Article in December 29, 2006 Detroit Free Press

HOUSING AND DEVELOPMENT: Area home sales mixed

Like U.S., Detroit rose but Wayne, Oakland didn't

BY MARGARITA BAUZA
FREE PRESS BUSINESS WRITER

December 29, 2006

As U.S. sales of existing homes showed an uptick in figures released Thursday, local sales in October increased in Detroit but fell in Dearborn and western Wayne and Oakland counties when compared to the same period a year ago. Specifically:

• 628 homes sold in Detroit in October compared with 594 in October 2005.

• 175 homes sold in Dearborn in October compared with 190 in October 2005.

• 716 homes sold in western Wayne and Oakland counties in October compared with 877 in October 2005.

National figures for existing home sales released Thursday showed that sales rose unexpectedly in November, as prices fell for the fourth month in a row, adding to evidence that the housing slowdown is ending.

U.S. purchases increased 0.6% last month, to an annual rate of 6.28 million, after they rose 0.5% in October. That marked the first back-to-back gains in monthly sales since March 2005, the National Association of Realtors said Thursday in Washington.

The report, coming on top of a bigger-than-expected jump in new-home sales reported Wednesday, suggests housing might be less of a drag on economic growth in 2007. That's in line with the Federal Reserve's forecast for growth at a moderate pace in the new year.

"It appears we've hit bottom," David Lereah, chief economist of the Realtors' group, said Thursday at a briefing in Washington.

Sales of existing homes, which account for about 85% of the U.S. housing market, are recorded when a contract is closed. New home sales, recorded when a contract is signed, are considered a more timely barometer of the housing market.

The number of previously owned homes for sale decreased 1% last month, to 3.82 million. That represented a 7.3 month supply at the current sales pace, down from 7.4 months in October.

The median price of an existing home in November fell 3.1% from a year ago, to $218,000, the fourth consecutive monthly decline.

State sales decrease

By October of this year -- the latest figures available from the Michigan Association of Realtors -- 16,482 fewer houses had sold in the state compared with October 2005.

In Western Wayne and Oakland counties 10-month sales fell from 9,495 in October of 2005 to 7,582 in October 2006, a drop of 20%. November figures are not available for Detroit-area markets because the statistics are reported quarterly.

Sam Baki, president of the Western Wayne Oakland Association of Realtors, says he expects the local sales numbers for November and December to be up. "There's a lot of activity right now," said Baki, a Realtor at Keller Williams in Northville.

He said buyers appear more comfortable with housing prices than they did a year ago, when both buyers and sellers were adjusting their expectations about pricing and sales.

"After the election especially, it picked up a little," Baki said. "People understand the market a little more, and anecdotally, there's been more activity in November and December. People are looking, making offers and showing houses."

David Elya, president elect of the Metropolitan Consolidated Association of Realtors and an agent with Realty Executives Group in Shelby Township, said he believes the Detroit-area market will see a lot of activity this spring.

"There are plenty of buyers that are waiting for good news," he said. "There's ample supply and good value out there. My Web activity is up, my phone calls have been up."

Article in December 26, 2006 Wall Street Journal

Renters Gloat Over Housing Slump
Some Who Missed the Boom
Are Feeling Vindicated Now;
Resisting 'Nesting Instincts'

By JAMES R. HAGERTY and GEORGE ANDERS
December 26, 2006

The housing slump has been painful for millions of people who work in real estate or recently bought a house.

For Patrick Killelea, however, this year has been one long victory lap. Mr. Killelea, a 41-year-old software engineer, has long preached that it makes more economic sense to rent than buy homes. He recalls shouting "Wow!" when he heard about September's 9.7% drop in prices of new homes.

"I didn't want to gloat," he says. "But then again, maybe I did."

For years, Americans who refused to buy real estate at what they considered excessive prices were ribbed for failing to profit from one of the greatest booms in history. "Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors.

Dean Baker, an economist, believes that the slump validates his decision to sell a two-bedroom condo in Washington's Adams Morgan neighborhood two years ago. Mr. Baker says he received $450,000 for the unit, which he had bought for just $160,000 in 1997. Since unloading the condo, he and his wife, Helene Jorgensen, also an economist, have been renting an apartment nearby for about $2,300 a month.

Mr. Baker concedes that he could have made an even bigger profit on the condo had he held it for another year or so but says it's impossible to time the market perfectly. While some economists argue that the housing slump is nearly over, Mr. Baker insists, "We're just at the beginning of it."

Mr. Baker has a history of forecasting bubbles early and often. He was quoted by newspapers in March 1997 -- three years before the tech-stock bubble burst -- as warning that equity prices were rising at an unsustainable pace.

That track record, he says, shields him from any snickering among his friends about his decision to cash out of real estate early. "Ever since I nailed the stock bubble, no one I know dares to razz me about my investment decisions," Mr. Baker says.

Rich Toscano did get some razzing from friends in early 2003 when he moved back to San Diego after a spell in Austin, Texas, and decided renting made more sense than buying. At that time, "it was universally agreed upon that real estate would always go up," Mr. Toscano says.

"I thought he was insane," says Mike Mannion, a friend who had met Mr. Toscano in the 1990s when they both worked for an information-technology consulting firm. The two friends spent hours debating over meals and coffee whether San Diego real estate was a good buy. In the end, Mr. Mannion rejected Mr. Toscano's warnings. Even though Mr. Mannion's wife, Christina, an architect, was nervous about the possibility of house prices falling, the couple plunged ahead and bought a three-bedroom house for about $580,000 in late 2003.

That proved a good buy. Home prices continued to soar in San Diego through 2004 and early 2005. But Mr. Mannion says he gradually began to be persuaded by Mr. Toscano's arguments about home prices soaring beyond many buyers' ability to pay. Last spring, Mr. Mannion and his wife put their house on the market and wound up selling it for $830,000. Now they rent and don't plan to buy until they're convinced the housing market has bottomed out. Before buying again, Mr. Mannion says, he will consult Mr. Toscano.

Of course, as even many hard-core renters acknowledge, homeownership has some big advantages, including tax deductions on mortgage interest, the possibility of gaining value over the long term and the security of knowing you won't be evicted by a capricious landlord. But some of today's renters say it has been a bad time to buy in the past few years, when speculators helped drive up prices at an unusually rapid clip.

David Jackson, a 26-year-old information-technology specialist, has been railing against the housing industry for two years -- ever since he made a vain attempt to find an affordable town house or condo in Silver Spring, Md. Unable to understand why prices were so high, he began researching the real-estate market and, he says, "came to the conclusion that there was a massive housing bubble." So Mr. Jackson decided to remain a renter. He pays $645 a month for part of a townhouse.

Now that the housing market is slumping, "I feel vindicated," Mr. Jackson says. "But I'm not looking forward to the coming recession." He believes that the housing slowdown and the effects of "a mountain of debt" on consumers will pull the entire economy into a slump.

Mr. Jackson blames what he calls "the housing industrial complex" in general and Mr. Lereah, the Realtors' economist, in particular. Since last year, Mr. Jackson has maintained a blog (davidlereahwatch.blogspot.com) devoted entirely to vilifying Mr. Lereah.

The blog recently offered a $75 cash prize for an essay containing "the most scathing criticism" of Mr. Lereah. Sample submission: "Dr. Lereah is a lying snake with the ethics of a dope-dealing pimp."

Mr. Lereah says he doesn't object to the blog. "There are people who believe it's the end of the world" for housing, he says. "They blame me for being positive."

Among all the defiant renters, few roar louder than Mr. Killelea, who pays $2,350 a month to rent a snug, two-bedroom craftsman house near Stanford University in Menlo Park, Calif. He figures it would cost him $7,000 a month in mortgage payments and taxes if he owned it.

Most mornings, he sits at a small pine table just off his kitchen and scans emails from acquaintances for any bad news that fits his world view. Before he heads off to work at a bank, he posts the dozen bleakest stories to his Web site -- patrick.net/housing/crash.html -- under the permanent headline, "U.S. Housing Crash Continues."

Almost anything grim will do. Economic assessments from Finnish newspapers pass the test. So does an ad from a Michigan home seller offering to cut his asking price $1,000 a day. One favorite posting consists of a spoof of a Realtor ad, showing a terrified woman screaming in front of a hideous house.

A native Midwesterner, Mr. Killelea worked in Chicago in the mid 1990s before moving to Silicon Valley in 1997 to take a job at Sun Microsystems Inc. He was excited about the $77,000 starting salary -- a 55% increase from his previous job -- until he discovered how much housing cost in California. He and his wife, Leah, rented for a few years in Palo Alto before deciding that they might find cheaper housing in Berkeley.

"We spent several months looking at open houses and bidding on properties," Mr. Killelea recalls. "We bid over the asking price, but never enough to win. On the last one, they were asking $395,000 and we bid $500,000. We got a call afterward, asking us if we wanted to raise our bid. We said, 'No.' We thought that was enough. It turned out that the house sold for $530,000."

After losing that Berkeley home, Mr. Killelea told his wife they were calling off the home-buying search. She says she wasn't thrilled. But they moved to a new rental -- their fourth in five years -- and nestled their two children into an upstairs bedroom with bunk beds.

Even though prices have come down a bit in parts of California, Mr. Killelea vows to resist the pressure to buy. Recently he mused on his Web site about why more people don't follow his example. "I get the feeling many wives are pressuring the husbands to buy," he wrote. "I know it's not politically correct to say so, but I think a lot of irrational purchases are driven by female nesting instincts."

Mr. Killelea says his wife has been "very understanding" about his refusal to buy at today's prices: "She can do the math, too."

But Ms. Killelea seems more open to the idea of homeownership. "We haven't really talked yet about when we'd want to start looking again," she says. "I think we're going to need to discuss that."

Article in November 29, 2006 Wall Street Journal

Distressed Real-Estate: Priced to Sell
Rising Home Foreclosures
May Create Opportunities
For Investors Buying in '07

By JAMES R. HAGERTY
November 29, 2006

As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate.

So far, the U.S. housing slump hasn't produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say.

"We're all going to have to be more creative in the next 12 to 24 months" in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel's company helps lenders manage and sell foreclosed homes.

Williams & Williams Inc., a Tulsa-based auctioneer, says its sales of foreclosed homes will nearly double this year to about 5,060. Dean Williams, chief executive of the auction firm, expects another near doubling of sales in 2007.

Dallas-based Hudson & Marshall Inc. expects its auction sales of foreclosed properties to total about 4,800 this year, up 23% from 2005. David Webb, co-owner of the auction company, believes sales will rise at least 20% in 2007.

The auction firms say their busiest auction markets recently have included Michigan, Ohio, Indiana, Pennsylvania, Texas and Colorado. "Word on the street is that California, Florida and Arizona will also be very active in the next 12 months," Mr. Webb says.

Lenders refer to foreclosed homes as REO, short for "real-estate owned." They generally try to sell REO homes as quickly as possible to minimize holding costs, such as those for insurance, taxes and lawn care.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before. The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends.

It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. At the end of this year's second quarter, only about 1% of all home mortgage loans outstanding were in the foreclosure process, down from an average of 1.2% over the past decade, according to the Mortgage Bankers Association. Doug Duncan, chief economist for the mortgage bankers, expects a modest rise in foreclosures over the next year or two.

People with weak credit records who have taken out loans over the past year are falling behind on payments at a rapid clip, according to a recent report by mortgage analysts at UBS AG in New York.

Christopher Cagan, director of research and analytics at First American Real Estate Solutions, notes that REO sales are a lagging indicator of the housing market because at least a few months elapse between a borrower's default and the foreclosure. Dr. Cagan expects a modestly higher foreclosure rate and deeper discounts next year.

Discounts are likely to be larger in areas where inventories of unsold homes have soared, such as in parts of Arizona and Florida, Dr. Cagan says. Another big factor in determining demand for REO homes is local job and population growth.

In Los Angeles County, which has strong housing demand and an extreme shortage of space, the median discount on REO homes was just 1.7% in this year's first half. In Ohio's Cuyahoga County, where job losses have left a glut of empty homes, the discount was about 30%.

Most REO homes are listed by real-estate brokers and sold like ordinary houses. But lenders often turn to auctions when they see their REO inventories piling up. Lenders that choose the auction route want to get "current market value, whatever it is, rather than sit on vacant property and speculate as to if or when it might sell," says Mr. Williams of the Tulsa-based auctioneer.

One recent buyer at a Hudson & Marshall auction was Warren Russell, who bought a 1,300-square-foot home in Detroit for just $1,500. Mr. Russell says the home is structurally sound but needs new windows, paint and some other items. He expects to spend about $10,000 renovating the home and then rent it out.

In considering purchases of foreclosed homes, Mr. Russell says, "you can't think, 'Would I live here?' There are people at every level of income that need a roof."

Aricle in December 2, 2006 Wall Street Journal

You Can Buy a House
For $1,000 Today,
But You'll Pay a Price
Foreclosure-Auction Bargains
Often Need Costly Work;
Obscenities on the Wall

By JAMES R. HAGERTY
December 2, 2006

PITTSBURGH -- In an era when million-dollar houses are no longer exceptional, some homes sell for less than the price of a Brooks Brothers suit.

At an auction of foreclosed real estate here in April, Monte Lowderman struggled to entice someone to bid for a two-bedroom house in one of the city's roughest neighborhoods.

"Now, folks, I'm not telling you it's ready to move into," said the auctioneer. He paused, then added: "You know, the way to make money is recognizing potential."

Charles Lantzman, a real-estate investor here, didn't find the house particularly appealing but put up a hand and offered $500. That turned out to be the high bid.

Nationwide, about 3,800 foreclosed homes sold for $1,000 or less in the first 10 months of this year, according to First American Real Estate Solutions, a data provider in Santa Ana, Calif.

Sales like these tend to occur in places like Detroit, Cleveland and Pittsburgh, where dying industry has left behind a surplus of what once was middle-class housing in neighborhoods now known for crime and bad schools.

More distressed homes are headed for the block. As the national housing boom fades, foreclosures are rising on subprime loans, those for people with weak credit records. A recent report from mortgage analysts at UBS AG in New York found that about 2% of subprime loans packaged into securities this year were in foreclosure by October, nearly double the year-earlier rate.

Foreclosed homes generally aren't a huge bargain. Savvy local investors know their value and compete to buy them. Still, as Mr. Lowderman noted, there is always the chance that one investor will spot potential where other bidders don't see any. And as lenders find themselves owning more foreclosed property, they become more eager to unload it as quickly as possible. The longer lenders hold these homes, the more they pay in taxes, insurance, lawn care and other maintenance.

In recent years, lenders and mortgage brokers have heavily promoted subprime loans. Many of the borrowers are people in poor neighborhoods who refinance their homes to take out cash or pay off credit-card debt.

The Pittsburgh house bought by Mr. Lantzman ended up at the auction because of one of those subprime refinancings that went bad. Allegheny County records show that CitiMortgage, a unit of Citigroup Inc., granted a $33,600 mortgage to the previous owner in February 2001, at an initial interest rate of 11.5%, which eventually would adjust twice a year, based on prevailing market rates, up to a maximum of 17.5%. In January 2002, the loan was sold to Household Finance, a unit of HSBC Holdings PLC. Household acquired the home through a foreclosure last year and put it on the block a few months later.

As is common in auctions, Household reserved the right to reject bids it deemed too low. A few days after the auction, Household asked Mr. Lantzman to consider raising his bid to $5,000 from $500. Mr. Lantzman sent back a list of problems he had spotted at the house, including damaged plumbing. As his trump card, Mr. Lantzman also mentioned a possible mold outbreak. (Banks hate owning houses with mold, he explains: "They don't want to hear about that.") He told Household his final offer was $700. Household accepted. Mr. Lantzman paid an additional $3,000 or so in auction fees and other transaction costs.

Citigroup and HSBC, Household's parent, both declined to comment on the case, citing customer privacy.

Busy with his day job as the owner of a small construction company, Mr. Lantzman didn't inspect his $700 house again for several months. Finally, one afternoon in August, he parked his sport-utility vehicle on Olivant Street in front of the narrow, two-story house with light-blue siding. The windows and doors of several houses on the street were boarded up. Mr. Lantzman walked warily around his house and noted signs of minor fire damage on one side. He discovered that the back door had been broken open. Shards of glass lay on soggy carpeting in the entryway. "Probably turned into a crack house," he muttered.

Once he began examining the inside with a flashlight, though, Mr. Lantzman was relieved. There were no signs of squatters.

"It actually doesn't look as bad as I thought," he said. He expects to spend $5,000 to $10,000 on renovations. Then he believes he will be able to rent the place for around $600 a month. Eventually, Mr. Lantzman hopes, the neighborhood will recover and house prices will increase.

At an auction in January, Jesse L. Thompson paid $1,000 for a three-bedroom house on East 97th Street in Cleveland. The house, white with mint-green trim, has been sold a dozen times since 1980, and lenders have foreclosed on it three times in that period, according to public records compiled by RealQuest, a unit of First American Corp. Mr. Thompson, who has been investing in real estate for more than 30 years, says the house needed replacements for a hot-water tank, heating ducts and water pipes stolen from the building during the latest foreclosure. After spending about $8,000 on repairs and redecoration, Mr. Thompson found a tenant to pay $550 a month.

It hasn't been easy, though. Shortly after Mr. Thompson bought the house, vandals broke in, spray-painted obscenities on the walls and sliced through electrical wires.

Mary Krawiec isn't impressed by $1,000 home purchases. Eight years ago, she bought a Victorian boarding house in Troy, N.Y., for $10.

The previous owners of the house had a $98,500 mortgage from KeyBank, a unit of KeyCorp, Cleveland. KeyBank foreclosed on the house in late 1996. At the time, an appraiser estimated the value of the house and lot at $52,000. The foreclosure led to an auction of the property, held by a court-appointed referee in the lobby of the Rensselaer County courthouse in Troy. At an initial auction in October 1997, no one bid for the house.

The referee, Richard T. Morrissey, held a second auction in November 1998. Ms. Krawiec says several other people attended, but she was the only one who showed any interest in bidding. Her opening offer was $1. She says the referee gave her a sour look. She raised her bid to $10 and held firm. The referee gave her title to the home in exchange for a $10 bill.

Ms. Krawiec acquired the house free of any liens from lenders or others but did have to pay an overdue water bill of about $2,000.

Usually, when bids at a courthouse foreclosure sale are far below the property's appraised value, a representative of the lender bids enough to purchase the home and then seeks to resell it later at market value. In this case, KeyBank made no attempt to acquire the house. Justin Heller, an Albany, N.Y., lawyer who represented KeyBank in the foreclosure, says he believes the bank decided that costs of renovating the house to make it salable might exceed its market value. A KeyBank spokeswoman declined to comment.

The boxy three-story house, in a middle-class neighborhood a few hundred yards from the Hudson River, is sheathed in pale yellow aluminum siding. Inside, years of neglect have left their mark, including a bowed stairway wall, crumbling plaster and a leaky skylight. Ms. Krawiec and her husband, Mark Peabody, are renovating the building's nine apartments. They estimate the total cost of fixing up the $10 house will be $65,000.

Ms. Krawiec and Mr. Peabody, a carpenter, do all the renovation work themselves. "I bought her a nail gun once for Christmas," Mr. Peabody says.

For now, the $10 house has three tenants, producing rental income of nearly $15,000 a year. Once all nine apartments are renovated, Mr. Peabody estimates, the house will yield rental income of $50,000 a year.