Article in August 30, 2006 Wall Street Journal

Upsides to the Housing Slowdown

By JAMES B. STEWART
August 30, 2006

Let's be honest with ourselves: Aren't you just a little glad the real-estate boom is over? No more bragging from self-congratulatory owners of property in high-priced areas. No more breathless tales of bidding wars and comparative sales.

Last week's figures for sales of new and existing homes, both showing sharp declines of more than 4%, make it clear that the long-anticipated real-estate downturn has begun. I realize that a significant downturn in any market causes hardship for some. Tales of woe are mounting from the real-estate industry, from home builders and architects, to empty-nesters and retirees hoping to cash out of big homes and move to smaller places.

There is no doubt that the real-estate industry casts a long shadow, which is why some economists and policy makers are fretting about a slumping market's capacity to drag down the whole economy.

But let's look at the bright side, too. The real-estate market during recent years had many unhealthy economic and psychological effects. Soaring prices forced many people, especially young people buying their first homes and starting families, out of many markets. It pushed too many people into dreadful mortgages. It misallocated capital to construction for which there was no fundamental demand.

Market Cooling

Like the tech bubble, the rapid double-digit annual appreciation in real-estate prices couldn't go on forever. It has clearly been cause for pervasive concern at the Federal Reserve, which helped fuel the boom with its superlow short-term rates. Surely Fed Chairman Ben Bernanke and his colleagues are pleased by a cooling of the market. The recent pause or possible end to rate increases seems well-timed to gauge just how cool it's become.

Purging the market of excess speculation will no doubt yield some tales of plunging prices and hardship. But I wouldn't expect an out-and-out collapse, or even anything as severe as the downturn in the early 1990s. As Toll Brothers Chairman Robert Toll said last week, there's no recession, long-term mortgage rates remain low, and there's still demand for housing. This is a pretty healthy environment for housing, even if there are price declines still in store.

What does this turning point mean for investors? It's time to re-think my longstanding aversion to real estate and related investments.

Hard-Hit Stocks

Stocks of home builders like Toll Brothers and Pulte Homes have suffered severe declines; expectations are so low that they seem good values for patient, risk-tolerant investors willing to wait for the market to stabilize. Some mortgage real-estate investment trusts, hard-hit by rising interest rates and fears of an overvalued market, have just begun to tick up. REITs like Annaly Capital Management and Newcastle Investment are both about 20% above their lows for the year. Other REITs, in my view, remain overvalued.

Property itself may also begin to be attractive, either as an investment vehicle or for your own use. In some markets, falling prices for condos compared with rents are beginning to make them attractive to yield-oriented investors. It is a paradox of falling real-estate values that buyers balk at paying far less than they would have in a rising market, simply because they're afraid the value may decline further after they buy. All of a sudden they're market timers, aiming for an elusive bottom.

As usual, and especially for first-time buyers, I don't believe in trying to time the real-estate market. If you like something, it fits your budget, and you plan to be there for an extended period, stop worrying about where prices are headed. Instead, be grateful you weren't buying a year ago.

Article in August 25, 2006 Detroit News

Incentives heat up sales in cool markets

Upgraded bathrooms, professional landscaping are being offered; Pulte leads the way in Detroit.

Kamil Skawinski / bankrate.com

Time was that when you heard of a home being offered for sale with a discount or some other generous bonus, your first thought was, "OK, so what's wrong with it?" But with prices leveling off and properties now staying on the market much longer than they used to, it's becoming more common to find lucrative incentives offered on both newly built and existing homes.

Of course, everything depends on whether you're house hunting in a real estate market that has cooled. But if you're in the right place at the right time, you could wind up getting considerably more than you bargained for -- in the best possible sense -- when you make an offer on a home.

Tom Stevens, president of the National Association of Realtors, says home builders started offering incentives in cooling markets such as certain parts of Florida, Las Vegas, California and the Northeast.

"Home builders were among the first to react with various incentive programs and promotions to help keep their properties moving and to reduce unsold inventories," he says.

High-end kitchen cabinets and counters, upgraded bathrooms, generous hardwood flooring packages, finished basements and professional landscaping are just a few of the common gratis offers Stevens has heard of.

"And good old-fashioned discounts and cash incentives ranging between $25,000 and $50,000 are out there, too."

Three-quarters of the 369 homebuilders recently surveyed by the National Association of Home Builders said that they are now including once-expensive extras at no additional cost to help sell their homes. One-third reported that they are now also absorbing such costs as financing points on mortgages to help move unsold properties. Several even admitted to offering free vacations.

Generous incentive packages can be found in the Midwest.

"This year, there's definitely a lot more negotiating and discounting going on with most builders in our area," says David Balcerzak, vice president of sales and marketing at Pulte Homes in Detroit.

"But our company has taken a different approach. We're taking a much closer look at our potential buyer's situation and asking what we can do to help offer them a solution."

For instance, one of the biggest hurdles new home buyers now face is selling an existing home. To help them, Pulte (through its own mortgage company, Pulte Mortgage) has implemented a special program that basically covers three to six months of buyers' existing and new mortgages, both interest and principal, plus tax payments so that these customers aren't stuck with the pain of making twin payments on two properties.

While builder-incentive programs have attracted the most attention, developers aren't the only ones to offer inducements. More home sellers today are also including tempting freebies that go well beyond the usual appliances, fixtures and window treatments. Typical incentives can include assisting a buyer with closing costs, paying points, covering homeowners' association fees for a year or more or selling the home with a comprehensive warranty.

"If you're a reseller, your only real option is to price your house in a way that will sell, which is in itself an incentive," says Sacramento-based RE/MAX Gold agent Loren Ransier.

But if you aren't quite ready to make a home-buying decision right now, you probably need not fear missing out on today's generous deals.

"This whole thing with incentives is really just starting now," says McCabe. "There's no telling what types of very creative marketing offers we're going to see in the next couple of years."

Article in August 25, 2006 Detroit News

Incentives heat up sales in cool markets

Upgraded bathrooms, professional landscaping are being offered; Pulte leads the way in Detroit.

Kamil Skawinski / bankrate.com

Time was that when you heard of a home being offered for sale with a discount or some other generous bonus, your first thought was, "OK, so what's wrong with it?" But with prices leveling off and properties now staying on the market much longer than they used to, it's becoming more common to find lucrative incentives offered on both newly built and existing homes.

Of course, everything depends on whether you're house hunting in a real estate market that has cooled. But if you're in the right place at the right time, you could wind up getting considerably more than you bargained for -- in the best possible sense -- when you make an offer on a home.

Tom Stevens, president of the National Association of Realtors, says home builders started offering incentives in cooling markets such as certain parts of Florida, Las Vegas, California and the Northeast.

"Home builders were among the first to react with various incentive programs and promotions to help keep their properties moving and to reduce unsold inventories," he says.

High-end kitchen cabinets and counters, upgraded bathrooms, generous hardwood flooring packages, finished basements and professional landscaping are just a few of the common gratis offers Stevens has heard of.

"And good old-fashioned discounts and cash incentives ranging between $25,000 and $50,000 are out there, too."

Three-quarters of the 369 homebuilders recently surveyed by the National Association of Home Builders said that they are now including once-expensive extras at no additional cost to help sell their homes. One-third reported that they are now also absorbing such costs as financing points on mortgages to help move unsold properties. Several even admitted to offering free vacations.

Generous incentive packages can be found in the Midwest.

"This year, there's definitely a lot more negotiating and discounting going on with most builders in our area," says David Balcerzak, vice president of sales and marketing at Pulte Homes in Detroit.

"But our company has taken a different approach. We're taking a much closer look at our potential buyer's situation and asking what we can do to help offer them a solution."

For instance, one of the biggest hurdles new home buyers now face is selling an existing home. To help them, Pulte (through its own mortgage company, Pulte Mortgage) has implemented a special program that basically covers three to six months of buyers' existing and new mortgages, both interest and principal, plus tax payments so that these customers aren't stuck with the pain of making twin payments on two properties.

While builder-incentive programs have attracted the most attention, developers aren't the only ones to offer inducements. More home sellers today are also including tempting freebies that go well beyond the usual appliances, fixtures and window treatments. Typical incentives can include assisting a buyer with closing costs, paying points, covering homeowners' association fees for a year or more or selling the home with a comprehensive warranty.

"If you're a reseller, your only real option is to price your house in a way that will sell, which is in itself an incentive," says Sacramento-based RE/MAX Gold agent Loren Ransier.

But if you aren't quite ready to make a home-buying decision right now, you probably need not fear missing out on today's generous deals.

"This whole thing with incentives is really just starting now," says McCabe. "There's no telling what types of very creative marketing offers we're going to see in the next couple of years."

Article in August 24, 2006 Detroit Free Press

Realtors report sales drop, mounting home inventory

July figure is lowest since January '04

BY JEANNINE AVERSA
ASSOCIATED PRESS

August 24, 2006

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years, and the inventory of unsold homes climbed to a record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums in July dropped 4.1% from June's total to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

By region, sales dropped 5.9% in the Midwest, 5.4% in the Northeast, 1.2% in the South and 6.4% in the West.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists forecast that the pace of sales would fall to 6.55 million.

"The housing sector is fragile," said David Lereah, the association's chief economist.

The median price of a home sold last month was $230,000. That was up 0.9% from the July 2005 and marked the smallest year-over-year increase since May 1995. The median price is the middle point at which half the houses sold for more and half sold for less.

The inventory of unsold homes rose to 3.86 million in July. That figure represents a supply of homes still available for 7.3% of a month.

Wednesday's report shows the bloom is off the rose.

For five years running, home sales hit record highs as low mortgage rates lured buyers. But the housing sector lost steam this year as mortgage rates went up and would-be buyers grew cautious amid high energy prices and a slowing economy.

Against that backdrop, earlier this month the Federal Reserve decided to halt a rate-raising campaign that had pushed interest rates higher over the last 2-plus years to fend off inflation.

The Fed's goal is to raise rates sufficiently to thwart inflation but not enough to hurt the economy.

One thing Federal Reserve Board Chairman Ben S. Bernanke and his colleagues are watching closely is the housing slowdown. If home prices and sales were to crash, that could spell big trouble for the economy overall. Thus far, Bernanke has said the market's slowdown has been fairly orderly and smooth.

Lereah said he still expects a "soft landing" for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again, an action that some analysts have said is a possibility.

The housing sector's transition from a red-hot market to a cool one has important implications for the economy.

Consumers who watched their home values rise rapidly over the last several years felt wealthy and more inclined to spend. They borrowed against their homes -- treating them like ATMs -- to support their spending ways.

But because now home values aren't going up as much as the double-digit gains we saw in the past, consumers have tightened their belts. That has contributed to a slowing in economic activity.

Recent reports underscore the housing slowdown's impact.

On Tuesday, luxury homebuilder Toll Brothers reported a sharp drop in third-quarter profits. One day earlier Lowe's Cos., the nation's second-largest home-improvement chain, warned that a slowing housing market would hurt its earnings for the rest of the year.

Last week the National Association of Home Builders reported that confidence among builders sank to a 15-year low.

Article in August 16, 2006 Wall Street Journal

Going, Going, Gone...

Home Sellers Turn to Auctions
In Effort to Move Properties
In Slowing Housing Markets

By JAMES R. HAGERTY and MICHAEL CORKERY
August 16, 2006

As a glutted real-estate market makes homes harder to sell, some sellers are trying a different approach: putting their house or condo on the auction block.

Auctioneers, long confined to the margins of the U.S. home-selling business, report a surge of demand since housing markets along the East and West coasts began stalling a year or so ago. They say auctions provide a quick exit for people who might otherwise wait months or years for a buyer to come along. But the costs of holding an auction are often steep, and the bidding can deliver crushing results: Homes may turn out to be valued at far less than their owners figured.

In some areas along the East and West coasts and in Florida, the number of homes listed for sale has more than doubled from a year ago and prices are eroding. With so much to choose from, buyers are no longer in any hurry; many believe prices will fall further if they wait a few months. The market has chilled so fast that sellers have little idea how much their homes are now valued at or how to attract buyers. That creates a perfect opening for auctioneers, who argue that they can create the buzz needed to snap bargain hunters into action.

"We do for real estate what a Fourth of July sale does for retailers," says Lynn Gardner, the owner of Homeland Auctions Inc. in Leesburg, Va., which auctioned 57 homes in this year's first half, up from 11 in the year-earlier half.

Bill Loper, an advertising salesman in Niceville, Fla., put his house in Destin, Fla., on the market with a real-estate broker last year, asking about $510,000. With lots of other homes for sale nearby, "we were getting no lookers, no offers," Mr. Loper says. In March, with still no prospects, he put the home on the block in an auction handled by Anderson Auctions Inc. of Destin. It sold it for $435,000. "I feel like we got the fair market value of the house on that day," he says.

Stephen Karbelk, executive vice president of Tranzon Fox, an auction firm in Burke, Va., says some of his business is coming from people who bought new homes and then found themselves unable to sell their old ones. In some cases, people are paying two mortgages and are desperate to sell.

Larger auction firms -- including Sheldon Good of Chicago, Williams & Williams of Tulsa, Okla., J.P. King of Gadsden, Ala., and Pacific Auction Exchange of Bakersfield, Calif. -- also report rapidly rising demand from individual sellers as well as home builders and investors stuck with excess inventory, and banks with foreclosed property to sell. Sheldon Good is preparing to announce a marketing alliance with Prudential Fox & Roach, a big real-estate brokerage in Pennsylvania and New Jersey. The two companies tentatively plan a mid-October auction of 22 new vacation homes in North Wildwood, N.J.

Late in July, real-estate investor Ben Stern unloaded 104 homes in the Miami-Fort Lauderdale, Fla., area during a five-hour auction handled by Auction Co. of America that he says attracted more than 2,000 people. The winning bids ranged from about $80,000 to $600,000. Mr. Stern says the results were about midway between his highest hopes and worst fears. Erika Hernandez, an aide to Mr. Stern, says most of the buyers plan to occupy the homes rather than treat them as investments.

Auctions of residential real estate in the U.S. totaled $14.2 billion last year, up 8.4% from 2004, according to the National Auctioneers Association, a trade group. That is less than 1% of total home sales, but the proportion seems likely to rise this year for reasons beyond the slowdown in conventional home sales.

Web sites like eBay.com have encouraged more Americans to view auctions as a way to sell all kinds of things, says Steven Good, chief executive of Sheldon Good. Dean Williams, chief executive of Williams & Williams, predicts that more Americans will embrace auctions as they realize how much money they are losing by paying taxes, insurance and loan costs on unoccupied property.

There are signs that real-estate agents are also warming to auctions. Bernie Pleasants, who runs an auctioneering school in Mineral, Va., says agents have begun flocking to his courses so they can offer the service alongside conventional home-selling methods.

Auctions allow sellers to control the timing of a sale and avoid the contingencies common in conventional sales, such as stipulations that a buyer can pull out if he is unable to sell his current home or obtain financing.

But auction services aren't cheap. Commissions and marketing fees often exceed 10% of the home's value, compared with the 5% or 6% typically charged by real-estate agents. Auctioneers say their fees are justified by their ability to get property sold quickly.

American home sellers tend to show more interest in using auctions when the housing market is weak. The last time home auctions flourished on a broad scale was in the late 1980s and early 1990s, when home prices fell sharply in parts of the country, including Texas and southern California.

But Chris Mayer, a professor of economics and real estate at Columbia University's Business School, says Americans have it backward. Auctions work best in strong markets when there are plenty of determined bidders to push the price up, he says. Indeed, in Australia, where auctions account for about a fifth of all home sales, auctioneers get more business in rising markets than in falling ones, Mr. Mayer notes.

During a downturn, he says, "buyers think one thing: big discount." If bidding is tepid, homes could end up selling at large discounts to their real value, Mr. Mayer says. While the owner often reserves the right not to sell if the bids are too low, a failed auction could leave a home "tainted," making it seem undesirable, he says. Instead of using auctions, he advises homeowners who need to sell quickly to price their homes "aggressively" low in relation to competing properties.

Auctioneers, of course, play down the risk of tepid bidding. "Buyers get caught up in the bidding and usually pay more than they should," says Jim Gall, president of Auction Co. of America in Miami.

Still, auctioneers agree that their services aren't for everyone. They often turn away potential sellers who are unwilling to consider realistic minimum prices or those who owe more in mortgage debt than they could fetch from a sale.

Gwent Group, a Bloomington, Ind., consulting firm with expertise in auctions, says more than 1,000 firms in the U.S. focus on residential real-estate auctions. For sellers, it is critical to choose an auction firm that can show it has a strong track record. Auctioneers that have training from the National Auctioneers Association sprinkle their business cards with the initials AARE (Accredited Auctioneer, Real Estate) or CAI (Certified Auctioneers Institute).

Sellers generally pay upfront for all or part of the costs of newspaper ads, mailings and other marketing used to drum up interest. These costs can range from a few thousand dollars for ordinary homes to $50,000 or more for trophy properties. To save marketing expenses, auctioneers sometimes offer numerous homes at a single sale.

Buyers register for sales and put down deposits, often around 10% of the home's estimated value. Times are set aside in advance for viewings of homes, and sellers must disclose defects. To compensate the auctioneers and any outside brokers or agents involved, successful bidders typically pay a "buyer's premium," often 5% to 10%. As an alternative to a buyer's premium, some auctioneers charge the seller a commission.

Sellers must decide whether to hold an "absolute" auction, in which the highest bid must be accepted, no matter how skimpy, or a "reserve" auction, in which the seller reserves the right to refuse to sell if offers are too low. In some reserve auctions, sellers agree in advance to accept bids above a certain minimum. That level often isn't disclosed to bidders.

Auctioneers say absolute auctions bring in more bidders because they know there is the chance of a real bargain. But many sellers quail at even the remote prospect that they could be forced to sell their biggest asset for a pittance.

Some online auction services say they also are benefiting from the weaker housing market. One such service is RealtyBid.com, based in Gadsden, Ala. Glenn Mayernik, a real-estate agent at Prudential Douglas Elliman, used RealtyBid to help one of his clients sell a three-bedroom home on Long Island, N.Y. The house was originally priced at $440,000 and then dropped to $365,000 on the conventional market, where it stayed for three months. The house finally sold for about $340,000 at the end of a 14-day online auction.

Article in August 20, 2006 Detroit Free Press

KENNETH HARNEY: Millions face payment spikes as loans reset
August 20, 2006

WASHINGTON -- Call it the reset jitters.

Lenders, mortgage investors and financial regulators across the country are concerned about the ability of millions of homeowners to handle the potentially painful payment spikes coming due on loans they took out during the height of the housing boom.

Though estimates vary, some industry experts say that at least a half-trillion dollars worth of loans with reduced initial payment terms are scheduled to reset during the coming year.

Many of these mortgages carry negative amortization features that permit borrowers to pile on additional debt beyond their original balance and make minimal payments for the first several years. Once the initial period is over, however, payments could shoot up by 100% or more.

Other programs allow interest-only payments with no reduction in the original loan balance until the reset point. Then payments can jump by 50% or more in order to amortize the debt balance over a compressed number of years.

Federal and state financial regulators are expected to issue mildly restrictive guidelines for lenders making new loans this fall, but tightened rules won't help homeowners who are heading for payment resets in the coming year and may be blissfully unaware of the financial shocks they face.

John G. Walsh, a senior official at the federal Comptroller of the Currency, recently described his agency's concerns about poorly informed borrowers who don't realize their artificially low monthly payments won't continue indefinitely.

"We've had consumers tell us they didn't know that after making 60 minimum payments" on a payment-option loan, "they would owe more than they did when the loan was brand new. They should certainly understand the basic bargain: The price of a low payment now is a much higher payment later.

"I think it goes without saying," added Walsh, "that someone, at some point, should have explained this" to borrowers.

Lenders active in nontraditional mortgages carrying negative-amortization and interest-only features say they have taken care to make sure their customers comprehend their reduced-payment loans. They also insist that they've reserved these high-risk programs for borrowers with solid credit scores, large down payments and excellent employment histories.

Wall Street analysts have questioned those confident assurances, however. Standard & Poor's, the mortgage bond-rating agency, warned last year that it was observing disturbing numbers of minimum-payment loans being extended to borrowers with subpar credit profiles. Other Wall Street firms noted that given the option to make minimum payments, more than seven of 10 borrowers did so. In the process, those borrowers are racking up heavy additional debt balances and could be heading for payment shocks.

To head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, quietly has begun sending out letters to thousands of borrowers who have been making only the minimum payments on the company's popular PayOption adjustable-rate mortgages.

The letters explain that "this is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly."

A model letter provided to me by Countrywide includes this hypothetical example of what could be ahead for a California homeowner currently making only minimum payments on a $402,000 loan. The current full interest rate on the loan is 7.6%, but the borrower has been paying just $1,348.47, far less than what's needed to fully amortize the mortgage over its 30-year term.

If the loan resets at today's rates, the letter explains, the full payment required would be $2,887.50 -- more than double what the homeowner has gotten used to paying. Future reset rates could be even steeper.

Countrywide's helpful advice to its customers who want to prepare for their resets:

Switch their payment option out of the minimum if they can and move to either a 15-year or 30-year standard amortization plan.

Switch to an interest-only option if full payments are not feasible at the moment. At least interest-only payments will not result in still-higher principal debt balances to pay off later.

Explore alternative refinancing options sooner, rather than later.

That's good advice for just about anybody facing big resets in the coming year. Maybe other major lenders will see the benefits of proactively reaching out to their most vulnerable customers before they get smacked with payment shocks they never knew were coming.

Article in August 18, 2006 Detroit News

Metro area home prices tumble 8%

Glut of Metro homes for sale leads to biggest decline in values since '89.

Dorothy Bourdet / The Detroit News

For the first time in nearly two decades, Metro Detroit families are seeing a significant decline in the value of their homes.

Median home prices in Metro Detroit dropped 8 percent -- by far the biggest decline since 1989 -- in the second quarter of this year, compared to the same period last year, according to figures released this week by the National Association of Realtors.

The region's housing market has lagged the rest of the nation for several years. But while overall home sales were falling, home values remained relatively stable -- until now.

It boils down to supply and demand: too many houses for sale, too few buyers.

"You can no longer count on the value being there when you go to sell your home," said Keith Ruloff, a Realtor with Century 21 Manuel Cole in Redford Township. "Houses are only worth what a ready, willing and able buyer is willing to pay for it."

The median sales price for a single-family home fell $13,500 to $155,700 from the second quarter of 2005 to the second quarter of 2006, ranking Metro Detroit second in the nation for the biggest decline in median home prices, topped only by Danville, Ill.

Data from multiple listing service Realcomp II Ltd. shows sagging home prices in every county in Metro Detroit, with Wayne County showing the biggest drop. Median home prices dropped 9.9 percent in Wayne in the second quarter of 2006, 5 percent in Livingston, 4.7 percent in Macomb and 4 percent in Oakland.

In all four counties, sales were down from a year ago while listings were up. And the average number of days homes for sale stayed on the market jumped from 70 to 108 from June 2005 to June 2006.

The weak housing market has put the relatively few buyers out there firmly in the driver's seat. Sellers are dropping their prices and even offering incentives such as cash toward closing costs.

The drop in home values does not come as a surprise given the prolonged economic downturn in Michigan. The state's jobless rate of 7 percent is among the nation's highest and the auto industry is in the midst of a historic downsizing.

"With so much auto-based industry and with the auto sector suffering it's difficult to say when that job turnaround will occur," said Lawrence Yun, senior economist for the Realtors association.

While Michigan has been leading the housing slowdown nationally, the rest of the country is starting to catch up. Twenty-eight states had sales declines in the second quarter, according to the Realtors association. Overall, median home prices nationwide rose 3.7 percent in the second quarter.

Falling home values cause a ripple effect that spreads to nearly every aspect of home ownership: A home gets a lower appraisal and has less equity, which limits the amount a homeowner can borrow against it. Those banking on their home for retirement see their nest egg cracking. Sellers are increasingly forced to bring money to the closing table to make up for what they still owe on the home.

Homeowners settle for less

Home seller Lesley Harding of Northville Township knows the stress well. The 39-year-old freelance video producer and her husband have been juggling three mortgages: one for their new house, one for the condo they're selling and one for the house Harding's late mother left her family.

Harding dropped the price on her Waterford condo $20,000 after it sat on the market for two years -- even then it didn't sell. She is now leasing it out.

The Farmington Hills home Harding's mother left when she died is also sitting on the market even after the family cut the price by $52,000 to $412,000.

"That's our inheritance, so you want to get as much as you can," she said.

Turnaround signs are scarce

The drops in median home prices simply reflect the slumping Michigan economy, said Furhad Waquad, a Bloomfield Hills Realtor and president-elect of the Michigan Association of Realtors.

But Waquad is optimistic that an infusion of jobs into the state could change the real estate scene for the better.

"Maybe things will turn around in six months," he said.

Right now, signs of a turnaround are scarce.

The state's unemployment rate is still among the highest in the nation. Analysts expect the jobless rate to get worse before it gets better, as autoworkers at General Motors Corp., Ford Motor Co. and Delphi Corp. who took buyouts start joining the unemployment rolls.

"This is a classic example of how expectations can affect a housing market," said Dana Johnson, chief economist for Comerica Inc. "The sharp decline in house prices is really reinforced by all the fears that there could be a fair number of people leaving the state, taking buyouts."

That could mean relief in the housing market may not be as prompt as people hope.

"It's going to be a while before the restructuring difficulties in the auto sector calm down," Johnson said.

"This will pass once things stabilize in the automotive (sector), but I think people are going to have to be a little patient."

Right selling price is key

Despite the bad news, Realtor Larry Chetcuti of RE/MAX Prestige in Dearborn Heights said homes in the $90,000 to $150,000 range are still selling fairly well.

"There's quite a few houses for sale, so they're not getting multiple offers on homes anymore," Chetcuti said. But homes that are priced right are selling.

Few houses are selling for the asking price and many buyers ask for seller concessions, such as paying closing costs, Ruloff said.

While interest rates have been rising, they still remain relatively low, Realtors note. The average interest rate for Michigan is 6.58 percent, slightly above the national average of 6.52 percent, according to Freddie Mac, a government housing agency.

Values within income range

If there is a silver lining with declining home prices, it may be that homes in the Metro Detroit market have not spiraled out of reach of area incomes, economists say.

So when jobs finally come to the state, more people will be able to afford homes.

"Because homes in Detroit -- relative to other major cities -- are affordable, any turnaround in the job market would imply that many would be able to enter into home ownership," economist Yun said.

While median home prices may have slid, there's no need for panic, said economist Johnson.

"I don't sense we're on the precipice of a steep downward spiral," he said.

Article in August 15, 2006 Detroit News

For first time, Detroit's black population falls

Gordon Trowbridge / Detroit News Washington Bureau

After five decades of watching their white neighbors leave the city of Detroit by the thousands, Detroit's African-Americans have begun to follow.

Detroit's black population fell 10 percent from 2000 to 2005, according to population estimates released today by the U.S. Census Bureau.

The decline reverses Detroit's 50-year trend of attracting African-Americans even as the city's overall population fell. And it demonstrates how many of the same factors that attracted whites by the tens of thousands to the suburbs -- good schools and city services -- have begun to draw blacks in increasing numbers.

The shift has broad implications for the city and its suburbs. Detroit's ability to rebound economically may be damaged if blacks abandon the city. And suburban communities that just 10 or 15 years ago had almost no black residents may struggle to adjust to the new diversity.

The change from Detroit's 20th century history is striking. Even as Detroit's population plunged from 1.8 million in 1950 to just over 1 million in 1990, the city's black population grew. But after remaining essentially flat during the 1990s, the black community plunged in the first half of this decade by an estimated 75,000 people. Between 2000 and 2005, Detroit lost enough African-Americans to populate the entire city of Southfield.

The trend is especially striking in places such as Livonia, Warren and Dearborn, which historically have lacked large numbers of blacks -- but often have been the scene of racial tensions.

Miriam Parchman, 37, spent most of her life in Detroit before moving to Warren in March with her four children.

"I was just at the point that I was tired (of the city)," said Parchman, who is black. She said she left a neighborhood plagued by drug dealers and a school system where her children sat in rundown classrooms reading trashed textbooks.

Parchman is hardly alone: Warren's black population grew by 169 percent from 2000 to 2005, to nearly 10,000.

"I know there are a lot of positive things going on (in Detroit), but I am not ready to go back. I really want more for my babies right now," she said.

Blacks larger part of 'burbs

While about 22 percent of Metro Detroit's African-Americans lived in the suburbs in 2000, that grew to an estimated 32 percent by 2005, according to the estimates -- a massive shift, said University of Michigan researcher Reynolds Farley, who has studied Metro Detroit's racial landscape for decades. The numbers suggest Detroit may be at the start of a black exodus rivaling that of whites after World War II, he said.

The figures released today are for the American Community Survey, the Census Bureau's attempt to provide detailed demographic data between once-a-decade censuses. Today's data includes figures for all areas of more than 65,000, including 21 Michigan cities.

The numbers are based on a survey of randomly selected residents and are subject to the same statistical uncertainties as other random samples, such as public opinion polls.

But even with those uncertainties, the trend of black migration to the suburbs is clear, said Kurt Metzger, a demographics expert formerly at Wayne State University and now with United Way of Southeast Michigan.

"This is really going to take a toll on the neighborhoods -- the Palmer Parks and Sherwood Forests," said Metzger. While income estimates will not be available until later, Metzger said it's likely the exodus has been led by middle-class families with children.

"They're looking for any chance to get into another kind of school system," he said.

Will people come back?

Experts worry the black exodus, if it continues, could knock out one of the few remaining strengths of the city's economy: A core of middle-class blacks committed to remaining there.

Andrew Wiese, a San Diego State University researcher who studies city-to-suburb migration, said the experience of other cities suggests that people will return eventually. In Cleveland, St. Louis, Washington and other cities, new city dwellers -- often young whites, singles or couples without children -- have sparked neighborhood revivals.

"Detroit isn't going away," he said. "Detroit's location cannot be reproduced in, say, Birmingham. It still sits on that river, Belle Isle still sits in the middle, it still has those broad river views. Those are things people are paying for elsewhere."

Matt Allen, a spokesman for Detroit Mayor Kwame Kilpatrick, said the city needs a strong African-American middle class, and the city is pursuing programs to retain it, including efforts to better services and tax incentives to retain residents.

Metzger and Farley said they were struck by the growth of the African-American population in Warren, Dearborn and Sterling Heights.

"Those areas have continued to have a reputation for hostility to blacks," said Farley, who has surveyed blacks and whites on racial attitudes on housing preferences.

In Farmington Hills, Mayor Vicki Barnett said local officials have to keep the region's history in mind.

"When you have the kind of segregation we have in the Detroit metro area, you have to address it," said Barnett, whose city saw its black population increase 72 percent since 2000.

Barnett said city officials have tried to reach out to new minority residents, seeking them out to take seats on government boards and commissions.

"I'm not confident we're exactly where we need to be, but we're moving in that direction," she said.

'It's not safe over there'

Among the biggest issues to watch, Metzger said, is whether suburban whites follow the pattern set decades earlier in Detroit. When blacks began moving into all-white neighborhoods in large numbers, those areas rapidly transitioned from majority white, feeding the pattern of racial segregation that persists to this day.

"The first thing we're likely to see is whites leaving those neighborhoods, unless white preferences on these issues have changed," Metzger said.

Julie Wallen, 46, said her family moved from Detroit to the suburbs when she was a child. She understands why blacks would leave, too.

"It's not safe over there," she said.

Now in Warren, she's glad her children got a chance to go to school with students of different races because it will make them more open and understanding.

Still, Parchman, the black newcomer to Warren, said her family has encountered the city's reputation for being unwelcoming to minorities on one occasion, when a classmate made a comment to one of her children.

She said she tries to explain to them that they could encounter ignorance anywhere.

"You can't run from racism, prejudice," Parchman said. "You have to be willing to stand up."

Article in August 10, 2006 Detroit News

Housing market slumping

Rising interest rates are putting a damper on buying; stubborn sellers having to lower prices.

Martin Crutsinger / Associated Press

WASHINGTON -- The "For Sale" signs are staying out longer, while house prices are easing as sellers try to lure buyers.

The big question now: Will the nation's five-year housing boom turn into a devastating bust that could derail the overall economy?

"We recognize the risk ... and we are watching it very carefully," Federal Reserve Chairman Ben Bernanke told Congress recently.

The Fed's interest rate increases, which have helped push mortgage rates to the highest levels in more than four years, are putting a damper on housing.

The central bank acknowledged that fact Tuesday when it decided against raising a key short-term rate for an 18th time.

The concern is that the already sizable inventory could worsen as millions of Americans with adjustable rate mortgages, taken out when interest rates were at four-decade lows, suddenly find they can't meet new higher monthly payments.

"So far, the correction in housing has been orderly, but there is a significant risk that this orderly correction could become more chaotic," said Mark Zandi, chief economist at Moody's Economy.com.

David Lereah, chief economist for the National Association of Realtors, predicts the sales slowdown is about to bottom-out. He said homeowners are realizing they need to lower prices.

"We are going from a seller's market to a buyer's market," he said. "It looks like the worst is behind us and sales are starting to level off."

That may leave sellers and real estate agents longing for the old days. Many economists are stopping short of predicting a wholesale bust.

"There is no evidence that prices are going to collapse," former Fed Chairman Alan Greenspan said earlier this year.

Article in August 9, 2006 Detroit News

U.S. homes become bigger, more lavish

Census data show Americans are looking for space, amenities when buying a house.

Tomoeh Murakami Tse / Washington Post

WASHINGTON -- Houses built now are bigger, but they're on smaller lots. More people are living in the suburbs, but not necessarily in a house with a yard. And the typical American home these days is constructed with more bathrooms, more bedrooms and more amenities than in the past -- but on average shelters fewer people.

Using census data to examine housing patterns of the past 30 years yields insights into the rate at which homes have grown and the forces driving it.

Traditionally, middle-class homeowners have purchased larger houses to accommodate the need for more space -- a growing family, for example. But in the past three decades, homes have grown not because they need to, but simply because they can.

From 1975 to 2005, the average size of new single-family homes grew by 48 percent, according to the Census Bureau's 2005 survey of new housing, released this summer. That happened as the typical household has gotten smaller, falling from 2.94 people in 1975 to 2.6 people in 2004, the latest figure available. At the same time, the lots the houses stand on have shrunk by about 13 percent.

The desire to trade up was fueled by the growth in personal income in the 1990s. That put more shoppers in a position to afford bigger homes and amenities such as central air conditioning, outdoor patios and three-car garages.

"Americans generally seem to like to supersize everything, whether it's houses or cars or TV sets or hamburgers," said John McIlwain, the senior fellow for housing at the Urban Land Institute, a Washington-based research group largely financed by the real estate development industry.

High housing costs, land constraints and demographic changes -- downsizing baby boomers, record immigration and the emergence of young home buyers -- have also helped spur a boom in condos that 30 years ago represented about a million units, or a mere 1 percent, of the housing stock.

Today, there are 7.4 million condos and cooperatives across the country, according to another 2005 Census Bureau survey that looked at all existing homes. That represents 6 percent of all homes.

Like single-family homes, units in multifamily buildings are bigger, too. Over the past 15 years, the proportion of new multifamily units with two or more bathrooms has doubled, as has the share of units with three or more rooms.

Gone are the days when a simple house with a car represented the good life. So, has all this helped make a happier American home?

Perhaps not quite. Twenty years ago, nearly six out of 10 homeowners reported high satisfaction in their houses. Last year, five out of 10 did.

Article in August 9,2006 Wall Street Journal

What the PauseIn Rising RatesMeans for You
Fed's Inaction Could Be a BoonFor Homeowners, Borrowers;Time to Consider Longer-Term CDs

By JEFF D. OPDYKE, JENNIFER SARANOW and RUTH SIMON

August 9, 2006

Finally, it's over -- for now.

For the first time since June 2004, the Federal Reserve yesterday left short-term interest rates unchanged. Though the Fed could resume its cycle of interest-rate increases -- and some market observers think the Fed will do so one or two more times to ward off any threat of inflation -- the decision to pause at 5.25% will ripple through the pocketbooks and portfolios of investors and consumers, affecting everything from stock and bond investments to home-equity loans.

In its brief announcement yesterday afternoon explaining the decision to stop raising rates after 17 consecutive increases, the Fed said it halted the rate increases because economic growth is moderating, thanks to the impact of a softening housing market, high energy prices and previous rate increases. The Fed also noted that while some inflation risk remains, inflation pressure "seems likely to moderate over time."

Wall Street had been anticipating the Fed's action, and much of that expectation was already factored into stocks and bonds, both of which have rallied in recent weeks. After the announcement, the Dow Jones Industrial Average fell, finishing down 45.79 points at 11173.59, while the yield on 10-year bonds rose slightly.

While a pause doesn't have the same effect on consumer finances and investments as a rate cut or a rate increase, the move, after such an extended string of increases, is expected to make a noticeable impact.

Here's how the pause could affect small investors and consumers:

Homeowners. The Fed's move is likely to provide some much-needed relief for home buyers and for borrowers with adjustable-rate mortgages and home-equity lines of credit.

Home buyers "who are looking at longer-term fixed-rate products are going to get a pretty good deal," says Doug Duncan, chief economist of the Mortgage Bankers Association. Mr. Duncan believes that rates on fixed-rate mortgages aren't likely to move much higher unless the Federal Reserve decides to boost rates again to stem inflationary pressures. The pause will also slow the pace at which rate increases are being passed on to borrowers with adjustable-rate mortgages, though some borrowers could see their rates continue to rise if their payments are tied to an index such as the 12-month Moving Treasury Average, which reflects rate moves on a lagging basis.

Even before yesterday's move, rates on 30-year fixed-rate mortgages had begun edging downward, driven both by anticipation that the Fed would take a breather and by competition for customers amid falling mortgage volume. Yesterday, they stood at 6.66%, nearly one-third of a percentage point below their recent peak of nearly 7%, according to HSH Associates, financial publishers in Pompton Plains, N.J.

Borrowers, however, shouldn't expect too much rate relief, even if they are willing to take on an adjustable-rate mortgage. Rates on so-called five-one hybrids -- mortgages that carry a fixed-rate for the first five years then adjust annually -- currently average 6.43%, less than a quarter of a percentage point below the rate on a 30-year fixed-rate mortgage, according to HSH. For home buyers who can afford the higher payments, "a fixed-rate probably makes sense...because it eliminates the possibility of higher rates down the road," says Keith Gumbinger, a mortgage analyst at HSH.

The pause is likely to be particularly welcomed by borrowers who have taken out home-equity lines of credit, which are typically tied to the prime rate. Rates on home-equity lines currently average 8.74%, up from 4.68% before the Federal Reserve began its campaign to raise rates, according to HSH. That compares with an average rate of 8.14% for fixed-rate home-equity loans.

Shoppers. Two-thirds of all Americans own credit cards with variable interest rates. That rate is typically tied to the prime rate, and during the Federal Reserve's rate-raising campaign, the prime rate jumped to its current 8.25% from 4.25%. In turn, shoppers who whip out the plastic for their purchases have watched their annual interest rates climb to 19% on average from 15.4% two years ago, according to the Nilson Report, a payment-card-industry newsletter.

The Fed's pause doesn't mean your credit-card rate is headed lower. While mortgage rates are based on bond-market yields, which are highly fluid and ever-changing, credit cards are tied to the prime, which only moves when the Fed changes interest rates.

Still, for shoppers who routinely carry a balance on their credit cards, a pause is a reprieve from higher monthly payments. Don't be complacent, though, warns David Robertson, publisher of the Nilson Report. Credit-card companies routinely revise the terms of agreement under which they provide you credit. In doing so, many may still decide to raise the interest rate you pay. They must first warn you of the rate increase, so pay attention to the paperwork that lands in your mailbox and which many people regularly throw away.

Savers. For the first time in several years, people holding short-term certificates of deposit might have reason to finally lock in some longer-term CDs. The reason: The pause, as well as the relatively dovish language the Fed used to describe inflation, "makes you scratch your head and think that maybe 5.8% locked in for three to five years is a good bet," since it seems rate increases are likely near an end, says Bankrate.com's Greg McBride.

Money-market mutual funds likely do have a bit of upside left in them, since interest-rate increases typically take five to seven weeks to filter down, and the last increase in July is still working through the system. Savers so far this year have put nearly $89 billion into such funds, the largest movement in this arena since early 2002, according to iMoneyNet.com, a provider of money-market mutual-fund data. The best performing money-market fund, Transamerica's Premiere Cash Reserve fund, currently yields an annualized 5.13%.

Drivers. The Fed's decision isn't likely to have much effect on auto-loan rates, analysts say. In fact, rising interest rates haven't had much of an impact on auto-loan rates in general, thanks to competition among banks, car-maker financing arms and credit unions amid a continuing effort to boost sluggish car sales. The average rate for a five-year car loan, according to Bankrate.com, is now 7.98% -- up marginally from 7.45% when the Fed launched its rate-tightening cycle in 2004.

Once the Fed begins lowering rates, which many expect to happen next spring, car buyers will see better financing opportunities, lower rates and more lenient qualifying criteria for purchased vehicles. In recent years, car makers and their financing arms have focused more on lease incentives than financing deals and have raised the qualifying criteria for the discounted financing rates they do offer.

Some market watchers say more widespread financing deals could even start happening as soon as the Federal Reserve backs away from raising interest rates two or three times. "If rates stay the same, there's a little more comfort room for offering discounted financing," says Art Spinella, president of automotive-market research firm CNW Marketing Research Inc.

Investors. The Fed's decision to pause gives investors reason to lock in longer-term bonds.

For the past couple of years, bond investors -- as a way to keep their money relatively liquid in a rising-rate environment -- have been focused largely on short-term bonds that mature in two to three years. Now, however, as the Fed talks of a slowing economy, "you want to start thinking about extending the duration" of the bonds in your portfolio, says Marilyn Cohen, president of Envision Capital Management, a bond-investment firm in Los Angeles. That means locking in some longer-term bonds before interest rates start backsliding. Stick to high-grade corporate and municipal bonds that mature in seven to nine years -- so-called intermediate-term bonds.

The stock market, by contrast, is beginning to focus more on macroeconomic issues, such as the potential for a slowing economy, and less on the Fed's short-term decisions. Investors, for instance, have been exiting from economy-sensitive industries such as home builders, transportation and some commodity sectors, and are focusing these days more on companies that can weather a slowdown: brewers, soft-drink companies, drug makers and health-care providers.

Charles Schwab & Co. has been urging its clients to become increasingly defensive this year by increasing their allocation to cash, among other things. John Lynch, chief market analyst at Evergreen Investments, a Boston asset-management firm, says investors should be looking more to large-company stocks instead of the small- and midsize stocks that have fared so well in recent years.

Investors should now be "looking for predictability and stability of companies," says David Darst, chief investment strategist for Morgan Stanley's global wealth-management group. Morgan Stanley, Mr. Darst says, has been telling clients to "take money off the table" in areas such as coal and trucking and to look to companies that will retain pricing power and growth even in a slowdown -- such as those in medical supplies and utilities.

Investors and economists generally foresee a weakening dollar. Though U.S. interest rates are still higher than those in Europe and Asia, that could be a temporary situation. While the Federal Reserve has declined, for now, to raise rates, central bankers elsewhere are expected to continue raising rates, which will pull investors out of the dollar and into foreign currencies.

A weakening dollar will benefit foreign assets, including stocks, bonds and real estate. As the dollar slips, such investments are worth more as their value grows in dollar terms.

Article in July 28, 2006 Detroit Free Press

Web puts real estate at your fingertips

Virtual marketing is latest tool for brokers in competitive world of home, condo selling.

Marilyn Bowden / bankrate.com

These days, anyone in the market for a new home or a beachfront condo can get a better idea of what's available by browsing the Internet instead of the Sunday paper. According to the National Association of Realtors, there are now about half a million Web sites in cyberspace hawking dream homes.

The Internet has been an important selling tool for the real estate industry for nearly a decade. During the recent residential boom, some have taken it to a new level, using the Web as the primary marketing tool to snare buyers for preconstruction projects, which exist only in the developer's imagination. For this class of sellers, the Web has replaced the sales center; the virtual tour has nosed out the model unit.

However, consumers need to exercise caution before leaping into an investment in a property that, as the market softens and some projects inevitably fall by the wayside, might never be anything more than a computer-generated fantasy.

The rise of virtual marketing

"Historically, the sales office would open before there was a project," says Mark Zilbert of South Florida's Zilbert Realty Group, which specializes in Internet sales.

"But with the emergence of the speculator market, which really drove preconstruction sales, we entered the era of the instant sellout. By the time the sales office was built, there was nothing left to sell."

While developers were once leery of Internet listings, Zilbert says, broader outreach at lower cost has converted many to the gospel of virtual marketing.

A well-designed Web site is now a must for large projects, says Liam Sullivan, spokesman for real-estate marketing firm Cotton & Co. The company has more than 60 Web sites up and running for projects all over the United States and the Caribbean.

Sullivan says virtual tours using sophisticated technology can convey a much better idea of what a project will look like than a visit to a construction site.

An integrated approach

All this doesn't mean that all developers are ready to forsake tried-and-true methods. Many prefer an integrated approach.

"While we use the Internet to expose our product, we rarely consummate a sale that way. So we're not doing away with bricks and mortar," says Pamela Liebman, CEO of The Corcoran Group, a New York City-based residential developer and marketer.

No matter how quickly a project "sells out," a sale isn't really a sale until the unit is delivered and the contract closed, says Edgardo Defortuna, president of Fortune International, a Miami-based real estate and development firm.

"Even if we are mostly sold out, we still build a sales office and models," he says. "There has to be something to keep the buyer excited during the two or three years the project may be under construction."

Another thing the Internet will never be able to replace, Defortuna says, is the relationship between seller and buyer. "There is no substitute for personal contact," he says.

The industry online

Industry statistics make it clear that the real estate profession is not in danger of losing ground to Internet sales.

Citing a recent survey of 135,000 homebuyers by the National Association of Realtors, spokesman Walter Molony says that though 77 percent used the Internet to search for properties, 81 percent used an agent to consummate the sale.

"The Internet is the norm today," Molony says. "But people still want a Realtor to explain the contract and handle the paperwork."