There’s been a lot of press over the rise in foreclosures and decline in the nation’s housing market. The good news is that the worst hit regions seem to be those markets that were overheated a couple of years ago and prices rose far above what was the market could sustain. As those markets are correcting now, people who over-invested are looking at pretty significant losses. The bad news is that right behind those markets is the Michigan and Ohio Valley region where job losses have pulled the rug out from underneath the region’s housing market. And it’s even hit home here in Kent with foreclosures up and construction permits down. A local architect tells me that he gets calls from subcontractors all the time begging for some work. Here’s a little more inisght into the depth of the problem.
Real estate: More price drops, more layoffs
No light at the end of the tunnel in latest forecast from the Mortgage Bankers Association.
BOSTON (CNNMoney.com) — For those in the real estate industry and for those looking to buy or sell a home, it could take until 2009 to catch a break.
That’s the forecast from Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), who will present his outlook to an auditorium full of real estate professionals on Wednesday morning.
Duncan expects national median home prices to fall between 2 percent and 4 percent both this year and next. Prices will be held back by an oversupply of homes for sale, an increase in foreclosures and continued uncertainty among mortgage investors,
Duncan said that some markets will hold their own, but he singled out seven likely to be hit the hardest. They are: California, Texas, Arizona and Nevada, which drew a lot of investor speculation during the housing boom; and Ohio, Michigan and Illinois, where the economies have been hit hard by job loss.
For this year, Duncan is predicting a 22 percent drop in new home sales and a 12 percent drop in existing home sales, followed by a 10 percent drop in each next year. As home sales fall, Duncan also expects a drop of 15 percent in mortgage loan originations to $1.18 trillion this year, plus another 18 percent drop in 2008 to $1 trillion.
Come 2009, Duncan expects original loan volume to increase 5 percent.
“But given the oversupply of homes in a number of markets any significant increase in homebuilding is probably years off,” Duncan said in a statement.
The continued weakness will push those in the mortgage industry to further cut their workforce. On top of the 60,000 to 70,000 mortgage-related layoffs that have already occurred, Duncan expects to see another 30,000 to 40,000 by early 2008.
What? No good news?
There’s one group of home buyers, home sellers and loan originators who will have an easier time of it than everyone else: those dealing with “anything that’s conventional and conforming,” Duncan said. In other words, 30-year fixed rate mortgages for borrowers with good credit under the “jumbo” cutoff of $417,000.
His forecast for long-term mortgage rates: an increase from 6.4 percent currently to 6.6 percent by early 2008.
Builders’ confidence at all-time low
Home builders see weakest buyer traffic in 23-year history of trade group survey, outlook for future remains at record low as well.
NEW YORK (CNNMoney.com) — The nation’s home builders’ confidence in the battered market for new homes fell further in October, and a measure of their outlook remained at a record low level, according to the latest industry survey.
The National Association of Home Builders/Wells Fargo Housing Market Index showed the overall confidence measure sank to 18, the worst reading on record for the 23-year old monthly survey.
The trade group’s statement said the problems included decreased availability of subprime mortgages, a glut of new homes available for sale and reports about declining home values.
The builders’ expectations for the market six months from now came in with a reading of 26, matching the lowest reading on record that was set in September. And their view of current buyers’ traffic fell to a record low reading of 15.
“Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,” said NAHB President Brian Catalde.
The overall confidence reading reflects the eighth straight month in which that measure has declined. It has fallen sharply, and is down from a very strong reading of 74 only two years ago. A reading of 50 in any of the three measures indicates the number of positiveresponses from builders is equal to the number of negative responses.
Still, the builders’ trade group says that its members hope that they are at or near the bottom of the market.
“Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead,” said David Seiders, the group’s chief economist. “Indeed, NAHB’s housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year.”
Still Seiders concedes that there will be tough months ahead, as problems with subprime mortgages and uncertainty about the housing market keeps potential buyers stay on the sidelines.
“Consumers are still trying to sort out market realities and get the best deals they can,” said Seiders. “Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes. When the market is in proper balance, people can recognize a good deal when it comes along; at this point, they view a good deal as a moving target.”
The report is just the latest reading to show the home building and new home sales markets to be in serious trouble. In remarks Tuesday, Treasury Secretary Henry Paulson said that the housing decline is still unfolding and he termed it the most significant current risk to our economy.
“The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth,” he warned in prepared remarks.
Earlier Tuesday, lender Wells Fargo (Charts, Fortune 500), one of the nation’s first banks to report problems from rising defaults in subprime mortgages, took another $490 million charge for mortgages that have lost value. It also increased reserves to cover bad loans. In addition, leading home builder D.R. Horton (Charts, Fortune 500) reported that its fiscal fourth-quarter orders fell 39 percent, while the value of those orders plunged 48 percent.
Last month Lennar (Charts, Fortune 500), the nation’s No. 1 builder in terms of revenue, posted a much bigger than expected loss, and KB Home (Charts, Fortune 500) also reported a steep loss as it warned problems would continue into 2008. Last week credit rating agency Moody’s downgraded Lennar, Centex (Charts, Fortune 500) and Pulte Homes (Charts, Fortune 500) debt into junk bond status.
The survey comes the day before the government’s monthly report on housing starts and building permits. Economists surveyed by Briefing.com forecast that the pace of starts fell to an annual rate of 1.29 million in September from 1.33 million in August. That would mark a 12-year low for starts.
Permits, which are also taken as a sign of builders’ confidence, are forecast to fall to an annual rate of 1.3 million in September from 1.32 million in August. That would also mark a 12-year low.
Home prices drop for third straight quarter
Realtors report that markets are still softening
NEW YORK (CNNMoney.com) — U.S. home prices fell for their third straight quarter, according to an industry report released Tuesday.
The median price of a single-family home fell 1.8 percent to $212,300 for the three months ended March 31, compared with the first quarter of 2006, according to the National Association of Realtors (NAR).
It was the third consecutive quarter of decline, and prices are now down 6.5 percent from their peak of $227,100 in 2006.
The home price report revealed a broad but shallow pattern with prices declining over every region but by no more than 2.8 percent, which occurred in the Midwest.
The first-quarter drop follows an overall 2.7 percent slump in the fourth quarter of 2006, which was the biggest year-over-year drop on record.
NAR President Pat V. Combs said in a statement that the flattening in home prices is encouraging.
“It appears the worst of the price correction is behind us,” she said. “More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who’ve been on the sidelines.”
NAR’s senior economist, Lawrence Yun, also took an optimistic view of the report. “Essentially, we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction,” he said in a statement.
The trade group is still predicting a recovery during the second half of this year but overall, it has forecast that prices will end 2007 down, the first time prices fell over a full calendar year since NAR began compiling records in 1967.
NAR asserted that the price stats exaggerate the actual home price decline. Unit sales have fallen far more in high-priced areas than in low-priced ones, essentially shifting the mix and pulling down the median price nationwide, it said.
Some of the worst hit metro areas were in Florida, where Sarasota, in particular, got pounded. Single family home prices plummeted 12 percent there to $337,000. Palm Bay prices dropped 8 percent to $191,300 and Cape Coral 3.9 percent to $256,900.
Other metro areas around the nation that suffered particularly stiff drops included New Orleans (down 10.9 percent to $155,900) and Reno (-8.9 percent to $325,700).
Condo prices fell even more in some locales. Palm Bay condos plunged 22.0 percent to $119,700 and Cape Coral fell 17.9 percent to $242,900.
The top performing condo market was Salt Lake City, where prices grew by 25.6 percent compared with a year ago to $164,600. Another Mountain State metro area, Albuquerque, recorded a condo price gain of 17.9 percent to $147,100.
Unit sales also slumped. During the first quarter, homes – including condos – sold at a seasonally adjusted annual rate of 6.4 million units, down 6.6 percent from the 6.9 million annual rate of a year ago.
The most expensive market for single family homes continues to be San Jose. The median house there sells for $788,000, up 4.4 percent compared with last year.
Elmira, New York, at $75,300, recorded the lowest median home prices in the nation.
|NAR 1st quarter 2007 home prices|
|Metro Area||State||Median Price
1Q 2007 (000s)
|Cape Coral-Fort Myers||FL||256.9||-3.9%|
|Deltona-Daytona Beach-Ormond Beach||FL||197.0||-7.3%|
|Hartford-West Hartford-East Hartford||CT||255.0||1.8%|
|Little Rock-N. Little Rock||AR||122.5||-1.1%|
|Los Angeles-Long Beach-Santa Ana||CA||589.9||4.6%|
|Miami-Fort Lauderdale-Miami Beach||FL||385.3||2.0%|
|New York-Northern New Jersey-Long Island||NY–NJ–PA||463.7||1.0%|
|New York-Wayne-White Plains||NY–NJ||521.4||2.1%|
|Providence-New Bedford-Fall River||RI–MA||286.6||-0.2%|
|Saginaw-Saginaw Township North||MI||N/A||N/A|
|Salt Lake City||UT||206.9||12.3%|
|San Diego-Carlsbad-San Marcos||CA||595.2||-2.0%|
|San Jose-Sunnyvale-Santa Clara||CA||788.0||4.4%|
|Virginia Beach-Norfolk-Newport News||VA–NC||234.2||5.9%|