Article in April 25 2007 Wall Street Journal

House Prices Slide as Property Glut Grows

Buyers Gain Bargaining Power
In Busy Spring Selling Season;
Auctions in Palm Springs

By JAMES R. HAGERTY
April 25, 2007

Tighter credit and a growing glut of properties are depressing an already weak U.S. housing market, wrecking the industry's hopes for an early rebound.

That leaves buyers in a strong position to negotiate for bargains during the spring home-shopping season, the busiest time of the year for housing sales.

Yesterday, the National Association of Realtors reported that sales of previously occupied homes in March dropped 8.4% from the prior month to a seasonally adjusted annual rate of 6.12 million units -- the largest monthly drop since 1989. The trade group said the median price for homes was $217,000 in March, down 0.3% from a year earlier.

The data reflect sales that closed in March; most of those were negotiated in January and February. The Realtors said bad weather in February hurt March sales. The drop in March followed three months when home sales increased nationally.

Since March, the market appears to have deteriorated further in many parts of the country. Reports from builders show that sales in the past few weeks "have really plunged," says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. She says prices of new homes also are falling as tighter credit eliminates some potential buyers and builders struggle to shed excess inventory.

Lenders, stung by a surge in defaults, have rediscovered the virtues of caution over the past few months, eliminating many of their no-money-down loan offerings. That tightening is "really starting to bite," says Ed Mixon, a real-estate agent for Re/Max Real Estate Services in Monarch Beach, Calif.

Mr. Mixon recently had to advise one of his clients, a young woman with a good job and credit record, to put off her dream of buying a $300,000 condo in Laguna Niguel, Calif., until she could come up with more than her current nest egg of $5,000 for a down payment. A year ago, he says, she could easily have obtained a loan to cover 100% of the condo's price.

Stricter lending standards will reduce demand for housing by 10% this year from where it would have been had credit remained loose, estimates Thomas Lawler, a housing economist in Vienna, Va. He expects housing prices, as measured by the national S&P/Case-Shiller index, to fall 7% in the fourth quarter of 2007 from the year-earlier level.

Standard & Poor's reported yesterday that the S&P/Case-Shiller 20-city composite index in February was down 1% from a year earlier. The metro-area price changes ranged from drops of 7.8% in Detroit and 5% in San Diego to rises of 10.6% in Seattle and 7.7% in Portland, Ore. In 15 of the 20 cities, March prices were down from a month before.

All this has made many sellers more willing to negotiate. Shawn Gabbaie, a real-estate agent in Los Angeles who bought a new three-bedroom house in Las Vegas as an investment several years ago for about $275,000, is now trying to sell it for $299,900. He's offering to provide partial financing to a buyer, or to lease the house for $1,200 a month. Mr. Gabbaie says he's "definitely" flexible on the terms.

Where sellers are inflexible, buyers generally will find plenty of alternatives. The Wall Street Journal's latest quarterly survey of residential real estate in major metropolitan areas -- drawn from a wide range of sources in 28 major markets -- found particularly large jumps from a year ago in listings of homes in Florida. Orlando and Tampa were both up 62%, closely followed by Miami (58%) and Jacksonville (49%).

In Florida's St. Lucie County, current inventory is enough to last more than 34 months at March's sales rate, says Mr. Lawler. The supply is 29 months in Palm Beach County and 25 months in both Miami-Dade and Broward counties, he adds.

Other cities with big increases in listings from the already swollen levels of a year ago include Phoenix (36%), Chicago (44%), Los Angeles (54%) and Las Vegas (30%). The inventory was little changed but still plentiful in the San Diego and Washington, D.C., areas.

With some exceptions -- including Seattle, Houston and Manhattan -- prices generally are flat to declining.

At the same time, delinquent mortgage payments -- a precursor of more foreclosures -- are on the rise. Lenders sent 46,760 default notices to California homeowners in the first three months of this year, more than double the year-earlier tally and the highest in nearly 10 years, according to DataQuick Information Systems, a research firm in La Jolla, Calif. Defaults were particularly prevalent in Sacramento, Riverside and San Joaquin counties.

Using nationwide data, Moody's Economy.com, a research firm in West Chester, Pa., found that Miami, Houston and Orlando all had big jumps in the proportion of borrowers who were behind on loan payments in the first quarter.

Not all delinquent payments or defaults lead to foreclosures, of course, but most experts are expecting a sizable increase in foreclosures over the next year or two as home prices weaken. That will add to the glut of homes for sale.

In areas near new construction, sellers of older homes are up against builders determined to cut prices as much as necessary to shed inventory. "We're marking our inventory to market across the country," Donald Tomnitz, chief executive of D.R. Horton Inc., said in a conference call with analysts last week.

Lennar Corp., another big builder, is experimenting by offering a couple dozen new homes in the Palm Springs, Calif., area for auction on RealtyBid.com. For one group of Lennar condos in La Quinta, Calif., originally priced at around $430,000, bids were between $251,000 and $257,000 yesterday. The auction ends May 8.

Boston, which started to weaken three years ago, is now showing signs of stabilizing. In March, area listings were down 11% from the bloated level of a year before. Agreements to buy homes in the first 23 days of April totaled 1,894, up 2.8% from a year earlier, according to MLS Property Information Network Inc. in Shrewsbury, Mass., but the median price in the latest period edged down 1.2% from a year earlier, to $415,000.

Some of the strongest markets have recently shown signs of modest cooling. In the Portland, Ore., area, listings in March totaled 10,557, up 87% from a year earlier, according to Regional Multiple Listing Service, which operates the multiple-listing service there.

In the Houston area, where oil-industry strength has buoyed demand, March listings rose 12% from a year earlier to 37,671. Pending sales edged up 2.7% from a year earlier, and the median price for single-family homes stood at about $151,000, up 5%.

Manhattan remains strong. Real-estate broker Corcoran Group says home listings there totaled 8,234 in March, down 11% from a year earlier. That shrinking inventory reflects a surge in sales in the first quarter, when the median price for condos and co-op apartments increased 1.2% to $835,000, says Jonathan Miller, chief executive of Miller Samuel, an appraisal firm.

Mr. Miller says Wall Street bonuses and hedge-fund profits are fueling the market, while the weaker dollar attracts European buyers. But listings on Long Island and in the New York borough of Queens totaled 31,954, up 18%, according to the Multiple Listing Service of Long Island.

Realtors are looking for reasons to be hopeful, but few expect a rapid turnaround. In Vero Beach, Fla., the condo supply is enough to last more than 33 months at the current sales rate, says Sally Daley, owner of Daley & Co. Real Estate. Even so, she says more people are out looking for bargains. "We really think the worst is over," she says.

Article in April 12, 2007 Wall Street Journal

Realtors Forecast
Falling Home Prices

Traditionally Upbeat Group Says Nationwide Drop Would Be
First Since 1930s, Citing Tighter Credit From Mortgage Lenders

By JAMES R. HAGERTY
April 12, 2007

The National Association of Realtors, which has long proclaimed that U.S. home prices haven't declined on a nationwide basis since the Great Depression, now says they are likely to do just that this year.

The Realtors, which had been projecting as recently as February a 1.9% increase in the median home price this year, now say prices for previously occupied homes will slip 0.7% this year from the 2006 level.

The trade group's revised outlook, which puts it in line with a growing consensus that home prices will fall at least modestly this year, underlines how quickly expectations about the market have changed in light of a recent tightening of credit by mortgage lenders. Before the subprime mortgage problems blew up recently, said Lawrence Yun, an economist for the Realtors, the group expected the housing market to begin recovering by the middle of this year. Now, he says, recovery is unlikely before late this year.

In 2006, the median price rose 1.1% from a year earlier to $222,000, even though the monthly median prices reported in the second half of 2006 were down modestly from year-earlier months.

David Lereah, the Realtors' chief economist, says he revised downward the 2007 forecast because of tighter lending standards that have taken effect over the past few months in the wake a steep rise in defaults on subprime-mortgage loans, which are loans made to people with weak credit records or high debt in relation to income. The more cautious stance of lenders will mean some people who want to buy homes will find it impossible to get loans on reasonable terms. At the same time, a rise in foreclosures will add supply to housing markets that are already glutted in much of the country.

Thomas Lawler, a housing economist in Vienna, Va., expects an even steeper fall, of 4.3%, in the median price of houses this year.

Prices won't fall throughout the country, of course. Home prices generally have been falling in parts of Southern California, Arizona, Nevada, Florida, the Rust Belt states and Massachusetts. But they have continued to rise in some cities, including Houston, Portland, Seattle and New York, where job growth has been relatively strong and supplies of unsold homes generally lean.

Falling prices make it tricky for buyers and sellers, accustomed to adding a few percentage points to last year's levels, to figure out how much a home should fetch now. Christopher J. Olsen, a financial planner in Lodi, Calif., has been renting for the past couple of years in anticipation of lower prices. But he now yearns to get his family into their own home, even though prices could fall further. Mr. Olsen says he has agreed to pay $505,000 for a four-bedroom home that he thinks might have sold for $700,000 two years ago.

The Realtors also cut their forecast of sales of previously occupied homes in 2007 to 6.34 million from the 6.42 million projected a month earlier and 6.44 million two months before. In 2006, home sales totaled 6.48 million.

Meanwhile, the Mortgage Bankers Association suggested that the media's intense focus on the housing crunch, and shoot-from-the-hip responses from legislators and regulators, threatened to make the situation worse. In an email Tuesday, the association told its members that it has allocated an extra $5 million to combat "a torrent of unfair press and counterproductive policy responses" sparked by the turmoil in the subprime market, where dozens of lenders have been forced to close down or seek bankruptcy protection.

"Misleading information, often reinforced by vivid and frightening anecdotes, is raising the very real possibility of overzealous regulatory and legislative responses," the association wrote.

The $5 million budget for extra advertising, research and lobbying is equivalent to about 10% of the trade group's annual budget. The association said it is trying "to shift the media focus away from the 'foreclosure crisis' to the potential for a 'credit crunch' that could result from over-legislation and over-regulation."

Howard Glaser, a Washington-based industry consultant and former lobbyist for the MBA, says the association's planned campaign suggests that "they're not in touch with the reality of what's happening in the marketplace." Mr. Glaser, who last year helped to set up an association for midsize mortgage banks, the National Alliance of Independent Mortgage Bankers, says the MBA should talk about solutions rather than attacking critics. "Blaming the press for the troubles in the mortgage industry is a nonstarter," he says.

Article in April 11, 2007 Wall Street Journal

Realtors Predict Annual Price Drop,
Lower Forecasts for Home Sales

By CAMPION WALSH
April 11, 2007

WASHINGTON -- A real-estate trade group lowered its forecasts for U.S. home sales this year, while projecting what would be the first annual decline in the median national existing home price since it began keeping records in the late 1960s.

In its latest forecast for the real-estate market, the National Association of Realtors projected that existing home sales will fall 2.2% this year to 6.34 million, compared with its previous forecast of a 0.9% decline. The NAR said new home sales are likely to fall 14.2% to 904,000, compared with the prior forecast of a 10.4% drop.

"As home sales moderate, overall home prices will be essentially flat this year," said NAR Chief Economist David Lereah.

The national median existing home price will likely slip 0.7% to $220,300 in 2007, following a 1% gain last year, while the national median new home sale price is projected to rise 0.4% to $246,200 this year after gaining 1.8% last year.

The trade group attributed the market softening to tighter lending standards and the fallout from troubles in the subprime mortgage market.

Mr. Lereah said the housing market should still take support from inventories that remain well below levels of the last market downturn in the early 1990s and supplies that are close to balanced in many areas.

As for 2007, the economist said price trends are being distorted for at least the first half of the year by a shift in sales activity to moderately priced regions and away from high-cost ones. "Within given markets, most areas can expect minor price gains," he said.

The NAR projects modest price growth next year, with the median existing home price expected to rise 1.6% and the median new home price foreseen up 2.0%.

As homebuilders adjust to changing markets, the realtors group projects housing starts will slow further this year to register an 18% decline to 1.47 million, following last year's 13% decrease. Housing starts are expected to recover somewhat next year, with a projected 5.1% increase.

Article in April 1, 2007 Detroit Free Press

Flat terrain: Home sales stagnant, often down in 2006

April 1, 2007

BY SUZETTE HACKNEY

FREE PRESS STAFF WRITER

Metro Detroiters experienced a significant drop in the market value of their homes last year, another sign that the real estate market is unable to help buoy the struggling economy in southeast Michigan.

But there is a significant upside. Because homes are now selling for less, potential buyers are able to purchase their dream home loaded with amenities unavailable at even year-ago prices. The challenge comes when potential buyers looking to move up are unable to sell their existing homes.

A Free Press analysis of the 2006 metro Detroit real estate market compared with the previous year shows the number of home sales and the value of homes continued to decline in nearly every community in Wayne, Oakland, Macomb and Livingston counties.

Only Macomb County experienced an overall uptick -- though minimal at 0.9% -- in the number of houses sold, with strong sales in Mt. Clemens, Clinton Township, Fraser, St. Clair Shores and New Haven.

The market is saturated with "for sale" signs as the spring home buying season begins, and there's little doubt even more will crop up. The motivations differ -- a new job outside Michigan, the need for more space -- but tens of thousands of metro Detroiters are trying to sell their homes at the same time.

"I bought this house before I was married," said John Naperkowski, 31, who put his Sterling Heights home on the market in January. "We like our house. We're not stuck somewhere we don't want to be, and we like our neighbors. But this was our starter home, and now that we have a child we need more room.

"When we put it on the market we said to ourselves that we weren't going to get our hopes up, but we are hopeful we can sell," said Naperkowski, who already has reduced his asking price from $169,800 to $167,000. "We know it's probably going to take some time. We know the average time on the market here is roughly nine months."

Naperkowski said that during the six years he has lived in his three-bedroom ranch with a finished basement, which he bought for $150,000, he has updated the windows, countertops, hardwood floors, fixtures and appliances at a cost of $15,000.

Market correction

Naperkowski can take some comfort in knowing that the real estate market in Sterling Heights fared relatively well last year. The median sale price dropped 5%, from $185,000 to $176,500, and home sales were down only 3.8%.

Not all communities were as fortunate.

Overall, Livingston County experienced the biggest regional slide in home sales, at 24.9%. Oakland County wasn't far behind, dipping 21.3%, with historically marketable towns such as Rochester, Ferndale, Huntington Woods, Royal Oak, West Bloomfield, Pleasant Ridge and Lathrup Village experiencing big declines in the pace of sales.

Overall, Wayne County finished second behind Macomb County, experiencing only a 3.7% dip in sales compared with 2005. Much of the county's success can be attributed to the Grosse Pointes, which experienced a phenomenal percentage growth in sales over 2005. The median sale price also made a modest jump in Grosse Pointe Park and an astronomical one for this market -- a $290,000 bump -- in Grosse Pointe Shores.

David Elya, president of the Metropolitan Consolidated Association of Realtors, said the reduction in asking prices, especially in desirable neighborhoods and school districts such as the Pointes, is pushing people into larger homes they can truly afford.

Acknowledging that the market is saturated, Elya maintains that the inventory that is not moving is overpriced or in need of many updates.

"There's been a correction in home prices, whether it was voluntary or the reality of our times," Elya said. "Because of this correction, now is the best time to buy real estate in Michigan."

Elya said the first quarter of 2007 has been busy for sellers and agents, and he anticipates a bustling spring and summer. In general, if people have lived in their homes for four to five years, they'll likely break even or make a small profit, he said, but those who have owned their homes for only a year or two will have little equity, and thus can expect to lose money.