Sales of new homes tumble

U.S. slump is worst in 12 years, but it's just more of same for state

December 29, 2007

BY RUBY L. BAILEY
FREE PRESS STAFF WRITER

Paced by a stunning 28% decline in the Midwest, sales of new homes across the nation dropped to their lowest level in more than 12 years in November.

The Commerce Department reported Friday that sales fell by 9% from October to a seasonally adjusted annual pace of 647,000. It was the worst sales pace since April 1995.

The Midwest, which includes Michigan, led the plunge. Sales dropped 19% in the Northeast and 6% in the South, where tighter credit is limiting investment speculation. They rose 4% in the West.

The disappointing numbers are nothing new for the state.

"We have been down more than" 28% "in Michigan for the past couple of years," said Bob Filka, chief executive officer of the Michigan Association of Home Builders, which has 10,000 members. "The national numbers are starting to catch up to where Michigan numbers have been."

The state's battered economy has led to a surge in foreclosure rates and rapid reduction of property values. Homes -- both existing and new -- are on the market for months.

In response, builders have been offering incentives -- including granite countertops and sprinkler systems -- to try to lure buyers. But the incentives are to little avail, said Jan Calcaterra, an associate broker at ReMax First in Clinton Township.

"They never did that before," Calcaterra said. "They didn't have to. You used to have to put carpet in yourself."

Building permits have been down as much as 70% in the state in the past year from their highs earlier this decade as builders cut back in the face of lagging sales.

But that development could help the state's housing market rebound more quickly when the recovery begins by reducing the overall inventory, Filka said.

"We don't have as much of the oversupply as much of the country has," Filka said. "I think we've pretty much hit bottom."

Home prices off sharply in October

11.2 percent decline in Metro Detroit is third worst among 20 largest U.S. cities, report says.

Thursday, December 27, 2007
Nathan Hurst / The Detroit News

Metro Detroit home prices fell hard in October, down 11.2 percent compared with the same month last year, according to a report released Wednesday.

The Standard & Poor's/Case-Shiller Home Price Index, which tracks short- and long-term changes in home prices for the nation's 20 largest metropolitan areas, pegged the Detroit area as having the third worst October price declines in the nation, falling behind the boom-and-bust towns of Miami, which saw a 12.4 percent drop, and Tampa, Fla., with an 11.8 percent decline.

Las Vegas, Phoenix and San Diego were the only other cities included in the report to post double-digit declines in October over the same month in 2006. Only the Charlotte, N.C.; Portland, Ore.; and Seattle areas saw price increases, according to the report.

Atlanta and Dallas, once two of the nation's hottest housing markets, saw cooling for the first time in the S&P/Case-Shiller report, with one-year decreases of 0.7 percent in Atlanta and 0.1 percent in Dallas.

While the declines in many cities were attributed mostly to a rapid cooling of an overheated housing market and the recent credit crunch, the problems in Metro Detroit have been exacerbated by Michigan's high 7.4 percent unemployment rate -- the worst in the nation -- and troubles in the domestic auto sector.

The price dip has also been accelerated by a high number of foreclosure auctions and sales by banks that have seized properties from owners who have defaulted on mortgages.

Typically, those homes sell for much less than their counterparts.

The effect on Michigan homeowners is nothing new.

In August, the region's median home price -- half the homes sold for less, and half sold for more -- fell by nearly 18 percent, from $188,275 in 2006 to $154,919, according to data compiled from Realcomp Inc., Metro Detroit's largest multiple listing service.

Karen Kage, chief executive officer of Realcomp, said earlier this month that foreclosure sales have had a profound effect on reported average and median home prices.

"These are not normal sales under normal circumstances," she said. "There has been such an unusually high number of foreclosure sales in the past year that have affected that number."

Metro Detroit's high rate of foreclosure has been among the nation's worst.

In November, one in every 391 Michiganian households faced a foreclosure filing, the sixth highest rate in the nation, according to RealtyTrac, an Irvine, Calif.-based company that tracks such data.

The unusually high rate of foreclosure has helped bring down the average Metro Detroit home price by nearly 14.8 percent since December 2005, the region's all-time peak for prices, according to the Case-Shiller report.

The glut in homes on the market has meant tempered forecasts for 2008. Lawrence Yun, chief economist for the National Association of Realtors, predicted home sales would be up to 5.7 million in 2008, up slightly from an estimated 5.67 million this year. But that prediction comes as the National Association of Home Builders has predicted that short-term demand for new homes will likely be at its lowest since 1985.

New-Home Sales Tumbled 9% Amid Falling Prices in November

By JEFF BATER
December 28, 2007 Wall Street Journal

WASHINGTON -- New-home sales retreated during November, sinking to the lowest annual rate in 12 years. Home prices also receded, a further negative sign for consumer spending and the economy.

Sales of single-family homes decreased by 9% last month to a seasonally adjusted annual rate of 647,000, the Commerce Department said Friday. October new-home sales rose 1.7% to an annual rate to 711,000; originally, the government said October sales rose by 1.7% to 728,000.

Economists had forecast a drop in November sales to an annual rate of 715,000. The actual rate of 647,000 reported for the month was the lowest recorded since 621,000 in April 1995.

Year over year, new-home sales were 34.4% lower than the level in November 2006. That's the largest year-to-year decline since 35.3% in January 1991.

The steep decline in demand for property is the flip side of a long ascent during the first half of the decade. Builders have responded by slowing groundbreakings. In the third quarter of this year, the housing slump reduced gross domestic product, the sum of U.S. economic activity, by more than a full percentage point.

While GDP surged at a sizzling 4.9% rate July through September, it is seen much weaker -- hampered by the housing correction and credit crunch -- in the current, fourth quarter, which ends Monday. The first estimate for fourth-quarter GDP will be released by the government Jan. 30.
An ominous sign for the economy is dropping home prices. Consumer spending makes up 70% of U.S. economic activity as measured by GDP. When consumers watch the value of their homes shrink, they tend to feel less wealthy, a mood that can act as a damper on spending plans and, in turn, slow economic growth.

The median price of a new home decreased by 0.4% to $239,100 in November from $240,100 in November 2006. The average price advanced by 0.5% to $293,300 from $291,800 a year earlier. In October this year, the median price was $229,500 and the average was $307,900.

The ratio of new houses for sale to houses sold rose during November, going to 9.3. It was 8.8 in October; originally, the government estimated the October ratio at 8.5. Friday's data showed an estimated 505,000 homes for sale at the end of November, down from October's 514,000.

Regionally last month, new-home sales decreased 6.4% in the South, 19.3% in the Northeast, and 27.6% in the Midwest. Sales rose 4% in the West.

An estimated 46,000 homes were actually sold in November, down from 55,000 in October, based on figures not seasonally adjusted.

2008 industry outlook: Mich.'s tough times drawing to a close

But more pain expected before gain

Friday, December 28, 2007

Louis Aguilar and Sofia Kosmetatos / The Detroit News

Michigan's economy in the past few years has often been described as gripped in a "one-state recession," and while no one predicts a rose garden for the state in 2008, there are at least some signs this may be the last tough year before the state begins a slow rebound in 2009.

But not before more pain.

As it has since 2000, Michigan will lag -- badly -- behind the national economy, which by itself is expected to be sluggish at best. Locally, tens of thousands of job losses will continue, particularly in the auto industry. Home values may continue to drop, and the number of foreclosures should grow.

The impact will be deep and wide, from the declining budgets of state and local governments to the tightening of consumer spending.

"But a crisis is a terrible thing to waste," said Patrick Anderson, founder of Lansing's Anderson Economic Group, "and we've been facing crisis in Michigan long enough that we've begun to tackle some of the structural issues to turn around."

Detroit's auto industry in particular made great strides this year in addressing structural problems as a result of groundbreaking new labor contracts with the United Auto Workers and other cost-cutting measures.

But as University of Michigan economist George Fulton says, recently released data show that, alongside the losses, the state's economy consistently produces large job gains in education and health services.

"There must be some vitality in an economy that can continue creating jobs even though it's not keeping pace with the leakage," Fulton said. "If the leaks can be plugged, the state's economy and labor market have the capacity to grow and prosper. And therein lies both our challenge and our opportunity."

What's ahead for five key Michigan industries:

Economy

Next year may be Michigan's final year of big economic pain before the state slowly starts to bounce back, according to five prominent economists.

For the eighth straight year, the Great Lakes State will bleed jobs, primarily manufacturing work. As many as 51,000 workers will see their jobs disappear in 2008, according to a forecast by University of Michigan economists Joan Crary, George Fulton and Saul Hymans. The state's unemployment could hit 8.2 percent, a level not seen since 1992.

By the bleak Michigan standards set so far this decade, next year's jobs losses in auto manufacturing will be moderate -- about 21,000, the UM economists said. That will trickle down to moderate job losses in other sectors, including construction, professional and business services and trade, transportation and utilities, predicts Comerica Inc. chief economist Dana Johnson.

Not all sectors will continue to slide. Education and health services will add 10,000 jobs next year, the UM forecasters believe. The tourism industry should grow as the high price of gasoline and even the slow U.S. economy keep people closer to home for vacation, according to Anderson, who also sees the potential for high-tech auto jobs and work created by research at state universities.

The national economy will not slide into recession, the economists contend, which helps what most believe will be Michigan's final year of decline before a soft rebound begins in 2009.

Auto industry

Next year was supposed to be a new, leaner start for Detroit's auto industry.

Instead, grim predictions of dwindling U.S. light vehicles sales are casting a dark cloud over the recent progress made by Detroit's Big Three to improve their competitiveness against lower-cost foreign rivals, including reaping savings from groundbreaking labor contracts brokered this year with the UAW that will shift retiree health care costs to the union, among other cost savings.

The struggling housing industry, the squeeze on credit, and high oil prices will challenge automakers in the new year. Most analysts predict U.S. vehicle sales will plunge by 500,000 units or more compared to 2007's estimated level of 16.1 million. Forecasts range from CSM Worldwide's estimate of 15.8 million to Ford Motor Co.'s prediction of 15.2 million, based on calculations for the first six months of next year.

If auto sales drop by half a million or more, the impact will be wide and deep, including likely consolidation of automotive suppliers, fewer dealerships and lower state tax revenue. Suppliers tied closely to SUV and truck components, where sales are dropping most steeply, are likely to be hard hit, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

Automakers have laid off nearly 100,000 workers in the last two years, and announced more cuts this fall along with more buyouts. General Motors Corp. will offer buyouts to 5,200 of its 34,000 hourly workers starting in January. Chrysler LLC and Ford Motor Co. workers recently learned they'll be on extended layoff early in the year.

Energy

However you heat your house or run a vehicle, expect to pay higher prices.

Assuming normal weather, a typical Michigan resident can expect his or her heating bill from November to March 2008 to hit about $764, a $15.28 increase from last winter, according to the state's semi-annual Energy Appraisal report by the Michigan Public Service Commission.

The mix of higher prices and increased usage could cause natural gas bills to increase by 8 percent this season compared to last winter, according to the energy report. Residential natural gas prices now are 2 percent higher than last winter. Residential heating oil prices are up sharply because of increases in crude oil prices.

Crude oil's run to nearly $100 a barrel in the second half of 2007 increased the price of gasoline and many consumer goods, and many analysts think prices will average around $75 a barrel in 2008. But due to geo-political risks and supply, the cost of motor gasoline and diesel will remain volatile, according to the federal Energy Information Administration.

Both gasoline and diesel prices are projected to average well over $3 per gallon nationally in 2008, with gasoline prices peaking at more than $3.40 per gallon next spring, the EIA projects.

Road and bridge builders are seeking a 9-cent increase in Michigan's 19-cent gas tax. The increase would be phased in at 3 cents a year for three years and is being pitched by the Michigan Infrastructure & Transportation Association to collectively generate $1 billion annually in money for road work.

But Gov. Jennifer Granholm opposes raising the state's gas tax. She's expected to sign a bill in January that sets up an Alternative Road Funding Task Force made up of legislative leaders and leaders from manufacturing, tourism and public transportation to look for other ways to pay for infrastructure improvements. Her State of the State address in January will likely spell out ways she will try to strengthen Michigan's economy through alternative energy development.

Housing

This time last year, there was cautious optimism the housing market, both nationally and locally, might stabilize.

Now -- though it hardly seems imaginable -- things could get worse for at least half of 2008 before improving, according to home builders, economists and investors. The impact of the subprime mortgage mess is far from over and that will mean more foreclosures and declining home values, experts contend.

The National Association of Home Builders expects the national housing market to pick up in 2009 after hitting bottom in the middle of next year, according to David Seiders, the NAHB's chief economist. In Metro Detroit, which lags behind the national economy, home values may continue to decline for most of next year.

In March, the number of adjustable rate mortgages in the United States will peak, with $110 billion resetting to higher monthly payments for homeowners, said Drew Sygit, a certified mortgage and equity planner for Meadow Mortgage in Bloomfield Hills. Locally, that will result in more foreclosures, Sygit said. Other experts share in the low expectations for 2008. More than 90 percent of publicly traded home builders have negative outlooks or are under review for downgrade, Moody's Investors Service said in a recent report. And 33 percent of building materials companies have negative outlooks, according to the report.

Before the market bottoms out, local counties and municipalities will likely be forced to slash budgets, which will mean fewer services. In January, local governments learn how much their revenues will drop due to falling property tax assessments, said Patrick Anderson, founder of Lansing's Anderson Economic Group.

The one bright spot is rentals, which will continue to go strong, as people ride out the housing storm.

Health care

Metro-Detroit health care systems will continue their race to attract customers with new hospitals, expansions and renovations in 2008.

They will spend millions on projects that cater to patients with pampering atmospheres and the latest technology. Industry experts are keeping a close eye on two new suburban hospitals: St. John Providence Park Hospital in Novi, set to open in the summer, and Henry Ford West Bloomfield Hospital, scheduled to open in Spring 2009.

The Novi hospital, for example, will look and feel like a modern hotel, with dual corridors (one for patients and visitors, another for moving materials), large patient rooms with room service, flat screen TVs and pull-out couches for visitors.

Despite renovations being made at Detroit hospitals, they stand to lose doctors and patients -- and with them, income -- to the new hospitals.

"We'll see changes next year that we haven't seen anything like in the last several years," said Adam Jablonowski, executive director of the Wayne County Medical Society.The addition of two new suburban hospitals comes as Flint-based McLaren Health Care grows in Metro Detroit. In northern Oakland County, McLaren is developing a $600 million health care village it hopes will include a 200- to 300-bed hospital.

The industry will also keep a close eye on Beaumont, Grosse Pointe, formerly Bon Secours Hospital, which Beaumont Hospitals bought in 2007. It's the Royal Oak-based health system's first major entry into Wayne County.

Across industries, companies will continue to grapple with rising health care costs, even though the rate of increases has slowed. Businesses will focus more next year on more aggressive wellness programs in the workplace and will continue to pass some of the cost increases to employees.

Michigan population dips 30,500

Census figures show continuing loss of residents; prolonged economic slump blamed.

Thursday, December 27, 2007
Mike Wilkinson / The Detroit News

Michigan was one of only two states that lost population last year as fleeing job-seekers accelerated the state's population decline, Census estimates released today show.

Only tiny Rhode Island also lost population in the year prior to July 1, as Michigan's population plummeted by 30,500 last year, more than five times the loss in the prior year and echoing the devastating slump that hit the state in the early 1980s.

"It's pure economy," said Kurt Metzger, director of research for the United Way for Southeastern Michigan. "It just reinforces that one-state recession."

With automakers and their suppliers either buying out or laying off tens of thousands of workers at a time, many expected the state's decline to worsen -- and it did. But some say that the state's slumping housing market may actually be softening the blow as many who want to leave are forced to stay in homes they cannot sell.

The nation's population grew by nearly 1 percent, adding an estimated 2.9 million people, for an estimated total of 301.6 million people. Texas had the biggest increase, adding nearly 500,000 people, while Nevada and Arizona had the biggest percentage increases. Other Midwest states had nonexistent to anemic growth.

A trained auto designer, Brian Shunk, 38, his wife, Shannon, 36, and their son Nicholas, now 3, left Clinton Township for Florida in 2006 to restart their lives after a couple of years on unemployment and taking odd jobs in retail. Worried about their prospects, both Brian and Shannon went back to school to broaden their job options.

They sold their home at a steep loss, incurring thousands of dollars of credit card debt to cover closing costs. Still, they feel lucky they were able to "afford" their departure.

"There are so many things that could have kept us from leaving," he said. "It makes you wonder how many people are anchored and would leave Michigan if they could get out."

The population estimates, released annually, are based on birth and death rates and international and domestic migration measured using tax forms. For years, the steady loss of Michigan residents to other states was more than offset by new migrants from abroad and from the substantial gap between births and deaths. But while those factors have remained steady, the increase in domestic out-migration has risen substantially over the last three years, climbing from nearly 40,000 in 2004 to more than 94,000 this past year.

"There are some positive signs in the state but they are overwhelmed by the negative news," said Don Grimes, a senior economic researcher at the University of Michigan. He just completed a "bleak" economic forecast for the Michigan Department of Transportation but said the Census numbers are actually worse. "It's not a good time," he said.

Prompted by the troubled economy, Gov. Jennifer Granholm has sought international investment and has worked with the legislature to enact a new business tax that will offer incentives for research and job creation, said gubernatorial spokeswoman Liz Boyd.

"The data underscores that the governor is focused on growing the economy and creating jobs," Boyd said.

The last time Michigan suffered such losses was from 1981 through 1983 and the culprit then, as now, was a shrinking auto industry. The difference going forward may be that few believe the auto industry will rebound like it did before. Grimes and others see auto and manufacturing jobs in general declining for years.

For several years, state and local leaders have talked about pinning the state's recovery on education, on its "life-science" corridor and in encouraging more people to seek higher education degrees. But the population losses may undercut those efforts: Many of those who are leaving are educated, and many are young.

Sarah Klein worked for the Metro Times, an alternative weekly publication, before choosing a startup publication in San Jose, Calif. "I've lost count of the number of friends I have who've moved out of Detroit or Michigan in general," Klein, 31, wrote in response to e-mailed questions. "When I left, a friend commented 'another one joins the mass exodus.' "

Young people like Klein have always left Michigan. But she may be joined by an increasing number of peers. "The most mobile people in the country tend to be the most educated," Grimes said.

That trend should put the focus back on improving the education of adults, said Jim Jacobs, director of the Center for Workforce Development and Policy at Macomb Community College.

Charles Rowland had a long career as a designer for local auto engineering firms before work dried up a few years ago. He shuttled back and forth between Florida, Ohio and Michigan before finally staying in Florida late last year. He got contract work at the same employer as Brian Shunk and rented from a local motel until someone got stabbed outside his room.

Rowland, 46, now lives in Cape Canaveral, off the Atlantic coast, and commutes to Orlando each day. His flight from Michigan included a bankruptcy when he couldn't sell his home and he knows several people who, like him, have been forced to go on the road.

"It's the same story: running from a lack of work."

Pace of Decline In Home Prices Sets a Record

By JAMES R. HAGERTY and KELLY EVANS
December 27, 2007; Wall Street Journal

A closely watched gauge of U.S. home prices shows they are falling sharply across most of the nation, as a deepening slump in the housing market threatens to damp consumer spending.

Home prices in 10 major metropolitan areas in October were down 6.7% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released yesterday by credit-rating firm Standard & Poor's. That exceeded the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession.

New statistics from the Census Bureau, meanwhile, indicate a slowdown in the number of Americans moving to states that led the housing boom, including Nevada, Florida and Arizona.

The silver lining behind the latest home-price data is that they signal the market is making what most economists see as a necessary adjustment, dragging home prices back into closer alignment with Americans' ability to pay. The market is working its way "back to reality," says David Seiders, chief economist of the National Association of Home Builders. He thinks house prices will bottom out by early 2009.

Some other economists say that might not happen before 2010. "The housing shock is only about halfway over, and housing prices will continue to fall well into 2009," says Lehman Brothers economist Michelle Meyer.

During the housing boom in the first half of this decade, fast-rising home prices made it easy for homeowners to take out home-equity loans or refinance their primary mortgages to extract some cash. That helped sustain consumer spending, which accounts for about 70% of U.S. economic activity.

Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession. "Eventually what's happening in the housing market is going to catch up with us," says Patrick Newport, an economist at research-firm Global Insight Inc.

Fears of a sharp drop in consumption were assuaged somewhat last week when the government reported that consumer spending in November grew at the fastest pace in 3½ years. And though holiday sales fell short of retailers' expectations, consumers, spurred by discounts, spent heavily in the final days before Christmas. Economists say that even if overall spending slows in December, the strength seen in October and November would be enough to keep the economy afloat in the near term.

"The most important determinant of [spending] is always income," says Harm Bandholz, an economist at UniCredit in New York. He said that Americans' disposable income has risen a "solid" 2.5% over last year. He and others say that as long as the job market holds up and incomes keep growing, Americans will continue to spend.

The S&P/Case-Shiller index showed that some of the fastest declines in home prices are in metropolitan areas that were among the hottest during the housing boom. Prices were down 12.4% from a year earlier in Miami, 11.1% in San Diego, 10.7% in Las Vegas and 10.6% in Phoenix.

Home prices are still up from a year ago in some cities, such as Seattle and Charlotte, N.C. And people who bought their homes several years ago still are sitting on sizable gains in most of the country.

The boom more than doubled prices in many populous areas near the coasts. The run-up was fueled in part by unusually low interest rates, which slashed the cost of monthly mortgage payments. In addition, in the wake of the technology-stock bubble, many Americans viewed real estate as a safer investment than stocks, and so poured increasing sums into second homes and rental properties. Home sales began to slow in mid-2005. Prices leveled off and then started declining in 2006. Over the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.

Bette Zerba, a Realtor with Re/Max in Phoenix, says local residents trying to sell their homes can't compete with foreclosed homes selling for $50,000 to $100,000 less than theirs. "The sellers now are having to reduce their prices by 20% to 30% to compete," she says.

As the market adjusts, single-family housing starts have fallen 55% from their January 2006 peak to a seasonally adjusted annual rate of 829,000. In recent months, lenders and investors have begun owning up to billions of dollars of losses on mortgages and related securities, clearing the decks for an eventual revival in lending.

But the recovery of the housing market is likely to be a gradual process. That's partly because the boom left prices so far out of whack with incomes. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose 15%. (Neither figure is adjusted for inflation.) That made housing unaffordable for many Americans.

For a few years, lax lending standards -- some loans required no down payments and offered low introductory interest rates -- meant borrowers could buy more expensive houses than they could really afford. But lenders have been burned by a surge in defaults that started in 2006, and such mortgages generally are no longer available. That means house prices will have to fall to a level potential buyers can afford.

Mark Zandi, chief economist of Moody's Economy.com, a research firm in West Chester, Pa., predicts that on average U.S. house prices will decline about 12% by the second quarter of 2009 from their peak in the second quarter of 2006. He expects household income to rise by about the same amount over that period.

Signs of this adjustment are apparent in the latest quarterly analysis of house prices by National City Corp., a Cleveland banking concern, and Global Insight. Economists at the two firms look at home prices in relation to household income and other factors, including population density (an indication of how much land is available) and past differences in prices caused by factors like climate and schools. In the third quarter, they found, prices in 38 of the nation's 330 metro areas were more than 33% above a level that could be explained by fundamental drivers of housing costs. That was down from 48 metro areas in this "overvalued" category in the second quarter.

"Parts of the housing market are scratching bottom right now," says Richard DeKaser, chief economist at National City. Sales of new and existing homes are down about 32% from their mid-2005 peak, he says, and probably won't fall much further before leveling off or starting to recover slowly.

Prices of new homes are likely to start recovering in the first half of 2008 because builders are aggressively chopping prices to clear inventories, says Edward Leamer, an economics professor at the University of California, Los Angeles. Recent price cuts by builders may have reduced demand in the short term because they encourage potential buyers to expect further discounts.

But prices of previously occupied homes are likely to continue falling slowly for several years, Prof. Leamer says. That's because people trying to sell their homes often don't have an urgent need to move, and try to hold out for a price they consider fair.

On average, prices of previously occupied homes, as measured by the S&P/Case-Shiller indexes, are likely to drop another 7% in 2008 before flattening out in 2009, says Thomas Lawler, a housing economist in Vienna, Va.

Inventories of unsold homes remain very high and may increase in the new year as lenders dump more foreclosed houses on the market. The number of detached single-family homes listed for sale in October was enough to last 10½ months at the current sales rate, according to the National Association of Realtors. That was more than double the level of two years ago and the highest since 1985.

Along with inventories, the nation's home ownership rate will have to adjust to today's realities as many Americans who stretched too far to buy homes in recent years go back to renting. The home ownership rate in the third quarter stood at 68.2% of households, down from a peak of 69.2% in 2004. Even a small drop in that rate has a big effect on housing demand. Economists at Goldman Sachs have warned that falling home ownership rates may force a further 40% drop in housing starts next year, to an annual rate as low as 500,000 units, before construction starts to recover.

The mortgage market also needs to adjust further. Most of the funding for home loans comes from investors who buy securities backed by bundles of mortgages. Since August, many of those investors have shunned the market amid fears of rising defaults. As a result, lenders generally are focusing on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration. So-called jumbo loans -- those above $417,000, too big to be sold to Fannie or Freddie -- have grown much more expensive, deterring buyers in high-cost areas.

The current scarcity of funds available for mortgage lending creates a chicken-and-egg situation, says Prof. Leamer. Investors who provide funding for home loans don't want to commit more money until they believe the housing market is getting better. But it's hard for the housing market to rebound as long as mortgage credit is tight. Lower prices eventually will break this impasse, by luring buyers back into the market and reassuring investors that the market is finding a bottom, he says.

Michigan shrinks by 30,500 since '06

48 other states show growth

December 27, 2007

BY M.L. ELRICK and ROBIN ERB
FREE PRESS STAFF WRITERS

Michigan is one of only two states in the nation to lose population over the past year, according to U.S. Census figures released today.

It's a dubious distinction shared only by Rhode Island. While the Ocean State's population dipped 0.4%, Michigan's slipped 0.3%.

That's an estimated loss of 30,500 Michiganders.

And while this is hardly a cause for celebration, state demographer Ken Darga said the erosion is far from the seismic shift in population that Michigan experienced in the early 1980s.

Darga attributed the loss to high unemployment, people enlisting in the military or being called to active duty, and more students going to college out of state than Michigan brings in.

Michigan's birth rate also is falling, he said.

Still, with an estimated 10,071,822 Michiganders as of July 1, the state has more people than the census bureau actually counted in 2000, when it said Michigan's population was 9,938,444.

The states with the largest percentage increase in population are Nevada and Arizona, which grew 2.9% and 2.8%, respectively.

No Midwestern state was in the top 20 growth states.

University of Michigan economist Donald Grimes said the census figures suggest Michigan is experiencing a brain drain.

"Younger, more educated people ... are the mobile ones," he said.

Michigan's population loss also may be a bit of statistical burp, Grimes said, explaining that buyouts in the auto industry could have created an artificial spike in the number of retirees on the move.

Michigan State University economics professor Charles Ballard cautioned that growth isn't always a good thing.

He said Michigan's population would be about 17 million, if it had grown as much as some predicted in the 1970s -- meaning more air pollution, congestion and more farmland replaced by asphalt and subdivisions.

Liz Boyd, spokeswoman for Gov. Jennifer Granholm, said Michigan is still the eighth-largest state. But Granholm is working to create jobs and improve education to halt the state's population loss, Boyd added.

"We want to be growing our economy," Boyd said. "We want to be gaining population instead of losing population."

Michael LaFaive of the Mackinac Center for Public Policy said Michigan has high taxes and regulations that discourage businesses from staying in Michigan or coming to the state.

He said government programs designed to bring business to Michigan have been failing for decades.

Anne Masterson of Detroit Renaissance, a group of business leaders working to boost southeastern Michigan's economy, said the nonprofit is trying to raise $100 million in venture capital to promote new businesses.

And if there's a hint of hope, it's in the story of Michigan vs. Massachusetts more than 30 years ago, Grimes said.

Energized by the auto industry, Michigan's average household income trumped the national average by 20% or more at that time, while Massachusetts' households were among the poorest.

These days, the reverse is true, he said.

"The good news is that essentially that we're not permanently wedded to this underachieving status ... that things do change," he said.

October home prices fall by record 6.7 percent

Wednesday, December 26, 2007
Stephen Bernard / Associated Press

NEW YORK -- U.S. home prices fell in October for the 10th consecutive month, declining a record 6.7 percent compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, who helped create the index, in a statement today.

The previous record decline was a drop of 6.3 percent, recorded in April 1991.

Home prices fell 1.4 percent in October compared with the previous month.

The S&P/Case-Shiller home price index tracks prices of existing single-family homes in 10 metropolitan areas compared with a year earlier. A broader index of 20 metropolitan areas fell 6.1 percent. Among the 20 metropolitan areas used in the broader index, 11 posted record monthly declines.

Miami posted the largest loss among the 20 markets reviewed. Home prices in the Miami metropolitan area declined 12.4 percent in October compared with the same month last year.

Only three areas -- Charlotte, N.C., Portland, Ore. and Seattle -- posted year-over-year home price appreciation in October, with Charlotte posting the largest gains at 4.3 percent.

Personal bankruptcy filings soar

Number of cases filed in southeast Michigan jumped 63 percent through October 2007.

Wednesday, December 26, 2007
Nathan Hurst / The Detroit News

DETROIT -- The number of southeast Michiganians declaring bankruptcy is skyrocketing.

Through October, the number of Chapter 7 personal bankruptcies filed in Detroit's federal bankruptcy court jumped 63 percent compared with the first 10 months of last year. With two months of 2007 filings still to be reported, there already are 4,700 more Chapter 7 filings this year than for all of 2006.

Financial experts say the reasons for the recent ramp-up in bankruptcy filings are well-known to many Michiganians.

"It's definitely about the bad economy and housing market," said Natasha Swoish, manager of bankruptcy counseling and education services at GreenPath Inc., a Farmington Hills-based credit counseling service. "Especially from the Detroit area, we're seeing a lot of people coming in because of foreclosure. It's a last-ditch effort to try and save their homes."

Swoish said GreenPath's counselors work with those in debt to set up plans with creditors, rather than defaulting or seeking bankruptcy protection. But lately, she said, that option of last resort has become necessary for those out of work and swimming in debt.

According to court records, 19,345 individuals or married couples filed for Chapter 7 bankruptcy through October, the latest month of data available from the Eastern District of Michigan bankruptcy court, which covers Detroit, Flint, Saginaw and Bay City. That compares with 14,650 for all of last year.

The number of Chapter 13 filings, which allow consumers to reorganize their debt through a court-managed payment plan, stood at 9,902 through October, compared with 8,344 through October of last year.

A similar increase in personal bankruptcies is showing up nationally, with filings up 45 percent during the first nine months of 2007, according to the American Bankruptcy Institute.

Credit becomes necessity

Sara Horton is among this year's Chapter 7 filers.

She and her husband, Ed, have been swimming in medical bills and credit card debt since shortly after their 2001 wedding.

The couple's combined $41,000 income didn't stretch to support themselves and their two children. Credit cards were supposed to be for emergencies only, but just paying the rent and two car payments was stretching their paychecks thin, and every trip to the grocery store or pharmacy turned into an "emergency."

A yearlong stint in Florida didn't boost their income. Earlier this year, the couple gave up their two cars to auction and moved back to Sara Horton's hometown of Owosso with her father.

"We packed up and moved back to Michigan," Sara Horton said. "We gave up the vehicles and ended up filing bankruptcy to get out. We already had creditors calling nonstop and it was too much."

The Hortons filed for Chapter 7 protection in late July. After meeting with a slew of financial counselors, bankruptcy court trustees and creditors, the couple's deepening debt -- an amount nearly double her husband's current $18,000 annual salary -- was wiped away.

But Horton knows her troubles aren't over. For the next 10 years, the Chapter 7 filing will remain on their individual credit reports and can hurt their ability to obtain credit, get a mortgage or rental contract and even raise red flags with prospective employers.

Still, she feels it was the right choice.

"I still believe it was better for us to file than not," Horton said. "It's a clean slate, a chance to make a life for ourselves and more importantly, our children."

More bankruptcies expected

In October 2005, bankruptcy filings in Michigan and across the country soared, as consumers on the financial edge raced to file before implementation of a restrictive new bankruptcy law. Under the reforms that took effect Oct. 17, 2005, it became harder to qualify for Chapter 7 bankruptcy, in an effort to push more people to Chapter 13, which forgives less debt.

After the new law went into effect, bankruptcies dropped off dramatically.

In October 2005, 17,942 consumers filed for Chapter 7 bankruptcy in the Eastern Michigan bankruptcy court. In the following month, it was 213.

The lull lasted until Michigan's auto industry started its historic downsizing, sending the state economy into a tailspin and consumers back to bankruptcy court. With the continued slump in the state's labor and housing markets, experts say to expect more bankruptcies in the coming months.

"The housing market problems and the number of bankruptcies are very closely intertwined," said Mike Kruczek, chief lending officer at Dearborn Federal Credit Union. "They're a symptom of a problem that's incredibly difficult to solve."

Bankruptcy may save home

Experts say some homeowners are using bankruptcy to save their houses from foreclosure, as they struggle to make their house payments amid job losses and climbing interest rates on adjustable-rate mortgages.

They can do that two ways.

With Chapter 7, the bankruptcy court is allowed to discharge debt deemed unmanageable for consumers. Because other debt is forgiven in Chapter 7, it can make it easier for some homeowners to make their house payments and avoid foreclosure.

In the end, though, many who file Chapter 7 will lose their homes because they may already be in arrears on their mortgages before their debt is discharged.

Chapter 13, on the other hand, staves off foreclosure proceedings while the homeowner works out a plan to pay off mortgage debt and other obligations over time -- usually three to five years. To qualify, debtors must have a regular income and must stay current on their new bills.

About four in 10 filers in the Eastern Michigan bankruptcy court filed under Chapter 13 this year -- up from two in 10 in 2005.

While Horton said she believes her decision to file bankruptcy was a good one, financial counselors are still reticent to send consumers packing to the region's bankruptcy court inside the stark skyscraper at 211 W. Fort in Detroit.

"We've noticed a huge surge in bankruptcies," said Kruczek of Dearborn Federal Credit Union. "Thousands of our members have sought bankruptcy counseling this year, but we're trying to give them other options as well."

For many, that option is a nonprofit credit counseling agency, which pairs troubled consumers with experts who mediate between lenders and debtors to reduce interest rates and monthly payments. Some counseling agencies are partly supported by credit card firms and other lenders.

Kruczek said it's important for consumers considering bankruptcy to think about the potential effects, including how long such actions stay on one's credit report.

Entering a credit-counseling payment plan also can tarnish an individual's credit record, though generally not as badly as discharging debt completely.

Filings come with drawbacks

Of course, there are pitfalls. Chapter 7 and 13 filings wreak havoc on the bankrupt consumer's ability to obtain credit. The repayment plans often leave borrowers little room for financial maneuvering, sometimes leading to failure because of unforeseen problems such as an illness or job loss.

Chapter 7 filers face 10 years with blemished credit, while those who choose Chapter 13 are stuck with the scarlet-lettered credit report for seven years in most circumstances, though in some cases it can last for 10.

That was one of the reasons Kathleen Perrilla, a 46-year-old police service aide from Dearborn Heights, elected not to file bankruptcy for the second time three years ago. Her first bankruptcy, which she filed in 2001 after amassing a whopping $180,000 in medical and mortgage debt, was a bust for her personally.

"It was devastating," she said. "I was afraid to tell anyone what happened. I felt so alone."

Shortly after her bankruptcy case closed, Perrilla ran into more medical problems; this time, it was a serious heart condition that required medication and many doctor visits -- plus all the accompanying bills.

But before she joined the queue of bankruptcy filers lining the cold hallways at the bankruptcy court offices, Perrilla decided to seek credit counseling.

"I'm still paying off some of those medical bills," she said. "But I'm feeling better. Nothing feels worse than drowning in debt."

Housing ills expected to stretch into mid-2008

Expert forecasts rebound in 2009

December 21, 2007

BY GRETA GUEST
FREE PRESS BUSINESS WRITER

Earlier predictions that the housing market would recover early next year seem all too rosy now after months of struggles in the subprime mortgage market and a cascade of foreclosures.

David Seiders, chief economist with the National Association of Home Builders, cut his forecast for 2008 and now expects housing to pick up in 2009 nationwide after hitting bottom in the middle of next year.

"It's awfully fair to say the year ended up much weaker ... 15% below what I expected at the beginning of the year," Seiders said on a conference call Thursday. "For 2008 as a whole, I am looking at an overall down year."

Southeast Michigan's market recovery will lag as the slowdown in the auto industry continues, he said. Michigan has lost about 9% of its jobs since 2000 and has one of the nation's highest unemployment rates at 7.4%.

"I hate to say it but the Detroit area, southeast Michigan, is one of the weakest parts of the U.S. economy," Seiders said. "I think there everything really does depend on how the job market is going to perform, and I don't see that improving soon. I think the housing activity will remain low there for the next couple of years."

Drew Sygit, a certified mortgage and equity planner for Meadowbrook Mortgage in Bloomfield Hills, said he expects home values to continue to decline next year in metro Detroit.

"The overall housing market is going to continue to be hammered by the foreclosures," he said. "In March, we expect the peak of adjustable rate mortgages with $110 billion adjusting. Less than 10% will go to foreclosure, but it's still a big number and it will hit the Detroit market."

Seiders said the overall economy is slowing in the fourth quarter and it has hit a rough patch where the probability of a recession has increased quickly. He expects home prices, which have fallen 5% this year, to drop by 10% to 15% from the peak in 2005.

"We are right now in a danger zone," he said. "The overall economy ... it is touchy, but I think we will get through it without an actual recession."

By the middle of 2008, he predicts the bottom for new home sales will be hit with sales down 45% from the 2004-05 peak. And single-family housing starts are expected to decline 55% from the peak.

The bright spot is the rental market, which has been performing well as some people who lost their homes or are unable to get credit are renting.

Other highlights of the home builders' forecast:

• Residential remodeling is expected to fall by 5% next year and resume a recovery with the rest of the market in 2009, Seiders said.

• The contraction in the housing market cut 1% from gross domestic product in the third quarter, he said.

• More than 90% of homebuilders have negative outlooks or are under review for downgrade, Moody's Investors Service said in a Thursday report on the credit quality of nonfinancial companies.

• And 33% of building materials companies have negative outlooks, according to the report.

• Builder confidence remains at an all-time low in December. And housing starts fell 3.7% in November as builders slowed production to let demand catch up.

Fed plan would curb subprime lending

Tuesday, December 18, 2007
Associated Press

WASHINGTON -- The Federal Reserve unveiled a proposal today that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, recommended by staff and expected to be endorsed by the Fed at its morning meeting, are especially geared to the riskiest "subprime" borrowers, already painfully stung by the housing and credit debacles. The proposal is expected to apply to new, or future, loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation's banking system, is considering:

*restricting lenders from penalizing certain subprime borrowers -- those with tarnished credit or low incomes -- who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.

*forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.

*barring lenders from making loans when they don't have proof, or verification, of a borrower's income.

*prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

"Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole," said Fed Chairman Ben Bernanke in prepared remarks. "They have no place in our mortgage system," he added.

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees -- except for a fee to obtain a credit report -- until after the consumer receives the disclosures. The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans; It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory, or "teaser" rates.

In addition, the Fed is expected to propose barring lenders from paying mortgage brokers a fee that exceeds the amount the would-be borrower had agreed to in advance that the broker would receive.

And, the Fed would ban certain practices, such as failing to credit a mortgage payment to a borrower's account when the company servicing the mortgage receives it. The Fed also would prohibit a broker or other company from coercing or encouraging an appraiser to misrepresent the value of a home.

Before taking effect, the rules must be voted again following a period of public comment and possible revisions.

The Fed's response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed's regulatory powers. Some critics have complained that Bernanke's predecessor -- Alan Greenspan, who ran the Fed for 18 1/2 years -- failed to act as a forceful regulator especially during the 2001-2005 housing boom, where easy credit spurred lots of subprime home loans and many exotic types of mortgages.

When the housing market went bust, the carnage was the worst in subprime loans.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association from July through September, a record 4.72 percent entered the foreclosure process during those months. At the same time, a record 18.81 percent of the subprime adjustable-rate loans were past due.

When home values weakened, borrowers were left with loans balances that eclipsed the value of their homes. They also were clobbered when their loans reset with much higher interest rates.

Michigan in top 10 for foreclosure filings in November

Wednesday, December 19, 2007

Alex Veiga / Associated Press

LOS ANGELES -- U.S. homeowners increasingly failed to keep up with their home loan payments in November, as the number of foreclosure filings surged 68 percent nationwide compared with the same month a year ago, according to a mortgage research company.

In all, 201,950 foreclosure filings were reported last month, compared with 120,334 in November 2006, Irvine-based RealtyTrac Inc. said Wednesday.

Last month's filings fell 10 percent from October's 224,451.

The last time there was a sequential drop in foreclosure filings was between August and September, when they fell 8 percent.

"It's a little bit of good news in the otherwise murky real estate market right now," said Rick Sharga, RealtyTrac's vice president of marketing. "The fact that we're seeing a 10 percent decrease is significant. It's a good thing."

The U.S. had one foreclosure filing for every 617 households in November, RealtyTrac said.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

Forty-three states saw an increase in foreclosure filings over last year.

The decline in filings from October to November likely corresponds with a lull in adjustable-rate mortgage resets, Sharga said.

Such loans typically have a low introductory interest rate, then reset sharply higher after a set period. The number of borrowers who took on adjustable-rate mortgages offering a teaser rate for just two or three years rose sharply in the last couple of years of the housing boom, particularly in high-priced states such as California.

But many borrowers have been unable to afford the increased payments that come with the resets, and falling housing prices have made it harder to refinance or sell.

A flood of rate resets for such loans has helped drive up the number of home loan defaults in the last few months.

"We'll see another fairly big spike in (foreclosure) filings in early '08," Sharga said. "Then there's another group of loans that's due to reset in May and June, so we'll see another wave of defaults probably in the fall."

Experts estimate some 2 million adjustable-rate mortgages are due to reset at higher rates in the next seven months.

Nevada, Florida and Ohio had the highest foreclosure filing rates in the country last month, RealtyTrac said.

Nevada reported one foreclosure filing for every 152 households, earning the state the highest rate in the nation for the 11th month in a row. The state had 6,694 filings in November, up 1 percent from October and up 167 percent from November 2006.

Florida had one foreclosure filing for every 282 households. The state reported 29,238 filings last month, down more 3 percent from October, but up 212 percent from November last year.

Ohio reported one foreclosure filing for every 307 households. The state had 16,308 filings last month, down nearly 6 percent from October and nearly double the number from November 2006.

California had 39,992 foreclosure filings last month, up 108 percent from a year earlier and the most in the nation. Its foreclosure rate was one filing for every 325 households.

The state's filings fell 21 percent from October's total.

Rounding out the states with the top 10 foreclosure filing rates in November were Colorado, Michigan, Georgia, Arizona, Indiana and Illinois.

Across state, more appeal assessed home values

December 16, 2007

BY MARGARITA BAUZA
FREE PRESS BUSINESS WRITER

Ryan Vinco bought his house in December 2004 for $300,000. This past February, he received a tax statement based on the city of Riverview's assessment of his house's new worth, $412,000.

His taxes increased from $6,000 in 2004 to nearly $8,000 in 2007.

In May, he filed an appeal with the city of Riverview. The appeal was denied.

"There's just no way my taxes should be that high," said Vinco, 29, whose house is appraised for $290,000, three years after buying it.

Vinco is waiting for a date with the Michigan Tax Tribunal to contest Riverview's denial of his appeal.

Riverview assessor Denise Kuch agrees that Vinco experienced a considerable jump in the assessed value of his home. His assessed value was $171,500 in 2005 and $206,000 in 2007, Kuch said. Homeowners are typically taxed on half the cash value of their home.

Communities all around Michigan say they are experiencing more residents appealing the assessed value of their homes.

Appeals in Riverview increased from four or five annually to 14 this year, said Kuch, adding: "I think we'll see an increase in 2008."

'Through the roof'

Tax appeals at the Michigan Tax Tribunal, which hears homeowners' denied petitions from local municipalities, have increased every year since 2003 when real estate property values began to slide in Michigan.

In fiscal year 2007, the state handled about 5,152 appeals to property taxes around the state. That's up from 4,066 in 2004.

Because the state tax tribunals handles unsuccessful tax appeals that occur at the local level, state numbers don't paint the whole picture of what's going on in communities.

"The number of appeals have gone through the roof," said Ferndale City Manager Robert Bruner. Appeals there numbered 388 in 2005 and 420 in 2007.

Bruner said the city is accustomed to handling corporate tax appeals but it wasn't until this year that homeowners began to increasingly appeal their taxes, too.

"There are law firms out there that will basically appeal commercial taxes on contingency. If they succeed, they get paid," Bruner said. "What's new is the number of residential appeals. It's followed the real estate market. The lower the real estate market goes, the more people come in for tax appeals."

Bruner said he's satisfied with the assessed value of his Ferndale home, which he bought in 2002, from someone who had owned the house for 70 years. When he bought the house then, his taxes tripled. However, he and his wife recently appealed taxes on a home she bought in Ypsilanti shortly before the two met. That house has been on the market for nine months and he said the taxes on it are too high. He is waiting to hear whether his appeal was successful.

Standard procedure

The board of review process is the same in all communities statewide. Homeowners usually get their notices of assessed valuations in early February.

If they choose to appeal their taxes, they are required to fill out a state form and appeal in their communities in early to mid-March.

More real estate businesses are starting to sell an appeals service to homeowners, which surprises Bruner because he doesn't see the process as "very onerous."

Vinco, the Riverview resident, sought the help of Jumana Judeh, owner of a Dearborn real estate firm, when he got his tax bill last February.

Judeh said her business load has shifted significantly from appraising properties for lending purposes to appraising for tax appeals.

Judeh said it's the first time since she's been in business that residential assessments have been lower than taxable values and that makes homeowners nervous. The disconnect has led her tax-appeal business to increase about 30% this year, she said.

"The norm now is that we appraise lower than what the city thinks it's worth," she said.

Runner of Ferndale said that tax revenues in the city haven't yet declined as the result of the rise in tax appeals.

Ferndale revenue has not yet decreased because of the cushion between the aggregate assessed and taxable values, said city assessor Jay Singh. In other words, the assessed value of homes for lending purposes is, in most cases, still higher than taxable value.

Although the assessed values eventually may decrease to reflect the decline in market values of properties, the taxable value could still go up by the rate of inflation, he said.

More appeals, more work

Singh said the added appeals have added work.

"Yes, more appeals require more hearing time, more board member time, more clerical time for processing paper and record keeping," he said. "But that is our responsibility to give the opportunity to every taxpayer who thinks that his assessed value should be lower."

David Nykanen, who is also handling more tax appeal business at his Southfield law firm Steinhardt Pesick & Cohen Professional Corp., says property owners shouldn't kid themselves into thinking that a tax appeal is a slam dunk.

"You're not going to get any tax savings unless you believe your property is worth less than twice the taxable value," he said.

"The number of calls we're getting is really growing," said Nykanen. "They usually start after people get their assessment reports. But now they're even calling before they get them. I think that's a sign that appeals are going to go up."

Housing Starts, Permits Decline

By TOM BARKLEY
December 18, 2007 9:00 Wall Street Journal

WASHINGTON -- The pace of groundbreaking for home construction in the U.S. fell in November after rebounding for the first time in four months in October, while building permits slid to the lowest level in 14 1/2 years.

Housing starts declined 3.7% to a seasonally adjusted 1.187 million annual rate in November, after rising 4.2% in the month to 1.232 million, the Commerce Department said Tuesday. Originally, Commerce reported October starts 3.0% higher at 1.229 million. The decrease was better than market expectations for a 5.7% drop to a 1.16 million annual rate, according to a Dow Jones Newswires survey.

Year-to-year, housing starts during November were 24.2% below the level of construction in the same month of 2006.

Building permits decreased 1.5% to a 1.152 million annual rate in November, the lowest level since June 1993. Economists had expected permits to edge up 0.5% to a rate of 1.164 million. October permits fell 7.2% to 1.170 million.

November single-family housing starts decreased 5.4% to 829,000, the lowest pace since April 1991. Construction of housing with two or more units rose 0.6% to 358,000; within that category, groundbreakings of homes with five or more units -- or multi-family -- were 4.4% higher at 332,000.

Regionally, housing starts fell 16.3% in the Northeast, 1.5% in the Midwest and 6.9% in the West. They rose 0.3% in the South.

Based on unseasonally adjusted figures, an estimated 88,400 houses were actually started in November nationwide. An estimated 85,000 building permits were issued last month, also based on unadjusted figures.

Metro job market to start off bleak in 2008

Manpower survey: Skittish employers plan to hold off on hiring, or shrink their work force.

Nathan Hurst / The Detroit News
December 11, 2007

Metro Detroit employers will be paring back job offers during the first quarter of 2008, a sign that Michigan's growing pool of jobless workers won't find it easy getting work anytime soon.

While 13 percent of employers told the quarterly Manpower Employment Outlook Survey they expect to increase their work forces in the first three months of next year, 56 percent said their payrolls would remain steady and 18 percent said their hiring will slow down.

"It all has to do with the economy," said Annette Apsley, a staffing specialist at Manpower Inc., the Milwaukee-based employment agency that conducts the quarterly survey. "Many companies are nervous about what's yet to come."

The Manpower survey, which was to be released today, shows employers in southeastern Michigan remain nervous about the region's near-term economic future, which is plagued by a sagging housing sector, a credit-market crunch and an exodus of manufacturing jobs. At 7.7 percent in October, the state's unemployment rate is the worst in the nation.

In the survey, only Oakland County showed signs of increased hiring in the next quarter. Some 10 percent of employers there predicted they'll add workers in the first three months of 2008. Employers in Wayne, Macomb and Livingston counties said they expect respective decreases of 14 percent, 7 percent and 33 percent in hiring, according to the survey.

The dour outlook follows brighter predictions made in September for hiring during the fourth quarter of 2007. Then, more Metro Detroit businesses surveyed said they'd be adding workers in October, November and December.

'Firms want to be careful'

Employers have quite a bit to worry about, said Don Grimes, senior economic researcher at the University of Michigan.

"Right now, everybody's being really cautious, especially with so much talk of a recession," Grimes said Monday. "Firms want to be careful. They want to wait and see exactly how things'll shake out."

Grimes said many experts see the next quarter as a turning point for the nation's economy. Until employers see which way it's headed, many are likely to hold off on any expansion of their work forces.

In many cases, companies are looking to see if earlier job cuts at the Detroit's Big Three automakers and suppliers are working, Grimes said. Employers also are looking at today's expected rate cut by the U.S. Federal Reserve as an early indication of how the government will respond to the current credit crunch, and whether that reaction will be strong enough.

"There's a lot of uncertainties out there, and when there's uncertainty, businesses would rather remain cautious," Grimes said. "But while some people are talking about a recession, I think we'll see in the first quarter that a lot of people realize those fears won't materialize, and the second quarter will get better."

UPS expects to grow

Amid the gloom in the January-March job outlook for Metro Detroit, some businesses continue to show slight growth in hiring, Manpower's Apsley said. Among them are employers in the transportation, logistics and shipping and education sectors.

One of those is UPS, the Sandy Springs, Ga.-based shipping and logistics firm that employs thousands of delivery drivers, package sorters, pilots and customer service representatives in Michigan. Company spokesman Dan McMackin said UPS has continued to have a growing presence in Michigan, despite the state's downturn.

"We're always hiring," McMackin said. "Many of the service enhancements we've rolled out in recent years that get packages where they're going faster has meant we've had to hire more employees."

He said he expects that trend to continue next year.

Job-seekers will continue to face intense competition, even for positions that used to have more lax education or experience requirements, Apsley of Manpower said. She encouraged those seeking new jobs in the New Year to start looking now -- and to start assembling a perfect resume and an arsenal of solid references.

"With so many people out there looking, you've got to be nothing less than perfect," Apsley said. "These days, no business can afford anything less out of an employee."

Families fearing loss of homes seek lender help

Ron French / The Detroit News

December 14, 2007

DETROIT -- Armed with thick loan documents and thin hopes, desperate homeowners flooded into Cobo Center on Thursday to meet with lenders, searching for ways to stave off foreclosure.

About 4,500 people came to the forum, possibly the largest turnout to such an event in the nation, according to industry and government officials. More than 200 were lined up before the doors opened at noon, and a steady stream of the unlucky and the underfinanced continued until lenders closed shop at 8 p.m. They came in dirty blue jean jackets and fur-collared overcoats, clutching leather briefcases and paper bags brimming with mortgage records.

"I'm not expecting anyone to work miracles," said Chris Kraus, 37, of Waterford, who came to the forum with his wife and two children. "It's tough on everyone."

Kraus looked around at the long line of homeowners awaiting a chance to plead for their homes. "This is going to change everything."

The outpouring of financially troubled homeowners at the forum -- the first of its kind in Michigan -- punctuated the depths of the region's housing meltdown. Metro Detroit has one of the highest foreclosure rates in the nation. More than 70,000 homes in Metro Detroit have received a foreclosure filing since January 2006. The foreclosure rate set a record high in January 2006, and has increased sixfold since then.

At Cobo, homeowners sat at tables holding numbered cards, sometimes waiting more than two hours for their turns to talk to loan officers of the companies that held their mortgages. Representatives from 23 lenders sat along the walls of the ballroom, some pecking data into laptops, some listening intently as homeowners told their tales of lost jobs, bad luck and adjustable-rate mortgages.

Some cried. A few shouted. Many seemed numb and plaintive, willing to do whatever it took to save their homes.

James and Sarah Cagle brought two of their three children to help plead with HSBC officials to hold off a Sheriff's sale of their West Dearborn home. "My wife lost her job first, then I lost mine two months ago," said James Cagle, 28. He cleaned out the $3,000 he had in his 401(k) to pay the mortgage company, but that's only half the amount the couple are behind in payments. "I start a new job in January, but the sheriff's sale is Jan. 3," he said.

"We went to an FHA (Federal Housing Administration) office to ask what to do, and the lady said 'My advice is to move out of state,' " said Sarah Cagle, 27, as she began to cry. "We grew up here. We don't want to move."

The forum was sponsored by Michigan Attorney General Mike Cox, who brought 60 members of his staff to help run the event. Similar events in Ohio had drawn 500 to 900 people. "We planned for as many as 2,000," said Matt Frendewey, spokesman for the attorney general. "We're overwhelmed. You don't know whether to feel good or bad about it. You feel good that you're able to help so many people, but it's a stark reminder of how bad the situation is."

Dozens of bills are being considered in the state Legislature to reform the mortgage industry and offer assistance to those on the verge of losing their homes. But for the thousands attending the forum, those changes likely will come too late.

"The laws can't catch up quick enough to help all these people," Cox said. "But being here talking to lenders is a good way to move in the right direction."

The forum was the first time Michael Brown had spoken to his lender. Brown, 37, was three months behind on payments on his St. Clair Shores home. While hospitalized for two months with a spinal cord injury, Brown's mortgage adjusted upward from 7 percent to 10.5 percent, hiking his monthly payment by almost $500.

"I got behind and depression set in, and I stopped opening mail from the mortgage company," Brown said. The forum gave him the push he needed to contact his lender.

GMAC brought 16 loan officers to the forum, talking to more than 100 homeowners with GMAC mortgages. "This is our 82nd event like this (around the country), and this is the biggest," said Gary Neuman, director of a GMAC program geared at staving off foreclosures. "We've lost a lot of ground in Detroit. Basically, we (lenders) are locking arms and trying to hold things together.

"It's to our benefit to work with borrowers," Neuman said. "Then they don't have a foreclosure on their record and we don't have another vacant house on our hands."

Neuman estimated that GMAC would be able to keep 75 percent of the borrowers he spoke to Thursday in their homes by restructuring their loans.

Lillie Davis, 60, of Detroit was one of the first in line when the doors opened at noon, and emerged seven minutes later with a Monday-morning appointment with a loan counselor. She'd purchased her home in 1977 for $20,000, but through a series of refinances now owes $71,000.

After an initial teaser rate on her latest refinance reset to 10.9 percent, her mortgage payment rose above her monthly fixed income. Her mortgage company wasn't at the forum, but after meeting with a free credit counselor who promised to contact her mortgage company for her, Davis was all smiles. "The pressure is lifted a bit," she said.

At a nearby table, the Cagles were girding themselves to be rejected one more time.

"I was just waiting for the lady to tell us no," said Sarah Cagle. "But she looked up and said yes!"

HSBC restructured the family's loan, lowering the rate and extending the term. Monthly payments will decrease from $1,350 to $775. Best of all, HSBC canceled the Sheriff's sale that was just three week's away.

"I burst into tears and I hugged the lady," said Sarah Cagle. "I kept saying thank you. She told me she was supposed to go to her child's play tonight, but it was worth missing it to see the looks on our children's faces.

"It's the miracle we needed," Cagle said.

Fed lends welcome measure of relief

As housing crisis persists, expect further trims in '08

December 12, 2007

BY SUSAN TOMPOR
FREE PRESS COLUMNIST

The For Sale signs and foreclosures won't disappear overnight, or even next year, but the Fed's third interest rate cut for 2007 -- a quarter percentage point on a key rate -- will give some families a better shot at holding onto their homes.

The Fed's rounds of rate cuts mean: Adjustable-rate mortgages won't reset and soar as high as they would have otherwise. Home equity lines of credit are getting a tad more affordable. The average 30-year mortgage rate hit 6% last week -- the lowest point in more than two years, reports Bankrate.com.

Oh, yes, we're still treading through a toxic dump of bad debt. The threat of a recession continues to be higher than usual. Home values will continue to fall.

On Tuesday, the Dow fell by 294.26 points and closed at 13,432.77 because investors had hoped for a deeper cut.

But the Fed's actions -- on top of a strategy to freeze interest rates for some home borrowers with bad credit and adjustable-rate mortgages -- will do some good.

"It is helping to minimize the collateral damage," said Diane Swonk, chief economist for Mesirow Financial in Chicago.

The Federal Reserve cut short-term rates to 4.25%, down from 4.5%. It was the third rate cut since Sept. 18. Banks responded and lowered the prime rate to 7.25%. The prime rate influences certain credit cards, home equity lines of credit and other loans.

Economists say that one, two or even three more rate cuts could be ahead in 2008 as the Fed tries to patch the crumbling foundations in the U.S. housing market.

So far, many market watchers have been shocked by how long, how deep and how ugly the credit crunch has become. The subprime mortgage shakeout slapped investors hard in August, but things seemed to simmer down early in the fall. Then, tighter credit in response to subprime defaults whacked investors again in late October and November.

The worst, it would seem, is not over.

"People lost confidence for a second time and that's very unusual," said Dana Johnson, chief economist for Comerica Inc.

Johnson puts the chances of a recession next year at 45%.

Will the Fed's cheap money help?

Yes, for now.

"Most importantly, it will help settle very unsettled financial markets," said Mark Zandi, chief economist for Moody's Economy.com.

Although stocks fell Tuesday, the Dow Jones Industrial Average had gained about 980 points between late November and Monday as investors anticipated more rate cuts. The Dow had closed as low as 12,743.44, on Nov. 26.

Why did Wall Street wimp out Tuesday?

"Investors are spoiled," said Sam Stovall, chief investment strategist for Standard & Poor's equity research services in New York.

Stovall said many on Wall Street had expected that the Fed would cut rates by half a percentage point.

Auto stocks also fell Tuesday. General Motors Corp. closed at $27.51 a share, down $1.49 a share, or 5.14%. Ford Motor Co. closed at $6.97 a share, down 17 cents, or 2.38%.

Yet the Fed's continued action will bring relief to consumers who are borrowing to buy cars or homes or worrying about higher payments on adjustable-rate mortgages.

Roughly 2 million homeowners by some estimates will see their adjustable-rate mortgages shoot up during the next two years.

Higher rates -- coupled with declining home values in many markets, including Michigan -- mean that the foreclosures would keep on coming.

Lower rates could give homeowners more breathing room.

Let's consider a homeowner with a $200,000 loan balance outstanding on an adjustable-rate mortgage with 27 years remaining.

Three years ago, the initial loan of $211,000 at 4.5% would have carried a monthly payment of $1,069.

Without any Fed action, that homeowner could have been looking at dishing out an extra $372 a month once the mortgage reset at 7.5%, the rate in place earlier this summer before the Fed cuts, according to Greg McBride, senior analyst for Bankrate.com.

Now, after the Fed began cutting rates, the mortgage rate would go up -- but only to about 5.75%.

The dollar difference?

At 5.75% with a remaining balance of $200,000, the monthly payment would be $1,217 -- an increase of $148.

"Borrowers will feel less pain," McBride said.

Even so, that doesn't mean troubled times are coming to an end.

"It's not going to stop the decline of home prices in its tracks," said Bob Walters, chief economist for Quicken Loans and Rock Financial in Livonia.

Walters expects the housing market to be challenged until 2009. He said the Federal Reserve could ultimately need to cut the federal funds rate -- the rate banks charge each other on overnight loans -- to 3.5% or 3.75%.

To be sure, some doom-and-gloomers on Wall Street now worry that the Fed won't cut rates again. But others disagree.

"Our feeling is the Fed will cut rates at the end of January," Stovall said, adding that Standard & Poor's is forecasting that the federal funds rate could hit 3.5% by the second quarter of 2008.

No one is expecting the Fed to drop rates to the ultra-low level of 1% -- where short-term rates were in June 2004 before the Fed began raising rates.

Some even say that the Fed's efforts to keep rates around 1% for so long contributed in part to today's mortgage meltdown. Borrowers jumped at the chance to buy more lavish living rooms than they could afford.

"It's like a deal that you can't pass up. It's like the Mafia that's printing money for you," said David Littmann, senior economist for the Mackinac Center for Public Policy.

Littmann warns that the Fed's latest rate cuts will fuel inflation ahead.

"They're responding to short-term politics rather than long-term economics," Littmann said.

The mortgage mess has to get cleaned up one way or another. Given that it's bad politically to throw homeowners on the street, I'd bet that rate cutting will continue.

Home Foreclosures Surge to a New High

By SUDEEP REDDY
December 7, 2007; WSJ

The number of homes starting foreclosure jumped in the third quarter to the highest level since the Mortgage Bankers Association began keeping track in 1972, while the fraction of homeowners behind in their payments rose to the highest level in 21 years.

Both reflect the continuing credit-market turmoil, a slowing economy and falling house prices.

Foreclosures rose for all types of mortgage loans, according to the association's quarterly survey. But the upturn was sharpest for adjustable-rate mortgages, including homeowners with better records who are considered to be in the "prime" loan category.

An uptick in foreclosure starts for prime, fixed-rate mortgages was largely because of increases in four states -- Florida, Ohio, Michigan and California -- that are taking some of the worst hits from the housing market correction. Doug Duncan, the association's chief economist, said that in most states the increase in foreclosure starts for those loans is due to borrowers falling behind on payments for "traditional reasons" such as employment or medical or marital problems, and then being unable to sell their homes because of market conditions.

About 0.78% of loans entered the foreclosure process during the quarter, compared with 0.65% from the second quarter. Some 1.69% of all loans outstanding at the end of the quarter were in the process of foreclosure, compared with 1.4% in the second quarter and about 1% in the year-earlier third quarter.

The mortgage delinquency rate, a measure of loans at least 30 days past due but not in foreclosure, rose to a seasonally adjusted 5.59% for one-to-four unit residential properties, the highest since 1986. That was up almost half a percentage point from the second quarter and nearly one percentage point higher than a year earlier.

Subprime adjustable-rate mortgages continued to have the most problems, with 4.72% of those loans starting the foreclosure process during the quarter. Those mortgages represent 6.8% of loans outstanding but accounted for 43% of new foreclosures during the quarter.

Prime adjustable-rate mortgages, which account for one out of seven loans, accounted for 18.7% of new foreclosures. "This development is not especially encouraging for the future, as scheduled resets on adjustable-rate mortgages intensify in the fourth quarter and remain high in 2008," Daiwa Securities economist Michael Moran said in a note to clients.

Separately, U.S. homeowners' equity in real estate dropped $128.5 billion, or 1.2%, in the third quarter to $10.6 trillion as home prices fell and mortgage debt rose, according to data released yesterday by the Federal Reserve. That is the second quarterly decline. Homeowners' equity surged 38% from 2002 through the end of last year and peaked at $10.7 trillion in the first quarter, according to the Fed's quarterly flow of funds report.

The Fed also said borrowing to banks at its discount window surged over the past week. Discount-window loans jumped to $2.1 billion through Wednesday, up from just $8 million a week earlier.

Mortgage rate freeze not cure-all

December 7, 2007 Detroit Free Press

BY TODD SPANGLER and SUZETTE HACKNEY
FREE PRESS STAFF WRITERS

WASHINGTON -- A ballyhooed industry plan to freeze interest rates for some subprime mortgage holders met with skepticism in some quarters Thursday as borrowers wondered whether they would qualify and critics said it may be inadequate to address the nation's foreclosure crisis.

The call for help was particularly passionate in metro Detroit, which has one of the worst home foreclosure rates in the nation. On Thursday, the Mortgage Bankers Association released data indicating Michigan is near the top in home mortgage delinquencies and new foreclosures.

"I've been in this for 50 years and I've never seen it like this," said Al Bileti, 72, of Fraser, who works as a consultant for Lake Huron Credit Union in Saginaw and offers credit counseling to fellow parishioners at St. Athanasius in Roseville. "It scares me."

The plan announced by the mortgage industry and the Bush administration Thursday offered some hope to borrowers, provided they got their subprime, adjustable-rate mortgages between Jan. 1, 2005, and July 31 this year and their initial interest will reset between Jan. 1, 2008, and July 31, 2010.

With some 1.8 million loans falling into that category, the industry expects its new program -- which should be up and running within weeks -- to guide as many as 1.2 million homeowners through a process in which hundreds of thousands of them could see interest rates frozen at their initial rates for five years.

Subprime loans are those made to people whose credit histories keep them from qualifying for prime loans with lower interest rates. Many of these loans in recent years have had low initial rates, sometimes called teaser rates, that reset higher after a few years.

Even though the program announced Thursday is voluntary, industry officials and Treasury Secretary Henry Paulson said they expect most lenders to follow through as the value of housing is threatened in many markets across the country.

"The investors who own these loans recognize that foreclosure is costly," Paulson said.

Under the plan, borrowers who believe they will have problems making their monthly payments are asked to contact the companies servicing their loans, or mortgage counselors with the Hope Now Alliance at 888-995-4673.

Borrowers who have no more than one payment delinquent would be guided through a process in which their ability to pay will be determined. If appropriate, they could receive a 5-year freeze or see their loan refinanced.

Detroit Mayor Kwame Kilpatrick, who recently hosted a forum on the foreclosure crisis with the U.S. Conference of Mayors, said he hopes the voluntary program works.

"I'm anxious to see how many families this plan will actually benefit," Kilpatrick said. "Mayors across the nation have been left to pick up the pieces of this subprime tsunami."

But U.S. Rep. John Dingell, a Dearborn Democrat, said the Bush administration and industry plan offers little to southeastern Michigan, where foreclosures have been on the rise for years, unemployment is high and home values are plummeting.

"The president's plan would seem to exclude many of those most in need of help. ... I hope that this is not the final word from the Bush White House on this very important issue," Dingell said.

Industry officials said they are working on a case-by-case basis to reach out to borrowers in trouble.

"I don't believe any servicer gives up on people," said Michael Heid, an official with Wells Fargo Home Mortgage. "Some people will return to renters' status, but it's not for lack of trying."

However, Kenneth Wade, chief executive officer of NeighborWorks, a national network of community development organizations, said he has heard anecdotally from mortgage counselors that many people have run into trouble renegotiating payment schedules.

He said Thursday's announcement gives lenders a chance to disprove those reports.

He also noted that metro Detroit has been hit particularly hard.

"You guys are in the eye of the storm," Wade said. "No doubt about it."

"Many of these people are in denial," Bileti said. "They don't want their families to hear about foreclosures or past-due bills. Often people just go home and get further into debt."

U.S. Home Foreclosures Hit Record High in 3rd Quarter

By MICHAEL R. CRITTENDEN
December 6, 2007 Wall Street Journal

WASHINGTON -- The number of mortgage loans at least 30 days past due reached its highest point since 1986 during the third quarter as foreclosure starts increased across all loan types, according to a Mortgage Bankers Association survey released Thursday.

The quarterly survey found the delinquency rate for mortgage loans on one-to-four unit residential properties was 5.59% during the third quarter on a seasonally adjusted basis. That represented an increase of 47 basis points from the second quarter of this year and 92 basis points from the third quarter of 2006.

Similarly, the rate of loans actually entering the foreclosure process was 0.78% for the quarter, 13 basis points above the second quarter figure and 32 basis points higher than the third quarter of 2006.

Subprime adjustable rate mortgages (ARMs) showed the worst deterioration, with a full 4.72% of the outstanding loans starting the foreclosure process during the period.

MBA Chief Economist Doug Duncan said the results were not surprising considering the ongoing fallout in the housing market.

"This is the first quarter which registers the full combined effects of the seizure of the nonconforming securitization market, broad-based home price declines, continued weakness in some regional economies, and rate adjustments on monthly payments," Mr. Duncan said in a release. "The predictable results are increased delinquency and foreclosure."

The MBA survey found that 43% of the loans entering foreclosure during the third quarter were subprime ARMS, which represent 6.8% of all mortgage loans outstanding. Prime ARMs, those offered to more creditworthy borrowers, also climbed significantly, rising 40 basis points to 1.02%.

The survey found that delinquencies and foreclosures were most significant in a handful of states, including Florida, California, Ohio and Michigan. Florida and California, the two largest states in terms of mortgages outstanding, had 42.4% of the total foreclosure starts for prime ARMs and 33.7% for subprime ARMs during the quarter.

Mr. Duncan said the problem in states like California is an excess in supply caused by over building and properties returning to the market. In other states, the housing woes can be attributed to economic dislocation and traditional reasons such as a change in marital status or unforeseen medical expenses.

States' Finances Are Feeling the Pinch

Tax Revenues Grow
More Sluggishly;
Blame the Economy

December 5, 2007 WSJ

A sluggish economy and housing-market woes are taking a toll on state government coffers -- and that is expected to mean further slowing in spending programs and tax relief.

That's the picture that emerges from interviews with state-government representatives and a joint semi-annual report to be issued today by the National Association of State Budget Officers (www.nasbo.org/) and National Governors Association (www.nga.org/portal/site/nga). The overall state-budget picture has undergone "continued deterioration" in recent months, says Ray Scheppach, executive director of the National Governors Association.

Slower economic growth hits state governments in various ways, including declining revenue from sales taxes as consumers rein in spending on everything from new cars to home furnishings. But officials worry that state budget headaches likely will continue to be significant for years to come because of intense spending pressures from such areas as healthcare, infrastructure needs and under-funded pensions.

"We now expect revenue growth in at least 15 to 20 states to come in below projections" over the next six months or so, says Scott Pattison, executive director of the National Association of State Budget Officers.

The report shows that, based on enacted budgets for fiscal 2008, which for most states ends June 30, states expect revenues from personal income, sales and corporate income taxes will be about 2.9% higher than those collected in fiscal 2007, a growth rate Mr. Pattison calls "relatively sluggish." In fiscal 2007, revenues rose 5.6% from the previous year. But even the latest projections are seen as overly optimistic because of "reports of continued softness in the fiscal situation of many states since the data was collected for the report," Mr. Pattison says.

State and local taxes have attracted growing attention in recent years in part because of the rapid growth of the alternative minimum tax, which has different rules than the regular federal income-tax system. Taxpayers ensnared by the AMT, for instance, can't deduct state or local taxes. About four million taxpayers were subject to the AMT last year, and unless Congress acts to keep it from spreading, an estimated 25 million taxpayers will be ensnared by the AMT for 2007.
State-tax revenues generally are expanding at a "substantially slower rate" than earlier this year, says Harley Duncan, executive director of the Federation of Tax Administrators, which represents tax and revenue agencies. That includes a "significant slowdown" in sales-tax collections, a trend he says is "directly traceable" to the housing situation.

Spending growth by states also is slowing. For fiscal 2008, states have budgeted spending increases of 4.7%, down sharply from 9.3% growth in fiscal 2007, and below the 6.4% average spending growth of the past 30 years, according to the report. Last year's surge in spending came as a result of states dipping into surpluses from prior years to provide tax cuts and boost spending on programs that had undergone big budget cuts in the last fiscal downturn, the report says. Many states continued to face spending pressures from such areas as Medicaid costs and under-funded employee pension systems.

Facing budget headaches, some states already have begun to reduce spending. Rhode Island Gov. Donald L. Carcieri recently released a list of around 500 job positions that are being eliminated, or are targeted for elimination, in a move projected to save about $41.6 million a year. "As the state's budget forecast has grown even worse, it has become clear that we must redouble our efforts to cut state spending," Gov. Carcieri said.

Meanwhile, states in aggregate are all but eliminating tax cuts. States enacted net tax and fee cuts of just $115.5 million for fiscal 2008, far below the $2.1 billion in cuts in fiscal 2007, according to the report.

But that 2008 figure already is out of date because of actions in some states since the data in the report were tabulated. Maryland recently approved a wide variety of tax increases, including lifting the sales tax to 6% from 5% starting in January. Maryland also raised personal income taxes, corporate income taxes, tobacco taxes and vehicle excise taxes.

A number of states are continuing to raise taxes on cigarettes and other tobacco products, a far easier political target than most other types of taxes. This category represented the largest source of revenue increases enacted in fiscal 2008 budgets.

Other states facing budget problems include Michigan, hurt by the struggling U.S. auto industry. Earlier this fall, Michigan approved higher personal income taxes, and, in a move that drew strong criticism, also decided to slap a 6% sales tax on a wide range of services that previously were exempt. But Michigan lawmakers reversed course in recent days: They decided to repeal the 6% tax on services and, instead, impose higher business taxes.