Article in May 24, 2007 Wall Street Journal

New-Home Sales Rise 16.2% as Prices Decline

By MICHAEL CORKERY

May 25, 2007

Sales of new homes surged in April as prices plummeted, indicating that builders are making huge concessions to entice buyers.

The Census Bureau said sales of newly constructed homes rose 16.2% last month to a seasonally adjusted annual rate of 981,000 homes, the largest monthly gain in 14 years and far exceeding economists' expectations. But the report also found that median prices tumbled 10.9% to $229,100 as builders offered deep discounts and other incentives.

"Aggressive sales techniques being employed by builders are now showing some success," David Seiders, chief economist at the National Association of Home Builders, said in a statement.

That is an encouraging sign, say some economists, because it suggests that demand for housing can be revived if prices fall in line with buyers' expectations. Still, economists aren't ready to say the market is on the mend.

"It could mean that we have hit bottom, but it's too early to make that call," said Patrick Newport, an economist at Global Insight Inc. "We need a couple more good months before we can say that things are turning around."

Economists and analysts caution that the government's monthly new-home-sales report is highly volatile, uses a small sample size and may overstate conditions in the housing market because it doesn't include cancellations of contracts on new homes. "We think that April was yet another month in which the Census Bureau data clashes with reality," Daniel Oppenheim, a housing analyst at Banc of America Securities, wrote in a report.

Robert Toll, chief executive of Toll Brothers Inc., the luxury-home builder based in Horsham, Pa., was also cautious about housing conditions when he talked to analysts yesterday after the company released fiscal second-quarter earnings. "I would say that we have not got the bad times behind us yet," he said.

Toll said net income declined 79% to $36.7 million, or 22 cents a share, in the quarter ending April 30. On average, analysts polled by Thomson Financial expected earnings of 25 cents a share.

Mr. Toll noted "glimmers" of strength in markets such as New York City; Austin, Texas; Dallas; and Raleigh, N.C. That was somewhat consistent with the Census Bureau report, which found that sales were strongest in the South, where they were up 27% in April from a month earlier.

The government report found that sales over the same period increased 8.5% in the West and 3.8% in the Northeast. Sales fell 4% in the Midwest.

Toll said it expects to complete between 6,100 and 6,900 homes in 2007 but declined to give full-year earnings guidance, saying it can't estimate future write-offs, because of the uncertain market.

On the bright side, Toll said cancellations fell to 19% in the second quarter from 30% in the first quarter and 37% in the fourth quarter of last year. Still, cancellations in the second quarter remain well above the company's historic rate of 7%.

Mr. Toll told analysts he had become a "little more confident" about sales trends in recent weeks. "But I would emphasize the little."

Aricle in May 24, 2007 Detorit Free Press

April new-home sales are up, but prices are at all-time low

May 24, 2007

By MARTIN CRUTSINGER

ASSOCIATED PRESS

WASHINGTON — Sales of new homes surged in April by the biggest amount in 14 years, but the median price of a new home dropped by the largest amount on record. The mixed signals left no clear picture of whether the worst of the nation’s housing slump is over.

The Commerce Department reported that sales of new single-family homes jumped by 16.2% in April to a seasonally adjusted annual rate of 981,000 units. That was far better than the tiny 0.2% gain that economists had been expecting.

However, the median price of a new home sold last month fell to $229,100, a record 11.1% decline from the previous month. The big price decline indicated that builders are slashing prices in an effort to move a huge overhang of unsold homes.

The jump in sales was the biggest increase since a 16.4% surge in new home sales that occurred in April 1993.

However, analysts cautioned against reading too much into the big gain, especially in light of other surveys showing that builder confidence has sunk in recent months over worries that troubles in the subprime mortgage market will further crimp demand in coming months.

There was also concern because all of the strength in sales came in one region of the country, the Northeast, which saw a surge of 43.1%.

Sales were down 28.1% in the Midwest and 25.4% in the West. Sales fell a smaller 3.4% in the South.

Article in May 16, 2007 Detroit Free Press

Home defaults decline in nation
Foreclosure rates still high in state

May 16, 2007

BY JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

Home foreclosure rates declined in the nation and regionally during April, but metro Detroit and Michigan remain among the areas reporting the highest rates.

RealtyTrac, an Irvine, Calif., company that publishes data on foreclosures, said for the nation as a whole, the April total of 147,708 foreclosure filings -- default notices, auction sale notices and bank repossessions -- was down about 1% from the previous month but up 62% from April 2006.

Michigan's foreclosure filings were down 20% from March's level, and Wayne County's filings were down more than 30%. Nonetheless, Michigan reported the 10th highest rate among the 50 states with one foreclosure filing for every 614 households, and Wayne County's rate of one foreclosure for every 286 households ranked 16th highest among major metro areas.

The report also shows a national foreclosure rate of one filing for every 783 U.S. households in April.

The metro area with the highest foreclosure rate was Stockton, Calif., with one filing for every 131 households -- nearly six times the national average.

Article in May 15, 2007 Wall Street Journal

Lenders Get Tougher

Qualifying for a Mortgage Becomes Harder,
Even for Applicants With Good Credit,
As Banks Probe Deeper Into Personal Finances

By RUTH SIMON
May 15, 2007

Mortgage lenders are beginning to scrutinize borrowers more closely, causing some loan applicants, even those with good credit, to face higher costs and more hassles.

As the number of delinquent mortgages climbs, lenders have tightened their standards for issuing loans, including such well-publicized moves as raising minimum credit scores and cutting back on 100% financing and low-documentation loans. Now, some lenders are probing more intently would-be borrowers' finances. They are taking a tougher look at how much the property a borrower wants to buy is worth. They are peering further into clients' pasts for credit problems and requiring more in-depth reviews of borrowers who say they are self-employed. Some lenders are taking a harder stance when it comes to whose credit score a couple can use when applying for a mortgage, rather than simply allowing them to use the higher of the two scores.

"There's no question that [lenders] are digging deeper," says Doug Duncan, chief economist of the Mortgage Bankers Association. "The pendulum is swinging a little farther to the conservative side," he says.

Tighter lending standards are adding pressure to an already soft housing market. Last week, the National Association of Realtors forecast the first annual decline in the median price of an existing home since the group began tracking home prices in the late 1960s, in part because mortgages are more difficult to get.

Increased scrutiny by lenders is meant to weed out problem loans and reduce mortgage fraud. But it also can inconvenience borrowers. Jordan Lipton, a physician, got waylaid by tougher appraisal standards when he recently applied for a mortgage to finance the $1.05 million purchase of a four-bedroom home in Charlotte, N.C.

The lender, American Home Mortgage Corp., requested two appraisals of the property, and then sought a price opinion from a real-estate broker, who said the home was worth just $750,000, well below the $885,000 Mr. Lipton wanted to borrow, according to Mr. Lipton's mortgage broker. Mr. Lipton was able to get the financing he needed from another lender two weeks later, but by that time the rate on his loan had risen a quarter percentage point to 6 3/8%. "It's ended up costing us a lot more over a 30-year period," he says. The higher rate could amount to tens of thousands of dollars in added interest payments over that time.

Mr. Lipton's broker, Daniel Jacobs, chief executive of Empire Equity Group's 1st Metropolitan Mortgage unit, says the two appraisals supported his client's purchase price. But he says getting a third layer of verification -- the broker's opinion -- was "an overreaction" to the rise in problem loans, especially because his client had good credit and provided full documentation of his income and assets.

American Home Mortgage says it can't comment on specific loan applications. But the company says it has increased its use of broker price opinions and is taking other steps, such as more detailed reviews of "stated-income" loans, in which borrowers don't provide documentation of their income.

Mortgage lenders say they are tightening standards in response to pressure from mortgage insurers, investment banks and investors who buy mortgage-backed securities. Spooked by rising delinquencies, Wall Street is now pushing lenders to beef up their underwriting. "We're not dictating this, the market conditions are dictating it," says Donald Henig, president of American Home's wholesale division.

Mark Milner, senior vice president and chief risk officer for PMI Mortgage Insurance Co., says he's been encouraging lenders to focus more on "soft" underwriting guidelines. That can mean more detailed reviews of a borrower's credit history and a look at how much cash a borrower will have after paying the mortgage and other debts.

Bear Stearns Cos.' EMC Mortgage unit, which buys loans from mortgage lenders that are then packaged into securities, is running each loan it receives through a computer model to ensure that the appraisal submitted with the loan application provides an accurate measure of how much the home is worth. If the appraisal comes in too low, the lender may have to hire an independent reviewer. EMC is also asking for e-mail addresses and cell phone numbers for borrowers, information it hadn't requested before, and is calling borrowers who have adjustable-rate mortgages to make sure they understand that they have an ARM that will eventually reset.

In many cases, the added scrutiny is invisible to borrowers. But others are already feeling the changes. Thomas J. Freet, an analyst who lives in Auburn, Wash., recently paid $200 for a "drive-by" appraisal of the home he was buying. In a drive-by, an appraiser reviews comparable sales and looks at the exterior of the property, but doesn't go inside.

Because of Mr. Freet's large down payment of more than 25%, he says "it doesn't seem like too much of a stretch [for the lender] to think they would easily get their money back." In the past, borrowers such as Mr. Freet typically would have been asked to get only a computerized assessment of their property's value (cost: about $50), says Adam Stein, his mortgage broker.

The increased attention to appraisals and other underwriting policies follows a period when lenders made it increasingly easier for borrowers to get a mortgage. Often borrowers didn't have to document their income or assets, even if they had relatively low credit scores.

Looser standards weren't much of a problem when home prices were climbing. But as the housing market has cooled, more borrowers are winding up in trouble. The mortgage delinquency rate climbed to 2.87% in the first quarter from a recent low of 2.03% in late 2005, according to Equifax Inc. and Moody's Economy Inc.

Some lenders are also doing more to ensure that the property is as described by the borrower. For instance, they are checking Web sources such as craigslist.org to determine whether a second home is really an investment property, which is considered riskier. Richard Redmond, a mortgage broker in Larkspur, Calif., says one of his clients was turned down at the last minute for a refinance on a rental property after the lender determined that it was a bed and breakfast, which is considered a commercial property.

"The increased scrutiny we're getting now would have been normal in the 1990s," although the Internet gives lenders today immediate access to more complete information, says Mr. Redmond. The broker says he supports the return to tighter lending standards because it will boost the confidence of investors who buy mortgage-backed securities, which will help keep rates low while providing liquidity for the housing market.

Self-employed borrowers also are facing more scrutiny. "They want to know if you have a business license. They'll check 411. They'll Google you," says Mitch Ohlbaum, a mortgage broker in Los Angeles.

IndyMac Bancorp Inc. is among those taking a closer look at applications in which borrowers' merely "state" their income instead of documenting their earnings. In an effort to assess whether that income seems reasonable, underwriters are considering how long borrowers have been on the job, where the job is located and borrowers' income compared to their assets. They also are using sources such as Salary.com to compare that income to industry averages. "Like other lenders, we are scrutinizing our guidelines in the current climate," an IndyMac spokesman says.

Lenders are also delving deeper into borrowers' employment and credit histories. Michael Moskowitz, president of Equity Now Inc., a New York based mortgage lender, says in recent years lenders would often look back just 12 months at a borrower's mortgage payment history. Now, he says, they are looking at two years' of mortgage payments and reviewing information on credit card payments and installment loans.

Other changes make it less likely that borrowers can pick the credit score that puts them in the best possible light. Armand Cosenza, a mortgage broker in Cleveland, recently closed a loan for a husband with a 705 credit score and a wife whose score was 640. The lender used the 640 score to determine the interest rate the couple would be charged, says Mr. Cosenza. In recent years, he says, the couple would have been able to use the husband's higher credit score to secure an interest rate that was 0.25 to 0.5 percentage point lower.

Opinion in May 8, 2007 Wall Street Journal

The Realignment of America

By MICHAEL BARONE
May 8, 2007

In 1950, when I was in kindergarten in Detroit, the city had a population of (rounded off) 1,850,000. Today the latest census estimate for Detroit is 886,000, less than half as many. In 1950, the population of the U.S. was 150 million. Today the latest census estimate for the nation is 301 million, more than twice as many. People in America move around. But not just randomly.

It has become a commonplace to say that population has been flowing from the Snow Belt to the Sun Belt, from an industrially ailing East and Midwest to an economically vibrant West and South. But the actual picture of recent growth, as measured by the 2000 Census and the census estimates for 2006, is more complicated. Recently I looked at the census estimates for 50 metropolitan areas with more than one million people in 2006, where 54% of Americans live. (I cheated a bit on definitions, adding Durham to Raleigh and combining San Francisco and San Jose.) What I found is that you can separate them into four different categories, with different degrees and different sources of population growth or decline. And I found some interesting surprises.

Start with the Coastal Megalopolises: New York, Los Angeles, San Francisco, San Diego, Chicago (on the coast of Lake Michigan), Miami, Washington and Boston. Here is a pattern you don't find in other big cities: Americans moving out and immigrants moving in, in very large numbers, with low overall population growth. Los Angeles, defined by the Census Bureau as Los Angeles and Orange Counties, had a domestic outflow of 6% of 2000 population in six years -- balanced by an immigrant inflow of 6%. The numbers are the same for these eight metro areas as a whole.

There are some variations. New York had a domestic outflow of 8% and an immigrant inflow of 6%; San Francisco a whopping domestic outflow of 10% (the bursting of the tech bubble hurt) and an immigrant inflow of 7%. Miami and Washington had domestic outflows of only 2%, overshadowed by immigrant inflows of 8% and 5%, respectively.

This is something few would have predicted 20 years ago. Americans are now moving out of, not into, coastal California and South Florida, and in very large numbers they're moving out of our largest metro areas. They're fleeing hip Boston and San Francisco, and after eight decades of moving to Washington they're moving out. The domestic outflow from these metro areas is 3.9 million people, 650,000 a year. High housing costs, high taxes, a distaste in some cases for the burgeoning immigrant populations -- these are driving many Americans elsewhere.

The result is that these Coastal Megalopolises are increasingly a two-tiered society, with large affluent populations happily contemplating (at least until recently) their rapidly rising housing values, and a large, mostly immigrant working class working at low wages and struggling to move up the economic ladder. The economic divide in New York and Los Angeles is starting to look like the economic divide in Mexico City and São Paulo.

Democratic politicians like to decry what they describe as a widening economic gap in the nation. But the part of the nation where it is widening most visibly is their home turf, the place where they win their biggest margins (these metro areas voted 61% for John Kerry) and where, in exquisitely decorated Park Avenue apartments and Beverly Hills mansions with immigrant servants passing the hors d'oeuvres, they raise most of their money.

The bad news for them is that the Coastal Megalopolises grew only 4% in 2000-2006, while the nation grew 6%. Coastal Megalopolitan states -- New York, New Jersey, Massachusetts, Illinois -- are projected to lose five House seats in the 2010 Census, while California, which has gained seats in every census since it was admitted to the Union in 1850, is projected to pick up none.

You see an entirely different picture in the 16 metro areas I call the Interior Boomtowns (none touches the Atlantic or Pacific coasts). Their population has grown 18% in six years. They've had considerable immigrant inflow, 4%, but with the exceptions of Dallas and Houston, this immigrant inflow has been dwarfed by a much larger domestic inflow -- three million to 1.5 million overall.

Domestic inflow has been a whopping 19% in Las Vegas, 15% in the Inland Empire (California's Riverside and San Bernardino Counties, where much of the outflow from Los Angeles has gone), 13% in Orlando and Charlotte, 12% in Phoenix, 10% in Tampa, 9% in Jacksonville. Domestic inflow was over 200,000 in the Inland Empire, Phoenix, Atlanta, Las Vegas and Orlando. These are economic dynamos that are driving much of America's growth. There's much less economic polarization here than in the Coastal Megalopolises, and a higher percentage of traditional families: Natural increase (the excess of births over deaths) in the Interior Boomtowns is 6%, well above the 4% in the Coastal Megalopolises.

The nation's center of gravity is shifting: Dallas is now larger than San Francisco, Houston is now larger than Detroit, Atlanta is now larger than Boston, Charlotte is now larger than Milwaukee. State capitals that were just medium-sized cities dominated by government employees in the 1950s -- Sacramento, Austin, Raleigh, Nashville, Richmond -- are now booming centers of high-tech and other growing private-sector businesses. San Antonio has more domestic than immigrant inflow even though the border is only three hours' drive away. The Interior Boomtowns generated 38% of the nation's population growth in 2000-06.

This is another political world from the Coastal Megalopolises: the Interior Boomtowns voted 56% for George W. Bush in 2004. Texas, Arizona, Florida, Georgia and Nevada -- states dominated by Interior Boomtowns -- are projected to pick up 10 House seats in the 2010 Census.

What about the old Rust Belt, which suffered so in the 1980s? The six metro areas here -- Detroit, Pittsburgh, Cleveland, Milwaukee, Buffalo, Rochester -- have lost population since 2000. Their domestic outflow of 4% has been only partially offset by an immigrant inflow of 1%. If the outflow seems smaller than in the 1980s, it's because so many young people have already left. Natural increase is only 2%, lower than in Orlando or Jacksonville in supposedly elderly Florida. Their economies are ailing, more of a drag on, than an engine for, the nation. They're not the source of dynamism they were 80 or 100 years ago. They continue to vote Democratic, but their 54% for John Kerry was much lower than the Coastal Megalopolis's 61%. Their states are projected to lose six House seats in the 2010 Census.

The fourth category is what I call the Static Cities. These are 18 metropolitan areas with immigrant inflow between zero and 4%, with domestic inflow up to 3% and domestic outflow no higher than 1%. They seem to be holding their own economically, but are not surging ahead and some are in danger of falling back. Philadelphia makes the list, and so do Baltimore, Hartford and Providence in the East.

Surprisingly, some Western cities that boomed in the 1990s are in this category too: Seattle (the tech bust again), Denver, Portland. In the Midwest, Minneapolis, St. Louis, Cincinnati, Kansas City, Columbus and Indianapolis are doing better than their Rust Belt neighbors and make the list. In the South, Norfolk, Memphis, Louisville, Oklahoma City and Birmingham are lagging enough behind the Interior Boomtowns to do so. Overall the Static Cities had a domestic inflow of just 18,000 people (.048%) and an immigrant inflow of 2%. Politically, they're a mixed bag, a bit more Democratic than the nation as a whole: 52% for Kerry, 47% for Bush.

I have left two atypical metro areas out, because they stand alone. One is New Orleans, with a 25% domestic outflow; it was already losing population and attracting almost no immigrants before Katrina. The other is Salt Lake City, which demographically looks a lot like the America of the 1950s. In 2000-2006 its population grew a robust 10%. But it had a domestic outflow of 4% (young Mormons going off on their missions?), balanced by an immigrant inflow of 4%. The chief driver of population growth there is kids: Salt Lake City's natural increase was 9%, the largest of any of our metro areas, hugely greater than San Francisco's 3% or Pittsburgh's minus 1%. Politically, New Orleans was split down the middle in 2004, with Bush leading 50% to 49%, while Salt Lake City, the least Republican part of Utah, was still 60% for Bush.

What of the rest of the nation? You can find a few smaller metro areas that look like the Coastal Megalopolises (Santa Barbara, university towns like Iowa City), many that resemble the Interior Boomtowns (Fort Myers, Tucson) and the Rust Belt (Canton, Muncie). You can find rural counties that are losing population (as are most counties in North Dakota) and, even amid them, towns that have solid growth (Fargo, Bismarck).

But overall the nation beyond these 49 metro areas looks like the Static Cities: 1% domestic inflow, 1% immigrant inflow, 4% population growth. But politically it is more Republican, taking in as it does large swathes of the South, Great Plains and Rocky Mountains, and in line with the historical record of non-metropolitan areas being less Democratic than metro areas: 56% for Bush, 42% for Kerry.

Twenty years ago political analysts grasped the implications of the vast movement from Rust Belt to Sun Belt, a tilting of the table on balance toward Republicans; but with California leaning heavily to Democrats, that paradigm seems obsolete. What's now in store is a shifting of political weight from a small Rust Belt which leans Democratic and from the much larger Coastal Megalopolises, where both secular top earners and immigrant low earners vote heavily Democratic, toward the Interior Megalopolises, where most voters are private-sector religious Republicans but where significant immigrant populations lean to the Democrats. House seats and electoral votes will shift from New York, New Jersey and Illinois to Texas, Florida, Georgia, Arizona and Nevada; within California, House seats will shift from the Democratic coast to the Republican Inland Empire and Central Valley.

Demography is destiny. When I was in kindergarten in 1950, Detroit was the nation's fifth largest metro area, with 3,170,000 people. Now it ranks 11th and is soon to be overtaken by Phoenix, which had 331,000 people in 1950. In the close 1960 election, in which electoral votes were based on the 1950 Census, Michigan cast 20 votes for John Kennedy and Arizona cast four votes for Richard Nixon; New York cast 45 votes for Kennedy and Florida cast 10 votes for Nixon. In 2012, Michigan will likely have 16 electoral votes and Arizona 12; New York will have 29 votes and Florida 29. That's the kind of political change demographics makes over the years.