Home-loan denial rate rose in 2006

WASHINGTON (Reuters) - More Americans had their home loan applications turned down in 2006 than a year earlier, although the majority continued to be approved, according to a report issued on Wednesday by financial sector regulators.

"Overall, the denial rate for all home loans in 2006 was 29 percent compared with 27 percent in 2005," a report by the Federal Financial Institutions Examination Council (FFIEC) said.

Nearly 8,900 lenders accounting for about 80 percent of home lending nationwide were covered by the survey.

The FFIEC includes governors of the Federal Reserve as well as the Federal Deposit Insurance Corp., National Credit Union Administration, Comptroller of the Currency and Office of Thrift Supervision.

They gather information that lenders are required to disclose under terms of the Home Mortgage Disclosure Act (HMDA) and analyze it to determine fair lending laws are met including requirements that lenders not discriminate by race.

In 2006, denial rates were generally higher for refinancings and for home-improvement loans than for home purchases, the FFIEC said. It attributed the difference to the fact that consumers buying homes faced more counseling and prequalification so that they were already screened before the loans were issued.

It also said denial rates were lower for government-backed loans than they were for so-called conventional loans, but were "especially high" in the case of applications to buy manufactured homes.

The FFIEC said that in 2006, as in the two prior years, black and Hispanic borrowers were more likely, and Asian borrowers less likely, to be offered higher-priced loans and that held true for both refinancings and home-purchase loans.

It found little difference in loan prices by gender.

Rise forecast in company default rates

By David Oakley, Financial Times

Published: September 11 2007 22:51 | Last updated: September 11 2007 22:51

Company default rates are forecast to rise nearly 300 per cent as the credit squeeze hits the wider economy and raises the prospect of a global recession.

Moody’s Investors Service warned that default rates among high-yield-rated companies – one of the best indicators of the health of the world economy – will rise sharply because of the turmoil in the money markets.

Mark Zandi, chief economist from Moody’s economy.com, said: “We may be in a recession in the US right now, although not in a technical sense as the downturn would have to last a few months. And if we aren’t in recession, the risks are as high as they have ever been since the last recession in 2001,” he said. “The subprime and money market problems have been a major blow to the US economy, undermining the already very fragile housing market.

“The risk is that this will hit consumer spending and business confidence.”

Moody’s predicts that the global speculative-grade default rate will rise from 1.4 per cent – meaning only 1.4 per cent of the companies rated have defaulted in the past year – to 4.1 per cent in a year’s time and 5.1 per in two years’ time.

Moody’s said Wednesday’s figure of 1.4 per cent was a 20-year low and showed that companies had so far stood up well to the recent volatility.

However, if the US slipped into recession, this figure could approach the all-time highs of about 12 per cent, last seen in 2001 after the dotcom crash and in the early 1990s when inflation spiralled out of control in both Europe and the US, economists said.

Willem Sels, head of credit strategy at Dresdner Kleinwort, said: “We believe there is roughly a 40 per cent probability that the US will go into a recession, so it is essential that the money market problems are solved quickly. If they aren’t, the probability of recession could rise further, with negative implications for the markets.” Although US and European companies had weathered the storms so far in the money markets, default rates are certain to rise as it becomes more expensive to refinance debt in a tougher market place where investors are demanding higher interest rates or returns to buy debt.

Andrea Zazzarelli, associate director of European default research at Moody’s, said: “The problems in the money markets will put companies at risk as they are facing higher costs to refinance debt. Those with strong balance sheets can still do so, but the weaker companies may be forced to default.” In Europe, the default rate stands at 2.9 per cent, compared with the US default rate of 1.4 per cent.

Libor hits high on cash rush

By Joanna Chung, Financial Times

Published: September 11 2007 22:35 | Last updated: September 11 2007 22:35

The cost of funds in the hard-hit interbank money markets hit peaks not seen for nearly a decade on Tuesday as the scramble for cash by financial groups showed little sign of easing.

An important borrowing benchmark for investors, the three-month London interbank offered rate (Libor), climbed to 6.90375 per cent in the sterling market, up from 6.89625 on Monday, leaving it 115 basis points above the Bank of England’s base rate of 5.75 per cent and at the highest level seen since November 1998.

The continuing rise of the three-month sterling Libor rate that is used by many financial institutions to fund their portfolios of securities, underlines the high demand from banks to secure liquidity for the next three months coupled with their efforts to hoard cash amid the squeeze in the credit and money markets. The problem could get more pressing given the large volume of asset-backed commercial paper due to expire in coming weeks.

The London money markets are expected to witness a spike in the volume of ABCP that is maturing on September 17, with much of that paper needing to be refinanced on Thursday, since it typically takes two days to settle ABCP notes. If the notes due to expire for the entire month – estimated to be worth a combined $160bn in the sterling, euro and dollar ABCP markets – are not rolled over, this will force the banks to extend liquidity lines to many ABCP borrowers, a prospect that has encouraged banks to hoard liquidity.

The European Central Bank on Tuesday confirmed plans to inject extra funds into the three-month money markets this week. Last week, the Bank of England said it would move to ease the pressure on overnight interest rates by supplying up to £4.4bn worth of additional funding on Thursday if needed. The ECB and the US Federal Reserve have in recent weeks taken repeated steps to ease pressures in the money markets.

The overnight money-market rates on Tuesday remained close to the ECB’s refinancing rate and the Fed Funds rate targets. However, Marc Ostwald, strategist at Insinger de Beaufort, said three-month rates in all three markets were abnormally high.

“Central bank liquidity provision is keeping overnight rates in check, but term money rates are still extremely high due to hoarding of liquidity by large commercial banks to ensure that they can cope with the demand,” he said. “There is a lack of confidence among lenders amid fear of what skeletons there are to come out of the cupboards of those institutions they are lending to.”

Jobs report puts mortgage rates in free-fall

Friday, September 07, 2007

By Lou Barnes
Inman News

Rates are in free-fall on news of an outright decline in August payrolls, and big downward revisions of the June and July reports.

Agency conforming mortgages are down to 6.25 percent, jumbos still sticky near 7 percent, and no change in availability: high-quality Alt-A still very pricey, as is any high-LTV lending.

I think the economic pattern is clear. For the last five weeks we have been in an uncontained credit crisis -- not a "liquidity" problem, but an evaporation of balance-sheet value exposing lenders, forcing fire-sales of collateral, and a sharp contraction of credit availability. The economic effects of this crunch lie ahead; it is far too soon for them to have undercut August payrolls, let alone June-July.

The payroll weakness is a separate event, a pre-recession signal all its own. Other data indicate considerable forward inertia in the economy, notably the twin surveys by the purchasing managers' association in August. However, a contraction in hiring is the definitive change, leading a general slowdown, leading layoffs, and marking the moment of diminishing inertia.

Now two strong forces will reinforce a third: the worst housing recession in a long time made worse by a credit panic; the credit panic spreading into a global affair far beyond mere mortgages; and the credit panic now getting its own shove from behind by an independently developing recession.

The Fed has either missed it all, misunderstood it all, or has no idea what to do about it. Yesterday's all-OK brigade of Fed speakers look ... say it: incompetent.

The Fed has tried for five weeks nothing but liquidity injections appropriate for a transient economic emergency, the '87 Crash, for example. This is neither a transient emergency nor a single-firm threat like LTCM in '98; we and the Fed have a systemic problem growing worse.

Examples: The president of the European Central Bank, Jean-Claude Trichet, last month announced its intention to raise its rate this month; yesterday he cancelled that intention and reduced forecast growth. One tough cookie in London, Holger Schmieding of BofA, said that Trichet made it clear that risks were far greater than the forecast reduction implied. Global risks: banks from Canada to Europe no longer trust each others' credit, bank-to-bank loan spreads widening toward lock-up.

The best indicator, the "TED" spread (short-term U.S. Treasury rates versus unsecured Eurodollar ones): Bloomberg reports opening to 2.4 percent, the widest since 1987 and on a percentage basis I think may be the widest ever measured.

What to do: As argued here, the only ways to stop a credit panic are 1) to let it burn itself out, 2) to mobilize government guarantee or re-underwriting transparency, or 3) cut the Fed's overnight rate as much as necessary, future inflation risk be damned, hoping to stay "ahead of the curve" but not too far.

#3 is all that's left, unless some #1 miracle should appear. #2 ... they don't have the brains or reaction time for.

So, in utterly self-interested glee, I am looking forward to the imminent rescue of housing outside the bubble zones, and a reduction of damage there. I don't know how deeply the Fed will have to cut its overnight rate (that will depend on the credit-panic/recession reinforcing spiral), but the 100-basis-point cut suggested two weeks ago by alert parties ... today looks like about half of what's coming.

It may take more weak data early in October to do the trick, but it is reasonable to expect fixed mortgages in the fives shortly, a boost to buyers and an escape for those who need a refinance escape. Better yet, ARM indices will drop tick-for-tick with the Fed, reducing re-set damage. Even though this rate decline may go deep, the advice here as always: take any deal that works, immediately.

If panic fades, the bond market and Fed will reverse in an instant.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

Darkest before the Dawn? Experts Call for another Year of Down Market

Courtesy of RISMEDIA:

By Eugene L. Meyer

RISMEDIA, September 5, 2007–Call it the perfect storm: Declining sales of new and used homes, huge inventories, price reductions, a credit crunch, and foreclosures. What seemed only months ago to be a long overdue and necessary correction, a return to a normal, more balanced market following years of giddy appreciation and home sales fueled by easy money, has turned sour, according to leading real estate industry experts.

And there is no soft landing in sight. Instead, the widely held view is that things will get worse before they get better.

“We’re going to have to live through the pain,” says Mike Bradshaw, Bank of America Senior Vice President for Realtor and Builder Mortgage Services. “We will unfortunately see more fallout of lenders. It will trickle down to both the real estate and the building industry.”

During the era of relaxed credit, many consumers who could not otherwise purchase homes were able to do so by making lower monthly payments for a period of time, after which interest rates and payments would dramatically increase. Such home buyers and the investors who bought such mortgage-backed securities counted on rising incomes and appreciation to offset any increases. While interest rates remained low, refinancing was also an option.

Over time, the number and percentage of such subprime mortgages rose. They were usually bundled and sold on the secondary market to investors seeking higher returns. But the risk was also greater. As the subprime market imploded, the fallout has spread to other sectors. Lenders have tightened eligibility requirements, not just to subprime borrowers but to others with good credit ratings. Jumbo mortgages, for amounts over $417,000, have become more difficult to obtain, with significant consequences for credit-worthy, upper-income buyers as well.

“The last 30 days have been kind of extraordinary, as you watch lenders exit the business and scaling back significantly on products,” says Bill Cary, executive vice-president and chief operating officer of Florida-based HFN, a division of Fidelity National Information Services that creates and manages mortgage companies for homebuilders and real estate firms. “Right now, the mortgage market is in a state of shock.”

“The fact that credit is tighter and not as available to as many people under the same terms will make it more difficult for individuals to get loans and could lead to further declines in the real estate market,” says James R. Panepinto, president of Pinnacle Professional Consulting Services, of Red Bank, New Jersey, which advises financial institutions, real estate firms and home builders. “Entire segments of the market have dried up for certain types of home buyers

“I think there’s plenty of blame to spread around, to the investor side of the business that bought the paper, the Wall Street firms that were securitizing the paper, the lending industry that was originating the paper. It’s clearly a situation where many participants were involved in extending credit on terms that were too generous.

“When the economy is strong and values are rising, there are pressures to increase home ownership from a lot of different stakeholders. Appreciation in the market certainly covers up a lot of excesses and practices in loan underwriting and origination. Clearly also in the market were instances where individuals or employees of lenders or various purchasing instruments ignored the rules that were there.”

The long-term good news, Panepinto believes, is that the “higher quality of [loans] being written and the tightening of standards should bode well for the market in general.” Eventually, he adds, “concerns about further deterioration in the quality of loans made, reflected in rising delinquencies and foreclosures, should ease off.”

How long will this take? Bradshaw estimates the real estate and mortgage industry is in for another 12 to 18 months of hard times. Then, he said, “There will be some stabilization and a healthier housing and lending market. The market will move forward on what’s better for the consumers.”

Large lending institutions, such as Bank of America, which retain and service many of their home loans, are faring better than mortgage brokers and others who sell their loans on the secondary market to securities firms, which in turn sell them to investors. The big banks are further cushioned because, having largely stayed out of the subprime market, they are not facing the need to foreclose on delinquent homeowners.

“We decided [subprime loans] were not prudent,” said Bradshaw, recalling a comment by Kenneth D. Lewis, his company’s CEO, that his institution is in the business of making homeowners, not taking homes back from people to whom it has extended credit.

The credit crunch has also affected new homes, with many builders canceling or ratcheting down projects they believe they could not now quickly sell. This, in turn, could have a domino effect, leading to layoffs in the large construction workforce sector.

However, cautions Panepinto, “Certainly, new home sales are very, very significant, but trends in existing home market are really the key thing to watch. Let’s remember that close to 90 percent of homes sold in this country are re-sales of existing homes. That’s really what drives the market.”

Says HFN’s Cary: “I think the light at end of the tunnel for everybody is when inventory gets back in line with demand. The markets have way of correcting themselves. This is not the first time we’ve gone thru a real estate downtown, and it won’t be last.”

The current crunch has underscored the importance for brokers of offering a multitude of core services to consumers, not just selling properties but also providing title insurance, home warranties, appraisals, and even mortgages. As with any investment portfolio, diversification can soften the blow if one sector falters, said Jeff Mandel, president of Prism Professional Solutions, a Charlotte, North Carolina firm advising financial services and real estate companies.

“Broker-owners used to like to talk about how it would be nice to have these value added services–such as mortgage, title, escrow,” Mandel says, “but the real estate market has slowed so rapidly, faster than brokers are able to shed fixed assets and expenses, that it’s absolutely essential.”

For brokers already facing lower revenues from declining sales, the credit crunch has hit hard. “Their need for positive returns out of these [other] services such as mortgages has never been more important to sustain their operations,” Mandel says. “But all of a sudden the money doesn’t exist in their mortgage operations. Many have seen either their partners go out of business or profits eroded to the point where they’re not deriving the returns expected or needed. The constituents I represent are having tough times…

“Number one, on the real estate side, companies need to buckle down, focus on their core strengths, make hard decisions to eliminate fixed overhead unnecessary for current market conditions, and apply fiscal discipline in ways not done before, to position themselves not only for today but for the future. They have to change what they can control.”

As with any economic upheaval, there will be winners and losers. While more than 100 mortgage loan companies have folded, large banks that have traditionally held onto most of their loans are getting more referrals from real estate brokers who had previously relied on less substantial lenders.

At J.P. Morgan Chase Home Loan Lending, loan originations are up 41 percent since July, and up 30 percent during the first two quarters of 2007, according to Sue Barber, senior vice-president for business development.

“We are seeing a good news story out of this current environment,” she said, “There is a very serious need for a lender who can still provide a full array of mortgage products, who has ability to directly lend as well as sell to the secondary market, a partner who has financial strengths and liquidity. Certainly we are receiving lot of inbound calls from lot of the national real estate companies, and there are a lot of the large regional independents reaching out to us.

“We are certainly happy Chase has the balance sheet and liquidity to fund directly, because conditions in the secondary market are challenging today. A lot has to do with the Chase brand. It signifies stability, financial strength. I think the consumer and real estate community are recognizing now more than ever they really need that. I think consumers are realizing they really want a long-term lending relationship.”

That is not to say that Chase hasn’t tightened its lending requirements. It has. “The main focus of all the tightening of credit standards we’ve done and the focus on strategy with sales force is to educate our consumers,” Barber said. “We are working on a simplified disclosure so customers completely understand how [their loan] works, how affects their monthly payments…

“I think the overall industry impact of tightening of credit standards will take some consumers out of the market. But tightening standards certainly will result in better performing mortgages and in turn have a more positive effect on the housing market.”

The subprime mortgage meltdown has had the paradoxical effect of bolstering some intermediary companies that can provide brokers with several lending sources.

“We run a multi-lender mortgage platform, so if you do business with us you’re not tied to just one lender or source of money,” said HFN’s Cary. “We have six [lending sources], including American Home Mortgage, which went bankrupt last month. We were able to take loans placed by our customers there and within a week we had those loans placed with other investors. So we were able to provide a solution.

“We kind of look at the market right now and say there are going to be winners and losers,” Cary said, “and we’re trying to become winners.”

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.

Featured Listing: 506 E. Sycamore Street, Columbus, OH 43206

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Main Problem With Subprime Debt Is That It’s Hidden

Courtesy of John Browne, Financial Intelligence

There is growing evidence of subprime contagion, from within our domestic banking system and from banks as far away as Europe, Japan and Australia.

Meanwhile, legions of “cheerleaders” keep repeating that the subprime problem is small.

One recent CNBC item showed the subprime problem likened to just a small cupboard in a large house. Well, in size that may be correct.

The problem is that history is littered with examples of size being no indication of results. Two notable ones that come to mind are Lenin and his Bolsheviks who were very few in number, and Castro and his 17 henchmen in Cuba.

The problem with the subprime is that its tentacles are largely hidden, for three reasons.

Editor’s Note: Special Report: 5 Highest Yielding, Safest Investments
for 2007.

Firstly, derivatives such as Collateralized Debt Obligations (CDO’s) are sliced and diced so that the “toxic” subprime credits were mixed up, or bundled, together with triple-A credits.

This “bundling” confused not just the rating agencies but also many of the investors, who are still uncertain as to how much toxic waste they have and even who ultimately holds it.

This causes the assets of many highly leveraged financial institutions to become suspect and cause for great concern by potential lenders.

It is like the discovery of toxic waste in a giant batch of food. No one wants to eat any of the batch, no matter how impassioned the appeals and assurances of the producer that, “all is under control!”

Secondly, much of the investment in subprime mortgages and CDO’s was done by hedge funds and in the accounts of institutions, where valuations were done at cost or “informed estimate”, rather than at market, as no public market existed for such “privately” placed instruments.

The adjustment to a true “market price” of many of the assets of certain major financial institutions is a second cause of deep concern, out of proportion to the probable degree of subprime infection.

No one likes to come into physical contact with anyone close to someone who has succumbed to an infectious disease. The fear may eventually prove to be false, but for a time at least, it is all too real. Social contact, like financial markets, tends to seize up.

Finally, despite adopting genuinely independent investment strategies, many investors, including hedge funds, end up investing with a “common approach”. Today’s New York Times (NYT) contains a most interesting article on this very subject entitled, “Just How Contagious Is That Hedge Fund.”

The NYT article goes on to quote Lawrence G, Tint, an investment consultant and retired vice chairman of Barclays Global Investors as saying that he suspects that, “some hedge fund investors will be surprised that their funds lost money and because of problems in the subprime mortgage arena. That’s because those investors have been falsely assuming that just because their funds focused on completely different strategies—commodities, for example—they have no exposure to the subprime mortgage market.

So there you have it. The subprime market may be relatively small, but it is intertwined with the vastly greater credit and derivative markets.

Just as in CNBC’s “house” analogy, the room may be relatively very small, but if it is linked to the rest of a vast, tinder dry wooden house, a small fire in that room could soon affect the whole house.

We therefore urge our readers to ignore the siren voices of the cheerleaders, especially those representing interests that are either “long” the market or credit institutions.

We repeat our forecast made throughout the last year and more, that the housing bust will prove not just contagious but disconcertingly so.

Columbus Board of Realtor Statistics - July 2007

10 Tips for a Sleek Home Office

Decorate for an Efficient Work Space
© Victoria Foley

Feb 9, 2007

Using a little creative thinking can turn your home office into a modern and attractive work space that will be sleek enough to blend in with your decor and inspire you!
When setting up a home office, there are some things you know you need: pens, a printer, a telephone, a computer and a desk to put it all on. But how all of the necessities come together is what makes a work space your own. Organization and decoration are key tools in your home-office toolbox, so use them wisely.

No matter your budget, you can design a work space that will be as beautiful as it is functional. Many items you already own can be reassigned to desk duty if buying new doodads isn't on the agenda. Remember to follow your own taste before any trend - the idea is for your home office to be an extension of your home. Here are some tips for creating the right office for you.

LAYOUT First, look at the layout of the room. Think about where your desk should fit - will a window view distract you, or do you crave sunlight? Place furniture accordingly.
DESKTOP REAL ESTATE Your desk should be sized appropriately to the kind of work you do - if you mostly use the computer, a smaller table may suffice. If you like to spread out projects and use the desktop for writing, look into larger desks or tables.
COLOR SCHEME If your office is in a room of its own, think about a color scheme that will inspire you. Bright but tasteful colors such as french blue or spring green can creative a happy atmosphere without overwhelming your senses.
ACCENT COLORS If the walls are a more subdued hue and you can't paint, think accents. A piece of patterned or textured paper from an art store can dress up a bulletin board or tabletop. A colorful bedspread or slipcover can camouflage the guest bed or sofa and brighten the room.
BLENDING IN For home offices that need to blend into a larger room, consider the theme of the space. An upholstered armchair may work for a living room, while a simple wooden stool might be just right for the kitchen. Choose a desk or tabletop that complements the other pieces in the room without fading into the background.
STORAGE To streamline the look of your work space, look for storage options that hide your excess paper and files. A small plastic box in the closet can hold less-used supplies like tape and note cards.
ACCESSORIES Look for desktop accessories that can be repurposed from things you already have. Pretty glasses can double as pencil cups, serving dishes can hold paper clips and pushpins, and deeper pottery bowls can hold cords for electronics. Keep the items you use most in easy reach so you don't waste time searching for them.
BOOKS Decorative bookends can dress up your reference book collection. You can make almost any pair of heavy objects into a corral for your dictionary and thesaurus. Statuettes or trophies can substitute for more ordinary bookends if you like the look.
ART Wall art can add an extra dose of personality to your home office. Choose images that inspire you. Frame degrees and special photographs. Add a bulletin board where you can pin up motivational quotes or funny cards.
KEEP IT SLEEK However you choose to decorate, remember to keep clutter under control. Piles of disorganized papers make an otherwise stylish office seem unkempt and out of control. Likewise, try not to overload your desktop with photos and knickknacks. Keep it simple and clean to make the most of your home work space!

Home Prices: Steepest Drop in 20 Years

Courtesy of AP
Tuesday August 28, 9:58 am ET
By Vinnee Tong, AP Business Writer

S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987

NEW YORK (AP) -- U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.

The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.

MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."

The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.

The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier .

A separate index that covers 20 U.S. cities fell 3.5 percent in June from a year earlier. A 10-city index fell 4.1 percent from a year earlier.

Housing is among the economic indicators closely watched by Federal Reserve policymakers.

After five years of rapidly rising home prices, the market stalled last year, with prices holding steady or falling as sales slowed. Since then, lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates facing higher payments they can't meet.

Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.

The Fed has taken a number of steps aimed at stabilizing the situation, and market watchers look further for a possible cut in the federal funds rate, which is the rate commercial banks charge each other for short-term loans. That rate has been kept steady at 5.25 percent for more than a year.

The Fed has its next regularly scheduled meeting on Sept. 18.

Fifteen of the cities surveyed for S&P's 20-city index showed a year-over-year decline in prices in June.

Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend that started at the beginning of the year. In April 2006, Boston was the first metropolitan area to show a year-over-year decline, so any turnaround there could be an early sign of recovery.

S&P said it needed more data to determine whether Boston would be the first area to improve.

Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year. Other cities with falling prices included Tampa, Fla., San Diego and Washington, D.C., which all recorded drops of at least 7 percent.

Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period. Seattle prices rose 8 percent in June while Charlotte saw a 6.8 percent increase.

In Monday's report, the National Association of Realtors said sales of existing homes dipped by 0.2 percent in July from June to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

Home re-sales fall as inventories soar

Courtesy of Reuters
By Joanne Morrison

WASHINGTON (Reuters) - The pace of sales of pre-owned U.S homes fell slightly in July but the inventory of unsold properties soared to the highest level in over 15 years as troubles in the subprime mortgage market continued to wreak havoc on the housing sector.

Home sales slid 0.2 percent in July to a seasonally adjusted 5.75 million unit annual rate, according to the National Association of Realtors.

That brought the supply of unsold homes at the current sales pace to 9.6 months' worth, the highest level on record since 1999, when the association began tracking all types of properties, such as condominiums, together with single-family homes.

The supply of single-family homes, the bulk of the inventory included in the association's data, rose to 9.2 months' worth, which was the biggest supply on hand for sale since October 1991.

"This shows that the housing downturn continues to intensify. It shows no sign of abating. Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

Worries over the housing market coupled with high energy costs have eroded investor confidence, with the UBS/Gallup Index of investor confidence falling for the third straight month, bringing it down to the lowest reading in a year.

This sentiment also held true for a panel of key business economists who in a survey released on Monday concluded that the risk of massive defaults on subprime mortgages and heavy debts is a bigger threat to U.S. economic prosperity than terrorism.

"The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy," the National Association for Business Economics said.

That panel's conclusion was based on a survey of 258 NABE members conducted between July 24 and August 14. In that survey, only 20 percent of members said terrorism was now their top concern, compared with 35 percent surveyed in March.

U.S. Treasury debt prices rose on Monday following the housing data but trading volume in Treasury securities was particularly thin due to a market holiday in London and with many U.S. players out on summer vacation.

U.S. stocks were down amid concerns housing market troubles would impact the economy and corporate profits. At midday, the benchmark Dow Jones Industrial Average was down more than 40 points (.DJI), or 0.3 percent.

HOUSING IMPACT ON ECONOMY

Even with a somewhat dismal picture continuing on the housing front, National Association of Realtors economist Lawrence Yun maintained that this key segment of the U.S. economy is still holding on.

"In the aggregate, we don't see the subprime market damaging the economy," Yun said.

Bob Moulton, president of the Americana Mortgage Group, a mortgage brokerage firm in Manhasset, New York, said there is still a steady stream of mortgage business.

"We are still writing our fair share of business. We are still seeing transactions. We still see homeowners buying houses," Moulton said, noting that declining home prices will ultimately boost home sales.

According to the latest home sales data from the Realtors association, median home prices fell 0.6 percent from a year ago to $228,900.

"Volatility creates transactions and with median home prices falling, it's great for first-time home buyers," Moulton said.

Last month's decline in existing home sales was smaller than expected. Economists polled ahead of the report forecast home resales to drop to a 5.70 million-unit pace.

(Additional reporting by Glenn Somerville in Washington and Richard Leong in New York)

Home sales hit slowest pace in 5 years

Courtesy of AP

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON - Sales of existing homes dropped for a fifth straight month in July, falling to the slowest pace in nearly five years, while home prices fell for a record 12th consecutive month.

The National Association of Realtors reported that sales of existing homes dipped by 0.2 percent last month to a seasonally adjusted annual rate of 5.75 million units.

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. But many economists believe the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.

The steep slump in housing has trimmed overall growth for the past year and recently the economy has been shaken by spillover effects in financial markets. Rising defaults in subprime mortgages have triggered a serious credit crunch as investors have worried that hedge funds and other big investors in securities backed by subprime loans could suffer serious losses.

The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.

By region of the country, sales fell by 2.2 percent in the Midwest and were unchanged in the South. Sales rose by 1.8 percent in the West and 1 percent in the Northeast.

The increase in the Northeast, which also saw the median home price increase, was seen as possibly hopeful sign that the worst of the housing downturn may be ending.

"The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom," said Lawrence Yun, senior economist for the Realtors. "Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path."

However, many analysts believe it could be months before housing stabilizes because of the threat that rising delinquencies could dump further homes onto an already glutted market.

The inventory of unsold homes rose by 5.1 percent at the end of July to a record of 4.59 million units.

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Declining home prices - Four ways to cope with a sluggish market

Friday, August 10, 2007

By Bernice Ross
Inman News

The subprime fiasco, tougher underwriting standards, and increasing foreclosure rates and interest rates are all exerting additional pressure on the slowing market many places in the country. Are you prepared to survive a declining market?

A buyers' market, where the prices are declining, is the worst possible market in which to be a commissioned sales person. Price deflation is bad for everyone. Buyers are reluctant to purchase because they fear that prices will decrease further. Sellers are unable to sell, which results in more foreclosures. Lenders end up taking back more property, and brokers end up doing fewer transactions.

If your market is declining, here are four steps that you can take to avoid being caught in the downward price spiral.

1. Price properties below the comparable sales

Declining prices make obtaining an accurate CMA difficult. Assume that a seller's property is currently worth $400,000. If property is declining at an annual rate of 5 percent per year ($20,000), then the seller's property 180 days from now is worth only $390,000. Given that few sellers price their property exactly at market value, their list price of $410,000 is now $20,000 higher than the property's value. Thus, even with a $10,000 price reduction, the list price would still be $10,000 over the new market value. This is exactly where the seller started at the beginning of the listing period. If a price that was $10,000 over market value did not result in a successful sale, it is even less likely to produce a sale as the market continues to decline.

To avoid this trap, list the property below the comparable sales. The reason for this is simple -- today's comparable sales represent what the prices were 60 to 90 days ago. If the market is declining, then the property is actually worth less than the comparable sales suggest.

2. Avoid letting the sellers "test the market"

Persuading your sellers to be realistic is challenging in any market. This is especially true when the market has been very good and is now transitioning into a buyer's market. As a result, sellers often want to "test the market." This is a huge mistake. Many sellers mistakenly believe that the initial activity on their property will continue throughout the listing period. Nothing could be further from the truth. When they first list their property, there is pent-up demand among the current buyers who haven't found a property. Once this initial surge ceases, showings will be limited to new buyers coming into the marketplace. Missing this initial "honeymoon period," which normally lasts the first 21 days a property is listed, usually results in longer market time and a substantially lower price. Do everything within your power to keep sellers from making this costly mistake.

3. When it comes to price reductions, you need a chain saw, not a pair of nail clippers

When property values are declining, reducing the price to the current market value is not sufficient. Instead, you must be slightly below market value to sell the property. To persuade the sellers about the wisdom of this approach, show them how much they lose each month they hold their property. To illustrate this point, assume that a seller is paying $3,000 per month in principal, interest, taxes and insurance (PITI) and that the prices are decreasing by $1,000 per month. The actual cost to the seller of not being accurately priced is $4,000 per month ($3,000 in PITI + $1,000 in depreciation.)

4. Tap into the seller's motivation to sell

In a declining market, many people are selling because they must. It may be a divorce, financial difficulties, a job transfer, or some other event where the seller has no choice. An important part of providing the seller with excellent service is to understand his or her motivation. While a seller's market is difficult for buyers because prices are constantly climbing, a buyer's market is tough on sellers because prices are declining. If the sellers have to sell and are reluctant to accept a reasonable offer, you can ask, "Which is more important, getting on with your life or waiting for the real estate market to improve?"

If the sellers are purchasing a more expensive home, remind them that they will be making additional money on the deal. For example, the owner of a home worth $300,000 who experiences a 5 percent price decline will see a $15,000 reduction in value. If that same individual is purchasing a $600,000 home, that home will experience a $30,000 reduction in value. Thus, the seller comes out $15,000 ahead. In fact, the higher price ranges usually experience greater drops than entry-level homes.

Helping your clients understand the psychology of a changing market will make the job of selling their home easier. More importantly, it can save your clients plenty of money as well.

Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of "Waging War on Real Estate's Discounters" and "Who's the Best Person to Sell My House?" Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.

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