Article in September 28,2007 WSJ

New-Home Sales Hit 7-Year Low

Data Suggest Falling Prices
May Persist Well Into 2008;
Jobs Report Tempers Fears

By SUDEEP REDDY
September 28, 2007

Despite huge discounts, sales of new homes last month slowed to their slowest pace in seven years, setting the stage for further price declines well into next year.

The housing market continues to cloud the economic outlook. A chief concern: The housing turmoil could damp spending by consumers, who already are showing signs of pulling back.

Still, the news was tempered somewhat by data showing that jobless claims fell last week. That indicated the labor market might be in better shape than was suggested by a report, released earlier this month, showing payrolls in August fell for the first time in four years.

In addition, the government reported that the nation's gross domestic product expanded at an annual rate of 3.8% in the April-to-June quarter, slightly less than the 4% estimated earlier. After-tax corporate profits rose 5.2% to $1.15 trillion. Many economists believe growth in the third quarter will slow to a rate of about 2%.

New-homes sales dropped 8.3% in August from July, to an annual pace of 795,000 homes, the Commerce Department said. Sales of homes priced above $500,000 were hit especially hard. Home buyers faced more restrictive terms for mortgages; rates also rose for jumbo loans, those over $417,000.

Meanwhile, KB Home, a Los Angeles home builder, reported a loss of $35.6 million, or 46 cents a share, for the quarter ended Aug. 31. That compared with a net profit of $153.2 million, or $1.90 a share, a year earlier.

"We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," said Jeffrey Mezger, KB Home's president and chief executive. He said lenders' tighter mortgage standards and buyers' heightened caution is restraining demand, while an oversupply of homes is pushing prices down. Earlier this week, Lennar Corp., another big home builder, posted larger-than-expected losses for the third quarter.

About 68,000 homes were sold last month, down from 74,000 in July, the government said. At the end of August, 531,000 homes were on the market -- and only about a third of them were finished. That means builders could be stuck with large inventories as the market weakens further.

"This is staggering," said Joseph Brusuelas, chief U.S. economist at IDEAglobal, a research firm that advises investors. Further big price declines, he said, are "going to be debilitating."

Only about 6,000 new homes priced at $500,000 or more were sold in August, down from 9,000 in each of the previous three months and 11,000 in August 2006.

Jobless claims dropped last week, despite expectations that a wave of layoffs in the mortgage sector would boost the figure. Initial claims for unemployment benefits fell 15,000 to 298,000, the second weekly decline and the lowest level since May, the Labor Department said. The four-week moving average fell by 9,750 to 311,500, the fourth straight drop.

The jobless report helps bolster forecasts that while the housing slump may brake growth, the economy "will not degenerate into a full-fledged recession," David Resler, chief economist at Nomura Securities, said in a note to clients.

Article in September 26, 3007 WSJ

Housing Chill
Grows Worse,
Bites Consumers

By SUDEEP REDDY and MICHAEL CORKERY
September 26, 2007

The housing market is going into a deeper chill, and consumers are starting to shiver.

Sales of existing homes in August fell sharply, and home inventories by one measure soared to an 18-year high, according to data released yesterday. One major home builder, D.R. Horton Inc., is auctioning homes this weekend with starting prices for some units at 50% off an earlier price.

The housing market is worrying consumers, raising fresh concerns about economic growth. Consumer confidence fell this month to its lowest level in almost two years, a new survey showed. Retailers such as Lowe's Cos. and Target Corp. said they're feeling the pain. Both reported softer-than-expected sales Monday.

"The combination of all this is indicative of an economy that has lost quite a bit of momentum," said Joshua Shapiro, chief U.S. economist at the consulting firm MFR Inc., an economic forecasting firm that advises investors.

Wall Street seems unconcerned for now. Broad stock indexes moved little yesterday, and the Dow Jones Industrial Average is just a few hundred points from its all-time high.

Optimists believe the Federal Reserve's aggressive move last week to cut interest rates will help keep the economy out of recession. Also, exports are rising, thanks to a weaker dollar, and business investment is holding up.

Still, the pace of housing's downturn is accelerating, surprising even some bearish analysts.

Lennar Corp., the nation's second-largest home builder by market value, reported a net loss of $514 million for the quarter ended Aug. 31. That was nearly six times the loss Wall Street analysts on average had expected, and compared with net income of $207 million a year earlier. The company was forced to write down the value of land and write off deposits for land it no longer wants to build on. The writedowns totaled $847.5 million in the quarter. Lennar said it has cut its work force by 35% since last year.

Lennar shares fell 4% and have lost more than half their value this year.

Chief Executive Stuart Miller said the problems are broad-based and stem from an oversupply of homes, turmoil in the mortgage market and weak consumer confidence. "We have not only not seen evidence of any of these items resolving, but instead we have seen further deterioration," Mr. Miller told investors and analysts during a conference call.

Overall, sales of existing homes tumbled 4.3% in August to an annual pace of 5.5 million, the slowest in five years, the National Association of Realtors said yesterday. More worrisome: The number of homes for sale is enough to satisfy 10 months of demand at the current pace. Two years ago the figure was below five months. Analysts cite excess supply in forecasting that an upturn in sales and prices may not come until 2009.

Home prices in July fell 3.9% from a year earlier, according to the S&P/Case-Shiller home-price index. The index, which tracks prices in 20 U.S. metropolitan areas, hadn't measured that big of a decline since just after the 1990-91 recession.

The bottom is "not yet in sight" for housing, said Mr. Shapiro, the economist. He said the growing number of unsold homes "argues for accelerating declines of prices."

The worsening housing slump and turmoil in the credit markets is beginning to take a toll on retailers. Lowe's Chief Executive Robert Niblock, addressing analysts and investors at a conference in Charlotte, N.C., yesterday, refused to hazard a guess on when the housing slowdown will bottom. "The only thing that is consistent is the inaccuracies of the economic forecasts," he said. Late Monday, Lowe's reduced its earnings outlook for this year and 2008. Its shares fell 6.7% yesterday.

Other well-regarded retailers are missing forecasts. Target on Monday lowered its estimate for September sales. In August, Costco Wholesale Corp.'s sales at stores open at least a year rose just 1%, much lower than its original forecast. It cited weakness in California, which has been hard-hit by the housing slowdown. Target mentioned soft sales in the Northeast and Florida.

The Conference Board said yesterday that its index of consumer confidence dropped to 99.8 in September from 105.6 in August, putting it at the lowest point since November 2005. The survey ended on Sept. 18, the day the Fed lowered interest rates by half a percentage point. The share of consumers reporting jobs as "hard to get" rose to 22.1% from 19.7%.

"Looking ahead, little economic improvement is expected," said Lynn Franco, who directs the Conference Board survey.

Builders are divided on how drastically to cut prices to put a dent in supply. Earlier this month, Hovnanian Enterprises Inc. held a 72-hour weekend sale nationwide, dubbed "The Deal of the Century," and offered discounts of up to 30% on certain homes. The company sold 2,100 homes during the promotion, about 10 times the usual weekly number. Hovnanian executives said that demonstrates buyers will come if the price is right.

On Saturday, D.R. Horton is using an auction to sell 53 homes in San Diego. The starting bid for some units will be as much as 50% lower than previous prices, according to the auction Web site. On a one-bedroom unit, the starting bid is $149,000, down from a previous price of $309,990.

Lennar's Mr. Miller questioned the wisdom of deep discounts, saying he's not willing to match some of the incentives offered by competitors. He said some recent price cuts were "just unrealistic and maybe even ridiculous."

Lennar's average home price nationally declined 6% in the third quarter to $296,000 from $316,000 from a year ago. Its average incentive per home -- a figure that includes extra amenities and price discounts -- increased to $46,000 from $36,000 a year ago.

Individual home owners have been slower than builders to bring down their prices to match demand, but that may be changing as the housing slump worsens. "The existing-home market is moving much more rapidly to adjust downward," Mr. Miller said.

The National Association of Realtors reported yesterday that the median national home price was $224,500 in August, up 0.2% from $224,000 in August 2006. Those numbers can be skewed by the mix of homes sold in a particular month. Economists say the Case-Shiller index is less vulnerable to that distortion because it tracks the sales of individual homes over time.

Mortgage companies are scaling back loans to people who have poor credit or can't document their income, while looking to make more loans that can be insured by the Federal Housing Administration.

That trend showed up in Lennar's figures. In the third quarter, 25% of buyers using Lennar's in-house mortgage company used an "Alt-A" mortgage, a category between prime and subprime that often requires little documentation, down from 41% a year earlier. The proportion of FHA-insured loans rose to 25% from 12%.

"The days of no verification, no down payment and low credit scores are past," said Lennar's chief financial officer, Bruce Gross

Article in September 25, 2007 WSJ

Existing-Home Sales Slide 4.3%
Amid Mortgage-Market Woes

By JEFF BATER
September 25, 2007

WASHINGTON -- Demand for previously owned homes tumbled in August to the lowest level in five years as mortgage market troubles hurt sales.

Separately, U.S. consumer confidence fell to a nearly two-year low in September, weighed down by a softening labor market and worries over volatility in financial markets and a weaker dollar, according to a report Tuesday from the Conference Board.

Home resales fell to a 5.50 million annual rate, a 4.3% decrease from July's unrevised 5.75 million annual pace, the National Association of Realtors said Tuesday.

The August resales level was in line with Wall Street expectations. It was the lowest pace since 5.36 million in August 2002. "The credit market freeze in August no doubt contributed to the sales decline," NAR senior economist Lawrence Yun said.

The median home price was $224,500 in August, up 0.2% from $224,000 in August 2006. The median price in July this year was $228,700.

In a separate report, Standard & Poor's S&P/Case-Shiller home price index fell in July as 16 of 20 major metropolitan areas saw a decline in annual growth rate.The 10-city composite index fell 4.5% in July from a year earlier, while the 20-city composite index was down 3.9%.

Mr. Yun said the unusual disruptions in the mortgage market, including a significant climb in jumbo loan rates resulted in a fairly high number of postponed or canceled sales. "Lower sales contributed to a buildup of unsold inventory," he said.

Inventories of homes rose 0.4% at the end of August to 4.58 million available for sale, which represented a 10.0-month supply at the current sales pace. There was a 9.5-month supply at the end of July, revised from a previously estimated 9.6 months.

Existing-home sales tumbled in all regions. Sales dropped 5.2% in the Midwest, 2.0% in the Northeast, 9.8% in the West, and 2.7% in the South.

The average 30-year mortgage rate was 6.57% in August, down from 6.70% in July, according to Freddie Mac.

Consumer Confidence Declines

The board's index slid to 99.8 from 105.6 in August, leaving it at its lowest mark since November 2005's 98.3.

Consumers' assessments of present-day conditions were also lower, dragging this index down to 121.7 in September from 130.1 in August.

The index measuring expectations for business conditions over the next six months also fell, to 85.2 in September from August's 89.2.

The confidence survey is based on polling of 5,000 U.S. households.

The cutoff date for the survey was Sept. 18, the day the Federal Reserve cut interest rates by surprising half-percentage point in an effort to rescue a sagging economy and restore confidence to shaky financial markets.

"Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of the Conference Board Consumer Research Center. "Looking ahead, little economic improvement is expected and with the holiday season right around the corner, this is not welcome news."

Article in September 21, 2007 Detroit News

700 Metro Detroit homes at auction will be going cheap

With prices ranging from $5,000 to $600,000, housing downturn could be an investor's dream.

Nathan Hurst / The Detroit News

DETROIT -- More than 700 Metro Detroit houses will hit the auction block this weekend as lenders try to get rid of foreclosed properties that have languished on the market for months -- even years, in some cases.

The auction, which begins today and runs through Sunday, features homes with estimated market values ranging from $5,000 to more than $600,000 in communities from Detroit to Bloomfield Hills, according to Hudson & Marshall of Texas Inc., the Dallas-based property liquidation firm handling the event.

Company spokeswoman Crystal Wright said the auction will be the largest in the firm's history.

"The bottom line is that the housing and mortgage market fallout has created a lot of business for companies like Hudson & Marshall," Wright said. "It's definitely unfortunate for the original homeowners, but the foreclosure market is creating a lot of opportunities for some would-be buyers that may have felt priced out of it before."

The firm held its last auction in Detroit back in May, when about 300 homes hit the block; similar-sized events have been planned throughout the fall in cities across the country.

The auctions are the end result of a rash of foreclosures nationwide, many caused by payment defaults in adjustable-rate mortgages as the loans' interest rates have reset to higher levels -- along with the payments.

As homeowners fell behind on the mortgage payments for their houses and condominiums, banks took the properties back and attempted to sell them to recoup their costs. But an oversupply of properties and a lack of buyers have left many of those foreclosed homes sitting stale on the market, while still draining funds from the banks to pay for utilities, maintenance and insurance costs.

Many of the homes up for auction this weekend will sell for well below their market value, according to David Webb, a Hudson & Marshall executive in charge of the company's home auction division.

Most have an undisclosed minimum reserve price, although some marked as "absolute sales" will go for the highest price, however low it may end up being. The company says more than 90 percent of winning bids are accepted on properties, which are being sold "as is."

Wright said both the frequency of the company's auctions and the number of homes sold have increased as the nationwide residential real estate market weathers a rough and tumble downturn. Michigan's market has been particularly hard hit, with Metro Detroit home prices falling quickly as foreclosure rates have skyrocketed.

In August, the state had the sixth highest number of foreclosure filings in the nation, a total of 15,565, according to data released earlier this week by RealtyTrac, an Irvine, Calif., company that tracks such data. That's the equivalent of one filing for every 288 homes, an increase of 126.68 percent over last year.

A majority of those foreclosures are concentrated in southeast Michigan. Wayne County, for example, ranked fourth among U.S. metropolitan areas in foreclosures last month, according to RealtyTrac. Other states with high foreclosure rates include Nevada, California, Florida and Arizona.

Bill Nazur, a Los Angeles-based foreclosure market expert, said this weekend's auction could prove to be fruitful for buyers and investors seeking a good bargain, but he speculated that turnout at the event could be stymied by the region's huge glut of homes.

If the 2007 Wayne County Property Auction held earlier this week is any indication, he could be right. County Treasurer Raymond J. Wojtowicz called that auction off Tuesday after only 205 of 2,600 properties were sold to reclaim unpaid tax debts.

Nazur said lucky buyers willing to take the properties on as long-term investments could stand to turn decent profits. But, he cautioned, auctions like these are no way to make a quick buck.

"These are long-term investment properties," Nazur said. "If you're buying in an area like Detroit with all of that inventory, you're not going to turn a profit overnight."

article in September 20, 2007 Detroit News

Michigan out 28,000 jobs

Aug. 7.4% jobless rate is 14-year high; auto, construction work shrinks

Louis Aguilar / The Detroit News

Michigan's unemployment rate in August hit a level not seen in nearly 14 years, as the stagnating job market spurred tens of thousands of working-age men and women to quit the state.

Massive auto buyouts and a sharp decline in residential construction were cited as factors for the state's jobless rate reaching 7.4 percent last month. That's the highest unemployment rate since September 1993, according to data released Wednesday by the Michigan Department of Labor & Economic Growth.

Last month, 28,000 jobs were lost in Michigan, bringing the total number of livelihoods lost since this time last year to 96,000. Since August 2006, employment in Michigan has dropped by 2 percent, even while the national rate of employment increased by 0.8 percent.

Economists say the increasing number of lost jobs and vanished residents is just the latest indication that the state of Michigan has come to a troubled crossroads.

Detroit automakers have cut tens of thousands of jobs in the past two years. Now, national contract talks between the United Auto Workers and General Motors Corp. have stretched into their sixth day of overtime. The two sides are grappling over how to relieve the automaker of $50 billion in retiree health care costs while balancing the union's concerns to save U.S. manufacturing jobs.

The state Legislature still has not found a way to craft a budget that deals with a $1.75 billion deficit, while declining property values, increasing foreclosures and a mounting list of unsold homes keep the regional housing market in a nosedive.

"We are at the bottom right now and people need to understand for the rest of America, it's not that way," said Gary Wolfram, an economist at Hillsdale College.

"The unemployment rate, the tax rate, the state of the auto industry -- these are big signs that we need to ask ourselves some very fundamental questions of how we are going to compete, and it's still not clear if we will make the necessary corrections."

The state jobless data show that people are dealing with these troubles by leaving the state. Michigan's pool of workers -- adults both employed and unemployed -- dropped by 16,000 in August and by 81,000 (1.6 percent), since a year ago, according to the state labor department.

"Michigan's labor force in 2007 has declined in six out of eight months," said Rick Waclawek, director of the department's bureau of labor market information and strategic initiatives.

GM, Ford Motor Co. and the now-independent Chrysler LLC have cut tens of thousands of jobs in recent years through buyouts and plant closings in a bid to better compete with foreign carmakers. Those cuts -- plus thousands more by auto parts maker Delphi Corp. -- continue to roil Michigan's economy, which depends far more on the manufacturing sector than other states.

Typical of the Michigan labor market this year, most job sectors saw little to no gains in August and a few losses, especially in the key auto manufacturing sector, which dropped 1,000 jobs last month and 20,000 in the past 12 months, according to the department.

Detroiter DeAnisha Beigh, 27, lost her job last year as a Detroit Public School cafeteria worker and hasn't found one since. This fall, she enrolled at Wayne County Community College.

"It's about as worse I've ever seen," Beigh said. "A lot of people are losing their homes and all kinds of people are talking about going back to family down south."

Like many in the region, Beigh's family first came to Detroit decades ago to seek manufacturing work. And now, like many, they've found those opportunities gone.

"Once my uncle retires from Ford, we don't have anyone in the plants anymore," Beigh said.

Caught in the carmakers' troubles has been the state's housing industry, which has lost 18,000 jobs in the past year. It's easy to see why. Permits for new housing construction in Metro Detroit are down more than 50 percent from a year ago, according to data released Wednesday by Housing Consultants Inc.

That's been the trend since January, reflecting the housing slowdown that started in 2005.

Metro area permits were down 53.8 percent from January through August, compared with the same period in 2006. Total permits declined from 5,526 for houses and condos to 2,551. Specifically:
Wayne County: 679 permits January through August, vs. 1,694 during that period last year; down 59.9 percent
Oakland County: 716 permits vs. 1,548; down 53.7 percent
Macomb County: 906 permits vs. 1,785; down 49.2 percent
Livingston County: 250 permits vs. 499; down 49.9 percent

Article in September 18, 2007 Detroit News

State foreclosures for August up 126%

Nathan Hurst / The Detroit News

The number of Michigan homes taken by foreclosure was up 126.86 percent in August over the same month last year.

In total, 15,565 foreclosure filings were made in the state last month. The state's foreclosure rate of one for every 288 households ranks sixth in the nation, according to data being released today by RealtyTrac, an Irvine, Calif., firm that tracks such transactions across the country.

Michigan placed behind Nevada, California, Florida, Georgia and Ohio. The bulk of the state's filings were in Metro Detroit counties.

In Wayne County, there were 9,615 foreclosure filings in August, one for every 87 households, ranking the county fourth among the nation's metro areas. This was up from 8,683 such filings in July, a 10.7 percent increase, and 3,068 filings in August 2006, a 213 percent increase.

In Oakland County, there were 864 filings last month, one for every 601 households, down from 1,105 in July, a 21.8 percent drop, but up from 726 in August of last year, a 19 percent increase.

In Macomb County, there were 1,506 filings, one for every 230 households, up from 1,348 in July, an 11.7 percent increase, and up from 584 in August of last year, a 157.9 percent increase.

In Livingston County, there were 167 filings, one for every 422 households, up from only 8 in July, a massive 1,987.5 percent increase, and up from 61 in August of last year, a 173.8 percent increase.

article in September 18, 2007 Detroit News

House prices tumble 18%

Glut, foreclosures push Metro values down from '04 peak

Nathan Hurst / The Detroit News

WARREN -- A glut of homes on the market combined with a sharp rise in foreclosure sales have driven Metro Detroit home prices down 17.7 percent since their peak three years ago, according to new data.

The region's median home price -- half the homes sold for less, and half sold for more -- fell from $188,275 in August 2004 to $154,919 in August 2007, according to data from Realcomp Inc., Metro Detroit's largest multiple listing service.

In Wayne County, the drop has been a staggering 35.6 percent.

Experts say that until the supply of homes for sale is significantly reduced, prices will continue to drop.

"The low prices are changing attitudes on both sides of the market," said Steve Cole, an agent at Weir Manuel Realtors in Birmingham." Sellers are being very unrealistic about what they're expecting to sell for; everyone thinks their house is the exception to the rule. Buyers are also expecting to have an offer at half the asking price accepted."

The impact of falling home prices is widespread. For homeowners without equity, it can mean being "upside down" on their mortgages, owing more than their home is worth. For home sellers in that position, it means bringing cash to the closing just to pay off the loan. For sellers who saw their homes as retirement nest eggs, it means a lower return on their investment. And dwindling values means many homeowners can no longer borrow against their equity for major home repairs or purchases.

The low prices have created an upside: For those in the market for a house, there are plenty of good deals in every price range in every community.

Home investment shrinks

Count John and Dana Declark of Warren among those who have seen their home investment shrink. Back in 1984, the Declarks bought their modest three-bedroom home not only to provide a roof over their family's heads, but also as a retirement nest egg.

One day, they planned to turn their property into enough cash to build their dream home in Lapeer County.

Just a few years ago, the value of their home seemed to grow by the day. Today, the Declarks have their house up for sale for $162,900 -- more than $10,000 less than its estimated worth just three years ago.

"We decided now is the time," Dana Declark said. "Values are going down, people are losing their jobs. Looking at how many houses are for sale around here, we figured it's now or later, when it could be worse."

State leads price decline

Michigan, with its economy battered by the downturn in the auto industry, has led the way in the decline of home prices. The housing slowdown that started here in 2005 hit the rest of the nation this year, and now median prices are falling in markets across the country. The latest Standard & Poor's/Case-Schilling housing price report showed the national median home price in the second quarter of this year was down more than 3 percent from the same period in 2006.

A rash of foreclosure sales in Metro Detroit in the past year has skewed the sales prices downward, explained Francine Green, director of marketing for Realcomp. Foreclosed homes usually sell for much less than their typical market value, she noted.

Nonetheless, foreclosure sales drag down the value of other homes in a given neighborhood, as assessments are largely based on how much similar properties in an area sold for.

In Wayne County, 305 homes that were sold in August, or 18.4 percent of the county's total, were foreclosure sales, the Realcomp report said. That compares with 10.2 percent in August 2006.

It ultimately will take a critical mass of homeowners willing to sell low to significantly reduce the supply of homes for sale, which would then start driving prices back up.

"The only way this gets solved is by having a lot of people taking a huge hit in their home prices," said Don Grimes, a senior economic research specialist at the University of Michigan. "Until people make that decision, it'll just keep dragging on and on."

Mortgage exceeds worth

For Mary McKenzie of Detroit, the slump in home values has cut into her greatest source of personal wealth.

The 64-year-old elementary school secretary bought her southwest Detroit home in 1974 and worked diligently with her husband to pay off the mortgage. When she needed money to pay off mounting medical bills for her family, she leveraged some of the house's equity to provide the extra cash she needed.

But falling prices in her neighborhood have put her in a situation that's become common: She now owes more on her mortgage than her house is worth.

McKenzie owes nearly $59,000, but similar homes for sale in her neighborhood have asking prices for well below $50,000. With payments on her adjustable-rate mortgage set to jump for a third time next year, she's now considering walking away from the place she's called home for more than 30 years.

"The house was a financial foundation," McKenzie said. "Now, I feel like that's been taken away from me. I couldn't get anywhere near enough money to pay it off if I tried to sell it."

A buyer's market

While home sellers suffer, times couldn't be better for home buyers, who have their pick of hundreds of houses at bargain prices, in virtually every community in Metro Detroit.

"There are factors coming together that are really good for people looking for an opportunity," Grimes said. "If the house prices come down enough, people who are forced to be renters now can actually afford to buy them. "

Jesse Yates has joined the hunt. The 28-year-old marketing consultant from Rochester Hills is looking for a condominium in Detroit -- one that's closer to his office and nightlife spots. A self-described bargain shopper, Yates said he's looking at used condos rather than new, because he feels he'll have a better chance of negotiating a good deal.

"I'm on the right side of the bargaining table," Yates said. "People are practically begging you to buy their place. I'm feeling pretty good that whatever I end up buying will be a good deal."

Couple's return is timely

Alan and Lauren Ducharme of New York City are betting low prices will yield them a big home with a small price tag in Brighton, where they're returning to be closer to family. The Ducharmes, who telecommute with East Coast technology firms, weren't planning on returning to Michigan for a few more years, but decided it was the right time for a good deal.

Looking around their target neighborhoods in Brighton, the couple is confident they'll be able to shave $15,000 to $20,000 off asking prices simply by waiting.

"We've been keeping our eyes on a few homes and seeing how long they're lingering," Alan Ducharme said. "We're betting that if we wait until the right time, we can drive a hard bargain. They'll get sick of that "For Sale" sign eventually."

The one downside right now for home buyers is the credit crunch that has lenders tightening their requirements for mortgages. But those with good credit and a small down payment shouldn't have any problems getting a loan.

Prices will continue drop

Bargains for buyers will be prevalent through at least the end of the year, according to the National Association of Realtors, which estimates that average home prices nationwide will drop another 1.7 percent by January.

Grimes said the Metro Detroit housing market likely will have its low point sometime in the next two or three years. In the meantime, he suggests homeowners put the current situation in perspective.

"We've seen sharper (home price) declines in other parts of the country -- California, Florida, D.C.," he said. "And the fact is that nobody's fallen back to (1990s) levels. That would have really hurt."

Article in September 12, 2007 WSJ

Mortgage Lender's Bankruptcy
May Threaten Thousands of Homeowners

By PEG BRICKLEY
September 12, 2007

Thousands of homeowners face an "imminent risk" of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.

In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., Freddie Mac said it seized $7 million that homeowners sent to American Home to cover principal and interest payments, property taxes and insurance just before the company's Aug. 6 collapse. American Home quit making payments to tax authorities and insurance companies Aug. 24.

Freddie Mac said 4,547 loans valued at nearly $797 million are at stake. It said it doesn't have the loan files necessary to pay insurance premiums and property taxes on them, however. "Therefore, there is the imminent risk that borrowers' insurance policies may lapse for nonpayment, subjecting the borrowers to a risk of loss of their mortgaged properties," Freddie Mac said.

Property-tax bills will go unpaid, Freddie Mac said, "resulting in increased tax liabilities and possible tax-foreclosure sales." It added it needs a court order allowing it to seize American Home's loan files "to avoid these serious consequences stemming from AHM's inability to service the Freddie Mac mortgage loans."

The wave of mortgage-lender bankruptcies in the past few months has disrupted loan-servicing arrangements and triggered court fights over who should get control of the files necessary to service the loans, court documents show.

American Home has resisted demands that it give up loan-servicing files, hoping to auction its loan-servicing business intact in an effort to raise money for creditors. Loan-servicing businesses have proven to be among the few valuable assets left in the wreckage of the failed lenders. Some of Wall Street's biggest investment banks are fighting for control of them.

For ordinary homeowners, however, the results could be dire, consumer lawyers say. "Companies receive the loan files that they are supposed to be servicing, but the payments don't catch up," said Jill Bowman, an attorney with James Hoyer Newcomer & Smiljanich, a Tampa, Fla., law firm that represents consumers in class-action suits against mortgage companies. "Payments are being deemed late, even when they're not, because they can't catch up with the paper." The result is additional insurance costs and accumulating late fees.

American Home, based in Melville, N.Y., and once one of the country's biggest mortgage lenders, serviced about $50 billion in mortgages. Its bankruptcy-court filing generated particular concern at Freddie Mac and Ginnie Mae, an agency that is part of the Department of Housing and Urban Development.

Just days before American Home's bankruptcy filing, Freddie Mac and Ginnie Mae terminated the company's loan-servicing rights. They also sent representatives to collect loan files from American Home's servicing facility in Irving, Texas.

In court documents, American Home said Ginnie Mae representatives "stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office." Freddie Mac said American Home "had its security personnel escort the Freddie Mac representatives out."

In addition to Freddie Mac and Ginnie Mae, several Wall Street banks are fighting to extract their loans from American Home's servicing operation. The list includes Morgan Stanley, Deutsche Bank AG, Credit Suisse Group and EMC Mortgage.

In an interview last week, Ginnie Mae's senior vice president, Theodore B. Foster, said Ginnie Mae had seized from American Home some of the insurance and tax payments collected from homeowners. "What's occurred is that we have the money, but AHM hasn't been able to or willing to pay the taxes and insurance, and they have the loan records," Mr. Foster said. "Therefore, we don't know who to pay, and we don't know how much."

Article in September 12, 2007 Detroit Free Press

Mortgages eating up incomes

September 12, 2007

BY RUBY L. BAILEY and SUZETTE HACKNEY
FREE PRESS STAFF WRITERS

When Chris Gowman's employer was sold in 2001, he was offered a $4,000-a-month pension.

The former ANR Pipeline worker took it, but ever since, he's had to spend half of it to cover the mortgages on his homes in Roseville and Harbor Springs.

"I'm not living the high life by any stretch," said Gowman, 58, who drives a 1991 Oldsmobile 88. "I have to live a very frugal life to survive."

Gowman is among the 26.4% of Michiganders who spent 35% or more of their income on a mortgage in 2006, according to U.S. Census Bureau estimates released today.

Nationally, the number was higher: 28% of mortgage holders spent what some would call too-healthy chunks of their income to put a roof over their heads.

Experts say they think many in Michigan are like Gowman -- homeowners whose mortgages consumed larger portions of their income as their wages shrank.

And with many likely to have at least one credit card and a car note, householders' total debt could eat much more of their incomes. That leaves the most cash-strapped at risk of losing their homes, said Pava Leyrer, president of the Lansing-based Michigan Mortgage Brokers Association.

"If their hours are cut or they experience a job loss, they have to choose one debt or another," Leyrer said. "Just because you're told yes" for a mortgage "doesn't mean you should take it."

Michigan outpaces nation

The drive to own a home remains strong in Michigan. The state's homeownership rates outpaced the nation's from 2000 to 2006. And at 75%, metro Detroit had one of the highest rates among the 20 largest metro areas.

But in Detroit, an estimated 46% of residents spent 35% or more of their income on mortgages in 2006. About a third or more of residents of Dearborn, Pontiac, Shelby Township, Southfield, Warren and West Bloomfield also spent that much.

In poorer communities, the high percentages could spell trouble, though "it doesn't send up the same red flag in an affluent suburb," said Greg McBride, senior financial analyst for Bankrate.com. "Thirty-one percent of income in a high-income neighborhood leaves a lot remaining."

The Detroit area's building boom of the late 1990s and early 2000s likely contributed to the large income chunks going to mortgages, said Kurt Metzger, a demographer and researcher for the United Way for Southeast Michigan.

Lenders relaxed rules of thumb, including that mortgage debt make up no more than 28% of the buyer's income.

"There's that great American Dream when people jump into these opportunities where they're spending a large percentage of their income on housing," Metzger said. "But that's when they're making money." Those with jobs and little or no debt can likely handle paying as much as 50% of their income for a mortgage, experts said.

"The big question is, 'What are the other debts that people are carrying?' " said Russell Martin, a Chicago-based mortgage broker who has Michigan clients. "Unless somebody is living really extravagantly, they should be able to afford 35% for their mortgage."

Finding an exit route

Financially stretched homeowners should first try to trim expenses -- cut the cell phone bill and stop dining out -- and perhaps get a second job, experts suggested. And, like Gowman, drive an older, paid-for car. If the risk of foreclosure looms, try to refinance to a better interest rate or sell if the payments get to be too much.

"They've got to find an exit route," said Keith Ernst, senior policy counselor for the Center for Responsible Lending in Durham, N.C.

But in Michigan, where property values are dropping and homes are sitting for months on the market, it could be tough.

"That's the troubling part," Ernst said. "The way out isn't clearly marked."

Article in September 10, 2007 WSJ

Drops in Housing, Autos
Pinch Midwestern Jobs

By KRIS MAHER
September 10, 2007

The Midwest labor market is feeling a double-barrel blast from the national housing slump and the continuing woes of Detroit's auto makers.

Across the region, factories that churn out the bricks, tiles and wallboard used to build new homes are feeling the effect of the steep decline in new-home construction in once-hot markets such as California, Arizona, Nevada and Florida.

Chicago-based USG Corp., which makes gypsum wallboard and other building materials, has cut 1,100 jobs in the past 12 months and plans to shut down more capacity in the third quarter. Kohler Co., a maker of home plumbing products, laid off 160 people at its Wisconsin plant.

The drop in jobs related to supplying the housing market follows huge job losses in the automotive sector, which is heavily concentrated in the region. And it comes amid signs of further weakening ahead; on Friday, the Labor Department said 4,000 nonfarm jobs disappeared in August, driven by losses in construction and manufacturing.

General Motors Corp. announced last week it would cut North American production by 10%, sending ripples further down the supply chain. Pretty Products LLC, a company that makes floor mats for cars, just closed its plant in Coshocton, Ohio, where it was one of the town's biggest employers. TI Automotive, which makes brakes and fuel-line parts, said it would close a plant in Ohio, eliminating 195 jobs.

The job losses are exacerbated by lackluster employment growth in the region, and the fallout in the auto and housing markets is showing up in unemployment numbers. The unemployment rate for the five-state region that includes Wisconsin, Michigan, Illinois, Indiana and Ohio was 5.7% in July, the highest of any region in the country, according to the latest government data. Michigan's 7.2% unemployment rate leads the nation.

Although the region didn't experience the huge surge in housing construction and subsequent drop off, it has been affected. "If you have a [housing] slowdown in Southern California, it's going to be felt in the Midwest," says Don Norman, of the Manufacturers Alliance/MAPI, an Arlington, Va., public-policy group.

Indeed, many companies with Midwest factories that make products used in residential construction have cut production and are expected to continue doing so in response to the housing bust. Production in the household appliance sector is expected to drop by 5% this year, and by 6% in 2008, according to a recent report by the Manufactures Alliance.

Whirlpool Corp., the home-appliances giant based in Benton Harbor, Mich., cut 500 jobs in Indiana in the last year and expects demand to be down 2% to 3% for 2007. At the same time, the company is seeing much higher costs for steel, oil-based resins, copper and other metals.

"We're managing through what I call a difficult demand environment in the U.S. and a global material cost shock that we've thus far been able to manage through," Whirlpool Chairman and Chief Executive Jeff M. Fettig said in a meeting with analysts last week.

Article in September 7, 2007 Detroit Free Press

Home foreclosures won't peak for at least 6 months, economist says

September 7, 2007

BY GRETA GUEST
FREE PRESS BUSINESS WRITER

Mortgage delinquencies and foreclosures nationwide and in Michigan may not peak for another year, according to the chief economist for the Mortgage Brokers Association.

Doug Duncan said Thursday that before the recent credit crunch, he had expected to see a peak and then subsequent drop in loan delinquencies within three to nine months. But the peak likely won't happen for another six to 12 months as the credit crunch brought on by high numbers of defaults, particularly in the subprime market, has meant people can no longer borrow their way out, he said.

The Mortgage Bankers Association released its second-quarter report on Thursday for the 3 months that ended June 30 and found that most of the loan delinquencies and foreclosures were happening in seven states, including Michigan.

"This is a story of seven states. The markets in the other 43 states are doing well and in some cases very well," Duncan said.

Duncan said that in three states -- Michigan, Ohio and Indiana -- the high level of delinquency and foreclosure has to do with the underlying economy. For example, Michigan lost nearly 300,000 jobs between 2001 and April 2007.

"That has led to a decline in house prices" and an increase in foreclosures, he said on a conference call Thursday.

And the four other states driving up the national rates are California, Florida, Nevada and Arizona, he said. These states have high rates of adjustable rate mortgages (ARMs). For example, in Nevada 42% of all outstanding loans are adjustable rate, Duncan said.

"These four states are seeing declining house prices, which makes refinancing these ARMs difficult," Duncan said.

These four states also have a disproportionately high share of investor loans and are more likely to default if they see the value of their investments falling because of dropping home prices.

The national delinquency rate on residential properties was 5.12% of all loans outstanding in the April to June time frame. That's up 28 basis points from the first quarter and up 73 basis points from a year ago (100 basis points equal 1%). Any loan that is 30 days or more past due and not in the foreclosure process is considered delinquent.

Duncan said that 1% of all mortgages in Michigan had foreclosure actions started on them during the second quarter, which is essentially the same rate as during the first quarter of the year.

"While Michigan's problems continue to escalate, however, Ohio's have shown signs of leveling off, albeit at a high level," Duncan said.

Michigan led the nation in foreclosure starts with a rate of 1% of outstanding loans, with Ohio in second place with .98% and Indiana with .91%.

Michigan ranked second in overall delinquency rates with a rate of 7.55%, behind Mississippi with a rate of 9.33%. Louisiana was third with a rate of 7.29%.

And Michigan ranked third in foreclosure inventory with a rate of 2.77%, behind Ohio with 3.60% and Indiana with 3.01%.

The National Delinquency Survey covers more than 80% of outstanding loans in the housing market.

Article in September 6, 2007 Detroit Free Press

New Houses Out of Most Families' Reach

It's a surprise to builders: Nearly 6 in 10 can't afford
$175,000,and lending crisis makes it worse

September 6, 2007

BY GRETA GUEST
FREE PRESS BUSINESS WRITER

In real estate some say it's all about location, but in Michigan's rocky economy it's more about price.

A study by the Michigan Association of Home Builders found that 1.35 million Michigan households, or 35%, can afford only homes priced under $100,000, yet the average price was $139,155 in June.

"There is no question that affordable housing is becoming an endangered species in Michigan," said Lee Schwartz, executive vice president for government relations for the home builders.

Jill Rauser, 35, a single mother of two, knows the problem firsthand. Rauser, who handles human resources for a Troy company, had been looking for more than a year for a newer home priced at less than $160,000.

Finally in August, she moved into a new house with three bedrooms in Madison Heights priced at $159,900. She had been renting a home in Fraser.

Her other option was to buy the house she was renting, but it was older and needed repairs.

"Nothing compares to this," Rauser said. "Either I am getting a new home for not much more money or I'm buying the old house and using all my savings to fix it up."

Schwartz said the association had its national group's housing policy department compile the study last fall to find out whether Michigan has enough affordable housing. The survey uses income data from the 2005 census.

"We were surprised by the large number of people that are down in that bottom rung of not being able to afford a home of over $100,000. It was almost double what we thought it would be," Schwartz said.

When adding the second group of 907,000 state households that can afford a home priced between $100,000 and $175,000, "you are talking close to 2.3 million Michigan households that are in a housing crunch," Schwartz said. That amounts to almost 60% of the state's households.

One builder's discovery

Tony Gallo, president of Gallo Cos. in Warren, built the house Rauser purchased. He had been trying to sell the new homes in the Harvard Village subdivision starting at $199,000 last year and sold just one. He did some research and found out that of the 122 homes sold in 2006 in the Lamphere Schools district, only one sold for more than $200,000.

"I ... figured out my prices were out of whack. At $199,000, I wasn't going to sell any houses," Gallo said.

He brought the prices down in April to $159,900 by downscaling the design and has sold seven homes since then. They are 1,600 square feet and feature three or four bedrooms. Homeowners also get maple cabinets in the kitchen, choice of first- or second-floor laundry rooms and attached garages.

Gallo has a total of 41 lots off Dequindre south of 12 Mile Road nestled in an established neighborhood, but is building the homes only once they are sold. Construction takes 90 days, he said.

Schwartz said the pricing problem is statewide. And many of the affordable homes are older homes.

"Housing prices have gotten to the point that they have moved new homes beyond the ability of many people to afford, and that is simply not a good thing," Schwartz said.

The reasons are many, including ordinances and regulations such as construction permit fees, impact and tap fees, which can add 40% to the price of a new home, he said.

Gallo has two other potential deals waiting for loan approval. And now that mortgage standards have tightened after a wave of foreclosures, more potential buyers are being turned away.

"The practical problem is getting people approved, because the secondary mortgage market is gone," Gallo said.

It's not all bad news

The Detroit, Livonia and Dearborn markets together ranked as the nation's second-most affordable major housing market from April to June, just behind Indianapolis, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

In Detroit, 86% of new and existing homes that sold during the second quarter this year were affordable to families earning the area's median household income of $53,800. The median home sales price was $92,000, the index said.

Nationally, affordability remained well below the levels recorded before the price surge during the 2004-05 housing boom, said David Seiders, chief economist for the National Association of Home Builders.

"The data shows that affordability generally remains a serious issue even though national average house prices are down from their 2005 highs," he said. "The abrupt tightening of lending standards in the subprime sector -- a trend that is now bleeding into other sectors of the mortgage market -- is having serious impacts on the ability of many families to purchase homes."

The $139,155 average price of houses sold in Michigan in June was down 7% from the average price of $149,828 in June 2006, according to the Michigan Association of Realtors. The number of homes sold fell 6% to 55,417 in June.

Prices are expected to fall further this year and next, with more foreclosures predicted.

Nancy Reeser-Pierce, a Realtor with Real Estate One in Royal Oak, said that sellers are being more realistic about prices to move their homes more quickly. She is finding that the homes priced at less than $175,000 are harder to sell.

"The buyers in that range are afraid to buy, and it's harder for them to get credit," she said.

Article in September 5, 2007 WSJ

Pending-Home Sales Decline 12%

By JEFF BATER
September 5, 2007

WASHINGTON -- Future home sales could tumble, according to a housing industry forecasting tool that delivers another swipe to the slumping sector.

The National Association of Realtors' index for pending sales of existing homes decreased at a seasonally adjusted annual rate of 12.2% to 89.9 in July from June's 102.4, the industry group said Wednesday.

The NAR index, based on signed contracts for previously owned homes, was 16.1% below the level of July 2006.

In a news release, the NAR said the index shows existing-home sales are likely to decline in coming months as mortgage disruptions work through the housing market.

"It's difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren't closing because mortgage commitments have been falling through at the last moment," NAR senior economist Lawrence Yun said.

"These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans," Mr. Yun said. "Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat.

"If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future, broader stabilization will come sooner rather than later," Mr. Yun said.

The NAR's pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

By region, the Northeast decreased 12.2% in July from June; it fell 10.0% from a year earlier. The Midwest decreased 13.1% in July from June; it fell 15.8% from last year. The South dropped 6.6% in July from June; it tumbled 15.2% since July 2006. The West decreased 20.8% in July from June; it fell 21.8% from a year earlier.

Article in September 4, 2007 Detorit Free Press

Economic fears to pinch auto sales
Housing woes a big factor, experts say

September 4, 2007

BY SARAH A. WEBSTER

FREE PRESS BUSINESS WRITER

When August auto sales are reported today, they are expected to provide another sign that U.S. economic worries will challenge the auto industry for months to come, putting pressure on carmakers for further production cuts and profit-eating sales incentives.

U.S. consumers are too spooked about the housing market -- specifically, the value and marketability of their homes -- to be in the mood to buy new cars and trucks.

The Consumer Confidence Index fell to 105 in the latest survey of 5,000 households from a 112 reading in July, the Conference Board said last week. That was the biggest month-to-month drop since September 2005, when hurricanes Katrina and Rita caused a spike in gas prices.

Few experts interviewed for this story expect consumer jitters to be easily calmed anytime soon.

"The correction is going to take us through 2008," said Paul Taylor, chief economist for the National Automobile Dealers Association, based in Virginia.

George Pipas, Ford Motor Co.'s top sales analyst, agreed: "We certainly see the conditions that we're experiencing now persisting well into 2008."

That likely will mean lower auto sales in the United States until 2009, several industry experts said, and two years of nearly a million fewer car and truck sales annually than automakers have grown accustomed to.

Since 1999, the auto industry has averaged 17 million vehicles sold each year in the United States. But with the deteriorating economic environment, Detroit automakers and industry analysts have been downgrading sales forecasts for this year.

Taylor, for example, expects about 16.1 million cars and light trucks to be sold, down from an earlier projection of 16.5 million. Last year, 16.56 million cars and light trucks were sold in the United States, the lowest level since 1998.

So far this year, sales are down 3.2%. Through July, 9.5 million vehicles were sold, compared with 9.9 million during the same period a year ago. Last month, for the first time, General Motors Corp., Ford and Chrysler LLC also sold fewer than half of the new cars and trucks in the United States.

Now, experts are starting to forecast auto sales volumes for 2008 that don't offer much comfort. Erich Merkle, director of forecasting at IRN Inc. in Grand Rapids, is forecasting sales of 15.7 million vehicles next year.

"I hate to say it, but for the most part I'm expecting it to be pretty weak for the rest of the year," he said.

Views on recovery mixed

George Magliano, director of North American automotive industry research at the research firm Global Insight, said he expects about 16.1 million to 16.2 million light vehicles will be sold next year, with no real recovery until 2009.

He said the fallout from troubles in the housing market indicate "a much slower and more-difficult economic environment than originally anticipated."

Charles Chesbrough, a senior economist with CSM Worldwide in Northville, is forecasting 2008 U.S. auto sales of 16.4 million, which would be a slight increase over his forecast of 16.2 million vehicles for 2007. But, he said he might revise his number based on economic developments.

"The caveat to that is if the housing market doesn't turn around in the next few quarters ... we do think auto sales are going to be hit" in 2008, he said. "We're going to be watching things closely."

Mike Jackson, chief executive officer of AutoNation Inc., the nation's largest seller of new cars and trucks, said the market is so uncertain he cannot make a sales prediction for next year.

"Things are getting worse and worse and people don't know how bad it's going to get, so people are cutting back," Jackson said. While Taylor is still working on his projection for 2008, he said the environment does not look good "unless we see some change in approach to the marketplace" by automakers.

That means incentives, such as cash-back offers and low-interest loans. GM has been boosting its incentives, which led Brian Johnson of Lehman Brothers to predict that August sales will not be so bad.

He said he expects the overall market to be down a little from last year, but better than June and July. He sees top Japanese automakers posting modest gains and Detroit automakers with small declines.

Housing, credit major concerns

But the industry still faces considerable challenges in the U.S. economy.

Even if the Federal Reserve lowers interest rates, as it is expected to do, consumer concerns likely will remain about the credit market, gasoline prices and basic household finances, which have changed substantially for many homeowners who have experienced a big bump in their monthly mortgage payment.

Also, a large portion of adjustable rate mortgages are scheduled to reset over the next 14 months, according to an analysis of reset schedules for ARMs by Credit Suisse. That also is leading homeowners to cut back and prepare for tougher times ahead.

"The world has changed for many households," Pipas said last week.

No matter the actual number for 2008, sales volumes of between 16 million and 16.5 million do not bode well for the turnaround efforts under way at GM, Ford and Chrysler.

"It's definitely not something they need right now," Merkle said.

Many experts predict the automakers will build fewer vehicles for the rest of 2007 and part of 2008 to compensate for the tougher market.

JP Morgan analyst Himanshu Patel told investors in a research note last week that "the large production cuts we are expecting across the board in 4Q07 and 2008 should have a material negative impact on GM and Ford, as well as on the earnings of North American suppliers."

In an interview about the nation's economic climate, Peter Morici, a business professor at the University of Maryland, said it meant more tough times ahead for the Motor City. "Detroit is in very serious trouble," he said.