homes so they don't need to worry much about whether past appraisals were realistic. But dubious appraisals are a risk for the hundreds of thousands of people who in the past few years have bought homes with little or no down payment, or used almost all of their home equity to finance home improvements or other types of spending. That has left these people with little financial cushion to deal with rising interest rates.

"Now it's pay-the-piper time for people, and they're finding out they don't have the value in the house they thought they had," says John Taylor, president of the National Community Reinvestment Coalition, a Washington-based nonprofit that supports low-income housing.

Karen Ammon, who works for an auto-parts marketing company in Bloomfield Hills, Mich., bought her home in 2002 for $141,000. A year later, a lender encouraged her to refinance into a larger loan that would let her pay off credit-card debt. The appraiser chosen by the lender had great news: Her house was now valued at $175,000. She had room to raise her total mortgage borrowings to $165,000.

Now monthly payments on the adjustable-rate loan she received in 2003 are rising in line with the general level of interest rates. So Ms. Ammon wants to refinance into a fixed-rate loan. But when she tried to refinance, she couldn't do so because several appraisers valued her home at around $148,000 -- or about $15,000 less than she owes in mortgage debt.

Appraisals are only opinions, and appraisers often disagree on the value of a home. But wide discrepancies can mean that at least one of the estimates was unrealistic.

No one can say how many appraisals are unreliable. Still, Iowa Assistant Attorney General Patrick Madigan, who coordinates with law-enforcement officials from other states on mortgage-related issues, believes the deliberate inflation of appraisals is "widespread" among loans to subprime borrowers, or those with flawed credit histories. Jacquie Doty, an executive at Freddie Mac, a big provider of funding for home mortgages, predicts that inflated appraisals will lead to more foreclosures.

In the 1980s, inflated appraisals were one factor in the loan losses that sank many savings-and-loan institutions that were holding collateral worth less than they believed. Today, most loans are sold to investors and risks are more spread out, making it less likely that poor appraisals would cause lenders to collapse. But many people in the real-estate industry believe the appraisal system is overdue for reform, and investors who buy loans are asking tougher questions about appraisal procedures.

Complicating matters for homeowners is the weakening housing market. In October, when Melinda and Steve Welch refinanced the loan on their four-bedroom home in Centreville, Va., the property was appraised at $682,000. Later they cut the price to $595,000, and recently accepted a bid around that level.

Built-In Conflict

The appraisal system has a built-in conflict of interest. Appraisers often are hired by loan officers or mortgage brokers, whose compensation depends on how many loans go through. Appraisers, dependent on loan officers for their livelihoods, say they often feel pressure to come up with a number that will allow a home purchase or refinancing to proceed.

Eric Randle, an appraiser in the Los Angeles area, says he frequently receives faxes from loan officers asking whether he could appraise a specified home at a certain level. The implication is that an assignment will be forthcoming only if he's willing to hit the desired number. Mr. Randle says he declines to work on those terms.

One of Mr. Randle's appraiser friends recently received a fax from Eric J. Roberts, a mortgage loan officer in Bakersfield, Calif., for Pinnacle Financial Corp. The scrawled fax message listed an address in Los Angeles and said, "I need 2 get to 750K for this Appraisal. If not please provide a value range or call me."

Mr. Roberts declined to comment. Doug Long, chief executive officer of Orlando, Fla.-based Pinnacle, said he didn't think Mr. Roberts did anything wrong but added, "The wording could have been better."

Consumers often play along with dubious appraisals. Danny Wiley, an appraiser in Nashville who is a member of the national Appraisal Standards Board, in May was asked by a lender to appraise a condo in Spring Hill, Tenn. The buyer had offered to pay $139,000, but the contract required the seller to pay $10,000 toward the buyer's closing costs. In effect, Mr. Wiley says, the price had been inflated by $10,000 to allow the seller to provide money to help the buyer cover closing costs.

Mr. Wiley estimated the value at $129,000, the same price at which numerous identical units in the same complex had recently been sold. That should have killed the deal. But Mr. Wiley says the sale later went through, apparently after the lender found another appraiser willing to value the condo at $139,000. Mr. Wiley declines to identify the parties involved in the transaction, citing client confidentiality.

Federal law governing appraisals dates to 1989, when Congress passed legislation aimed at preventing a recurrence of the savings-and-loan crisis. That law leaves licensing and regulation mainly to the states, but many of them don't provide much funding for oversight.

T.J. McCarthy, chairman of the Illinois Real Estate Appraisal Licensing Board, says the state's appraisal regulatory agency is "severely understaffed." As a result, he says, the backlog of unresolved complaints is so large that rogue appraisers sometimes can retain their licenses for years while awaiting regulatory action. The Texas agency responsible for monitoring appraisers has just three investigators, all part-time, and is so stretched that staff members answer the phone only in the afternoon. As part of a broader push to improve legislation of mortgage lending, Congress is discussing provisions that would tighten regulation of appraisers.

Some lenders use appraisal-management companies to create a Chinese wall between the appraiser and the loan officers. But appraisers say these companies often choose the cheapest and fastest appraiser rather than the most qualified. "You get someone who is not intimately familiar with the local marketplace because they are willing to do it for less," says Jeffrey Jackson, chairman of the appraisal firm Mitchell, Maxwell & Jackson in New York.

Rise of Mortgage Brokers

Another problem is that -- unlike in the 1980s, when current mortgage law was enacted -- around half of all mortgage loans are made through brokers rather than directly by closely regulated lenders. Mortgage brokers are lightly regulated in most states, and appraisers say brokers often apply pressure. Joseph Falk, chairman of the legislative committee of the National Association of Mortgage Brokers, says brokers shouldn't pressure appraisers to distort value estimates. But he advises appraisers to create and enforce their own ethical standards.

Lenders often play down the issue. Tim Doyle, an official of the Mortgage Bankers Association, says he sees no "broad" problem with inflated appraisals, outside of criminal rings engaged in fraudulent mortgage deals. Even though mortgage lenders typically sell loans to investors shortly after making them, the lenders have an incentive to ensure those loans are backed by property valued at least as much as the loan balance, Mr. Doyle says. Investors can force the lenders to buy back a loan if it goes into default and the appraisal was fraudulent, he says.

Even when all parties want an honest appraisal, that can be hard to achieve. In making their value estimates, appraisers rely heavily on "comps," or prices paid recently for similar homes nearby. But those prices may be misleading. For instance, builders of new homes sometimes include in the sale prices such items as landscaping or contributions toward loan fees or settlement costs. Such "concessions" are rarely broken out in the sale price listed in public records, though. So the resulting inflated price can become a misleading "comp" for nearby homes

Article in July 20, 2006 Detroit News

Housing slump persists

Decline in new homes worst since '91 recession

Sofia Kosmetatos / The Detroit News

Metro Detroit is facing its worst decline in new home construction since the recession of 1991, and the troubled market might take years to recover.

The number of residential building permits -- for houses, condominiums and apartments -- issued in the first half of 2006 in nine regional counties fell 41 percent, compared to the same period last year, according to Clarkston-based Housing Consultants Inc.

The drop for the first half was 31.8 percent in Wayne County; 28 percent in Macomb; 45 percent in Oakland; and 56.2 percent in Livingston.

For those four counties as a whole, the decline was 37.4 percent.

"We could be on pace to have as bad a year as in '91, or perhaps even worse," said Jim Rogers, data center manager at the Southeast Michigan Council of Governments.

Rogers compared the data for permits issued so far this year to last year's overall numbers, which were the worst since 1993.

Analysts said weak home sales nationwide are partly to blame for the drop in new home construction, but the region's economic woes and oversupply of speculative homes make the situation in southeast Michigan even worse.

"A lot of people in this difficult Michigan economic environment are even more reluctant to make long-term commitments by moving or upgrading their homes," said Dana Johnson, chief economist at Detroit-based Comerica Bank.

While the real estate market is cyclical, in Michigan it is less so than in other parts of the country, said Rogers.

"It's highly related to the downturn in the manufacturing sector, particularly the autos," he said.

Low point in the cycle

The decline in housing permits in the nine counties in southeastern Michigan ranged from 58.4 percent in Genesee to 19.2 percent in Monroe, according to the survey.

Canton Township in Wayne was one of several municipalities to see a sharp downturn from last year, from 403 to 143 permits, or a 64 percent decline.

The township enjoyed two decades as a real estate hot spot. It issued the third-most permits of all municipalities in 2005 and 2003, and the second-most permits in 2004, according to data collected by the council.

The city of Detroit saw a 7 percent decline in permits from 395 to 368, but overall has remained relatively strong, Rogers said, noting redevelopment efforts around the city, from luxury lofts to subsidized housing.

For the building industry, the losses are not unexpected, said James Babcock, president of the Building Industry Association of Southeastern Michigan and of Babcock Building in St. Clair Shores.

"The building industry is a cyclical industry," he said. "We've had unprecedented growth."

But a glut of homes from speculative building and the economic difficulties facing the auto industry lead Babcock to believe the housing market will take some time to recover.

"We'll expect to see more of the same for a while," he said.

Some bright spots

While smaller, inexperienced builders will likely suffer and may even go out of business in the slower market, the outlook is not as grim for all builders and all townships in the greater Detroit area, Babcock said.

In Brownstown Township, permits were up 26.5 percent, from 162 to 205 for the first half of 2006 compared with the same period last year.

Many of those permits were issued to Pulte Homes Inc. The company is planning more than 600 homes for the 55-and-over crowd, under its Del Webb brand, said Charles Earl, building official for the township.

Other municipalities like Macomb Township are nearly level with last year.

Permits in Macomb are down just 3 percent, from 414 to 403. Assistant building official Dennis LeMieux attributes the continued interest in the area to good schools, nearby shopping and the township's proximity to downtown Detroit.

But the township's permits have plummeted from the nearly 2,000 it issued five years ago. And in February, Macomb laid off three building inspectors in township-wide cost-cutting measures.

Article in July 20, 2006 Detroit News

Mich. unemployment rises

Sour job market fuels 'one-state recession' as era of lucrative manufacturing jobs fades into the past.

Louis Aguilar / The Detroit News

Michigan's unemployment rate ticked up to 6.3 percent in June, up from 6 percent in May, as a weak job market continues to weigh down the state.

"After some significant monthly movements in the jobless rate in the first half of 2006, the May-to-June change in the unemployment rate was relatively minor," said Rick Waclawek, director of the Bureau of Labor Market Information and Strategic Initiatives of the Michigan Department of Labor & Economic Growth.

A slight increase of 10,000 jobs in manufacturing and government in June was offset by 12,000 total jobs lost, spread out among almost every other major sector, according to the Department of Labor's statistics.

It was the 58th consecutive month that Michigan's unemployment rate registered higher than the nation's, which remained unchanged at 4.6 percent in June.

Lansing economist Patrick Anderson has often described Michigan's lackluster economy as a "one-state recession."

Fueling that recession is the loss of thousands of auto industry jobs during the past year. Those stable, manufacturing jobs that paid handsome salaries defined an era that has virtually ended now in Michigan.

General Motors Corp. and Ford Motor Co. are cutting a total of 60,000 jobs nationally as part of sweeping restructuring efforts at their struggling North American units.

Parts maker Delphi Corp. is axing up to another 20,000 factory jobs nationwide as part of its Chapter 11 bankruptcy. Many of those cuts come right here in Michigan. The state has lost 18,000 manufacturing jobs since June 2005 and more than 158,000 from 1990 to 2005, a 19 percent decline.

Employment outlook bleak

Michigan's employment situation may get worse before it gets better, because the state still hasn't felt the full force of the auto industry job cuts, said Dana Johnson, chief economist for Comerica Inc.

"We will see a big drop in employment in the next six months, reflecting those buyouts," Johnson said. The ripple effect will be a continued weak housing market and sluggish job growth, he said.

For the past year, Detroit resident Ella Williams has put in a seven-hour shift, five days a week looking for a job at the Michigan Works! employment agency in downtown Detroit.

"Things are so tight right now, unless you have a friend on the inside, it's hard to get hired," she said. "It's all about who you know right now."

The 40-year-old mother of two hasn't worked since a three-week stint last summer when she packaged bumpers and side mirrors for Ford vehicles, she said.

To get to that job, Williams took a bus to the downtown Michigan Works! office, then was shuttled with other temporary workers 20 miles away to a facility in Brownstown Township. Williams doesn't own a car.

"All I can do is pray that my hard work will pay off," Williams said.

State lags in 'smart' jobs

As manufacturing jobs fade, the creation of "knowledge-based jobs" in Michigan grows at a much slower pace than the rest of the nation, according to the Ann Arbor think-tank Michigan Future Inc. Roughly defined as good-paying work that requires a college degree, knowledge-based jobs in Michigan grew 17 percent from 1990 to 2005, compared to 31.6 percent nationally, according to Michigan Future. If the state had matched the national rate, Michigan would have 220,000 more jobs than it does today, said Louis Glazer, executive director of Michigan Future.

But there has been some growth in "smart" jobs.

From June 2005 to June 2006, there have been relatively strong gains in the professional and business services (11,000 jobs) and education and health services (10,000 jobs), according to the state's latest data. Those sectors -- which include many educated or skilled workers -- need to keep on growing for Michigan's economy to rebound and diversify, Johnson said.

Legal secretary Toni Cusmano is among those skilled workers who have recently found work.

"I was surprised it took me so long," said Cusmano, 28, of Trenton. "Everywhere I interviewed, I was told I was qualified but no one was hiring. I sent out nearly 50 resumes and I finally found a job last week. I do feel like things are starting to pick up slowly," she said, since she knows two other friends who have found work in the past month.

"Finding a job is hard work."

Article in July 20, 2006 Wall Street Journal

For-Sale Signs Multiply Across U.S.

Our Quarterly Analysis of 26 Housing Markets
Shows Supplies Rising in Many Areas as Prices Slip
By JAMES R. HAGERTY
July 20, 2006; Page D1

The housing market continues to weaken in much of the country as inventories of unsold homes rise and many sellers cut their asking prices, a quarterly survey by The Wall Street Journal shows.

There is no sign of a broad collapse of housing prices about a year after the once-hot coastal markets entered a long-anticipated cooling phase. But the general level of prices is edging down in some areas and leveling off in others, while the supply of homes for sale keeps rising.

The number of homes on the market in Orlando, Fla., for example, is nearly five times the year-earlier level, while the inventory has quadrupled in Phoenix and Tampa, Fla., and nearly tripled in the Washington, D.C., area.

In another sign of the housing market's growing weakness, the Commerce Department said housing starts fell 5.3% last month from May, to an annual rate of 1.85 million.

COOL DOWN


One effect of the softening in many markets is that more sellers are willing to dicker. "Let's make a smoking deal," John Nichols wrote in a Craigslist.org ad for his three-bedroom ranch house in Sacramento, Calif., this week. He is seeking $315,000 but adds, "Make an offer. You won't necessarily insult me." Although the backyard is "currently a dump," Mr. Nichols says, the kitchen countertops are granite and the dual-pane windows are new.

To examine the residential real-estate prospects for 26 major metro areas, The Wall Street Journal gathered data on inventories of homes for sale at the end of the second quarter from a variety of local sources; pricing trends based on surveys of real-estate agents by Daniel Oppenheim, an analyst at Banc of America Securities in New York, a unit of Bank of America Corp.; and projections of job creation by Moody's Economy.com, a research firm in West Chester, Pa. Employment trends are among the most important factors in determining demand for housing.

Metro areas showing large increases of homes for sale and relatively weak employment growth include Boston, Los Angeles, Philadelphia and New York. Among the strongest markets overall are Houston, Dallas-Fort Worth and Seattle. All three areas are benefiting from robust job markets, and modest home prices are drawing investors and new residents to Texas.


In Massachusetts, where the job market is flagging, the median sale price for single-family detached homes in May was down 1.2% from a year earlier and nearly 6% below the peak reached in July 2005, according to the state's Association of Realtors. The supply of homes available for sale in May was enough to last 11.3 months at the current sales pace, up from 8.7 months a year earlier.

A June survey of real-estate agents by Banc of America Securities found that home prices had weakened from the prior month in 30 of the 42 metropolitan areas covered. The markets with the weakest pricing trends included Boston, Detroit, Phoenix, St. Louis and Washington, D.C.

In Miami prices have been about flat in recent months, says Ronald A. Shuffield, president of the brokerage firm Esslinger-Wooten-Maxwell Inc. Mr. Shuffield says he expects prices of condos in less-attractive parts of the Miami area to fall slightly in coming months. For condos in better parts of the area, he believes prices during the next year will range from about flat to as much as 5% higher.

So many new homes are available on the outskirts of Phoenix that it is "a total bloodbath," says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. She doesn't see a recovery in most major metro areas in the near term. "It could actually get worse before it gets better," she says.

Conditions can vary considerably within a metropolitan area and among different types of housing. Sherry Chris, chief operating officer of Prudential California Realty, says condo prices in downtown San Francisco are about level with a year ago because new buildings have helped supply catch up with demand. Overall, the number of homes on the market in the Bay Area has more than doubled from a year earlier.

But in the suburb of Palo Alto, where the median home price is nearly $1.4 million, the inventory of homes has declined 2% from a year ago. Ms. Chris says she believes that reflects lots of hiring by Google Inc. and other technology firms.

Among the 26 metro areas, Orlando shows the biggest surge in inventory. But the supply was unusually lean a year ago, says Beverly Pindling, president of the Orlando Regional Realtors Association, and job growth is very strong. Ms. Pindling says prices in the Orlando area generally are down about 3% to 7% from a year ago. Home builders, eager to make sales, are "romancing the Realtors," she says; some are offering agents who bring in buyers commissions of up to 10%.

Kent Fowler, a real-estate agent and investor in Washington, is bracing for an extended period of pain. Construction was recently completed on a condo near the city's Chinatown district that he bought in 2004 for $629,000. Mr. Fowler believes the two-bedroom condo, with a view of the Washington Monument, now is worth at least $800,000. But potential buyers are scarce in today's glutted market. So he is trying to find a renter for the condo for the next year or two at around $3,500 a month, even though that rental income would fall about $900 short of his monthly loan payments, condo fees, taxes and insurance.

Some sellers are advertising prices below recently appraised values, and others are offering to help pay closing costs for buyers who are short on cash.


Many Realtors say the media have overplayed weakness in the market. Richard A. Smith, vice chairman and president of Realogy Corp., the real-estate brokerage business due to be spun off from Cendant Corp. soon, says 2006 "will be the third best year in the history of the business" in terms of total home sales, despite the cooling trend. The National Association of Realtors projects that sales of previously owned homes will fall 6.7% from last year's record.

While many investors have been scared out of the market, Mr. Smith says, plenty of other people must buy new houses because of changes in their lives, such as a new job or a divorce.

Others sound more cautious. "I do think we're going to see some tougher times ahead," says Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis. By August, he says, most cities in California will be showing modest declines from a year earlier in home prices, and prices also may decline further in parts of Florida, Nevada, Arizona and the Northeast.

Headlines about falling prices could make buyers more aggressive in negotiating and persuade some sellers to "get out with what they can," Mr. Anderson says.

Mr. Anderson expects the current downswing to last into next year; by late 2007, he thinks the market will be stabilizing. Though he doesn't expect a recession in the next couple of years, he says the housing market would be much weaker if one occurs. In the past, steep declines in home prices have tended to hit only metropolitan areas that have suffered major job losses, he says.

William Wheaton, a housing economist at the Massachusetts Institute of Technology, says the wild cards include how many investors or second-home owners will dump properties on the market and how many borrowers will default. Even if there is no surge in defaults or selling by investors, he says, some of the formerly hot local markets may be heading into five or 10 years of flat to slightly higher home prices. He believes many baby boomers on the coasts will cash out of expensive homes and move to cheaper areas; that would restrain price increases along the coasts.

Article in July 13, 2006 Wall Street Journal

Home Builders Expect Slowdown

By JOHN SPENCEJuly 13, 2006; Page D4

The housing market will continue to cool down after the multiyear boom, with slower price increases and fewer housing starts as interest rates move up, according to a report by the National Association of Home Builders.

"We are coming off a very strong couple of years for the housing industry, and markets are now starting to cool to more sustainable levels," wrote David Seiders, chief economist of the Washington trade association representing home-construction companies. "Each market has different factors that affect its local economy and housing market, but overall we are forecasting an orderly slowdown in housing starts," he said.

The average price of a home increased 13.2% last year and 10.8% in 2004, driven by coastal markets, according to the Office of Federal Housing Enterprise Oversight.

But that pace is expected to cool in 2006 and 2007.

"Higher house prices together with higher interest rates have dampened housing demand throughout most of the country, bringing demand more in line with supply," according to the home builders report. "Already there are reports of downward pressure, or at least reduced upward pressure, on housing prices around the country."

Higher mortgage rates have helped take some of the steam out of housing. The 30-year, fixed-rate mortgage averaged 6.79% for the week ended July 6, according to mortgage lender Freddie Mac.

The report also examines the housing market on a state-by-state basis. While housing starts are expected to fall nationally after hitting their highest level in more than 30 years in 2005, states such as Idaho, North Carolina, Oklahoma, Washington and Wyoming are expected to see home construction increase this year, the report said.

Article in July 6, 2006 Wall Street Journal

Cooling Home Market Spurs Interest in Foreclosure Sales

Reliability Is Often a Problem Among Web Sites That ListProperties Seized by Lenders

By RUTH SIMONJuly 6, 2006

Rising interest rates and a cooling housing market are whetting the appetite of real-estate bargain hunters and fueling interest in Web sites that list homes in, or near, foreclosure.

Economists expect delinquencies and foreclosures to increase from today's historically low levels. Nationwide, the percentage of home loans on which payments were past due fell to 4.41% on a seasonally adjusted basis in the first quarter, after rising to 4.70% in the fourth quarter of 2005, according to the Mortgage Bankers Association.

A variety of Web sites have sprung up to cater to home buyers and investors looking to purchase properties in or nearing foreclosure. They include RealtyTrac.com, which ranked seventh among real-estate Web sites in terms of unique visitors in May, according to comScore Media Metrix, a unit of comScore Networks Inc.

Foreclosure.com, another popular offering, not only runs its own Web site, but also says it supplies data to more than 200 other Web sites.

You can browse the Web sites at no charge, but getting complete access requires a weekly or monthly fee, typically $40 to $50 a month. The federal government operates its own site, www.homesales.gov, that is free and provides information about foreclosed properties being sold by the Federal Housing Administration, the Veterans Administration and the U.S. Department of Agriculture.

To see how these Web sites work, we checked the government site and three for-profit alternatives, RealtyTrac.com, Foreclosure.com and Foreclosures.com, for listings in one neighborhood near Atlanta. We also looked at the information each Web site provides and talked to real-estate brokers who specialize in foreclosed properties.

We learned that novices should approach the foreclosure process -- and the Web sites that sell foreclosure listings -- with care. Finding a good buy on a foreclosed house requires hard work and can carry significant risks. Critics say that Web sites selling foreclosure listings often contain outdated information or listings on houses that aren't ready for sale; some try to direct would-be buyers to partners with whom they have a financial relationship or to seminars and other products.

HOME SITES


See how the foreclosure sites we tested stacked up.

"We run into a lot of problems with foreclosure Web sites because a lot of the houses can't be sold" because various legal requirements haven't yet been met or the lender hasn't readied the property for sale, says David Benham, owner of Benham Real Estate Group in Charlotte, N.C., which sells foreclosed homes on behalf of lenders.

Keeping the foreclosure listings up-to-date "is always an issue," says Brad Geisen, chief executive of Foreclosure.com. "Not every owner in foreclosure is going to want to sell their home," he adds. In the early stages, "it is a distress situation that is a possible opportunity." Alexis McGee, president of Foreclosures.com, says her site was created to "accommodate investors." The foreclosure listings "are not listed like [multiple listing service] listings," she adds. "We don't check to see if it's sold."

Investors aren't the only ones who look at foreclosure Web sites. RealtyTrac says about 20% of its subscribers say they are first-time home buyers. The company estimates that another 20% are looking for their next home or for a second home.

The federal government maintains its own inventory of the properties it owns, while for-profit Web sites gather much of their data from public records such as the county recorder, the tax assessor and the county courthouse.

The rules vary from state to state. Typically, properties first appear in the commercial databases when the lender files a foreclosure action with the local court. At this point, the borrower still has options, including working out a payment plan with the lender and selling the property to pay off the debt.

If the problem isn't resolved, the house is put up for auction. Buying at auction can be risky, in part because buyers typically must have cash in hand, can't back out of the sale, have little or no information about the interior of the house and no guarantee that the title to the property is clear.

If the property doesn't change hands at auction, the lender typically turns it over to a real-estate broker specializing in the sale of bank-owned properties, who cleans up the yard and makes repairs before putting the house back on the market.

Properties are typically priced "at or just below market value," says Cindy Simpson, a vice president with Harry Norman, Realtors in Atlanta.

The federal government's Web site, www.homesales.gov, has the smallest number of listings because it covers only government-owned properties in the final stage of the foreclosure process. Buyers can search by city and by the size of the house they are looking for. For homes sold by the Department of Housing and Urban Development, listings include a photograph of the house and a detailed report on the property and its condition. HUD says it gives priority to people who want to live in the homes.

The federal Web site also includes details about buying a foreclosed home from the government and links to more general information about home buying. For the most part, the site was easy to navigate.

The for-profit Web sites cast a wider net; they begin collecting information when a notice of default is filed. Buyers can search by location and by specific criteria, such as the size of the house and the price range. Unlike the government site, there's no photo and no detailed information about the home's condition. Each of the three sites offers a free seven-day trial; to take advantage of the trial, users generally must provide the sites with their credit-card information. Foreclosure.com charges $9.95 a week for an online subscription, Foreclosures.com charges $49.95 a month and RealtyTrac has a $39.95 monthly fee.

The for-profit Web sites all talk about the large number of properties they feature. Foreclosures.com and Foreclosure.com each say that they have more than 1.2 million listings; RealtyTrac says it has "over 500,000 properties -- updated daily." All three say they update their information regularly.

But even some companies acknowledge that some of the information they offer is out of date. "The most common complaint is either the property is not on the market yet or the property is already gone," says Rick Sharga, a vice president of RealtyTrac Inc. "If there are 1,000 properties in an area you are interested in, there are probably 100 that represent something of a buying opportunity. You might be able to get in touch with 10 of the homeowners and maybe make an offer on one or two."

Figuring out which site has the most accurate information would require checking out hundreds of thousands of listings. But our spot check easily turned up information that was outdated. On Foreclosure.com and Foreclosures.com, for instance, we found a three-bedroom, one-bath home priced at $101,900. Ms. Simpson, the Atlanta broker, told us the house had been under contract for 30 to 45 days.

Then there was the three-bedroom, one-bath home that has been on the market for several months. Foreclosure.com was the only one of the three sites to correctly report that the price had been cut to $145,900. RealtyTrac.com pegged the property's value at roughly $204,000, while Foreclosures.com valued it at $264,000. The Web sites say that such numbers are estimates of market value and aren't a replacement for a formal appraisal.

Foreclosure.com was the only one of the three sites to provide the name of the broker handling the sale of bank-owned properties and contact information for the broker. RealtyTrac, meanwhile, suggested we use a "local specialist" who pays the company a flat fee to be a featured agent for a particular area.

Customers who sign up for the free seven-day trial at RealtyTrac.com automatically have their email address sent to a broker, unless they opt-out. We received an email from our "personal Realtor" within hours of signing up for the service. RealtyTrac also provides links to lenders, credit-score providers, movers and other businesses that pay to advertise on the site.

The other two Web sites also had additional products to sell. Foreclosure.com listings include a link to HomeSmart.com, which pays a fee to be featured on the Web site and sells reports that detail home-purchase risks and estimate property values. The Foreclosures.com site included offers for teleconference calls, home seminars, Web seminars and personal-coaching sessions.

We found some useful information about the foreclosure process on the Web sites, such as the information about state foreclosure laws. But the content on these sites is often mixed with promotional materials.

Article in July 7, 2006 Wall Street Journal

Latest Sign in Summer-Home Markets: Vacancy

With Rental Inventories Up,Owners Start Making Deals;In Cape Cod, 25% Discounts

By CHRISTINA S.N. LEWIS

In summer-rental spots around the country, a number of houses sit vacant and owners may be ready to make a deal.

Many agencies say they are offering discounts for the last two months of the season. Prices have dropped by as much as 25% in Cape Cod, Mass. In New Jersey's oceanside-resort towns, where rental volume has fallen about 15% since 2003, Childers Sotheby's International Realty is giving discounts of as much as 25% for some homes. In South Carolina, Hilton Head Rentals & Golf has cut 15% to 20% off its remaining one-to-two-bedroom listings.

One factor: oversupply. In Aspen, Colo., Five Star Destinations added 30 properties this summer, for a total of 100. Occupancy is about 80%, from full last year. Nationwide, rental inventory is up 12% this year, mostly due to new second-home construction, says Michael Sarka, executive director of the Vacation Rental Managers Association, of Santa Cruz, Calif. The Travel Industry Association of America, of Washington, D.C., expects leisure travel to increase by less than 1% this year.

Early bookings were strong in a few popular areas, but agencies say more travelers have waited to plan their trips, a dynamic some link to a rise in Internet sources that allow last-minute reservations. A few years ago, homes filled up early, says Renée Gardner in Union Pier, Mich., who manages 40 homes along Lake Michigan. "In February, we'd be hoarse from talking on the telephone. Now people are calling up today and wanting a week starting tomorrow," she says. In Lake Geneva, Wis., Keefe Resort Rentals is 35% vacant for July and August. It is waiving weekly minimums and allowing last-minute stays of two and three days. "This year, people weren't prebooking," manager Theresa Larsen says.

Oiyin Gonzalez started looking in mid-June for a rental in July. After browsing online, she found a 25% discount on a new three-bedroom home that's three blocks from the boardwalk in Ocean City, N.J. It's regularly $1,590 a week. "We lucked out," says the homemaker from King of Prussia, Pa., though she adds the last-minute search was "kind of stressful."

HOME PAGES

See sites that allow travelers to browse and book rental properties online.

Of course, renters may have to be flexible on dates and amenities. The homes that haven't been rented are often older and have fewer features like pools. In Lake Geneva, large lakefront properties are scarce, but smaller homes inland are available. The most desirable waterfront estates in the Hamptons in New York began booking seven months ago, but some places on the ocean are open for August.

And procrastinators are out of luck in some spots. There's only one sandy beachside rental available at Coldwell Banker in Malibu, Calif., for August, compared with 50% occupancy last summer. Sand N' Sea Properties on West Galveston Island, Texas, is nearly completely booked, says owner Bert Feinman, thanks in part to a new water park in town. Last summer, the agency had a vacancy rate of 30%.

Below, a look at what's available in five areas.

Outer Banks, N.C.

It's a renter's market in this family-oriented destination. Sales inventory has more than doubled since 2004, says Louanne Woody, president of the Outer Banks Association of Realtors. Rental occupancy is down about 8% this summer, estimates George Volsky, a vacation-rental management-industry consultant in Avon, N.C. Hatteras Realty, which manages 500 homes on Hatteras Island, N.C., is about 88% booked for July and August, down from 90% last year. It's offering incentives like complimentary charter-fishing trips and 20% discounts.

Sun Realty, which manages 1,600 homes, is taking up to 25% off some rentals booked within four weeks. In Nags Head, N.C., weekly rates include $4,000 for a large house with a pool and indoor theater that is near the beach. A six-bedroom lakefront house in Avon, with a heated pool, was cut to $2,695 a week, from $2,995.

Berrien County, Mich.

Discounts are rare in "Harbor Country," the Lake Michigan beach community of eight towns that's about 70 miles east of Chicago. However, the addition of hundreds of homes during the past three years has kept rents steady. Agencies say occupancy is about 92% for the rest of the summer.

Large lakefront rentals and homes with pools are nearly all taken, but four- and five-bedroom homes a block or two from the beach are available for about $3,000 a week. A smaller cottage inland can go for $1,000 a week.

Lowell Smith, a strategy consultant in Chicago, wants to rent his three-bedroom home in Lakeside, with private lake access, for eight weeks this summer. As of last week, three weeks had been filled. His agent suggested that he lower the price, at $1,700 a week, due to new construction in the area, but he refused. He has since booked three more weeks.

Cape Cod, Mass.

Waterfront homes are available throughout Cape Cod, with owners cutting prices by as much as 25%.

Last summer, rainy spring weather and a red-tide outbreak that shut down the shellfish industry put a damper on rentals. While agencies say bookings are up this year, inventory is also up, due to a sluggish real-estate market that has led sellers to put their homes up for rent. At Kinlin Grover GMAC, rental properties are up 10% this year, to 850 listings. "We have a lot available right now," says Kerry Adams, rental manager at CapeCodRentals.com.

One three-bedroom cottage in West Harwich, Mass., that's a five-minute walk from the ocean is $1,600 a week in August, down from $1,850. On the bay side, in Brewster, Mass., a four-bedroom home that normally costs $2,995 is $700 less for the last week of July.

Orange County, Calif.

Don't expect many deals in the coastal towns an hour south of Los Angeles.

In Newport Beach, Balboa Newport Realty raised rates 5% this year. Occupancy is up 8%, and nearly all of its 150 units are filled, broker Karly Brown says. On nearby Balboa Island, which has 1,400 houses total, Abrams Coastal Properties is 93% full. A three-bedroom house with a dock is $8,250 a week, and two-bedroom homes are available for $1,700 to $2,400 a week.

There are more vacancies four hours north, in rocky central California, where the climate is cooler. A beachfront home in Cambria, Calif., runs $325 a night, says agency Coastal Escapes.

Hamptons, N.Y.

Despite a strong rental season -- revenue rose as much as 25% at some agencies this year, helped by a warm spring -- properties are available, mostly for August. Sotheby's International Realty has a few listings on the water. One four-bedroom oceanfront cottage in East Hampton, N.Y., is open in August for $85,000.

Corcoran Group's 12,000 rental properties are about 75% filled, up from about half last year, says Rick Hoffman, a vice president. Stock is mostly limited to smaller homes, some with a pool, in the estate section south of the highway or in the more-wooded area north of the highway, for $20,000 to $100,000 a month.

Metro Detroit Real Estate: Overvalued by 27.8%?

In the June 14, 2006 Wall Street Journal, there is an interesting article about the most "overvalued" and "undervalued" real estate markets in America. As you might expect, Naples, Florida leads the overvalued list at a staggering estimated overvaluation of 103%. Nine of the top 10 are in either Florida or California (the only other state represented in the top 10 was Oregon). The study was performed by National City Corp., a Cleveland banking concern, and Global Insight, Inc., a Boston Consulting firm. You can read the full text of this exhaustive, comprehensive report at http://www.globalinsight.com/gcpath/1Q2006report.pdf.

Oh, and before I forget, the Detroit market is considered to be overvalued by 27.8%. Since the first quarter of 2002, it has fluctuated between being overvalued by 21.4% and 28.7%. As of this most recent measurement date, it ranks 86th out of the 317 market areas in terms of being overvalued.

Desperate house sellers (part 1)

Desperate house sellers (part 1)

The following article appeared on the front page of the Detroit News July 6, 2006.

Desperate house sellers

Some juggle two mortgages, others stuck with houses in tough Metro market

Dorothy Bourdet / The Detroit News

These are desperate times for Metro Detroit home sellers.

The desperation tumbles from the numbers: a 43 percent increase in homes on the market. A drop in the median selling price in every Metro Detroit county. Flat overall home sales after years of steady growth.

Desperation screams from the ubiquitous "For Sale" signs peppering Metro Detroit streets, as neighbors compete for choosy -- and scarce -- buyers. It echoes from all the empty homes for sale, left vacant by owners who couldn't wait any longer to move on and out.

And desperation is the theme that runs through sellers' stories: An unsold house has Paul Beasley living with a friend. Waiting a year for a buyer has put Karen Lamb's life on hold. Two mortgages are sapping Don Coleman and his wife's finances.

"We're sitting on the brink of financial ruin. We're using every dime, riding together when possible, cutting down on everything we can cut down on in order to stay afloat," said Coleman, 63. After buying a new home in Romulus, the offer on their Southfield home fell through. Now, the couple scrimps to make two house payments as they wait for another buyer. "We've got two people with one life preserver."

Few states have been hit as hard as Michigan in this 2006 version of the housing slump. Unprecedented turmoil in the domestic auto industry that's forcing tens of thousands of job cuts has dragged down the state's economy for the past five years, and the housing market is just the latest victim.

The supply of homes for sale has ballooned in the past few years as residents flee for job-rich states and homeowners left behind cope with shrinking paychecks and mounting household bills. Add to that rising mortgage interest rates and a dwindling pool of able home buyers.

With all that weighing down the market, don't expect the usual summer bump in sales, experts say.

"If we hold on steady, we'll be doing good. I just don't think we're going to see the bumps this year," said Howard Babcock, a Bloomfield Hills-based real estate consultant.

Dan Elsea, president of brokerage services for Real Estate One, who estimates sales are down 5 percent to 35 percent in markets across the state, figures that will likely offset the typical 20 percent increase in sales during the spring and summer months.

"To a seller, it will feel like there isn't a spring or summer market," Elsea said. "We feel like this is sort of the bottom right now. We don't expect a quick bounce up."

In May, there were nearly 14,400 more homes for sale in Wayne, Oakland, Macomb and Livingston counties than last year, and 32,500 more than five years ago, according to Realcomp II Ltd., the largest multiple listings service in the state. At the same time, sales are flat.

Slump takes its toll

The slowdown is taking its toll on many of the thousands of Metro Detroiters trying to sell their homes. They're postponing moves, giving up on new jobs, leasing houses that haven't sold and juggling two mortgages.

After a recent divorce bumped him from his Royal Oak brick bungalow, Paul Beasley tried to sell the house himself to save on real estate commissions. But after three months, he hasn't shown the house once.

Now, six months after putting his house on the market, Beasley is on his second real estate agent, shares mortgage payments with his ex-wife and lives with a friend.

"I can't reinvest in other properties while I still have this one and financially, I can't move on," he said. "It's appraised for more than it's probably going to sell for. I'll probably have to come to the table with money to get out of it."

The National Association of Realtors recently lowered its national estimate for 2006 new and existing home sales. The trade group now expects existing home sales to drop 6.8 percent to 6.60 million from last year's record 7.08 million, and new-home sales to decline 13 percent to 1.11 million from 2005's record 1.28 million.

Even though it doesn't feel like it for many home sellers, this will be the third-strongest year in home sales, the trade group said.

And the summer could bring at least a small measure of relief.

"My sense is that the summer market -- June, July and August -- is probably going to be better than most people anticipate; that doesn't mean it's going to be good," said Bob Taylor, an associate broker and real estate agent with Birmingham-based Weir, Manuel, Snyder & Ranke.

"The total number of people looking at houses is down. It's not just a supply problem, it's a demand problem."

Cutting prices doesn't help

Right now, Karen Lamb is on the wrong end of that equation.

Potential buyers have filed in and out of Lamb's 3,000-square-foot ranch in Troy for a year, leaving plenty of compliments, but no good offers. Even dropping the price $80,000 to $386,000 hasn't helped.

"We've gone through every phase you can think of to make this house appealing. The irony is that reducing the price has made no difference because if the buyers aren't there, they aren't there," she said.

Lamb and her husband, now empty nesters, are living in a house owned by a relative. "My life is on hold until I sell that house. That's where all of our investment monies are. I can't access my assets, but I can keep paying through the nose (for utilities on it)," she said.

The Lambs' house is one of hundreds that is sitting vacant, waiting for new owners.

Jan Calcaterra, a Clinton Township Realtor, said 60 percent to 70 percent of the houses she shows are empty. "There is an unbelievable amount of vacant houses when you show them."

Blame falls on auto industry

Most of the blame for the big increase in home supply and big decrease in demand falls on the domestic auto industry's well-publicized woes.

With General Motors Corp. and Ford Motor Co. planning to cut 60,000 jobs total and auto parts maker Delphi slashing 20,000 jobs, Michiganians are understandably skittish about their futures and the economy. Some are leaving the state; others are holding tight on finances, waiting for things to get better.

Announcement of the cuts last year froze the real estate market, Elsea said. "All quarter of a million employees stopped doing anything until they knew if they were going to be one of the (people laid off)," he said.

But the exodus of people from the area hasn't stopped.

The number who moved into Livingston, Macomb, Oakland and Wayne counties from other parts of the country was 47,000 in 2004, according to a Detroit News analysis of Internal Revenue Service records. About 67,000 moved out.

Not all 'doom and gloom'

While today's market clearly favors buyers, the right house at the right price can mean a quick deal even now.

When Dawn Buley put her gray Berkley bungalow up for sale two months ago, the 35-year-old admissions director was prepared to wait months for an offer.

But within 24 hours, someone had offered to buy the home at her asking price of $205,000. Though elated, Buley knows she was among the fortunate few as she watches others struggle -- a co-worker has been waiting months for an offer and is on his second real estate agent.

"I think we had a nice home at the right price," she said.

Despite the slowdown, Walt Baczkowski, a longtime Realtor, is optimistic. "It's not the worst time for home sales and home purchases. The market isn't as bad as everyone wants to say it is," said Baczkowski, CEO of the Metropolitan Consolidated Association of Realtors.

"I see incredibly attractive interest rates and incredibly attractive housing stock." Interest rates once hovered around 16 percent, he said. Now, 6.63 percent is the average rate for a 30-year fixed-rate mortgage.

But the market feels pretty bleak for people like Lamb, who has waited months to sell and is now hoping to at least break even.

"It's kind of like having three shoes or three roller skates when you've only got two feet. It's constantly juggling. I'm getting awful close to the breaking point."

Desperate house sellers (part 2)

The following article appeared in the Detroit News July 7, 2006.

Sell this house, get a BMW

Competition for scarce buyers forces sellers to get creative

Dorothy Bourdet / The Detroit News

John T. Greilick / The Detroit News

Buy a condo from developer Louis Beaudet in Ypsilanti, get $3,000 paid on closing costs and a new washer and dryer.

Buy a house from Hornbrook Estates subdivision in Lyon Township, get a free two-year lease on a four-wheel-drive Dodge Dakota pickup.

List your house with Realtor Mark Beydoun, get an extra sign in your yard touting no-money-down financing.

The perks don't end with buyers. Courtney Tursi is offering a two-year lease on a BMW X3 SUV to any real estate agent who finds a buyer for her $699,999 house in Commerce Township.

Real estate agencies, Realtors, builders and even home sellers are pulling out the stops to counter one of the slowest housing markets in Michigan history, where homes for sale are a dime a dozen and home buyers are gold.

Competition for those scarce buyers is forcing the real estate industry to come up with new ways of doing businesses, from giveaways of gas and vehicles, to 99-cent upgrades on new homes, to full payment of the buyer's closing costs.

Even home sellers are getting some breaks in this competitive environment, through Web sites where real estate agents will compete for listings.

Mark Beydoun, a Realtor with RE/MAX Team 2000, just bought a bundle of yard signs advertising zero-down financing for homes.

"It might give them pause and (they will) say, 'I didn't know I could get zero down,' " he said.

Sterling Heights agent Jason Strat has mortgage information on nearly all of the signs for his resale listings. They provide one-stop shopping for potential buyers, he said.

"It's becoming more visible mainly because there are more homes on the market," he said. "In the past, these homes didn't stay on the market too long, so these signs weren't necessary."

Real estate market hit hard

At the suggestion of her Realtor, Furhad Waquad, Courtney Tursi decided to give away a two-year lease on a new BMW X3 to the real estate agent who finds a buyer for her $699,999 house in Commerce Township.

She figures it could reel in agents and the potential buyers who come with them.

"Whether or not they're looking for a house like this, it will increase traffic and the more traffic you have, the more people seeing your house, the better off you will be," Tursi said.

Unusual incentives like the BMW lease are symptoms of how the state's sagging economy and low consumer confidence are sapping the real estate market, said Waquad, a Realtor with Real Estate One in Bloomfield Hills and president-elect of the Michigan Association of Realtors.

"We are a single-state recession in the United States, real estate-wise. Our real estate market has been affected so much because of our manufacturing base," he said. "We are a product of how confident the consumer is in the market, or lack thereof."

Builders also offering perks

Whether with 99-cent upgrades on new homes (such as stainless steel appliances and better carpet) or free gas, builders are also stretching for buyers. A National Association of Home Builders survey of 500 builders in January found 41 percent are offering free appliances, 31 percent are paying closing fees and 15 percent are paying up-front financing.

BRG Custom Homes just completed a stretch where it offered $3,000 in free gas with the purchase of a Rivergrove Village Condominium in Ypsilanti Township.

"The market being what it is today we decided to spice it up a little bit. Who can't use $3,000 worth in gas?" said Louis Beaudet, a principal with the Southfield-based developer.

The eye-catching ads brought in foot traffic and one buyer, Beaudet said. Now the company is offering to pay up to $3,000 in closing costs in addition to throwing in a free washer and dryer.

But Beaudet predicts the flurry of incentives will be short-lived.

"We're doing a disservice to ourselves as an industry because we're artificially deflating the price of our homes," he said. "Homes need to sell on virtue of their quality. I believe that as the market corrects itself, you will see the incentives diminishing across the board."

In Lyon Township, slowing sales of new homes in the Hornbrook Estates subdivision has prompted developers to sweeten the deal. The next person to buy a ready-to-go home will get a free two-year lease on a Dodge Dakota pickup.

"The truck is not going to make somebody buy the house, but it is a nice little incentive," said Faye Armstrong, sales manager for the subdivision.

Sellers turn to the Web

Home seller Matt Bontomasi switched the tables on incentives, with the help of a recently launched Web service. Bontomasi posted details about his 1,100-square-foot St. Clair Shores ranch on HungryAgents.com, a Web service where real estate agents "bid" for sellers' business with their commissions.

Realtor Tony Dabaldo offered and Bontomasi accepted a 4.5 percent commission, versus the typical 6 percent. The house sold in seven days for $165,000, just $4,000 less than the asking price.

"I wanted to get a discount on the commission, but I wasn't going to go with an inadequate agent," he said. "For me, it was excellent. I got a discount on the commission, I got hooked up with an excellent real estate agent and I was able to sell my house in about a week for almost the asking price."

For Dabaldo, earning a loyal client and the referrals they may bring is more important than a one-time commission.

"The referrals alone outweighed (the cut in commission) and I know he's going to be a customer for life," said Dabaldo, a Realtor for Utica-based RE/MAX Metropolitan. "That's what it's all about."

Saving on the commission is especially attractive now for sellers, many of whom will have to bring money to their closing because they're accepting offers for less than they owe on the house.

"Across the country, about 40 percent of sellers will have to bring a check to the closing table," said Jim Tullman, general manager and chief marketing officer for Missouri-based HungryAgents.com. "Because of that, they need to save money on the sale of their property and if they can save thousands on the commissions, that helps them pay part or all of the amount that they would need to bring to the closing table."

Those looking to unload their houses quickly are increasingly looking at house auctions.

An auction offers a quick sale -- the pre-auction process takes five weeks and bidding usually lasts five minutes -- and a competitive bidding process.

"It works very well not only for the buyer but also for the seller," said Gary M. Berry, owner of Gary M. Berry Auctioneers in Rochester Hills.

Agents also choosy

Other strategies real estate agents are employing these days: Being choosy about the kind of homes they list and making sure they have a strong Web presence.

Beydoun won't take on clients who insist on selling their house for a certain amount when the market won't support that price. "If I know it's not going to sell, I won't take the listing. I won't make myself look bad."

Cathy Tishhouse, a Realtor with RE/MAX Showcase Homes in Birmingham, is trying to beef up her presence on the Web, where home sellers often go to do research before calling an agent.

"You'll see more and more people, I think, looking at what they can do on the Web."

Views of market differ

Depending on their vantage point, sellers, Realtors and builders have varying views on where the market is going.

"People kind of lost faith in the real estate market," Beydoun said. "The bright spot is I don't think it can get any worse."

For Tursi, who is trying to sell her home, the market is "horrible."

"It's like the last person out of Michigan shut the lights off," she said. "People are leaving and there's nobody coming into the market. Somebody's gotta do something to bring the jobs back here. (People are) all putting their house up for sale because everybody's bolting."

But developer Beaudet is optimistic.

"I'm very positive, but I'm disappointed to see how negatively the state of our economy has been taken by our target market. People are doom and gloom, and it's just difficult.

"We can decide whether our cup is half-full or half-empty."