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2011-02-22T19:30:00.000-08:00

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2011-02-22T19:29:00.001-08:00

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2011-02-22T19:28:00.001-08:00

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2011-02-22T19:26:00.001-08:00

CAR NEWS

2011-02-17T18:14:00.000-08:00

The Wall Street Journal

Banks push home buyers to put down more cash
Many economists and housing analysts blame lax lending standards – including no-down payment, no-document loans – for contributing to the challenges in the current real estate cycle. As a result, most lending institutions have increased minimum down payment requirements. Now, a new proposal by the Obama administration calls for gradually raising down payments to a minimum of 10 percent on conventional loans – those that can be bought or guaranteed by Fannie Mae and Freddie Mac.

MAKING SENSE OF THE STORY
• Banks have found that larger down payments discourage delinquencies by increasing the buyers’ exposure to loss and reducing the impact of declining prices. According to a study by the Federal Reserve Bank of St. Louis, buyers who made smaller down payments were more likely to default during “unfavorable economic circumstances, such as a housing market slowdown or job loss.”
• A recent analysis showed the median down payment in nine major U.S. cities rose to 22 percent last year on properties purchased with conventional mortgages. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.
• Higher borrowing costs and larger down payments could cause housing prices to decline further, analysts say. For now, borrowers who can’t afford such amounts are turning to alternative programs, such as loans for veterans or those backed by the Federal Housing Administration. Some industry experts say this has created a nonconventional mortgage market for riskier borrowers and those who don’t qualify for conventional loans
.

Read the full story
http://online.wsj.com/article/SB10001424052748703312904576146532935600542.html?mod=WSJ_hp_LEFTTopStories

Feb. 17, 2011

In Other News…

CNN Money

30 percent of mortgages are underwater
Home prices dropped 2.6 percent nationwide during the last three months of 2010, pushing more borrowers underwater, according to a quarterly real estate market survey from Zillow.com.

Read the full story

http://money.cnn.com/2011/02/09/real_estate/underwater_mortgages_rising/index.htm

San Diego Union-Tribune

Will Millennials reinvigorate the U.S. housing recovery?
Millennials, those between18-34, will drive America’s housing recovery as prices have generally become more affordable and mortgage rates are still historically low, said Pete Flint, CEO of real estate website Trulia.com.

Read the full story

http://www.signonsandiego.com/news/2011/feb/09/will-millennials-reinvigorate-us-housing-recovery

San Francisco Chronicle

Foreclosures raise U.S. economic stress The nation’s economic stress inched up in December because higher foreclosures outweighed lower unemployment, according to The Associated Press’ monthly analysis.

Read the full story

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/02/08/financial/f031330S84.DTL

The New York Times
Calculating the annual percentage rate
The lending industry has tried to make it easier for borrowers to understand the true cost of a mortgage by disclosing both its interest rate and its annual percentage rate, or A.P.R. But consumers may often wonder which figure they should focus on when buying or refinancing a property.

Read the full story

http://www.nytimes.com/2011/02/13/realestate/mortgages/13mortgages.html?_r=1&ref=realestate

Feb. 17, 2011

CNN Money

Foreclosures are falling – but it’s a fake out
Foreclosure filings plunged in January, but don’t shake those pom-poms yet. It’s strictly a fake out.

Read the full story

http://money.cnn.com/2011/02/10/real_estate/foreclosure_filings_fall/index.htm

Los Angeles Times

Rising construction costs could boost new-home prices soon
With interest rates near rock-bottom levels, most people realize it’s only a matter of time before loan costs start to rise. After all, what comes down in the mortgage world always has a way of going up
.
Read the full story

http://www.latimes.com/business/realestate/la-fi-lew-20110213,0,6809981.story

CNN Money

Home sales grow, aided by more stable prices
Home sales volume rose sharply in the final three months of 2010, aided by more stable prices on a year-over-year basis, a real estate industry group reported last week.

Read the full story

http://money.cnn.com/2011/02/10/real_estate/realtors_home_prices/index.htm

Los Angeles Times

Federal Housing Agency backs off proposal to ban transfer fees
Thousands of homeowner associations and condominiums around the country just sidestepped a potentially costly problem: A federal agency this month backed off its controversial plan that would have made obtaining mortgages in their communities much more difficult, and would have dried up a key source of revenue that associations use to pay for improvements and property maintenance.

Read the full story

http://www.latimes.com/business/realestate/la-fi-harney-20110213,0,6473192.story

Feb. 17, 2011

What you should know about the market…
• When preparing for the purchase of a house, there are several items buyers must think about, such as their main priorities. Buyers should determine whether it’s more important to live in a particular type of home, such as a single family home with a garage, or in a particular neighborhood.
• Some neighborhoods hold value more than others during a housing downturn. Buyers can work with a knowledgeable REALTOR® to find a neighborhood that meets their needs as well as one where home values are stabilizing or rising.
• Once a buyer finds a home he want to make an offer on, he should be sure not to make a low-ball offer. Some sellers are willing to negotiate and others are not. Working with a REALTOR® can help ensure the buyer is dealt with fairly and guided through the process.

Feb. 17, 2011

Fewer Homes 'Underwater' as Foreclosures Increase

2010-12-14T13:19:00.000-08:00

Fewer Homes 'Underwater' as Foreclosures Increase

By NICK TIMIRAOS And S. MITRA KALITA

The number of U.S. homeowners who owe more on their mortgages than their homes are worth fell in the third quarter, but the decline stemmed from banks getting more aggressive on foreclosures, not from home values going up, according to trade-industry data released Monday.

The total of so-called underwater mortgages fell to 10.8 million at the end of September, down from a peak of 11.3 million at the beginning of the year, according to CoreLogic, a real-estate data firm. The latest total accounts for nearly 22.5% of U.S. homeowners with a mortgage.

The drop in underwater mortgages hardly reflects a rebound in the housing sector because home prices didn't rise in the third quarter. Rather, the number of underwater homes declined as banks took back those homes and wiped out the debt through foreclosure.

Home prices, meanwhile, appear to be declining again after tax credits that spurred sales produced modest price gains during the first half of the year.Home values could drop by an estimated $1.7 trillion this year, a 40% increase from a year ago, according to Zillow.com, a real-estate website. Most of the decline is expected in the second half of the year.

The figures underscore how fragile the housing market remains. As home prices fall, more borrowers will sink underwater. Another 5% decline in prices would leave an additional 2.4 million homeowners underwater, according to CoreLogic.

Underwater borrowers pose a serious risk because they are far more likely to default if they lose their jobs or meet other financial shocks. It is difficult for them to refinance and take advantage of low mortgage rates and they are unable to sell their homes unless they cover the shortfall out of savings or convince the bank to sell at a loss in what is known as a short sale.

"It's a giant anchor that's holding back the economy," said Sam Khater, senior economist at CoreLogic. "Until that negative equity recedes, the housing market is not going to recover. It's as simple as that."

How long borrowers will remain underwater largely depends on the future path of home prices.

Even assuming flat prices, roughly half of underwater borrowers are expected to still be underwater after five years, according to a May report by economists at the Federal Reserve Bank of New York. The Fed report estimates one-third of underwater borrowers will return to positive equity within three years just by paying down debt.

Many are finding themselves in the unenviable position of "accidental landlord." Matt Doebler and his wife thought they had bought at the bottom of the market when they paid $217,000 for a bank-owned home with no money down in Chantilly, Va., three years ago.

But Mr. Doebler, who teaches high school English, lost his job months later and has moved his family twice, most recently to Chattanooga, Tenn. He has rented out the two-bedroom condo for $500 less than his monthly payments. He said he hasn't missed any payments on the home, which he said is now worth less than $150,000.

Mr. Doebler, 30 years old, has begun to ask himself whether he has a moral obligation to keep paying for a home that "not only doesn't provide us shelter, but actually makes it almost impossible for us to pay our monthly living expenses," he said.

Economists say borrowers with small amounts of negative equity are likely to keep paying their mortgages absent shocks such as job loss or divorce. But if more underwater homeowners—even those who are able to make monthly mortgage payments—decide it is better to "strategically" default and abandon heavily underwater properties, distressed sales will continue battering hard-hit housing markets and impede the recovery of the overall economy.

Alicia L. Koch's condo in Sacramento, Calif., had been depreciating in value for years, but it wasn't until about six months ago that the 37-year-old single mother decided she'd had enough. She bought the three-bedroom townhouse in 2005 for $230,000 with a $1,000 down payment. It was recently appraised for about $69,000, and she said she stopped making payments in April. She is trying to offload the property in a short sale.

"I realized I could never catch up to what I owe," said Ms. Koch, who works as a program manager in information-technology training. She and her 15-year-old daughter plan to move in with her fiance, who recently bought a newly constructed home nearby.

At current rates, about one in four borrowers who owe between 100% and 120% of their home's value will ultimately default, and half of all borrowers above those levels will go into foreclosure, estimates Laurie Goodman, a senior managing director at Amherst Securities Group LP.

Efforts to modify loans through the Obama administration's Home Affordable Modification Program have largely failed to address negative equity and frequently leave borrowers further underwater, according to a report to be released Tuesday by the Congressional Oversight Panel. Borrowers in the program "have a slim chance of returning to positive equity in the foreseeable future," the report says.

The underwater problem could also weigh on housing markets because homeowners without equity are less likely to act like traditional homeowners and spend money on their homes. While the homeownership rate during the third quarter fell to 66.9%, according to U.S. Census Bureau data, the effective homeownership rate, which excludes underwater homeowners, is just 56.6%, according to CoreLogic.

That problem is particularly acute in boom-to-bust markets such as Las Vegas. The official homeownership rate stood at 58.6%, but after excluding borrowers with negative equity, the rate fell to just 14.7% in August 2009, according to the New York Fed study.

While the homeownership rate has fallen back to 1999 levels, homeowners' equity as a share of household real estate is lower by one third and is below 40% for the first time since World War II.

"It just kind of leaves you wondering what the safety net is for my generation, because it's obviously not our home," Mr. Doebler said.

After The Foreclosure Debacle

2010-10-25T16:44:00.000-07:00

After The Foreclosure Debacle

One of premier housing analysts for Moody's Dismal Scientist, Celia Chen recently co-authored these projections for the housing industry:

"Prices could decline more than anticipated next year, once the processing issues are resolved. The number of loans affected by recent servicer-imposed moratoriums and the length of those freezes will determine their effect on the housing market and the broader economy."

"...self-imposed moratoriums affect approximately 27% of all properties in foreclosure."

"About 38% of foreclosure filings and 41% of foreclosure inventory are in judicial states, according to RealtyTrac."

"...Fannie Mae has suspended sales of properties purchased from their servicers."

"Since, according to RealtyTrac, foreclosure sales represent 31% of combined US new– and existing-home sales in September, the foreclosure suspensions could depress home sales by 84% until they are lifted. This would lower the foreclosure share of home sold to 25%, a substantial reduction that would tend to cause house prices to rise rather than fall."

"Once the [foreclosure] issues are resolved and foreclosures are completed, distress sales will cause house prices to dive again."

"The foreclosure freeze means that it will take longer to work through the huge backlog of distresses homes."

"Uncertainty…will hold banks back from lending to both businesses and households. Despite being flush with cash, banks will remain reluctant to lend more aggressively without clarity about the impact on their capital positions and profitability."

"Servicers are optimistic that few loans have been improperly processed…Further, the whiff of improperly foreclosure filings may embolden borrowers and their lawyers to tie up foreclosures in the legal system."

"Higher borrowing costs could weigh on housing demand…Servicers will pass along the costs of the current delays - for property preservation, taxes and insurance, additional court filings, attorney fees. And labor - to consumers in higher mortgage interest rates."

"Constrained credit will constrain housing demand…Buyers who were planning to buy non-distressed homes may put off purchases until the situation is resolved, fearing another wave of foreclosure sales that could drive down values. Additional, buyers might be wary of purchasing foreclosed homes from any servicer, knowing the potential for litigation. The consequence of this deterioration in confidence will be some combination of fewer home sales and lower prices."

A New Way to Cut a Mortgage - Recasting Your Mortgage

2010-10-07T18:58:00.000-07:00

Written by M.P. McQueen at mp.mcqueen@wsj.com

Some homeowners who already have refinanced into low-interest-rate mortgages are using a little-known strategy to make their monthly payments even smaller.

Called "recasting" or "re-amortizing," the strategy allows a borrower to lower the monthly payment on an existing fixed-rate home loan for a small fee without having to apply for a new loan and without having to pay reappraisal and other fees.

Recasting also may enable homeowners to save on interest paid over the life of the loan, merely by putting a large sum of cash against the principal, whether or not they have refinanced already.

The bad news? Banks don't advertise the strategy, perhaps because it is less lucrative than refinancing a mortgage. And not all loans are eligible. To find out more, you will have to ask your lender directly.

At J.P. Morgan Chase & Co.'s Chase Home Finance unit, less than 200 mortgages a month are recast out of 10 million home loans outstanding, a spokesman says. At Bank of America Corp., about 200 to 300 a month recasting requests are received out of about 14 million home loans serviced by the company, a spokesman says. Neither bank has seen increased demand.

Here is how it works: A homeowner asks his loan servicer if he can put a large sum of money against the outstanding principal on the mortgage. Ordinarily, doing so would enable him to pay off the loan early, but he would still have to pay the same monthly note. But if the lender agrees to recast the mortgage, he may be able to reduce the monthly payment over the remaining term of the loan.

For example, a person with a 30-year $300,000 fixed-rate mortgage and an interest rate of 4.75% who recasted one year into the loan by putting in $60,000 toward the principal would trim his balance to $235,371. Assuming there were 29 years left on the loan, that would result in a monthly payment of $1,247 instead of the original $1,565.

Recasting can be a good choice for borrowers who have cash and want to reduce monthly payments but who can't refinance, such as those with no-documentation loans, most of whom can't get the same types of mortgages today due to tighter regulations, even if they have high income and good credit. (Self-employed professionals often find themselves in this boat.) And at a time of low interest rates on certificates of deposit and U.S. Treasury bills, paying off a mortgage early is a relatively safe investment that brings a return at least equivalent to the interest rate on the mortgage itself.

There are downsides to the strategy. Many financial experts advise against putting additional cash into one's residence, arguing that higher returns historically have been available in the financial markets and interest rates on bonds are likely to rise eventually.

They also warn of the possible tax consequences of retiring a mortgage early, because mortgage interest on a primary residence can be tax-deductible.

Mortgage recasting resembles a "cash in" refinancing—a newly popular strategy in which a borrower pays down principal on an existing loan in order to qualify for a new loan with a lower interest rate. In a recasting, though, the interest rate and the number of payments remain the same, and there are no transfer and title costs.

Getting permission to recast a loan can be tricky. The loan must be in good standing, and you need to secure permission from the loan servicer, who may or may not be the original lender. If the loan has been sold to an investor, the servicer also must secure its approval.

Since nearly two-thirds of all outstanding mortgages have been sold to investors via mortgage-backed securities, some homeowners could find this step difficult, especially those with subprime and "jumbo" mortgages. (Jumbos are loans that are too big to receive government backing through Fannie Mae, Freddie Mac or the Federal Housing Administration.) If approved, the borrower will need to sign a modification agreement, a legal document recording the change of contractual terms.

Each lender sets its own fees and requirements. Chase requires a minimum $5,000 principal payment to recast a loan and charges a $150 fee, for example. Bank of America generally charges $250. It suggests at least $1,000 be paid toward the principal, but has no minimum.

John Henry Low, a fee-only financial planner in Pine Plains, N.Y., says homeowners should have one to three years in savings as an emergency fund before tying up additional cash in their homes, even if the account is "paying nothing."

A financial adviser in Pennsylvania says he refinanced a $270,000, 15-year mortgage in November 2009 on a second home at a 4.25% interest rate. This year, he inherited some money and instead of having money "sitting around in a money-market fund earning a fraction of 1% interest," he decided to put $75,000 to pay down principal on his mortgage.

So he requested a recast in a letter to Chase, which had acquired the loan. To get it, he paid a $150 fee.

With 14 years remaining on the mortgage, his balance was reduced to $170,020, factoring in additional payments he had been making toward the principal. This reduced his monthly payment of principal and interest from $2,032 to $1,322, excluding escrow payments—a savings of $710 a month.

If he puts the $710 monthly savings back into the principal, he will pay off the mortgage in a little less than eight years, saving $24,300 in interest. He also has the flexibility of a reduced monthly payment "in case I lose my job or something in the future," he says.

You don't need to recast your loan in order to save thousands of dollars in interest over its life. You can simply make additional payments toward principal on an existing mortgage without paying a dime in additional fees, or make a 13th mortgage payment each year—assuming, of course, the loan has no prepayment penalty.

One thing in homeowners' favor: The recent overhaul of banking regulations has severely restricted prepayment penalties on new mortgages.

10 Reasons To Buy a Home

2010-09-17T08:51:00.000-07:00

10 Reasons To Buy a Home

Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.

By BRETT ARENDS.

Enough with the doom and gloom about homeownership.

Sure, maybe there's more pain to come in the housing market. But when Time magazine starts running covers that declare "Owning a home may no longer make economic sense," it's time to say: Enough is enough. This is what "capitulation" looks like. Everyone has given up.

After all, at the peak of the bubble five years ago, Time had a different take. "Home Sweet Home," declared its cover then, as it celebrated the boom and asked: "Will your house make you rich?"

But it's not enough just to be contrarian. So here are 10 reasons why it's good to buy a home.

1. You can get a good deal. Especially if you play hardball. This is a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul.

Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You'll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you'll get a tax break on capital gains–if any–when you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It'll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big.

5. You'll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.

6. It offers some inflation protection. No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.

8. It's forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline.

9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town.

South Florida’s Broward Co. bucks trend: Pending home sales up 17%

2010-09-07T13:33:00.001-07:00

South Florida’s Broward Co. bucks trend: Pending home sales up 17%

Posted By Kerry Curry On September 7, 2010 @ 11:14 AM

Pending home sales in Broward County, the county seat of Fort Lauderdale, rose 17% in August compared to August 2009, but were flat with July 2010 figures.

Sales rose from 6,705 to 7,845 when compared to the year-ago figure, according to the Miami Association of Realtors and the Southeast Florida Multiple Listing Service (SEFMLS).

The figure includes single-family homes and condominiums. Pending sales were up just 0.19% when compared to July figures. A sale is listed as pending when the contract has been signed but the transaction has not yet closed.

Contrary to national trends [1], which show home sales trending lower, the South Florida real estate market continues to strengthen, primarily due to the highest concentration in the U.S. of international buyers, the Miami association said in a news release.

Pending condominium sales in Broward fared better than that of single-family homes. Broward County pending condominium sales in August were 27.4% higher than they were in August 2009, up from 3,414 to 4,350, but just 0.63% higher than the previous month. Broward pending sales of single-family homes rose 6.2% from a year ago, up from 3,291 to 3,495, but they decreased 0.34% when compared to the previous month.

“We are optimistic about signs of stability in the Broward marketplace,” said Terri Bersach, 2010 president of the Broward County Board of Governors of the Miami Association of Realtors.

Sales are up do in large part to international buyers, the association said.

An estimated 60% of sales involve a foreign buyer, and the region continues to be tops in the nation for international buying activity, the association reported.

Beaches and great prices are drawing the foreign interest, said Natascha Tello, president-elect of the Broward County Board of Governors of the Miami Association of Realtors. “These buyers are instrumental in helping to strengthen the South Florida real estate market.”

The Miami group represents 23,000 real estate professionals in all aspects of real estate sales, marketing and brokerage in the South Florida region and is the largest local association in the National Association of Realtors (NAR).

Underwater, but Will They Leave the Pool?

2010-01-24T21:38:00.000-08:00

January 24, 2010

Economic View

Underwater, but Will They Leave the Pool?

By RICHARD H. THALER

MUCH has been said about the high rate of home foreclosures, but the most interesting question may be this: Why is the mortgage default rate so low?

After all, millions of American homeowners are “underwater,” meaning that they owe more on their mortgages than their homes are worth. In Nevada, nearly two-thirds of homeowners are in this category. Yet most of them are dutifully continuing to pay their mortgages, despite substantial financial incentives for walking away from them.

A family that financed the entire purchase of a $600,000 home in 2006 could now find itself still owing most of that mortgage, even though the home is now worth only $300,000. The family could rent a similar home for much less than its monthly mortgage payment, saving thousands of dollars a year and hundreds of thousands over a decade.

Some homeowners may keep paying because they think it’s immoral to default. This view has been reinforced by government officials like former Treasury Secretary Henry M. Paulson Jr., who while in office said that anyone who walked away from a mortgage would be “simply a speculator — and one who is not honoring his obligation.” (The irony of a former investment banker denouncing speculation seems to have been lost on him.)

But does this really come down to a question of morality?

A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a “norm asymmetry.” In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

That norm might have been appropriate when the lender was the local banker. More commonly these days, however, the loan was initiated by an aggressive mortgage broker who maximized his fees at the expense of the borrower’s costs, while the debt was packaged and sold to investors who bought mortgage-backed securities in the hope of earning high returns, using models that predicted possible default rates.

The morality argument is especially weak in a state like California or Arizona, where mortgages are so-called nonrecourse loans. That means the mortgage is secured by the home itself; in a default, the lender has no claim on a borrower’s other possessions. Nonrecourse mortgages may be viewed as financial transactions in which the borrower has the explicit option of giving the lender the keys to the house and walking away. Under these circumstances, deciding whether to default might be no more controversial than deciding whether to claim insurance after your house burns down.

In fact, borrowers in nonrecourse states pay extra for the right to default without recourse. In a report prepared for the Department of Housing and Urban Development, Susan Woodward, an economist, estimated that home buyers in such states paid an extra $800 in closing costs for each $100,000 they borrowed. These fees are not made explicit to the borrower, but if they were, more people might be willing to default, figuring that they had paid for the right to do so.

Morality aside, there are other factors deterring “strategic defaults,” whether in recourse or nonrecourse states. These include the economic and emotional costs of giving up one’s home and moving, the perceived social stigma of defaulting, and a serious hit to a borrower’s credit rating. Still, if they added up these costs, many households might find them to be far less than the cost of paying off an underwater mortgage.

An important implication is that we could be facing another wave of foreclosures, spurred less by spells of unemployment and more by strategic thinking. Research shows that bankruptcies and foreclosures are “contagious.” People are less likely to think it’s immoral to walk away from their home if they know others who have done so. And if enough people do it, the stigma begins to erode.

A spurt of strategic defaults in a neighborhood might also reduce some other psychic costs. For example, defaulting is more attractive if I can rent a nearby house that is much like mine (whose owner has also defaulted) without taking my children away from their friends and their school.

So far, lenders have been reluctant to renegotiate mortgages, and government programs to stimulate renegotiation have not gained much traction.

Eric Posner, a law professor, and Luigi Zingales, an economist, both from the University of Chicago, have made an interesting suggestion: Any homeowner whose mortgage is underwater and who lives in a ZIP code where home prices have fallen at least 20 percent should be eligible for a loan modification. The bank would be required to reduce the mortgage by the average price reduction of homes in the neighborhood. In return, it would get 50 percent of the average gain in neighborhood prices — if there is one — when the house is eventually sold.

Because their homes would no longer be underwater, many people would no longer have a reason to default. And they would be motivated to maintain their homes because, if they later sold for more than the average price increase, they would keep all the extra profit.

Banks are unlikely to endorse this if they think people will keep paying off their mortgages. But if a new wave of foreclosures begins, the banks, too, would be better off under this plan. Rather than getting only the house’s foreclosure value, they would also get part of the eventual upside when the owner voluntarily sold the house.

This plan, which would require Congressional action, would not cost the government anything. It may not be perfect, but something like it may be necessary to head off a tsunami of strategic defaults.

Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.

The Way We Live Now - Walk Away From Your Mortgage!

2010-01-10T11:55:00.000-08:00

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.

Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

The moral suasion has continued under President Obama, who has urged that homeowners follow the “responsible” course. Indeed, HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money. Brent White, a University of Arizona law professor, notes that a family who bought a three-bedroom home in Salinas, Calif., at the market top in 2006, with no down payment (then a common-enough occurrence), could theoretically have to wait 60 years to recover their equity. On the other hand, if they walked, they could rent a similar house for a pittance of their monthly mortgage.

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.

Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.

In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare.

And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.

Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer for the magazine. His book “The End of Wall Street” is coming out in April.

This article has been revised to reflect the following correction:

Correction: January 10, 2010
An essay on Page 15 this weekend about underwater mortgages misstates the parties who believe their homes will go up in value quickly. It is the homeowners — not the “mortgagees,” who issue mortgages.

Federal Housing Tax Credit

2009-12-30T21:33:00.001-08:00

* The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000. * The tax credit applies only to homes priced at $800,000 or less.
* The tax credit now applies to sales occurring on or after January 1, 2009 and or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
* For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
* For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

* To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
* The tax credit does not have to be repaid.
* The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. * The tax credit applies only to homes priced at $800,000 or less.
* The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by May 1, 2010, the home purchase qualifies provided it is completed prior to July 1, 2010.
* Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

One in Four Borrowers Under Water (25%)

2009-12-30T21:14:00.000-08:00

ovember 24, 2009, WSJ
By RUTH SIMON and JAMES R. HAGERTY

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.

Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.

But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." Borrowers who owe more than 120% of their home's value, he said, were more likely to default.

Even home buyers who thought they were getting a bargain are now finding themselves underwater. The News Hub panel discusses a mortgage crisis that has left millions owing more than their homes are worth.

Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said.

Just months after showing signs of leveling off, the housing market has thrown off conflicting signals in recent weeks. Jittery home builders and bad weather led to a 10.6% drop in new home starts in October, and applications for home-purchase mortgages have dropped sharply in recent weeks.

These same falling prices have boosted home sales from the depressed levels of last year. The National Association of Realtors reported Monday that sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.

The bump in sales was ahead of forecasts, spurred by falling prices, low mortgage rates and a federal tax credits for buyers. Congress recently expanded and extended the tax credits.

The latest First American data aren't comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.

The changes reduced the total number of borrowers under water -- although both old and new methodology show increases from the previous quarter. Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter.

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

More than 40% of borrowers who took out a mortgage in 2006 -- when home prices peaked -- are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home's value.

Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.

Andrew Lunsford put 20% down when he bought his home in Las Vegas for $530,000 in 2004. Now, he said, his home was worth less than $300,000.

"I'm to the point where I feel I will never get my head above water," said Mr. Lunsford, a retired state trooper who works for an insurance company. He said his bank won't modify his loan because he can afford his payments, and he's unwilling to walk away, he said: "We're too honest."

Borrowers with negative equity are more likely to default if they live in a state where the bank can't pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond.

But borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced, said Sanjiv Das, head of Citigroup's mortgage unit. "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction."

Mortgage companies have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or redefaulting because they believed the bank would reduce their principal," Mr. Das said.

Many borrowers are so deeply under water that they can't take advantage of lower rates and refinance their mortgage. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

Realtors reported that home sales in October were up 24% from a year earlier. The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier, the trade group said. But that inventory could rebound next year as banks acquire more homes through foreclosure.

About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September, according to the Mortgage Bankers Association. Many of those homes will be lost to foreclosure, adding to the supply of homes for sale.

A recovery could pay off for the roughly 30% of underwater borrowers who owe 110% or less of their home's value and are able to endure the slump. "Most people prefer to stay in their home" even if the value of their property has declined, said John Burns, a real-estate consultant based in Irvine, Calif.

California home sales and prices inch up

2009-12-30T21:03:00.000-08:00

October 16, 2009|Peter Y. Hong

The state's housing market showed more signs of recovery in September, as the median sales price rose nearly 1% from August, to $251,000, a real estate research firm reported Thursday.

The number of homes sold in California also was up last month 1% from August. A total of 40,216 homes were bought in California in September, roughly the same number as the same month last year, according to San Diego-based MDA DataQuick.

The pricey San Francisco Bay Area accounted for a higher percentage of homes sold statewide, bolstering prices. The median Bay Area home sales price in September was up 1%, to $365,000. The number of Bay Area homes sold was up 5% from August; the total of 7,879 homes sold was also 9% greater than the number of homes sold the same month last year.

DataQuick said the relatively brisk activity was driven by sales of discounted homes that had been foreclosed as well as by a federal $8,000 tax credit for home buyers set to expire at the end of November.

"This market may be closer to normal than it was a half-year ago, but it's still out of kilter," said John Walsh, DataQuick's president. "The sales mix is still lopsided, tilting toward the low end, and lending institutions are only making really safe mortgage loans."

The percentage of foreclosed homes sold has been declining. Statewide, 42% of homes sold in September had been foreclosed within the previous 12 months, DataQuick said. In February, such homes hit a peak of 59% of sales.

In the Bay Area, 33% of homes sold in September had been foreclosed in the previous year, down from a high of 52% in February.

Those trends track with Southern California's September sales, which DataQuick reported Tuesday. The median sales price in Southern California last month was $275,000, unchanged from August, and the total of homes sold, 21,539, was roughly even with August and up 5% from a year ago.

Foreclosures as a percentage of sales also declined: 40% of Southern California homes sold in September were foreclosed in the previous 12 months, down from a high of 57% in February.

Even if foreclosures no longer constitute most sales, they continue to define the market because all sellers need to compete with those low-priced properties, said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. "They're in the same marketplace, in the same communities," she said of foreclosed homes sold alongside those offered for sale by individuals or home builders.

Appleton-Young said higher-priced homes also have more room to decline in price than the lowest-priced homes.

"Certainly at the upper end, prices could continue to soften a bit as we go forward. Foreclosures at the high end are starting to accelerate with white-collar job losses," she said.

peter.hong@latimes.com

Renting A Home A Better Deal Than Buying In Much Of U.S.

2009-12-30T20:52:00.000-08:00

Those glamorous people you see in the upscale boutiques of Beverly Hills and Santa Monica may have a secret beyond their romantic lives and surgical histories.

Many of these fashionable glitterati — squeezed out of palatial homes they'd bought on debt — may have just put their rent checks in the mail.

Renting now makes sense in many markets — even for the very prosperous.

Kami Merabi, president of L.A.- based realtor Merabi & Sons, says he personally has 160 to 165 clients who've moved out of pricey homes to rent apartments. "They have $3 million in debt and the house is worth $2 million. They walk away from the mortgage," said Merabi. Actors, actresses, music producers and business owners star in that cast of 160 walk-aways.

It's not just in upscale enclaves like Beverly Hills that renting has become an attractive option. The Washington-based Center for Economic and Policy Research periodically computes the ratio of home prices to annual rental costs. A typical historical ratio is 13 to 14, notes Dean Baker, co-director of CEPR. But in 13 areas of the U.S., home prices are 18 times or more rental costs. These are still "bubble markets."

Among the markets where rentals appear to be a bargain: San Jose; the Bridgeport-Stamford-Norwalk, Conn., area; San Francisco-Oakland; Seattle; and the New York metro area. Using a different ownership-to-rental methodology, Moody's Economy.com cites Oakland, Miami, Boston and Orlando as markets where housing remains overvalued.

Of course, the choice to buy or rent is often dictated by personal factors beyond cost. And every market has unique features that can tilt the equation. In Los Angeles, for example, the costs of property upkeep alone must be weighed, says Merabi. On a high-end property, gardening costs can run to $100 a week. Pool upkeep and maintenance can add another $100 to $125 a week, he says. That's nearly $1,000 a month beyond mortgage and property taxes.

Ownership Has Benefits

Home ownership does offer two major financial benefits: mortgage payments are tax-deductible and homeowners build up equity over time. And, temporarily, the home-buyer tax credit provides a big upfront inducement to buy a home.

But if prices drop after a home is purchased, it will take longer for owners to build equity. Current buyers in 21 markets — including San Jose, L.A., San Francisco and New York — cannot expect to have any positive equity by 2013, according to CEPR.

Housing Tax Credits Extended

2009-11-16T09:41:00.000-08:00

Federal Housing Tax Credit

$8,000 Tax Credit for First Time Buyer

$6,500 Tax Credit for Repeat Home Buyer

www.federalhousingtaxcredit.com

Foreclosures California / Monterey October 2009

2009-11-16T09:24:00.000-08:00

NOD's: an 7.47 percent decrease from September to October. 35,323 total filings, which is an 103.46 percent increase over October 2008.

Trustee Sales: a 13.02 percent increase from September to October. 37,421 total filings, which represents a 41.74 percent increase over October 2008.

Auction Sales Back to REO: a 22.24 percent increase from September to October. 16,081 total sales. A 20.95 increase year over year.

Cancellations: an increase of 0.94 percent totaling 8,741 previously scheduled sales. This represents a 22.52 percent decrease from October 2008.

Third Party Sales: properties sold to investors at the court steps increase 16.42 percent in October 2009. A total of 3,971 properties sold to investors or junior lien holders.

Monterey County:

Notice of Default / Notice of Trustee Sale / Back to Bank / Sold to Third Party

October 2009: 405 / 459 / 184 / 40
September 2009: 410 / 347 / 186 / 32
October 2008: 199 / 416 / 217 / 4

Souring Prime Loans Compound Mortgage Woes

2009-08-21T15:01:00.000-07:00

WSJ 8/21/2009

By NICK TIMIRAOS

A survey found that one in eight U.S. households with mortgages was in foreclosure or behind on its mortgage payments during the second quarter, putting added pressure on programs aimed at preventing foreclosures.

While foreclosure starts have slowed on the subprime loans that ignited the mortgage and banking crisis, loans extended to borrowers with good credit are deteriorating at a faster clip as falling home prices and mounting job losses weigh on more households.

The Mortgage Bankers Association said its latest survey, released Thursday, showed that 13.2% of mortgages on homes with one to four units were at least a month overdue or in the foreclosure process in the April-to-June period, up from 12.1% in the first quarter and 9% a year earlier.
As home sales have picked up in recent months, some were expecting foreclosures and delinquencies to ease. But Jay Brinkmann, chief economist at the MBA, said foreclosures weren't expected to peak until later in 2010 when the economy improves.

"Just because we see prices level off doesn't necessarily mean we'll see a big reduction in foreclosures," said Mr. Brinkmann, in part because many homeowners would still owe more than their homes were worth.

Deteriorating prime loans are increasingly behind the steady rise in delinquencies and foreclosures. Among prime loans, 9% were past due or in foreclosure at the end of June, up from 5.35% one year ago. For subprime loans, those for borrowers with weak credit records or high debts relative to income, the rate was 39.5%, compared with 30% last year.

Prime loans, however, accounted for 58% of foreclosure starts, up from 44% last year. Meanwhile, subprime mortgages accounted for 33% of foreclosure starts, down from 49%. Prime fixed-rate mortgages, usually considered among the safest of all loan types, accounted for one in three foreclosure starts, up from one in five.

More than 235,000 borrowers have begun trial mortgage modifications under an Obama administration effort launched in March that focuses on reducing monthly mortgage payments for borrowers who have fallen behind on their payments. An additional 60,000 borrowers with little or no home equity have refinanced to lower rates through a parallel program launched by the administration.

But modification programs may not be able to help the growing number of borrowers who are falling behind on their payments because they are losing their jobs. Most loan-modification programs have been designed to help borrowers with loans that reset to higher payments or with high debt-to-income ratios.

The first wave of foreclosures that began two years ago, when the economy was still relatively healthy, was triggered by a downturn in housing prices that made it harder for subprime borrowers to refinance mortgages that were resetting to higher payments. Now, foreclosures are increasingly being driven by traditional economic problems, including falling home prices, falling incomes and rising joblessness.

Four states -- Florida, Nevada, Arizona and California -- continue to account for a large part of foreclosures in the U.S., but their share of new foreclosures fell to 44% in the second quarter, from 46% in the first quarter. In Florida, nearly 23% of mortgages were past due, including 12% that were in some stage of foreclosure and 5% that were 90 days or more past due at the end of June. Nevada trailed closely behind, with 21% of mortgages that were late or in foreclosure.
More borrowers in areas that have seen a big plunge in home prices now have mortgages that exceed the value of their homes. Two-thirds of borrowers in Nevada and nearly half of borrowers in Arizona and Florida had negative equity at the end of June, according to First American CoreLogic, a real-estate-data firm. Nationally, a third of mortgaged properties were underwater.

Foreclosures also continued to rise on loans backed by the Federal Housing Administration, to 3% from 2.8% in the first quarter and 2.2% one year ago. The collapse of the subprime-mortgage market in 2007 has swelled the volume of loans headed to the FHA, which insures lenders against the risk of defaults on loans. FHA-insured loans are available to borrowers who make down payments as low as 3.5%.

Originations of FHA loans increased by 30% in the second quarter from the previous quarter, according to Inside Mortgage Finance, a trade publication.

Why the ‘Wave’ of Foreclosure Listings Might Never Happen

2009-08-21T14:59:00.000-07:00

By Nick Timiraos

For weeks, even months, real-estate professionals have been asking the same question: when will the so-called shadow inventory of homes in the process of foreclosure finally hit the market?
Most mortgage servicers ended a foreclosure moratorium in March, and pre-foreclosure filings have accelerated since then, even as the supply of bank-owned properties in some markets has dwindled.

But what if that wave of foreclosures never hits the market? “For those of you still waiting for a surge of foreclosure sales, the truth is you’ll likely be waiting a long time,” writes Sean O’Toole, the founder of ForeclosureRadar.com, which tracks foreclosure filings in California. He breaks down his argument at his blog in this pithy post here.

For one, the time between a mortgage default and a foreclosure listing has grown longer as more homeowners try to complete loan modifications or short sales. Banks aren’t likely to cancel foreclosures even if they put a borrower into a trial modification. Instead, they’ll simply keep the opportunity to foreclose in case the loan modification fails.

One clue that modifications will work: cancellations of foreclosure auctions. So far, cancellations are up slightly, Mr. O’Toole says, but not enough to explain the yawning gap between mortgage defaults and bank-owned listings.

One possibility: foreclosures will simply stay at an elevated level for the next couple years, he says, but there won’t be a huge wave of inventory added all at once. For now, California is seeing a housing inventory shortage, in part because short sales are still hard to execute. Many homeowners are underwater and can’t sell, and those who can don’t want to put their homes on the market if they’re looking at a big loss.

Mr. O’Toole has done some interesting analysis that shows just how profound government policies may have been in encouraging banks to slow down foreclosures. His argument: When the U.S. last September began purchasing direct obligations of government-sponsored mortgage companies, and later began buying mortgage-backed securities that sent a message to banks that they didn’t need to refill empty cash cushions by foreclosing. Policymakers also changed accounting rules so that banks wouldn’t have to take as severe writedowns. (Scroll down this page to see the accompanying chart).

While the raw data suggests that foreclosures should be increasing, it’s harder to predict because “there’s so much government middling into this process,” Mr. O’Toole told the Developments blog. “When you have this much government intervention going on, things don’t necessarily proceed as they should.” (See our earlier post this week on the topic.)

As for the idea that banks are deliberately holding onto foreclosed homes? Mr. O’Toole shoots that idea down too, with a quick back-of-the-envelope sketch that shows that while the gap between bank repossessions and foreclosure sales stands at around 90,000 in California, the actual shadow inventory is probably closer to 22,500.

Readers, what do you think: is the shadow inventory just a Realtor pipe dream?

The Future of Home Prices

2009-08-06T11:04:00.000-07:00

By JAMES R. HAGERTY
Over the past few years, Americans have had a brutal lesson in the risks of real estate. House prices have crashed more than 35% in some parts of the country, millions of people are losing their homes to foreclosure, and banks are failing.

The takeaway? Many Americans still see real estate as their best shot at wealth. In survey after survey, people expect prices to bounce back -- in some cases, as soon as six months from now.

Those hoping for a quick rebound are likely to be disappointed. Economists and other pros generally say home prices won't bottom out before the second half of 2009, and some don't see a bottom until 2011 or 2012. Even when they stop falling, prices may scrape along the bottom of the rut for years.

Down the Road

And longer term? Over the next 10 to 20 years, housing economists expect prices will rise again -- but, on average, probably not nearly as much as they've averaged over the past decade. That isn't to say that some places won't experience booms (and busts). But, the experts say, you should generally expect house prices to rise just a bit more than inflation and roughly in line with household income.

Karl Case, an economics professor at Wellesley College whose name adorns the S&P Case-Shiller home-price indexes, has studied U.S. house prices going back to the 1890s. Over the long run, he says, home prices tend to increase on average at an inflation-adjusted rate of 2.5% to 3% a year, about the same as per capita income. He thinks that long-run pattern is likely to continue, despite the recent choppiness.

Other experts make similarly modest predictions. William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology, says he expects house prices to increase at a rate roughly one percentage point higher than inflation over the long term. Celia Chen, director of housing economics at Moody's Economy.com, a research firm, expects house prices to increase an average of around 4% a year over the next couple of decades.

Some experts say it's a bad idea to count on your home rising in value at all. People should think of their own homes mainly as places to live, not as investments, advises Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley. Sure, home mortgages provide tax benefits, and most homes appreciate in value over the long run, he says, but there is always risk.

For all of those forecasts, many Americans are undaunted. Consider three surveys, all from October.

In a poll of 2,000 adults, real-estate-data provider Zillow.com found that 61% believed the value of their home would either remain level or rise over the next six months. Another survey of more than 1,000 homeowners, sponsored by real-estate-services firm Realogy Corp., found that 91% thought that owning a home was the best long-term investment they could make. And an online survey of 5,000 people commissioned by Citigroup found that just 32% believed it was a good time to invest in stocks -- but 51% said it was a good time to buy a home.

"I just believe in real estate," says Jason Schram, a lawyer in Chicago who has bought two rental properties this year at what he considers fire-sale prices. "I've seen over and over people I know build wealth through rental real estate, and that's the path I intend taking, even though it's a bit bumpy at the moment."

Location, Location

So, as homeowners and buyers look ahead, what factors will determine whether their homes are really likely to rise in value, rather than just in their dreams? What are some of the bullish signs -- and some of the bearish ones?

In the long term, house prices are driven by fundamentals that are hard to predict: immigration, birth rates, the size and nature of households, and incomes. The trick is to figure out where job and income growth will be strongest and where immigrants and others will want to live.
William Frey, a demographer and senior fellow at the Brookings Institution, a think tank in Washington, says young people and immigrants are likely to flow to Florida, Georgia, the Carolinas, Tennessee, Virginia, Nevada, Arizona and some of the more affordable interior parts of California.

These areas generally have lower housing costs than the Pacific Coast or Northeast and job growth from modern industries and leisure businesses, he says. Areas with little immigration and low growth or falling populations are likely to include Michigan, Ohio, the Dakotas, Iowa, western Pennsylvania and upstate New York, Mr. Frey says.

Hit Parade

Newland Communities LLC, a San Diego-based planner and developer of neighborhoods, employs a full-time researcher to study long-term housing demand and ranks metro areas in terms of their growth prospects. Among those near the top of Newland's hit parade are Washington, D.C., Raleigh and Charlotte, N.C., Atlanta, Dallas, Houston, Phoenix and Las Vegas, says Robert McLeod, the developer's chief executive.

All of them, Newland believes, will keep growing because they have well-diversified regional economies and other attractions, including mild climates. With the exception of Washington, they all have fairly affordable housing costs. Washington has a highly educated work force, high incomes, a stable source of government-related jobs and rapidly expanding technology firms, Newland says.

"The older industrial cities are going to suffer" from shrinking employment and forbidding weather, says Mr. Rosen of the University of California. Some Sun Belt cities, including Atlanta, also could languish if traffic jams and sprawl ruin their charms, he says.

Among metro areas that Mr. Rosen expects to do well in the long run are Albuquerque, N.M.; Boise, Idaho; Salt Lake City; Seattle; Portland, Ore.; Denver and Colorado Springs, Colo. He says those places generally offer "urban vitality" and "easy access to outdoor activities" combined with affordable housing and good job-growth prospects from modern industries, such as biotechnology.

Still, just looking at population trends isn't enough. Prices in the crowded coastal areas tend to be more volatile, rising and then falling much faster during booms and busts than do inland areas, Mr. Case notes. Shortages of land and building restrictions make it hard for builders to respond quickly when demand for housing rises in coveted neighborhoods near the coasts; further inland, it's usually much easier to find vacant homes or land, and so sudden movements in prices are less likely.

For instance, despite rapid growth, home prices in Texas cities have tended to climb only gradually. Those cities typically have plenty of room to sprawl, and Texas regulates land use less strictly than many other states. Supply swells to meet demand.

The Wonder Years

What's more, no one can assess the outlook for housing without considering the effects of 78 million aging baby boomers. For instance, some housing experts believe the boomers will be much less likely than their parents to settle for sun and golf in their retirement; they may prefer urban settings with lots of cultural life or to live nearer friends and families. That could mean higher demand -- and increased prices -- for housing in urban neighborhoods.

Most of this is just guesswork, though. "A lot of people have theories about the baby boomers," says Mr. Frey, the Brookings demographer, but boomers always have tended to confound expectations.

Dowell Myers, a professor of urban planning and demography at the University of Southern California, warns that the retirement of boomers over the next two decades is likely to depress house prices in many areas. As boomers relocate to retirement homes and cemeteries, there will be a lot more sellers than buyers in parts of the country, he says.

"It's going to really mess up the housing market," says Mr. Myers. He predicts that this "generational correction" will be larger and longer-lasting than the current slump.
To get a sense of the effects of aging boomers, Mr. Myers looks at the number of Americans 65 and over per 1,000 working-age people. He sees that number soaring to 318 in the year 2020 and 411 in 2030 from 238 in 2000.

Many people over 65 buy homes, of course, but as they get older they become more likely to sell than buy. People aged 75 to 79 are more than three times as likely to be sellers than buyers, Mr. Myers says.

In some areas, younger people will be happy to buy (and probably renovate) those boomer nests. The problem, Mr. Myers says, will be in places where lots of older people are selling and few young people are settling down. He says the effects will be strongest in the "coldest, most congested and most expensive states rather than the high-growth states of the South or West." Among the states where Mr. Myers sees downward pressure on prices within the next decade: Connecticut, Pennsylvania, New York and Massachusetts.

Of course, applying demographic trends to house-price forecasts can be hazardous. Economists N. Gregory Mankiw and David Weil predicted in a paper in 1989 that demographic trends would lead to a "substantial" fall in real, or inflation-adjusted, home prices over the next two decades "if the historical relation between housing demand and housing prices continues." They reasoned that baby boomers were coming to the end of their prime house-buying years and that the smaller baby-bust generation would bring lower demand for housing.

That warning proved, at a minimum, premature. Despite the recent drop, the average U.S. home price is up about 35% in real terms since the end of 1989, according to the Ofheo index. Messrs. Mankiw and Weil both declined to comment.

Few people who invest in housing have time to follow these academic debates. For nearly four decades, Rich Sommer and his wife, Carolyn, have been investing in rental properties in and near Stevens Point, Wis. Mr. Sommer describes real estate as a good way "to get rich slowly." He and his wife, both former schoolteachers, gradually have built their net worth from zero to around $2.5 million through their rental properties. They have dealt with countless plumbing emergencies, evicted deadbeats and even once had to clean up after a suicide in one of their properties.

Still, he hasn't been hit very hard by the real-estate crash, in part because the Midwest is much less vulnerable to booms and busts than coastal areas. When asked what he would do if someone handed him $1 million today, Mr. Sommer doesn't hesitate: He would put it into real estate.—Mr. Hagerty is a staff reporter for The Wall Street Journal in Pittsburgh.

Write to James R. Hagerty at bob.hagerty@wsj.com

Home Prices Rise Across US

2009-08-06T11:00:00.000-07:00

Home prices in major U.S. cities registered the first monthly gain in nearly three years, according to a new report that provided fresh evidence that the severe U.S. housing downturn could be easing.

Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan areas, rose 0.5% for the three-month period ending in May, compared with the three months ending in April. It marked the index's first increase after 34 straight months of decline, and came after a variety of housing indicators has shown glimmers of hope for the past several months.

Home prices remained down about 17% from a year earlier, according to the index. According to S&P/Case-Schiller's seasonally adjusted numbers, which it began reporting only earlier this year, prices in May posted a 0.2% decline.

But most Wall Street economists who discussed the survey focused on the April-to-May rise, saying it represents a significant change in direction. Home prices in 15 of the 20 areas in the survey rose or remained stable.

The results were also consistent with other recent housing data, these economists said. Sales of new and existing homes rose for three consecutive months through June. Housing starts were up in June, and an index of builder sentiment rose in July, though both remained at low levels.
May's uptick came in part as home prices in some areas fell enough for investors and first-time buyers to begin competing for bargains, helping to ease the backlog of unsold homes.
Other likely sales spurs included mortgage rates that fell to 50-year lows, an $8,000 federal-tax credit for first-time homebuyers and the ability of buyers to secure mortgages from the Federal Housing Administration with as little as 3.5% down.

The latest readings don't necessarily herald a full-blown recovery for the housing market or broader economy. Consumer confidence remains near record lows. The U.S. unemployment rate, at 9.5% in June, is expected to hit double digits before year end, making swift growth and an expanding labor force unlikely anytime soon.

The home-sale numbers surprised Robert Shiller, the Yale University economist who helped create the Case-Shiller indexes. "The change in momentum here is very significant," he said. Last month, Mr. Shiller forecast sustained home-price declines into the next few years, which he said now looks less plausible. He said he expects home prices to remain near current levels for the next five years.

U.S. home prices have fallen by about one-third since their peak in the second quarter of 2006, according to S&P, and are roughly back at 2003 levels.

Some analysts warn that the home-price uptick could reverse as rising unemployment causes more Americans to fall behind on their mortgage payments and end up in foreclosure.
One factor that apparently drove the March-through-May uptick was a falling share of homes sold at distressed prices, through foreclosure and so-called short sales. Distressed sales accounted for 33% of existing home sales in May and 31% in June, down from a high of nearly 50% earlier this year, according to the National Association of Realtors.

The drop in foreclosure sales was likely the product of U.S. banks' moratorium on home foreclosures, which they undertook as the government launched a round of programs to modify and refinance loans for at-risk borrowers. Most banks ended their foreclosure moratoria in March.

Interest rates also hovered at or below 5% for most of the March-May period, before rising in June.

"Were it not for those rate reductions and the moratorium, you'd see prices down right now," says Ronald Temple, co-Director of Research at Lazard Asset Management. He expects the index to stabilize or increase in the short-term, but forecasts another 12-15% decline in prices thereafter.

Regardless, a combination of still-low interest rates and eager sellers continues to fuel competition for heavily discounted properties. Some buyers are finding that investors with all-cash offers are consistently beating them in bidding wars.

Stacy Watson, a 39-year-old human-resources manager in the Riverside, Calif., area, says she has made losing bids on at least eight homes since mid-June. On Tuesday, she says, she decided to increase her offer for a five-bedroom home in Perris, Calif., to $198,000, nearly $20,000 more than the asking price.

Ms. Watson and her real-estate agent say the bank-owned home has drawn more than 10 offers in less than a week on the market. "Everyone says it's such a great housing market for buyers," she says. "No. This is hard."

Would-be homeowners have benefited from government programs, including one that allows buyers of properties owned by Fannie Mae to receive mortgages from the government-controlled mortgage-finance company with down payments as low as 3%.

When Nelly Whiteman and her husband recently bought a house out of foreclosure from Fannie Mae, she figures they competed against at least two other buyers. The 27-year-old administrative assistant says they snagged their three-bedroom home in Orangevale, Calif., for $176,000, or about $5,000 more than the asking price. They now pay about $1,080 a month in mortgage payments, insurance and taxes.

"It's an extra bedroom for around what we were paying for rent," she says.
The budding housing recovery isn't being felt across the country. Prices increased in 13 of 20 surveyed markets, with the strongest gains coming in Cleveland, up 4.1% from April; Dallas, up 1.9%; and Boston, up 1.6%.

Home prices were flat in the New York and Tampa, Fla., areas. The survey doesn't track condominium or cooperative apartment sales, so it doesn't take into account the majority of housing stock in New York City.

Prices continue to fall in some markets, particularly overbuilt Sunbelt cities. Prices in Las Vegas declined 2.6% in May from April and were down 32% from a year ago, according to S&P/Case-Shiller. Phoenix prices declined 0.9% from April and were down 34% from May 2008. San Francisco, Miami and Detroit also continued to see year-on-year declines of about 25%.

"Is this just a spring bounce that was partly related to the drop in distressed sales?" asks Thomas Lawler, an independent housing economist based in Leesburg, Va. One key question, he says, is whether another wave of foreclosures could come along to offset the home-inventory decline that has boosted many markets.

In many of the hardest-hit cities, banks appear to be slow to put foreclosed homes on the market. In Las Vegas, for example, banks had taken title to 13,200 homes as of June. That surpassed the total number of homes listed for sale in Las Vegas last month, according to SalesTraq, which monitors inventory in Las Vegas. "Are the banks are intentionally holding back inventory? That's a question a lot of us have," says Larry Murphy, president of SalesTraq.

Some housing analysts say they expect falling prices on mid-to high-end homes to weigh on the Case-Shiller index. The supply of these homes has swelled in recent months as borrowers struggle to obtain financing.

Borrowers of "jumbo" mortgages, which are too big for government backing, face higher rates. Banks are also requiring bigger down-payments at a time when traditional "trade-up" buyers are finding that the equity in their homes has fallen.

"We think [the sales index] will look like a 'W,' where prices go up until the foreclosures at the higher end translate into another leg lower," says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm.

The improvement in housing likely gave a small boost to U.S. gross domestic product in the second quarter, economists said. After data showed construction of new homes was stronger than expected in June and was revised higher in April and May, Macroeconomic Advisers, a St. Louis-based forecasting group, ratcheted up its estimate of second-quarter economic growth. It now sees output shrinking at just a 0.5% annual rate in the second quarter, compared with declines of 6.3% and 5.5% in the previous two quarters.

The government will report its official estimate of second-quarter growth on Friday.

3 Year Descent in Home Prices Appears at End

2009-08-06T10:55:00.001-07:00

July 29, 2009
Recovery Signs in Housing Market Stir Some Hope

By DAVID STREITFELD

After a plunge lasting three years, houses have finally become cheap enough to lure buyers. That, in turn, is stabilizing prices, generating hope that the real estate market is beginning to recover.

Eight cities, including Chicago, Cleveland, Denver and San Francisco, showed price increases in May, up from four in April and one in March, according to data released Tuesday. Two other cities, Charlotte, N.C., and New York, were flat.

For the first time since early 2007, a composite index of 20 major cities was virtually flat, instead of down.

“We’ve found the bottom,” said Mark Fleming, chief economist for First American CoreLogic, a data firm.

The release of the surprisingly strong Case-Shiller Price Index, compiled by Standard & Poor’s, followed earlier reports that sales of existing homes rose last month for the third consecutive time, while sales of new homes rose in June by the largest percentage in eight years.
All of these improvements are tentative, and come after a relentless decline that knocked more than half the value off houses in the worst-hit cities.

Some skeptics say they believe the market is merely pausing before it resumes falling and that much of the life in the market is coming from speculators. Even the most enthusiastic analysts acknowledge that rising unemployment, another leap in foreclosures or a significant jump in interest rates could snuff out progress.

Still, hope is growing in some quarters that the worst has passed.

“Recession is over, economy is recovering — let’s look forward and stop the backward-looking focus,” John E. Silvia, the Wells Fargo chief economist, wrote Tuesday in a research note.
Kirit Shah decided to look forward a few weeks ago. A retired forensic chemist for the New York Police Department, he closed on a house in Royal Palm Beach, Fla.

Mr. Shah was not dissuaded when the salesman at K. Hovnanian Homes told him the five-bedroom place had been empty since it was finished three years ago. “It was waiting for me,” said Mr. Shah, 64. “I’m on a lakefront. I never dreamed I would be on a lakefront. I’m within walking distance of a swimming pool.”

But the thing he likes best is this: he paid $260,000 for the five-bedroom house, half of what that model was fetching during the boom. “An excellent deal,” he said. “Plus I got a good rate on my mortgage, under 5 percent.”

Turning markets are full of uncertainty. If Mr. Shah was one reason new home sales were up 11 percent in June from May, it is unclear just how many others like him are out there.
Brad Hunter, chief economist for Metrostudy, a research firm, said the new home numbers appeared to illustrate less a return of buyers like Mr. Shah and more a resurgence of investors and speculators. Metrostudy’s own data showed that the number of buyers during the second quarter who actually moved into their new house declined 2.6 percent.

“Investors are turning right around and putting the houses on the market for sale or for rent,” Mr. Hunter said. “What appears to have been an absorption of excess inventory can be just a changing of ownership of that inventory.”

The good news in the Case-Shiller index, the most widely watched source of price information about the housing market, is equally provisionary. Tracking only large urban areas, the monthly index does not represent the country as a whole.

The Case-Shiller figures released Tuesday showed May prices were down 17.1 compared with May 2008. As bad as that may sound, it was the fourth consecutive month that price declines slowed — a step in the right direction, but perhaps not cause for widespread celebration.
More attention was focused on the news that, when May was compared with April, the price index for 20 major cities showed a half-percent gain. It was the first month-over-month increase in the index in 34 months.

“It is very possible that years from now we will say that April 2009 was the trough in home prices,” said Maureen Maitland, vice president for index services at Standard & Poor’s.
When the numbers were adjusted for seasonal factors, however — the usual way housing figures are presented — the slight gain disappeared and the index was essentially flat. Half of the cities showed continued declines.

One reason the market is perking up in some places, real estate agents say, is the encouragement offered by such measures as the first time buyer’s tax credit of $8,000.
All the more reason, said the National Association of Realtors, to not only extend the credit but expand it. The association is lobbying for the current credit, which expires in December, to be replaced with a $15,000 credit for all buyers.

“This is a relatively low-cost way to keep the housing market moving forward,” said Paul Bishop, the association’s managing director of research.

Another reason for the market’s resurgence is the prevalence of foreclosures, which make up about a third of all existing home sales. In some troubled regions, agents say they cannot remember the last transaction that did not involve a bank disposing of a property.
These communities are not yet showing any improvement in prices. Las Vegas was the worst-performing city in the May Case-Shiller index, falling 2.6 percent. Prices have fallen there by a third in the last year.

“The mom and pop that work at the Hilton can now afford a home here again,” said Justin Pechonis, a Las Vegas real estate agent. “Las Vegas is a great place to buy now.” But not from him. Sickened by seeing so many clients foreclosed on, he is getting out of the business. He now drives a taxi.

All this uncertainty breeds a hesitancy that seems to show up in nearly every sale, especially at the higher end of the market. When Margot and Pascal Lalonde decided in April to sell their two-bedroom condominium in the North End of Boston, they methodically quizzed six experienced agents about a good price.

List it for under $500,000 unless you want to be here for months, said one agent. Two others said they should demand $675,000. The other three were in between.
“In a market with so few sales, no one knows what to do,” said Ms. Lalonde, a consultant.

After 80 days on the market and two small price reductions, the condo is now under contract for $550,000. The buyers examined the apartment six times. The Lalondes, who are moving to Short Hills, N.J., expect to be no less careful when they buy.

High End Homes Frozen Out of Budding Housing Rebound

2009-08-06T10:49:00.000-07:00

By NICK TIMIRAOS and JAMES R. HAGERTY

KENILWORTH, Ill. -- Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.
Signs of the divide are visible across the country, including in suburban Chicago. In middle-class Schaumburg, Ill., which had a median income of $65,000 in 2007, sales were up 41% in June from the depressed level of a year earlier and bidding wars have broken out on some properties. "I can't even tell you how many I've been in over the last two months," says Joe Stacy, a local real-estate agent.

But 25 miles away in the affluent town of Kenilworth, with a median income of $230,000, home sales have stalled. While there are 65 homes on the market, just 13 have sold this year. "We're extremely oversupplied," says Sherry Molitor, a local real-estate agent. "Sellers are struggling to realize that we're back to 2001-02 prices."

The divide between the mass market and the high-end -- generally defined as homes that cost above $750,000 -- partly reflects the effects of Washington's housing-rescue plan, which is producing winners and losers.

Policymakers have helped spur sales of lower-priced homes by offering first-time buyers a federal tax credit of as much as $8,000, by driving mortgage rates to near 50-year lows and by expanding the mission of the Federal Housing Administration, which will guarantee mortgages for consumers buying homes with down payments as low as 3.5%.

Sales at the lower end are also helped by the large number of foreclosed homes that banks have dumped at fire-sale prices, which has pulled down values of neighboring houses and sparked bargain hunting. Prices in both Las Vegas and Phoenix are down more than 50% from their peaks of several years ago, according to the S&P/Case-Shiller index.

Home prices tracked by that index rose 0.5% for the three-month period ending in May versus the three-month period ending in April, the first monthly gain in nearly three years. Prices have shown signs of stabilizing in recent months as the share of distressed homes, including those that sell out of foreclosure, falls from highs reached earlier this year.

Low prices have ignited a home-buying boom in some markets. In June, sales of single-family homes in the Las Vegas area were up about 70% from a year earlier.

For affluent buyers, it's a different story.

The $8,000 tax credit for first-time homeowners phases out for single buyers whose incomes exceed $75,000, or married couples earning more than $150,000. Low-interest-rate mortgages backed by the FHA and government-controlled mortgage companies Fannie Mae and Freddie Mac are only available on loans below limits set by Congress. Last year, Congress increased those limits to $417,000 in most markets, and to as high as $729,750 in certain high-cost markets, including parts of Hawaii, California, New York and Washington, D.C.

Mortgages for amounts that exceed those limits are called "jumbo" mortgages, and face higher interest rates. Last week, the average rate on a 30-year mortgage below the limits was 5.42% compared with 6.33% for jumbos, according to HSH Associates, a financial publisher.
Extremely wealthy people may not need a mortgage. But buyers who take mortgages for expensive homes generally face higher rates and tighter lending standards. Most banks that offer jumbo mortgages are generally requiring down payments of 20% to 30% or more, knocking out potential buyers who don't have much equity in their homes and have seen retirement savings fall.

While subprime mortgages sparked the first round of housing problems two years ago, now "troubles are lurking further up the food chain," says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. "You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top," he says.

To be sure, the affluent housing market is substantially smaller than the mass market. Sales of existing homes priced over $750,000 accounted for 2.3% of all sales in the first quarter of this year, compared to 4.4% of the housing market in 2007, according to the National Association of Realtors.

Still, the distress in high-end market has implications for consumer spending: the top 10% of U.S. households in terms of income accounted for 23% of consumer spending in 2007, according to government statistics. As those households watch their home equity evaporate, they are more reluctant to spend on housing upgrades or other items.

Inventory of expensive homes is rising. Overall, the inventory of unsold homes in June was enough to last 9.4 months at the current selling pace, down from 11 months a year ago, according to the NAR. But the supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year ago. A recent forecast by analysts at J.P. Morgan Chase & Co. said it would take until at least 2012 for the expensive-home market to recover and that peak-to-trough declines could surpass 60%, compared to 40% for the rest of the market.

Defaults are rising, too. Among prime mortgages, jumbo mortgages are now leading delinquencies and defaults and are the fastest-rising category for defaults of all types of mortgages. The rate of 60-day delinquencies on prime-jumbo mortgages jumped to 7.4% in May, from 4.5% in November, according to First American CoreLogic. By comparison, 60-day delinquencies on prime-conforming loans reached 4.9% in May, from 3.6% in November.
A recent survey by the NAR found nearly three-quarters of real-estate agents said buyers were purchasing smaller houses due to tighter credit requirements. "We're in a 'trade-down' environment for the first time since the 1930s," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
High-end homes are also being hurt by changing perceptions about how much home one should own. For years, people were encouraged to buy the most expensive home they could afford because there would be a payoff when it was time to sell. But buyers can't count on that any longer.

Having lost large amounts in the stock market and on real estate, "a lot of people are licking their wounds and hoarding their cash," says Sally Daley, a real-estate broker who sells luxury homes in Vero Beach, Fla. She says many customers are asking, "Do I really need this big a house?"

Even families who can come up with the hefty down payments are buying more conservatively. Gabi Marks, an attorney, and her husband Don, an engineer, recently sold their condo and bought a five-bedroom Victorian house in San Francisco to accommodate their growing family.
They paid about $1.58 million, staying below their self-imposed ceiling of $1.8 million. "We made sure we had a sufficient [financial] cushion," Ms. Marks says. They made a down payment of about 30%, partly to qualify for a lower-cost loan, and plan to pay down a big chunk of debt as soon as the sale of their condo is completed.

When the foreclosure crisis began two years ago, there were few signs the high-end market would suffer. "It's God's country," Leslie Appleton-Young, chief economist for the California Association of Realtors, told an audience of real-estate agents in 2007. "When is the 30% decline in Marin County's market going to happen? Not in my lifetime."

Home prices there have fallen by 21% from their 2006 peak, according to Zillow.com, a real-estate Web site. Ms. Appleton-Young now says there's "no doubt that the high-end housing prices have adjusted and will continue to adjust."

Few in Kenilworth ever expected the price declines that began in markets decimated by subprime loans and house-flippers would ever reach their streets, which are lined with Tudor mansions, manicured lawns, and for-sale signs.

The community, which has a bowling league and a sailing club and is consistently named as one of America's wealthiest towns, was developed as a planned community 100 years ago on land purchased by Chicago retailer Joseph Sears, son of the founder of Sears, Roebuck & Co.
Today, the neighborhood is a microcosm of other high-end housing markets across the country, where homeowners are frozen in their homes, postponing relocations or a planned downsizing because they aren't willing to cut prices.

Those who do drop their prices risk raising the ire of the neighbors. Peter Cummins, a local real-estate agent who lives in Kenilworth, caught some flak from residents in June after chopping the asking price of a six-bedroom home to about $1.6 million from nearly $2 million. To draw attention to the cut, he produced a flier reading: "Hey Chicken Little, is that the sky falling in Kenilworth?"

Some residents are angry because policymakers in Washington specifically excluded jumbo mortgages in housing-rescue plans. "We're considered either rich people who don't deserve help or deadbeats who bought too much house," says Kelli Kobor, a 42-year-old substitute high school teacher. "I don't see Washington prepared to deal with us."

Five years ago, she and her husband bought their five-bedroom Dutch colonial in Kenilworth for $1.3 million with a 25% down payment using equity they'd built up from two previous homes. Her husband lost his job in December and took a new one that pays much less, making it harder to make mortgage payments. Ms. Kobor says she missed her first mortgage payment in the spring but is now current.

In July, her mortgage servicer agreed to temporarily lower her interest rate for six months, and the unpaid balance will go into a balloon payment due when the loan is paid off.
Like many young families that move to Kenilworth, Ms. Kobor and her husband were drawn by the town's top-rated public elementary school, which is just a few steps from their home, and the tight-knit community of 800 households.

Local real-estate agents have told her she'd be lucky to sell the house for the $960,000 that's owed on their jumbo adjustable-rate mortgage. Her lender, Thornburg Mortgage, specialized in prime jumbo loans and filed for protection from creditors under bankruptcy law in March.
Unable to sell his home in nearby Winnetka, Ill., Brad Davis, a 43-year-old attorney, has commuted to Washington, D.C., for the past year after taking a new job there.

He recently cut the asking price on his four-bedroom brick Tudor by $100,000 to around $1.4 million after it didn't draw any offers in eight months on the market. Most potential buyers have a big obstacle: They would first have to find buyers for their own homes.

"You're not sure if it's a price issue or if there just aren't any buyers," says Mr. Davis, a father of two young children. While he says he doesn't mind the long commute, "not being able to come home every night is the hard part."

Others have pulled their million-dollar homes off the market and are offering them as rentals. Susan Forney rented her six-bedroom Georgian colonial in Northfield, Ill., for $7,500 a month after it didn't sell.

Over the past two years, she reduced the price by $1 million to $2.25 million, but her only offer came in at $1.6 million, about $100,000 less than she paid for the house in 1999.
Ms. Kobor says it is ironic that two of the most powerful men in the country know of these problems first hand.

Treasury Secretary Timothy Geithner decided to rent out his Larchmont, N.Y., home after it failed to sell and President Obama purchased a $1.65 million Chicago home with a $1.3 million jumbo mortgage in 2005, at the height of the real-estate bubble. The property is now worth $1.2 million, according to an estimate by Zillow.

The Treasury Department and the White House declined to comment.

Write to Nick Timiraos at nick.timiraos@wsj.com and James R. Hagerty at bob.hagerty@wsj.com

The Foreclosure King

2009-08-06T10:45:00.000-07:00

Foreclosure king surfs troubled home waters

THE MARKET

Real estate broker Leo Nordine is working his well-timed magic in selling distressed houses.
By Ann Brenoff October 25, 2008

The South Bay's reigning King of Foreclosures runs around barefoot, doesn't own a cellphone and drives an 8-year-old Toyota Tundra pickup.

And without looking the part, Leo Nordine, an affable Hermosa Beach-based real estate broker, expects to average one escrow closing a day this year -- something that would make most agents salivate.

Nordine, a 45-year-old native son and surfer didn't just catch the current foreclosure tidal wave, he has sold 3,500 bank-owned homes during the last two decades. He credits his uncanny ability to time the real estate market's cycles and position himself to reap its rewards as the key to his extraordinary success. And he does it all from the comfort of his home overlooking the Strand in Hermosa Beach.

Little about Nordine's road to riches is typical. He is a case study in how an intense young man without a formal education can be propelled by his drive and work ethic to the height of success -- even when he doesn't live and breathe his job.

"What's important to me," Nordine says, "is family, surfing and work -- in that order."
Born to European parents who immigrated to the U.S. so their son could be born a citizen, Nordine's childhood was far from the American dream.

His insurance salesman dad, who suffered from Parkinson's disease, left when Nordine was 5. His mom struggled to provide for him and his sister. He recalls the family moving from apartment to apartment, staying one step ahead of the eviction notices. Nordine bought 25-cent T-shirts at Goodwill to wear to school and took two paper routes for the Daily Breeze when he was old enough to have a job.

Nordine recalls how his dad reappeared one day and asked to borrow $200; he obliged, but the loan was never repaid.

"It was the best thing that ever happened to me," Nordine says, noting how he opened a savings account with his very next paycheck.

"Ever since," he says, "it always felt better to me to save than to consume."

Even today he doesn't dress, drive or live rich. In fact, his financial success has come as a total surprise to him. "I never figured myself to be someone who would amount to much," he said, recalling how at age 15 he'd drive his Plymouth Duster to Carlsbad with his longboard on the roof. He'd surf all day, sleep in the car and pick the oranges off people's trees come mealtime. After washing up in the Hadley Orchard Cafe, he'd avail himself of its free samples to supplement the fruit.

Then, at 17, Nordine met the woman who would become his first wife. He took a series of odd jobs to help support her and her child and -- encountering difficulties working for someone else -- was summarily fired from each of them.

When she became pregnant again, he set his sights on real estate. Much to his surprise, he had a natural gift for pricing and timing the market. Within three years, he opened his own business and has run things his way ever since. He began specializing in selling bank-owned properties in 1990 because, he says, that's where the market was headed.

Nordine's business model is E.T. Surf, the Hermosa Beach surf shop he frequented as a kid. He recalls how owner Eddie Talbot "always treated us with dignity, let us hang out like little sponges just soaking up the surfing atmosphere."

Nordine treats his own clients with the same respect. He understands that homeowners may regard him as the devil incarnate, the guy tasked with selling their homes -- sometimes out from under them.

He's fine with it. "Whether I sell their houses or not, they are getting foreclosed," he said. "I negotiate the best deal I can for them . . . cash for keys."

Nordine knows that anybody can fall victim to hard times. And the last thing he wants is for his youngest son, 6-year-old Nate, to think things come easily in life.

To that end, when Nate was just 2, Nordine took him on an outing to Watts. On the subway, Nate saw a homeless man whose disheveled appearance and erratic behavior scared him to the point of tears. When the man exited the train, he paused by the boy, put his hand on his shoulder and said, "I'm sorry I made you cry, son."

"Nate will always remember," Nordine said, "that not everyone is as fortunate as him."
Nordine has made his own fortune not only by selling homes but also by investing shrewdly. In the 1980s, he bought about 20 properties, most of them single-family homes in Torrance. He sold them off in 1990 and '91 when he anticipated a bust was coming. He dived back into the market in the mid-1990s -- this time apartments in Santa Monica -- and sold off most of them in 2005.

Today, he and his second wife own a 22-unit complex and a 12-unit complex in Santa Monica; a single-family home and a four-plex in El Segundo; nine bungalows and a four-plex in Torrance; a five-plex in Redondo Beach; and the house-office in Hermosa Beach.

But being a dad and husband is what it's all about for Nordine. His is the first face his son Nate sees every morning when he wakes and the last one he sees at bedtime.

So what advice does Nordine offer those concerned about the real estate market?

Don't sell unless you absolutely have to. Don't buy until 2010, when prices should be at 2000 levels. And apply every spare nickel to paying off your debt, including mortgages.

Brenoff is a Times staff writer.

ann.brenoff@latimes.com

How to Buy a Foreclosure

2009-07-12T15:27:00.000-07:00

How to Buy a Foreclosure

The price may be right, but be prepared for the hassles.

By Amy Bickers, Associate Editor

From Kiplinger's Personal Finance magazine, June 2008

Michael Lappano knows a home bargain when he sees one. Last year, the Bellevue, Wash., real estate agent purchased a condominium for only $255,000 (including an outstanding lien). That's $65,000 less than what comparable units were selling for, he says. To get the steep discount, he bid on the home at an auction for foreclosures. "The location was perfect, just two traffic lights from my office," says Lappano. He now lives in the sunny two-bedroom, two-bathroom condo with his new wife, Stephanie. And the property is still worth about $315,000, even in the face of a nationwide slump in home prices.

Just over a year after Lappano purchased his home, buyers looking for bargains are eyeing an unprecedented selection of foreclosed luxury houses and condos, in addition to more modest homes. Foreclosures were up 60% in February from a year earlier, according to RealtyTrac, an online listing service. Arizona, California, Florida and Nevada have been hit hardest, but foreclosures are on the increase just about everywhere.

Rick Sharga, marketing director for RealtyTrac, says he hears from brokers that many buyers now begin their home search with a request to look at foreclosures and bank-owned properties. But there's no guarantee that buying a foreclosure will save money compared with buying the traditional way. Discounts vary tremendously depending on where you live. In fact, many foreclosed homes are priced higher than their true value because sellers are trying to pay off the mortgage and cover taxes and transaction costs.

Plus, buying a foreclosure involves homework, patience and often a good measure of luck. If you're buying at auction, you usually need to pay cash. You may face long waiting periods to take possession of the property and move in, and the property could require extensive repairs. Sometimes the former occupants strip the house of all appliances and vandalize the property.

You may also have problems getting accurate information before you buy, says Seattle real estate attorney Richard Llewelyn Jones. "There could be judgments and liens attached to the property or more than one note or deed of trust being foreclosed." In the end, most buyers are turned off by the risks. "If you don't know what you're doing, you could lose your shirt," says Jones.

Getting a discount. If you're game, find an agent who deals with foreclosures. Your agent can locate properties and establish their market value -- which could be very different from the asking price. You will have to pay for any repairs, so build in a generous estimate of what they could cost. Also, you may need a lot of cash because traditional financing may not be an option.

Each state has its own rules governing foreclosures: whether the transaction goes through the court system, what taxes you pay and how much cash you need upfront. To get a summary of your state's law, visit the resource center at online listing service ForeclosurePoint.com.

Also, you generally cannot get title insurance until you take ownership, nor can you expect the title warranties that usually kick in during a traditional home purchase. You need to inspect the title thoroughly, which means paying several hundred dollars for a title search and combing through it to ferret out all outstanding debts. Even so, says Jones, there may be title problems that aren't of record or that appear on the record between the time of your title search and the public sale. Be prepared to pay off old tax liens attached to the home -- and to buy title insurance as soon as you take ownership.

Three ways to buy. Wherever you live, there are three ways to buy a foreclosure: in a presale (before the lender forecloses), at auction or directly from the bank. In a presale, you negotiate with homeowners directly, before their home goes into foreclosure. Although the discount can be as much as 20% to 40% off the property's value, a presale is the riskiest way to buy because deals frequently fall through and title problems are rife. And pre-foreclosure buyers have to add in the cost of an inspection and fork over real estate excise tax, as do those who buy bank-owned property. (Buyers at auction may avoid these costs in some states.)

Buying at a public auction is the most common type of foreclosure purchase. Buyers can expect a discount of 10% to 25% compared with buying a home through traditional channels, says Dean Street, an agent and 30-year veteran of foreclosure buying in the western U.S. But the road to auction can be bumpy, too. For starters, you often cannot inspect the interior of the home. Street says it's vital to see the property even if you can't gain entry. "If there is 300 pounds of garbage in the front yard, there is probably 600 pounds inside," he says. One way to research the interior is to check the local building department's permit records, or have your agent see if a recent listing has information on appearance, layout and previous remodelings.

Another hassle: Most foreclosures that go to auction get postponed, usually due to bankruptcy or loss mitigation (when the bank tries to compromise with the borrower), says Chris Matty, marketing director of ForeclosurePoint.com. He notes that opening bids also change frequently, especially as home values are marked down further.

The winning bidder will pay for the property and take ownership within a set period of time, which varies according to state law. But you're not out of the woods yet. Some states, such as North Carolina, give former homeowners a chance to buy the property back. Sometimes foreclosure buyers have to start eviction proceedings; once the house is vacant, you usually have to schedule repairs.

Work with the lender? If no one buys a property at the auction, it usually ends up back with the bank. Banks have a lot of these real estate owned, or REO, properties in their portfolios and are actively trying to sell them through agents. And unlike buying at auction, you can usually get a traditional mortgage for an REO. Unfortunately, lenders often list the property at or near market value to recover the outstanding loan amount along with legal fees, property taxes and maintenance costs.

But an experienced foreclosure broker can negotiate aggressively with a bank, especially when the property has been listed for a year or more. Plus, banks trying to sell foreclosures sometimes offer highly competitive financing packages to buyers, including low down payments and attractive rates. As home values decline, some lenders are willing to negotiate a "short sale," in which the property is sold for less than the debt owed on the house. That's one way foreclosure buyers can profit. In some markets, the discount is as much as 25%; but where there's less inventory, the discount can be smaller.

You can find REOs through real estate agents. Or approach local banks or mortgage brokers directly and let them know you are prepared to buy a property "as is" with cash and request a discount from the asking price. Banks sometimes pay to remodel properties to improve their value. But with so much inventory on their books right now, most lenders want to unload foreclosed homes quickly, without having to refurbish them.

New Evidence on the Foreclosure Crisis

2009-07-03T13:26:00.000-07:00

By STAN LIEBOWITZ

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.
Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault -- such as "liar loans," where lenders never attempted to validate a borrower's income or assets.
This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

The McDash data allowed me to construct a housing price index at the zip code level and then calculate the current equity position of each homeowner. I was thus able to compare the importance of negative equity to other variables related to foreclosures.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Further, because it is difficult to account for second mortgages in this data, my measurement of negative equity and its impact on foreclosures is probably too low, making my estimates conservative.

What about upward resets in mortgage interest rates? I found that interest rate resets did not measurably increase foreclosures until the reset was greater than four percentage points. Only 8% of foreclosures had an interest rate increase of that much. Thus the overall impact of upward interest rate resets is much smaller than the impact from equity.

To be sure, many other variables -- such as FICO scores (a measure of creditworthiness), income levels, unemployment rates and whether the house was purchased for speculation -- are related to foreclosures. But liar loans and loans with initial teaser rates had virtually no impact on foreclosures, in spite of the dubious nature of these financial instruments.

Instead, the important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising (see chart nearby).

Although the government is throwing money -- almost $2 trillion and counting -- at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted. While Federal Reserve actions have succeeded in reducing mortgage interest rates, low interest rates induce refinancings more than they do home purchases.

To be sure, refinancings may put money in peoples' pockets, but it is home purchases that directly impact house prices. Nevertheless, housing prices are likely to stop falling fairly soon with or without government policies. That's because current prices are approaching their long-term, inflation-adjusted pre-bubble level. These pre-bubble prices appeared to be a long-term equilibrium, meaning that prices would be expected to return to those levels once the government's efforts to artificially increase homeownership receded. Unfortunately, recent attempts by politicians such as Barney Frank (D., Mass.) to again artificially increase homeownership levels might delay this return to sustainable equilibrium prices.

Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration's "Making Homes Affordable" plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem.

Understanding the causes of the foreclosure explosion is required if we wish to avoid a replay of recent painful events. The suggestions being put forward by the administration and most media outlets -- more stringent regulation of subprime lenders -- would not have prevented the mortgage meltdown regardless of their merit otherwise.

Rather, stronger underwriting standards are needed -- especially a requirement for relatively high down payments. If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell. A further beneficial regulation would be a strengthening, or at least clarifying at a national level, of the recourse that mortgage lenders have if a borrower defaults. Many defaults could be mitigated if homeowners with financial resources know they can't just walk away.

We are at a crossroads where we can undo the damage to the housing market by strengthening underwriting standards in a reasonable way. But to do so political leaders must face up to the actual causes of the mortgage crisis, not fictitious causes that fit political agendas and election strategies.

Mr. Liebowitz is professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas.

Thinking of Buying a Foreclosure?

2009-04-08T22:18:00.000-07:00

Should you buy a foreclosure?

If you've considered buying a house in foreclosure or one that's on the brink, you're seeing lots of opportunities now. But before you jump in, consider these 12 points.
[Related content: homes, home buying, foreclosure, property taxes, home selling]
By Sally Herigstad

MSN Money

Make $500,000 in one year! Buy houses for pennies on the dollar! The business of buying foreclosures and pre-foreclosures has never been hotter. The experts will guide you every step of the way to help you get rich quick. Just take a seminar or buy a book and you'll be on easy street in no time.

With foreclosure filings reported on 291,000 U.S. properties in February, up 30% from a year ago, it's easy to entertain visions of buying cheap houses and flipping them for quick profits.
The only trouble is, it's not so simple. New realities are changing the foreclosure business, and the unwary investor can be left in the lurch.

Here's what's changed and what you might want to watch out for:
There may be little or no equity on the table. Dana Mackey used to send 100 letters at a pop to distressed homeowners in the Agoura Hills, Calif., area. He would typically get about a 10% response. Of those, he would be able to work with several families either by carrying paper so they could stay in their homes or by purchasing the homes from them, and he'd make a good profit.That doesn't work anymore. Most of the houses in trouble in his area are now "underwater" -- people owe more on their homes than the homes are worth. Many homes have $950,000 mortgages but are worth only $700,000 in today's market. "Before, I was able to help them," says Mackey, of Prosperity4Kids. "Now, they're so far gone that there's nothing you can do. The banks don't want to negotiate. The banks don't want the property back, but they don't want to take the $250,000 hit right now either. And the market keeps dropping." Mackey has stopped sending the letters.

Foreclosures are becoming more emotionally and politically charged. Groups such as the Moratorium Now! Coalition are working to stop foreclosures and evictions nationwide. Frustrated with rising unemployment and foreclosures, the coalition's motto is "Bail out the people -- not the banks." Reading a few stories of families sleeping in trucks after being foreclosed on could make Scrooge cry. Few topics raise people's emotions as quickly as a classic battle between the haves and the have-nots.You, as a buyer, may be an innocent bystander in this drama, but that might not keep you from having trouble taking possession of a home -- or keeping it. A sheriff in Chicago, for example, has told his deputies to stop evicting people from foreclosed properties because he believes some people, especially renters, have been evicted without proper notice. In February, the Association of Community Organizations for Reform Now, also known as ACORN, announced a campaign of civil disobedience designed to help families resist eviction and remain in their homes after foreclosure. (See "When foreclosure doesn't mean eviction.")The homeowners likely won't make it easy on buyers either. "What people don't count on is the high emotional stakes involved with someone who is in the process of losing their home," says Craig Venezia, the author of "Buying a Second Home." They may have been fending off pre-foreclosure buyers, feel they were pushed into the loan or be emotionally drained by the prospect of losing so much. They don't exactly welcome your contact; sometimes, they're hostile.

You've got more competition than ever. Once a homeowner receives a notice of default, the foreclosure process is public. Some homeowners report being contacted by as many as 65 people offering to "help" during the pre-foreclosure period. At an auction, it's no better. You register and get a bidder's card or paddle, but so do as many as 2,000 other people. "People think, 'If I get a foreclosure, I'll be the only one,'" says Larry Loftis, the author of "Successful Real Estate Investing in a Boom or Bust Market." You could skip auctions and look for REOs, or real-estate-owned properties, where the bank has already foreclosed and owns the home. But those are put on the Multiple Listing Service rolls along with every other property. There's really no way to get around the competition.

Even before the current foreclosure boom and its fallout, buying foreclosures had major downsides. Here are nine more good reasons you may want to steer clear in any market:
Some pre-foreclosure tactics are sleazy. There's a whole seminar market that teaches you how to find people who are about to lose their homes and pretend to be their white knight. The seminars teach you to pitch that, yes, Aunt Martha will lose the property, but she'll save her credit. You use complicated contracts and high-pressure and scare tactics, and misrepresent what the homes are worth. What you're hoping is that Aunt Martha has about 60 grand in equity. You take over her property, her loan -- and her equity. Loftis says, "It's deceitful and unethical, but that's what they teach."

You can pay too much. Auctions are designed to create a buying frenzy. It's easy to get caught up and spend more than you'd planned. "People should not be misguided into thinking that the lenders just take a loss. Sometimes they do," says Venezia. "What I've seen is that more short-selling is happening, but it's still more of the exception than the rule." Remember, when a house sells for far less than both the market price and the mortgage, it makes the news exactly because that's not how it usually works.

You don't get much time to do your research. Foreclosure auctions are a quick process, so when you find out a property is coming up for auction, you don't have much time to research it. If a property sells at auction, all liens are wiped clean, but you are liable for any property taxes. That could wipe out any savings. "You're going to know less about the property," says Venezia. There's no home inspection. Some of the houses are sold sight unseen. And if you're the winning bidder, it's yours -- there's no going back.

Continued: Profit can be elusive

Your profit can disappear in the time it takes to rehab and sell a home. Even if you get a property at what you think is a good value, you have to factor in all your costs. It's not just labor and materials. It's the time you hold the property. It could take months to fix up one property and find a buyer for it, and all that time you're paying mortgage interest, utilities, property tax, insurance and more. You really have to do the math. Say you manage to pay $200,000 for a house worth $250,000. You plan to put in $10,000 worth of carpet and paint before clearing a nice profit. Not so fast. There's always more that needs to be done than you had expected, so say the rehab actually costs you $15,000. Closing costs add $12,500. Then, say it takes you six months to fix the house and find a buyer -- and each month you're paying $3,000 in expenses.

The cost of flipping

Selling price, once fixed:
$250,000
Purchase price:
$200,000
Gross profit:
$50,000
Expenses
Closing costs:
$12,500
Rehab:
$15,000
6 months of taxes, interest, etc.:
$18,000
Total expenses:
$45,500
Net profit:
$4,500

That's a pretty slim profit margin -- one that's completely wiped out if the previous owners trash the place. Or if there are any unknown major defects, such as a leaking roof, a severely cracked foundation or mold. Or if it takes longer than you think to rehab the house in your free time. Or if selling the house takes longer than you anticipated. Not to mention that it could take two to three times longer to complete than a traditional sale, tying up your time and money.That's a lot of risk, and it could turn out even worse. There are other ways to invest in real estate without exposing yourself to so much risk.

The owners or tenants may still live there. If you buy property at a foreclosure auction, you may have to be the one to evict the tenants. Do you have the stomach for that?

Vacant properties are a huge financial drain. Most foreclosures involve single-family homes. These homes feel like safer buys because they're what we know. But you're better off buying multifamily homes, with renters to cover the mortgage payments, taxes and utilities. "If you buy a quad, even if someone moves out, the other tenants cover your expenses," author Loftis says. "You rehab one unit at a time. You never have a property sitting empty that eats your lunch."
The neighborhood may have underlying problems. You need to ask, "Why is this house in foreclosure?" If the owner lost his job, that's one thing. But if many jobs are being lost in the area, causing a glut of homes on the market, stay away.

Financing a foreclosure can be complicated. At an auction, you have to bring a cashier's check for a down payment, and then you might have 24 hours to come up with the rest of the cash. Getting a traditional mortgage on a foreclosure would be extremely difficult. You would need to have different sources -- your own cash, access to trusts or hard-money lenders (which can charge exorbitant interest rates).

You can get great deals now -- without buying foreclosures. One of the best reasons not to buy foreclosures: It's a buyer's market. Loftis recommends that you look for properties that have been on the market six months or longer. You'll find sellers who are willing to give you a good price.

Video on MSN Money

Buying at auction

How to navigate a foreclosure auction, with CNBC's Carmen Wong Ulrich.
Still, buying a foreclosure might make sense.

If you're thinking of buying a foreclosure or pre-foreclosure for your own residence, it's an entirely different scenario. If you do your research, avoid occupied houses and never buy sight unseen, it could be worth the trouble. Georg Finder, an independent credit evaluator in Fullerton, Calif., bought a fixer-upper that way. He paid about half as much for his house as his neighbors had paid for theirs, and he used some of the savings to make cosmetic fixes. For Finder, the positives outweighed the negatives. He still lives there, 20 years later.

America's top 5 best – and worst – housing markets

2009-04-08T21:28:00.000-07:00

5 best housing markets
1. New York
2. Washington, D.C.
3. Charlotte, N.C.
4. Portland, Ore.
5. San Diego

5 worst housing markets
1. Las Vegas
2. Phoenix
3. Detroit
4. Minneapolis
5. San Francisco

Banks aren't reselling many foreclosed homes

2009-04-08T21:18:00.000-07:00

Banks aren't reselling many foreclosed homes
Carolyn Said, Chronicle Staff Writer
Wednesday, April 8, 2009

A vast "shadow inventory" of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory."

"There is a real danger that there is much more (foreclosure) inventory than we are measuring," said Celia Chen, director of housing economics at Moody's Economy.com in Pennsylvania. "Eventually those homes will have to be dealt with. If they're all put on the market, that will add more inventory to an already bloated market and drive down home prices even more."

More than one-third locally

In the Bay Area, a Chronicle analysis of data from San Diego's MDA DataQuick shows that more than one-third of foreclosures are in shadow territory - that is, they are not registering in county records as having been resold.

For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for.

Turnaround usually quick

Realtors say foreclosures generally go on the market a month or two after the bank takes title and then sell fairly quickly, often getting an accepted offer within a week or two of being listed and then closing escrow within 30 days. That means that foreclosures should register as being resold within three months.

But taking the foreclosures in any given month or selection of months and looking at what happened three months later also reveals a big gap between what banks took back and what they resold.

Tom Kelly, a spokesman for banking giant Chase in Chicago, said the bank sells foreclosed homes in a timely fashion.

"We try not to be in the business of owning homes," he said. "Our goal is to get them back on the market as quickly as possible. We want to maximize what we sell them for and yet do it quickly."
Kelly was at a loss to explain the shadow inventory phenomenon other than the quantities involved.

"The inventory might be growing because there is just a lot of volume coming in. That would not surprise me," he said.

Locally, the monthly number of foreclosures has decreased since peaking at 4,321 in August 2007. That has allowed foreclosure resales to start closing the gap.

Most observers say the recent fall-off in foreclosures came because California and many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished.

Only 65.5 percent resold

A second DataQuick study of all Bay Area homes repossessed by banks in the 18 months ending January 2009 tracked how many of those homes had resold by mid-March. It found that 65.5 percent had resold. Discovery Bay's ForeclosureRadar.com compared its database of Bay Area foreclosures to MLS listings for the past 120 days and found that fewer than one-fifth of the foreclosures showed up as for-sale listings.

"Foreclosure numbers are artificially depressed," said CEO Sean O'Toole. He puts California's shadow inventory at about 100,000 homes.

So why aren't banks selling off their foreclosures?
Observers say several factors are at work.

-- The "pig in the python": Digesting all those foreclosures takes awhile. It's time-consuming to get a home vacant, clean and ready for sale. "The system is overwhelmed by the volume," Sharga said. "In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month."

-- Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. "With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," O'Toole said.

-- Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don't fall as fast. "They want to be careful about not releasing them too quickly so they don't drive prices down and hurt the values," O'Toole said.

Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they're negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above.

"The problem is that no one knows how extensive (the shadow inventory) is," said Patrick Newport, U.S. economist with the Massachusetts research firm Global Insight. "It's a wild card. If it's a really big number, you'll see prices drop a lot more and deeper problems for the financial system."

Missing foreclosures

Only 65.5 percent of all Bay Area homes repossessed by banks in the 18 months ended January 2009 had been resold by mid-March. This study looked at the same homes over time, not an aggregate of all foreclosures.

County

% foreclosures resold

% foreclosures unsold

Alameda
58.6%
41.4%

Contra Costa
69.8%
30.2%

Marin
66.9%
33.1%

Napa
66.0%
34.0%

San Francisco
49.8%
50.2%

San Mateo
61.5%
38.5%

Santa Clara
62.0%
38.0%

Solano
67.5%
32.5%

Sonoma
75.3%
24.7%

Bay Area
65.5%
34.5%

Source: MDA DataQuick

E-mail Carolyn Said at csaid@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/08/MNL516UG90.DTL
This article appeared on page A - 1 of the San Francisco Chronicle

Why home values may take decades to recover

2008-12-16T11:10:00.000-08:00

Why home values may take decades to recover

By Dennis Cauchon, USA TODAY

Rick Wallick moved into a new, three-bedroom $200,000 home in Maricopa, Ariz., in October 2005. Today, the home is worth $80,000.

The disabled software engineer stopped making mortgage payments this month. His $70,000 down payment is now worthless. His dream house will be foreclosed on next year.

"We're so far underwater it's not funny," says Wallick, 57, who had to return to his original home in Oregon to care for a sick family member and tend to his own medical problems. Wallick, one of the hardest-hit victims in one of the states hit hardest by the housing crisis, lost 60% of his home's value in three years.

His story is an extreme example, but home values have fallen so sharply since hitting a historic peak in the spring of 2006 that many Americans are wondering how much more prices can sink.
As painful as the decline has been, history suggests home values still may have a long way to drop and may take decades to return to the heights of 2½ years ago.

"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."

The boom in home prices — fueled by heavily leveraged loans built on low or even no down payments — made it easy to forget that housing values had been remarkably stable for a half-century after World War II, rising at roughly the same pace as income and inflation. Prices soared in most of the country — especially in Arizona, California, Florida and Nevada and metro areas of Washington, D.C., and New York — during a brief period of easy lending, especially from 2002 to 2006. That era's over.

So far, home values nationally have tumbled an average of 19% from their peak. As bad as that is, prices would need to fall as least 17% more to reach their traditional relationship to household income, according to a USA TODAY analysis of home prices since 1950. In that scenario, a $300,000 house in 2006 could be worth about $200,000 when real estate prices hit bottom.
FORECLOSURES: Drop seen in November, but bad news looms

The price plunge has wiped out trillions of dollars in home equity and caused the worst financial crisis since the Great Depression. Susan Wachter, professor of real estate at the University of Pennsylvania, fears that foreclosures and tight credit could send home prices falling to the point that millions of families and thousands of banks are thrust into insolvency.

"Homes are different than other goods and services," she says. "The fragility of our banking system is tied to the value of homes."

Home values have fallen before — during the Great Depression and in Texas after a 1980s oil boom, for example — but those drops were a response to other economic forces. This time, the housing price collapse is the cause of the nation's broad economic troubles, not just an effect.
"If we have another 20% decline in prices, we'll need another bailout of banks similar to what we just did," Wachter says.

Other economists see a brighter picture in the long term. Wachovia economist Adam York expects home values to keep falling until 2010 but is optimistic they will recover.
"The one saving grace is the population is growing by 3 million people a year," he says. "They need to live somewhere. That means more roofs."

50 years of steady values

Until recently, homes were stable, unspectacular investments, not get-rich-quick schemes.
Nationally, the typical existing home was worth roughly the same in 2000 as it was in 1950, after adjusting for inflation, according to Yale University economist Robert Shiller.
Newly built homes generally were bigger and more expensive than older houses. As time passed, that meant Americans lived in larger, more valuable homes overall. But a house, once constructed, grew slowly in value. California in the 1970s, Texas in the 1980s and Florida on-and-off for a century were conspicuous exceptions to the rule.

Despite only modest increases in value, homes were smart investments. Owners lived in a house, then got their money back when they sold. That's a better deal than renting. Borrowers got tax breaks, too, and built equity that could be leveraged into bigger houses as their incomes grew.

From 2002 to 2006, houses went from being a tortoise to a hare in the investment world. Home sale profits and relaxed lending standards such as lower down payment requirements and adjustable-rate mortgages (ARMs) made it possible for buyers of all income levels to pay more for houses.

When the housing bubble began to deflate in 2006, history had a sobering lesson to teach. Home values had closely tracked three common-sense measures for many years:

• Income —Home values floated at about three times average household income from 1950 to 2000. In 2006, the average household income was $66,500. Under the traditional model, home prices should have been about $200,000. Instead, the typical home sold for $301,000.
•Rent —Homes traditionally have sold for about 20 times what it would cost to rent them for a year. In 2006, houses were selling for 32 times annual rent.

•Appreciation —Existing homes grew in value by less than 0.5% per year, after adjusting for inflation, from 1950 to 2000. From 2000 to 2006, home prices rose at an average annualized rate of 8.2% above inflation and peaked with a 12.3% jump in 2005. Housing prices began to fall in the second quarter of 2006.

Inflation could help homes recapture their old prices, if not their value. But when inflation is factored in, home prices might not return to their 2006 peak for many years. Housing prices are meaningless if you don't adjust for inflation, says Schiff, the investment manager.
He points out that gold peaked in 1980 at $850 an ounce in response to inflation and the Iranian hostage crisis. It never recovered. Today, it sells for about $750 an ounce and would have to top $2,000 an ounce when adjusted for inflation to match its value in 1980.

"That's the nature of bubbles," Schiff says. "The price never comes back."

The end of inflated leverage

An extreme relaxation of lending standards inflated the housing bubble.
"Shoddy underwriting on mortgages" is the primary cause of the housing crisis, says York, the Wachovia economist. "People got caught off-guard by how bad it was."

Millions of home buyers — poor, rich and middle class — were approved to buy homes at prices that had been out-of-reach just a few years earlier. Lenders offered low introductory "teaser" rates on adjustable rate mortgages and approved borrowers based on artificially low mortgage payments, not the higher ones that took effect later.

What else changed:

• Optional payments on principal —In 2005, 29% of new mortgages allowed borrowers to pay interest only — not principal — or pay less than the interest due and add the cost to the principal. That was up from 1% in 2001, according to Credit Suisse, an investment bank.
• No verification of income —Half of mortgages generated in 2006 required no or minimal documentation of household income, reports Credit Suisse.

• Tiny down payments —In 1989, the average down payment for first-time home buyers was 10%, reports the National Association of Realtors. In 2007, it was 2%.

Low down payments and ARMs gave homeowners enormous financial leverage to pay high home prices. Leverage boosts buying power through debt, the same way a 100-pound woman uses a lever to jack up a 3,000-pound car.

Consider a couple with $20,000 cash. In 2006, they easily could get a 5% down mortgage to buy a $400,000 house. Today, a 10% down payment would limit the couple to a $200,000 house.

"Leverage matters a lot when you buy a house," says University of Wisconsin economist Morris Davis, an expert on housing prices and rents. "We're not going to go back to the days of only 20% (down payment) mortgages, but the days of putting nothing down are long gone."

Easy access to borrowed money reset all housing prices, even those paid by cautious borrowers. People of all income classes moved up a notch, Census Bureau housing data show.

The sale of new homes costing $750,000 or more quadrupled from 2002 to 2006. The construction of inexpensive homes costing $125,000 or less fell by two-thirds. The biggest boom was in the middle. Homes costing $200,000 to $300,000 became affordable to millions of families.

The failed titans of home lending — Countrywide Financial, IndyMac Bank and Washington Mutual — specialized in high-risk, highly leveraged loans.

"The price correction has been severe, rapid and probably permanent because lending standards have changed," says mortgage credit analyst Suzanne Mistretta, a senior director at Fitch Ratings, a bond rating company. "We are not going to see 2006 peak levels for a very, very long time."

Lessons from the Depression

The Great Depression of the 1930s was preceded by a real estate bubble, also fueled by loose lending standards and shrinking down payment requirements. Those real estate problems — and solutions — echo today's.

Florida real estate was the epicenter of speculation in the mid-1920s. Developers ran up prices by selling to borrowers who put as little as 10% down. Those were shockingly risky loans at a time when the standard mortgage lasted five years and required a 50% down payment.

The risky loans went bad first, but it was the spread of credit problems to the supposedly safe loans — five years and 50% down — that caused the housing market to collapse.

The five-year loans required no payments to reduce principal. Homeowners expected to refinance mortgages when the loans expired, usually with the same lender. The stock market crash led to a "liquidity crisis" — no money to borrow — that dried up mortgage refinancing.
Millions of families lost their homes to foreclosure. Falling prices on nearly everything — homes, farm crops, wages — made consumers reluctant to buy and banks afraid to lend.

As part of the New Deal, the government took control of millions of loans and restructured them into something new: the modern mortgage, with 20% down and principal that is repaid over the life of the loan. The government extended the mortgages to 15 years, then 25 and finally 30.

When World War II ended in 1945 and the Baby Boom began the following year, the 30-year, fixed-rate mortgage became a cornerstone of society and led to unprecedented levels of homeownership.

This resilient home finance system should recover in a few years, some analysts say.
National Association of Realtors chief economist Lawrence Yun predicts home prices will keep falling in 2009 but could return to their 2006 peak in three years, not counting inflation.
He says the bubble largely was confined to four states — California, Nevada, Florida and Arizona.

"People who bought at the peak in those states will need time for prices to recover, even up to five years," he says. Yun says people who buy now "have much less risk of price declines and a great possibility of price gains."

The danger of rapidly falling home prices is that — similar to the Depression — potential buyers and lenders will stay away, fueling even sharper price declines.

During the housing boom, buyers expected prices to rise, so they were quick to buy, borrow and pay a premium. As prices drop, home buyers wait for better deals. says economist Dean Baker of the liberal Center for Economic Policy Research in Washington, D.C.

Lenders want bigger down payments to protect against the falling value of collateral. Homeowners lose equity, so they can't buy other houses. "Price declines can be a self-reinforcing mechanism," Wachter says.

An out-of-control price collapse would have dire consequences, Baker says. Even the most conservative banks would find themselves carrying portfolios of toxic mortgage loans.

If housing prices don't stabilize at traditional levels, financial troubles could spread everywhere — to credit cards, car loans and commercial mortgages, Baker says. "The waves of bad debt will just keep coming," he says.

Baker and Wachter want the U.S. government to take aggressive steps to help homeowners, not just financial institutions. They support expanding programs that restructure troubled mortgages to prevent a flood of foreclosed homes from coming on the market and driving prices below their traditional level.

Rick Wallick is an example of how even cautious borrowers can be hurt by a price collapse. He made a 35% down payment on his house and got a 15-year, fixed-rate mortgage at 5.75%.

Arizona's real estate mess wiped him out anyway. Now that he's in Oregon, he's renting out his Arizona house at a loss and can't afford to keep two homes.

Wallick's Arizona house is surrounded by countless foreclosed homes and empty lots. He told his mortgage company that his December payment will be his last. "It may ruin my credit rating, but I can still buy food," he says.

Shelley McComb used a no-money-down, interest-only ARM to pay $199,000 in December 2006 for a new three-bedroom home near Birmingham, Ala. The house's assessed value briefly rose to $225,000.

Now, she needs to move to Atlanta where her husband got a promotion. The McCombs put their home up for sale in March. After getting no offers, they dropped their price to $179,000. They'd settle for $160,000.

Shelley McComb, 30, who manages a doggie day care center, says, "I wish we'd rented."

Sweeping mortgage aid plan unveiled

2008-11-12T17:03:00.000-08:00

More than a million owners facing imminent loss of their homes were thrown a lifeline Tuesday by an alliance of banks and government agencies, but some experts said even more needs to be done to deal with the foreclosure crisis.

A new plan to speed the rescue effort for those most in danger of losing their homes was unveiled at a Washington, D.C., news conference by the Federal Housing Finance Agency; Hope Now, a private banking alliance; Wells Fargo Bank; and Fannie Mae and Freddie Mac, the two government entities that hold 58 percent of the nation's single-family mortgages and 20 percent of serious delinquencies.

The plan is intended to speed up the process of modifying mortgages to make them more affordable.

Economic crisis
Full coverage of the economic crisis, plus databases showing bank and credit union rankings with the goal of keeping more people in their homes.

Citibank, a member of the Hope Now alliance, announced its own plan Tuesday to reach out to people not yet in arrears on their loans but who may need help. The bank said it will do "workouts" — negotiating with borrowers to modify their mortgages — for 500,000 homeowners who have mortgage loans from Citibank.

Also, Citibank said it will not start foreclosure on "any eligible borrower" who is trying to stay in their principal residence and has enough income to make affordable mortgage payments. The bank said it has already helped 370,000 families avoid foreclosure.
Two companies that track foreclosures reported big drops Tuesday, reflecting a trend since banks began working with borrowers to keep them in their homes. Foreclosures.com reported a 22 percent drop nationally from September to October, and ForeclosureRadar said California foreclosures were down 39 percent for that period.

But foreclosures have increased almost 150 percent in the past two years, FHFA director James B. Lockhart said at the news conference announcing the new government-industry initiative. "We need to stop this downward spiral," he said.

The foreclosure crisis has broad implications for the economy, prompting the government and private sector to take extraordinary steps to halt it. Foreclosures bring down home values, which leads to more foreclosures. And with job losses mounting, experts expect another wave of defaults.

Under the new plan, lenders will speed up the loan modification process for borrowers who are 90 days or more late on their mortgage payments and whose loans are serviced by Fannie Mae or Freddie Mac or participating lenders and loan servicers — all the member banks. Qualifying homeowners will be allowed to make monthly payments of no more than 38 percent of their monthly income, achieved through extending the repayment period, reducing the interest rate or lowering the principal.

The plan creates consistent rules for modifying loans and adds staffing to deal with the crush of requests for help. Hope Now described it as a "systematic and uniform approach" to what many banks are already doing.

"We are not creating a new federal program here," said Steve Bartlett, president and chief executive of the Financial Services Roundtable, a banking trade group that is the primary sponsor of Hope Now. "We've identified this group of people who are 90 days delinquent, and we realize we have to process their modifications faster," Bartlett said in an interview. He said more than a million people are that far behind on their loan payments. The owners of these loans are Fannie and Freddie and the major banks, he said.

But Federal Deposit Insurance Corp. Chairman Sheila Bair said in a statement that the plan "is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages."

Bair has recommended using some of the $700 billion bailout to modify mortgages. The plan announced Tuesday does not use any of that money; losses will be absorbed by companies and homeowners.

Many lenders have announced their own loan-modification programs. They include Bank of America, which inherited a huge subprime loan portfolio when it acquired Countrywide Home Loans; JP Morgan Chase, which took over Washington Mutual; and IndyMac, which was seized by the FDIC in July.

The FDIC's loan-modification program for IndyMac subprime borrowers has served as a model for other lenders, as well as for Hope Now.

"What's important is that the program recognizes household debt level and income," said Douglas Robinson, a spokesman for NeighborWorks America, a national network of community developers and affordable housing agencies. "Ability to pay is a critical piece of this that we think is a very important initial step."

But not everyone is convinced.
"I'm disappointed," said Doug Jones, who operates Mortgage Magic in San Jose. Jones said the problem is that many San Jose-area homeowners who got loans with little verification of their income won't be able to make even the modified payments.
Jones has been helping people modify their mortgages, but complained that it has been "a knock-down, drag-out struggle" to get banks to do so. "If a customer is not past due, they encourage in a subtle way for the customer to get past due and then they'll help them. That's horrible."

Who is eligible for Hope Now"s new "streamlined modification program"?

Why isn"t this program available to people who haven"t missed mortgage payments yet?
How does the program work?

When does the program take effect, and where can I find more information?

Hope Now expects most lenders to be positioned to work with borrowers by Dec. 15. Go to www.hopenow.com for information.

By Pete CareyMercury News
Article Launched: 11/11/2008 11:25:50 AM PST

1 in 7 homes in Santa Clara County is 'underwater'

2008-11-12T17:00:00.000-08:00

More Santa Clara County homeowners were dragged "underwater" in the third quarter, their home values plunging below what they owed on their mortgages.

Among those who purchased homes in the past five years in the county, 27 percent owed more mortgage debt than their homes were worth in the third quarter. That's up from 24 percent in the second quarter of this year, according to real estate valuation site Zillow.com, in a study to be released today.

Among all homeowners in the county, about one in seven — or 14 percent — were underwater, the company said.

The underwater phenomenon increases the chances that some owners, finding themselves with no equity to protect, will stop paying their mortgages and face foreclosure. Other owners under pressure to sell their homes quickly will be forced to do so at a loss. For the rest, who can keep paying the monthly mortgage bill, the effects of an underwater mortgage may be minor, if depressing. No owner enjoys losing equity, but many will be able to hold on until the day rising values replace some of what was lost.

Across Santa Clara County, the pain of negative equity is being felt much more severely in some neighborhoods than in others, the Zillow report showed.

In Cupertino, for example, only 1 percent of owners who purchased their homes since 2003 were underwater — also called "upside-down" — in the third quarter. In San Jose's
95122 ZIP code, 62 percent of recent buyers had negative equity. In Gilroy, 51 percent did.
That's bad news for many homeowners in the San Jose metropolitan area. But, said Stan Humphries, Zillow's vice president for data and analytics, "When you compare it to other major metro areas in California, it actually fares very well."

On a list of 163 metro areas nationwide, the San Jose metro ranked at No. 65 for the portion of all homeowners experiencing negative equity.

Many of the most afflicted areas were in California, with Stockton leading the pack. There, 46 percent of all homeowners were underwater on their mortgages, according to Zillow. Again, for Stockton owners who bought since 2003, the situation was much worse: 71 percent owed more than their home's market value.

To calculate which homes had negative equity, Zillow compared the original loan balances on homes nationwide to the company's estimates of the homes' values in the third quarter. The advertising-supported Seattle company provides free online estimates — which it calls "zestimates" — of the values of more than 80 million homes across the country.
In deriving its estimates of the portion of homeowners who are underwater, Zillow
makes two assumptions, Humphries said. One is that homeowners have not paid down the principal balance on their mortgages; the other is that homeowners have not refinanced to take additional equity out of their homes. The first assumption tends to overestimate those with negative equity, while the second one tends to underestimate the phenomenon, so the two balance each other out, Humphries said.

The portion of underwater homeowners in San Jose was in keeping with the national trend. Both locally and nationwide, about 14 percent of all homeowners had negative equity in their homes in the most recent quarter.

The third quarter marked the first time Zillow calculated the percentage of all homeowners underwater, so the company had no year-ago figure with which to compare the new findings.
Anne Ramstetter Wenzel, principal at economic research firm Econosystems in Menlo Park, said that at this stage of the housing downturn, having negative equity is a burden on individual homeowners, but is not yet a significant impact on the Silicon Valley economy. That could change if home values keep falling and job losses start to mount, she said.

"If things get really bad next year we might see more . . . people walking away because they owe more than their home is worth," she said. And if more homes land in foreclosure, that hinders any recovery of housing prices.

Wenzel said she's less worried about large-scale "walk-aways" in the valley than she is about the effect of mortgage rates and terms readjusting soon for the many valley residents who took out interest-only loans about five years ago.

Many will find themselves facing much higher monthly payments. Some won't be able to afford those, and may face foreclosure. But even those who can make the higher payments can have a negative impact on the local economy, she said.

"What that affects most is retail sales," she said. If homeowners must start paying hundreds of extra dollars each month on their mortgages, "the homeowner's not able to spend in other areas of the economy," she said.

Zillow's report found that the median estimated value of all types of homes — houses and condos, regardless of whether they have sold recently or not — in the San Jose metro area fell to $640,803 in the third quarter, down 14 percent from the third quarter of 2007. Values have not been so low since the third quarter of 2004, the company said.
Humphries noted that home values in Santa Clara County cities such as Cupertino and Mountain View finally began to slip in the third quarter, despite the fact that other parts of the county already have seen double-digit depreciation.

"Prior to this quarter we were thinking of those as oases," he said. "It's very evident just how much the San Jose metro region has been buoyed by the tech sector."

In Cupertino, Los Altos, Mountain View, Palo Alto and Sunnyvale, the company said, the median estimated value of all homes declined between 1 and 2 percent in the third quarter, compared with a year earlier. Monte Sereno was the only community in the county where values rose compared with third quarter 2007, rising 1.3 percent.

By Sue McAllister
Mercury News
Article Launched: 11/12/2008 12:01:00 AM PST

California Home Sales Revive, But Not Without Intense Pain

2008-10-22T16:03:00.000-07:00

LOS BANOS, Calif. -- In this California city, one of the hardest hit in the national housing crash, there's good news: Homes are starting to sell again.

Investors and first-time home buyers are snapping up foreclosed houses here, with the number of local sales up almost fivefold from this time last year. While the volume of existing-home sales across the U.S. fell 10.7% in August from the previous year, according to the National Association of Realtors, there are signs that the most damaged of markets are starting to heal themselves. Across hard-hit California, sales volumes rose 65% in September compared with a year ago, said MDA DataQuick, a San Diego-based real-estate information service.

The bad news is that the latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California's Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages.

Some stop paying, pocketing the money while they wait for their lenders to kick them out. A few lose their homes only to stay on as renters, paying hundreds of dollars less a month. Every fifth house in this onetime real-estate boomtown is in some state of the foreclosure process.
Until markets like this are sorted out, there's little hope for calm in the global financial system. As banks and governments survey the wreckage of residential real-estate investments, the central mystery is how to value the trillions of dollars in securities that are tied to U.S. mortgages. These securities are so hard to value in part because no one knows when normalcy will return to places like Los Banos.

Economists and politicians offer two main prescriptions. Many say the government should buy these homeowners' expensive mortgages and reduce the loan amounts to reflect current values, a taxpayer-funded effort to put a floor under the housing market. Others say such intervention would reward those who bought homes they couldn't afford, and prolong the inevitable pain of a necessary housing contraction. These people say the market should continue its own path toward equilibrium.

Neither option would be pretty, judging by homeowners' experience here.
Los Banos, a city of about 36,000 people, lies in Merced County near the center of the Central Valley, a fertile expanse that has long drawn opportunity seekers -- Basque sheep farmers, dairy farmers from Portugal, migrants fleeing the Dust Bowl states during the Great Depression. Many of their descendants live here still.

This decade, Los Banos drew commuters from Silicon Valley, 80 miles to the northwest, and the construction workers who built their houses. Its housing market took off as builders, lenders and the government helped more people realize the dream of homeownership.

Dairy farms and fields of tomatoes gave way to cookie-cutter houses on the likes of Bentley Drive, Chianti Court and Riesling Street. Subprime lenders poured in, making cheap loans with few questions asked. Builders offered to pick up the tab for their customers' closing costs.
Home prices soared. In 2005, one local builder was selling three-bedroom homes for $300,000 -- more than three times what it asked for a similar design in 2000.

Many lenders catered to buyers with shoddy credit, who qualified for "affordability" loans with low payments that typically ramped up over time. In 2006, 45% of the home mortgages and refinance loans in Los Banos were high-rate loans, most of which would be considered subprime, compared with a national average of 29%, according to a Wall Street Journal analysis of federal mortgage data. The town's top lenders included Countrywide Financial, New Century Financial and divisions of Golden West Financial and Washington Mutual -- all former highfliers in the mortgage business whose holdings later turned toxic.

Sister Next Door
Claudia Pedroza and Veronica Banuelos were among the home buyers. In 2006, the sisters and their husbands bought new houses next door to each other in a subdivision surrounded by fields just outside Los Banos. Ms. Banuelos paid $350,000 and Ms. Pedroza paid $375,000 for similar four-bedroom homes with three bathrooms and cavernous living rooms.

Property records indicate that the Pedroza and Banuelos families took out loans for nearly 100% of the price from Bank of America Corp. In the Pedrozas' case, the bank worked with the national nonprofit Acorn Housing Corp. as part of a program to help first time home buyers. The home builder, Hovnanian Enterprises Inc., funded $12,000 or more in closing costs for each home.

A California state housing agency also chipped in a $11,200 loan toward the Pedrozas' purchase. Ms. Pedroza figured that with her husband bringing home $3,200 a month as a house painter, the family could afford the monthly mortgage payment of about $2,000. Ms. Banuelos, a college student, said the payments were affordable for her husband, who also had ample work as a house painter.

Indeed, the housing boom brought jobs to many local residents and attracted new businesses, with Starbucks and Target going up on the same street as a slaughterhouse and the local office of the Hay Growers Association.

But the market turned in 2007, and now the Merced metropolitan area leads the U.S. in many indexes of misery. By the third quarter of this year, 12.3% of home loans were delinquent in Merced County, the highest in the nation, according to Equifax and Moody's Economy.com. Merced has also seen some of the country's sharpest home-price declines. It has the highest share of owners who owe more on their houses than they're currently worth.

Ms. Pedroza lost her home to foreclosure when her husband's painting jobs vanished and the couple fell six months behind on their payments. The Pedrozas are now paying $750 a month to rent a two-bedroom apartment in downtown Los Banos, where their 10-year-old daughter and 11-year-old son share a room. Ms. Banuelos's husband also took a cut in house-painting hours, and the couple stopped paying their mortgage four months ago.

Now, on the block where Ms. Pedroza and Ms. Banuelos bought homes, five of the 16 houses are empty with brown lawns, a typical sign of a foreclosed property. Both sisters are hoping that Bank of America will renegotiate their loan terms to allow them to become homeowners in good standing once again. "I've told the bank, 'You won't be giving me anything for free,'" Ms. Pedroza says. "Just make it so I can afford the payment."

An Acorn official encouraged the Pedrozas, who have already lost their house, to call the group for help. A Bank of America spokesman said the bank's servicing team would "reach out" to the Banuelos family.

Such dramas are repeated throughout California, where the U.S. housing market is arguably at its most troubled. Following years of big profits for bankers and home builders in this state, one-fifth of all outstanding U.S. mortgages by dollar value -- and a higher percentage of risky loans -- are written on homes here. Of the 25 metropolitan areas with the largest home-price declines in the past 12 months, 16 are in the state, according to Zillow.com, a real-estate research Web site.

Those woes weigh on the financial system. Though California represents about 12% of the nation's population, its homes account for 34% of the loans in a typical mortgage-backed security, according to Fitch Ratings. "California doesn't have a Wall Street problem. Wall Street has a California problem," says Christopher Thornberg, principal at Los-Angeles based Beacon Economics and member of the California Controller's Council of Economic Advisors.

People here talk a lot, and agree little, about what should be done to fix things. On a recent day in the Verona subdivision, an upscale development riddled with for-sale signs, Bill Knoff laid out pizza and beer for a half a dozen members of his van pool. The co-commuters, who drive nearly 80 miles from Los Banos to Silicon Valley each morning and then back each night, sparred over who's to blame for local foreclosures and whether the government should bail out mortgage holders.

Mr. Knoff's house has traveled the arc of the local market. Built on vacant land in 2002, it sold for $280,000. Its original owner unsuccessfully tried to sell it in 2006 for $450,000. Mr. Knoff bought it out of foreclosure in March of this year for $320,000. Today, based on local sales, he figures the house is worth about $220,000.

Mr. Knoff paid nearly half of the purchase price in cash, so most of his equity has been wiped out. But he said he believes in taking responsibility for such choices. "The government can buy up troubled mortgages. But it should kick the people out of their houses," said the 61-year-old information technology manager. "Why should I pay for someone to buy their house?"

Darryl Williams blamed mortgage companies for granting the easy loans that fueled the boom. "I don't like hearing that the people who got houses and couldn't afford them are the bad guys," said Mr. Williams, a 55-year-old warehouse-services manager. "These are families with children."

Then Steve Sherman Sr. spoke. "I am one of those troubled borrowers not making any mortgage payments," Mr. Sherman said. The 61-year-old shipping and warehouse supervisor refinanced his house in Los Banos two years ago for $365,000, spending much of the new loan on home renovations. Now, he figures, the house is worth $140,000.

Mr. Sherman said that while he can afford his payments, he had planned to sell the house in a year or so to supplement his retirement income. But now, he figures, he couldn't afford to live there as a retiree. So four months ago he stopped writing mortgage checks, setting the cash aside in his retirement savings. He says he's waiting for his lender to kick him out or to reduce his loan amount. He'd also be happy for the government to modify his loan.

"I don't deserve a bailout," Mr. Sherman said. "Will I take one? You are darned right I will."

Downward Spiral
Such issues are at the heart of a debate among policy makers and economists about how to mend the nation's housing market.

There's growing momentum for the government to stem the slide in home prices. Federal Deposit Insurance Corp. Chairman Sheila Bair said last week the government should do more to help homeowners. Republican presidential candidate Sen. John McCain has proposed the Treasury spend $300 billion to buy up troubled mortgages and reduce the principal on the loans to reflect current values.

Others believe government intervention will derail the market mechanisms and postpone the eventual return to equilibrium. Sen. Barack Obama opposes using taxpayer money to intervene in the housing market, advocating instead that the government pressure lenders to alter mortgage terms and change bankruptcy codes to allow judges to do the same. Congress has already passed the Hope for Homeowners program, which aims to put 400,000 borrowers in more affordable loans.

Plus, some economists say the market is already correcting itself without federal intervention. The volume of home sales in California is rising even as the national average continues to fall. At the same time, median prices in the state fell in September, down 34% from the previous year, to $283,000, according to MDA DataQuick.

"The lower prices are getting people to buy, and that's how you equilibrate a market," says Gary Becker, a University of Chicago economics professor who won the 1992 Nobel Prize for research in microeconomics.

But the bottom still may not be in sight. Home prices in California could end down as much as 60% from peak values, according to recent research from both Barclay's PLC and J.P. Morgan Chase & Co. Towns like Los Banos may have further to fall. According to the city and a local title office, roughly 2,000 of 10,000 homes in the town are in the foreclosure process. The city expects that number could grow before the crisis passes.

Free Meals
The bust is apparent throughout town. Storefronts in its older strip malls are empty. Citywide, sales-tax revenue is down 15% from initial projections and the city is also bracing for big declines in property-tax revenue. The free-meal program at the Los Banos Rescue Mission served 1,110 meals last month, more than triple the levels in July.

"People are in survival mode," says Steve Hammond, the pastor of the nearby Bethel Community Church, which runs the mission. Mr. Hammond is also the chairman of the Los Banos Planning Commission. This month, Mr. Hammond missed his own mortgage payment for the first time, after his wife lost her secretarial job. "As Christians we believe in paying our debts," Mr. Hammond said. "But we just can't do it."

Where many see ruin, some sense opportunity. Michael Arpaia, an officer with the California Highway Patrol, just bought a foreclosed four-bedroom house -- valued at $400,000 two years ago -- for $160,000. He spent $25,000 to replace linoleum floors, carpeting and landscaping. He's renting the house to a local couple who lost their home in foreclosure.

With stocks falling, Mr. Arpaia is counting on the property's cash flow and appreciation to supplement his retirement nest egg. "My financial adviser says residential real estate is the safest investment right now," he says.

While local homeowners and world markets wait for resolution, Larry Frontella can't believe his fortunes.

Mr. Frontella grew up on a dairy farm here and worked for three decades as a local deliveryman. In 1993, he bought a new house in the established part of town for $163,000. Two years ago, he refinanced with a $376,000 loan, property records show. His mortgage was written by a unit of Golden West Financial, which was later acquired by Wachovia Corp.

Mr. Frontella paid off credit cards, paid for his wife's funeral and prepaid his own burial. He bought a $17,000 Harley Davidson. "I worked all those years, and felt like I had won the lottery and could take care of everything," he said.

But several months ago, Mr. Frontella fell behind on the $1,800 payment on his interest-only loan. The bank also demanded back payments that pushed his total bill to $2,400 a month. The 68-year-old said he figured he wouldn't live to pay off his home.

Foreclosure and eviction loomed on Sept. 30. But late last month, a local businessman stepped in and signed a contract to buy the four-bedroom house for $170,000. Wachovia will take the loss on the value of the original loan, according to people with knowledge of the home.

The buyer, who declined through his real-estate agent to be interviewed, let Mr. Frontella remain in the home. Mr. Frontella's new monthly rent is $1,100, well below what he paid as an owner.

Speaking from the driveway of the home he once owned, Mr. Frontella says he feels lucky. "I'm not saying it's not my fault," he said. "Now I'm a renter. What the heck."—Tom McGinty contributed to this article.

Write to Michael Corkery at michael.corkery@wsj.com and Jonathan Karp at jonathan.karp@wsj.com

Bargains push bay home sales, but prices plunge

2008-10-22T15:57:00.000-07:00

(10-21) 13:37 PDT SAN FRANCISCO -- Bay Area home sales marked their biggest gain in at least two decades last month, but the price plunge set a record, too, as buyers snatched up bargains in the communities hardest hit by foreclosures.

A total of 5,449 existing single-family homes traded hands in the nine-county region in September, up 74.8 percent from a year ago, according to MDA DataQuick. The median price was $400,000, down 40.3 percent from September 2007. Those are the largest year-over-year gains and drops, respectively, in the San Diego research firm's 20 years of data.

The median was dragged down in large part by the changing mix of sales, DataQuick said. More homes that moved are lower priced because it's harder to obtain loans for expensive properties, and there are more deals to be had in the less-expensive inland markets. Contra Costa, Napa, Sonoma and Solano counties accounted for almost 62 percent of all Bay Area home sales, and nearly 42 percent of all the homes that traded hands across the region had been foreclosed on within the past year.

Given that, the regional median does not accurately reflect conditions in areas that haven't seen high foreclosure numbers, industry observers say. In San Francisco, prices were off just 14.1 percent and sales were up 1.3 percent.

"Buyers are most active in the inland market where prices have come down the most and foreclosures are most common," DataQuick analyst Andrew LePage said. "I think it's fair to say there's a massive (sales) recovery under way in those areas, though there's still no evidence that prices have firmed up."

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, took exception to the use of the word recovery in any sense.

"These numbers show a very weak housing market, not a recovering housing market," Rosen said. "It's a buyer's market without question in almost every part of the Bay Area."

He believes that results will be weaker still for October, as the economic upheaval and screaming financial headlines of the past six weeks have made people more reluctant to buy even as the rocked credit markets have made it more difficult to get financing. Rosen has revised his predictions for the local real estate market downward based on the recent market news, saying prices will now fall an additional 4 to 5 percent, or as much as 20 percent total even in the core areas of the region.

The brisk activity in distressed areas is "encouraging" because it will eventually translate into stable and even rising prices, said Rick Turley, president of Coldwell Banker's San Francisco region.

"The bad thing would be to see the median price down 36 percent and sales down 36 percent," he said.

Rob Chrisman, director of capital markets for Residential Pacific Mortgage in Walnut Creek, said more people are buying in outlying regions because there's a growing sense that prices may be approaching a bottom. Despite the seize up of global credit markets in recent weeks, he and Turley both said that qualified borrowers with money to put down continue to be able to secure home loans.

"There is no loosening of mortgage credit right now, but it has been stable, it has not been worsening," Chrisman said.

James Temple, Chronicle Staff Writer
Wednesday, October 22, 2008

Monterey County Foreclosures - The Numbers

2007-11-20T20:40:00.000-08:00

November 20th, 2007.

Preforeclosures
1,119

Bank Owned, REO
659

Auction
248

Housing horror could hang around for years

2007-10-25T06:03:00.000-07:00

By Scott Burns, MSN

The bigger problems brought on by the mortgage meltdown may linger, if earlier price plunges in Texas, Los Angeles and Boston are any indicator.

Lately I've been getting that déjà vu feeling. If you lived in Texas through the savings-and-loan debacle of the late 1980s, you probably have, too.

If you didn't, listen up. What happened to houses in Texas back then may be the template for what happens across the country as the housing bubble pops today.

Many of the circumstances are similar. Consider this list:

A boom environment. Back then, Texas had been in a long building boom fueled by rising oil prices. Housing prices had risen nicely for years. Many Texans who had started with next to nothing were enjoying a new feeling of wealth as they moved from one appreciating house to another. Today, home prices across the country have been rising handsomely for years, creating unexpected wealth for millions of homeowners.

Finance frenzy. Back then, the savings and loans were encouraged by changed accounting rules to make big development loans, booking unearned profits. Today, Wall Street has built the perfect pipeline of profit from lending money to home buyers to selling securitized loans to European and Asian bag holders. In both cases, someone else would pay the price for bad loans, the Federal Deposit Insurance Corp. then or investors today.

Down payments. Back then, Texas homebuyers were advised to put as little as possible down because state laws prohibited borrowing equity out of your house. Many put only 5% down -- an amount that would be wiped out by selling costs. Today, we've been through a long period of lax financing as lenders rushed to provide 100% financing to people with no history of debt repayment.

Low interest rates. Back then, builders marketed houses by "buying down" mortgage interest rates for a year or two. After that, the interest rate and monthly payment rose. Many homeowners saw their payments rise as the value of their houses fell. Today, adjustable loans start with teaser rates that reset much higher in a year or two. New owners are seeing their payments rise as their home values fall.

Employment. Back then, construction employment loomed large in Texas. So did employment in finance and banking. Today, construction workers are leaving Florida and other boom areas because construction is coming to a halt. Mortgage brokers are losing their jobs across the country.

To track the consequences, I examined the indexes of housing prices kept by the Office of Federal Housing Enterprise Oversight. The indexes are particularly valuable because (1) they track only houses purchased with conforming (under $417,000) loans, and (2) they track same-property transactions. They provide a good measure of the paycheck-homebuyer economy, and they aren't bent by sudden infusions of dramatically more expensive houses. Also, they track only single-family home prices, not condos.

Though the national index figures reflect the illusion we most favor -- a steady and virtually guaranteed rise in home prices -- a very different picture emerges when you examine price indexes by state or metropolitan area. Here are some examples.

In Houston, the first Texas city to fall in the oil bust, the home-price index peaked at 108.5 in 1983. It also bottomed early, hitting 81.5 in 1987. But it was a long bottom: The index didn't recover to its 1983 level until 1997. So recovery from the market top took a full 14 years.

San Antonio peaked in 1984 at 109.7, didn't bottom out until it hit 82.5 in 1990 and didn't recover to its old high until 1995, a period of 11 years.

Austin peaked in 1986 at 100.1, falling to 72.7 in 1991 and reaching recovery in 1994, about eight years.

Dallas also peaked in 1986, at 110.1, bottomed at 94.3 in 1989 and regained its old peak in 1997, a period of 11 years.

The Texas template tells us we could be in for a 14% to 25% decline and an eight-year to 14-year wait for recovery. That's real history. It's not hyperventilation from the Chicken Little chorus.

You should also know that big-time housing comedowns aren't unique to Texas. Comedowns also hit other markets. Los Angeles peaked in 1990, bottomed in 1995 and wasn't fully recovered until 2000. Boston peaked in 1988, bottomed in 1992 and hit its recovery number in 1997.

Bottom line: Love your house for the shelter and peace it provides.

Market looks good for landlords

2007-10-08T07:08:00.000-07:00

By Matt Woolsey, Forbes.com

Whether they're waiting out the housing storm, or smack in the middle of it, an increasing number of Americans are choosing to rent, not own. And that's good news for landlords and investors.

Foreclosures and risky lending have dogged the housing market. As lenders have tightened their standards, attractive mortgages have grown harder to come by. Yet rental fundamentals have remained strong, especially in the 10 areas that made our list of Best Markets for Landlords.

Tops on our list: New York City, where in the past 12 months rents have jumped between 7.4% and 7.9% across the Class A, B and C apartment classifications ("A" being the most luxurious, "C" being the least). In the Big Apple, 80% of the population rents, and the city's unaffordable housing entices few to make the leap to homeownership.

Rounding out the top five are Seattle (where rental-property construction has been low since 2003); San Francisco; and Oakland and Orange County, Calif. Credit the giddiness of West Coast landlords to the general lack of affordable housing in those markets.

Methodology
With the help of Marcus & Millichap, a real-estate investment firm, we took into account dynamics that affect the supply and demand for real estate. Present vacancy rates and planned new construction of apartments and condos affect supply, while job growth (which encourages people to move to a city) and affordability (which tilts the rent-vs.-buy dynamic) play with demand.

One curious finding: The best locales for landlords and investors aren't necessarily the worst for renters. Take Las Vegas. While vacancies there have jumped over the past year and rental rates have remained low, the city ranked seventh on our list due to its job growth: 4% year-over-year. Sin City is the second-best city in America for job growth, at nearly three times the national average, according to Mercer Human Resource Consulting, which recently simplified its name to Mercer.

The also-rans

Foreclosures have a direct effect on the rental market, and the subprime debacle has certainly contributed its fair share. According to RealtyTrac, in the first six months of 2007, the number of home foreclosures was up 58% versus the same time period last year.

The homeless are flocking to landlords' arms. In Detroit and Cleveland (not on our list), where foreclosures have surged, rental markets are tightening at some of the nation's fastest rates.

Typically, rental markets tighten when the population and number of jobs increase -- the opposite of what's happening in both cities. In the past year, Detroit's rental vacancy rate has dropped to 5.4% from 6.9%, and Cleveland's fell to 5.7% from 7.3%, according to the National Association of Realtors.

Landlords in Salt Lake City are grinning, too. Though it barely missed our top 10, Salt Lake has asserted itself as the small-market-that-could. In the past year, rents jumped between 6.8% and 6.1% across the three rental classes, and vacancy rates fell to 2.6% from 4.3%. Small-fry Portland, Ore., gave it a good run, too: Rents there increased between 5.9% and 6.6% across the classes, and the vacancy rate dropped to 3.2% from 4.1%.

Best real-estate markets for landlords

Rank
Market
Annual increase in average rent
Average monthly rent in luxury apartment

1
New York City
7.40%
$3,210

2
Seattle
6.70%
$1,169

3
San Francisco
6.70%
$2,155

4
Oakland-East Bay, Calif.
7.60%
$1,579

5
Orange County, Calif.
5.30%
$1,758

Real Estate Transaction Costs Around The World

2007-08-22T16:57:00.000-07:00

By: Prince Christian Cruz, Senior Economist, Last Updated: August 07, 2007

The problem of high transaction costs: People are increasingly buying property outside their own countries. The buy-to-let craze has gone international, and Britons and others are buying in Bulgaria, Turkey and Morocco, hoping to repeat the small fortunes they’ve built at home on rising property prices. Yet there’s a thorn in the flesh - the high costs of buying and selling residential property abroad (the transaction cost), and this has received surprisingly little attention from the financial press and from real estate agents. For property investors, these costs are a significant negative factor.

In some OECD countries, such as South Korea, Belgium, Italy, these transaction costs are unnecessarily high. A curiosity is also highlighted – the fact that French legal origin countries, on average, have significantly higher transaction costs (14.2% of property value) than countries with German legal systems (11.9%), or Socialist (7.4%), English (6.5%), or Scandinavian (5.2%) legal origins.

High transaction costs: In OECD countries, roundtrip transaction costs are generally below 10%. This is a reasonable amount to pay in taxes and expenses in the buying and selling process, though it should be noted that in some countries, the total is only 3%. However there are some countries with transaction costs which are really unnecessarily high. South Korea has the highest housing transaction cost in the OECD, at 22% of the property’s value in Seoul. Transaction costs in Belgium, Italy, France, Luxembourg and Greece exceed 15% of the property’s value. On the other hand, total costs for purchasing a house in Slovakia, Iceland and Denmark are around 3% or less. Transaction costs are typically between 5% and 7% in the UK, Norway, New Zealand, Switzerland, Australia, Sweden, Poland, Ireland, and Canada.

Assumptions: To make the calculations comparable, the Global Property Guide has assumed that the property purchased is a condominium worth either €250,000 for European countries or US$250,000 for other countries, and located in the financial or administrative capital. This allows a ‘typical’ transaction cost figure to be calculated, though in practice transaction costs are a range, depending on many factors. Transaction cost figures reflect the purchase of old properties, not new (therefore in most cases Value-Added Tax (VAT) is not included). The costs also reflect foreigners’ costs, not locals’ (often very different). Where foreigners must purchase property through companies, the cost of forming and maintaining a company is not included.

Costs included in the term ‘transaction costs’:
--Registration costs are the fees and taxes incurred in registering the property with the competent land cadastre or registry. These include registration fees, stamp duties, and notary fees.
--Real estate agent fees best capture various search costs. Real estate agent acts as a middleman in a property purchase, matching buyers with sellers, acting as intermediary in price negotiations. They typically assist buyers during the registration process.
--Legal fees are paid to lawyers or to the conveyancer in the preparation of sales and purchase agreement. In some countries, the use of lawyers is mandatory. Lawyers are typically asked to ensure that there are no liens on the property. Legal fees are different from notary fees.
--Transfer taxes are imposed by local and national governments on the sale and purchase of real estate. They include Deed Taxes, Transfer Taxes and Value-added Tax (VAT). Property and capital gains taxes are not included, although they must typically be paid before the property is registered. Fees in acquiring the prerequisites for property purchase such as residency permits and company formation are also not included.

Over-taxed: South Korea’s very high transaction costs are largely attributable to the unusual feature that all real estate transfers are subject to 10% VAT (only vacant land and government produced housing are exempt). In most countries, in contrast, only new properties are subject to VAT.Property buyers in South Korea are also obliged to purchase Housing Bonds worth 5% of the official price. Proceeds from the Housing Bonds are intended for construction of housing for the poor. Typically, most buyers immediately sell the bonds at a discount of about 10% to 15%. Buyers in South Korea must pay registration tax (3% of purchase price), education tax (20% of registration tax), acquisition tax (2% of purchase price), agricultural and fisheries tax (10% of acquisition tax) and stamp duties (maximum of 0.2% of property value). These taxes are intended to dampen demand and discourage property speculation. However, in reality, these very high transaction costs exacerbate the housing shortage, by adding to the overall cost of housing. The costlier housing is, the less people can afford to buy it, the less gets built. The housing shortage can better be relieved by other means – better rural transport and services, more competition in the construction industry.

French law is a handicap: Average transactions costs in countries with French legal origin are significantly higher than elsewhere, as noted in a previous article about European costs (Housing transaction costs in Europe).The same phenomena is observed throughout OECD. Average transactions costs in OECD countries with French legal origins is 14.2% of property value; while in German origin countries the average is 11.5%, Socialist 7.4%, English 6.5%, and Scandinavian 5.2%.

Grouping countries in terms of legal origins reveals institutional differences in property transactions. Sales and transfer taxes are more common in French legal system countries. Roundtrip transaction costs normally exceed 10% of property value. The services of lawyers are used most widely in French and English legal systems. In several countries with French legal systems the use of lawyers is mandatory with fees set by law.

Countries grouped by legal origins: English common law: Australia, Canada, Ireland, New Zealand, UK, US;French commercial code: France, Belgium, Greece, Italy, Luxembourg, Mexico, Netherlands, Portugal, Spain, and Turkey;German commercial code: Germany. Austria, Japan, South Korea, and Switzerland;Scandinavian civil law: Denmark, Finland, Iceland, Norway and Sweden; andSocialist civil law: Czech Republic, Hungary, Poland, and Slovakia. Source: La Porta et al, 1999.

Restrictions on foreign ownership: Several OECD countries restrict foreign ownership of houses. In Iceland and Denmark, only resident foreigners are allowed to purchase houses. The property can only be used as primary residence and not as a rental investment.In Switzerland, the Federal Government has set an annual quota of permits for non-resident foreigners seeking to acquire property. Generally, major cities such as Zurich, Geneva and Lausanne are closed to foreign buyers. Foreigners need the approval of the Administrative Office (AOB) before they can buy property in Budapest. In Australia, approval of the Foreign Investment Review Board (FIRB) is needed. Foreigners can freely buy condominium units in Poland but buying land is a bit trickier. Generally, a permit from the Ministry of Internal Affairs is needed.In Greece, EU nationals can freely purchase property, while there are few restrictions for non-EU nationals. Acquiring property near national borders and in some islands requires special permission from the Local Council. Such permission is not granted to non-EU nationals.In Turkey, property purchases are open to foreigners, on the basis of reciprocity, i.e., Turkish people must be entitled to purchase real property in the country of the foreign national buying property.In Mexico, foreign buyers need to set-up a bank trust called ‘fideicomiso’ to be able to buy properties. The bank (trustee) holds the trust deed for the purchaser (beneficiary). While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, mortgage, and pass the property on to heirs.

References: La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny, (1998). “Law and Finance,” Journal of Political Economy 106, 1113-1155.

Keeping Track of the Numbers

2007-08-10T10:00:00.000-07:00

Monterey County - Real Estate Market Statistics

Grant Deeds, YTD 2007, 1903
Notices of Default, YTD 2007, 1301
Foreclosures, YTD 2007, 681
Trustee Deeds, YTD 2007, 583

Grant Deeds, YTD 2006, 3150
Notices of Default, YTD 2006, 424
Foreclosures, YTD 2006, 135
Trustee Deeds, YTD 2006, 58

The numbers above do not paint a pretty picture for real estate in Monterey County in the coming months.

To check out other Statistics for Monterey County, please visit the following web site:

http://mcar.com/stats.html

You can search my month or year and then the document will breakdown transactions by either single family residence or condo with the number of transactions and the average or median price.

Equity Sharing, The New Way To Own a Home!

2007-07-09T10:37:00.000-07:00

A Little Help, Please

For first-time home buyers coming up a little short, here's one option: Share the wealth
By DIANA RANSOM July 9, 2007; WSJ

While most people want to own a home, young singles and couples often find it impossible to scratch together enough cash to make the purchase. More established folks, too, sometimes discover that the down payment for their dream house is just too big a nut to crack.
It doesn't have to be that way. Simple financial strategies exist that allow disadvantaged buyers to split the cost of a house by sharing the wealth.

THE JOURNAL REPORT

"We can do more when we join with other people's money," says Marilyn Sullivan, a real-estate attorney in Arroyo Grande, Calif.

Using a form of co-ownership known as equity-sharing, at least two people or entities can own one piece of real estate, and the second party -- often a family member or friend -- doesn't have to be a resident. Nor does the second party have to wait until the property is sold in order to benefit from the investment. Indeed, co-owners who itemize can use the arrangement to claim deductions on their income-tax returns.

Here's how to get by with a little help from a friend:

Basic Equity Sharing

In a traditional equity-share arrangement, one party occupies the property and pays for all of the expenses, while a nonresident investor -- typically a family member, real-estate investor or the property's seller -- supplies all or a portion of the up-front cash.

SHOULD YOU LEARN TO SHARE?
See a chart of questions you should ask yourself if you're considering equity-sharing.
Mom and Dad might agree to bankroll the down payment in return for a proportional share of the home's appreciation when it is sold. In some cases, the sellers may be willing to take on the investor role if they haven't been able to recoup the full value of their house.

Whoever the investor is, he or she will want to be named on the title along with the occupant. But the investor may not want to be named on the loan. Being on the loan, says Andy Sirkin, a real-estate attorney in San Francisco, may hamper future investments if the investor has other loans, since lenders generally consider excessive debt to be risky.

Once the overall financing is taken care of, there is the matter of rent -- and those promised tax benefits.

In equity-sharing, the occupant is required by the Internal Revenue Service to pay rent to the investor for the portion of the property that the investor owns. The amount depends first on what the property could rent for in the open market. Say the fair-market rental value is $2,000 and the investor's ownership stake is 20%. That means $400 a month is owed to the investor.

Then, if the investor pays for expenses such as insurance, maintenance, association dues and property taxes, the rent can just be considered reimbursement for those costs.

The investor can deduct those expenses from his or her taxable income in an amount equal to -- and in some cases exceeding -- the rental income. If the deductible expenses, which are considered "passive" investment losses, add up to more than the rent, the excess may be carried over to future years or taken as a deduction against other passive investment gains such as those arising from other rental income or the eventual sale of the property.

The success of co-ownership arrangements hinges on having a well-crafted equity-sharing agreement, which spells out various contingencies. The agreement "is critical for managing the tax complexities," says Matthew I. Berger, a real-estate attorney in Santa Barbara, Calif.

There are potential downsides for investors: If the value of the property has declined at the time of the sale, the investor must share the loss. In addition, "they are parking their money and aren't seeing any immediate profits," since the rental income is used to fund property expenses, says Mr. Berger.

Many equity-share or tenancy-in-common agreements, as they're also called, specify that the home has to reach a certain value before it can be sold. But the agreements can specify in some cases what both parties' responsibilities are if the occupant gets a job transfer.

At HomeEquityShare.com, a Web site that matches prospective home buyers with real-estate investors, individuals making successful connections receive a free equity-share agreement. Custom-made agreements prepared by an attorney can cost around $1,000.

Co-Occupiers
A second kind of strategy is known as a co-occupier arrangement, in which at least two parties fund a down payment, pay subsequent homeownership costs, occupy the property together and split the gains or losses from the sale of the home.

One caveat: Co-occupancy loans are typically shared, meaning if one owner skips town, the other is liable for the full loan.

"When you buy something with an unrelated person you are considered to be tenants in common," says Alexander Laufer, a real-estate attorney in Fairfax, Va. In this way of holding property, you can each sell your interest individually and designate who will inherit your interest if you die -- otherwise your share of the property would pass to the other owner.

Avoid Personal Loans
Parents might consider making the down payment themselves, thus avoiding the complication of sharing equity. But a parent can't give a child more than $12,000 a year without incurring gift tax.

Parents also might think about making the down payment a loan. But this is a bad idea for several reasons.

The interest payments on the loan -- especially if it's from Mom or Dad -- won't be tax deductible unless the loan is legally secured by collateral. Moreover, if a mortgage lender is already lined up for the purchase, that lender may see the additional loan as increasing the borrower's risk level, and so increase its rate.

And finally, the ability to claim deductions and avoid taxes in the event of a property exchange requires being co-owners of the property. Just lending the money, says Marc J. Minker, an accountant and financial adviser in New York, is "squandering a tax deduction."

--Ms. Ransom is a staff reporter for The Wall Street Journal in South Brunswick, N.J.

Housing Valuation Analysis

2007-07-09T10:32:00.000-07:00

Go to the link below to find out more about property values in your area:

http://www.nationalcity.com/corporate/EconomicInsight/HousingValuation/

REO Resources

2007-07-09T10:25:00.000-07:00

REO RESOURCES

When homes in foreclosure fail to sell at auction, lenders repossess them, and they become what's known in the industry as REOs, for "real-estate owned." Lenders hope to sell them for as close to market value as possible, but they may begin to discount prices if the market worsens.

There's no single clearinghouse where lenders advertise the homes they've got available, and even agents listing REO's don't always advertise them as such. Here are places to learn more about REO properties:

Countrywide, one of the nation's largest mortgage lenders and servicers, lists properties it is selling at www.countrywide.com/purchase/f_reo.asp

ForeclosureRadar, www.foreclosureradar.com

Foreclosures.com, www.foreclosures.com

Hudson & Marshall, auctioneer, www.hudsonandmarshall.com

Kennedy Wilson, auctioneer, www.kwiauctions.com

Premier Asset Services, handles Wells Fargo's REO properties, shown at www.pasreo.com.

Real Estate Disposition Corp., auctioneer, www.ushomeauction.com.

RealtyTrac, www.realtytrac.com

Top 10 Best Rural Place To Live

2007-02-02T10:07:00.000-08:00

Top 10 Best Rural Places to Live

The Progressive Farmer magazine partnered with OnBoard LLC, a real estate research firm, to identify the most desirable rural counties to live in.The magazine considered household income and spending, home and land prices, crime rates, air quality, education, and access to health care. "We feel our rankings reflect the newfound energy and vitality of rural America and showcase places that offer the very best in quality of life and comfort for their residents and workers," says senior editor Jamie Cole.The counties selected as the top 10 "Best Places to Live in Rural America" are:

1. Barren County, K.y.: located midway between Louisville and Nashville, Tenn.

2. Warren County, Pa.: on the south side of the New York-Pennsylvania border one hour east of Erie.

3. Randolph County, Ill.: one hour south of St. Louis, just east of the Mississippi River.

4. Gillespie County, Texas: is located in the heart of Texas' Hill Country, about one hour west of Austin.

5. Union County, S.D.: situated in the southeastern corner of South Dakota.

6. St. Lawrence County, N.Y.: across the Canadian border from Montreal and nestled in the Adirondacks.

7. Sac County, Iowa: located in the northwestern part of the state.

8. Garfield County, Okla.: about 85 miles north of Oklahoma City.

9. Amador County, Calif.: just a short drive east of Sacramento, in the foothills of the Sierra Nevada Mountains.

10. Polk County, N.C.: 30 miles south of Asheville, in the foothills of the Appalachian Mountains.

The Top 10 Luxury Markets to Watch

2007-01-26T11:11:00.000-08:00

Daily Real Estate News January 26, 2007

The Top 10 Luxury Markets to Watch

Unique Homes Magazine in its January issue lists what it expects to be the top 25 luxury markets in 2007. Collectively, the communities that made it on the list represent where the market is heading, according to the magazine.

Here are the Top 10 and the factors that make them standout as leaders of the pack:

1. Annapolis, Md.: Great boating and affordable prices compared to Washington, D.C., or Baltimore, both of which are a reasonable commute from Annapolis, too.

2. Asheville, N.C.: Eclectic ambiance draws the upscale to an outdoorsy, low-key lifestyle.

3. Aspen, Colo.: Four-season appeal, which is kept exclusive by restrictive zoning that restrains supply.

4. Atlanta, Ga.: A big-city appeal with lots of lifestyle amenities and new upscale communities.

5. Austin, Texas: Posting record gains for most of 2006, a mix of newcomers are drawn to its great music and scenery and the cosmopolitan University of Texas.

6. Bellevue/Medina, Wash.: This city has lots of upscale neighborhoods that aren’t as pricey as other northwest areas.

7. Beverly Hills, Calif.: Its reputation as a Mecca for luxury remains untarnished.

8. Idaho: The state is a luxury newcomer with growing resort markets, such as Coeur d’Alene, McCall, and Sandpoint.

9. Jupiter, Fla.: Tiger Woods started a trend here when he purchased a 10-acre estate for $38 million.

10. Manhattan: Wall Streeters flush with 2006 bonuses are snapping up desirable co-ops and town houses.

Source: Unique Homes, Camilla McLaughlin (December 2006/January 2007)

10 Markets at Highest Risk for Declining Prices

2007-01-26T11:09:00.000-08:00

10 Markets at Highest Risk for Declining Prices

PMI Mortgage Insurance Co. reports that its Market Risk Index scores have increased for 34 of the nation’s 50 largest metropolitan statistical areas.The scores measure the risk that home prices will decline in the next two years. Nineteen MSAs face a greater than 50 percent chance that home prices will fall, up from 18 last quarter.The risk of price declines continue to be concentrated in California and along the Eastern Seaboard. In fact, eight of the riskiest markets are located in California, eight are in the Northeast, and two are in Florida.

The 10 markets with the highest risk of declining prices are:
1. Sacramento-Arden-Arcade-Roseville, Calif.
2. San Diego-Carlsbad- San Marcos, Calif.
3. Oakland-Fremont-San Marcos, Calif.
4. Santa Ana-Anaheim-Irvine, Calif.
5. Nassau-Suffolk, N.Y.
6. Riverside-San Bernardino-Ontario, Calif.
7. Los Angeles-Long Beach-Glendale, Calif.
8. Boston-Quincy, Mass.
9. Providence-New Bedford-Fall River, R.I.-Mass.
10. San Jose-Sunnyvale-Santa Clara, Calif.

— REALTOR® Magazine Online

Where We're Buying

2007-01-21T10:39:00.000-08:00

San Jose Mercury News (CA)
January 19, 2007

WHERE WE'RE BUYING
BAY AREA INVESTORS SEEK HOME BARGAINS ELSEWHERE
SUE MCALLISTER, Mercury News

The real estate market may be slower, but Bay Area investors are still buying a sizable amount of property -- elsewhere.

Bay Area residents bought more than 16,500 vacation or investment properties outside the region from January to November 2006 -- 39 percent fewer than during the same period in 2005, according to DataQuick Information Systems. Even so, 2006 will rank as the third-most-active year this decade in terms of how many properties Bay Area residents bought outside the area -- only 2004 and 2005 posted higher numbers.

Just as in 2005, the Top 3 places that Bay Area residents put their real estate investment dollars in 2006 were Las Vegas, Sacramento and Phoenix, according to DataQuick. In fourth place last year was Truckee, with 244 buyers -- most of them probably seeking vacation retreats rather than rental properties.

DataQuick compiled the data from public records, counting properties for which the tax bill is sent to a Bay Area address but the property address is elsewhere in the United States.
One of those purchases was made by Gary and Shawna Kovacs of Oakland, who spent more than two years looking at properties -- from Arizona and Nevada to Monterey and Lake Tahoe.
''We were getting stuck in this conundrum of 'where is going to be the next hot investment area?' '' said Gary Kovacs. By last summer, they'd made up their minds on Truckee, and the market there ''had sort of settled,'' he said. ''There just didn't seem to be as much frenzy chasing the homes.''

Even so, there was one other bidder for the three-bedroom house they bought in the Tahoe Donner development for about $750,000. Kovacs said he, his wife and their 4-year-old daughter have been driving up to their new place almost every two weeks since they bought it. ''We thought the investment value would come based on the usability,'' he said, adding that he hopes to own the home or another in the same area ''a long time.''
'Value-priced'

Sean and Tiffany Carroll, San Francisco residents, also bought property last year in the Truckee area . Lots there ranged in price from $325,000 to $450,000, Carroll said, which he considered ''very value-priced because of the softer market.''

They'd been sporadically looking for a vacation home for three years, but accelerated their purchase plans to take advantage of the deal. They're now assembling architectural plans and hiring a contractor to build a four-bedroom house on their lot.
''We thought last year presented some values,'' Carroll said.

Both economics and demographics affected the investment pattern of 2006, experts said.
''The Bay Area housing market didn't generate as much equity in 2006 as it did in 2005, so there weren't as many dollars to play with as there were in 2005,'' which is part of what suppressed the number of purchases, said DataQuick's John Karevoll.

Not to mention the fact that even those with enormous equity may have decided to wait and watch the market cool before deciding whether and where to make a purchase. Expert opinion seemed divided between two dour camps last year -- one believing that home prices would fall, and the other thinking they'd stagnate. Those views largely persist into 2007.

But demographics probably helped boost the investment numbers. The baby boomer generation, the oldest of them just entering their 60s, has a greater responsibility for funding their future retirement plans than past generations have, said Allen Cymrot, a real estate investment expert and author who runs a blog called NetGainRealEstate.com.

''We're getting a more educated, investment-wise public,'' he said. Without fail-safe company pensions or Social Security to rely on, more middle-aged people are investing individually to prepare for retirement, he said.

In the greater Las Vegas area -- a favorite of Bay Area investors, including some looking toward retirement -- there were more than 23,000 resale single-family houses for sale last fall, including in suburbs like Henderson and Boulder City. That was a radical change from two years earlier, when sales were fast and furious and Nevada had the highest home price appreciation in the country.

But inventory dropped to about 17,800 houses by year's end, said Devin Reiss, president of the Greater Las Vegas Association of Realtors, and sales picked up a bit in December. Prices for resale houses were down about 2 percent in December 2006 from a year earlier, Reiss said, to a median sales price of $306,000.
'Dump' situation

Terry O'Donnell, sales manager with Coldwell Banker Premier Realty in Las Vegas, said one reason prices for most resale homes aren't likely to increase much this year is that about 42 percent of the homes currently for sale in the area are vacant. Many were purchased in recent years by speculators who had no plans to hold their properties but instead hoped to sell at a profit soon after they purchased.

''When the tap turned off, they didn't know what to do,'' O'Donnell said. Many of these homes are still on the market, he said, and ''if almost half the market is in a so-called 'dump' situation, it's not going to help us increase property values.''

But both men agreed that they still see plenty of Bay Area customers interested in owning Las Vegas real estate.
'
'The climate difference from what they're used to makes Las Vegas very appealing,'' Reiss said. ''Especially for retirees or people who are into golf; it's just an ideal place.''

TOP 3 LOCATIONS REMAIN THE SAME

Las Vegas, Sacramento and Phoenix led the list of places where Bay Area residents bought investment or vacation homes in 2006, as in 2005. The top 10 sites accounted for about a fifth of the more than 16,500 such homes bought from January to November of last year.LAS VEGAS TOWERS ABOVE THE RESTThe city's popularity was fueled by its booming condo market and desirability as a retirement and vacation spot. The median price paid by Bay Area residents buying there from January to November 2006 was $292,000, lower than last month's Las Vegas median for resale houses, $306,000

Chart MAP: DOUG GRISWOLD -- MERCURY NEWS
[California, Nevada, Arizona] CHART: MERCURY NEWS

Las Vegas 1,103 properties
Median price: $292,000S

Sacramento 377 properties
Median price: $309,000

Phoenix 343 properties
Median price: $223,000

Truckee 244 properties
Median price: $642,500

North Las Vegas 217 properties
Median price: $309,010

Henderson 215 properties
Median price: $359,990

Reno 212 properties
Median price: $300,000

South Lake Tahoe 210 properties
Median price: $482,500

Fresno 191 properties
Median price: $273,000

Tucson 189 properties
Median price: $256,000

Arizona Tops List as Fastest-Growing State

2006-12-29T13:23:00.000-08:00

Daily Real Estate News December 28, 2006

Arizona Tops List as Fastest-Growing State

Nevada’s 19-year tenure as the country’s fastest-growing state ended in 2006 as Arizona edged out the Silver State by just one-tenth of a percentage point. From July 1, 2005, to July 1, 2006, Arizona’s population increased by 3.6 percent compared with 3.5 percent for Nevada, according to recent U. S. Census Bureau data. Population gains in the West and South continued to outpace other regions, reflecting the ongoing influx to these regions. The South now accounts for 36 percent of the country’s total population, gaining 1.4 percent or 1.5 million people in the 2005-2006 time frame. The West, which comprises 23 percent of the U. S. population, grew by 1.5 percent, adding 1 million residents. By contrast, the Midwest, which accounts for 22 percent of the nation’s overall population, added 281,000 people.

The Northeast only added 0.1 percent or 62,000 people, and now accounts for only 18 percent of the overall population. By the NumbersCalifornia remains the most populous state with a population of 36.5 million. F ollowing California, the states with the largest populations are Texas (23.5 million), New York (19.3 million), Florida (18.1 million), and Illinois (12.8 million).

In terms of actual population numbers, the top states for growth stack up a little differently. Arizona ranked first for the highest percentage growth rate, but it was fifth in terms of the actual number of new residents. Louisiana’s population on July 1, 2006, was down 220,000 from a year earlier. The state lost nearly 5 percent of its pre-Katrina population.

Top 10 Highest Percentage Growth Rate

1. Arizona: 3.6%
2. Nevada: 3.5%
3. Idaho: 2.6%
4. Georgia: 2.5%
5. Texas: 2.5%
6. Utah: 2.4%
7. North Carolina: 2.1%
8. Colorado: 1.9%
9. Florida: 1.8%
10. South Carolina: 1.7%

Top 10 Actual Population Growth

1. Texas: 579,275
2. Florida: 321,697
3.California: 303,402
4. Georgia: 231,388
5. Arizona: 213,311
6. North Carolina: 184,046
7. Washington: 103,899
8. Colorado: 90,082
9. Nevada: 83,228
10. Tennessee: 83,058

— By Camilla McLaughlin for REALTOR® Magazine Online

The Best Places to Own Real Estate in 2007

2006-12-29T13:21:00.000-08:00

Daily Real Estate News December 27, 2006

The Best Places to Own Real Estate in 2007

The housing market looks particularly healthy in the Southeast, according to Fortune and Moody’s Economy.com.

The top market, McAllen, Texas, is predicted to rise 8.5 percent in 2007, and another 9.8 percent in 2008. In all, four of the magazine’s hottest U.S. home markets forecast for next year are in Texas. Also on the list are two markets in upstate New York: Syracuse and Rochester.

Here are the 10 housing markets projected to rise the most in 2007 and 2008:

McAllen-Mission, Texas
El Paso, Texas
Albuquerque, N.M.
Salt Lake City
Syracuse, N.Y.
San Antonio
Rochester, N.Y.
Baton Rouge, La.
Fort Worth-Arlington, Texas
Birmingham, Ala.

Source: Fortune (12/21/06)

Monterey County Assocation of Realtors Statistics

2006-12-06T21:54:00.000-08:00

Monterey County Real Estate Statistics for Month Ending October, 2006.

http://mcar.com/statss/Oct2006.pdf

Monterey County Real Estate Statistics for the Quarter Ending September, 2006.

http://mcar.com/statss/2006Q3July-Sept.pdf

Source: http://www.mcar.com

What Statistics on Homes Sales Aren't Saying

2006-12-06T21:01:00.000-08:00

December 6, 2006

Economix

What Statistics on Home Sales Aren’t Saying

By DAVID LEONHARDT

Down in Naples, Fla., a fast-growing city on the Gulf of Mexico, there was an auction of houses about a month ago.

An auction isn’t the usual way to sell a home, but it can make sense for people who don’t want to leave their houses on the market for months at a time and also don’t want to take the first offer to come along. So on a Saturday morning inside the Naples Beach Hotel and Golf Club, a few dozen houses went on the block in front of about 500 bidders.

Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. According to one widely followed real estate index — tabulated by the government agency that regulates Fannie Mae and Freddie Mac — the average house in Naples sold for 20 percent more this summer than it would have a year earlier.

But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.

One three-bedroom ranch house with a pool sold for $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, sold for $880,000 at the auction., compared with $1.35 million a year earlier. On average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the auction’s results.

Now, Naples is not a typical housing market. House prices nearly tripled in the first half of this decade, and speculators, who are more likely than residents to sell a house in a panic, flooded into the area in recent years. But with that said, Naples is not as unusual as you may think.

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago. The auction in Naples may have exaggerated the downturn in the market there, but not by much. Tom Doyle, a Naples real estate agent, estimated that a typical house there, sold in the normal way, would go for about 20 percent less than it did the previous fall.

In the Boston area, prices have fallen about 10 to 15 percent since the middle of 2005, estimated Chobee Hoy, who owns a real estate brokerage firm in Brookline. Jerome J. Manning, who runs the Massachusetts-based auction company that conducted the Naples sale, told me he thought that values had dropped about 20 percent around Boston. (The government, meanwhile, says the average price rose 1 percent from last summer to this summer. But here’s all you need to know about how well the government tracks the Boston market: the index excludes any mortgage larger than $417,000.)

In September of last year, Ms. Hoy sold a one-bedroom condominium in Brookline for $395,000. She recently sold another apartment of the same size in the same building for $300,000. Since March, her firm has been listing a house in the Fisher Hill neighborhood of Brookline that cost $995,000 when it last sold, in the summer of 2004. Ms. Hoy expects it to sell this time for less than $900,000.

The market in northern Virginia is similar: prices are down 10 to 15 percent, according to an analysis by Mr. Lawler, a former Fannie Mae executive who’s based there. In Portland, Me., the typical house has lost about 10 percent of its value in the last year and a half, said Bill Trask, the former head of the local Realtors’ board.

In New York City, where co-op boards generally bar the door to absentee speculators and creative mortgages, prices seem to have slid a bit in the last few months, but only to roughly their 2005 levels. In the New York suburbs, though, values have fallen perhaps 10 percent or more since last year. Prices also appear to be down in Sacramento and San Diego.
For many homeowners, of course, the decline doesn’t much matter. They didn’t really benefit from the run-up, and they won’t suffer from the decline. And for any renters hoping to buy a home, the fall in prices is downright good news.

Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”

The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s Economy.com that took inflation into account. And that analysis used the house prices reported by the National Association of Realtors, which appear to be more accurate than the government’s data right now but are still too rosy.

Then there are the people who bought their homes in the last couple of years and made almost no down payment. Many of them may now be underwater, owing more on their mortgages than their houses are worth.

Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. “We’re now going to combine a high amount of debt with falling home values,” said Mark Zandi, chief economist of Economy.com.

For the broader economy, this may turn out to be just a hiccup. Big piles of debt can often look scarier than they really are. Then again, the housing slump of 2006 may also be the start of something larger. Mr. Zandi considers it to be “the most significant threat to the global expansion.”

Over the last few decades, the world’s financial system has endured a crisis roughly once every three or four years. There was the stock market crash of 1987, the Asian and Mexican meltdowns in the 1990s, the dot-com implosion of 2000 and, most recently, the aftermath of Sept. 11, 2001. We may now be living on both borrowed money and borrowed time.

E-mail: leonhardt@nytimes.com

What's Behind the Nationwide Decline in Housing Prices?

2006-12-04T16:45:00.000-08:00

Posted on Sun, Dec. 03, 2006

Kenneth Harney, kharney@winstarmail.com

What's behind the nationwide decline in housing prices?

The only real bust underway is in sales volume, not prices or property values.

You might have seen the scary news reports just before Thanksgiving: Housing prices fell nationwide last quarter -- the first such decline since 1993. Even grimmer, total sales of houses and condominiums plunged by 12.7 percent across the country, compared with the same period the year before.

You might have wondered: Is this the long-predicted popping of the housing-boom bubble or the beginning of an extended period of eroding values in American home real estate? How bad could it get in the months ahead? And what might that mean for the equity I've got in the home I own?

Before considering those questions, it's important to focus precisely on the statistical data that drew all the sobering news coverage. The third-quarter median prices and sales numbers were generated from local, state and regional data collected by the National Association of Realtors. The association has been compiling these statistics since 1981 in the case of housing sales and since 1982 for prices.

Although the realty association might be viewed as having an ax to grind, its quarterly reports on median prices and sales generally are viewed as authoritative by economists and are cited by the federal government.

HOUSING VALUES

The quarterly pricing data, however, do not deal with housing values -- the appreciation or depreciation rates for homes located in specific markets. A government agency, the Office of Federal Housing Enterprise Oversight, produces those quarterly numbers.

The NAR pricing statistics focus instead on the median price of existing homes sold during the previous quarter. The median is the midpoint, with as many home prices above as there are below. The latest pricing data showed that the median price of all single-family homes resold in the United States during the third quarter was 1.2 percent below the median during the third quarter of 2005. The slippage year to year came to $2,700.

How bad is that? Not a lot, but it's still important: Median-price decreases have been unusual events in recent years. They signal that something negative is under way in the marketplace. But given the unprecedented run-ups in real estate prices during the boom years, plus near-record low mortgage rates fueling those fires, who is really shocked by a 1.2 percent decline?

Something else that didn't get a lot of attention in the news reports: If you examine the 148 metropolitan markets covered by the NAR survey, you find that median prices in 102 of them actually increased, 45 declined, and one -- high-cost San Jose -- remained flat. In other words, in 69 percent of the local markets where median prices changed year to year, the directional arrow was up, and in 30.6 percent the arrow pointed down.

MAJOR DECLINES

Without question there were significant declines in major metropolitan markets: Sarasota (down 9.4 percent), Miami-Fort Lauderdale (5.6 percent), Boston (4.3 percent), Providence, Rhode Island (5.5 percent), metropolitan District of Columbia (2.2 percent), San Diego (2.1 percent) and Detroit (10.5 percent). Those decreases suggest that prices continue to outstrip buyers' economic ability -- or willingness -- to pay.

Now to the really important news that got lost in the latest statistics: The only real bust under way nationally -- and in many local markets -- is in sales volume, not prices or property values.

The quarterly numbers could hardly be more dramatic: Sales in Nevada plunged 38 percent; Arizona, 26 percent; Florida, 34.2 percent; California, 28.6 percent; and metropolitan Washington, D.C., by 15 percent. All of these areas were hot spots during the housing boom years, and all of them saw significant percentages of sales to investors. But if home sales are down so dramatically, why aren't median prices down more than 1.2 percent? The answer is that absent severe reversals in national or local economies, housing prices and values move glacially in retreat. Most home sellers in stable local economies aren't forced to sell if they don't get the price they want; they can postpone the sale until market conditions improve.

That's what you're seeing right now: Sales volumes in the frothiest markets have tanked. But the statistical fact remains: Median prices in 70 percent of the nation's metropolitan areas are still growing, and are likely to continue to do so.

Kenneth Harney, president of a Maryland consulting and publishing firm, is executive director of the National Real Estate Development Center. E-mail: kenharney@earthlink.net.

10 Best Real Estate Books of 2006

2006-12-04T16:41:00.000-08:00

Bruss' picks for the 10 best real estate books of 2006

Each week I read and review at least one new real estate book. At the end of each year, it is my honor to select from these 52 books the "top 10" real estate books. 2006 was an especially difficult year to select the best because there were so many new, high-quality realty books.
All of these excellent real estate books are available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

• "Trump-Style Negotiation," by George Ross (John Wiley and Sons, Hoboken, NJ), $24.95, 259 pages. This unique book offers insights into Donald J. Trump's big-thinking negotiation style, which leaves the contract details to his trusted adviser, George Ross. Only serious real estate buyers, sellers, real estate agents and investors will study this extremely well-written book that reveals negotiation tactics not found elsewhere, illustrated with many actual examples from Trump acquisitions.

• "The Automatic Millionaire Homeowner," by David Bach (Broadway Books, New York), $19.95, 244 pages. If you could read only one real estate book, whether you are a renter considering a home purchase, a current homeowner, a seasoned realty investor or a real estate agent, this is the book for you because it shows how home ownership can lead to wealth. The book's two themes are (a) renters can become millionaires by investing in their first house or condo and (b) that residence can become the foundation for a better home or more investment property in future years.

• "Buy Even Lower," by Scott Frank and Andy Heller (Kaplan Publishing Co., Chicago) $18.95, 238 pages. Aimed at real estate investors and real estate sales agents, this book, by two full-time corporate executives and part-time realty investors, shows how they buy single-family houses at targeted below-market prices and then either buy and hold, buy and flip, or (their favorite) buy and lease-purchase. The authors favor "ugly and awful" three-bedroom, two-bathroom houses in middle-income neighborhoods.

• "Real Estate Debt Can Make You Rich," by Steve Dexter (McGraw-Hill, New York), $21.95, 156 pages. The two audiences for this book, which explains why real estate debt is good, are (a) home buyers and realty agents who want to understand the inner-workings of the mortgage industry and (b) investors who need to know how "good debt" can be created to maximize realty profits. The mortgage-broker author reveals how avoiding "inexperienced and inept loan hacks" can obtain the best mortgages to buy a home or investment property. The book includes the best compilation of real estate Web sites available.

• "Bubbles, Booms, and Busts; Make Money in Any Real Estate Market," by Blanche Evans (McGraw-Hill, New York), $16.95, 167 pages. This extremely well-researched and up-to-date book explains the signals of local rising, falling or neutral local home sales markets, and how to profit in any situation if you take a long-term perspective on home sales. "Except for local economic shocks, like the collapse or exit of a major employer, home prices nationwide have not gone down since the Great Depression," the author reminds readers.

• "Success as a Real Estate Agent for Dummies," by Dirk Zeller (Wiley Publishing Co., Indianapolis, IN), $21.99, 350 pages. Whether you are a new real estate agent, a longtime "old pro" agent or an individual thinking about becoming an agent, this basic book by a real estate "coach" explains what is involved in selling real estate for sales commissions, how to use sales time management profitably, and how to get started fast by contacting expired listings and "for sale by owners." The book includes an invaluable list of Web sites for realty agents plus the author's advice how to gain competitive advantages.

• "Everything You Need to Know Before Buying a Co-Op, Condo, or Townhouse," by Ken Roth (AMACOM Publishing, New York), $18.95, 197 pages. The real estate attorney author shares his many legal and real-life personal experiences so readers don't make costly mistakes when buying into the unique lifestyle of these properties. Heavy emphasis is placed on the pros and cons of homeowner associations.

• "Who Says You Can't Buy a Home?" by David Reed (AMACOM Publishing, New York), $17.95, 182 pages. This mortgage-broker author is on the side of home buyers and real estate agents as he explains how mortgage lenders look at borrowers in this "tell all" book." "Anyone with steady income, no matter how bad their credit rating, or even with no credit, can find a mortgage to buy a home," the author reveals.

• "Confessions of a Real Estate Entrepreneur," by James A. Randel (McGraw-Hill, New York), $29.95, 256 pages. This book's theme is "add value" to real estate, whether you invest in raw land, houses, run-down factory buildings with rezoning potential, or fixer-upper apartments and offices. The self-deprecating author shares his mistakes and his successes, along with his advice to invest with as little of your own cash as possible so profits can be maximized.

• "The Reverse Mortgage Advantage," by Warren Boroson (McGraw-Hill, New York), $21.95, 169 pages. Virtually all the key aspects of senior-citizen reverse mortgages are thoroughly explained in this detailed but easy-to-read book that emphasizes the potential pitfalls as well as the major benefits. The author shatters the reverse-mortgage myths, such as "the bank owns the house," the supposed high costs, and even the scary stories of early reverse mortgages, which are no longer possible.

Robert J. Bruss may be reached at 251 Park Road, Burlingame, CA 94010 or online at www.bobbruss.com.

Honorable mention

• "Trump: The Best Real Estate Advice I Ever Received," by Donald J. Trump (Thomas Nelson Publishers-Rutledge Hill Press, Nashville), $19.99, 273 pages. This is the most unusual real estate book of 2006 because it has 100 successful real estate investing, brokerage and marketing co-authors (including me) who contributed 100 chapters revealing the best realty advice ever received. What do all these realty entrepreneurs have in common (other than being very diverse individuals)? "Apprentice" Bill Ransic said it best: "Learn to recognize value."

• "Find it, Fix it, Flip it!" by Michael Corbett (Plume Books-Penquin Group, New York), $15.00, 323 pages. This author, host of the TV Extra program "Mansions and Millionaires," created a technique of changing a fix-up home's lifestyle from dull routine to upscale, but without high renovation costs. The before-and-after photos are amazing. The "profit calculator chart" shows readers how to spot the potential profit by purchasing problem houses and correcting drawbacks to add value. This book is unique because the author shows how to add market value by improving the lifestyle of the buyer.

• "Landlording on Auto-Pilot," by Mike Butler (John Wiley and Sons, Hoboken, NJ), $19.95, 190 pages. Both "old pro" residential landlords and beginner novice property managers will profit from this unusual book about how to profitably manage the tenants in your properties. "Your tenants are your employees" is the philosophy of the retired, no-nonsense cop author who shares his basic belief that most tenants would own their own homes if they had adequate income and good credit.

• "Two Years to a Million in Real Estate," by Matthew A. Martinez (McGraw-Hill, New York), $21.95, 182 pages. This is the success story of an ex-dot-com employee who got tired of working long hours at a great job for 10 years and watching his fellow workers lose their jobs. He accidentally discovered real estate's market-value appreciation, leverage, tax savings, cash flow, reliability and freedom from a 9-to-5 workday. In the process, he became a multimillionaire, and he shows readers how they can have the same result.

• "Home Buying for Dummies, Third Edition," by Eric Tyson and Ray Brown (Wiley Publishing, Inc., Indianapolis, IN), $21.99, 328 pages. Because of its ultra-complete coverage of virtually every home-buying topic, this 600,000-copy best-seller in prior editions is still the best "how to buy a home" book. The new edition adds extensive coverage of Internet resources for home buyers, where more than 75 percent of today's buyers begin their quest. This ultra-honest book even takes a few swipes at inept real estate agents who make the home-buying process more difficult than it needs to be.

Top 10 Cities to Invest In Real Estate

2006-10-27T10:16:00.000-07:00

Report: 10 Great Cities to Invest in Real Estate. The magazine Business 2.0 has published its list of the top 10 places to invest in real estate in the next 12 months. Top 10 Cities: Where to Buy Now.

Panama City, Fla. "Panama City is an economy waiting to break out," says Steven Cochrane, chief regional economist for Moody's Economy.com.

Vero Beach, Fla. A Manpower Employment Outlook Survey predicts growth in construction, manufacturing, and retail jobs too.

Bridgeport, Conn. "Bridgeport has fixed the corruption," says Norman Feinstein, a principal with New Jersey-based Hampshire Funds. "The local government is pro-development, and buildings are being rehabbed."

Lakeland, Fla. Lakeland is just 30 minutes from Tampa, a juggernaut of 2.7 million people that's projected to add almost 210,000 more residents over the next five years.

McAllen, Texas 85 percent of the population is Latino and they are enjoying improved economic status, creating pent-up demand for nicer homes.

San Luis Obispo, Calif. The last semi-rural stretch of central California coastline, and it's also home to the state's rising star of wine production.

Wilmington, N.C. Highway construction has opening this area of the coast, bringing vacationers from other parts of North Carolina.

Manchester, N.H. Within commuting distance of Boston, without the cost.

Fort Collins, Colo. An outdoor paradise with lots of high-tech jobs, good schools and low crime.

Atlanta Bruce Katz, head of the urban development program at the Brookings Institution, says Atlanta is "sprawl on steroids."

Existing Homes Decline

2006-10-19T22:06:00.000-07:00

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

Discuss Join a reader discussion on the U.S. housing market.

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!

2006-10-19T21:45:00.000-07:00

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

2006-10-19T20:17:00.000-07:00

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

2006-10-19T20:15:00.000-07:00

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.''

Who Can Afford It?

2006-09-05T10:02:00.000-07:00

WHO CAN AFFORD IT?

The least affordable metropolitan areas in the U.S. in the second quarter of 2006, with the percentage of families living in each who could afford to buy the median-priced home sold in the area during that time:

1. Los Angeles-Long Beach-Glendale 1.9
2. Santa Ana-Anaheim-Irvine 3.2
3. Salinas 3.5
4. Merced 3.6
5. Modesto 4.1
6. San Diego-Carlsbad-San Marcos 4.6
7. Santa Cruz-Watsonville 4.8
8. Santa Barbara-Santa Maria 5.3
9. Napa 5.4
10. San Luis Obispo-Paso Robles 5.9
11. New York-White Plains-Wayne, NJ 5.9
12. Riverside-San Bernardino-Ontario 7.3

The Last Stand of the 6-Percenters

2006-09-03T11:12:00.000-07:00

September 3, 2006

The Last Stand of the 6-Percenters?

By DAMON DARLIN
Seattle

WHEN David and Annette Wolf decided that their family was outgrowing its Seattle area home, they also decided that they did not need much help finding a new one.

They combed Internet listings of homes for sale until they spotted a four-bedroom house on a cul-de-sac with a three-car garage and 2.5 acres.

But the seller’s agent refused to show it to them. Why would she turn away an eager buyer? Not because of the Wolfs’ race, creed or color. Instead, Mr. Wolf, a software engineering manager at the online directory InfoSpace, said he and his wife were shunned once the agent learned they used an online broker called Redfin.

Mr. Wolf said they turned to Redfin because it gives two-thirds of its sales commission (which is usually 3 percent of the sale price) to its customers. “I didn’t want to pay 3 percent for the opening of a door,” he said. But customers like Mr. Wolf — affluent and comfortable with the Internet — are a frightening prospect for real estate agents who, as a group, reap at least $60 billion a year in commission income.

Redfin and other innovators, including ZipRealty and BuySideInc.com, are using technology to reduce costs and to save time for their brokers. Agents don’t find and recommend homes — customers do that on their own, using Internet listings — and that enables agents to charge less for the services they do provide, chiefly handling the paperwork and negotiations.
The Internet has radically changed the way consumers buy books and airline tickets, trade stock and learn news. But the real estate industry has resisted change — and protected its commission structure — by controlling the information on its Multiple Listing Service database of properties for sale.

“You can find out more on the Internet about an eBay Beanie Baby than you can about a $1 million house,” said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington State and California.

The M.L.S. is the only place that contains nearly all the homes for sale in a community. Only brokers can post there, but agents can also display selected information about a listing on their own Web sites and on Realtor.com, a site that works with the National Association of Realtors.
Traditional agents still firmly control the M.L.S., which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors’ agencies. But the typical 6 percent commission, paid out of the seller’s proceeds and split between the seller’s and buyer’s agents, is under attack because, as economists note, it does not serve consumers well.

Economists who have studied the current system say that it also does little for most agents — except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying M.L.S. information to some online firms.

THEY have not, as yet, fought back by reducing their commissions. And Paul B. Goodrich, the managing director of the Madrona Venture Group in Seattle, an investor in Redfin, says he thinks that they are unlikely ever to do so. “It will be hard for the real estate industry to change the way it compensates its agents,” he said. “If Coldwell Banker announced it was paying 1 percent commission to its agents, there would be a mass exodus.”

As it turned out, the Wolfs’ offer was the highest of five bids made for the house they wanted, and they were able to buy it despite the balky broker. (They toured the house with a friend who is an agent.) They also received a $16,300 commission rebate from Redfin and became firm believers in online real estate brokers.

But as the couple’s story shows, people who want to use Web-based brokers often have to fight to do so. Many are, and there are growing signs that they are succeeding. BuySideInc.com, an online buyer’s broker in Chicago that offers a 75 percent commission rebate, said that at one point 12 percent of its customers reported that traditional agents had refused to show houses to them.

The rate is now down to about 6 percent, perhaps because of responses like this: One client who was denied a showing made an offer anyway that was contingent on getting a tour — a move intended to alert the seller to the refusing agent’s actions.

“I’d like to have been the fly on the wall for the conversation between that seller and his agent,” said Joseph J. Fox, chief executive of BuySide and a founder of one of the earliest online stock brokerage firms, WebStreet. “The amazing thing,” he added, “is that the selling agent still got paid and made $15,000 to $20,000.”

In many cities, real estate agents have tried to restrict access to M.L.S. information or to limit its use on the database. Some have asked state legislatures to pass laws forcing brokers to offer certain levels of service, a move that Mr. Kelman sees as intended to squeeze out discount brokers. “It’s a thousand tiny shackles on innovation,” he said.

The Justice Department and the Federal Trade Commission have fought these tactics in Texas, Kentucky, Tennessee and Oklahoma, among other states, and the department is suing the National Association of Realtors, the powerful trade group of agents and brokers, over what it calls anticompetitive rules.

“Where it comes to our attention that significantly anticompetitive state laws or regulations are under consideration, we approach state officials to advocate that they take into account the benefits to consumers of a more competitive approach,” said J. Bruce McDonald, deputy assistant attorney general for the antitrust division of the Justice Department.

The battle by the traditional agents reveals how vulnerable the broker’s 6 percent commission has become. Agents are quick to point out that the average commission may be closer to 5 percent — a 17 percent decline over 10 years, they say — but no one knows for sure because no one collects data on that.

In many cities, of course, even a one-point drop in commissions has been more than offset by soaring sale prices in recent years. In 1994, for example, a home in San Francisco that sold for nearly $500,000 earned a total of almost $30,000 for the agents commanding a 6 percent fee. Even if the commission slipped to 5 percent when the same house sold this year for more than $1.5 million, the higher price earned its agents a $75,000 commission.

Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.

“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”

Traditional agents spend very little time brokering a deal, Mr. Hsieh added. Most of their time is consumed looking for new clients, which is of no benefit to consumers. An agent working for a salary, he said, would be freed of the need to prospect and would thus be more inclined to focus on negotiating.

Others agree. Steven D. Levitt, an economics professor at the University of Chicago, found that commissions did not align the interests of agents with those of their customers, a conclusion he recounted in his book “Freakonomics.” The agent has little incentive to get a few thousand dollars more for a homeowner, he wrote, because it will not much improve the commission. It is far more important for an agent working on commission to get the deal done and move on, he added.

A salaried agent is less likely to pressure a customer to make a deal, especially if the agent’s bonus depends on customer satisfaction, as at Redfin. Agents at that company, like Allie Howard in Seattle, are quick to point this out. “I don’t have to sell anything to the client,” she said.
Traditional agents portray their service as more personal and thus more valuable, but such agents, unlike Ms. Howard, are not paid unless a deal is completed.

Redfin opened in 2004 as an online real estate listings site for Seattle, and now has 35 employees, including 12 agents in Washington State and California. Its first innovation was to layer maps with historical prices for each area as well as information on property taxes and which homes had a view, for example.

In February, it introduced a Web site that automates the bidding process — and the commission rebates. The sale of a $500,000 house, for example, typically yields a 3 percent commission of $15,000 for the buyer’s agent. A Redfin customer would get $10,000 back.

“At that point we became a true pariah to the industry,” said Rob McGarty, Redfin’s director of West Coast operations. Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com. A prospective buyer finds a house on the Redfin site, which populates its maps with homes found on the local M.L.S. A request to see the house can be made with the click of a mouse.

Buyers also enter details of their offers — the price they want to pay, the size of the deposit they are willing to put up and, for example, whether they will pay for the termite inspection. Then they click on “Submit.” A Redfin agent checks everything with the customer before passing along the offer to the seller.

“It took eight minutes,” said Perry Webster of Des Moines, a suburb of Seattle, who bought a new four-bedroom house through Redfin. “But it didn’t really matter that it was online. We just liked the business model.” He asked, “Is it really worth $10,000 to ride in a real estate agent’s Lexus?”

Redfin can also work the seller’s side of a real estate transaction. It uses a disruptive method there, too: it lists homes in the M.L.S. for a flat fee of $2,000. The customer is responsible for showing and advertising the home; Redfin handles paperwork and negotiations. But one part of the old system is steadfastly adhered to: buyer’s agents are offered their full share of the usual commission.

Like many Redfin customers who were interviewed, Mr. Webster and his wife, Robin Meyers, told of encountering hostile selling agents who said their offers would not be competitive if they used Redfin. But other agents’ antagonism only seems to make Redfin customers more loyal.
Matt Bell, general manager of sales at RealNetworks in Seattle, said that “when the listing agent wouldn’t show me the house, that’s when I knew Redfin was on to something.” He added: “If agents don’t like it, then it must be better for consumers.”

A dozen Redfin customers described similar experiences during the last few months. The selling agents, at least those who returned calls, denied that they had refused to work with Redfin. “That’s an absolute absurdity,” said Leslie Hancock, an associate broker at Windermere Real Estate, the dominant agency in the Seattle region. “I don’t represent buyers on my own listings. I don’t care if it’s a Redfin agent or a Windermere agent. I’m not going to turn anyone away.”

INITIALLY, many people used Redfin to submit lowball offers, so that the company was not taken seriously by other agents. But those “goofy offers” have disappeared, Mr. Kelman said. His agency, he said, has closed 89 transactions and returned $900,000 in customer rebates.
Traditional agents have criticized Mr. Kelman for appearing, as did representatives of the Justice Department and the F.T.C., before a House subcommittee that was looking into real estate law. At the hearing, Representative Maxine Waters, Democrat of California, wasn’t buying his complaints that agents would not show homes to his clients, and seemed doubtful that it was a serious matter. “You want us to stop people from bullying you?” she asked.

Some agents say the biggest problem with Redfin is that it complains too much. “Someone may be trying to manufacture controversy, even going so far as to bait other real estate practitioners, invite ‘war stories’ on their blog and whine to Congress and to newspaper reporters that they’re being treated unfairly,” said Marlow Harris, a Seattle agent with Coldwell Banker Bain Associates who also runs the real estate blog 360digest.com.

Still, Redfin agents — like their customers — say they meet real resistance from traditional brokers. Ms. Howard, for example, said that in her first days at Redfin, several agents for sellers said they were too busy to show a house to her clients. “That was my boot camp,” she said.

When that happens, Redfin agents contact the sellers and let them know that their agent will not show the house. When they cannot find a phone number, they send a registered letter. When sellers have moved, they track them down through the relocation service that moved them.

That is hardball, but the online agents have learned to be tough. “If we didn’t do that, the word would get out that Redfin can be blocked,” Ms. Howard said. When Redfin said it would try to make peace with rival agents by sending them gift cards for coffee, some of them told Redfin that such a move could violate a Department of Housing and Urban Development regulation having to do with transactions between agents. Redfin scuttled the plan.

Mr. Fox, the chief executive of BuySide, a start-up that operates in five states, says his company is working harder to get along with existing agents. “You have to play by their rules until the value to the customer drives the change,” he said.

Redfin’s financial backers, who so far have invested $8 million in the company, say they see parallels in the past introductions of automatic teller machines, big-box stores and discount stock brokerage firms — all innovations that faced industry resistance until consumers embraced them and forced change.

“You can only move as fast as the consumer; you can’t move faster,” said Marc A. Singer, general partner at BEV Capital, a venture capital firm in Stamford, Conn., that specializes in consumer businesses and is a Redfin investor. Redfin, he said, is becoming smarter in each market it enters. “You learn to cookie-cutter that fight,” he said.

AMID its battles, a funny thing happened to Redfin. It realized it was not primarily a tech company, but a real estate broker. It moved to stylish offices in Pioneer Square in Seattle because many customers wanted to meet agents the old-fashioned way: in person. Redfin posts pictures of agents on the Web so that customers realize, as Mr. Kelman says, “they won’t be talking to a person in Mumbai, India.”

Redfin said it planned to use the power of the Internet to personalize listings — if local M.L.S.’s allow it. Sellers, for example, could post online brochures that describe the history of their houses, any improvements made or what makes the homes special to them. Buyers, meanwhile, would automatically get help in searches through software that analyzes their past queries.
(Some local M.L.S.’s are particularly eager to fight one Redfin innovation: a display of how long homes have been listed on the market, a possible tip-off to buyers of an eager seller.)

“If you give people freedom, you can’t take it away,” Mr. Kelman said. “A consumer force has been unleashed.”

The Heroes of Housing Just Say No

2006-08-11T10:38:00.000-07:00

August 9, 2006
David Leonhardt, NY Times
The Heroes of Housing Just Say No

THERE’S an old “Saturday Night Live’’ skit in which Eddie Murphy sets out to experience life as a white man in New York. He starts in a dressing room, where makeup artists lighten his skin as he studies up by reading Hallmark cards. Duly prepared, he wades into Midtown Manhattan calling himself Mr. White.

His first stop is a newsstand, where the white cashier conspiratorially tells him to take a newspaper without paying for it. Then comes a ride on a public bus that morphs into a lounge with cocktails and music after the last black rider gets off.

Finally, Mr. White enters the Equity National Bank to ask about borrowing $50,000 even though he has no identification, no collateral and no credit history. But no matter. Such things are mere “formalities,” a loan officer says, while removing stacks of cash from a metal box. “Just take what you want, Mr. White. Pay us back anytime. Or don’t. We don’t care.”

Back in 1984, when the skit was shown on NBC, nobody would have imagined that it was poking fun not just at race, but also at banks’ lending standards. At the time, not even a white man in a gray suit could have gotten a loan without any documents and paid it back at his leisure.

But if you watch the skit today on YouTube or a DVD, you can’t help but see another, unintended layer of satire. In the last few years, so-called no-doc and low-doc mortgages — in which loan applicants can avoid formalities like pay stubs and instead simply state their income — have surged in popularity. Critics call them “liars’ mortgages.”

And banks, which often sell a mortgage to a group of investors shortly after issuing it, sometimes seem downright relaxed about how quickly borrowers will repay a loan. The hottest mortgage for the last year has been something called an “option ARM” that comes with a choice of payments on each monthly bill. In California, more than 25 percent of new mortgages this year have been option ARM’s, up from about 5 percent in 2004, according to LoanPerformance, a mortgage data firm.

The main point of these innovations has been to sustain the housing boom by allowing a family that can’t really afford a house to buy it anyway. But clearly, this can’t last. Already, it has raised the risk of a sharp housing downturn and, eventually, of a recession. The Federal Reserve acknowledged as much yesterday by halting its campaign of interest rate increases.

So the housing industry is going to have to find a new business plan. Fortunately, there is one small sliver of the market — here in New York, as a matter of fact — that has kept its wits and can serve as a model. The trouble is that it’s not usually considered to be a model for anything. Indeed, it may be the most hated institution in New York.
Let us now praise the co-op board.

COOPERATIVE living got its start in the 1880’s, inspired by Charles Fourier, a French socialist who argued that cooperation bred efficiency. A French immigrant to New York named Philip Hubert picked up on the idea and built arguably the first co-op, the Hubert Home Club, near the current site of Carnegie Hall.

Despite their utopian origins, co-ops quickly turned into a celebration of capitalism and exclusivity. Soaring new Hubert Home Clubs opened on Madison Avenue and next to Central Park, offering the sort of living space that has always made New Yorkers envious, according to the writer Elizabeth Hawes.

Today, co-ops — which sell shares in a corporation that owns the building, rather than individual apartments — make up about three-quarters of the city’s non-rental apartments. As always, the boards have the right to reject any buyer who doesn’t quite fit, however they define “fit.” More than a few co-op boards would have made good fodder for the Mr. White skit.

Anyone who has ever been interviewed by a board knows what a humiliating process it can be. Its members can demand bank statements from you, ask about intimate details of your life and then reject you without saying why. Or the board can admit you and make life miserable once you have moved in. In the 1990’s, one co-op resident on the Upper West Side was moved to have a party after the board president died.

But say this for most co-op boards: they take their fiduciary duties seriously. They generally require at least a 25 percent down payment, and while the rest of the real estate business has been getting more permissive, co-op boards have been using the sellers’ market of the last few years to crack down. Some Park Avenue co-ops require buyers to have a net worth equal to four times an apartment’s price, up from the old standard of three, said Jonathan Miller, an appraiser.

So thanks in large part to co-ops, the shadiest parts of the housing boom are less common in New York. Less than 8 percent of mortgages issued in the metropolitan area this year have been option ARM’s. The share is closer to 30 percent in most other cities as expensive as New York.

It’s hard not to conclude that New York’s high prices are based more on economic fundamentals than those in California or South Florida. (And no, I don’t own property in New York, though I have relatives who do.) The city surely won’t be immune to a downturn, but it does seem less likely to crash. In the last year, price increases here have slowed far less than those in San Francisco, San Diego, Boston, Connecticut or Long Island.

Most real estate experts still consider a crash — say, a 20 percent decline — to be unlikely, even in California. But there is now a legitimate risk that the excesses of the housing boom have laid the groundwork for an economic downturn. At the very least, some families are going to regret having taken out such aggressive loans when the higher payments eventually come due.
In coming months, federal regulators plan to issue new guidelines that will remind banks of the risks inherent in their new products and will encourage them to disclose the risks to borrowers. But the guidelines are pretty mild, and they’re not exactly ahead of the curve.

The real lesson of co-op boards, then, will have to fall to those of us doing the borrowing. When you’re about to take on hundreds of thousands of dollars in debt, you will probably do well to be conservative, to ask whether you can make the payments even if something goes wrong, rather than only if housing prices keep rising, interest rates start to fall and you get a big raise. Consider it a mantra for a newly sane real estate market: Embrace your inner co-op board.

Keep Eyes on Your Variable-Rate Mortgage

2006-07-15T10:28:00.000-07:00

July 15, 2006

Keep Eyes Fixed on Your Variable-Rate Mortgage

By DAMON DARLIN

The raising of interest rates on millions of adjustable rate mortgages over the next several years has all the makings of a classic horror story.

As home prices appreciated from ridiculously high to unbelievably higher, more Americans began using mortgages that allowed them to buy more house for less of a monthly payment. Next year, a large portion of those rates move up and homeowners who opted for the exotic mortgages could find their payments doubled. Talk about bloody. They need to find a way to minimize the pain.

Many will refinance their loans. But for others, whose mortgages now exceed the value of their homes or whose debt payments exceed 40 percent of their incomes, there may be no other solution than to get out of their houses. With the housing market cooling, selling it may not be easy. Some may default on their loans.

With more homes on the market, prices could begin to fall. That reduces home equity — the difference between the amount borrowed and the total value of the home — and could force people whose loans change in 2008 and 2009 to consider selling, further accelerating the drop in prices. Some of those cities with the highest proportions of interest-only loans are also at the greatest risk of falling prices.

Mortgage lenders, however, say they are not worried. Economists say even the worst-case outcome will not have much impact on the overall national economy. Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions, points out that mortgage industry losses of $110 billion spread over several years would amount to a mere 1 percent of the total national homeowners’ equity of $11 trillion and a hiccup in the gross domestic product.

On a personal level, however, there is going to be pain as homeowners struggle to make higher payments. In 2003, of all new mortgages, 10.2 percent were interest-only, meaning the homeowner paid only the interest for the initial period of the loan. According to Loan Performance, a research firm, 26.7 percent of all loans were interest-only last year and another 15.3 percent were payment-option adjustable rate mortgages, which allow homeowners to choose how much they paid each month.

In some areas of the country where homes are expensive, these loans were highly popular. In most California cities, as well as in Denver, Washington, Phoenix and Seattle, interest-only loans represented 40 percent or more of all mortgages issued in 2005.

Traditionally, interest-only loans and adjustable-rate loans were used by people who expected to live in a house only a short time, but such loans have turned into “affordability products” as housing prices rose. The interest rate on the loans, while below that of conventional 30-year fixed-rate mortgages at the beginning, resets after 3, 5, 7 or 10 years, depending on the loan. So, homeowners who took out loans in 2004 could find, for example, that their initial 4.25 percent loan climbs to 6.25 percent or 7.25 percent next year.

Someone now paying $350 a month for a $100,000 interest-only loan could be facing payments of $680 both because of the shift to the higher rate and because the borrower would have to start paying off the principal as well as the interest.

“You need a couple of good pay raises in order to afford it,” said Mark Fleming, chief economist with CoreLogic, which develops risk models for the mortgage lenders. “It’s pretty hard to deal with a payment shock of 80 percent or 90 percent,” he said.

The mortgage industry is not worried about payment shock. Why?
“It offers an opportunity,” said Brad Brunts, managing director of portfolio management at Citi Mortgage, a unit of Citigroup.

He, like others in the mortgage industry, sees the higher payments as a boost to the flagging mortgage refinancing business. Lenders will adjust about $500 billion in mortgages this year and $700 billion next year, according to Freddie Mac, the quasi-government agency that repackages mortgages for investors. Expect to find the mailbox stuffed with refinancing offers.
Mr. Brunts said only a minority of mortgage holders will face real problems. Most will successfully refinance and though they will pay more, he thinks they will be able to make the payments.

Anyone with a rate that will increase in the next few years, however, ought to worry. If homeowners have an adjustable-rate mortgage, they can hope or pray that there is a recession severe enough for the Federal Reserve Board to lower interest rates. But they would also have to hope or pray that the recession was not so severe that they lost their jobs.
Hoping or praying is not a useful financial strategy, if only because most economists think that rates will climb a bit more and then stay steady through 2007. No one can say with any certainty whether rates will rise or fall in 2008 or 2009.

Here is more practical advice. First, homeowners should take a look at their loan documents to determine when it changes and by how much. In most cases, the rate cannot go up more than two or three percentage points a year.

That is still a lot. The next thing for an owner to do is take a deep breath and figure out what the monthly payments will be when the rate moves. Any number of mortgage payment calculators on the Web can help. Hard as this may be to face, homeowners should not ignore it. Those who get behind on payments can ruin their credit ratings and then it will be even more difficult to refinance the loan at a reasonable rate.

“It all depends on the ability to refinance before the interest rate resets,” said Suzanne Mistretta, senior director of Fitch Residential Mortgage, which analyzes credit risk of mortgages. “Most of them will get out. Hopefully, they will get out,” she said. “That is the big question.”

Mortgage delinquencies and foreclosures are still low nationwide and in the coastal states where prices appreciated the most. In the last year, the highest portions of homeowners who fell behind in payments were found in regions where homes were least expensive like the South and the Rust Belt states. But lenders expect the numbers will go up across the country even if they never hit crisis levels.

In most cases, homeowners will probably want to refinance the loan because the rate on a new loan will be lower than the reset rate. The best option may be a fixed-rate mortgage. In contrast to three years ago, the difference between interest rates on fixed-rate and adjustable mortgages has shrunk.

Rates vary by the amount borrowed and where the house is, but a 30-year fixed-rate mortgage was averaging 6.74 percent this week, while an adjustable-rate loan that will not change for another five years was 6.33 percent. The initial, or “teaser” rate for a new five-year interest-only loan was advertised as 5.5 percent to 7 percent.

Lenders never cease to be creative. They keep coming up with new flavors of loans: 40-year fixed-rate loans that offer lower payments, but that cost more over the long run, or 30-year interest-only loans in which only interest is paid for the first 10 years. The only way to know which one to choose is to make the lender calculate the payments for every option.
Homeowners should start exploring the refinancing options about six months before a loan changes. Lenders say there is little reason to do it earlier. Payments are lower with the interest-only loan and, presumably, those holding the loans are saving the difference. At this point, if rates stay about the same or do not go much higher, there is little advantage to acting too far in advance because the payments will just go up sooner rather than later. (But homeowners should spend less elsewhere right now. They may as well get used to the drill; they will need the savings to cover the future higher payments.)

Sometimes, though, homeowners may have to take more drastic steps. The lender may not be interested in refinancing a home loan when the value of the home is below the loan amount. That could happen because a homeowner took out all the equity in a previous refinancing. (Freddie Mac estimates that Americans took $556 billion out of their homes through cash-out refinancings and home equity loans since 2004.)

It could happen if the price of the house has fallen or if the owner has been making only the minimum payment on a payment-option loan so that the loan balance has actually grown. (It is what the industry calls a negative-amortization loan). The best option then is probably to sell the house and scale back. Homeowners may also want to sell if they can clearly see that there is no way they can make the higher, refinanced payment.

In that case, it is better to act now before a few million other interest-only mortgage holders dump their homes on the market.

County's Home Sales Cooling Off

2006-05-18T19:13:00.000-07:00

Houses stay on market longer; median prices beginning to dip
By MARIE VASARI, Monterey Herald Staff Writer

Inventory is up, sales have slowed and median home prices in Monterey County have slipped for two straight months.

Local real estate is finally showing signs of cooling.

Median home prices for single-family, detached homes for March dropped 2.1 percent from the previous month, according to California Association of Realtors data, although the median home price was still 11.9 percent higher than in March 2005.

The Monterey County peak median home price was $700,000 in February, but that number slipped to $685,000 in March and $670,000 in April. By comparison, last year's median home prices were $612,000 for March and $626,000 for April.

Sales activity in Monterey County was up by 45.2 percent over February, but showed a 25.4 percent decline from March 2005.

Statewide, median home prices rose by 4.8 percent from February to March, and 13 percent year to year, but sales were down 15.1 percent over the March 2005 sales volume.

Winter months traditionally slow the housing market, and high gas prices and a long, wet winter certainly didn't help matters, said Sandy Haney, chief executive officer of the Monterey County Association of Realtors.

The number of closed sales for the quarter ending March 31 was lower than the same quarter the previous year -- 563 compared with 765 -- and inventory continues to rise. Homes are staying on the market almost twice as long as a year ago -- the average number of days on the market rose from 53 in March 2005 to 95 days on the market for the same period this year.

For the first quarter of 2006, homes remained on the market an average 88 days, compared with an average of 64 days for first-quarter 2005, according to RE InfoLink, a service that tracks real estate market figures.

So while sellers are still retaining an average 96.66 percent of their original asking price -- almost the same as last year's 96.79 percent -- inventory keeps rising and home sales are definitely slowing.

Continuing trend

The fact that the sale-to-listing price ratio remains high means that homes are starting to be priced more appropriately, Haney said.

That number, 95.03 percent for the first quarter of 2006, is a slight dip over the 96.69 percent in the first quarter of 2005.

Jean Manner Schwimmer, past president of the Monterey County Association of Realtors, calls those numbers interesting but not alarming.

"It looks like, from what we're seeing in the field, there's still an increase in the market," said Manner Schwimmer, a Coldwell Banker/Gay Dales Realtor in Salinas.

Current prices may pale against the white-hot price jumps of the past few years and homes are moving slower than before, she said, but prices haven't stopped climbing.

"Has it changed that much?" she asked. "No, it's still on the increase -- it's just not 20 percent.
"People look at those numbers and they say, 'Oh, the market's sliding,'" she said, "but actually, this market is balancing itself back out again, which is needed."

Leslie Appleton-Young, chief economist for the California Association of Realtors, has gone on record predicting that the rate of home price appreciation would begin to moderate this year after four years of steep increases, and sales would decline slightly from last year's record pace.

According to the state Realtors association, California typically gains nearly 250,000 new households annually, yet it will build about 200,000 new housing units, creating a shortfall of about 50,000 units.

Median prices up

At a Realtors' convention in September, Appleton-Young predicted that declining affordability would affect sales in higher-priced markets, and the high-priced coastal regions "face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole."

Countywide, single-family home inventory for the first quarter of 2006 was 1,915, with 563 closed sales, compared with 987 homes listed and 765 sales for the same period the previous year. Median prices for those two quarters were $691,000 and $625,000, respectively. First-quarter inventory in 2004 was 892, with a median home price of $491,000.

Median home prices in March for all types of home sales in Monterey County -- new and existing, single-family and condos -- were up 12.3 percent at $620,000, compared with March the previous year, when the median home price was $552,000, according to California Association of Realtors statistics.

Regional variation

But the year-to-year change varied widely by region within the county, dropping 10.3 percent in Pacific Grove, where the median home price fell from $895,000 to $802,500.

By contrast, median home prices climbed by 10.4 percent in Salinas and by 16.9 percent in Seaside, where homes were $530,000 and $577,500 in March 2005, respectively, and $585,000 and $675,000 in March of this year.

Sellers are still seeing backup offers and multiple buyers for certain homes, said Haney, "but it's definitely becoming a buyer's market."

It's a trend showing up in the lists they present after inspection, which are growing longer and more detailed as buyers grow more confident.

"Buyers are definitely back with a vengeance," said Haney. "They were stomped on for so long."
Variations in the makeup of the local market have an impact as well, said Haney. Some parts of Salinas are largely driven by first-time buyers, and these days fewer buyers are unattached to a home.

The high-end markets of Pebble Beach and Carmel have slowed. In North Salinas, there's been a flurry of middle-class buy-ins to new home developments such as Creekbridge, which in its first phases pushed the demand for existing homes down because of all its modern amenities.

New housing developments at Fort Ord in the future also are likely to soften the local market in the short term, Haney said.

"We're going to see changes we haven't seen in this area for a long time," she said. "It's going to be interesting to see where the housing market goes."

But Haney said there's little likelihood the bottom would drop out of the real estate market.
"Barring any national disaster, I think the market will adjust," said Haney. "Last year, the market was unreal."

She does predict a thinning of the real estate ranks in the next two years as the market slows and as consumers -- spending less time than ever at open houses and more time researching homes online -- drive changes in the industry.

But Haney said there's been an even greater shift in terms of what homeownership means to most buyers.

"Homes are no longer forever," said Haney. "Now, they're more of an investment.

"The real estate industry is already metamorphosing."

Bubble watch: 10 cities that will top out

2006-05-16T17:49:00.000-07:00

These bubble sitters have had a good run, but will likely see little more price increases. Job losses, affordability and available land are challenges for many of these towns.By Pat Curry, Bankrate.com

Washington, D.C.: The D.C. market ranks 10th on John Burns' list of markets facing a potential housing bubble, and home sellers in the metro market report that it's taking longer to sell than it did a year ago. Plus, builders are offering significant incentives to try to move inventory quickly. Fortune's survey suggests the market will decline slightly in 2007. Still, D.C. has a healthy economy and job market; Forbes ranks it fourth on its list of great places for business and a career. And where there is business, there are home buyers.

Fort Myers/Cape Coral, Fla.: Is it overvalued? Yes. Local Market Monitor reports annual housing appreciation of between 9% and 11% between 2001 and 2004 and then a 33% leap in 2005. Has the market topped out in housing appreciation? Not yet, but it can't absorb much more, say the real estate gurus. The market is still affordable and more reasonably priced than Sarasota (43% overvalued) to the north or Naples (a whopping 72% overvalued) to the south, but the amount of building in the market is staggering -- most of the country's major builders have strong presences in Lee County -- and land prices, once quite affordable, have increased as much as tenfold in recent years.

Chicago: The Midwest hasn't had the kind of dramatic price increases as cities on the two coasts and those in the Sun Belt. As such, Chicago isn't as susceptible to a pricing bubble as some of the other major urban areas of the country, the real estate pros say. However, the ratio of housing costs to income in the market far exceeds that of other markets in the state and job growth has been sluggish. "The big challenge in Chicago is work-force housing," Gollis says. "We're always looking at likely income growth and affordability growth or lack thereof."

Honolulu: Because of its remote location, Honolulu is tough to compare to anywhere else. After a drop-off in population in the 1990s, people have started returning to the island, Winzer says, creating a housing shortage that has contributed to rapid increases in housing prices. In 2003, the median price of an existing single-family home was $380,000, according to NAR. By the end of 2005, it was expected to be at $620,000. Currently, the economy on the island is good, Winzer says, driven by economic conditions in Japan. Fortune predicts a small, but realistic increase in values this year followed by a slight drop-off in 2007.

Tucson, Ariz.: Tucson's housing market is dwarfed by Phoenix -- new construction in Tucson is roughly one-fifth of the number of units built annually in Phoenix -- but it has joined its much-larger neighbor in attracting the attention of real estate investors. The NAR reported a 32% increase in appreciation over 12 months. The current pricing is about one-fourth higher than it should be, Local Market Monitor says. The pros look for the market to stabilize in 2006, with an increase that roughly tracks the inflation rate, increase this year, followed by a decline in pricing in 2007.

San Francisco: With a median home price of nearly $720,000 at the end of 2005, according to the NAR, San Francisco remains one of the country's most-expensive cities to live in, outpacing even Honolulu and New York City. Housing prices are unlikely to decline because of short supply -- surrounded by hills and its famed bay -- there's just nowhere else to build anything less expensive in the city. But realistically, there aren't that many people who can afford to buy at those prices, which should keep prices from going much higher.

Detroit: Detroit hasn't been on anyone's list of hot markets for a long time. In the most recent report from the NAR, The Motor City was one of only six metro markets in the country to show a decline in housing appreciation in the past year, with prices down about a half percent. It's a trend that Local Market Monitor has been tracking since 2001; annual price increases have dropped from 7% that year to just 2% in 2005. Fortune doesn't predict any better performance in the market through 2007. John Burns Real Estate Consulting actually gives the Detroit market its worst possible grade, an F, based largely on a large loss of jobs and the highest unemployment rate of any metro market in the state.

Minneapolis: Minneapolis made our list for a couple of reasons. In a year when the majority of metro markets showed double-digit increases in appreciation, it barely surpassed the rate of inflation, according to the NAR. And for the next two years, the prediction is that appreciation won't even see the left side of a decimal point.

Baltimore: Like its pricier neighbor to the south, Washington, D.C., Baltimore has seen double-digit increases in appreciation in recent years. But several reports indicate the market is overpriced compared to its history. Local Market Monitor indicates that prices are overvalued by 17%; Fortune's number crunchers forecast a slight increase in values for this year, followed by a small drop-off in 2007, perhaps signaling that prices have leveled off.

Denver: Gollis has been big on Denver for some time, seeing it as a market that went through a rough time -- it lost thousands of telecom jobs a few years back -- but it is returning to a level state. The market has caught the attention of national builders in recent years, there is major construction underway and the Stapleton Airport redevelopment is one of the largest projects of its kind in the nation. Yet the NAR reports that in a year when the vast majority of markets showed double-digit increases in appreciation, Denver's rate was 4.4%, and Local Market Monitor reports that it hasn't been above 5% since 2001. The good folks at Fortune predict that for the next couple of years, Denver's rate of appreciation won't see half that number.

Housing bubble: Top 30 cities to watch

2006-05-16T17:46:00.000-07:00

The real estate market is shifting -- in what direction depends largely on where you live. Here's our forecast of the 10 cities where prices and values should continue to rise, 10 cities with little room to run and 10 that are most likely to decline.By Pat Curry, Bankrate.com

Ah, prognostication. It's a time-honored profession and one that's hard to beat in terms of job security. In what other profession can you get it wrong half the time and still be considered pretty good at what you do? If "Bob in accounting" had that kind of track record, he'd be out on the street before the second-quarter earnings were revised. But prognosticators can't possibly be faulted for not knowing what hasn't happened yet.

All of this is a fitting introduction to our forecast of the changing real estate market in the U.S. over the next few years -- 10 markets where housing prices and values will continue to remain strong (below), 10 markets where appreciation will pretty much top out and the 10 markets that are most likely to experience a decline. We talked to experts, studied public and private databases, analyzed market trends and examined the analyses of many others -- often contradictory.

The resulting lists are not intended to be numerical rankings, which would result in lists of markets located almost exclusively in California and Florida.

Nor are they intended to be be-all, end-all lists. In a recent quarterly metro-area, single-family home price report from the National Association of Realtors, a record 72 markets had annual increases in the double digits for median prices for existing, single-family homes. Only six areas had price declines out of 145 metropolitan statistical areas surveyed.

Plus, many reports we reviewed noted strong housing appreciation in the Gulf Coast areas impacted by the 2005 hurricanes. That's completely understandable. When a significant portion of the housing stock has been destroyed, the law of supply and demand dictates that the remaining houses will dramatically increase in value. We chose to leave those markets out because we felt the gains didn't reflect normal market conditions and would likely experience significant, unpredictable shifts during the next two years.

Finally, these are the markets Bankrate feels are most worth watching and are not intended to be lists on which to base your investments or take to the bank in any other sense. As Ingo Winzer, president of Local Market Monitor, a Massachusetts-based real estate analysis firm, says, "I thought that based on previous observations on price cycles, (prices) would have peaked two years ago, and they didn't. There is always some factor that comes up that you hadn't anticipated. It makes forecasting extremely difficult."
10 bubble blowers -- appreciation should continue to grow

Boise, Idaho: Besides having a happy-sounding name, Boise is consistently mentioned as a small, but strong real estate market. Forbes magazine ranked it first on its 2005 list of the best places for business and a career; John Burns Real Estate Consulting puts it almost at the bottom of its list of markets headed for a potential housing bubble.

John Schleimer, a real estate market consultant to major builders, says that both Boise and parts of the Idaho Falls panhandle will "hold up very well" housing appreciation-wise.
"They're getting a migration of people fleeing the blue states," he says. Annual housing price increases have been a modest, but steady 4% to 6% over the past couple of years, with a significant -- but not out-of-proportion -- increase of 14% in the last quarter of 2005.

El Paso, Texas: Real estate market watchers have noted for some time now that Texas is a value buy. Local Market Monitor recently released a listing of overvalued and undervalued markets. Four of its 10 undervalued markets were in the Lone Star State, with El Paso the most undervalued market in the nation (the other undervalued Texas markets were McAllen, Dallas-Fort Worth and Houston).

"If I was an investor in real estate -- and I'm not -- I'd carefully consider Texas markets," Winzer says. "They had a big boom and bust about 10 years ago. They're at the end of that. They haven't been great markets for awhile, but quite likely, as economies improve there, people will move there, especially since prices are relatively modest."
Fortune ranked El Paso third on its list of markets set for strong appreciation in the next two years; another Texas market, San Antonio, was first.

Albuquerque, N.M.: This is another city at the bottom of John Burns Real Estate's Housing Cycle Barometer, a measurement of cities that are susceptible to a housing bubble. It's also high on Fortune's list of markets that should experience growth in the next two years and had a healthy increase (18% according to the NAR) in 2005. Locals say the area attracts Californians trying to escape high housing prices; once they discover the mild year-round weather, they don't want to leave.

Seattle, Wash./Portland, Ore: The overall news out of the Pacific Northwest isn't great. The area lost jobs in the tech bust and is still recouping. But in terms of housing price appreciation, the thing these cities have going for them is a restriction in supply. Tight controls on development have prevented the normal progress of builders going farther out from the city core to find cheap land in the suburbs. Hence, demand stays high for available units. (Forbes Magazine lists Seattle as the most overpriced place to live in the country; Portland was third on the list.)

"Portland and Seattle have really benefited from California's growth," says Richard Gollis, principal of San Francisco-based real estate consultants The Concord Group. "Portland is starting to see the next generation of housing product, which is large-scale, high-density projects in downtown. The same thing is happening in Seattle. People who moved there 20 years ago for the tech market are older now and have a different lifestyle."

Salt Lake City: Nothing drives housing like a stable economy and job growth. Salt Lake City has both. Job growth is up about 4%, unemployment is low, the housing costs-to-income ratio is moderate and Utah builders give buyers a lot of house for the money. Local Market Monitor reported an 11% increase in appreciation in the market between 2004 and third-quarter 2005, and Money magazine ranked it 20th on its list of 100 markets for growth over the next two years.

Raleigh, N.C.: This city is right in the middle of the region that appeals to what real estate market consultant Schleimer calls the "halfbacks." Those are people from northern states who moved to Florida, didn't like it and then moved back, but only halfway. The halfback region includes Georgia, the Carolinas, parts of Mississippi and Tennessee. The seasons are more like what they were used to up North, without the harsh winters, and they're closer to friends and family. John Burns Housing Cycle Barometer has Raleigh dead last on its list of markets that are susceptible to a housing bubble, and the NAR shows a healthy appreciation of 7.4% between 2004 and 2005. The median house price of $185,200 is well below the national average of $213,000, giving it nice room to grow. Fortune predicts the region will do just that, by about 5% per year over the next two years.

Philadelphia: Major northeastern cities may be the least expected on a list like this, so we were somewhat surprised to see Philadelphia show up in a favorable position on several reports. The NAR quarterly report showed a 12% increase in appreciation between 2004 and 2005, high enough to encourage people to buy homes, but not at such a dizzying rate as to spark panic purchases. The housing-cost-to-income ratio, at 31%, is quite favorable compared to other large northeastern cities (53% in Washington, D.C., and Newark, N.J., and 72% in New York City) and while job growth is small, it's moving in the right direction.

Atlanta: Home to several major corporations and the country's busiest airport, Atlanta also is the second-largest housing market in the nation. Housing prices have enjoyed steady appreciation without the skyrocketing increases that have pushed other large markets toward a bubble. Commuters who have tired of long commutes have sparked resurgence in in-town development close to transit; the mixed-use development Atlantic Station has gained national attention as a true urban village with easy accessibility to jobs and cultural activities in downtown. Fortune predicts about 4% growth in values for the next two years.

Little Rock, Ark.: Surprised to see Little Rock on this list? If so, join the club. It's not exactly on a lot of radar screens as a hot real estate market. But it popped up in a favorable way on just about every ranking related to housing appreciation, from the NAR's note of a very respectable 7.7% change from 2004 to 2005 to Fortune's prediction that that kind of increase should hold fairly steady for the next two years. Local Market Monitor positions it as one of the most undervalued markets in the country. At an average price of $155,900, housing there is running a good 17% below where it could be, Winzer says, making it a great value.

Cincinnati, Ohio, and Birmingham, Ala.: These two were too close to call. The NAR's median price appreciation list gave a clear nod to Birmingham (4% increase from 2004 to 2005, to Cincinnati's 0.7%), but Cincinnati kicked its butt on the Housing Cycle Barometer that predicts a market's susceptibility to a housing bubble. (Cincinnati was 30 spots lower on the risk assessment.) Pricing in both markets is running about 12% under what the experts say it should be, giving them both plenty of room for nice, steady growth. The forecasters see that in the future for both markets.

Bubble watch: 10 cities where prices will deflate

2006-05-16T17:42:00.000-07:00

From Las Vegas to Edison, N.J., these bubble busters are facing everything from a lack of new building and job loss, to price appreciation that simply can't be maintained.By Pat Curry, Bankrate.com

Las Vegas: What goes up must come down. Fortune lists Las Vegas dead last in its list of 100 metro markets for housing appreciation in the next two years, predicting a two-year combined decrease in housing values of nearly 13%. Local Market Monitor reported a 33% increase in appreciation between 2003 and 2004, and then a 14% increase by the third quarter of 2005, evidence that prices have begun to cool. "Las Vegas is a very interesting market," Winzer says. "A lot of people moved in, but construction has kept up with the pace. For a long time until recently, I didn't consider it an overpriced market. I don't think the price increases will last. There's really not an inability to produce new homes out there if there is a demand for it."

Sacramento, Calif.: We're not quite sure what Sacramento ever did to anyone, but it showed up on just about everyone's list of has-been markets. Winzer's Local Home Value Ratings rates the market as 59% overvalued and Burns Housing Cycle Barometer also lists it as overpriced. "Sacramento, we think, has topped out," says Gollis of The Concord Group. "There is just so much (housing construction) in the pipeline. It's a steady-as-she goes market and has always had consistent growth, but we think the land market has gotten ahead of itself."

Phoenix: The bigger they are, the harder they fall, and Phoenix is the largest housing market in the country in terms of new construction. It's been running at 65,000 new units per year, with housing appreciation increasing at rates of nearly 30% per year. "You can't sustain 30% increases a year for very long," Winzer says. "Of all the 100 markets we review, we think if you're an investor in Phoenix, you should sell, because vacancy rates are already pretty high." Gollis says his firm has been studying the market carefully and doesn't like what it sees. "It's had an incredibly unusual amount of growth," he says. "The land market has accelerated dramatically and the lot price as percentage of the home price has gone up significantly. We have some concerns about going long in Phoenix."

Boston: This one is in Winzer's backyard, his firm is based in Wellesley, Mass., so he sees what is happening there every day. "Until about a year ago, homes would go on sale and be gone in a week," he says. "Now they're sitting on the market for a year." He doesn't see the prices dropping rapidly here -- or in any market, for that matter -- because while real estate prices escalate rapidly, they drop slowly. "In markets that are well-overpriced, prices don't really fall because people just won't sell," he says. "The adjustment mechanism is skewed by people's emotions getting involved. People will grit their teeth and hang on as long as they can to get the price they want." They might not be able to hang on for long. Burns ranks Boston fourth on his list of markets likely looking at a bubble; Winzer's analysis indicates the market is 33% overvalued.

Los Angeles: The City of Angels has been described as the poster child for how a lack of new housing near employment centers can hurt an economy. Affordable housing has been an issue in the market for years. It's ranked as one of the least affordable places in the country to live, with housing prices consuming 91% of income, according to statistics from John Burns Real Estate Consulting. The median price of an existing single-family home was $568,000 at the end of 2005, the National Association of Realtors reports. Plus, job growth is virtually flat. Together, it's cause for real estate market consultant Gollis to predict that the prices for California coastal markets are topping out in single-family homes. Fortune predicts a drop-off of nearly 8% in housing prices in the next two years, putting it in 95th out of 100 markets for growth.

Naples, Fla.: At 72%, Naples is No. 2 on Local Market Monitor's list of overvalued markets in the country (Santa Barbara-Santa Maria, Calif., is No. 1 at 86% overvalued). In actual pricing, it outpaces other Florida markets by a good $100,000 margin. Plus, there is an abundance of more affordably priced options for buyers within a short driving distance. It is no understatement that entire cities are being built nearby. "The markets that are the most overvalued are the ones at greatest risk of a substantial correction," Winzer says. "Naples is at the top of that."

Miami/Fort Lauderdale, Fla.: Rapid, dramatic price increases over the past two years -- and an extraordinary amount of new products being built in the condo market -- is the reason many real estate market analysts think this market just can't sustain much more in terms of price increases. The market probably won't decline, they say, because the region remains attractive to South American and European buyers, but there just isn't sufficient demand to absorb the entire available inventory. Plus, according to NAR research, affordability is an issue in the market, calling the home price-to-income ratio "unfavorable."

Edison and Newark, N.J.: As far as the real estate analysts are concerned, these two cities have pretty big targets on them for a decline in appreciation. John Burns Real Estate Consulting ranks Edison seventh -- ahead of Los Angeles, Miami and Washington, D.C. -- as a market facing a potential housing bubble. It gives Newark an F on its local market grading scale, attributable largely to the loss of several thousand jobs and the highest housing-cost-to-income percentage in the state's metro markets. Fortune predicts a very modest 1.2% gain in housing appreciation this year for Edison that would be wiped out in 2007 by a loss of 2.9%. The situation is similar in Newark, where Fortune suggests a 1.5% increase this year will be canceled out by a 1.8% loss the following year.

Nassau/Suffolk, N.Y.: Otherwise known as Long Island, this market is No. 2 in the country on real estate consultant John Burns' list of locations facing a potential housing bubble. (Modesto, Calif., has the top spot.) Similarly, Fortune predicts a loss of about 6% in housing values over the next two years.

The Least Affordable Place To Live? Try Salinas, California

2006-05-07T11:57:00.000-07:00

May 7, 2006

The Least Affordable Place to Live? Try Salinas

By ALINA TUGEND

Ii 2005, the least-affordable place in the country to live, measured by the percentage of income devoted to mortgage payments, was Salinas, Calif.

The second was the Santa Cruz-Watsonville area of California.
The third? Santa Rosa-Petaluma, Calif.

In fact, California has the distinction of having the 11 least-affordable metropolitan areas in the country. One would need to go all the way down to 12th place — and across the country to the New York region's northern suburbs — to find a non-California metropolitan area on the least-affordable list of 2005.

Much of California is pretty. It has beaches and the mountains and, of course, the weather. But why are places like Salinas, which is surrounded by agriculture, topping places like Honolulu (No. 17) and Miami (No. 22) on the out-of-reach list?

There is no one answer, but demographers and public planners who study such trends say that a confluence of factors in California — both artificial and natural — have combined to create a particularly acute problem.

"California has both political and geographical constraints on building," said Dowell Myers, professor of policy, planning and development at the University of Southern California. "That drives up prices, and then it snowballs."

The geographical limits on developable land are the hills and the coast, while the political restrictions are state and local regulations that prevent building new homes, in response to both environmental and congestion concerns.

"One of the key factors here is the basic law of supply and demand," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

"California is in marked contrast to Florida, where you can expand without constraint. It's more like the New York suburbs, where too many dollars are chasing too few homes."

While many states have regulations on growth, California is a leader, Dean Hughes says.

California is also in the forefront of population growth, but it is not driven, as might be expected, by envious Easterners and Midwesterners escaping snowbound winters. Nor is it driven by long-term Californians. In fact, census figures show that over the past decade, more people have left California — emigrating to neighboring states like Nevada and Arizona and farther away, to Texas and Florida — than have moved in from other parts of the country.

The population increase is driven primarily by births and foreign immigration. According to census statistics, from April 2000 to July 2005, California experienced a net natural increase — taking into account births and deaths — of 1.5 million people.

And an additional 1.4 million moved in from other countries.

While California's birth rate is not the highest in the nation — Utah's is — it is near the top.
"New York has the constraints but doesn't have the population growth," Professor Myers said. "Florida has the population growth but doesn't have the constraints."

While it is difficult to build new houses in California, that isn't to say none are going up. According to the California Association of Realtors, there have been increases in the number of housing units built over the past nine years — from 94,283 in 1996 to 207,154 in 2005.

That is substantially more than the low in 1993, when California was in the throes of a severe economic recession and only 84,656 units were built. But it's not as prolific as in 1988, when 255,559 went up.

There are a number of reasons for the restraints on home building, including the fact that many desirable areas in the state are already "built out" and the permit process is more complex and drawn out now than it was a few decades ago.

Leslie Appleton-Young, chief economist for the Realtors group, said the state needs about 250,000 units a year to meet housing demand. "We've been below that every year over the past 10 years," she said.

The high demand and low supply created a perfect breeding ground for investors and speculators, which became "the last straw" in driving housing prices up, said David Seiders, chief economist for the National Association of Home Builders.

Another quintessentially California issue is Proposition 13, the 1978 measure that slashed property taxes by more than 50 percent and ignited a national property tax revolution.

The measure, which was supposed to facilitate home buying, has backfired to some extent; local governments prefer that land be used for retailing rather than housing because they collect more from sales taxes than from property taxes.

"Proposition 13 is a big stop sign saying 'no housing needed,' " said Peter Dreier, professor of public policy at Occidental College in Los Angeles and an author of "Place Matters: Metropolitics for the 21st Century" (University Press of Kansas, 2001). "Every municipality is engaged in a bidding war for retail — they're battling for Wal-Mart, to keep the libraries open."

It is unlikely that will change, Professor Dreier and others say, calling Proposition 13 "the third rail of government — it's untouchable."

Although it is no surprise that house prices have gone through the roof in places like Los Angeles, San Diego and San Francisco, what is more unexpected is that less-popular areas away from the coast are also topping the list of least-affordable places to live.

"There's a huge movement away from L.A. County and from San Francisco and the great beneficiary is the Inland Empire" in Southern California, and in Sacramento and points east in northern California, said William Frey, a demographer at the Brookings Institution.

The migration is happening both among high-skilled and middle-class residents, as well as low-skilled and lower-class ones, so the cost of housing is exploding even in areas of the state that most people do not think of as traditionally expensive, he said.

"Baby boomers are getting older and moving into the higher-income bracket and into the top-dollar markets," Professor Myers said. "Immigrants have high ownership rates at the bottom of the market. It's a recipe for a bubble."

These noncoastal communities are no longer simply attached to established cities, but in many cases have become job centers in their own right, Ms. Appleton-Young said.

The Inland Empire, made up of Riverside and San Bernardino Counties, has been in a 30-year transition from a bedroom suburb to a metropolitan area, she said.

"People are now working where they live," Ms. Appleton-Young said. "It's not a commuter area."

The San Joaquin Valley, in central California, on the other hand, still has a way to go to attract an educated work force and to create a diverse and thriving economy. But Ms. Appleton-Young said it appears to be following in the footsteps of the Inland Empire: "As we say, jobs follow housing."

The final paradox in this state of paradoxes is that traditionally, many Californians are not homeowners; the state ranks 48th, behind only New York and Hawaii, in terms of homeownership, and about 10 percent below the national average. But over the past several years, even as housing prices have increased, more people are buying.

Home sales climbed fairly steadily from 1996 through 2005, with only a slight downward blip in 2001, said the California Realtors' association.

Hans Johnson, a demographer with the nonprofit Public Policy Institute of California, said, "It's counterintuitive." But apparently typical. Those familiar with home-purchasing trends say that people buy when the market is going up, not when it is going down.

If houses are so costly, how are people managing to make the leap and become homeowners?
In some cases, they use methods of financing that were not previously available, Mr. Johnson said. Instead of fixed-rate 30-year mortgages, they take, for example, variable-rate interest-only loans, which have lower monthly payments.

In many cases, he said, homeowners are paying far more on mortgages than the 30 percent of income recommended by the Department of Housing and Urban Development.

A study by the Public Policy Institute of California found that 40 percent of all households in California, the most anywhere, exceeded this recommended threshold. "In some cases, they're even paying more than half," Mr. Johnson said.

New homeowners are buying smaller homes or condominiums; according to the study, only 15 percent of long-term homeowners in California live in multifamily housing units, like condominiums, while 26 percent of recent buyers do.

"In some ways it's good, because people own a house and have equity," he said. "In other ways it's bad," he explained, because "if interest rates go up, there will be a large increase in monthly rates."

"If there's a bubble that bursts or slowly leaks," he added, overextended owners may not be able to sell and recover enough to pay off the loan.

Professor Dreier of Occidental College said he also blamed state government and business leaders for failing to support the creation of moderate-priced housing — not just for low-income residents, but also for middle-class people, like teachers and nurses, who cannot buy into the overheated housing market.

When he was a city official in Boston, the state government, businessmen and bankers "understood that affordable housing was part of a healthy work force," Professor Dreier said.

"In California, businesses and the Chambers of Commerce have not embraced housing issues like they have embraced other issues, such as health care. We won't see the political will to solve the housing crisis until the organized business community weighs in and says it's unacceptable."

The big question now is whether the housing market will deflate while the economy stays strong, which would enable more Californians to buy. The answer seems as elusive as predicting the next earthquake.

The signs point toward a slowdown: interest rates are going up, and investors and speculators, who drove up prices by buying and selling houses, seem to be pulling back in hot markets nationally. But everyone, even those who study the subject, knows it is dangerous to predict.

Ask Professor Myers of U.S.C., who sold his house in Los Angeles last year. "I was convinced it was going to peak," he said. "After I sold, it rose another 15 percent."

Monterey County Real Estate Statistics

2006-04-01T09:39:00.000-08:00

For the most recent statistics on property values in Monterey County, along with information in regards to the number of transactions and days on market, please go to the following web site for details.

http://mcar.com/stats.html

Calculating What To Pay For A Home

2006-04-01T09:35:00.000-08:00

April 1, 2006, New York Times, By DAMON DARLIN

How do you know what to pay for a house?

You look at the "comps," of course. A real estate agent will tell you what comparable houses in the neighborhood sold for. Web sites like Zillow.com or HomeValues.com value homes the same way.

Is that not a little like thinking Yahoo stock is a bargain at $32 a share because Google is selling at $390 a share? With stocks, you would want to know how the price relates to the company's future earnings. Gary and Margaret Hwang Smith, Pomona College economics professors, argue that with housing you similarly want to know how the price relates to the future stream of rent from a home, whether you intend to rent or not.

It is not an unheard notion among investment professionals. Redbrick Partners, an investment fund that buys and rents single-family homes, evaluates a property's cash flow, as well as the economic prospects of the neighborhood and larger region, before buying it. "Just because you pay 5 percent less than somebody else doesn't mean it is a good price," said Thomas Skinner, a managing partner.

You will need some math skills and some software or a financial calculator to do this. The Smiths said they might offer a program on their Web site, http://www.smithfinancialplace/.com, to automate the process, but until then, you'll have to read the formulas in their new research paper found there and work out the numbers using a spreadsheet.

To see how this would be useful to a buyer, take a look at a house on Silver Cloud Drive in Diamond Bar, Calif. It is an 1,812-square-foot four-bedroom two-bath split-level ranch built in 1964.

It sold last July for $560,000. First, you need to know how much the house could rent for. As it happens, just across the street is a nearly identical house that was renting at the that time for $2,295 a month.

Determining how much rent a house can fetch may turn out to be one of the more difficult tasks in this entire process, especially if you live in a single-family home in a neighborhood where few homes are rented. If you own a condominium or an apartment, it's easy because there are always comparable units renting.

Now you need to calculate the annual cash inflow, that is, the rent, and subtract it from the outflow, things like mortgage payments, taxes and maintenance. You'll have to make some assumptions of how much any of those factors will change over time. The cash flow may be negative in the first few years of ownership, but as rents increase and the mortgage payments don't, the returns flip positive.

Plug these numbers into a spreadsheet set up to calculate net present value — what the future payments are worth right now. You can find advice at http://office.microsoft/.com/en-gb/assistance/HP052091991033.aspx. In our example provided by the Smiths, assuming (economists love to assume) the buyer makes a 20 percent down payment, secures a 30-year fixed mortgage at 5.7 percent, and spends about 2 percent of the price of the house each year on maintenance as rents rise 3 percent a year, you discover that with a 6 percent after-tax annual rate of return, the house price would be $696,000. That's about 24 percent more than the actual selling price and 18 percent above Zillow's estimate of $588,502.

The calculation doesn't mean that as a seller you'd necessarily get that much. Supply and demand — and the Greater Fool Theory — will still determine the price. It means as a buyer you could go that high and still be happy with the decision in years to come.

Given the price it did sell for, for someone in a 28 percent federal income tax bracket, the long-run after-tax annual rate of return will be 7.4 percent. (Use an internal rate of return, or I.R.R., function in a spreadsheet.) Given that a 30-year bond was yielding about 4.83 last week and some banks will give you 4.5 percent interest, 7.4 percent isn't a bad return.
What if the price drops? That's the risk in owning over renting. Certainly, if you had waited you would pay less and probably get an even better return. But that's the reason you analyze the fundamentals. If you computed a healthy return and are holding it for the long term, you minimize the danger of losing your investment.

At the risk of sounding like a real estate agent, Mr. Smith said there are two risks to consider when buying a house. One is that you buy and the price goes down. The other is that you don't buy and the price goes up. "The second is more scary," he said.

Home Prices Slip Slightly in County

2005-12-20T15:11:00.000-08:00

HOME PRICES SLIP SLIGHTLY IN COUNTY
By MARIE VASARI, Monterey Herald Staff Writer

When it comes to real estate, perspective is everything. If you're a buyer, things are looking better by the day. Prices are beginning to inch downward, homes are staying on the market longer, and many of those squeezed out of the chance at homeownership as prices escalated in the past few years are now beginning to dream. For a seller who's watched the homes in his neighborhood selling fast and high, things are a little less clear.

Not that homes aren't still moving, and commanding record prices when they do. It's just that the runaway real estate market of the past few years may be finally settling in to a more reasonable jog. The median home price in Monterey County declined from $680,000 in September to $675,000 in October, the third consecutive downward month, down from a July peak of $698,000. But even with the dip, homes are still significantly higher than a year ago, when the median price in Monterey County was $578,000 for October 2004. Considering how much appreciation there has been in the real estate market, the downward shift was almost inevitable. Five years ago, the median home price for Monterey County was $347,000; a year before that, $289,900.

Is the real estate bubble about to burst? Not according to real estate agents, most of whom shun the ''bubble'' term. Homes are beginning to stay on the market longer, but some of that is a normal seasonal pattern, said Sandy Haney, chief executive officer of the Monterey County Association of Realtors. Historically, said Haney, it takes about 90 days to sell a house. But during the land grab of the past few years, it wasn't unheard of for houses to sell in a single day, sometimes before hitting the multiple listings, or for desperate buyers to bid well over a home's listing price.

Eventually, as homes stay on the market longer, sellers will lower listing prices. But what Haney predicts is no steep drop, but a gentle decline as the market stabilizes. "We've all been holding our breath," she said, "waiting for the market to adjust." The only surprise was that it took so long. Haney expected it three years ago. There's little chance home prices would crash, she said, because unlike stocks -- intangibles with perceived value -- a house is a physical commodity with emotional and inherent worth. If the market softens, people don't just toss away their house.

"We're very pleased it's adjusting," said Haney. "It wasn't a real estate market, it was a Disneyland market."

Inventory matters, said Bert Aronson, broker and president of RE/MAX Monterey Peninsula's new Renowned Properties Information Center in Carmel. The volume of homes being added to the market each month, at some point, was bound to catch up to itself. Single-family home inventory grew 5.5 percent for Monterey County in October, the 10th consecutive month of growth. That high level of inventory, said Aronson, is finally starting to push prices down. October home sales dropped 24.2 percent from the previous month, said Aronson, but even with three straight months of declining median home prices, that's still an annual appreciation of 16.8 percent. Housing sales broke records for the fifth year in a row, said the National Association of Realtors, and even with talk of a slowdown in the market, the year ahead is expected to be the second best year in history.

"The slowdown amounts to a tapping of the brakes on a hot market," said David Lereah, chief economist for the National Association of Realtors. "Home sales are coming down from the mountain peaks, but they will level out at a high plateau -- a plateau that is higher than previous peaks in the housing cycle." In his estimation, the shift toward a "more normal and balanced market is a good thing."

Real estate continues to be one of the soundest investments, said Thomas M. Stevens, president of the National Association of Realtors. Regional markets may experience a temporary rise or fall depending on jobs and supply, but, Stevens said, the national median home price has never declined since 1968, the first year solid record-keeping began. Nationally, median prices for existing homes rose 12.7 percent in 2005, to $208,800. That is expected to climb an additional 6.1 percent next year, to $221,400. Median new-home prices were expected to grow by 5.5 percent, to $233,100, in 2005, and growth projections for 2006 are even greater -- a 7.3 percent hike, to $250,100, mostly because of high construction costs.

California had an housing affordability index in October of 15, meaning that 15 percent of households statewide can afford a median-priced home. That's four percentage points lower than in October 2004. By comparison, the Monterey region, which includes Monterey and Santa Cruz counties, had an affordability index of 9 this October, dropping two points from a year ago, said California Association of Realtors statistics. As home prices pushed ever more skyward, financiers -- and buyers -- have looked for ways to adapt.

Last week, the California Association of Mortgage Brokers issued projections for 30-year fixed rate mortgages to rise to an average of nearly 7 percent, and for 40-year fixed rate loans to become more popular in 2006, as buyers struggle with increasing issues of affordability. "A moderate increase in mortgage rates should not concern homebuyers," California Association of Mortgage Brokers president John Marcell said in issuing the association's annual Mortgage Forecast. "However, it is alarming that the housing affordability crisis will continue, making it difficult for first-time home buyers to qualify for adequate financing." To meet those challenges, more buyers may also turn to reverse mortgages, 100 percent financing and adjustable loans with low beginning interest rates that later fluctuate. Marcell warned that while some of those loans may make homeownership a reality for some buyers, they can be a risk for those who fail to educate themselves adequately.

New real estate branches were opening this year at breakneck speed, and the influx of new agents was unprecedented. By June 2006, the Department of Real Estate predicts there will be 500,000 licensed agents in California. Haney says the Monterey County Association of Realtors has a membership of 1,700, double the membership of 10 years ago. But even more telling is the rate of recent membership growth, she says -- 62 percent have been with the association five years or less, and the past year alone saw 421 new members.

Keller Williams Realty Carmel started the year with about 15 agents in temporary office space in a former La-Z-Boy recliner store. When the permanent office opened two weeks ago, a team of 90 employees moved into the site, said team leader Janet Reilly. A Salinas office is on the horizon as well. Reilly attributes that growth to a company model of strong training and strong rewards -- the Austin, Texas-based company says it is the fastest growing real estate firm in the U.S., with close to 55,000 agents nationwide. But the market itself -- and its potential payouts -- has proved irresistible to everyone from entry-level workers to corporate executives.

Salinas school teachers Patrick and Myriam Kennelly have parlayed the purchase of a rental home into new full-time careers with Coldwell Banker, specializing in Spanish-speaking clients. At least for now, they've taken leaves of absence from their jobs, but expect to return to teaching in the future. Their first home purchase, seven years ago, was a guacamole-green house in Soledad for $139,000. They were so strapped, they didn't have money for closing costs, and while they hated the color of the house, couldn't afford to repaint. So, Patrick Kennelly said, they asked themselves what went with guacamole and painted the doors, trim and picket fence "sour cream white." When ready to rent, they were too broke to advertise, so they put up a hand-lettered sign in the window. The Monterey couple bought a second home in 2000 for $145,000, which recently was appraised for $390,000, and have since sold to clients from Soledad to Marina. While there have been a few million-dollar homes, most of their customers are buyers "who need to put some sweat equity into their case." Kennelly said, "We deal with the hard cases, the people who don't think they're going to be able to buy a place."
"We found our work cut out for us among people who are working hard, making money, but don't really know the process of buying a home," he said. "When that market slows down, you can be sure Soledad, Marina, will still be chugging along, because the Latino community has a need to buy those homes."

But selling real estate is more complicated -- and more competitive -- than most people realize, and Haney said many agents spend more than they make for their first year. So like the market itself, the profession may be due an adjustment sometime soon. Real estate's always been, in the long run, cyclical, said Haney. It's just that this cycle happened to include the longest upward trend in history. But some of the characteristics of Monterey County, in particular slow growth and water issues, and workforce housing needs for the agricultural and tourism industries, may help insulate it from too much of a downturn. Haney predicts that, after the cooled-off winter period, buyers will start showing interest again by March, if not sooner. And people who got priced out of the market when home ownership slipped out of their reach may find themselves written back onto the pages of possibility. "We're going to see more changes in the real estate industry in the next two years," said Haney, "than we've seen in the past 10."

It's an industry that's evolving in other ways. RE/MAX's Aronson has just opened a satellite office in Carmel that addresses the shifting roles of agents and buyers. The Renowned Properties Luxury Home Information Center looks less like an office, more like a living room, with 50-inch flat-screen panels so that customers can relax with a cup of coffee while scrolling properties, take virtual tours of properties, get stock quotes on Bloomberg or pick up local magazines, newspapers and guidebooks. The new concept targets in particular the out-of-town visitor who may be leaning toward a luxury home in Pebble Beach or Carmel, but it's also a concession that would-be buyers are generally entering the process of home shopping much more educated as to the process.

"The typical buyer starts on the Internet ," he said. "They may look on the Internet for months before they actually want to contact an agent." Typical, says Aronson, is about 70 percent these days. It's also less intimidating, said Aronson, than a traditional sales office, "a nonthreatening environment where people can start learning about the process." Those who request so can get statistics and reports on the local real estate market and set up online searches for listings. Technology is key these days to making the process of buying and selling homes more efficient. Aronson can set up an automated search that forwards links to properties meeting a person's criteria at whatever interval they request, up to every two hours. Homeowners can also stay up-to-date about the property values in their neighborhoods. Customers can now call up area maps identifying their properties of interest, color coded by price, with detailed information on each site with the scroll of a mouse. In February, RE/MAX.com will launch its first international listings directory. It's a logical progression, particularly for a real estate brokerage that serves an international client base. But buyers closer to home, said Aronson, have also changed.
"The buyer today is far more sophisticated," said Aronson. More time online means buyers are more focused on what they want and on what they can afford. "In the old days," he says, "the average was to visit 15 houses. Nowadays, it's six or seven, because they've already sorted through everything." Aronson's office is the first of its kind among RE/MAX's international franchise. "We are pioneers," said Aronson. "We're trying something totally different -- we'll know in a year whether we've done the right thing." But no matter what, technology is just a tool. "You still have to get belly to belly," said Aronson. "People still have to go visit the property. We're trying to build relationships with people."

Monterey Herald, 12/20/2005.