Article in November 22, 2006 Detroit News

The incredible deflating housing market

Region's home prices fall most, but is rebound near?

Dorothy Bourdet The Detroit News / The Detroit News

First came the sting of massive job and income cuts, making Metro Detroiters nervous about their futures. Right behind were fear and caution, which kept homebuyers on the sidelines and created an oversupply of homes that can sit months, even years, on the market.

Now, comes home price deflation, the worst in the nation, according to a survey released this week by the National Association of Realtors. The median home price in Metro Detroit sank to $154,100 in the third quarter, down 10.5 percent from $172,100 at the same time last year. It was the largest percentage drop of U.S. cities.

"The overall feeling in Michigan is everybody's knees are knocking a little bit," said Nancy Warson, a Livonia Realtor.

While prices are down, at least one top Realtor predicts the market may be ready to rebound.

"We're ready to turn around," said Pat Vredevoogd Combs, National Association of Realtors president and a Grand Rapids Realtor. "What we're seeing, we think, is that it's bottoming out."

The steep decline in home prices can be blamed on big losses in jobs and income in Metro Detroit, said Dana Johnson, chief economist at Comerica Bank.

"Overlaid on top of that fundamental is the fear and uncertainty that pervades this region," he said

Would-be homeseller Brian Kurtz knows that uncertainty well. The financial planner from Troy has dropped the price on his Sterling Heights colonial by $36,600 to $259,900 and is now paying $4,000 per month for two mortgages.

"It's like trying to sell ice cubes to Eskimos," said Kurtz, whose home has been on the market since August 2005.

Warson, with Real Estate One, said buyers are just not out there. One of Warson's clients in South Lyon, who is selling their house for about $500,000, has had only one potential buyer look at it in seven months.

Those kinds of waits are reflected in the state's slumping home sales, which are down 17.2 percent in the third quarter. Those kinds of waits also can quickly force down home prices, as sellers often drastically cut their asking prices so they can snag a buyer.

In a state where the jobless rate has soared above the national average, buyers are wary of getting into long-term financial commitments, Warson said. Current homeowners, such as empty nesters, are also reluctant to move or downsize, fearing they'll take a loss on their home.

"Some are scared about their job, some are scared (because) they don't know where the market is and they would prefer to buy at the very, very bottom, so they're holding out -- and nobody knows where the bottom is," Warson said.

Sellers have to be patient

Home prices are slipping nationally, too, though not as drastically as in Michigan. The median single-family home price in the U.S. was $224,900 in the third quarter, down 1.2 percent from last year when the median price was $227,600.

While the national decline is seen as an expected correction in housing prices that had soared out of control with five years of double-digit increases, the big drop in the Metro Detroit median home prices over the past six months has been unparalleled since 1989, the furthest back data is available.

"We're kind of an oddity out there," said Combs, the Grand Rapids Realtor.

Economists say home sellers will have to be patient as they wait for the local real estate market get upright again.

"It's going to be a while before that fear and uncertainty goes away. We're at least six months away from the time when jobs and income bottom out here in Michigan," Johnson said.

Falling home prices mean people have fewer options when they hit financial rough spots.

Wayne County had the nation's second-highest metro foreclosure rate in October, with one in every 196 households filing for foreclosure, according to RealtyTrac, an online firm that tracks foreclosures.

"When it (the median house price) drops sharply, it leaves people with no equity and when they get into trouble they have no choice but to walk away," Johnson said.

"It's an example of how the distress in the economy ripples from one sector to another."

Agents are getting creative

To jump start the housing market, real estate agents have pulled out all the stops. They've developed individual Web sites for each house, increased commissions for the buyer's agent and added other incentives for buyers.

"We've seen plasma TVs, we've seen $5,000 bonuses, we've seen cars, we've seen airline tickets. We're about as creative as we can get at this point," Warson said. "It's still not driving the market up."

In an average year, real estate broker Rob Scalici closes on about 75 to 100 home sales. Right now, he's got 30 listings and no buyers.

"It's kind of amazing. I'm back to doing things that I haven't done in a long time," said Scalici, a broker with RE/MAX Metropolitan in Utica, who is spending more and more Sundays in open houses hoping to snag a buyer.

Scalici hopes 2007 will be a better year for home sellers.

"You've gotta hope that with the New Year comes renewed spirits," he said.

Combs of the National Association of Realtors is optimistic.

Her open houses have been busier -- just this week she sold two homes in the Grand Rapids area.

"Buyers have been sitting on the sidelines watching," she said. "We're seeing them coming back into the market."

Article In November 22, 2006 Detroit Free Press

Upturn seen for region's slumping home sales
Bargain prices may dry up by spring, experts say

BY JOHN GALLAGHER
FREE PRESS BUSINESS WRITER

November 22, 2006

The nation's top realty agent -- amid more bad news for metro Detroit's slumping housing market -- predicted Tuesday that homeowners could see a rebound in the coming months.

If true, an upturn would be good news for frustrated Detroit-area sellers. The market saw the sharpest decline in median prices for existing single-family houses during the July-September quarter of any of 148 metro areas in the nation, according to the National Association of Realtors.

The median price in metro Detroit -- half sold for more, half for less -- was $154,100. That is down 10.5% from the same period in 2005, when median prices in the metro area stood at $172,100.

Pat Vredevoogd Combs, a Grand Rapids Realtor who became president of the National Association of Realtors this month, said the current market transition -- what some call a slump -- is good news for buyers.

"This window of opportunity will continue into the new year, but inventories are starting to decline and sellers will be less willing to negotiate when conditions begin to balance in most areas around early spring," she said.

David Lereah, chief economist for the national Realtors, echoed that Tuesday.

"Last year we had a record sales market and historically tight supplies of homes with buyers bidding over the asking price," he said. "Under these circumstances, it's no surprise that overall home prices are slightly below a year ago. We expect this trend to continue in the months ahead, but we'll see modest appreciation in most of the country in 2007."

Tell that to Ruby and Willie Jennings, who have been unable to sell their northwest Detroit ranch-style house for the past few months. The Jenningses, both in their 80s and thinking of relocating to a group living arrangement, have cut their asking price to $112,000 from an initial $119,000.

"It was sold, we thought, at one time," Willie Jennings said last week. "The purchaser backed out. No one has made an offer since."

Figures from the Michigan Association of Realtors show that the biggest declines in home sales during September occurred in both Monroe County, where sales of existing houses were down nearly 32% compared with the same month a year ago, and in Livingston County, where sales were down 26% during September.

Lesser declines were reported in Oakland County and in suburban Wayne County.

The Detroit Board of Realtors, covering the city, reported sales up 6.6% in September. Statewide, sales in Michigan were off more than 14% in September.

For the nation as a whole, the median price of an existing single-family home in the July-September period was $224,900. The priciest market: the San Francisco-Oakland area, where the median sale price was $749,400. Neighboring San Jose-Santa Clara, Calif., was right behind with a median sale price of $747,400.

The most affordable markets: Decatur, Ill., and Youngstown, Ohio, tied for the lowest median sale price at $86,000.

Article in November 18, 2006 Detroit Free Press

CONSTRUCTION SLOWDOWN: New homes hit a low
In southeast Michigan, permits drop 66.2% in October

November 18, 2006

U.S. housing construction slowed considerably in October, reaching its lowest level in six years, sputtering most in the Midwest and South.

In southeast Michigan, residential-building permits dropped 66.2% to 526 in October, compared with 1,557 in October 2005, according to data from the Southeast Michigan Council of Governments.

Nationally, the slowdown was most severe in the South, which saw a 26.4% decline. The Midwest saw an 11.7% drop. The West dropped 2.1%, and the Northeast saw construction jump by 31%.

Overall, new home construction fell by 27.4% in October, compared with a year before, the Commerce Department reported Friday.

The nation's once-booming housing market has slowed so much that some industry experts say it has reached the bottom, yet others are predicting another 18 months to two years in the down cycle.

Lee Schwartz, executive vice president of government relations for the Michigan Association of Home Builders, said the next upswing in the state home-building market could be two years away because of economic uncertainties.

"Given Michigan's economic doldrums, given the intense problems auto companies are having, that ratchets down to suppliers and firms that supply suppliers," Schwartz said. "People are ... not sure what their situation is going to be two years from now, three years from now."

Michigan has a nine-month supply of existing homes, he said, and the combination of low interest rates and falling home prices has not yet driven a large increase in demand.

Randy Wertheimer, chief executive officer of Hunter Pasteur Homes in Farmington Hills, said builders have had mixed results. For example, a new subdivision of single-family homes the company is building in Novi called Knightsbridge Gate has been moving, with 50 homes in the $280,000 to $344,000 price range selling in eight months.

But two other developments in Van Buren Township have been slow, selling roughly one home a month.

"I do think we have reached the bottom, and I also think it is a phenomenal time to be a buyer. The things we have had to include in these homes to get people to buy them is incredible," he said.

The homes in Novi, which are 2,000 square feet to 2,900 square feet, feature granite countertops, pre-wired alarms and iPort stations where homeowners can plug in their iPods to play throughout the house.

The Commerce Department reported that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6% from the September level.

The decline, bigger than had been expected, was the largest percentage decline in 19 months and pushed total activity down to the lowest level since July 2000.

Applications for new building permits, seen as a good sign of future plans, fell for a ninth consecutive month, the longest stretch on record. The October drop was 6.3%, pushing permits down to an annual rate of 1.535 million units, the slowest pace in nine years.

David Seiders, chief economist for the National Association of Home Builders, said he believed construction would fall by about 13% this year as builders scramble to deal with plunging sales.

"We had an unsustainable boom in housing in both 2004 and 2005, and now we have a correction on our hands," he said.

The housing weakness trimmed a full percentage point off economic growth in the July-September quarter, when the economy expanded at a tepid 1.6% rate.

Article in November 8, 2006 in Wall Street Journal

Mortgages and New Homes:
What to Do When a Builder
Offers to Find You a Loan

By RUTH SIMON

November 8, 2006

Thinking of buying a new home in this softer market? Chances are your builder is going to try to sell you a mortgage.

Builders have long encouraged their customers to use their mortgage affiliate for financing, and not just to make a little extra money. It also gives them control of the transaction, making it less likely that a mortgage snafu will create problems at closing. Now, as sales slow and cancellations rise, builders are increasingly rolling out special deals that may be tied to using their affiliated lender.

But you may well be able to find a better deal on your own. Builders' mortgage offers "clearly are worse in all the cases I've seen," says Jack Guttentag, professor emeritus at the University of Pennsylvania's Wharton School and founder of the mortgage-advice Web site www.mtgprofessor.com1.

When Randy Gowler, a Olathe, Kan., architect, wanted to buy a new four-bedroom home this year, the builder offered to pick up the first $8,500 in mortgage payments. The catch: Mr. Gowler had to use the builder's affiliated lender and pay the full $287,000 asking price. Mr. Gowler crunched the numbers and turned down the deal. Instead, he went with an outside lender that offered a lower interest rate and paid $274,000.

Unlike Mr. Gowler, most home buyers stick with the builder's lender. Pulte Homes Inc. says Pulte Mortgage provides financing for 90% of its buyers who need a mortgage. Centex Mortgage finances 80% of Centex Corp. customers. Most builders either have a mortgage affiliate or preferred lenders they work with.

Builders say their rates are competitive and that their mortgage affiliates give them more control over the sale. Indeed, getting a loan through your builder can be a plus if construction is delayed, says Greg McBride, a senior financial analyst with Bankrate.com2, because a builder's mortgage unit is more likely to be flexible if there are construction delays.

As the housing market has cooled, many builders have sweetened the pot with special deals. A September survey conducted by the National Association of Home Builders found sharp increases from last year in the number of builders offering to pay closing costs and other fees and in those reducing home prices.

In many cases, home buyers must use the builder's financing arm to qualify for these offers. That's particularly true if the incentive is mortgage-related, such as when the builder pays closing costs or picks up several months of mortgage payments. Buyers may also be required to use the builder's mortgage unit to qualify for a reduced purchase price, builder upgrades or other concessions.

Some competitors say that these requirements put buyers at a disadvantage. "They prevent consumers from shopping to see if there's a better deal out there," says Marc Savitt, vice president of the National Association of Mortgage Brokers. The savings from incentive programs are often illusory, he says, because the home buyer is charged a higher mortgage rate or more in fees and closing costs by the builder's mortgage affiliate.

The builders disagree. "This is really about special interests trying to limit competition -- and increase their profits -- by legislating home builders out of the mortgage business," the National Association of Home Builders said in a statement.

Federal rules prohibit builders from requiring that home buyers use their mortgage affiliates. The rules also require that any discounts offered to buyers who use these affiliates must be true discounts and not made up through higher charges elsewhere.

The Department of Housing and Urban Development says it is getting more complaints not only from mortgage brokers, but also from consumers. One builder canceled a purchase contract and refused to return an $11,845 down payment after the buyer decided to use an outside lender. After HUD intervened, the builder's mortgage company agreed to buy down the rate to make the loan more competitive. Another builder agreed to waive $5,360 in mortgage-origination fees that a buyer was being required to pay in order to qualify for $13,450 in incentives.

To make sure you're getting a good deal, ask the builder not only for the mortgage rate, but also for details on closing costs, points, any fees that will be paid to the lender or third parties, and the terms of the loan. Prof. Guttentag advises comparing that offer to a quote for the same mortgage obtained on the same day from an online lender. He also suggests shopping for financing at the same time you look at houses.

Whether the builder's deal is worth taking can also depend on how long you plan to stay put. A slightly higher mortgage rate may not be a problem if you plan to move in a few years, but it could wipe out the benefits of any incentives if you plan to stay in your home longer. You should also check what comparable homes are selling for to determine whether the builder is offering a real discount.

It can pay to negotiate. When Scott Lazaroff, an engineer, bought a new home in Lyons, Colo., in September, the builder offered to knock an extra $15,000 off the price if Mr. Lazaroff used its affiliated lender. He decided to use his own lender, but still convinced the builder to reduce the price by $10,000. Dan Gracey, another Colorado home buyer, said his builder came back with a lower mortgage rate after he "pushed back" on its original offer, which was higher than the competition.