Which Way is the Market Going? (3)

This article from "Business Week" tackles the housing market's worries:

S&P Ratings News April 18, 2007, 7:36PM EST

Housing: Is the Worst Over?
S&P sees some tentative signs that the market is bottoming out, but it will take a while to get rid of excess inventory of unsold homes

by David Wyss From Standard & Poor's RatingsDirect

Like grief, a housing downturn is a multistage process. Stage 1 is denial: If I hold onto the house long enough, I'll get my price. For the U.S. housing market, this stage began in 2005 and ended in mid-2006. Stage 2 is anger: If I can't sell this house, I'll just cancel the sale of the house I was going to buy, and stay where I am. Cancellations of sales agreements now appear to have peaked. Stage 3 is acceptance: I'll get what I can and move on if necessary.

The U.S. housing market appears to be just now entering that third stage, which will probably continue through the rest of 2007. Sales will stabilize, but until the market finishes stage 3 and gets rid of the excess inventory of unsold homes, home prices will continue to drop.

Getting to stage 3 has been painful. In the current housing slump, starts have dropped to an average annual rate of 1.52 million over the past three months, from 2.07 million in 2005. The median existing home price is now down 3.1% from a year ago. By historical standards, however, the falloff in housing starts and sales is still moderate: In the average postwar recession, starts have plunged 50% from peak to trough and to a low of fewer than 1 million units. The decline in the median home price, though, is more uncommon, with the first year-over-year drop since the 1930s likely from 2006 to 2007.

Signs of a Thaw
And homeowners, particularly those with adjustable-rate mortgages, are feeling the financial pressure. Although the economy remains generally strong and unemployment low, higher interest rates are squeezing mortgagees who stretched too far to buy their homes.

Foreclosure rates are rising, though they're still moderate by historical standards.

The good news is some tentative signs indicate that the market is bottoming out, at least in terms of sales and starts. The winter is a bad time to look for signs (other than those that say "For Sale") because weather usually dominates month-to-month movements in sales and, especially, starts. Convincing evidence that the housing market has seen the worst won't appear until we get data on the spring buying season, which started in April.

But the early data suggest that starts are leveling out near 1.5 million and existing-home sales near 6.25 million. The inventory of unsold existing homes has come down to 3.55 million from 3.86 million in July.

Existing-home sales rebounded in January, to a seven-month high of 6.46 million (annual rate), but that remains down 4.3% from January, 2006, and is 8.7% below the record 7.08 million sales reached in the peak year of 2005. New home sales have been hit harder, plunging to a four-year low of 937,000 (annual rate) in January. That's down 20.1% from a year earlier.

Working on Affordability
The reason for the decline is that homes have essentially become more expensive. After all, for the average buyer, a home's price is the size of the monthly mortgage payment. As mortgage rates have risen to their current 6.2% (30-year conventional) from 5.5% three years ago, the effective cost of a house has risen nearly proportionately.

The change has pushed down the National Assn. of Realtors' affordability index (which is based on the monthly income required to qualify to buy the median existing home with a conventional mortgage) to 106.5 in the fourth quarter of 2006 from the record high of 136.5 in the first quarter of 2003.

What could improve affordability? For one thing, Federal Reserve rate cuts, which we expect to begin late this year, would make adjustable-rate mortgages cheaper, helping sales and moderating the impact of rate resets on adjustable-rate borrowers. However, just as the Fed's rate increases since mid-2004 have had little impact on long-term bond yields, and thus fixed-rate mortgages, Fed cuts will also have little impact on long-term rates.

Drag on the Numbers
Rate resets are normally capped in any year and have several more increases to go to catch up with the 4.25 percentage points in rate hikes the Fed has already imposed. Thus, even if the central bank begins to cut rates, resets will continue to push payments up.

Housing is the major factor slowing economic growth in the U.S. If not for the decline in residential construction activity, real GDP growth in the second half of 2006 would have been 3.4%, about even with the average of the preceding four quarters, instead of downshifting to 2.3%. We expect housing to subtract about a percentage point from growth in the first half of 2007. The indirect impact of housing on the economy, however, has so far been small.

Consumers haven't backed away from spending, with the personal saving rate remaining well below zero (negative 1.2% in February). The strong stock market has offset the lower increase in housing wealth. However, trouble could be around the corner if stock prices continue to fall.

Will Borrowing Slow?
One impact has been lower sales of building materials, furniture, and appliances, which are directly related to home purchases. Building material stores reported a 0.4% sales drop in January compared with a year earlier. Furniture sales were up 1.7%. That's below the 4.3% rise in overall retail sales, but at least it wasn't down. Appliance sales are hard to track because stores that sell them also tend to sell electronics, which have been very strong.

One of the biggest questions is whether the higher interest rates and slower rise in home equity values will trim borrowing. Because of home equity loans and cash-out refinancings, Americans have been using their homes as ATM machines. Last year, homeowners took $654 billion (nearly 7% of disposable income) out of their homes. Low interest rates make these loans cheap, especially because they're usually tax deductible.

So far, this activity doesn't seem to be tapering off very much. Refinancings remain high, though some of it probably stems from turning adjustable-rate loans into fixed rates as mortgage holders get the jitters. Moreover, Americans still have a lot of untapped home equity. In fact, the average loan-to-value ratio in the U.S. housing market has barely changed in recent years. It was 46% in the third quarter of 2006, compared with 42% at the end of 2001.

Some Possible Equations
Higher interest rates will probably cut down on borrowing, and thus—eventually—spending, but interest rates, rather than slower home price appreciation, will be the major force. Americans have no shortage of ways to borrow and seem determined to use all of them.
Our baseline U.S. economic forecast includes a two-year drop of 8% in the average existing-home price from the peak reached in early 2006. Along with the growth of income, this decline brings the ratio of home price to income back to 280% by 2010, still above its long-term average of 260%. If the home-price correction comes faster, however, it could help cause a recession. One possibility: Dollar weakness pushes up bond yields and thus mortgage rates, triggering a quicker drop in home prices.

In our alternative economic projection, we assume that bond yields rise sharply, carrying the mortgage rate up to 8% by the end of 2008. Home sales and prices plummet. The average existing home price tumbles 20% from its early 2006 peak, more than twice the decline seen in the baseline. Housing starts drop under 1 million units, a fairly typical recession falloff, by early 2008. The decline triggers a recession, starting in the fourth quarter of 2007.

The stock market drops sharply in response to both weaker earnings and higher bond yields, compounding the impact of lower house prices on wealth. The unemployment rate rises above 6% by yearend, instead of peaking near 5%, as in the baseline. Still, the recession is mild, similar to the 2001 or 1991 downturns.

Worst Case…and Beyond
This scenario is intended as a worst likely case. We believe it has about a 10% probability of occurring. The home-price correction would be severe, in fact unprecedented, at a national level. However, it would be similar to the size of declines seen in Texas in the mid-1980s or in New England in the early 1990s. Even so, the recession it generates is far from severe.

One exacerbating factor could be the subprime market. There's little question that lenders were too enthusiastic in lending money to people who were stretching to buy houses they perhaps shouldn't have bought. When investors become too complacent about risk, and get stung, they often overreact and become too cautious.

Legislative actions aimed at preventing foreclosure would increase losses to lenders and drive up the cost of mortgages. That could compound the effect of overcautiousness by making lenders even less willing to write mortgages. If mortgages are harder to get and more expensive, sales and prices could drop more, and a recovery in the housing market could become very difficult.

Of course, other events, such as oil price shocks or an overall recession, could make economic matters worse in the near future, and any of those possibilities would make our baseline scenario seem benign.

Wyss is chief economist for Standard & Poor's in New York.

Source: www.businessweek.com

Which Way is the Market Going? (2)

April 2007 Existing Home Sales Fall 2.6 Percent

May 25th, 2007 · No Comments

While this is not surprising, it explains some of the concern by real estate agents and brokers out there. Existing home sales dropped 2.6 percent for the month of April, 2007 as buyers stayed home.

The Northeast took the biggest hit losing 8.8 percent of it’s sales from the previous year. Sales in the West, South, and Midwest were tempered all down around 1 percent.

The National Association of Realtors reported Friday that sales of existing homes fell by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units. That was the slowest sales pace since June 2003.

The median price of a home fell to $220,900, an 0.8 percent fall from the midpoint selling price a year ago. It marked the ninth straight decline in the median price.

Sales were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8 percent in April from the March sales pace. Sales were down 1.7 percent in the West, 1.2 percent in the South and 0.7 percent in the Midwest. via Yahoo! Finance

Source: http://www.therealestatebloggers.com

Which Way is the Market Going?

Source: Crain’s Chicago Business

Percent Change in MSA (Metropolitan Statistical Areas) - House Prices through Q1 2007
Chicago-Naperville-Joliet, IL (MSAD)

MSA Rank* 1-Yr. 1-Qtr. 5-Yr.
109 5.06 0.86 47.80

Source: http://www.ofheo.gov/

Staging Your Home

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We'd love to hear any personal stories you might have on the matter.

Illinois Housing Statistics

Illinois Home Sales Rise Again in March; Statewide Median Price at $198,000

March home sales in Illinois rose for the second consecutive month in 2007 while a mix of factors including weather and consumer confidence add up to a drop in sales compared to the record for March set in 2006. Total home sales were up 36.2 percent in March 2007 to 11,979 homes sold compared to 8,792 homes sold in February 2007. Sales were 20.3 percent below the all-time high for March of 15,024 homes sold in March 2006.

The Illinois median home price in March was $198,000, up 0.1 percent from $197,900 a year earlier. The median is a typical market price where half the homes sold for more, half sold for less. Year-to-date, home sales were down 14.2 percent to 29,390 compared to 34,235 homes sold January through March in 2006.

“In March we experienced the usual jump into the spring season with sales up well over February but we’re definitely in a market that is still finding its legs. The severe weather in February and March certainly took a toll on housing activity in Illinois,” said Robert Zoretich, president of the Illinois Association of REALTORS. “Tentative buyers and sellers are still trying to read the market and are taking their time in deciding whether to list or buy. This is a time when market conditions including favorable mortgage interest rates and inventory levels bode well for those who are ready to purchase.” Read the full release.
Illinois Condo Sales Close Second Best Year on Record in 2006; Fourth Quarter Statewide Median Price at $199,900
Condominium sales help bolster an Illinois housing market in transition throughout 2006, while fourth-quarter sales figures were down compared to the same period a year ago. According to the Illinois Association of REALTORS (IAR) fourth quarter report, total home sales (which include single-family homes and condominiums) totaled 35,186, down 16.0 percent from 41,883 home sales in the fourth quarter of 2005. For the year, total sales were down 8.9 percent in 2006 with 167,860 homes sold compared to 184,199 sales in 2005. The fourth quarter 2006 median home sale price was $199,900, down a slight 0.5 percent from $201,000 a year earlier.

“The Illinois housing market reported a modest slowdown in sales compared to other regions of the country which had sharper declines due to overheated market conditions. Although local markets will vary, REALTORS are reporting signs of the market picking up and are looking for slow, steady gains in both home sales and price appreciation in 2007,” said IAR President Robert Zoretich. “The homeownership rate in Illinois reached 70.8 percent in the fourth quarter of 2006 and is slightly ahead of the national rate of 68.9 percent. Conditions in Illinois are promising for long-term demand going forward.”

Link to the 4Q06 release and year-end charts.
4Q06 All Sales Report
4Q06 Single-Family Report
4Q06 Condo Report

© Illinois Association of REALTORS®

The Facts About FSBOs

A close look at "For-Sale-By-Owner" (FSBO) datafrom NAR's 2006 Profile of Home Buyers and Sellers

Each year a small army of home sellers throw caution to the wind and “go it alone” — without the assistance of a licensed real estate professional.

This ever-decreasing band of risk-takers, ventures into the land of pricing, marketing, screening, scheduling, showing and paperwork, with the goal of saving some money. It's often an experience they find less than rewarding.

The numbers (if not the sellers) tell the story.

In 2006, just 12 percent of sellers chose the FSBO (“For Sale By Owner”) route, down from 13 percent the previous year, according to NAR’s 2006 Profile of Home Buyers and Sellers. This is down from about 20 percent in 1987.


But more telling than the decline in FSBOs is the fact that 40 percent of all FSBOs sold their homes to someone they knew prior to the transaction. This means that only 7 percent of all home sales are open market FSBO transactions. The rest are simply unrepresented sellers in private transactions.

From NAR's 2006 Profile of Home Buyers and Sellers

Eighteen percent of FSBO sellers indicated that preparing the home for sale was the most difficult task when selling without the assistance of an agent, followed closely by understanding and performing paperwork (16 percent) and selling within their desired time frame (15 percent).

As for profit — after all is said and done, FSBOs don’t always come out with fatter wallets. Again, the numbers tell the truth.

Homes sold with the help of a real estate professional in 2006 sold on average for 32 percent more than FSBO sales. The median FSBO selling price in 2006 was $187,200, compared with $247,000 for agent-assisted transactions.


Other FSBO Resources:Field Guide to Working With FSBOs2006 NAR Profile of Home Buyers and Sellers

Copyright NATIONAL ASSOCIATION OF REALTORS®Headquarters: 430 North Michigan Avenue, Chicago, IL. 60611-4087DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-20201-800-874-6500

Fourth Quarter Metro Home Prices & State Sales Likely Have Hit Bottom

WASHINGTON, February 15, 2007 -

Existing-home sales in most states were down from year-ago levels in the fourth quarter, marking the likely bottom for the current housing cycle, while prices in many areas corrected as a result of sellers’ willingness to negotiate, according to the latest quarterly surveys by the National Association of Realtors®.

Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate (1) of 6.24 million units in the fourth quarter, down 10.1 percent from a 6.94 million-unit level in the fourth quarter of 2005. Even with the general decline, six states showed increases in the sales pace from a year ago and one was unchanged. Complete data for three states were not available.

In the fourth-quarter, metro area single-family home prices, examining changes in 149 metropolitan statistical areas, (2) show 71 areas had price gains from a year earlier, including 14 metros with double-digit annual increases, and 73 areas had price declines; five were unchanged.

David Lereah, NAR’s chief economist, said it appears the fourth quarter was the bottom for the current housing cycle. “This information confirms 2006 was the year of contraction, and hopefully the fourth quarter was the bottom of this current business cycle,” he said. “Home sales are leveling at historically high levels, and examination of data within the quarter shows home prices stabilizing toward the end. When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices.”

The national median existing single-family home price was $219,300 in the fourth quarter, down 2.7 percent from a year earlier when the median price was $225,300. The median is a typical market price where half of the homes sold for more and half sold for less. For all of 2006, the median price rose 1.4 percent to $222,000.

A new comparison of annual single-family home prices in metropolitan areas shows that typical sellers experienced healthy gains on the value of their home over the last five years in almost all 131 available areas, even in areas with recent price declines.

NAR President Pat Vredevoogd Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt, said a broader view of home prices is necessary because housing is a long-term investment. “Since the typical owner stays in a home for six years, it’s more useful to look at the five-year comparison for metro area home prices – most of them are seeing strong gains,” she said. The median five-year price gain is 41.8 percent.

Combs said there’s a lag in measuring market conditions. “The fourth quarter data is showing us recent history, but right now, buyers are responding to seller pricing and incentives, and there’s a bit of a pent-up demand as a result of buyer hesitation during the second half of 2006. We’re not looking for big changes, but a gradual rise in sales and home prices is projected – that will be good for the overall housing market and related industries.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 6.25 percent in the fourth quarter, down from 6.56 percent in the third quarter; the rate was 6.22 percent in the fourth quarter of 2005.

The biggest total sales increase was in Indiana, where existing-home sales rose 13.7 percent from the fourth quarter of 2005. In Arkansas the fourth-quarter resale pace rose 11.1 percent from a year earlier, while Texas experienced the third strongest gain, up 6.2 percent.

Over the last five years, metro areas with the largest single-family price gains include the California areas of Riverside-San Bernardino-Ontario, up 155.3 percent, and Los Angeles-Long Beach-Santa Ana, up 142.3 percent, followed by the Miami-Fort Lauderdale-Miami Beach area of Florida, up 135.4 percent.

In the fourth quarter, the largest single-family home price increase was in the Atlantic City, N.J., area, where the median price of $339,800 was 25.9 percent higher than a year ago. Next was the Salt Lake City area, at $223,600, up 22.7 percent from the fourth quarter of 2005. The Trenton-Ewing area of New Jersey, with a fourth quarter median price of $289,000, increased 18.9 percent in the last year.

Median fourth-quarter metro area single-family prices ranged from a very affordable $78,400 in Elmira, N.Y., to nearly 10 times that amount in the San Jose-Sunnyvale-Santa Clara area of California where the median price was $760,000. The second most expensive area was San Francisco-Oakland-Fremont, at $733,400, followed by the Anaheim-Santa Ana-Irvine area (Orange Co., Calif.), at $690,700.

In addition to Elmira, N.Y., other affordable markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania, with a fourth-quarter median price of $80,000, and Decatur, Ill., at $89,200.

In the condo sector, metro area condominium and cooperative prices – covering changes in 58 markets – show the national median existing condo price was $220,900 in the fourth quarter, down 2.1 percent from the same period in 2005. Thirty-one metros showed annual increases in the median condo price, including seven areas with double-digit gains; 27 metros had price declines.

The strongest condo price gains were in the Austin-Round Rock area of Texas, where the fourth quarter price of $160,000 rose 16.5 percent from a year ago, followed by the Newark-Union area of New Jersey and Pennsylvania, where the median condo price of $352,600 rose 16.4 percent from the fourth quarter of 2005, and Springfield, Mass., at $160,400, an increase of 14.6 percent.

Metro area median existing condo prices in the fourth quarter ranged from $102,600 in Wichita, Kan., to $580,300 in the San Francisco-Oakland-Fremont area. The second most expensive reported condo market was Los Angeles-Long Beach-Santa Ana, at $402,000, followed by the San Diego-Carlsbad-San Marcos area of California at $358,200.

Other affordable condo markets include Bismarck, N.D., at $103,500, and Greensboro-High Point, N.C., at $119,100.

Regionally, the Northeast saw an existing-home sales pace of 1.04 million units in the fourth quarter, which was 6.6 percent below a year ago. The median Northeastern resale single-family home price was $274,600 in the fourth quarter, which is 2.5 percent below the same period in 2005.

After the Atlantic City and Trenton-Ewing areas, the strongest price increase in the Northeast was in Pittsfield, Mass., with a median price of $220,600, up 4.7 percent from the fourth quarter of last year, followed by the Albany-Schenectady-Troy area of New York with a median price of $198,700, up 4.1 percent.

Total existing-home sales in the South were at an annual rate of 2.49 million units in the fourth quarter, down 8.5 percent from the fourth quarter of 2005. After the gains in Arkansas and Texas, the next strongest increase in the South was in Kentucky, up 5.6 percent from a year ago, while Mississippi rose 2.0 percent.

The median existing single-family home price in the South was $181,700 in the fourth quarter, which is 3.7 percent below a year earlier. The strongest increase in the South was in the Beaumont-Port Arthur area of Texas, where the median price of $120,000 was 15.1 percent above the fourth quarter of 2005. Next was Raleigh-Cary, N.C., at $226,300, up 14.5 percent from a year ago, followed by the Cumberland area of Maryland and West Virginia, with a 14.4 percent gain to $98,000.

In the Midwest, total existing-home sales declined 8.6 percent to a 1.43 million-unit annual level in the fourth quarter compared with a year earlier. The median existing single-family home price in the Midwest was $161,800, down 4.2 percent from the fourth quarter of 2005.

The strongest metro price increase in the Midwest was in the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price of $116,400 was 6.6 percent higher than a year ago. Next was Dayton, Ohio, at $119,500, up 5.9 percent from the fourth quarter of 2005, and Rockford, Ill., at $121,500, up 5.7 percent in the last year.

In the West, the existing-home sales pace of 1.28 million units was 17.8 percent lower than the fourth quarter of 2005. The best performance in the region was in Alaska where existing-home sales rose 0.4 percent from a year earlier.

The median existing single-family home price in the West slipped 0.4 percent to $355,100 during the fourth quarter. After Salt Lake City, the strongest increase in the West was in the Salem, Ore., area, at $223,100, up 14.9 percent from fourth quarter of 2005, followed by Farmington, N.M., at $183,000, up 14.0 percent, and Spokane, Wash., at $189,200, up 12.2 percent from a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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(1)The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing. NAR began tracking the state sales

© Copyright NATIONAL ASSOCIATION of REALTORS®