Realtors' Forecast Bucks Conventional Wisdom

Bucking conventional wisdom, a trade group for real estate agents on Monday said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales.

The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million - the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year.

The Realtors' group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month's prediction of 5.69 million.

Numerous other economists, however, are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.

Mark Zandi, chief economist at Moody's Economy.com, predicted at a housing forum last week that, if the economy slips into recession or if efforts to prevent foreclosures don't pick up substantially, the housing market downturn could last through the end of the decade.

The trade group's chief economist, Lawrence Yun, cited job growth and the replacement of subprime lenders to borrowers with weak credit with government-backed loans as reasons for the improved outlook.

"Despite over-exaggerated negative coverage on the housing conditions, many local markets are actually seeing price increases," Yun said at a press briefing. "Mortgage availability is improving"

The trade group also said its index that forecasts near-term home sales inched upward in October. The trade group's seasonally adjusted index of pending sales for existing homes rose 0.6 percent to 87.2 from an upwardly revised September index of 86.7, but was down 18.4 percent from a year ago - the third-largest year-over year decline on record.

The Realtors group also said the median price for U.S. existing homes - the point at which half sold for more and half for less - will sink by 1.9 percent to $217,600 this year and rise 0.3 percent next year to $218,300.

If median prices fall this year, it will be the first price decline in the nearly 40 years that the trade group has tracked that data.

Other ways to measure national housing prices, such as the S&P/Case-Shiller index, have already shown price declines.

A government index of national home prices in the fourth quarter marked a quarterly decline for the first time in 13 years in the third quarter.

Home prices dipped 0.4 percent nationwide in the July-September period, compared with the previous quarter, the Office of Federal Housing Enterprise Oversight said last month, citing weakening prices in much of the country.

Compared with the third quarter of 2006, U.S home prices posted an increase of 1.8 percent, but it was the smallest year-over-year increase since 1995, according to the agency, which oversees the big mortgage-finance companies Fannie Mae and Freddie Mac.

California new-home sales sink 46% in October

New-home sales dropped 45.6 percent in California while median new-home prices fell 10.8 percent in October compared to October 2007, the California Building Industry Association and Hanley Wood Market Intelligence reported today.

The groups reported 3,292 new-home sales statewide for all new-home types in October, down from 6,047 sales in October 2006, according to the report. The median price across all new-home types was $405,900, down from $455,000 in October 2006.

Single-family new-home sales fell 37 percent, from 4,075 in October 2006 to 2,568 in October 2007, while the median price of single-family new homes fell 12.9 percent, from $461,400 in October 2006 to $401,990 in October 2007.

Among those market areas with more than 100 sales in October, sales for all new-home types fell 75 percent in Sacramento compared to October 2006 and dropped 54.1 percent in Santa Ana-Anaheim-Irvine, 51 percent in San Diego-Carlsbad-San Marcos, 47.6 percent in Bakersfield, 41.4 percent in Los Angeles-Long Beach-Glendale, 34.5 percent in Oakland-Fremont-Hayward, 28.6 percent in Riverside-San Bernardino-Ontario and 10.7 percent in Fresno.

The median price for all new-home types in the Fresno area dropped 14.1 percent year-over-year in October, and fell 12.2 percent in Riverside, 10.7 percent in Bakersfield, 6.3 percent in Sacramento, 1 percent in San Diego, and 0.6 percent in Los Angeles while rising 0.5 percent in Oakland and 13.5 percent in the Santa Ana market area.

New condo sales dropped 70.6 percent in California year-over-year in October, falling from 1,481 in October 2006 to 436 in October 2007. And the median price of new condos in the state dropped 1 percent, from $415,000 in October 2006 to $411,000 in October 2007.

Sales of new townhomes and plexes (duplexes, triplexes, etc.) dropped 41.3 percent, from 491 in October 2006 to 288 in October 2007, while the median price of new townhomes and plexes dropped 11.3 percent, from $469,000 in October 2006 to $415,900 in October 2007.

Jonathan Dienhart, director of published research for Manley Wood Market Intelligence, said in a statement, "There doesn't currently seem to be an end in sight in regards to the problems in the mortgage industry. The market must once again find equilibrium; that can only happen when more home buyers gain access to credit again, and home prices have relaxed to the point where they can still qualify for a mortgage under more strict lending guidelines."

He added, "If potential home buyers are convinced it's a bad time to purchase a house, there is only so much that pricing and credit options are going to help. Consumers need to regain their confidence regarding housing before we will see widespread recovery."

And Robert Rivinius, president and CEO for the state builders' group, said in a statement, "As of this week, the latest projections are that the state's budget next year will be $14 billion in the red -- with much of the deficit directly linked to the continued weakness in the housing sector."

New-home sales and prices, October 2007, all new-home types

House ponders mortgage bankruptcy bill

Committee to vote Wednesday; lending industry opposed to proposal, which would aid bankrupt homeowners by letting judges reduce their loans.

WASHINGTON (AP) -- A House committee is scheduled to vote Wednesday on legislation that would permit judges to shrink the size of home loans for bankrupt homeowners - a mortgage-mess remedy supported by consumer advocates and ardently opposed by the lending industry.

Many Democrats say the proposal is a better way to help homeowners than a plan to freeze interest rates announced by the Bush administration last week and negotiated with lenders and investors.

Mortgage-industry leaders say the proposed legislation would open a floodgate of bankruptcy filings, further threatening the industry's already shaky footing. Lenders, they argue, would be forced to charge higher rates to offset any unpaid loan balances that would be reduced in court.

The House Judiciary Committee's hearing is scheduled for 10:15 a.m. EST. The bill is unlikely to head to the full House until next year, but could gather steam as Congress faces increasing pressure to do something about mounting foreclosures and defaults.


Under existing law, judges can't modify loan terms on a borrower's primary residence, but can do so for mortgages on second homes.

Democrats have pushed for legislation to extend a bankruptcy judge's so-called 'cramdown' power to primary home loans. Doing so, advocates say, could help more than 500,000 homeowners avoid foreclosure.

The bill up for consideration Wednesday is a compromise between House Judiciary Committee Chairman John Conyers, D-Mich., and Rep. Steve Chabot, R-Ohio.

It would apply to subprime loans made since 2000 to borrowers with shaky credit, and other nontraditional loans, such as those in which borrowers only make interest payments.

The bill "assists a broad category of homeowners who would not otherwise benefit" from the Bush administration's proposal, Conyers said in a statement Tuesday.


The Center for Responsible Lending, a Durham, N.C.-based consumer group, estimates that 145,000 households will qualify for the administration's rate freeze. Mark Zandi, chief economist with Moody's Economy.com, calculates that about 250,000 borrowers will likely benefit from it.

President Bush, announcing the initiative last Thursday, said 1.2 million homeowners could be eligible for relief, which includes the rate freeze and efforts to helping people refinance into more affordable mortgages.

Financial markets have been turbulent for much of the year amid worries about the growing scope of losses in investments tied to residential mortgages. On Tuesday, the chief executives of government sponsored mortgage-finance companies Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500) warned the suffering isn't over for their ailing mortgage-finance companies.

Freddie's CEO, Richard Syron, said the McLean, Va.-based company could lose an additional $5.5 billion to $7.5 billion over the next few years from soured home loans.

Mortgage applications rise

Despite a jump in interest rates, the Mortgage Bankers Association's application index increases in latest week to 811.8 from 791.8.

WASHINGTON (AP) -- Mortgage application volume increased 2.5 percent for the week ending Dec. 7, according to the trade group Mortgage Bankers Association's weekly application survey.

The MBA's weekly application index rose to 811.8 from 791.8 the previous week.

Refinance volume increased 4.3 percent, while purchase volume grew 1.7 percent. Refinance applications accounted for 57.6 percent of total mortgage applications during the week ending Dec. 7, compared with 56 percent during the prior week.

The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 811.8 means mortgage application activity is 8.118 times higher than it was when the MBA began tracking the data.

The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.

Mortgage applications rose despite a jump in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages grew to 6.07 percent during the week ending Dec. 7, from 5.82 percent during the prior week.

The average interest rate for one-year adjustable-rate mortgages increased to 6.31 percent from 6.28 percent.

Top 5ive Mortgages to Avoid

SHOPPING AROUND FOR a mortgage is nothing short of confusing. Thanks to plenty of innovative products on the market, a consumer has more than 50 loans to choose from. "While there is a mortgage out there for everyone, not every mortgage is right for every consumer," says Mark Lefanowicz, president of E-Loan, an online lending site. And now that the real estate market is softening, there's no guarantee that home prices will continue to appreciate — at least not over the next few years. So buyers need to be particularly wary and not take on additional risk.

Here are five popular, yet risky, loans that the average consumer should avoid.

1. The Multiple-Choice Mortgage

Product: The Pay-Option Adjustable Rate Mortgage (ARM)
Why You Should Avoid It: Could end up owing more than you borrowed.

This is considered the riskiest mortgage around. The pay-option ARM offers borrowers a low initial interest rate and then allows them to choose one of four monthly payments. On the more conservative side, homeowners can opt to write a check for both the interest and principal on a fully amortized loan. On the other end of the spectrum, borrowers can make a payment that's so small it doesn't even cover all of the interest due on the mortgage.

While some advocates argue these mortgages are good for people with modest salaries but large bonuses — think Wall Street — many average home buyers are taking advantage of them, too. And that spells trouble. It's simply too tempting to make that minimum payment when families have others bills to pay off. The risk? In just a few months a homeowner could find he's "upside down" in his loan, warns E-Loans Lefanowicz. That means he owes more to the bank than he initially borrowed.

2. Cash-Out Financing

Product: 103s, 107s, and 125s
Why You Should Avoid Them: Can't count on home appreciation to build equity.

Think of it as easy money. Lenders now allow homeowners to take out a mortgage for more money than a home is actually worth. Consumers can borrow an extra 3%, 7% and even 25% of a property's value to help fund closing costs and renovations or even pay off credit-card debt.

Here's the rub: If a home doesn't appreciate in value enough to cover the total amount of the loan, a homeowner could end coughing up the extra cash to pay off the mortgage upon moving. This wasn't considered too risky a few years ago when the real estate market was hot and home prices were moving higher by the day. Now, however, all data point to a softer market with fear of a correction ahead, says Celia Chen, director of housing economics at Economy.com. As for interest rates, borrowers should expect to pay through the nose. Lenders will often charge 50% more for one of these highly leveraged products, says Lefanowicz.

3. Adjustable Rate Mortgages (ARMs)

Product: One-Year and Three-Year Fixed-Rate ARMs
Why You Should Avoid Them: Tough on budgets, since the monthly payments are variable in just one to three years.

Call this the high-risk, little-reward mortgage, at least in today's rising interest rate environment. Here's how they work: Borrowers lock in a slightly lower interest rate for the first one to three years. The product then readjusts every year in tandem with highly volatile short-term interest rates. Since 2004, the one-year ARM has increased two percentage points to 6% from around 4%. That means a homeowner with a $300,000 mortgage is now paying $4,400 more a year than when he first took out his loan.

A few years ago, these loans appealed to consumers who needed a little extra help making their monthly payments during the first few years of homeownership. But now, there is only a half a percentage point difference between the interest rate on the 30-year fixed and the one- and three-year ARM. While that discount might still appeal to some homeowners, the risk of that mortgage readjusting upward is too great to justify the minimal savings, says Keith Gumbinger, vice president of HSH Associates Financial Publishers. Better to lock in the interest rate on a 30-year fixed-rate product and never think again about what the Federal Reserve will say at its next meeting. (Click here to compare payments on a fixed rate mortgage vs. an ARM.)

4. Interest-Only Payments

Product: Three-Year, Five-Year, Seven-Year and 10-Year Interest-Only Option on an ARM (Commonly referred to as the Interest Only Mortgage)
Why You Should Avoid Them: Monthly payments can quickly balloon.

Can't afford a home in today's pricy environment? A mortgage that gives you the option to pay just the interest on a mortgage offers consumers yet another way to slash their monthly payments. As the name implies, borrowers don't pay down any principal for the first three, five, seven or 10 years of their loan.

Now it's time to read the fine print. After the initial "interest only" portion expires, the monthly payments balloon to cover the remaining interest and all of the principal payments on that mortgage. Borrowers are also charged a slight premium on their interest rate, compared with fixed-rate ARMs, since people who take on these loans are more likely to go into default. Add it up and the new payment is likely to break the average family's budget, especially if they could only afford the interest portion to begin with, warns HSH's Gumbinger. At this point many borrowers will either have to spend a few thousand dollars to refinance or sell the house.

5. Fixed-Rate Loans

Product: 40-Year and 50-Year Fixed-Rate Mortgages
Why You Should Avoid Them: Builds equity too slowly.

As the name implies, these long-term vehicles are mortgages that amortize over a period of 40 or 50 years. The selling point is that a homeowner could lower his monthly payments by stretching out the terms of the loans. But when you do the math the savings just aren't that significant. On a $300,000 mortgage, a borrower would reduce his monthly mortgage payment by roughly $80 with a 40-year vs. a traditional 30-year fixed rate mortgage.

What does a homeowner have to sacrifice for that minimal monthly savings? It will take significantly longer to build up any equity in a home compared with a 30-year mortgage, says Lefanowicz. Consumers will also pay a lot more in interest over the life of the loan since the interest rate is typically a quarter of a point higher than the more traditional alternative.

British Investor See’s US Commercial Deals Like After the S-L Crisis

It looks like the combination of a weak dollar and softening commercial market are creating opportunities for overseas investors to come in and buy cheap.

Capitalism is funny that way; money and assets will always be looking for value and what may not be a value for United States residents right now may be one for international investors.

Tchenguiz intends to invest as much as £200 million, or $411 million, globally over the next three years buying commercial property assets, including stores, offices and possibly debt.
“Some of the biggest opportunities will be in the U.S.,” the Iranian-born British entrepreneur said during an interview in London. “A big amount of property is going to get reshuffled in the U.S.”
The shortage of liquidity in credit markets following the subprime mortgage crisis in the United States has pushed up the cost of borrowing, prompting a fall in property values and putting borrowers who need to refinance debt under pressure from their lenders.
The opportunities that would present themselves in the United States in the next few months are likely to resemble those arising from the U.S. savings and loans crisis in the 1980s, Tchenguiz said.

Newspaper Advertising Down, Online Advertising Growing, You Make The Call

Hey Real Estate agents and brokers, are you still having trouble kicking the newspaper advertising habit. Well, don’t be the last one throwing money into dark, grainy pictures and smudged type. It looks from the new numbers released that many are fleeing the newsprint to online.

So if your boss thinks that putting ads in the local papers is still necessary or your customers are begging you to ego list their homes in the paper, here is more ammunition for you.

Total advertising expenditures at newspaper companies were $10.9 billion for the third quarter of 2007, a 7.4% decrease from the same period a year earlier. Spending for print ads in newspapers totaled $10.1 billion, down 9% compared with the third quarter of 2006.

Among the major print components in the third quarter, classified advertising fell 17% to $3.4 billion. Retail declined 4.9% to $5.1 billion, and national was down 2.5%, coming in at $1.7 billion.

Meanwhile online advertising in the newspaper industry is growing by double digits.

You make the call.