Existing Homes Decline

Median U.S. Home Prices FallFor First Time Since 1995

Sales of previously owned homes in the U.S. fell less than expected in August, as prices fell compared with a year earlier, the National Association of Realtors said Monday.

The median home price was $225,000 in August, compared with a revised $230,000 in July.

Last month marked the first year-to-year median price decline since April 1995, and it was the second-biggest in the survey's 38-year history.

Home resales fell to a 6.30 million annual rate, a 0.5% decrease from July's unrevised 6.33 million annual pace. Inventories of unsold homes rose to 3.92 million, a 7.5-month supply at the August sales pace, the most since April 1993

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The weakness in existing home sales followed a report last week that construction of new homes and apartments plunged by 6% in August, pushing building activity to the lowest level since early 2003.

The housing sector, which had enjoyed five boom years of record sales, has been slowing sharply this year under the impact of rising mortgage rates and a slowing economy.

NAR chief economist David Lereah said an anticipated decline in prices compared with a year earlier has begun and is likely to continue until the end of the year, helping to support sales.

"With sales stabilizing, we should go back to positive price growth early next year," Mr. Lereah said.

The August resales level was above Wall Street expectations of a 6.20 million sales rate for previously owned homes. The average 30-year mortgage rate was 6.52% in August, down from 6.76% in July, according to Freddie Mac.

Existing home sales were mixed regionally. Sales rose 0.7% in the Midwest and 1.9% in the Norhtheast. They were down 2.3% in the West and 0.8% in the South.

Realty Reality! 1 out of 75 people in CA is an agent!

Realty Reality: More Real Estate Agents!by Bob Hunt

When we looked at this subject last year, the State of California was turning out newly-licensed real estate agents at the rate of slightly more than 5 per hour. I'm not entirely sure that this counts as an increase in productivity, but the rate has gone up to 6.5 per hour. That's 24 / 7. 155 new agents everyday. 365 days a year.

Last year there was one real estate agent for every 81 Californians. Now the ratio is 1 for every 74. And the population of the state has been growing.

As of May, California has a real estate licensee population of 500,053. If they all lived in the same area -- without even including their families -- that would constitute California's fifth largest city, with a population greater than those of Long Beach, Fresno, or even the state capital, Sacramento.

We've noted before that the phenomenon itself is not new. Every time there is a sustained upswing in the real estate market, the agent population grows. And now, as during other strong markets, the rate of increase in agents soon outpaces the rate of increase in sales. In the past three years California has recorded single-family home sales of more than 600,000. Each of those years has been a record year. Six of the last eight years have been record years. That, of course, is phenomenal.

But, whereas the sales growth has tended to be in the single digits (last year, though a record, was not even a full 1 percent above the year before), the growth in agent numbers has been double-digit, running 12 to 14 percent. What was true last year is, as it were, even more true today: The number of people at the table has increased greatly, but the size of the pie has not grown proportionately.

Moreover, it appears that the pie is shrinking. Statewide, sales were down on a year-to-year basis more than 20 percent in May. Yet there is no sign of a let-up in new license applications. Last year, the number of new sales license exams administered during the January to May period was 69,130. This year the number is 69,017.

California Real Estate Commissioner, Jeff Davi, recently told the directors of the California Association of Realtors® (CAR) that he expected the licensee population to reach 600,000 before it begins to drop back down. Whether or not that is correct, it is a safe bet that it won't be long before the number of licensees is greater than the number of sales.

Imagine a chart with two lines on it. One records the number of real estate sales. It has been slowly growing the past three years, from 601,770 to 624,957. Now it appears to be heading back down to somewhere between the mid to upper-three quarters of 500,000. The other line records the number of licensees. Three years ago it showed 352,143. Today it stands at just over 500,000. It shouldn't be too long until the lines cross.

It is well known -- except, perhaps, to those 55,000+ people each year who are getting a California real estate license -- that it's pretty easy to get into the real estate business, but pretty hard to stay in it. A recent CAR study that tracked 100 new agents over a five-year period found that 57 percent of them had dropped out by the end of five years. And that was during the best real estate market in the history of the state.

So lots of those new licensees have, and will, drop out. CAR's chief economist, Leslie Appleton-Young, has been quoted as saying that new agents all have one or two DNA sales in them. Which is to say: transactions with relatives. But, after that, most of them can't sustain. Of course not.

Look at the math. Even with two "sides" to a sale, when there are more agents than sales, it isn't enough. There may be 500,000 licensees in the state; but there aren't 500,000 people expecting, or trying, to make a living in the real estate business. Still, it's a lot of licenses.

Russ Bergeron, CEO of SOCAL MLS, recently told a group he was addressing that he had been stopped by a policeman on the way to the meeting. The officer asked Russ for his real estate license and his proof of insurance. When Russ said, "Don't you mean my driver's license?" the officer responded, "Sir, not everyone in California has a driver's license."

It's not as bad as Russ' joke makes it out to be; but we all felt the point.

Published: July 5, 2006

Bay Area mortgage defaults on the rise

Bay Area mortgage defaults on the rise

By Sue McAllisterMercury News

The number of Bay Area homeowners facing foreclosure rose to the highest level in more than seven years in the third quarter, while foreclosure activity statewide was higher than anytime in more than four years, a real estate information firm reported Wednesday.

Despite the increases, foreclosure activity is still below average levels regionally and statewide, experts noted.

Owners who receive "default notices'' -- the first step in the foreclosure process -- are "still a small percentage of all mortgage loans, and foreclosures are a fraction of that,'' said Delores Conway, director of the Casden Forecast at the University of Southern California's Lusk Center for Real Estate. "So we have to keep that in perspective.''

Flattening home prices and slower sales are the primary forces behind steep increases, said the report from DataQuick Information Systems. No doubt some of those in default are borrowers with popular adjustable-rate loans whose rates have risen sharply lately, said DataQuick's Andrew LePage. But the data shows that those loans are no more likely than fixed-rate mortgages to be in default currently, he said.

Foreclosure activity has been extremely low in recent years, primarily because most homeowners unable to make their payments can sell their homes for more than they owe their lenders, pay off their loans, and avoid foreclosure.

When price appreciation slows, as it has throughout California this year, fewer owners can do that.

In Santa Clara County, where appreciation has remained stronger than in many other parts of the state, the increase in owners who received default notices from their lenders was second-smallest in the state last quarter -- up 56 percent compared with a year earlier -- and lowest in the Bay Area.

Statewide, Santa Cruz County experienced the smallest gain in such notices, at 34 percent.

Notices of default are the first step in the foreclosure process, and mortgage lenders typically send them when borrowers are at least a few months late in making their loan payments.

A total of 3,795 homeowners in the nine-county Bay Area received default notices from their mortgage lenders in the July-through-September period. That's up 89 percent compared with the same period in 2005, according to DataQuick, which compiled the data from public records. But the quarterly number is still below average, said DataQuick's Andrew LePage.

"We are coming back to more normal levels as appreciation recedes. And the less appreciation there is, the fewer options people have'' for avoiding foreclosure by selling or refinancing, he said.

The last time more Bay Area owners received the default notices was in the second quarter of 1999, when 3,802 such notices went out.

Statewide, 26,705 homeowners got default notices last quarter, more than double the 12,606 who received them a year earlier.

That's the highest level for the state since the first quarter of 2002.

"A slowing housing market is consistent with a higher level of foreclosures,'' said Greg McBride, an analyst with Bankrate.com. "The $64,000 question is how much does the market slow and how high do the foreclosures go?''

He said he expects defaults and foreclosures to keep rising toward average rates.

According to DataQuick's records, which go back to 1992, an average quarter in the Bay Area sees 4,038 notices of default sent.

Average for Santa Clara County is 825 per quarter. But last quarter, just 670 homeowners got notices of default. Only 51 homes in the county were actually foreclosed upon last quarter.

LePage said as home appreciation flattens and foreclosure rates get closer to average levels, "the question is, will the riskier, creative financing loans and resets on adjustable rate loans . . . keep pushing it into above-average territory?''

Nearly half the mortgages made to San Jose borrowers in the first quarter of 2005 had "interest-only'' payment options, according to a study last year by LoanPerformance, a San Francisco mortgage data company. These are among the ``risky'' loans that industry observers are concerned will be more likely to default than more traditional loans.

LePage said it's unlikely that mass job losses will come along and cause a wave of foreclosures. But observers of the housing market and economy are watching to see how many borrowers who took out adjustable-rate mortgages with super-low initial rates in recent years will default when their rates adjust upward.

"I think payment shock is a factor'' when it comes to foreclosure activity, McBride said.

But a few factors have made it so more homeowners will be able to avoid that shock, he said.

Long-term mortgage rates have fallen, giving some owners the ability to refinance and lower their payments. Gas and oil prices have come down, reducing strain on household budgets. And the stock market is performing well, adding to some owners' assets.

"All three of those things combined can take the sting out of payment shock,'' he said.

2% Drop in Price of Homes Predicted in Bay Area

2% drop in price of homes predicted Bay Area
Sue McAllisterMercury News

California house prices will fall by 2 percent next year, and 7 percent fewer houses will change hands, an economist for the state's largest real estate trade group said in a forecast delivered Wednesday.

The median price of the single-family houses sold in California in 2007 will fall to $550,000 in 2007 from a projected $561,000 this year, said Leslie Appleton-Young, chief economist for the California Association of Realtors, speaking at a Realtors conference in Long Beach.

If median prices do finish the year lower in 2007 than in 2006, it will be the first such decline since 1996, according to the group's records. Median home prices in the state fell throughout much of the 1990s, and 1996 was the last ``down'' year of that cycle, with the state's median price falling 0.5 percent from 1995.

Appleton-Young also predicted that sales of houses will fall to 447,500 next year from the 481,200 houses that are projected to sell by the end of 2006.

She did not make separate forecasts for different regions of the state, but said Tuesday in a phone interview that she expects the real estate market in some parts of the Bay Area -- especially San Francisco, the Peninsula and Silicon Valley -- to outperform the state as a whole.

"They've got growing jobs, growing income and not much competition from new construction,'' she said, referring to those areas' lack of land available for housing development.

Areas in which newly built homes form a larger part of the housing market, such as the Central Valley, and areas adjacent to them, such as the East Bay, will have softer markets, she said.

Joe Brown, president of Coldwell Banker in Silicon Valley, the South Bay's largest realty brokerage, said he agrees that Bay Area sellers and homeowners will do better than average for the state, but said he can't predict what prices will do locally in 2007.

"What we had a year ago, will we ever go there again? Was that really healthy?'' Brown said, referring to the extreme seller's market and overbidding that characterized 2005, and which has given way to a much slower market this year. ``I don't think it was healthy. You can't sustain that. . . . This is just the marketplace making an adjustment.''

During an interview before she gave annual predictions Wednesday to a conference of about 12,000 Realtors, Appleton-Young said housing prices rose so quickly in the state in the past five years that they simply had to stop, as homes became less affordable to more and more Californians.

In 2002, for example, the median price of houses rose 20.5 percent from 2001. In 2003, the increase was 17.9 percent. In 2004, it was 20.9 percent, followed by 16.2 in 2005. This year's increase is predicted to be 7 percent.

Appleton-Young said a key phenomenon in the state in the next couple of years will be how homeowners and prospective owners come to grips with home values that don't surge like that.

Some owners, for example, expect to use their home equity to fund everything from college to cars. She said homeowners will develop ``more realistic expectations, as both buyers and sellers adjust to a market where prices are not expected to appreciate significantly.''