America's Free-Falling Housing Markets

[YMC]

Matt Woolsey
Feb 14th, 2008
Residents of Sacramento, Calif. (http://realestate.yahoo.com/California/Sacramento/Homes_for_sale/result.html), where home sale prices for November 2007 fell a startling 18.6% over the year before, are likely breathing a sigh of relief.
That's because homeowners there stand to benefit from the Bush administration's initiative, announced this week, aimed at helping homeowners facing foreclosure. Called "Project Lifeline," and assembled by six of the nation's largest financial institutions, which service almost half of the country's mortgages, the program allows qualified homeowners to suspend proceedings for 30 days while providing them with rewriting and refinancing assistance.
The lenders involved--JPMorgan Chase, Bank of America, Countrywide Financial, Citigroup, Washington Mutual and Wells Fargo--say they will contact homeowners who are 90 days or more overdue on mortgage payments and work with them on ways to make their mortgages more affordable.

Slideshow: America's Free-Falling Housing Markets (http://www.forbes.com/realestate/2008/02/12/foreclosure-housing-property-forbeslife-cx_mw_0212realestate_slide.html?partner=yahoore)
Image: http://us.news2.yimg.com/us.yimg.com/p/fi/15/09/52.jpg (http://www.forbes.com/realestate/2008/02/12/foreclosure-housing-property-forbeslife-cx_mw_0212realestate_slide.html?partner=yahoore)

"There'll be homeowners who still take no action, and some will still walk away," said Treasury Secretary Henry Paulson at a news conference today. "But some borrowers facing immediate foreclosures may find solutions."
While resetting rates on many of these mortgages are causing homeowners to default, falling prices, which lead to negative equity, are also playing a part. Negative equity occurs when the homeowner owes more on the home than the home is worth, and thus has little incentive to make payments.
Then there are the homeowners who took out "piggyback" loans--getting a second mortgage to pay the down payment on the first--leaving them saddled with mounting debt, yet unable to unload a home that's dramatically dropping in value.
*Behind The Numbers*
To assess which cities are hardest hit, we used data from Radar Logic, a New York-based real estate research firm. Radar Logic differs from the more familiar Case-Shiller index in that it tracks more markets (25), includes data on foreclosures, condos and new construction, and is a spot price, not a running average.
ZipRealty, a San Francisco-based real estate tracking firm that aggregates multiple listing service data, provided us with the number of homes on the market that have been relisted below their initial asking prices.
In Sacramento (http://realestate.yahoo.com/California/Sacramento/neighborhoods), 43.6% of homes on the market have been lowered in price. There are currently 36,097 homes on the market there, with very few potential buyers.
Just lagging Sacramento is Las Vegas (http://realestate.yahoo.com/Nevada/Las_Vegas/Homes_for_sale/result.html), where between November 2006 and November 2007, prices plunged 17.2%. What's more, from December 2006 to December 2007, the number of homes on the market surged by 30%, further stalling sales, and likely leading to more price depreciation down the road.
A city you might have expected to see higher on the list-- Detroit (http://realestate.yahoo.com/Michigan/Detroit/Homes_for_sale/result.html)--finished ninth. Simply put, there just isn't much further for the city's housing prices to fall; in percentage terms, it doesn't look as depressed as other (once over-inflated) markets. In some areas of Motor City (http://realestate.yahoo.com/Michigan/Detroit/neighborhoods), banks are literally giving homes away if the buyer agrees to bring it up to code.
Florida (http://realestate.yahoo.com/Florida) nabbed three spots on the list of 10 fastest-falling markets, with Tampa (http://realestate.yahoo.com/Florida/Tampa/Homes_for_sale/result.html) down 11.7%, Miami (http://realestate.yahoo.com/Florida/Miami/Homes_for_sale/result.html) depressed by 10.6% and Jacksonville (http://realestate.yahoo.com/Florida/Jacksonville/Homes_for_sale/result.html) in an 8.7% decline from last year.
The one sign of good news in these markets is that construction has all but stopped, and sellers are starting to get realistic about cutting prices.
For full-year 2007, almost every market experienced an inventory spike, but in the last month of the year, according to ZipRealty's numbers, inventories started to decline nationwide. Even in Sacramento and Las Vegas, inventory numbers have started to fall, if only marginally.
Slideshow: America's Free-Falling Housing Markets (http://www.forbes.com/realestate/2008/02/12/foreclosure-housing-property-forbeslife-cx_mw_0212realestate_slide.html?partner=yahoore)

More... (http://lincolnparkforums.com/showthread.php?t=15882&goto=newpost)

[Cherub]

Housing Market 2008 Outlook - It's a Bust

http://z.about.com/d/useconomy/1/0/5/-/-/-/House_David_McNew_Getty.jpg
David McNew /Getty Images

In October, I reported that a 10% decline in housing market prices constituted a bust. (See How Bad is the Current Housing Market Decline? (http://useconomy.about.com/b/2007/10/25/how-bad-is-the-current-housing-market-decline-2.htm)). This was based on research that showed declines of 10-15% are enough to eliminate equity, creating a snowball effect that inflicts severe pain for homeowners. (Source: International Herald Tribune, "When Does a Housing Slump Becomes a Bust? (http://www.iht.com/articles/2007/06/17/business/housing.php?page=1)", June 17, 2007) The latest outlook from the National Association of Realtors shows that, by the end of this quarter, single-family home resale median prices will have declined 10% from their peak of $223,000 one year ago. (Source: NAR, U.S. Economic Outlook (http://useconomy.about.com/library/NAR_Jan_Forecast.pdf), January 2008)
Furthermore, resale single-family home sales will decline to a 4.9 million rate in Q1 2008, down 23% from a year ago. If price declines follow sales declines, it would compare to the 24% decline experienced during the Great Depression of 1929 (http://useconomy.about.com/od/grossdomesticproduct/p/1929_Depression.htm). It would also be similar to the 22-40% decline in Texas and other oil-producing states during the oil-price drop in the early 1980's.
Home prices probably won't fall as far, however, since most homeowners will take their homes off the market before selling at such a loss. Furthermore, mortgage rates are around 6%, only half the rate they were in the '80's. The Fed has promised to further lower rates, keeping needed liquidity in the mortgage market. This will allow mortgage holders to refinance, reducing foreclosures.
What It Means to You

Real estate contributes 10% to the economy, so GDP (http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Components.htm) will suffer. In fact, NAR forecasts a negative growth rate for Q4 2007. Watch for the advance GDP Report, due January 30th. The housing bust has already caused a stock market correction (http://useconomy.about.com/od/glossary/g/Market_Correcti.htm). If the housing bust continues into the late spring, the correction could turn into a bear market (http://useconomy.about.com/od/glossary/g/Bear_market.htm), and the economy could suffer a recession (http://useconomy.about.com/od/glossary/g/recession.htm). More on Real Estate and the Economy


How Does Real Estate Affect the U.S. Economy? (http://useconomy.about.com/od/grossdomesticproduct/f/Real_estate_faq.htm)
Definitions of Commonly Used Real Estate Terms (http://useconomy.about.com/od/realestatedefinitions/Real_Estate_Definitions.htm)
A Primer on Interest Rates (http://useconomy.about.com/od/interestrateindicators/p/interest_rate.htm) If you are selling your home, here are some great tips from the About.com guide to Homes, Elizabeth Weintraub.
Selling in a Falling Market (http://homebuying.about.com/od/marketfactstrends/qt/FallingMarket.htm)
Avoid Mistakes When Selling in a Slow Market (http://homebuying.about.com/od/sellingahouse/qt/DriveTraffic.htm)
When Is the Time Right to Reduce Price? (http://homebuying.about.com/od/sellingahouse/qt/PriceReductions.htm)

[LPTaxpayer]

I heard on the news last night, that there is a 10 year "glut" of homes for sale/lease. In orther words, it will take approximately ten years to work through this housing depression. (This is a terrible thought, when you actually think about it.)

And, one cannot blame one area (group) for this mess. Like other things, there is more than enough blame to go around...individual borrowers, lenders, and so forth.

Real estate is not the "safe" investment any longer.

[Harrison]

It is amazing to me that the only blame you hear on the news for the foreclosed housing nightmare is because of variable rate mortgages. Although I am sure that it is partly to blame, what about ALL THE PEOPLE HERE IN MICHIGAN THAT LOST THEIR JOBS. I would like to see a percentage of that versus a percentage of predatory lenders/variable rate mortgages.

[LPTaxpayer]

Harrison - I feel the same. There is a lot going on. It is "too eary" to blame it on the predatory lenders/variable rate mortgages. These reports just don't want to deal with what is really happening her in Michigan. (This is even though Michigan is in the reports because of the foreclosures.)

In other wards, it's easier to hide under the generalized predatory lending/variable interest rate mortgages. I don't think our government is ready to really look at what is happening.

[Harrison]

You bet, LPT. There is so much going on here in our poor state that it's hard to know which end is up! And you are absolutely right---no one seems to want to deal with us. It's pretty disheartening, isn't it?

[EMUJeff]

Though we can't blame it soley on these ignorant loans that ask for only interest payments on loans that were 125% of the value of the house I think we can place enough of the blame there that they, the companies who made these loans, should be forced to suck it up and renegotiate with those it lent to. I'm not talking about free housing for people out of work and I'm not saying those people who took these loans are completely innocent for doing so. I am just saying that if we don't want the houses to foreclose we should put the burden on those who, in large part, got us here.
Also, the glut on homes partly comes from some uncontrollable need to build new houses in new subdivisions and leave perfectly good houses to rot because "they aren't new and shiney and I didn't work with my private architect to design it" (even though these houses are cookie cutters just as were many of the residences in the 50's in LP).
There's plenty of blame to go around, but the question is how do we hold those we can responsible and still salvage the economy to the degree that might be possible?
EMUJeff

[Harrison]

There IS an uncontrollable need to build new at the expense of any undeveloped lot of land! Instead of looking at older homes, which were probably built better and with more care, everything has to be "new and improved."
I do not know the answer to the question you ask as to how do we hold those accountable. I suppose that the lenders could come back at the buyers and say, hey these were adults and they are responsible for knowing what contracts they sign, etc., etc. I don't know.

[EMUJeff]

Yes, they were responsible for what they signed. But the lenders are equally ethically responsible in my mind. They let these loans out and no one can reasonbaly say the lenders due dilligence didn't lead to the possiblity these loans would fail. If it didn't lead to such a conclusion they shouldn't be allowed out of the house without a keeper.
So often we are so busy protecting business at the expense of taxpayers that we forget they too are responsible for their actions.
EMUJeff

[Harrison]

Absolutely. When I bought my house a little over two years ago, I was "approved" to get $40,000 more than my home cost. When I told my broker that I had found the home I wanted, he was trying to convince me to keep looking and find something "better." Which translated was MORE EXPENSIVE. But I knew what my budget was and stuck to it. Even sticking to my budget has had its downside, though, because when my taxes were uncapped at the one-year mark, it drove up my payment $200 and I have a fixed rate (FHA).

[EMUJeff]

Would that you could have been the one to advise these other buyers on what they were getting into.
Great move Harrison!
EMUJeff

[Harrison]

After waiting over 30 years to buy my first house, I didn't want to screw it all up by doing something that would cause me to lose the dream, like borrowing more than my means. It is a struggle as it is.

[LPTaxpayer]

That's why this pain should be shared with all involved. Instead, those of us on the sideline are also being affected. These underwriters let these mortgages go through...after all, the economy (of the 1990's) was booming. But, when things began to fall apart, there was no help.

These companies should offer to refinance at an affordable fixed rate...even if it has to be for 30 or 40 years (yes, there are now 40 year mortgages). I hate being forced to lose the value of my home because of what has taken place in the mortgage market.

Our governments can't do much...more taxpayer money that's really not available. Since these loans were good to begin with (or should I say "great!"), why don't the companies and investors work to refinance. If they would help to get these mortgages, at least in my opinion, refinanced...it would help there bottom line (instead of these companies becoming owners of the properties and having to maintain them to governmental codes).

Why? They are looking for a Federal Taxpayer Bailout...just like the Savings & Load mess of the 1980's. (I hope this does not happen. They have to work for a better solution to the problems. Sure, the government can help...but, don't count on taxpayer funds to "do it all!".)

[EMUJeff]

You're right, LPTaxpayer. Bailouts just discourage companys from keeping it honest because they know we'll be there to save them. Not this time. This is our chance to say no.
EMUJeff

[LPTaxpayer]

Right on, EMUJeff!

No bailouts. Just make they work with what is available to help.