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Latest Market News

Commentary: Housing report sees nasty fall

By Linda Rawls

Palm Beach Post Staff Writer

Monday, September 11, 2006

There hasn't been much good news to report lately on the real estate beat. If you think you've seen the worst, however, a leading global financial services company says you ain't seen nothin' yet.

"We believe the housing market is still in the early innings of a hard landing that will likely take several years to develop," Credit Suisse says in a scathing analysis of housing market indicators. The report, released Wednesday, bears the bold headline, "Data Masks Grim Reality."

More business news

Credit Suisse says the "macro data" - housing starts, new-home sales and existing-home sales - have obscured what's really going on in real estate markets: "a correction that has already erased nearly half of the industry's market capitalization."

The report predicts we are going to see falling home prices sooner rather than later, starting with this month's new-home-sales report. Existing-home prices also will tumble before the year is out, the report says.

"These declines should spook the market and will likely have a significant psychological impact on homeowners as they read about their net worth declining in the Sunday newspaper."

Or Monday's.


Real estate bull David Lereah, chief economist for the National Association of Realtors, not only is predicting home prices will fall, he's calling for sellers to lower their asking prices. Startling many real estate professionals, Lereah told The Wall Street Journal: "I'm hoping for prices to drop.... The sellers are not bringing prices down fast enough. They've been very stubborn."

Starting to sound familiar?


The current issue of Business Week has a chilling cover story called "Nightmare Mortgages." The online version has a chart called the "Map of Misery," which shows — state by state and in select coastal markets — the percentage of home loans that are option adjustable-rate mortgages.

In Palm Beach County, a startling one-fourth of all purchase and refinance loans are "option ARMs," a type of mortgage the story calls "the riskiest and most complicated loan product ever created." In Florida, only Naples tops Palm Beach County, with 27 percent.


Mortgage News Daily

reports that the Association of Community Organizations for Reform Now has just issued the results of a large study of mortgage lenders in 130 metropolitan areas nationwide. The lenders surveyed account for 65 percent of all home mortgages originated last year, and 55 percent of all subprime loans (loans for borrowers who don't qualify for conventional loans at standard rates).

The results are shameful.

The report notes that mortgage buyers Freddie Mac and Fannie Mae estimate at least one-third of all subprime borrowers could have qualified for lower-cost mortgages. They just didn't know it — and their lenders didn't tell them.

Low-income borrowers aren't the only folks who were pushed into high-cost loans, the study says. Upper-income black borrowers overall were three times more likely than their white counterparts to receive high-cost loans. And in 15 metropolitan areas, they were five times more likely to receive high-cost purchase loans than upper-income white borrowers.

Home-price increases slow

By Linda Rawls

Palm Beach Post Staff Writer
Wednesday, September 06, 2006

Palm Beach County home-price growth slowed in the second quarter compared with last year in the steepest three-month decline on record, according to a government report released Tuesday that shows the housing slump deepening.

Prices for single-family homes in Palm Beach County rose a record-low 1.27 percent during the second quarter, dramatically down from 8.1 percent for the same period last year, said Andrew Leventis, an economist with the Office of Federal Housing Enterprise Oversight, which released the report.

That decline is believed to be the biggest drop since the office began reporting home-price appreciation in 1975, Leventis said. "That's a dramatic drop in your neck of the woods," he said.

The report, released by the agency that oversees mortgage giants Fannie Mae and Freddie Mac, is based on repeat sales and refinancings of single-family homes. That means it tracks actual values placed on homes by lenders rather than using surveys and other techniques also used to evaluate the real estate marketplace.

Palm Beach County's one-year home-price growth - 20.57 percent - ranks 22nd out of 275 metropolitan areas, the federal report said. The county's five-year home-price growth of 138.39 percent puts it among only a handful of areas with triple-digit increases for that period.

Although on its face that sounds like good news, it's offset by a dramatic drop in the number of homes sold year over year and a huge expansion in inventory. The number of homes for sale in Palm Beach County rose to 22,206 in July from 7,701 in July 2005, according to a local real estate firm's review of the Multiple Listing Service.

"Higher interest rates and greater inventory levels are apparently having a significant impact, with the largest effects being felt in areas that have recently experienced the greatest appreciation," the housing enterprise oversight office report states.

Indeed, the report singles out Arizona and Florida - states with the greatest appreciation for the past two years - to illustrate the old saw that the higher they rise, the harder they fall.

"While both states saw tremendous overall appreciation, a steady price deceleration has been under way since the spring of 2005," the report says.

The OFHEO Housing Price Index analyzes more than 31 million repeat transactions since 1975 in the combined database of Freddie Mac and Fannie Mae. For 2006, the maximum allowed mortgage for those government-chartered institutions is $417,000, so the index excludes sales with mortgages for more than that amount.

There is another important aspect of Fannie Mae and Freddie Mac that suggest the results shown in the Palm Beach County report, in particular, should be evaluated with caution, an analyst said Tuesday. "Fannie and Freddie," as they're known in the mortgage industry, have low shares of adjustable-rate mortgages, the analyst said, but Palm Beach County's share of adjustable-rate mortgages is high.

"The last estimate I saw was about 57 percent for purchase loans," said James Lawler of Vienna, Va.-based Lawler Economic and Consulting. "The OFHEO index for your area would contain very few observations."

Nationwide, home-price growth in the second quarter also slowed from a year earlier by the sharpest decline on record, the report shows. Single-family-home prices nationwide rose 1.17 percent in the second quarter, down from 3.65 percent in the second-quarter of last year.

"That's a very high drop, the highest since we started keeping records," said Leventis of the OFHEO.

Annual appreciation rates in the single digits are on the horizon, the report suggests - something Florida and Palm Beach County haven't seen since at least the start of the five-year housing boom. Analysts say a return to single-digit appreciation rates is healthy.

For the past 50 years, U.S. home prices have risen an average of 5 percent a year, according to Freddie Mac, the No. 2 U.S. mortgage buyer. This year, home prices are expected to rise 3.2 percent, nearly 75 percent less than last year's 12 percent rate, according to Fannie Mae, the largest U.S. mortgage buyer.

No matter how healthy single-digit appreciation might be, the OFHEO report adds further weight to recent reports of a housing slowdown.

Second-quarter existing home sales plunged 36 percent in Palm Beach County, 27 percent in Florida and 7 percent nationwide, Realtor associations reported last month. Median prices of existing homes in the second quarter rose only 1 percent in Palm Beach County, 9 percent in Florida and 4 percent nationwide, the associations also reported.

Meanwhile, contracts to buy existing homes plunged in July more than any month since the terrorist attacks, the National Association of Realtors reported last week, while new-home sales plummeted 22 percent over the previous year, the U.S. Department of Housing and Urban Development said last month. New-home prices rose a mere 0.4 percent.

Finally, home-builder confidence fell in August to its lowest level since 1991.

Bloomberg News contributed to this story.

Daily Real Estate News

September 13, 2006

Home Prices to Keep Falling in '06, NAR Says

Home prices are expected to continue on a modest decline for the remainder of the year the seller's market transitions to a buyer's market, the NATIONAL ASSOCIATION OF REALTORSŪ testified today at a Senate committee hearing.

Yet, contrary to some news reports, there is no housing bubble, and the slowdown is actually a good thing for many local economies, NAR president Thomas M. Stevens said at the hearing, titled "The Housing Bubble and Its Implications for the Economy."

"After five years of outstanding growth, the housing market is undergoing a period of adjustment and becoming more and more of a balanced market between buyers and sellers," he said.

Many Local Markets Still Going Strong

Even with falling demand and increased supply, home prices are still appreciating although at no where near the double-digit rates of the past few years. "While recent developments raise concern, it is important to remember that the housing market varies significantly across the country," Stevens said.

One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont, and many states in the South, excluding Florida. States that experienced the greatest increases in home prices in recent years are experiencing significantly lower sales. These states include Arizona, California, Florida, Nevada, and Virginia.

Also contributing to the cooling housing market is a nearly one-point increase in mortgage rates, speculative investors pulling back, and first-time buyers being priced out of the market.

"Pressure is being felt in the housing market due to rising mortgage rates," Stevens said. "Home buyers have become exhausted financially, which explains why sales have tumbled in higher-priced regions of the country."

Sales to Fall 8% This Year

NAR forecasts a drop in home sales of around 8 percent in 2006, followed by another 2 percent decline in 2007. The forecast takes into account stabilizing mortgage rates and a modest economic expansion. However, a significant shift in interest rates or a change in the economy would alter the forecast.

Slow home-price growth — of less than 3 percent in 2006 and 2007, also is predicted.

NAR notes that a soft landing is possible under the right circumstances and affordable mortgage financing is an important component in achieving this.

"Because the housing market strongly supports the economy and drives consumer spending, it is imperative that the Congress adopt policies that encourage home ownership and make purchasing a home obtainable for the millions of families who desire to own a home," Stevens said. "NAR stands ready to work with Congress to continue to open the door to the American dream of home ownership."

These stories are from the Palm Beach Post