Article in December 29, 2006 Detroit Free Press

HOUSING AND DEVELOPMENT: Area home sales mixed

Like U.S., Detroit rose but Wayne, Oakland didn't

BY MARGARITA BAUZA
FREE PRESS BUSINESS WRITER

December 29, 2006

As U.S. sales of existing homes showed an uptick in figures released Thursday, local sales in October increased in Detroit but fell in Dearborn and western Wayne and Oakland counties when compared to the same period a year ago. Specifically:

• 628 homes sold in Detroit in October compared with 594 in October 2005.

• 175 homes sold in Dearborn in October compared with 190 in October 2005.

• 716 homes sold in western Wayne and Oakland counties in October compared with 877 in October 2005.

National figures for existing home sales released Thursday showed that sales rose unexpectedly in November, as prices fell for the fourth month in a row, adding to evidence that the housing slowdown is ending.

U.S. purchases increased 0.6% last month, to an annual rate of 6.28 million, after they rose 0.5% in October. That marked the first back-to-back gains in monthly sales since March 2005, the National Association of Realtors said Thursday in Washington.

The report, coming on top of a bigger-than-expected jump in new-home sales reported Wednesday, suggests housing might be less of a drag on economic growth in 2007. That's in line with the Federal Reserve's forecast for growth at a moderate pace in the new year.

"It appears we've hit bottom," David Lereah, chief economist of the Realtors' group, said Thursday at a briefing in Washington.

Sales of existing homes, which account for about 85% of the U.S. housing market, are recorded when a contract is closed. New home sales, recorded when a contract is signed, are considered a more timely barometer of the housing market.

The number of previously owned homes for sale decreased 1% last month, to 3.82 million. That represented a 7.3 month supply at the current sales pace, down from 7.4 months in October.

The median price of an existing home in November fell 3.1% from a year ago, to $218,000, the fourth consecutive monthly decline.

State sales decrease

By October of this year -- the latest figures available from the Michigan Association of Realtors -- 16,482 fewer houses had sold in the state compared with October 2005.

In Western Wayne and Oakland counties 10-month sales fell from 9,495 in October of 2005 to 7,582 in October 2006, a drop of 20%. November figures are not available for Detroit-area markets because the statistics are reported quarterly.

Sam Baki, president of the Western Wayne Oakland Association of Realtors, says he expects the local sales numbers for November and December to be up. "There's a lot of activity right now," said Baki, a Realtor at Keller Williams in Northville.

He said buyers appear more comfortable with housing prices than they did a year ago, when both buyers and sellers were adjusting their expectations about pricing and sales.

"After the election especially, it picked up a little," Baki said. "People understand the market a little more, and anecdotally, there's been more activity in November and December. People are looking, making offers and showing houses."

David Elya, president elect of the Metropolitan Consolidated Association of Realtors and an agent with Realty Executives Group in Shelby Township, said he believes the Detroit-area market will see a lot of activity this spring.

"There are plenty of buyers that are waiting for good news," he said. "There's ample supply and good value out there. My Web activity is up, my phone calls have been up."

Article in December 28, 2006 Wall Street Journal

Existing-Home Sales Climb
As Inventories Continue to Fall
Consumer Confidence Improves Markedly

By JEFF BATER
December 28, 2006

WASHINGTON -- Existing-home sales climbed a second straight time and inventories fell during November in another sign the housing market might be stabilizing.

Meanwhile, U.S. consumer confidence improved smartly in December, lifting to its highest level since April, according to a report Thursday by research group the Conference Board.

Home resales rose to a 6.28 million annual rate, a 0.6% increase from October's unrevised 6.24 million annual pace, the National Association of Realtors said Thursday. The median home price was $218,000 in November, down from a revised $219,000 in October and lower than $225,000 in November 2005.

NAR chief economist David Lereah said the twin increase in sales was the first since demand rose in March and in April 2005.

"It appears existing home sales hit bottom in September," Mr. Lereah said. "Price drop is necessary to stir sales. It is working. Sales are up. It appears we hit bottom."

The housing sector is in a slump that has held down economic growth. But a sign the market might be stabilizing emerged Wednesday as the government reported new-home sales rose more than expected in November and inventories fell; analysts, however, cautioned the supply of homes remained high and it was too early to tell whether a sector bottom had been reached. Home construction last month also climbed -- yet building permits kept dropping. (See related article1.)

The home resales level last month was above Wall Street expectations of a 6.18 million sales rate for previously owned real estate.

The average 30-year mortgage rate was 6.24% in November, down from 6.36% in October, according to Freddie Mac. By the end of November, the inventory of homes on the market fell to 7.3 months from an unrevised 7.4 months at the end of October, NAR said. Regionally, existing-home sales were mixed. Sales rose 6.0% in the Northeast and 0.8% in the West but were flat in the Midwest and fell 1.6% in the South.

Article in December 27, 2006 Wall Street Journal

Sales of New Homes Rose 3.4%
In November, Prices Climbed

By JEFF BATER
December 27, 2006 .

WASHINGTON -- New-home sales bounced back in November, rising more than expected, while inventories fell and the median price climbed.

Sales of single-family homes increased by 3.4% to a seasonally adjusted annual rate of 1.047 million, the Commerce Department said Wednesday. October sales fell 3.8% to 1.013 million, revised from a previously estimated 3.2% retreat to 1.004 million.

The sales numbers Wednesday were better than Wall Street was looking for. Economists expected a 1.6% increase to an annual rate of 1.020 million in November. The advance in November was the third in six months; sales were up 3.1% in September, up 4.3% in August, down 9.2% in July and down 2.1% during June.

But year over year, sales were 15.3% lower since November 2005. The housing sector is a big thorn in the side of the economy, which slowed in the third quarter to a 2% pace. The housing component of gross domestic product plummeted by 18.7%, which was the sharpest drop in 15 years and robbed GDP of 1.20 percentage points.

Surging demand in certain markets across the U.S. during the housing boom sent prices skyward and builders breaking ground. Sales peaked in 2005 and began receding, while inventories climbed, resulting in builders slowing down.

New-home inventories fell in November. There were an estimated 545,000 homes for sale at the end of the month, the Commerce data Wednesday showed. That represented a 6.3 months' supply at the current sales rate. An estimated 553,000 homes were for sale at the end of October, a 6.7 months' inventory. However, the months' supply a year earlier, in November 2005, was 4.9.

The average price of a new home decreased to $294,900 in November, down from $304,900 in October but above $294,400 in November 2005, according to Commerce. The median price rose, up to $251,700 last month from $243,800 in October and $237,900 in November 2005.

Financing costs drifted down in November. The average rate on a 30-year mortgage was 6.24%. It was 6.36% a month earlier -- and 6.33% in October 2005.

By region, new-home sales last month rose 22.4% in the Midwest, 22.5% in the Northeast, and 19% in the West. Demand fell in the South, down 9.3%.

Based on figures unadjusted for seasonal factors, an estimated 72,000 homes were actually sold last month in the U.S., down from 78,000 in October.

Article in December 11, 2006 Wall Street Journal

Realtors See Improvement Ahead
For Housing Market, Home Prices

By BENTON IVES-HALPERIN
December 11, 2006

WASHINGTON -- Prospects for existing home sales may improve in the coming year, relative to this year's sluggish pace, while new home sales are expected to continue their slide into 2007, according to the National Association of Realtors Monday.

Nonetheless, NAR said home prices will continue to appreciate this year, even as market activity slows dramatically. The national median existing-home price for all of 2006 is projected to rise 1.4% to $222,600, with another 1.0% gain next year to $224,700, according to NAR. The median new-home price should fall by 0.5% to $239,700 this year, followed by a slight 0.8% increase in 2007 to $241,700.

Based on NAR forecasts, existing-home sales are expected to be 6.47 million for all of 2006, which would be a decline of 8.6% from 2005. In 2007, the pace of sales is expected to rise steadily from the current low and reach an annual total of 6.40 million, which would be 1.0% lower than this year's total.

"By the fourth quarter of 2007, existing-home sales will be 4.6% higher than the current quarter," said David Lereah, NAR's chief economist, in a statement accompanying the forecast.

New home sales, on the other hand, are projected to remain fairly depressed into next year. NAR expects new-home sales in 2006 to fall 17.7% to 1.06 million, before dropping an additional 9.4% in 2007 to 957,000.

NAR attributed much of the contraction in the market for new homes to builders pulling back on construction to support pricing for current inventories, while high construction costs in some areas are eating into profits.

Still, "most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards," Mr. Lereah said. NAR said total housing starts for 2006 are likely to fall 12.3% to 1.82 million units, followed by another 15.1% plunge in 2007 to 1.54 million.

"This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains," said Mr. Lereah.

Article in December 5, 2006 Wall Street Journal

More Borrowers
With Risky Loans
Are Falling Behind
Subprime Mortgages Surged
As Housing Market Soared;
Now, Delinquencies Mount

By RUTH SIMON and JAMES R. HAGERTY
December 5, 2006

Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace.

The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion U.S. mortgage market. The pain is most apparent in subprime mortgages, though there are signs it is spreading to other parts of the mortgage market.

Subprime mortgages are loans made to borrowers who are considered to be higher credit risks because of past payment problems, high debt relative to income or other factors. Lenders typically charge them higher interest rates -- as much as four percentage points more than more-credit-worthy borrowers pay -- one reason subprime mortgages are among the most profitable segments of the industry.

They also have been among the fastest-growing segments. Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, according to Inside Mortgage Finance, a trade publication. Like other types of mortgages, subprime home loans are often packaged into securities and sold to investors, helping lenders limit their risks.

Until the past year or so, delinquency rates were low by historical standards, thanks to low interest rates and rising home prices, which made it easy for borrowers to refinance or sell their homes if they ran into trouble. But as the housing market peaked and loan volume leveled off, some lenders responded by relaxing their lending standards. Now, the downside of that strategy is becoming more apparent.

Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, according to UBS AG. "We are a bit surprised by how fast this has unraveled," says Thomas Zimmerman, head of asset-backed securities research at UBS. Roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments, the bank says.

Though delinquency rates on subprime mortgages originated in the past year have soared to the highest levels in a decade, economists don't expect any significant harm to the nation's economy or financial systems. But if late payments and foreclosures continue to rise at a faster-than-expected pace, the pain could extend beyond homeowners and lenders to the investors who buy mortgage-backed securities.

Several lenders are already feeling the sting. H&R Block Inc., which operates Option One, a major subprime lender, said last week that its mortgage-services unit posted a pretax loss of $39 million in the fiscal second quarter ended Oct. 31, compared with a year-earlier pretax profit of $48.8 million. The Kansas City-based tax-services company said last month it is considering selling Option One, which has been struggling with higher interest rates and defaults, and is closing 12 branch offices.

On Friday, KeyCorp said it reached a deal to sell its subprime Champion Mortgage business. Analysts at Friedman, Billings, Ramsey & Co. put the price for the company's subprime mortgage operation at $130 million, "far below" the $200 million to $250 million they expected. A spokeswoman for KeyCorp declined to comment, except to say that KeyCorp feels it "definitely generated a fair price" for both the unit and its loan portfolio, which was sold separately. She added that KeyCorp was leaving the subprime market because "it no longer fits with our long-term strategic priorities."

Soaring delinquencies are making some lenders more cautious, which is likely to put further pressure on the weak housing market. Yesterday, the National Association of Realtors said that its index for pending home sales for October fell a seasonally adjusted rate of 1.7% from September and was down 13.2% from a year earlier.

Delinquency rates have been rising steadily since the middle of 2005. But the trend has accelerated sharply in the past two to three months, according to an analysis by UBS. The figures don't include loans that lenders were forced to repurchase because the borrower went into default in the first few months; such repurchases also have increased sharply this year.

In October, borrowers were 60 days or more behind in payments on 3.9% of the subprime home loans packaged into mortgage securities this year, UBS says. That's nearly twice the delinquency rate on new subprime loans recorded a year earlier.

Carol Alter, a mail carrier in Aurora, Ohio, says she bought her first home for $99,000 at a sheriff's foreclosure sale in February, but felt pinched right from the start by her nearly $80,000 subprime mortgage. She says closing costs on the loan totaled $6,500, rather than the $2,500 she expected, forcing her to drain her savings and miss payments on her utility bills.

Ms. Alter says she fell behind on her mortgage payments in June after she hurt her leg and missed several weeks of work. She has been able to stave off foreclosure, she says, with the help of a $2,100 interest-free loan from Neighborhood Development Services in Ravenna, which operates a foreclosure rescue fund.

How much higher delinquencies further climb will depend in part on the depth of the current housing slump. Mortgage delinquencies generally rise when the housing market cools because borrowers who are in financial trouble find it harder to sell their homes. In addition, if prices fall, they may not have enough equity in their homes to refinance their mortgage.

The subprime industry's current troubles can be traced back to 2003 and 2004, when defaults were unusually low. Investors who purchased these loans did well and were eager to buy more. That encouraged lenders to lower their standards, making loans to more people with low credit ratings. Lenders also grew less inclined to demand full documentation of income and assets and more willing to offer "piggyback" loans that allowed borrowers to finance 90% or 100% of the purchase price without being required to buy private mortgage insurance.

Many lenders kept introductory "teaser" rates low even after short-term interest rates began rising in June 2005, while increasing the amount the rate could rise on the first adjustment. That meant borrowers would face sharply higher costs when their monthly payments were reset.

Fraud has also increased. Some borrowers who took out no- or low-documentation loans were coached by loan officers or mortgage brokers to inflate their incomes and couldn't afford even their first mortgage payment, says Theresa Ortiz, a foreclosure manager with Neighborhood Housing Services of New York City, a nonprofit that works with homeowners in financial trouble.

Even after the housing market started to cool in late 2005, lenders continued to offer credit on easy terms. Many didn't begin tightening up until a few months ago. Now, they are pulling back. Accredited Home Lenders Holding Co., for example, is doing fewer piggyback and stated-income loans -- or loans that don't require borrowers to fully document their income -- especially for people with lower credit scores. In retrospect, "the tightening process should have started a bit earlier," says James Konrath, Accredited's CEO.

Recent analyses by UBS and by RBS Greenwich Capital show that subprime loans made in 2006 are going into foreclosure at a faster pace than loans made in previous years. In many cases these loans are "so bad right off the bat" and so far beyond the borrower's ability to pay that giving the borrower more time to pay or restructuring the loan wouldn't help, says Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago, a nonprofit organization that works with financially distressed homeowners.

If delinquencies continue to grow, the pain could also be felt by investors who have flooded into the market for subprime securities. Because of the way mortgage-backed securities are structured, investors who buy investment-grade securities aren't likely to be hurt if losses are close to expectations. But if losses on the underlying mortgages substantially exceed expectations, some investors who buy the riskiest slices of subprime securities are likely to rack up losses. These include hedge funds and investors who buy collateralized debt obligations, pools of debt instruments that are often snapped up by foreign buyers.

Because the underlying loans have gotten riskier, credit-rating agencies are telling issuers of mortgage-backed bonds to set aside more money to cover losses than they did three years ago in order to get an AAA rating for their bonds.

But some recent deals are already coming under review. Standard & Poor's Corp. put one deal backed by loans issued by Fremont General Corp.'s mortgage unit on credit watch for possible downgrade last month and says it could take similar action on deals from several other issuers within the next few months. Fremont declined to comment.

"We are really monitoring very, very closely the portfolios of all the subprime issuers," says Ernestine Warner, head of RMBS Surveillance. "It's an industrywide trend."

Last week, Moody's Investors Service put a third 2006 deal on credit watch for a possible downgrade. Fitch Ratings also has a 2006 deal on credit watch. When mortgage-backed securities are downgraded it is typically during their third or fourth year.

Predicting losses on these securities is a challenge because there's little or no historical evidence to show how subprime loans will perform at a time when home prices are falling, says Thomas Lawler, a housing economist in Vienna, Va. An analysis by Merrill Lynch & Co. found that losses on recent subprime deals could be "in the 6% to 8% range" if home prices are flat next year and could rise to the "double digits" if home prices fall by 5%. Falling home prices could trigger losses not only for investors who bought riskier classes of mortgage-backed securities, but also for some holders of A-rated bonds, according to the report.