Article in September 28, 2006

Pricing Your Home Gets Trickier

Sellers Test Different Strategies
As Houses Languish on Market;
How to Trigger a Bidding War

By RUTH SIMON
September 28, 2006

As the housing market cools, one of the hardest decisions facing home sellers is how to price their properties.

Traditionally, brokers have set listing prices by reviewing how much comparable homes sold for in a neighborhood. Now, with prices edging lower in many places and the number of homes on the market climbing, checking comparable sales is becoming less useful. At the same time, many would-be buyers are sitting on the sidelines, waiting to see how far prices will fall. Bigger inventories of unsold homes also are making it harder for sellers to figure out how to make their house stand out amid the competition.

What it takes to sell a house varies from market to market. Some brokers are telling customers they need to underprice the competition -- even if they think their home is more attractive. Sharon Baum, a senior vice president with the Corcoran Group in New York, recently listed a two-bedroom, two-bathroom apartment for $3.7 million. That was $100,000 less than the asking price for a similar unit five floors below, even though apartments on higher floors typically carry bigger price tags. "As buyers have more choices, you've got to make your apartment stand out," she says.

Sellers are also being told to cut prices aggressively if their house isn't moving -- or risk chasing the market downward. If a home doesn't get any showings in 21 days or gets 10 showings but no offers, Ned Redpath, president and owner of Coldwell Banker Redpath & Co. in Hanover, N.H., often advises the seller to slice the asking price by 10%. "We don't like to see $2,000 or $5,000 price adjustments," he says. "We want to see a real whack" that attracts attention.

Builders of new homes also are tinkering with their pricing formulas to generate sales. Mid-Atlantic Builders in Rockville, Md. is offering to adjust the sales price downward up to 45 days before closing if the price on one of its similar homes declines. Waterford Development Corp. will have homes in its Woodland Pond at Manchester development in New Hampshire reappraised two years after closing. If the price drops, the company says it will write the buyer a check for up to 15% of the original sales price, not including the value of any optional upgrades.

Even in relatively strong markets, brokers are paying closer attention to price trends. Wallace Perry, president of Coldwell Banker United, Realtors, Carolinas region, says he has begun checking multiple-listing service data every week or two instead of once a quarter to see how recent sales compare with deals that closed three and six months ago. "Things can change...very quickly," he says.

The renewed emphasis on pricing represents a dramatic turnabout from the heady days of the housing boom, which peaked in the middle of last year. Bidding wars were common and, in many markets, homeowners simply looked at the last sale and asked for more.

That's all changed. The National Association of Realtors said this week that the median sales price of existing, or previously owned, homes fell 1.7% to $225,000 in August from a year earlier, the first such drop in 11 years. There's now a 7.5-month supply of existing homes on the market, the most since April 1993.

With so many properties vying for attention, sellers are also looking for creative ways to catch the eye of would-be buyers and their brokers. Some sellers are offering to pay closing costs or provide other incentives. When their 3,500-square-foot carriage house in Exton, Pa., failed to sell this spring, the owners dropped the asking price twice, to $449,000 from $479,000, says Beth Koser, an agent with Prudential Fox & Roach, Realtors. When that didn't do the trick, the couple agreed to offer $10,000 toward closing costs to any buyer or agent who attended an open house within a two-day period. The home sold a few weeks later for $430,000. "The incentive created a sense of urgency," says Ms. Koser. Buyers "saw that the seller was willing to negotiate."

Other brokers are using incentives to counter competition from new home builders. In Tampa Bay, Fla., Craig Beggins, president of Century 21 Beggins Enterprises, recently put together a list of 16 incentives homeowners can offer, from paying the mortgage for several months, to outfitting a media room with a big-screen TV, to picking up the cost of day care for some period.

Another approach is a personal plea. Traci Smith, president of Century 21 Smith & Associates in San Antonio, encourages clients to court prospective buyers with a letter explaining the intangibles that make their home and neighborhood so appealing, such as the fact that the kids on the block trick-or-treat at Halloween together. During the height of the housing boom, some brokers were encouraging the same type of personal notes -- but from buyers eager to get their bid accepted.

Some brokers are trying to trigger bidding wars by setting an asking price sure to attract attention. Romeo Aurelio Jr., sales manager for Century 21 Hartford Properties, recently listed a small one-bedroom, one-bath fixer-upper in San Francisco's fashionable Noe Valley neighborhood for $650,000, even though he figured the home would sell for $100,000 above that. "If we priced it at $750,000, it was going to sit," Mr. Aurelio explains. "We marketed it aggressively at $650,000 and it generated 20 offers." The house sold this week for $845,000.

And with more buyers hunting houses online, selling strategies are adapting to the new technology. Michael Gallagher, a financial-services executive, initially listed his four-bedroom house in Shawnee, Kan., at $274,500. When the listing expired, Mr. Gallagher's new broker suggested that he boost the price to $275,000. Within weeks, the home sold for $271,000, $36,000 more than the best previous offer.

The explanation? Buyers who use the Internet typically search in increments of $5,000 or $25,000, says Kerwin Holloway, a managing broker with Reece & Nichols, a unit of Berkshire Hathaway Inc., which handled the sale. At the higher price, Mr. Gallagher's home was likely to turn up in more searches. It also looked like a bargain to someone whose search started at $275,000. At the lower price, it was one of the most expensive homes priced between $250,000 and $275,000. Until recently, brokers had taken their cues from retailers, pricing a home at $199,500 because it seemed like a better deal than one priced at $200,000.

A property that's not priced properly can languish on the market and get shopworn, says Dan Elsea, president of brokerage services at Real Estate One in the Detroit area. A four-bedroom house in Troy, Mich., has been sitting on the market for 10 months, even though the price has been cut to $349,900 from $394,900, Mr. Elsea says. By contrast, a similar home in the same market sold this month for $360,000, just 23 days after it came to market priced more appropriately at $369,000, he says.

Article in September 28, 2006

Pricing Your Home Gets Trickier

Sellers Test Different Strategies
As Houses Languish on Market;
How to Trigger a Bidding War

By RUTH SIMON
September 28, 2006

As the housing market cools, one of the hardest decisions facing home sellers is how to price their properties.

Traditionally, brokers have set listing prices by reviewing how much comparable homes sold for in a neighborhood. Now, with prices edging lower in many places and the number of homes on the market climbing, checking comparable sales is becoming less useful. At the same time, many would-be buyers are sitting on the sidelines, waiting to see how far prices will fall. Bigger inventories of unsold homes also are making it harder for sellers to figure out how to make their house stand out amid the competition.

What it takes to sell a house varies from market to market. Some brokers are telling customers they need to underprice the competition -- even if they think their home is more attractive. Sharon Baum, a senior vice president with the Corcoran Group in New York, recently listed a two-bedroom, two-bathroom apartment for $3.7 million. That was $100,000 less than the asking price for a similar unit five floors below, even though apartments on higher floors typically carry bigger price tags. "As buyers have more choices, you've got to make your apartment stand out," she says.

Sellers are also being told to cut prices aggressively if their house isn't moving -- or risk chasing the market downward. If a home doesn't get any showings in 21 days or gets 10 showings but no offers, Ned Redpath, president and owner of Coldwell Banker Redpath & Co. in Hanover, N.H., often advises the seller to slice the asking price by 10%. "We don't like to see $2,000 or $5,000 price adjustments," he says. "We want to see a real whack" that attracts attention.

Builders of new homes also are tinkering with their pricing formulas to generate sales. Mid-Atlantic Builders in Rockville, Md. is offering to adjust the sales price downward up to 45 days before closing if the price on one of its similar homes declines. Waterford Development Corp. will have homes in its Woodland Pond at Manchester development in New Hampshire reappraised two years after closing. If the price drops, the company says it will write the buyer a check for up to 15% of the original sales price, not including the value of any optional upgrades.

Even in relatively strong markets, brokers are paying closer attention to price trends. Wallace Perry, president of Coldwell Banker United, Realtors, Carolinas region, says he has begun checking multiple-listing service data every week or two instead of once a quarter to see how recent sales compare with deals that closed three and six months ago. "Things can change...very quickly," he says.

The renewed emphasis on pricing represents a dramatic turnabout from the heady days of the housing boom, which peaked in the middle of last year. Bidding wars were common and, in many markets, homeowners simply looked at the last sale and asked for more.

That's all changed. The National Association of Realtors said this week that the median sales price of existing, or previously owned, homes fell 1.7% to $225,000 in August from a year earlier, the first such drop in 11 years. There's now a 7.5-month supply of existing homes on the market, the most since April 1993.

With so many properties vying for attention, sellers are also looking for creative ways to catch the eye of would-be buyers and their brokers. Some sellers are offering to pay closing costs or provide other incentives. When their 3,500-square-foot carriage house in Exton, Pa., failed to sell this spring, the owners dropped the asking price twice, to $449,000 from $479,000, says Beth Koser, an agent with Prudential Fox & Roach, Realtors. When that didn't do the trick, the couple agreed to offer $10,000 toward closing costs to any buyer or agent who attended an open house within a two-day period. The home sold a few weeks later for $430,000. "The incentive created a sense of urgency," says Ms. Koser. Buyers "saw that the seller was willing to negotiate."

Other brokers are using incentives to counter competition from new home builders. In Tampa Bay, Fla., Craig Beggins, president of Century 21 Beggins Enterprises, recently put together a list of 16 incentives homeowners can offer, from paying the mortgage for several months, to outfitting a media room with a big-screen TV, to picking up the cost of day care for some period.

Another approach is a personal plea. Traci Smith, president of Century 21 Smith & Associates in San Antonio, encourages clients to court prospective buyers with a letter explaining the intangibles that make their home and neighborhood so appealing, such as the fact that the kids on the block trick-or-treat at Halloween together. During the height of the housing boom, some brokers were encouraging the same type of personal notes -- but from buyers eager to get their bid accepted.

Some brokers are trying to trigger bidding wars by setting an asking price sure to attract attention. Romeo Aurelio Jr., sales manager for Century 21 Hartford Properties, recently listed a small one-bedroom, one-bath fixer-upper in San Francisco's fashionable Noe Valley neighborhood for $650,000, even though he figured the home would sell for $100,000 above that. "If we priced it at $750,000, it was going to sit," Mr. Aurelio explains. "We marketed it aggressively at $650,000 and it generated 20 offers." The house sold this week for $845,000.

And with more buyers hunting houses online, selling strategies are adapting to the new technology. Michael Gallagher, a financial-services executive, initially listed his four-bedroom house in Shawnee, Kan., at $274,500. When the listing expired, Mr. Gallagher's new broker suggested that he boost the price to $275,000. Within weeks, the home sold for $271,000, $36,000 more than the best previous offer.

The explanation? Buyers who use the Internet typically search in increments of $5,000 or $25,000, says Kerwin Holloway, a managing broker with Reece & Nichols, a unit of Berkshire Hathaway Inc., which handled the sale. At the higher price, Mr. Gallagher's home was likely to turn up in more searches. It also looked like a bargain to someone whose search started at $275,000. At the lower price, it was one of the most expensive homes priced between $250,000 and $275,000. Until recently, brokers had taken their cues from retailers, pricing a home at $199,500 because it seemed like a better deal than one priced at $200,000.

A property that's not priced properly can languish on the market and get shopworn, says Dan Elsea, president of brokerage services at Real Estate One in the Detroit area. A four-bedroom house in Troy, Mich., has been sitting on the market for 10 months, even though the price has been cut to $349,900 from $394,900, Mr. Elsea says. By contrast, a similar home in the same market sold this month for $360,000, just 23 days after it came to market priced more appropriately at $369,000, he says.

Article in September 24, 2006 Wall Street Journal

How to Measure the Housing Slowdown
September 24, 2006

With the housing market clearly sagging, economists and investors are watching a variety of gauges to get a handle on the severity of the contraction.

Last week, the Commerce Department reported that construction starts on new homes dropped 6% in August from July, to an annualized 1.665 million. That "housing starts" figure was about 5% lower than forecast and 20% lower than the year earlier 2.075 million. The month-over-month decline was the sixth one this year and put housing starts at the lowest level in more than three years.

The government estimates housing starts by surveying a sample of people who have applied for building permits. In places where permits aren't required, the process includes driving around looking for new-home construction.

Other gauges track new-home sales, existing-home sales, median house prices and the inventory of unsold homes.

New-home sales for August will be released by the Commerce Department Wednesday, and are expected to be down about 17% from a year ago. July's sales were down 21.6% from a year earlier, to an annualized 1.072 million homes sold.

New-home sales figures reflect market trends more quickly than do existing-home statistics. That's because new homes are counted as sold when the contract is signed, and existing homes are counted as sold only when the deal closes, which may be 30 to 60 days later.

Existing-home sales data, coming Monday from the National Association of Realtors, are expected to be down about 13% from August 2005. The annualized rate of 6.33 million existing homes sold in July represented an 11.2% decrease from last year.

The median sales price of existing homes, which is a good indicator of the market's momentum, was $230,000 in July, up 0.9% from the July 2005 price of $228,000, according to the Realtors group. That's smaller than the double-digit year-over-year gains posted in 2005.

Some parts of the country, including the Northeast, the Midwest and the West, are reporting falling home prices. The Realtors association has said the national median house price may fall in coming months, although any decline is expected to be limited. August numbers will be announced with the existing-home sales figures Monday.

Meanwhile, there's been a spike in the number of existing homes for sale. The Realtors group says 3.86 million homes were on the market last month, up from 2.76 million a year earlier. In addition to reflecting a diminished appetite on the part of buyers, that growing inventory may reflect the unwillingness of sellers to lower their asking prices enough to tempt buyers. With more houses for sale, buyers have less incentive to bid up prices, and home builders have fewer reasons to start construction on more units.

Article in September 20, 2006 Wall Street Journal

New-Home Starts Sink As Sales Slow, Inventories Rise

By RAFAEL GERENA-MORALES
September 20, 2006

Construction starts on new homes plunged last month as builders curtailed production in response to mounting inventory and slowing sales.

The Commerce Department reported yesterday that housing starts dropped 6% in August from a month earlier to a seasonally adjusted annual rate of 1.665 million units. That was the fifth decline in construction starts in the past six months and the slowest rate of starts since April 2003. When compared with a year earlier, construction starts were down 19.8%.

The weak housing report helped send stocks lower yesterday, with the Dow Jones Industrial Average falling 14.09 to 11540.91.

Construction starts on single-family homes fell 5.9% in August from a month earlier and declined 20.6% from a year earlier, the government report showed. Housing starts for multifamily homes with five or more units fell 8.2% in August from the previous month and declined 16.9% from a year earlier.

The Commerce Department report also showed that building permits -- a barometer of future construction activity -- fell 2.3% to a seasonally adjusted annual rate of 1.722 million in August when compared with the month before and were down 21.9% in August from a year earlier.

It is "pretty darn clear that ... we're in a pretty substantial downswing here," said David Seiders, chief economist of the National Association of Home Builders. Developers "can't keep bringing new supply on the market until [home] inventories come down and affordability is restored. The downside risk of [housing] to the real economy should be getting a lot of attention."

Yesterday's report on construction starts and building permits comes on the heels of a pessimistic reading on the home-builder association's confidence index, which was released Monday. The index indicated that home builders feel pessimistic about housing-market conditions and are likely to cut construction activity further for the rest of the year. The association reported Monday that its sentiment index for U.S. sales of new, single-family homes fell in September to 30 from 33 in August, indicating that most builders think the housing market is in poor shape. The housing index, compiled by the NAHB and Wells Fargo, was at 65 a year ago. A reading of 50 would indicate builder sentiment was balanced between good and poor.

Phillip Neuhart, an economic analyst with Wachovia Corp. in Charlotte, N.C., said the pullback in housing-construction activity will likely trim economic growth in the second half by at least 0.5 percentage point. The NAHB's Mr. Seiders said the slowing housing market could shave second-half economic growth by as much as a full percentage point. The 56 economists surveyed in WSJ.com's September survey said they expect economic growth averaging roughly 2.7% during the second half.

Amid a national housing boom, residential-construction activity contributed at least 0.5 percentage point to economic growth in 2004 and 2005, according to government data. However, a slowing housing market subtracted 0.63 percentage point from economic growth in this year's second quarter. "That's a dramatic swing" from previous years that is likely to worsen, Mr. Neuhart says. In the housing sector, "we expect choppy waters for the rest of the year."

Meanwhile, inflation pressures on the producer, or wholesale, level moderated last month -- offering welcome news for the economy. The Labor Department said its producer-price index for finished goods rose a seasonally adjusted 0.1% last month, matching July's increase. Producer prices in August were 3.7% higher than a year earlier, on an unadjusted basis, down from July's year-over-year increase of 4.2%. Core producer prices, excluding food and energy, fell 0.4% in August from a month earlier, in part because of a steep decline in automobile prices. The August decline in core producer prices was the sharpest drop since April 2003 and the second-straight monthly slide.

"We're not going to get these types of [auto-price] declines every month," said Joshua Shapiro, chief U.S. economist at consulting firm MFR Inc. Nonetheless, yesterday's data underscoring a cooling housing market and easing inflation "offer an overall message of comfort to the Fed. There's no incentive for them to do anything right now" with interest rates.

Separately, the Federal Reserve reported yesterday that the total net worth of U.S. households rose 0.1% to $53.33 trillion in the second quarter, marking the 15th consecutive quarterly increase. That was up from the revised first-quarter figure of $53.27 trillion, the Fed said in its quarterly "flow of funds" report. Meanwhile, the Fed reported that U.S. household debt grew at a seasonally adjusted annual pace of 9.1% in the second quarter, as "home-mortgage debt slowed to a single-digit pace for the first time in several years." U.S. household debt grew at a 9.6% annualized rate in the first quarter.

Article in Aeptember 21, 2006 Wall Street Journal

Midwest May See a Sharper Housing Slowdown

By LINGLING WEI
September 21, 2006

Homeowners in the Midwest -- the nation's industrial heartland -- are starting to see a housing bust without ever experiencing a housing boom as more job losses trigger mortgage delinquencies and foreclosures.

For months, the biggest worries over the slowing housing market in the U.S. have mainly focused on parts of the country that have seen exceptional price increases from 2000 to 2005, places with growing populations and strong economies such as California, Florida and Nevada. But recent data from the federal government and private-sector researchers point to areas in the Midwest that are witnessing a more dramatic slowdown in home prices and, in some cases, higher borrower defaults than the rest of the country.

Home prices in the region have hardly budged over the past few years because of its weaker economy as compared with other regions. Michigan, for example, has lost nearly 300,000 jobs since 2000, and its jobless rate has been consistently higher than the national average.

A recent report by the Office of Federal Housing Enterprise Oversight looked at housing prices in 275 metropolitan areas across the country. Six of the seven metropolitan areas that showed housing-price declines for the 12 months ended June 30 were in Indiana and Michigan. The study also stated that housing prices in states like Indiana, Ohio and Michigan were fairly flat over the past year but actually declined in the second quarter.

The decline in price appreciation threatens to pinch Midwest homeowners in an already difficult economic position. "In a rising unemployment situation, as experienced by some Midwest states," says Damien Weldon, director of collateral-risk analytics at First American LoanPerformance, "a lack of significant home-price appreciation can limit homeowners' ability to tap into their home's equity by refinancing their mortgages or taking out a home equity line of credit."

He adds, "The safety cushion a large amount of home equity provides simply doesn't exist for many people in that region."

An analysis conducted by First American LoanPerformance, a research firm in San Francisco, based on the latest information available, found that the percentage of loans in foreclosure in the Midwest states of Michigan, Ohio, Illinois and Wisconsin reached 0.93% in June, while foreclosures across the country averaged 0.5% -- still historically low. Michigan, hurt by job losses in the automobile industry, booked a 26.8% jump in foreclosure rates -- to 0.69% in June from a year earlier, the largest year-on-year increase within the Midwest. Meanwhile, the percentage of loans delinquent for more than 90 days in the hard-hit area was 15% higher than the national average.

The risk of default and foreclosure is even greater for borrowers with weak credit scores and high debt burden. The First American LoanPerformance analysis showed that in the four Midwest states, the foreclosure rate for nonprime mortgages ran at 4.85% in June, compared with 2.49% nationally. Ohio had the highest nonprime default rate in the region at 7.29%, and the other three states averaged 3.79%.

Rising foreclosures as a result of job losses are likely to depress local markets even more. According to a residential real-estate risk-scoring system maintained by analysts at Credit Suisse, which ranks the likelihood of home-price declines within a year, the most troubled metropolitan areas are mainly in Michigan -- cities including Detroit, Saginaw, Holland, Ann Arbor, Monroe and Jackson -- and New England areas such as Boston. The least troubled metropolitan areas are in the Northwest.

Some cities in California are also more likely to see home-price declines because of the significant run-up in home prices during the boom, but the analysts point out that the Bay area, namely San Francisco and Oakland, is actually experiencing less risk of a price decline because of rising income growth and fewer job losses in that area. Nationwide, Credit Suisse analysts believe that barring an economic disruption, the current housing-market slowdown will become "an orderly soft landing."

Article in September 16, 2006 Wall Street Journal

New Home-Buying Tricks

To Get You Into a New House,
Builders Help Sell the Old One;
Showing Off Hardwood Floors

By RUTH SIMON

September 16, 2006

Home builders have a new trick to try to sell you a new home: They will help you get rid of your old one.

Faced with falling sales, some builders are helping would-be buyers spruce up their current home by bringing in professionals who advise them on what furniture to get rid of and tell them whether they should rip off the wallpaper. Others are offering to make payments on the buyer's old mortgage (or the new one) in an effort to close the deal.

There is also renewed interest in so-called buyback programs: The builder, or a broker, agrees to buy your current home, for a preset price, if it turns out that you can't sell it.

The offers are coming both from local builders and national firms. For instance, Pulte Homes Inc. recently started pairing its customers with professional "stagers" who sweep in and do things like remove window coverings and touch up the paint, and covering up to $2,000 of the cost of the service. The program is available in about a dozen markets, including Detroit, Indianapolis, Sacramento, Calif., Tampa, Fla., and Washington, D.C.

In Phoenix, Lennar Corp.'s U.S. Home division is offering a program in which customers who sell their homes through Coldwell Banker pay 3% instead of 6% commission on the sale of their current home. (To make up for that, Coldwell Banker is paid a 3% commission for the sale of the new home.) In Detroit, Toll Brothers Inc. will make principal and interest payments of up to $2,500 a month on a buyer's new mortgage for the first six months, or give the buyer a credit equal to that amount at closing.

"Everyone is trying to be creative," says Larry August of Pacific Pride Communities, a central California builder. With so many homes on the market, selling an existing home is a "huge obstacle for anyone looking to purchase a new home." In some cases, Pacific Pride is making mortgage payments on customers' old homes for as long as six months.

The new spate of offers means that prospective home buyers have another variable to consider. On the one hand, some of these deals can put valuable extra cash in the customer's pocket, or make a deal happen that might otherwise fall apart. However, buyers need to pay attention to the fine print and make sure the terms fit their needs.

For example, special-financing offers typically require that the customer go through the builder for their mortgage. Buyers need to first check whether they can get financing that better suits their needs, and carries a lower cost, somewhere else.

Buyers may also be able to use these deals to negotiate other perks instead -- say, fancier appliances or a lower mortgage rate. "If they want some other feature or benefit that is of the same or less value, we would be willing to look at that," says Kira McCarron, chief marketing officer at Toll Brothers.

The growth of such offers comes as home sales have stalled in much of the country. Builders have already started tapping their usual raft of incentives, ranging from free swimming pools to subsidized closing costs. In some cases, they have even cut prices. The National Association of Realtors recently said it expects home prices to fall during the rest of this year.

For builders, the housing downturn has translated into slower sales and higher cancellation rates among prospective buyers who get cold feet. This month, Beazer Homes USA Inc. said that in July and August, orders fell 49% from the previous year's levels, and cancellations climbed to 50% from 26% in the same period in 2005. KB Home said this month that orders for new homes fell 43% in its fiscal third quarter.

The kinds of help builders are offering varies from market to market, and even from project to project. The best deals are typically offered on homes that are already completed, or near completion.

In the Northeast, K. Hovnanian Homes, a unit of Hovnanian Enterprises Inc., often pays to have a customer's existing home appraised (a move also designed to ensure that the property goes on the market at a realistic price). In some cases, the company will also arrange for the customer to get a lower mortgage rate, pay brokerage commissions on the sale of the existing property or pick up several months of mortgage payments.

Some builders trumpet special deals on their Web sites or in ads in local newspapers. Other offers are made quietly, on a case-by-case basis. For months, Fran Carroll, a mortgage broker in California, has been telling her builder she may not be able to close on her new home because she can't sell her current one, even after dropping the price by $151,000. The builder, Shea Homes, recently offered to pick up the mortgage payments on the new home for three months.

When Ms. Carroll balked, it boosted the offer to include mortgage payments and homeowners' association fees for six months, though she isn't sure she will accept the offer. Like many builders, Shea is making promotional offers, but extending them to people already under contract "is not a common practice," says Eric Snider, national vice president of sales and marketing.

Some builders are also increasingly willing to accept contracts that are contingent on the sale of the buyer's existing home. "We've moved from selling homes, to helping people buy," says Bob Moesta of Lombardo Homes, a builder in Detroit that this year started doing this under some circumstances.

Erickson Retirement Communities, which develops and manages communities in 10 states, has taken hand-holding further in its "Moving Home" program in Michigan. When Elizabeth Kramer decided to move into Erickson's Fox Run community in Novi, Mich., Sharon Baksa, Erickson's "relocation counselor," gave her the names of three real-estate agents who could help her sell the four-bedroom Colonial she had lived in for more than 40 years.

To make the home more attractive, Ms. Baksa recommended that Ms. Kramer pull up the carpet that covered the home's hardwood floors. She also recommended a mover and a service that could help with packing and unpacking, and helped pay for installing air conditioning for the buyer of Ms. Kramer's home.

"It was a huge undertaking and they made it easier," says Ms. Kramer, who sold her home for $235,000 in August. Erickson says it is now rolling out some of the elements of the program in other markets, including Massachusetts, Illinois and New Jersey.

Real-estate brokers say they are also starting to see renewed interest in guaranteed-buyback programs. In these programs, the seller is typically promised a preset price if the home doesn't sell within several months. Berkshire Hathaway Inc. unit Reece & Nichols, a Kansas City, Kan., real-estate broker, says it has already done 10 to 15 buybacks for builders this year, compared with none last year.

But in a cooling market, buyback offers are often greeted with a skeptical eye by sellers, who think their home is worth far more than they are promised. At Long & Foster Real Estate Inc., a mid-Atlantic broker, agents meet with three to five customers a week to explain its buyback program, but only one in 10 signs up. The others "aren't willing to believe what the actual number is," says Danny O'Sullivan of Long & Foster.

Some builders, he says, are now considering whether to make up the difference between the initial listing price and the guaranteed sale price.

Article in September 9, 2006 Detroit News

Beware of these pitfalls in a home-buyers' market

Sixty-four houses. That's how many the two sisters -- both musicians in their late 50s -- have considered for purchase in recent weeks. Ironically, the more options they see, the more bewildered and unsure they are about what they want.

Indecision is not an uncommon problem for prospective buyers looking for property in an area where sellers outnumber qualified purchasers, says Tom Early, president of the National Association of Exclusive Buyer Agents.

"In a buyers' market -- with more inventory available each week -- these women feel overwhelmed and can't seem to make the right decision," says Early, the real estate broker representing the would-be purchasers.

By Early's estimate, buyers now prevail over sellers in more than 80 percent of U.S. neighborhoods. But he says this situation is only as advantageous to buyers as they make it. Here are several tips for prospective home purchasers:

Carefully consider your requirements before buying. "All homebuyers need to know what they're really seeking as opposed to their unrealistic fantasies," says Robert Irwin, whose books include "Tips & Traps When Negotiating Real Estate."

Failing to clarify your true housing requirements and limitations can become especially problematic for buyers searching in an area where the inventory of available homes is mounting daily, according to Irwin.

Early believes the two sisters are not realistic in their search for a property suitable for themselves and their father, who is ailing.

"They say they want a country house on several acres of wooded land, and they're qualified to buy that. But when I showed them a property that fit their description perfectly -- and there are now plenty -- they decided it had too many trees," Early recalls.

He says the two women would be better suited to a property on a smaller, more manageable lot that's also closer to the city and medical facilities for their father. Until they show a better grasp of their situation, their search will continue, Early predicts.

Allow yourself to reach a little higher in a buyers' market. If your mortgage lender has approved you for a home loan sufficient to buy a small ranch-style place in a middle-income neighborhood, you obviously should forget about that swanky close-in house you've had your eye on.

Nevertheless, as Early says, those planning to acquire a home in an area where sellers greatly outnumber buyers can shoot somewhat higher than they could normally have done in a strong sellers' market.

Naturally, prospective buyers have expanded bargaining power in neighborhoods where sellers have fewer offers coming in. Early urges you to use this extra leverage to get more of what you want in a home.

Given the enhanced buying power they now enjoy, many purchasers can consider a slightly more expensive neighborhood or, alternatively, one of several possible upgrades on the property itself.

"Nail down the exact sort of house you want within your general price range. In this market, you might be able to get a few extras that are important to you. Ask your real estate agent to include these 'specs' when creating a list of properties to visit," Early says.

Use your increased leverage to get more from a homebuilder. "A year or two ago, trying to get anything extra from a builder was like trying to squeeze toothpaste out of a tube with the cap on. Today there are deals to be had in some of those very same subdivisions," Early says.

Through adept bargaining, for example, you could get cherry wood kitchen cabinets for the price of oak.

Or you could negotiate your way into a more-luxurious-than-standard master bathroom.

Don't sacrifice the home of your dreams because you offered too little. Early tells the true story of one of his clients who lost his favorite home, a charming white cottage with a fieldstone fence around it, to another bidder after he tried to get it for 30 percent off market value.

"My client followed this extremely 'low ball' first bid with a second one that was 20 percent off market value. While he was playing around, the owners of the cottage accepted a much fairer offer from another couple," Early remembers.

In most cases, deep lowball offers don't work -- even in a buyers' market. That's because the sellers often take offense and withdraw from negotiations altogether.

"You don't want to spit in Superman's face. You're the one who loses if you give up the chance to own your dream property because of greed," Early says.

Article in September 8, 2006 Detroit News

Home prices built up for a fall

High new and existing house inventories likely to lead to lower costs for the first time since 1993.

Kathleen M. Howley / Bloomberg News

U.S. home prices may fall for the first time since 1993 as a record number of homes for sale gives buyers the upper hand in negotiations, the National Association of Realtors said.

"We'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," David Lereah, NAR's chief economist, said Thursday.

The inventory of new and existing homes for sale has swelled to record levels as the five-year U.S. housing boom comes to an end. Shares of U.S. homebuilders slid almost 6 percent in the last two days as Hovnanian Enterprises Inc. reported a 34 percent reduction in earnings, followed by Beazer Homes USA Inc. and KB Home both lowering their earnings forecasts.

Short-term housing investors, so-called "flippers," are putting their properties up for sale, making for "an increasingly challenging market," KB Home CEO Bruce Karatz said, detailing his firm's 43 percent drop in new orders.

The last time the monthly U.S. median price for an existing home fell below the year-ago level was February 1993, when it dipped 1.1 percent.

The median price of new homes probably will rise 0.2 percent on an annualized basis in 2006, the worst performance since prices fell in 1991, as the market was mired in a housing depression, Lereah said. The median price for an existing home probably will gain 2.8 percent, the slowest rate since 1992, according to NAR data.

The median price for a condominium dropped 0.3 percent to $225,800 from a year ago, the first decline on record, while the median for a single-family home rose 3.7 percent to $227,500, the slowest pace in six years.

The U.S. inventory of unsold existing homes hit 3.86 million in July, the highest ever, according to NAR. New homes for sale reached a record 568,000, according to Census Department data.

Article in September 8, 2006 Wall Street Journal

Housing Slowdown Takes Its Toll

Economists Say Selling Prices May Stagnate,
Or Decline, in 2007 as Cool Down Continues

By PHIL IZZO
September 8, 2006

Economists believe cooling in the housing market to extend into next year and many forecasters in the latest WSJ.com survey predict no change -- or an outright decline -- in home prices next year.

Twenty-five of the 48 economists who answered the survey's question about housing predicted no change or a decline in a closely watched gauge of nationwide home prices during 2007. The average prediction for next year was for an increase of 0.43%, lifted by five economists who forecast gains of 5% or more.

The average forecast would leave home-price appreciation well below the expected rate of inflation. Just 27% of the respondents forecast an increase in home prices of greater than 2.7%, which was the economists' average expectation of the year-to-year increase in the Labor Department's consumer-price index for May 2007.

The housing market doesn't move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average. But the economists' predictions stand in stark contrast to the red-hot price appreciation seen over recent years.

Moreover, broad-based declines in home prices are unusual. The Office of Federal Housing Enterprise Oversight's home price index, upon which the economists based their predictions, has never posted an annual decline since its first calculation, in 1975. The last time that the index trailed inflation was in 1996, when home prices rose 2.6% compared to a 2.9% inflation rate.

The Ofheo numbers are closely watched among economists as a key gauge of the housing market, though some believe the index understates weakness in the market because it doesn't reflect concessions sometimes offered by home sellers, such as help with closing costs, which are effective price cuts.

For this year, the economists forecast a 3.5% rise in the home-price index. The index rose 13% 2005 and 12% in 2004. Ofheo is the government agency that oversees mortgage titans Fannie Mae and Freddie Mac.

"The housing correction is just in its early stages now," said Joseph Carson of AllianceBernstein, who forecast a 5% decline for 2007. "Existing home prices have come down to no-change on a year-to-year basis. For new homes, prices are below year-ago levels when you include added features. The prices will have to go lower to give demand a lift in short term."

Mr. Carson expects broad-based difficulties throughout the nation. "Affordability is an issue across the board," he said, adding he believes a major correction is inevitable. "It's pretty clear now that national home prices will drop to correct housing imbalances," said Scott Anderson of Wells Fargo & Co.

Signs of cooling in the housing market have emerged in reports over recent months. Last week, David Lereah, chief economist of the National Association of Realtors, predicted that national median home prices will generally decline over the next few months. Although the group reported a slight increase3 in median home prices for July, it said that its index of pending home sales fell 7% in the month, the most recent figures available.

David Wyss, chief economist at Standard and Poor's, said he expects prices to change little nationally. He expects drops in areas that are overvalued, such as Florida, California and the Northeast, or those that are especially susceptible to economic weakness, such as the Great Lakes region.

"The most volatility will come in areas like Florida, where there are a large number of second homes and investment properties," he said. "Places like Michigan, which is seeing declining employment, will also see home prices declining."

The survey showed that economists continue to expect modest economic growth through the middle of next year. Their average forecast for third-quarter gross domestic product, the broadest measure of economic output, put growth at a 2.8% annual rate, unchanged from their prediction in a survey conducted in August. The economists shaved their forecast for the fourth quarter to 2.5% growth from the 2.6% rate they had forecast when surveyed last month.

Twenty-two of 52 economists said recession is the greatest threat to the economy over the next 12 months, compared with 14 who said inflation is the biggest threat and nine who chose stagflation, which refers to rising inflation accompanied by stagnant economic growth. The economists raised their forecasts for the likelihood of recession for a third straight time. On average, they put the probability at 26%, compared with 15% just last spring.

Implications of 9/11

As the fifth anniversary of the Sept. 11 attacks approaches, the majority of the economists, 32 of 48 respondents, said they believe the economy is now better able to withstand the shock of a major terrorist attack than it was in 2001.

Economists noted that the economy is stronger now than it was in September 2001, when it was already in recession. Some noted that the psychological impact of an attack would be less jarring, given that an attack wouldn't be the same kind of surprise that it was in 2001. Ian Shepherson at High Frequency Economics noted that corporations are generally in better financial shape now than they were then.

"Companies are taking a more conservative approach to corporate finances now," said John Lonski at Moody's Investor Service. The Sept. 11 attacks, combined with the bursting of the tech bubble, "reinforced above-average risk aversion and made suppliers of capital less willing to lend money" to unproven borrowers, he said.

The most significant lasting implication of the Sept. 11 attacks, economists said, has been the rise in oil prices that has occurred over recent years, spurred in part by conflict in the Mideast. Twenty-six of 47 economists cited oil, while three cited increased vulnerability of consumer confidence and three others selected a reduction in talented foreign workers entering the U.S. work force. Five economists said 9/11 has had no lasting implications for the economy.

"Although the human costs of the 9/11 are incalculable, the macroeconomic costs have been remarkably small," said Nariman Behravesh of Global Insight. "Both the economic costs and impact on GDP growth were much smaller than other events, such as Hurricane Katrina."

Among other findings in the survey:

• Economists appeared to be as divided as the rest of the country when it comes to politics. When asked which outcome of the midterm elections would most increase chances of legislation to reduce the long-term budget deficit, 14 answered Democratic control of both houses of Congress, while 14 said Republican control of both chambers. Ten said a split Congress would be most effective in trimming the deficit.

• The economists, on average, predict 115,000 new jobs a month will be added to nonfarm payrolls over the next year. That is the lowest forecast since the question was first asked in June 2005, and represents the sixth consecutive drop in the estimate. They expect the unemployment rate to rise slightly to 4.8% by November, up from the 4.7% level reported by the Labor Department for August. The rate is seen at 4.9% in May 2007.

• Economists cut forecasts for crude-oil prices. On average, the price of crude was seen declining to $66.95 a barrel by December, compared with an expectation last month of $69.50. It was the first time the forecast was lowered since March. The price of crude is expected to fall to $63.91 by June 2007.

Article in September 2, 2006 Wall Street Journal

Realtors Official Forecasts Decline In Home Prices

By JAMES R. HAGERTY
September 2, 2006

The chief economist of the National Association of Realtors predicts that U.S. home prices will generally decline during the next few months.

The unusually bleak assessment from David Lereah, the trade group's top economist, came as the Realtors reported that their index of pending home sales dropped 7% in July. The decline shows that home shoppers continue to take their time, hoping prices will fall amid a glut of houses on the market in many parts of the country.

"I'm hoping for prices to drop," Mr. Lereah said in an interview. The Realtors normally stress the tendency of home prices to rise over the long term. But Mr. Lereah said lower prices are needed in some parts of the U.S. to lure buyers back into the market. During the past year, sales have plunged in California, southern Florida and the Washington, D.C., area, all places where prices more than doubled in the first half of this decade.

Sales have stalled partly because "the sellers are not bringing prices down fast enough," Mr. Lereah said. "They've been very stubborn." A drop of 5% to 10% in California and southern Florida "probably would be enough to bring sales back," he said.

For July, the Realtors reported that the national median home price was up 0.9% from a year earlier. But Mr. Lereah said he expects the national median to decline modestly in the next few months. That would mark the first decline since 1993. "The quicker we can get negative prices, the quicker we can get sales coming back," Mr. Lereah said.

Thomas Lawler, a housing economist in Vienna, Va., said the national median home price in this year's fourth quarter is likely to be down 3% to 4% from a year earlier.

In recent months, median prices in some areas -- including San Diego, Boston, the Virginia suburbs of Washington and parts of Florida -- already have fallen from year-earlier levels.

The pending-sales index, which equates the average pending-sales rate of 2001 to 100, registered 105.6 in July. The latest reading was down 7% from June and 16% from July 2005. The index, based on signed contracts for home sales that haven't yet been completed, has fallen nearly 18% since hitting a peak of 128.2 in August 2005.

By region, the July index was down 20% from a year earlier in the West and Midwest, 16% in the Northeast and 11% in the South.

On Wednesday, the Mortgage Bankers Association reported that its seasonally adjusted index of applications for home-purchase mortgages declined 1.6% in the week ended Aug. 25. That index -- a measure of demand for homes -- is down about 20% from a year ago.