Case-Shiller: House Prices Fall 14%

New-Home Sales Post April Increase

By DONNA KARDOS
May 27, 2008 WSJ

The S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, saw prices fall further in the first quarter amid the continued deterioration of home prices as the subprime-loan meltdown weighs on the sector.

Meanwhile, new-home sales rose in April but failed to meet expectations because the government revised lower the level of demand for the previous month.

In the first quarter, the Case-Shiller indexes showed home prices across the country fell 14% from a year earlier, representing the largest drop in the 20-year history of the indexes. From the fourth quarter, prices fell 6.7%.

"The steep downturn in residential real estate continues," David M. Blitzer, chairman of S&P's index committee, said. He added, "There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path."

According to the indexes, released by ratings firm Standard & Poor's, home prices in 10 major metropolitan areas fell 15% in March from a year earlier and 2.4% from February.

In 20 major metropolitan areas, home prices dropped 14% from a year earlier and 2.2% from February.

Charlotte and Dallas managed to avoid March-over-February drops in prices, with Charlotte eking out 0.2% growth and Dallas posting a 1.1% increase. Charlotte also reported a 0.8% rise year-over-year, as -- for the third month in a row -- it remained the only city to post annual growth.

Las Vegas was the weakest market, posting a 26% drop in March from the prior year, followed by 25% and 23% drops in Miami and Phoenix, respectively. Las Vegas and Miami had been the weakest markets in January and February.

Las Vegas and Miami also were the biggest decliners month-on-month, posting 4.4% and 4.5% drops, respectively.

According to a separate measure released last week by the Office of Federal Housing Enterprise Oversight, home prices fell an average of 1.7% nationwide in the first quarter from the final three months of 2007. The decline was the largest in the index's 17-year history. The index differs from the Case-Shiller index in several ways; notably, Ofheo data excludes homes with jumbo mortgages.

Earlier this month, the Commerce Department offered the latest sign that the struggling U.S. housing market may hold back economic growth for much of the year. While home construction unexpectedly jumped 2.5% in April follows months of bad weather that held back many builders, permits declined 8.9% from March to an annual rate of 1.43 million, marking the largest percentage drop since a 24% tumble in February 1990. Permits are now down 41% from their 2005 peak. Housing permits, which are down 28% from a year ago, predict the market's direction better than housing starts.

Meanwhile, the National Association of Home Builders also said earlier this month that home builders' confidence has fallen substantially, to match the lowest point in the latest economic cycle. The meltdown in subprime loans is expected to continue weighing on the sector, and high inventories will need to be worked off.

New Home Sales Increase

Sales of single-family homes increased by 3.3% last month to a seasonally adjusted annual rate of 526,000, the Commerce Department said Tuesday. Year over year, new-home sales were 42% lower than the level in April 2007. March new-home sales fell 11.0% to an annual rate to 509,000; originally, the government said March sales dropped by 8.5% to 526,000. Economists had forecast an April sales rate of 533,000.

The median price of a new home increased by 1.5% to $246,100 in April from $242,500 in April 2007. The average price climbed by 3.0% to $321,000 from $311,700 a year earlier. In March, the median price was $225,500 and the average was $291,500. The increase in prices may be positive for future sales; declining prices have been stopping consumers from buying homes as they wait for still-lower prices.

Inventories fell to an estimated 456,000 homes for sale at the end of April, down from March's 467,000. The ratio of new houses for sale to houses sold fell in April to 10.6 from 11.1 in March. Originally, the government estimated the March ratio at 11.0.

Regionally last month, new-home sales increased 5.8% in the Midwest, 41.7% in the Northeast, and 8.3% in the West. Sales fell 2.4% in the South. An estimated 47,000 homes were actually sold in April, down from 49,000 in March, based on figures not seasonally adjusted.

Home value drop hurting cities

First statewide slump since 1960s means local governments won't see usual revenue increases.

Mark Hornbeck / Detroit News Lansing Bureau
May 26, 2008

Property values dropped statewide this year for the first time in nearly five decades, signaling that Michigan could be on the verge of its next fiscal crisis: the decimation of local government budgets.

As a result of the depressed housing market, assessed values dipped 1.3 percent across the state this spring, dragged down by a 3.9 percent fall in Wayne, Oakland and Macomb counties, according to the State Tax Commission.

That means local governments that have been accustomed to annual increases of 5 percent to 6 percent in the revenue raised by property taxes will see no increase this year.

"This will be the biggest financial challenge in Michigan history," said Mark Vanderpool, city manager of Sterling Heights.

"The state is going to have to work with cities to solve this problem. Some will have to drastically cut services and quality of life will quickly erode."

Vanderpool predicted votes on millage increases across the state and "service cuts in the big three departments: police, fire and public works."

The last time property values declined statewide was in 1962, state Treasury officials said.

Generally, about 60 percent of municipalities' operating budgets are bankrolled by property taxes.

Communities know the hit is coming, and are formulating plans to cushion it.

'It'll be a huge issue'

Gary Olson, director of the Senate Fiscal Agency, an arm of the state Senate, said many municipalities have come under financial stress even when growth in property values was substantial.

"There will be major fiscal problems in local governments over the next couple years. It'll be a huge issue," Olson said.

School districts, which get a share of their funding from property taxes, also will take some hits. Downturns in the usually stable property tax mean that the state will have to pick up the slack from other sources of school aid revenue, such as sales and income tax.

But the state has money troubles of its own and is in no shape to bail out the locals. Officials learned this month that next year's state revenues will come in about $470 million short of estimates. This comes after the governor and lawmakers last year approved tax hikes totaling $1.4 billion to erase a persistent state budget deficit.

"It's one more thing to add to the school funding problem. This will make it harder for the state to provide school aid increases," said Thomas White, executive director of the Michigan Association of School Business Officials. "And some districts may have to increase millage to pay off bonds."

Preliminary figures show assessed property value, which is supposed to be 50 percent of actual market value, is down 3.6 percent in Wayne County; 3.7 percent in Oakland County; and 5 percent in Macomb and Livingston counties. Taxable value -- which is capped by state law at inflation or 5 percent a year, whichever is less -- is up by a fraction of 1 percent in Oakland, Macomb and Livingston and down by a similar amount in Wayne.

Taxable value is expected to plunge into negative territory next year and possibly even later this year after irate citizens win assessment reductions before local boards of review, county equalization officials say.

"This is the first time in modern history we'll see a loss in property values from year to year," said Dave Hieber, equalization manager for Oakland County.

"And it's likely to get worse next year, when we're anticipating residential values off in the 8 to 10 percent range."

Statewide losses in billions

Municipalities were limping from some $700 million in state cuts in revenue sharing over the past five years.

They'd hoped for a $16 million increase in revenue sharing this year, but the state Senate is poised to wipe out that proposal because of lower-than-anticipated state tax receipts.

Communities use revenue sharing to pay for public safety and other critical services.

But those reductions "will pale by comparison" to the budget-gutting that will result from the property value drop-off, said Steve Mellen, equalization director in Macomb County.

"Next year, we're looking at a decrease of over $100 million in taxes for all local units -- the county, schools, cities and townships," Mellen said.

Statewide, the losses will be in the billions of dollars, said Vanderpool of Sterling Heights.

"Our assessments will decline by almost 8 percent -- that's the largest fall-off in our history," he said. "And it will continue over the next few years."

The property value tumble is fallout from a housing market decline. The average price of a home dropped by 11 percent in Metro Detroit last year and 15 percent in January alone.

In addition, Michigan is in the top 10 states in home foreclosures.

Last month, Detroit had more foreclosure sales than regular home sales.

In Macomb, foreclosure sales totaled 40 percent of all home sales and the share was about one-third in outer Wayne County and Oakland County.

Summer Minnick, director of state affairs for the Michigan Municipal League, said cities will be affected by the decline for "many years."

"We're right at the beginning of a pretty severe decline in taxable value on property. Even when the economy turns around, it won't necessarily be much better for us because of the caps on property taxes," Minnick said.

"It's not a pretty picture."

Home construction falls to record low

Residential permits drop by 80%, but nonresidential projects show an 8% increase.

Catherine Jun / The Detroit News / May 15, 2008

Residential building in southeast Michigan fell for a third year in 2007, dropping by as much as 48 percent -- a record low in home construction since the early 1980s, according to data released by the Southeast Michigan Council of Governments this week.

And if it wasn't for nonresidential construction holding steady, the state's economy would be a lot worse, the data shows.

"It's mostly institutions, retail, and hospitals that's keeping it going," said Janet Mocadlo, planning analyst for SEMCOG.

With another year of sputtering home construction in 2007, the region logged an 80 percent drop in new housing permits since the housing boom in 2004, which was primarily fueled by low interest rates.

The data was compiled from the seven-county region, which comprises Wayne, Oakland, Macomb, Livingston, Monroe, St. Clair, and Washtenaw.

Canton Township, once a pacesetter in the region in housing construction, with an average of 1,000 permits annually, logged only 68 last year.

"It was like somebody turned off the faucet," said Tom Yack, township supervisor.

Luckily, the construction of box stores and industrial centers on Michigan Avenue is thriving, he said.

"We've got enough in the pipeline to keep our folks busy for the next two years," he said.

While the housing market sputtered, expansions of hotels, hospitals and other commercial ventures has boosted nonresidential construction in the region, which logged an 8 percent increase in 2007 from the previous year.

Leading the area in terms of square footage was Wayne County -- with the new north terminal at the Detroit Metropolitan Airport and Detroit's refurbished casinos -- and Oakland County with the expansion at Henry Ford Health System in West Bloomfield and St. John's medical campus in Novi.

"We're still the economic engine of the state," said Maureen Krause, Oakland County's deputy director of economic development and community affairs.

The regional data also shows that for a third year, Detroit's loft development makes it the regional leader in residential building, which could echo a national migration back to urban living among younger homebuyers.

"It's going to take a long time for Detroit to turn into a Chicago or New York City, but I think people are becoming more interested in stopping sprawl and preserving green space," Mocadlo said.

A lot for less than $200,000

Updated houses in desirable neighborhoods are newly affordable

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • May 4, 2008

The market for homes priced under $200,000 is full of possibilities.

Don't be surprised to find features like a finished basement, new roof, appliances, bigger lots and more square footage than would have been available three years ago, said Amanda Callahan, an agent with Keller Williams in Plymouth.

Since the market's peak in 2005, home prices have fallen about 23.2% in metro Detroit, according to the S&P/Case-Shiller home price index. Record foreclosures in the past two years have also created a drag on home values as foreclosed properties compete head-to-head with owner listings.

So, for the first time in years, buyers can find many choices in the under-$200,000 price range in communities such as Allen Park, Westland, Dearborn, Ypsilanti, Detroit, Howell, Harrison Township, Fraser, Clinton Township, Warren, Holly, Farmington Hills, Keego Harbor, Waterford, Monroe, Royal Oak and Ferndale, according to data compiled by multiple listing service Realcomp in Farmington Hills.

'Updated for the least price'

Keena Cockrell, a local fund-raiser, found a great deal in Detroit's University District. She got a 1929 brick home with 1,748 square feet, three bedrooms, two full and two half baths, a finished basement and two-car garage for $100,000, nearly $50,000 off the original asking price.

She searched for 10 months before finding the right home.

"My dream has always been to have a large brick home with plenty of room and a finished basement. What I have to me is just a blessing," Cockrell said. "I was just really determined that there was a house out there with my name on it."

Callahan, who sold Cockrell the house, said it had been on the market for more than a year before it sold. It, like many homes in the area, was in excellent condition. Those are the ones going fast.

"There's almost no comparison to the 2005 market," Callahan said. "It's been plummeting. What's selling right now is the most updated for the least price. People want to walk in and do nothing."

Even in the under-$200,000 price range, real estate agents say buyers are demanding stainless steel appliances, granite countertops and help with closing costs.

Grosse Pointe Farms for $135,000

Elyse Van Houzen, an agent with Re/Max Showcase Homes in Birmingham, sold a new 1,500-square-foot home in Ferndale recently for $199,500. Three years ago when the market was at its peak, people could get only a 1,200-square-feet bungalow for that price.

And new, infill construction has dropped under $200,000 in the past 12 months in some communities, she said.

"Between $150,000 and $200,000, you can get a very nice house that does not need any repair," Van Houzen said. "Under $150,000, it is going to need some things."

Claudia Ganem, 51, an assistant to a financial planner, had rented for years in Grosse Pointe Park before market conditions motivated her to buy a home in Grosse Pointe Farms in mid-April.

She was able to buy the 963-square-foot, two-bedroom, one-bath home for $135,000. The seller paid her closing costs. It had been listed at $149,900. It has an updated kitchen, electrical and plumbing, but might need a new roof soon.

She started looking for houses five years ago in the Pointes, but couldn't find anything in her price range until now.

"It's my first home ever, so it looks pretty good to me," Ganem said. "I want to keep playing it down that I live in Grosse Pointe Farms. My dad jokes that he never made it out of the Park. But it does feel good."