Tuesday, March 21, 2006

3/21 FHPN Real estate slowdown, Spring clearer look at fundamentals, speculative psychology tipping point

"FHPN," "Fair, Honest, Principled News," is a regular feature which gives links and excerpts, with bold emphasis added for key points, from selected recent stories, often focused on a single important theme, and my bold italicized comments. See 3/11 "Digests of my previous posts for busy people" link for blog's core ideas.

This edition of FHPN focuses on real estate, which we will continue to regularly publish on. The 3/20 edition, link, focused on income inequality.

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3/16 MarketWatch "Fed won't act to preserve high home prices: Kohn 'Greenspan put' theory doesn't stand scrutiny"link "The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. "If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions," Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany"

3/14 CNNMoney "Mortgage rates up...affordability down Interest rates are the highest in years, helping to make housing markets even more overvalued" link " a report released Monday from Global Insight, a financial information provider, and National City. The report figures 71 of the 299 largest U.S. housing markets were "extremely overvalued" at year's end, up from 62 markets a quarter earlier ... a jump in interest rates from 6 percent to 7 percent on a 30-year loan adds about 10 percent to a monthly mortgage bill ... California and Florida accounted for 18 of the 20 most overvalued markets ... Undervalued markets are much less common and tend to be priced only slightly below where they should. They're especially common in Texas; eight of the top 10 are in the Lone Star State"

3/11 AOL/WSJ "Millions Are Facing Monthly Squeeze On House Payments Many Adjustable-Rate Loans, Popular in Recent Years, Will Soon Be Reset Higher" link "More than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007 ... A recent study ... projects that about one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans ... About 1.4 million of those households face a jump of 50% or more in their monthly payments once their initial low-payment periods run out, Dr. Cagan says, and an additional 1.6 million face smaller increases that are still likely to strain their finances. Assuming that home prices stay around current levels and interest rates don't rise sharply, Dr. Cagan figures about one million households eventually will default and lose their homes to foreclosure. That would cause about $110 billion of losses for lenders, he says ... "It will be spread out over several years."

3/16 USAT "Home loan delinquency rate shows increase" link "homes going into foreclosure reached alarming levels in a handful of Midwest states — Ohio, Indiana and Michigan ... Ohio had the highest number of loans in foreclosure for the second year in a row. In addition to layoffs at auto and steel factories, residents have fallen victim to predatory lenders ... The rates of new foreclosures in Michigan, Indiana, Wisconsin and Georgia are at their highest since 1979. "This is evidence of a structural change — an economic chain reaction,""

3/15 Reuters "Home builder sentiment sours in March: report" link "An index of U.S. home builder sentiment fell in March to the lowest in nearly three years in response to rising mortgage rates and softening demand ... The confidence level, however, remained above the midpoint that indicates the majority of builders still see conditions as positive in their markets ... NAHB Chief Economist David Seiders ... attributed March's decline to eroding affordability conditions, as well as a gradual withdrawal of investor demand in some areas."

3/8 LAT "Homeowners Expect Prices to Keep Rising" link "according to a Los Angeles Times/Bloomberg poll. More than one-quarter of those who have adjustable-rate mortgages say they aren't sure they'll be able to make their monthly payments if their interest rate goes up ... The median price of existing U.S. homes sold in January was $211,000, down from a record high of $220,000 in August ... nearly half of homeowners expected the price of their primary residence to rise 5% to 15% over the next three years. Twenty-five percent expected appreciation of 16% or more in that period. Just 5% predicted no price increase ... 36% of all respondents ... expected homes in their neighborhood to increase in the next six months, while 49% expected prices to stay the same. A minority of 14% predicted a decline in prices in that period. In the West, 43% of respondents predicted rising prices in their neighborhood in the next six months."

3/15 SEW "Finding the Values of U.S. Homes" link "Zillow is a free service that's very easy to use. Simply enter an address, street or neighborhood together with a city, state or zip code, and Zillow searches through the information it has compiled on more than 60 million residential properties in the U.S. to provide you with an approximate valuation of the property. Results are displayed on a map that you can zoom in or out or drag around ... Zillow was created by Rich Barton and Lloyd Frink, founders of pioneering online travel service Expedia.com."

3/19 Bloomberg "Homeowners may cut spending in 2006 Cooler housing market slows borrowing against equity" link "This year, home-equity extraction will drop 50%, according to Freddie Mac ... Incomes and credit-card borrowing won't increase enough to compensate, meaning consumer spending will slow and hold back economic growth ... [Wealth effect] alone boosted consumer spending $120 billion in 2005, contributing a full percentage point to economic growth."

3/15 CNNMoney "MBA: U.S. demand for home loans slips Industry group's index shows a 0.2% decrease, citing multiyear highs on 30-year rates; refinancing applications also dip" link "The group's seasonally adjusted index of refinancing applications decreased 1.9 percent to 1,583.6 compared to 1,614.4 the previous week. A year earlier the index stood at 2,267.5. The MBA's seasonally adjusted purchase mortgage index rose 1 percent to 403 from the previous week's 399. The index, considered a timely gauge of U.S. home sales, was below its year-ago level of 462.8."

3/18 LAT "Housing Speculators Relocate to Hotter Spots Some who scored with L.A.-area property take their profits to Las Vegas and Arizona. Their flight may soften the local market's landing" link "Close to 40% of the homes in Maricopa, Pinal and Pima counties, which include Phoenix and Tucson, were bought by absentee owners as investments or second homes last year ... Speculative buyers helped pump up Phoenix's median home price by a whopping 40% in 2005, the highest growth rate in the nation ... speculators with less staying power are beginning to sell in larger numbers ... Since August, the supply of homes for sale in Maricopa and Pinal counties has more than doubled ... looking to sell now because they are having trouble finding renters willing to pay enough to cover their mortgages."

3/17 CCT "Bay Area housing market cools House and condos sales were up last month over January, but well down from previous year; also, units are not selling as fast" link "The Bay Area real estate market eased off the brakes slightly in February, but sales remained at their lowest level in five years and prices continued to flatten ... [sales] up 3.4 percent from January, but down 16.8 percent from a year ago -- making February the 11th straight month of year-over-year sales declines ... [price] flat compared with six months ago, and the annual increase was the lowest rate since January 2004."

3/15 LAT Home Prices Hit New High Southern California's median rises to $480,000 in February, but the number of sales is down link "In February, the median home price in the six-county [Socal] region up 12.9% from a year earlier ... the number of homes sold in February was the lowest in five years ... sales declined 7% from a year earlier and 0.9% from January. It was the third month in a row that sales fell from the previous year ... it would take about 19 weeks to sell all the homes on the market in Los Angeles and Orange counties today ... up from 12 weeks a year earlier ... New homes remained in high demand in February as sales rose 19% from a year earlier ... But new-home prices declined in Los Angeles and Orange counties, falling 5.4% and 21.5%, respectively ... Analysts were reluctant to draw too many conclusions from January's and February's results, saying that by the end of this month a more accurate picture should become apparent. By then, the market will be entering the spring selling season."

3/14 SDUT "Home prices rise, but sales keep cooling Tight lending, higher rates are catalysts in slowdown" link "San Diego County home prices ... 6.4 percent higher than a year ago ... the volume of sales in February declined for the 20th straight month ... down 16.8 percent from a year earlier ... unsold listings stand at their highest level in eight years of record keeping. It's taking an average of 68 days to sell a single-family home, up from 59 days a year ago ... “Once we have March figures, we'll have a much better indication of what's going on,”

3/21 CSM "Homeowners stretched perilously" link "More than one-quarter of Boston's mortgage-holders appear to be stretched thin financially, spending at least half their income on housing, according to an analysis of census figures. That's more than twice the national average and the highest of any major city except Miami ... Foreclosure filings in the county that includes Boston nearly doubled in January from a year ago."

3/20 AFP "Shanghai's sizzling property market fizzles" link "prices slumping more than 30 percent for some apartments and increasing reports of mortgage defaults ... saw prices double in the three years from mid-2002. But housing prices began sliding in June last year after the government introuced a package of tightening measures for the runaway sector ... imposed nationwide varying capital gains taxes linked to the length of a buyer's holding period, the banning of pre-completion sales and a tightening of land-use rights. Under pressure from the central government, Shanghai enacted even stiffer regulations, requiring homeowners to pay off their existing mortgages before selling a property ... loans now require a downpayment of 30 percent of the price, up from 20 percent."

3/21 OCRegister "Home prices 'soft landing' can hurt If growth in real estate jobs stalls, economy might follow suit" link "This year, the local housing market has started off slowly. Prices are still at last August's level. And sales activity hasn't been this sluggish since 1997 ... Pimco's anxious about the end of hyper-appreciation. Simon suggests that simply a return to modest home gains – 5 percent a year – could result in 25 percent fewer home sales across the nation ... real estate of all sorts employed ... up almost 80 percent since 1995 ... 17 percent of all workers employed in Orange County ... Orange County real estate businesses employ practically twice the work force of bosses running factories."

3/13 Reuters Housing market expected to slow in 2006 link "House prices should increase about 5.8% this year, far below the double-digit appreciation posted in recent years, as mortgage rates rise and buying slows, a trade group said Monday. The National Association of Realtors ... Resales of U.S. homes will likely decline 5.7% to 6.67 million in 2006 from the record 7.08 million in 2005. new-home sales should fall 7.7% to 1.18 million from a record 1.28 million in 2005. Still those sales levels would be the third highest after 2005 and 2004, the group said. Housing starts should hit 1.98 million this year, down from 2.06 million in 2005, the group said."

3/19 USAT "Slowing home market to ripple through job market" link "Almost four out of every 10 jobs created in the past four years were in housing-related fields. At the end of last year, a record 9.8% of U.S. workers were employed in the real estate industry, up from 8.2% a decade ago, according to Moody's Economy.com ... So far, the economic impact of the downturn in housing has been soft. Other sectors of the economy are adding jobs."

3/16 "U.S. Housing Starts Fall 7.9% to 2.12 Million Rate in February"link ""With a lag we should see housing starts fade. The second quarter will really tell the tale.'' ... Changes in housing starts can lag fluctuations in sales by six months to a year, economists said. New home sales peaked in July."

3/16 MarketWatch "Housing starts retreat in February Sales drop to 2.12 million units from 12-year high in Jan" link "Real-estate experts say it will take until April or May to get a sense of how much the sector will slow ... economists say that a slowdown in housing starts is coming ... housing starts lag home sales, which are falling. And warm weather supported starts, Shepherson said. Economists at Barclays Capital noted that starts are a supply-side indicator of activity. Demand-side measures, including mortgage applications and home sales have been slowing recently."

3/14 AP "U.S. Seeks More Control Over Fannie Mae" link "The Bush administration and a key House lawmaker on Tuesday cited the investigation that found a breakdown in financial controls at Fannie Mae to bolster their push for tighter federal control of the mortgage giant and its government-sponsored sibling, Freddie Mac."

FHPN: Comment to be added shortly.