Pace of Decline In Home Prices Sets a Record
By JAMES R. HAGERTY and KELLY EVANS
Wall Street Journal
A closely watched gauge of U.S. home prices shows they are falling sharply across most of the nation, as a deepening slump in the housing market threatens to damp consumer spending.
Home prices in 10 major metropolitan areas in October were down 6.7% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released yesterday by credit-rating firm Standard & Poor’s. That exceeded the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession.
New statistics from the Census Bureau, meanwhile, indicate a slowdown in the number of Americans moving to states that led the housing boom, including Nevada, Florida and Arizona.
The silver lining behind the latest home-price data is that they signal the market is making what most economists see as a necessary adjustment, dragging home prices back into closer alignment with Americans’ ability to pay. The market is working its way “back to reality,” says David Seiders, chief economist of the National Association of Home Builders. He thinks house prices will bottom out by early 2009.
Some other economists say that might not happen before 2010. “The housing shock is only about halfway over, and housing prices will continue to fall well into 2009,” says Lehman Brothers economist Michelle Meyer.
During the housing boom in the first half of this decade, fast-rising home prices made it easy for homeowners to take out home-equity loans or refinance their primary mortgages to extract some cash. That helped sustain consumer spending, which accounts for about 70% of U.S. economic activity.
Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession. “Eventually what’s happening in the housing market is going to catch up with us,” says Patrick Newport, an economist at research-firm Global Insight Inc.
Fears of a sharp drop in consumption were assuaged somewhat last week when the government reported that consumer spending in November grew at the fastest pace in 3½ years. And though holiday sales fell short of retailers’ expectations, consumers, spurred by discounts, spent heavily in the final days before Christmas. Economists say that even if overall spending slows in December, the strength seen in October and November would be enough to keep the economy afloat in the near term.
“The most important determinant of [spending] is always income,” says Harm Bandholz, an economist at UniCredit in New York. He said that Americans’ disposable income has risen a “solid” 2.5% over last year. He and others say that as long as the job market holds up and incomes keep growing, Americans will continue to spend.
The S&P/Case-Shiller index showed that some of the fastest declines in home prices are in metropolitan areas that were among the hottest during the housing boom. Prices were down 12.4% from a year earlier in Miami, 11.1% in San Diego, 10.7% in Las Vegas and 10.6% in Phoenix.
Home prices are still up from a year ago in some cities, such as Seattle and Charlotte, N.C. And people who bought their homes several years ago still are sitting on sizable gains in most of the country.
The boom more than doubled prices in many populous areas near the coasts. The run-up was fueled in part by unusually low interest rates, which slashed the cost of monthly mortgage payments. In addition, in the wake of the technology-stock bubble, many Americans viewed real estate as a safer investment than stocks, and so poured increasing sums into second homes and rental properties. Home sales began to slow in mid-2005. Prices leveled off and then started declining in 2006. Over the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.
Bette Zerba, a Realtor with Re/Max Desert Showcase in Phoenix, says local residents trying to sell their homes can’t compete with foreclosed homes selling for $50,000 to $100,000 less than theirs. “The sellers now are having to reduce their prices by 20% to 30% to compete,” she says.
As the market adjusts, single-family housing starts have fallen 55% from their January 2006 peak to a seasonally adjusted annual rate of 829,000. In recent months, lenders and investors have begun owning up to billions of dollars of losses on mortgages and related securities, clearing the decks for an eventual revival in lending.
But the recovery of the housing market is likely to be a gradual process. That’s partly because the boom left prices so far out of whack with incomes. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose 15%. (Neither figure is adjusted for inflation.) That made housing unaffordable for many Americans.
For a few years, lax lending standards — some loans required no down payments and offered low introductory interest rates — meant borrowers could buy more expensive houses than they could really afford. But lenders have been burned by a surge in defaults that started in 2006, and such mortgages generally are no longer available. That means house prices will have to fall to a level potential buyers can afford.
Mark Zandi, chief economist of Moody’s Economy.com, a research firm in West Chester, Pa., predicts that on average U.S. house prices will decline about 12% by the second quarter of 2009 from their peak in the second quarter of 2006. He expects household income to rise by about the same amount over that period.
Signs of this adjustment are apparent in the latest quarterly analysis of house prices by National City Corp., a Cleveland banking concern, and Global Insight. Economists at the two firms look at home prices in relation to household income and other factors, including population density (an indication of how much land is available) and past differences in prices caused by factors like climate and schools. In the third quarter, they found, prices in 38 of the nation’s 330 metro areas were more than 33% above a level that could be explained by fundamental drivers of housing costs. That was down from 48 metro areas in this “overvalued” category in the second quarter.
“Parts of the housing market are scratching bottom right now,” says Richard DeKaser, chief economist at National City. Sales of new and existing homes are down about 32% from their mid-2005 peak, he says, and probably won’t fall much further before leveling off or starting to recover slowly.
Prices of new homes are likely to start recovering in the first half of 2008 because builders are aggressively chopping prices to clear inventories, says Edward Leamer, an economics professor at the University of California, Los Angeles. Recent price cuts by builders may have reduced demand in the short term because they encourage potential buyers to expect further discounts.
But prices of previously occupied homes are likely to continue falling slowly for several years, Prof. Leamer says. That’s because people trying to sell their homes often don’t have an urgent need to move, and try to hold out for a price they consider fair.
On average, prices of previously occupied homes, as measured by the S&P/Case-Shiller indexes, are likely to drop another 7% in 2008 before flattening out in 2009, says Thomas Lawler, a housing economist in Vienna, Va.
Inventories of unsold homes remain very high and may increase in the new year as lenders dump more foreclosed houses on the market. The number of detached single-family homes listed for sale in October was enough to last 10½ months at the current sales rate, according to the National Association of Realtors. That was more than double the level of two years ago and the highest since 1985.
Along with inventories, the nation’s home ownership rate will have to adjust to today’s realities as many Americans who stretched too far to buy homes in recent years go back to renting. The home ownership rate in the third quarter stood at 68.2% of households, down from a peak of 69.2% in 2004. Even a small drop in that rate has a big effect on housing demand. Economists at Goldman Sachs have warned that falling home ownership rates may force a further 40% drop in housing starts next year, to an annual rate as low as 500,000 units, before construction starts to recover.
The mortgage market also needs to adjust further. Most of the funding for home loans comes from investors who buy securities backed by bundles of mortgages. Since August, many of those investors have shunned the market amid fears of rising defaults. As a result, lenders generally are focusing on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac, or insured by the Federal Housing Administration. So-called jumbo loans — those above $417,000, too big to be sold to Fannie or Freddie — have grown much more expensive, deterring buyers in high-cost areas.
The current scarcity of funds available for mortgage lending creates a chicken-and-egg situation, says Prof. Leamer. Investors who provide funding for home loans don’t want to commit more money until they believe the housing market is getting better. But it’s hard for the housing market to rebound as long as mortgage credit is tight. Lower prices eventually will break this impasse, by luring buyers back into the market and reassuring investors that the market is finding a bottom, he says.
Friday, March 28, 2008
Pace of Decline In Home Prices Sets a Record . Great Deals For Buyers
Friday, March 21, 2008
Dream Homes With Affordable Payments
The Industrial Development Authorities of the City of Phoenix and Maricopa County, AZ have joined together to offer to help first-time homebuyers obtain FHA, VA or other eligible loan or conventional financing to purchase a home anywhere in Maricopa County. Individuals or families who qualify would be able to obtain 30-year fixed loan at a competitive rate, along with five-percent assistance for down payment and closing costs.
Financing for these fully assumable loans is available on new or existing homes, condominiums, townhouses or manufactured homes on a first-come, first-served basis.
Qualified Veterans are exempt from the first-time homebuyer requirement. Please contact a participating lender or the City of Phoenix IDA for additional information.
How To Qualify
Your annual income must fall within the income limits for eligible borrowers. Our definition of a first-time homebuyer is someone who has not owned a home for at least the last three years. All homebuyers must meet credit requirements.
If you purchase in a designated "Targeted Areas", you do not have to be a first-time homebuyer.
Remember, for first-time homebuyers, the home can be anywhere in Maricopa County.
Income Limits for Eligible Borrowers
Family of Non-targeted Area Targeted Area
Two or fewer $64,524 $74,203
Three or more $74,203 $77,542
Homes must be located within Maricopa County, Arizona.
The following home purchase price limitations apply for eligible residences:
Purchase Price Limits
Non-target Area Target Area
Maximum $311,625 $380,875
Sales Price
Down Payment Assistance
All qualified homebuyers will receive 5% of the original loan amount to be used for down payment and closing costs assistance.
$75,000 $3,750
$90,000 $4,500
$125,000 $6,250
$165,000 $8,250
Frozen In Grand Central Station NYC Video
Frozen In Grand Central Station NYC Video
This is really cool and interesting. 207 people suddenly freeze in Grand Central Station New York City. It is a wild experiment for sure. The reactions from those who witness this are great to watch and hear.
Sunday, March 16, 2008
Foreclosure Facts and the Fed Reacts
Foreclosure Facts and the Fed Reacts
March 14, 2008:
A few weeks ago, I was invited to appear on a local Denver TV interview program and on Sunday I went to the studios for the live broadcast. I was asked about the real estate market in Denver, and some general questions about the RE/MAX organization. Then came the topic of the day - foreclosures.
In a question submitted by email from a viewer, I was asked, "Who was most responsible for the sub-prime mess and all these foreclosures?" Of course, I have strong feelings about the current situation and didn't try to avoid the question.
I responded that Wall Street investors, who bought and sold questionable securitized mortgages were probably mostly at fault. Well, the next thing I knew my response ended up in a story on CNN the next day. It's a complicated issue, but I stand by my belief.
Now, I'd like to take this opportunity to discuss the foreclosure situation. Even though it can be a tragedy for those affected, the most important thing to understand is that the vast majority of home loans are being paid on time and will never enter foreclosure.
The Mortgage Bankers Association tells us that in the 4th quarter of 2007 only 2.04% of all mortgages were in the foreclosure process. That means that 98% of all home mortgages remain solid investments. And keep in mind that sub-prime loans represent 14% of all mortgages.
Today, there are numerous governmental and private organizations that stand ready to assist those who are facing foreclosure. However, an unfortunate truth is that over 50% of those entering foreclosure never have a single conversation with their lender.
Of course, foreclosures have an impact on inventories and eventually home prices, but they can offer a tremendous opportunity to other home buyers and to real estate agents.
Recently, when I was speaking in Las Vegas, I learned about the "Foreclosure Bus Tour" created by RE/MAX Central to escort groups of prospective buyers to several properties in a single afternoon. The bus tour was generating a lot of local interest and was featured on local television and CNN. I'm also aware that some of you are now very active with home auctions.
The simple truth is that foreclosures are a fact of life and they're a significant aspect of this market that can't be ignored.
So, what can the government do to help? Ideally, we don't like to have the government get involved in the marketplace. However, given the pressure on politicians in an election year and the severe lack of investor confidence, the Fed is trying several different strategies to support the market.
The Fed has lowered interest rates, Congress has passed a stimulus package and mortgage lenders have instituted innovative assistance programs. But the sub-prime loans keep adjusting, foreclosures keep increasing and investors are still shying away from mortgages.
This week, the Fed promised to lend Wall Street up to $200 billion, while accepting otherwise unpopular mortgage backed securities as collateral. Wall Street reacted with the sharpest rise on the stock market in several years. But how will it impact our real estate market?
If this stimulus is what it takes to restore confidence in the big investors, then mortgage lenders would be able to lower rates, and have more flexibility to deal with defaults. It could have a very positive impact on the market. However, this situation will not turn around tomorrow. As real estate professionals, we must have strategies in place to make the best of the situation and I will be talking about such strategies in my next posting.
Also, I will choose a name for my blog and announce the winner of an iPhone in the next few days. There's still time to submit your entry. That's all for my "right now blog." - Dave Liniger co-founder of RE/MAX.
Saturday, March 15, 2008
St. Patrick's Day for kids
St. Patrick's Day for Kids (Young & Old) In Sunny Phoenix, Peoria & Glendale, AZ
St. Patties Day in the Park: 5-7:30 p.m. March 14. Participants can enjoy a four-leaf clover hunt, water-balloon toss, a green-egg toss, games & ice cream. University Park, 1002 W. Van Buren , Phoenix. Free. 602-262-6800.
Craft Monday: 3:30-4:30 p.m. Monday, March 17-24. Make a St. Patrick's Day craft March 17 and a "Welcome to Spring" craft March 24. El Mirage Branch Library, 14011 N. First Ave., El Mirage. Free. 602-652-3000. mcldaz.org.
St. Patrick's Day Craft: 3:45 p.m. March 17. Create a craft to take home. Hollyhock Branch Library, 15844 N. Hollyhock St., Surprise. Free. 602-652-3000. mcldaz.org.
Green Day Celebration: 2:30-3:30 p.m. March 17. Kids celebrate St. Patrick's Day by making crafts based on Jim Henson's characters. Snacks provided. Southeast Regional Library, 775 N. Greenfield Road, Gilbert. Free. 602-652-3000. mcldaz.org.
Find out what's up with that old man from Nantucket as the Foothills Branch of the Glendale Public Library hosts “There once was a.... Limerick Contest.”
Children and teens ages 8-19 can show off their creativity in this Irish poetry form. Entry forms are available at the youth desk and all limericks are due by March 28. Winners will be announced March 31. Library hours, 9 a.m.-9 p.m. Monday through Friday, 9 a.m.-5 p.m. Saturday, 1-5 p.m. Sunday. 19055 N. 57th Ave. 623-930-3837, glendaleaz.com/Library.
Valley duo Oceans Apart will get you in the mood for St. Patrick's Day with their Celtic ballads. 7-8:30 p.m. Thursday, March 13. Glendale Public Library Auditorium, 5959 W. Brown St. 623-930-3556, glendaleaz.com/Library.
Enjoy a wee bit o' blarney as Avondale's monthly concert series welcomes Brid Dower. The Valley based singer, originally from Waterford, Ireland, will get you in the mood for St. Patrick's Day with her Irish songs and stories. 7-9 p.m. Friday, March 14. Civic Center Amphitheater, 11465 W. Civic Center Dr. Free. 623-333-2400, ci.avondale.az.us.
Forget a White Out, it's going to be a “ Green Out” as the Phoenix Coyotes 4 face off against the Edmonton Oilers. Everyone attending will get a special St. Patrick's Day Coyotes hat. 7 p.m. Sunday, March 16. Jobing.com Arena, Glendale Avenue and Loop 101, Glendale. $11-$250. 480-784-4444.
Kids can enjoy a special St. Patrick's Day storytime featuring “Tales of the Emerald Isle” 4 with storyteller Elly Reidy. 4- 5 p.m. Foothills Branch Library, 19055 N. 57th Ave., Glendale. 623-930-3837, glendaleaz.com/Library.
Padre Murphy's hosts the biggest St. Patrick's Day bash west of the Black Canyon Freeway. Local Irish bands like the McMorrows will be performing in a 16,000 square foot tent, along with Irish dancers, bagpipers and even some leprechauns. Enjoy plenty of soda bread, corned beef and cabbage and enter a drawing to win fabulous vacations in Hawaii and Puerto Vallarta. Of course you can still enjoy off-track betting and a variety of beers. 1 p.m. Monday, March 17. 4338 W. Bell Road, Glendale. $10 cover. 602-547-9406, padremurphys.com.
Keep the St. Patrick's Day spirit alive after the hangover has faded with the music of Blackwood. The Valley Celtic band visits the Foothills Branch Library on March 19. 7 p.m. Wednesday, March 19. Foothills Branch Library, 19055 N. 57th Ave., Glendale. 623-930-3837, glendaleaz.com/Library.
If you are really in the spirit and looking to buy or lease a GREEN Home, please call RE/MAX Desert Showcase at 623-979-8888 today!
Sunday, March 9, 2008
Relocating to the Phoenix, Scottsdale, Glendale, Peoria or Wickenburg, AZ area?
Relocating to the Phoenix, Scottsdale, Glendale, Peoria or Wickenburg, AZ area?
Welcome to the Valley of the Sun.
What a fantastic time of the year to be in Arizona! With average temperatures in the 70's, it is the perfect place to escape winter & play in celebration of spring! Looking for something fun to do? Spring training is an excellent activity for the month of March. In Peoria, AZ, we have a fantastic facility.
WELCOME TO THE PEORIA SPORTS COMPLEX in sunny Peoria, AZ...
The Peoria Sports Complex is the Spring Training and player development home of the San Diego Padres and Seattle Mariners. The first two-team facility built in the country, this complex is still thought of by many as the premier baseball facility in the country. Sitting on 145 acres, each team has 6 and 1/2 major league sized practice fields, an over 40,000 square foot clubhouse and indoor/outdoor batting tunnels and cages. The shared main stadium seats over 11,000 fans. You can also sit in the grass.
Why Spring Training in Sunny Arizona?
A family environment: Spring Training offers a baseball environment like no other. Big league stars, up close and personal in the small confines of Peoria Stadium create an experience that is not to be missed. Baseball fans young and old develop and rekindle a passion for baseball at Spring Training every year.
If you are interested in information on this beautiful area, please don't hesitate to call RE/MAX Desert Showcase at 623-979-8888 today!!
