Article in July 31, 2007 Wall Street Journal

Owner Ranks Fall
As Credit Woes
Hurt Housing

By RUTH SIMON

July 31, 2007

The nation's homeownership rate has declined to its lowest level since 2003, the latest sign that the mortgage industry's ills are taking a toll on the housing market.

New data released by the Census Bureau this month put the share of American households that own their own homes at 68.4% in the second quarter. The homeownership rate, which peaked at 69.4% three years ago, has declined steadily over the last three quarters, on a seasonally adjusted basis. Economists say it could drop further over the next two years.

The homeownership rate fell most sharply for blacks. It dropped 3.4 percentage points over the last three years to 46.3% in the second quarter.

The Census Bureau report did contain one bit of good news for the housing market: The number of vacant homes for sale dipped to 2.04 million in the second quarter from a record 2.18 million in the first quarter. "Vacancies are definitely peaking," says Mark Zandi, chief economist of Moody's Economy.com. But he cautions that the census figures are based on a small sample and can be volatile. "I wouldn't be surprised" if the vacancy rate increases again in the third quarter, he says.

The latest decline in the homeownership rate comes as mortgage lenders continue to tighten their standards, making it more difficult for people to purchase a home with little or no money down, for example. Among those hit hardest by the latest changes are first-time home buyers, who often have trouble coming up with a down payment. Lenders have also sharply cut back on loans to subprime borrowers, or those with scuffed credit.

There's no doubt "that the dip in the homeownership rate...is at least partly the result of tighter credit," says Thomas Lawler, an independent housing economist. He expects the share of Americans owning their homes to drop to 67% over the next two years in the face of tighter lending standards and rising foreclosures. Some economists say the impact of tighter standards could be at least partially offset by falling home prices.

The homeownership rate began climbing in the mid-1990s, propelled by moderate interest rates and strong economic growth. It moved higher still in the first half of this decade, helped along by low interest rates, creative mortgage financing and the desire of many Americans to get in on the housing boom.

But the share of Americans owning their homes began to dip as declining affordability made it tougher for some would-be buyers to get into the market.

Article in July 26, 2007 Wall Street Journal

Real estate slump likely to last until year's end, economist says

July 26, 2007

BY GRETA GUEST

FREE PRESS BUSINESS WRITER

The nation's housing market hasn't seen the bottom of its current cycle and probably won't until the end of the year, according to the chief economist for the National Association of Home Builders.

David Seiders said Wednesday that the housing market has been weaker in the first half of the year than he predicted late last year.

"The key reason is the unanticipated and sudden turmoil we encountered in the subprime market earlier this year," Seiders said.

That has meant tighter lending standards and fewer buyers able to purchase new homes. And the rising wave of mortgage delinquencies and foreclosures has added to the problem.

"We are still dealing with those problems, and those cause massive uncertainty about where we are going," Seiders said.

Few markets have been spared from the housing downturn, he said. For example, Michigan is one of five states that have dropped the most since the first five months of 2005.

Seiders said single-family permits were down 60% in Michigan during the first five months of this year compared with the first five months of 2005. That compares with a nationwide drop of 31% in those permits in the same period.

"Michigan is probably getting back into the growth range," he said.

Housing is expected to pick up nationwide next year, he said. Seiders expects 1.42 million housing starts this year and 1.45 million for 2008.

"Is this ball still rolling downhill? I think it is. When will it start rolling back up? We still have affordability issues. ... We are trying to weave our way through this," he said.

Seiders said that home remodeling also will take a hit with a 5% to 6% decline over the next year before positive growth comes in 2009. And home prices still are going down with an 8% to 10% drop overall, he added.

Article in July 26, 2007 Wall Street Journal

Housing Weakness Weighs
On Auto Sector's Outlook

By MIKE SPECTOR and JOHN D. STOLL

July 26, 2007

The weakening U.S. housing market is dimming the outlook for auto makers for July and the rest of the year, with some industry analysts forecasting sales for cars and trucks at their lowest rate for the month in nearly a decade.

The housing market has already taken a toll on auto sales, as weak home values dull consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year. (See related article1.)

Weak sales could put financial pressure on General Motors Corp., Ford Motor Co. and Chrysler Group, which soon will be purchased by private-equity firm Cerberus Capital Management LP.

But Toyota Motor Corp. and Honda Motor Co. may not escape, either. Though the Japan-based auto makers' sales have held steady amid market softness so far this year, a recent J.D. Power report predicted Toyota's sales falling slightly and Honda's sales dropping more than 5%, adjusted for fewer selling days this July than a year earlier.

Underscoring the auto sector's pain, AutoNation Inc., the nation's largest dealership chain by sales, will post second-quarter earnings today that are flat or slightly down, analysts predict. That's in large part because of housing weakness in California and Florida, where the company has significant exposure.

"With the slumping housing market, consumers have been less willing to purchase big-ticket items, including vehicles," says Mike Jackson, AutoNation's chief executive. "We expect to continue to see a challenging new-vehicle retail market as long as the housing market difficulties persist."

By all accounts, July's monthly sales results appear bleak, following a soft June. July's seasonal annual selling pace could sink to 15.9 million light vehicles, said Citigroup's Jon Rogers, in a research note. That would be the lowest annual pace for July since 1998.

"It would be unrealistic to expect sustainable improvement until the economic picture brightens," says George Pipas, Ford's top sales analyst, adding that auto sales this year have been "softer than expectations." With a week to go, Ford's July sales appear soft, he said. Ford reports second-quarter earnings today, with analysts surveyed by Thomson Financial expecting a loss of 35 cents a share.

Of special concern to Detroit's Big Three, slowing home construction damps demand for profitable pickup trucks. Total pickup sales are off 3.8% so far this year, according to Autodata Corp., but Detroit's sales are off 5.6%.

"Continued housing weakness will likely further weigh on truck demand," said Bear Stearns analyst Peter Nesvold.

Detroit's Big Three have tried to wean themselves of costly incentives like rebates and no-interest loans. But increased incentives spending by Toyota and Honda -- also efforts to cope with weakened demand -- have challenged that stance.

Toyota has put aggressive incentives on its new Tundra, which helped it more than double sales of the truck in June, catching GM off-guard. GM in turn raised incentives on its Silverado at the start of July. A Toyota spokesman says the company continues to use incentives strategically in response to market conditions but doesn't intend to raise incentives as an overall strategy.

"Coupled with Toyota's recent, successful incentive push with the Tundra, we think it will continue to challenge GM's pricing power in its key Silverado offering," Mr. Nesvold said.

As of June 30, GM had 107 days' supply of light trucks, or 30% more than it had in May and 40% higher than the entire industry, according to Autodata. Ford, meanwhile, has 86 days' worth of F-Series trucks and 68 days' of its Expedition SUV, while Toyota has 48 days' worth of its Tundra pickup.

Article in July 26, 2007 Wall Street Journal

New-Home Sales Fell 6.6% in June
As Inventories Rose, Prices Declined

By JEFF BATER
July 26, 2007

WASHINGTON -- New-home sales took their fifth fall in six months during June, while a measure of inventory rose and the median price dropped, the government said Thursday.

Meanwhile, demand for expensive goods climbed for the fourth time in five months during June, spurred by stronger demand for airplanes, the government reported Thursday.

Sales of single-family homes decreased by 6.6% to a seasonally adjusted annual rate of 834,000, the Commerce Department said Thursday. May new-home sales fell 2.2% to an annual rate to 893,000; originally, the government said May sales dropped by 1.6% to 915,000.

Demand rose 10.0% in April and declined 1.2% in March, 5.6% in February and 12.7% in January.

The median estimate of 26 economists surveyed by Dow Jones Newswires was a 1.6% decrease in June sales to a 900,000 annual rate.

Year-to-year, new-home sales were 22% lower than the level in June 2006.

The moribund housing sector has pulled down U.S. economic growth for six straight quarters, and analysts expect more of the same going forward. They think a large inventory of unsold homes will depress prices, which dilutes incentive to invest in property. A report Wednesday showed demand in June for existing homes fell a fourth straight time, tumbling to the lowest point since November 2002 amid higher mortgage rates and tightening lending standards.

Thursday's data showed the ratio of new houses for sale to houses sold climbed during June, rising to 7.8 from 7.4 in May. There were an estimated 537,000 homes for sale at the end of June, unchanged from May.

The median price of a new home fell by 2.2% to $237,900 in June, down from $243,200 in June 2006. The average price increased by 3.7% to $316,200 from $305,000 a year earlier. In May this year, the median price was $241,000 and the average was $310,800.

Regionally last month, new-home sales decreased 27.1% in the Northeast, 22.5% in the West, and 17.1% in the Midwest. Demand rose 7.6% in the South.

An estimated 77,000 homes were actually sold in June, down from 82,000 in May, based on figures not seasonally adjusted.

Article in July 26, 2007 Wall Street Journal

Home Builders' Results Point
To Continuing Industry Woes

By MIKE BARRIS
July 26, 2007

Losses posted by three major home builders showed that the malaise in the industry deepened further in the latest quarter and may get even worse, exacerbated by a glut of unsold homes and tightened credit standards.

"We believe that market conditions will continue to be challenging," said Donald R. Horton, chairman of D.R. Horton Inc., the nation's largest builder by number of units.

Beazer Homes USA Inc. President and Chief Executive Ian J. McCarthy echoed Donald Horton, saying: "Operating conditions in the housing industry deteriorated further in the fiscal third quarter and remain very challenging."

The sector has been struggling with an inventory glut, a surge in cancellations from jittery buyers and a slump in demand. Rising default and foreclosure rates in the subprime-mortgage sector have worsened the downturn.

D.R. Horton, which earlier this month disclosed a plunge in orders for the fiscal third quarter, Thursday swung to a net loss for the period as it took land-related writedowns amid the continuing downturn in the housing market.

Beazer, which also reported Thursday, and Pulte Homes Inc., which reported late Wednesday, also swung to losses, underscoring the bleak times facing the homebuilding industry. A Commerce Department report Thursday also called attention to the deepening woes in the industry, stating that new-home sales took their fifth fall in six months during June, as sales of single-family homes decreased by 6.6%.

The home builders' shares were down in morning trading.

D.R. Horton reported a net loss of $823.8 million, or $2.62 a share, for the quarter ended June 30, compared with profit of $292.8 million, or 93 cents a share, a year earlier. The latest results included pre-tax charges of $835.8 million for inventory impairments and $16.2 million for write-offs of deposits and pre-acquisition costs related to land option contracts that the company does not intend to pursue. Results also included a pre-tax goodwill impairment charge of $425.6 million.

Analysts had expected the Fort Worth, Texas, builder to post a loss of 35 cents a share, according to Thomson Financial. Analysts typically exclude items in their estimates.

Home-building revenue for the latest quarter fell 29% to $2.55 billion. Revenue from home sales fell 31% to $2.47 billion. The sales backlog of homes under contract at June 30 was 15,801 homes, valued at $4.4 billion, compared with 24,956 homes worth $7.4 billion a year ago.

Earlier this month, the company warned of a 40% plunge in net orders and a third-quarter loss.

Orders at D.R. Horton for the latest quarter fell to 8,559 homes from 14,316 homes a year earlier. Orders were valued at $2 billion, down from $3.8 billion a year ago. The cancellation rate, which reflects sales orders canceled divided by gross sales orders, was 38%, up from 32% in the prior quarter.

For the rest of the year, Mr. Horton said his company will "focus on generating cash, reducing inventory balances and paying down outstanding debt to maintain a strong balance sheet."

Beazer Homes swung to a loss after it cut prices to spur sales and took major charges to write down the value of unsold inventory.

Beazer CEO McCarthy added: "Most housing markets across the country continue to be characterized by an oversupply of both new and resale home inventory, reduced levels of consumer demand for new homes and aggressive price competition among home builders. These factors, together with a pronounced credit tightening in the mortgage markets, particularly for credit challenged home buyers, are likely to lead to continued difficult market conditions for Beazer Homes and other home builders."

Although Mr. McCarthy said he couldn't predict when market conditions would improve, he said he continues to believe that "longer-term industry fundamentals remain compelling due to demographic changes, employment trends and new home supply constraints."

Faced with these challenges, Mr. McCarthy said the company plans initiatives including "reductions in our direct construction costs," and "enhancing our sales and marketing efforts."

For the latest quarter, Beazer posted a loss of $123 million, or $3.20 a share, compared to a year ago, when it earned $102.6 million, or $2.37 a share. The latest quarter included pretax charges of $188.5 million to write down the value of inventory and goodwill, as well as forfeit options on land. Wall Street analysts had projected a loss of 32 cents a share on average, according to Thomson Financial.

Revenue fell to $761 million from $1.2 billion a year ago.

Beazer's results follow the company's disclosure Monday that the Securities and Exchange Commission has upgraded its informal probe to the level of a formal investigation. The builder said in May that the SEC was investigating possible securities-law violations at the company. Beazer said it would continue to cooperate with the agency. An FBI probe of Beazer's lending practices was made public in March.

Pulte Homes, meanwhile, swung to a second-quarter net loss of $507.6 million, or $2.01 a share, from year-earlier earnings of $243 million, or 94 cents a share. Revenue at the Bloomfield Hills, Mich., home builder plunged 40% to $2.02 billion.

Analysts, according to Thomson Financial, had expected a loss of $2.04 and revenue of $2.04 billion.

Pulte President and Chief Executive Richard J. Dugas Jr. said the homebuilding industry "continues to face an extremely difficult environment that includes record existing and new home inventory levels, intense price competition and weak consumer sentiment for housing."

Pulte, he went on, "continues to focus on reducing its land and speculative home portfolio, and properly adjusting overhead spending to put us in the best position to navigate through this continued severe downturn."

The company, however, isn't providing estimates beyond the third quarter, "due to the lack of longer-term earnings visibility and the difficult market conditions that persist." For the third quarter, the company forecast income from continuing operations at 10 to 20 cents a share, excluding any additional impairments or land-related charges.

Article in July 25, 2007 Wall Street Journal

Existing-Home Sales Dropped in June,
But Inventories Fell and Prices Rose

By JEFF BATER
July 25, 2007

WASHINGTON -- Existing-home sales took a tumble in June to their lowest level in nearly five years, a new report on the housing sector showed Wednesday.

Home resales fell to a 5.75 million annual rate, a 3.8% decrease from May's revised 5.98 million annual pace, the National Association of Realtors said. May's rate was originally estimated at 5.99 million.

NAR economist Lawrence Yun cited rising mortgage rates and tightening lending standards. "Home buyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," Mr. Yun said.

The June resales level was below Wall Street expectations of a 5.87 million sales rate for previously owned homes. The 5.75-million resales level was the lowest since 5.73 million in November 2002.

But on a bright note, the median home price of $230,100 in June was up 0.3% from $229,300 in June 2006 for the first year-over-year increase in 11 months. The median price in May this year was $222,700.

In addition, inventories of homes fell 4.2% at the end of June to 4.20 million available for sale, which represented a 8.8-month supply at the current sales pace. There was a 8.8-month supply at the end of May, revised from a previously estimated 8.9 months.

Existing-home sales dropped in all four regions of the U.S. Sales declined 2.8% in the Midwest, 7.3% in the Northeast, 6.8% in the West, and 1.7% in the South.

The average 30-year mortgage rate was 6.66% in June, up from 6.26% in May, according to Freddie Mac.

Article in July 17, 2007 Detroit Free Press

Residential construction tumbles in the region

July 17, 2007

BY JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

Southeast Michigan's residential construction declined by nearly 52% in the first six months of 2007, compared with the same period in 2006. Last year was the weakest for new housing construction in the area since 1984.

Housing Consultants Inc., a Clarkston-based firm that compiles and reports data on building permits, said that new residential permits issued in the greater Detroit area totaled just 2,980 for the first six months of this year, compared with 6,155 during the first half of 2006. The firm defines the region as Wayne, Oakland, Macomb, Washtenaw, Genesee, Livingston, Monroe, St. Clair and Lapeer counties.

Among those communities still seeing new construction, Macomb Township led with 226 residential permits issued through June 30, followed by Detroit with 183 and Washington Township with 164.

Richard Komer, president of Wineman & Komer, a Southfield building company, said a prolonged slump in residential real estate is creating a pent-up demand for new housing. If the contract talks set to start later this week among the UAW and General Motors Corp., Ford Motor Co. and Chrysler go well, that likely will be a positive sign and consumer confidence may return.

"We feel that people are going to break loose and start making some decisions on housing," he said Monday.

Article in July 13, 2007 Detroit News

Market stagnant for home sales

Nathan Hurst / The Detroit News

Metro Detroit home sales in June indicate the local real estate market remains stagnant.

For the Wayne-Oakland-Macomb-Livingston region, June sales were down 7.2 percent from the same month a year ago, and up a slight 0.7 percent from this May, according to data released this week by Realcomp, a Farmington Hills-based multiple listing service.

In the four-county region, 4,723 homes sold in June, compared with 4,691 in May and 5,088 a year ago in June.

On average, homeowners closed sales on their homes in June after 120 days on the market, a small 1.6 percent drop from May's 122-day average, but up 13.2 percent from 106 days in June 2006.

Things won't be looking up any time soon for homeowners looking to sell, according to a housing market forecast released by the National Association of Realtors earlier this week. That report indicated existing home sales nationwide will likely continue to drop this year, even as mortgage rates remain at record historical lows.

Article in July 5, 2007 Wall Street Journal

Number of Unsold Homes Increases
Listings Rise 2.5%
In 18 Metro Areas;
Pending Sales Fall

By JAMES R. HAGERTY
July 5, 2007

The number of homes on the market in 18 major metropolitan areas continues to grow.

Total listings of homes in these metro areas at the end of June was up 2.5% from May, according to figures compiled by ZipRealty Inc., a national real-estate brokerage firm based in Emeryville, Calif. The data cover all listings of single-family homes, condominiums and town houses on local multiple-listing services in those areas.

In another sign of weakness for the housing market, the National Association of Realtors reported this week that its index of pending home sales in May declined 3.5% from a month earlier to stand at 97.7. The index, which is down 13% from a year earlier, equates the 2001 level of activity to 100. The group considers a sale pending when a contract has been signed but the transaction hasn't been completed.

The rise in the number of homes listed in June was broadly in line with historical trends. In recent years, inventories on a national basis have tended to rise in June. On average over the past two decades, though, they have fallen slightly during that month.

The continued growth in supply suggests further downward pressure on house and condo prices in parts of the country. After soaring in the first half of this decade, prices in many markets have been flat to lower over the past two years amid a supply glut and more-cautious mortgage lending.

Thomas Lawler, a housing economist based in Vienna, Va., predicted that the S&P/Case-Shiller home-price index, a national measure, will decline about 7% this year. He said that the housing market is unlikely to start recovering before mid-2008 at the earliest and that the recovery probably will be gradual. Among the wild cards is whether builders will slash production, which would reduce the glut of homes.

The biggest increases in inventory last month were in metro areas where prices generally have continued to rise. Inventory was up 9.2% in the Seattle area and 6.5% in the San Francisco Bay area. Inventories have been lean in those areas in recent years, pushing up prices, but supply now is catching up with demand.

Inventories are up sharply from a year earlier. For the 15 cities for which year-earlier comparisons were available, inventory was up 23%. But inventory in the Boston area was down 3.9% from a year earlier, while San Diego was up just 0.3%.