Article in January 25, 2007 Detroit News

Home values down, taxes up

In most suburbs, assessments rise even as market dips

Jim Lynch / The Detroit News

For the second year in a row, most Metro Detroit homeowners are facing higher tax assessments despite a continuing drop in the market value of their homes.

That means their property tax bills likely will rise as well, though they can't exceed the current 3.7 percent rate of inflation set by the state.

Local officials say they expect annual assessment notices -- due in mailboxes around the first week of March -- will spark a higher-than-usual number of disgruntled property owners lining up for appeals before local assessment review boards.

Among them will likely be Charles Weir of Bloomfield Hills. He said he isn't pleased about the possibility of his current $15,000 tax bill going up when the average assessed value in his area has dropped 3.62 percent, according to preliminary figures released by Oakland County.

"I don't feel good about that," he said. "I think it's wrong. I think the taxing authorities are not being realistic or fair. The real estate taxes are not reflecting the state of the market."

The middle class may be paying the biggest price.

Dave Heiber, Oakland County's equalization manager, said the homes that have been hardest hit by slipping values are those in the middle range -- $150,000 to $300,000. Homes that cost up to $150,000 or so are holding their values, as are those priced at $300,000 and up.

That's one of the reasons prices in an older inner-ring community such as Oak Park are increasing when many other areas aren't. Oak Park's average home appreciated by 4.34 percent last year.

"We're more of a starter-home kind of market these days," said Oak Park City Assessor Dean Bush. "And there's definitely still a market for that."

Prop A has its quirks

The math of real estate assessments is heavily tied to the quirks of Proposal A, the state tax law that took effect in 1994.

That law kept homeowners' tax bills from following the then-soaring housing market. Under Proposal A, the taxable value of a home is kept in check from year to year. That figure represents the amount at which a home is actually taxed. It can be, and often is, lower than the assessed value, which should reflect 50 percent of the home's value. The assessed value appreciates -- on paper, at least -- as selling prices in the community rise.

Assessed values are estimates of how much homes are worth and a major factor in how much people pay in property taxes. Those assessments rose in 68 of 94 communities in Macomb, Oakland and Livingston in 2006. Wayne County does not yet have figures available.

Of those 94 communities, 65 posted smaller assessment increases than in 2005, and more than 75 showed percentages below the inflation rate.

Under Proposal A, municipalities can tax property owners at 5 percent or the rate of inflation, whichever is lower. So while many homes will appreciate far less than the inflation rate or even go down, taxes on them can still rise at least that much.

The gap between the taxable value and the assessed value widens until the house is sold. At that time, the cap comes off for one year and the taxable value jumps to catch up with the assessed value.

"We're already hearing people asking, 'How can my taxes go up when my market value is going down?' " said Steve Mellen, director of Macomb County's Equalization Department.

He estimates that the gap between taxable value and assessed value averages about 20 percent.

Homeowners upset by hike

In Ray Township, the average home assessment increased by more than 7 percent.

Dawn Bettcher, a mother from Ray Township, said she believed homes in her town were being overvalued given the moribund housing market. She cringed over her taxes jumping up again this year. "If our house was worth that, I wouldn't mind, but I don't think we could get that if we wanted to sell," she said.

Bettcher added that several homes in her neighborhood have been for sale for over a year, even after dramatic price cuts. "They keep dropping the price, and they're still not getting anyone."

The assessment notice that arrived late last year came as a shock to Macomb County homeowner Gil Wojcik.

For more than 40 years, he worked in the auto industry, and the Bruce Township home he built off 37 Mile was something of a reward for him and his wife. But the minor increase in his assessed value was far less than he expected, and particularly infuriating when a potential tax increase was factored in.

"Now that I'm retired, I was anticipating the home would appreciate, but I'm not seeing it," said the 60-year-old.

"If my taxes continue to go up like they are, my pension won't be able to cover it."

Wojcik took his concern to the Bruce Township Board of Supervisors, and on Dec. 6, officials agreed to send a letter to the state asking for a reconsideration of the 3.7 percent inflation rate in light of Michigan's difficult economic times. A month later, Washington Township officials fired off a similar letter.

The responses have been less than encouraging. A state Tax Commission official wrote saying there was no room for tinkering with the rate since it was "set in statute."

To that, Wojcik said: "I think that's a bunch of political hooey. If they wanted to do something, they would."

Suburbs expect protests

Local officials expect more residents across the region to challenge their assessments and tax bills this year.

Warren Assessor Philip O. Mastin III said the city's Board of Review handles roughly 800 appeals per year. In 2007, he said that number could easily increase by 10 percent to 20 percent.

The two most common petitions the board receives are from residents who feel their taxes are too high or their home value has been estimated incorrectly.

What many do not understand, Mastin said, is that local government does not have any authority over the rate of inflation number handed down by the state. And for all the homeowners' ire over property tax increases in recent years, things have been much worse.

"The fact of the matter is, without Proposal A, homeowners would be paying about 38 percent more on the average," Mastin said.

"Yes, a 3.7 percent increase is a lot, but it's nothing compared to what we saw pre-Proposal A. In the 1980s we saw annual increases of 10 percent, 12 percent and 15 percent."

Article In January 26, 2007 Detroit News

Assessments on the rise

Affordable housing communities like Ecorse, River Rouge jump; some Grosse Pointes decrease.

Darren A. Nichols / The Detroit News

DETROIT -- Wayne County released tax assessment projections Thursday, showing an increase in 18 of 43 communities.

The figures follow a Metro Detroit trend of increasing assessments despite a drop in home market values.

The assessments, which usually arrive in the mail by March, show the increase in part because the figures are based on a survey of sales from April 2004 to March 2006, a period largely before the market collapsed, said Gary Evanko, director of county assessing and equalization.

"The papers weren't full of news of foreclosures every day then," he said.

The basis for property taxes, assessments will rise an average of 2.56 percent, according to records released Thursday.

Even so, Michigan law prohibits property taxes from exceeding the 3.7 percent rate of inflation.

In Wayne County, areas with affordable housing such as Detroit, Ecorse, River Rouge and Highland Park saw increases from 6 percent to 7 percent.

But the wealthier Grosse Pointes decreased -- nearly 3 percent on average in Grosse Pointe Shores and almost 1 percent in the city of Grosse Pointe. Results from the other Pointes, like many other areas, were flat.

"It will be able to turn around," said Maria Little, an agent with Coldwell Banker in Grosse Pointe Farms. "We've kind of hit rock bottom. Homes are staying on the market a little longer and there are a lot more homes for sale, but it's starting to get busy again."

Assessments rose in 68 of 94 communities in Oakland, Macomb and Livingston counties.

In the city of Plymouth, assessments are going up about 5.15 percent, which worries Debra Madonna.

"What taxes do, they pick away, especially when people don't have jobs and don't know the future of the jobs," said Madonna, whose oldest son is getting married in a few months.

"It piles on after a while It's one more reason to run kids out of the state."

Article in January 26, 2007 Wall Street Journal

The Chill at Luxury's Low End
In $1 Million-House Sector,
Sales Tumble, Prices Are Flat;
Fancy Backsplashes Lure Few

By JUNE FLETCHER
January 26, 2007

As the national housing market continues to weaken, prices of homes in the $1 million range are slumping in many parts of the country. In once-golden Sunbelt cities like Miami and Santa Barbara, Calif., as well as in major Midwestern cities like St. Louis and Chicago, prices fell in the fourth quarter of 2006 from a year earlier, in some places by as much as 7.2%. In other areas, prices rose slightly but appreciation was sluggish, with gains of 4.3% or less. Still, analysts say, the category is holding up better than the overall market, which declined 10% during the same period.

These are some of the results of an exclusive report done for The Wall Street Journal by the National Association of Home Builders. "The million-dollar market is slowing down," says NAHB's director of research, Gopal Ahluwalia, who conducted the analysis using information from First American Real Estate Solutions, a Santa Ana, Calif., data provider.

The report looked at sales of new and existing single-family homes costing between $750,000 and $1.25 million in the nation's top metro areas. In 2005's fourth quarter, 65 metro markets had 100 or more sales in that price range. A year later, that figure had dropped by more than half, to 32. And appreciation was generally lackluster. Nearly half of those 32 markets saw prices in this "starter luxury" market flatten or decline during the fourth quarter over the same period a year earlier, in some areas by as much as 7.2%. Overall, the median price of these 32 markets rose a modest 1.4%, to $890,000.

Nationally, median home prices during the same period fell 10%, to $225,000 from $250,000 the study showed. The National Association of Realtors, which tracks existing-home prices only and will release its fourth-quarter report Feb. 15, is projecting that overall median prices will drop just 3.9%, to $216,500, in the fourth quarter of 2006. (NAHB says its figures differ from those of NAR because they use different geographical boundaries for their metropolitan areas and include data from both new and existing homes.)

Analysts say that the million-dollar market is doing better than the overall market because it wasn't quite as overrun with investors during the boom. "There were more buyers trying to move up rather than make a killing," Mr. Ahluwalia says. Because investors make their money by reselling properties quickly, they're more likely to cut their losses -- and their prices -- as soon as they detect a market slowdown.

The Thrill Is Gone

To be sure, a million dollars today doesn't go as far as it did even a few years ago, before residential real estate in many cities experienced double-digit price increases during the boom. Michael Patterson, a Sotheby's real-estate broker in Santa Barbara, Calif., says that as recently as 2001, $1 million would get you an oceanfront estate. Now it will get you a remodeled two-bedroom house built more than a half-century ago. In Dallas, meanwhile, it will buy a brand-new, four-bedroom lakefront home.

It used to seem like a lot of money, Mr. Patterson says, the entry point to luxury. "It doesn't have the mystique that it used to," he says.

Nor are today's million-dollar-home customers the same as those of five or six years ago. Then, they tended to be cash-rich buyers who were mostly immune to mortgage-interest-rate fluctuations. But during the run-up, as more ordinary homes were pushed into the million-dollar range, those wealthy buyers moved up too, to the "super-luxury" level of $3 million and above. They were replaced by middle-income buyers, some of whom were hoping to cash in on the boom and who stretched to trade up using creative financing like option adjustable rate mortgages -- which allow borrowers to decide how much they're going to pay each month -- and interest-only loans. Now, many are "stuck" with homes whose prices are flat or declining, according to University of Maryland business professor Peter Morici.

The Sunbelt cities that attracted droves of buyers and builders during the boom have fared poorly. Overheated and overbuilt markets finally slowed down by the end of 2006: prices fell 4.2%, to $876,250, in Miami and flattened in Phoenix at $887,660 and in Charleston, S.C., at $937,500. Some Midwestern markets also performed badly. Prices were down 3.3% in Chicago, due in part to the loss of manufacturing jobs there. Things were even worse in St. Louis, which lost 3,300 jobs in the year ending November, second nationally only to Detroit. Prices in St. Louis were down 7.2%, the largest decline in the survey.

Starter luxury homes are doing best in coastal cities where strong local economies support the incomes needed to buy them. The study's highest price increase, 4.3%, was in the Santa Ana-Anaheim-Irvine area of California, which has seen a steady rise in employment over the past year, particularly in the professional- and financial-services sectors, and the highest wage increases in three years. On the East Coast, fat year-end bonuses at many Wall Street firms fed a buying spree in the suburbs of New York, where prices increased almost as much, to 4.2%.

Overall, the survey showed a return to a buyer's market in the million-dollar range. But in some places, like San Francisco, where prices have remained high for years -- the overall median is $740,000, compared with the median price of $870,000 in the city's "million-dollar" category -- buyers aren't rushing in. Fatigued by years of fruitless house-hunting, they "can't quite believe" that the market has finally turned in their favor, according to broker Linda Harrison.

Vienna, Va., housing economist Tom Lawler says buyer hesitation is also being fueled by the change in mentality from a speculative market to one based more on need. During the boom, many buyers bought the biggest house that they could because they saw that as a way to increase their investment in real estate without buying rental property. But now that the market is softening, that strategy no longer makes much sense. Lawyer Beth Joffe and her husband, a physician, recently sold their three-bedroom Chicago home for $760,000 and have moved to a much smaller two-bedroom condo in Madison, Wis., that they bought for $300,000. Though both are far from retirement age, neither wants the hassle or added expense of a bigger place. "We don't need that any more," Ms. Joffe says.

Reverse Psychology

Agents say that in many cities, the shifting psychology is causing sellers to reverse their tactics. During the run-up, sellers usually priced their homes slightly above the market knowing that someone would buy them, even if the price tag later had to be lowered somewhat. Now sellers are trying to undercut the market to sell while their listings are still fresh.

That's especially true in relatively new "semi-custom" subdivisions, where many homes, though chock-full of amenities like built-in wine racks and tumbled-stoned backsplashes, tend to look alike. In St. Louis, Steve Shadrach has just listed his five-bedroom, brick-and-stone-front home with a swimming pool, which he bought more than two years ago for $770,000, for $949,000. If he finds a buyer at that price, he'll make a substantial profit. But his asking price is nearly $50,000 less than a nearby neighbor is asking for a nearly identical property, and about $100,000 less than what his builder is charging to build the same house. "I'd like to price it higher, but I have to compete with them," says Mr. Shadrach, a plastics salesman who wants to move closer to his grandchildren.

Indeed, a surfeit of new homes in central New Jersey is partly responsible for the significant price declines in Edison, where prices of starter luxury houses fell 6.7% in the fourth quarter from the year earlier. Coldwell Banker has a $949,900 listing of a "new" five-bedroom brick house that was actually built in 2005, but interested buyers are few. "People are going for less house," says Joe Thomas, an agent with Coldwell Banker. "They're not stretching any more."

Stretched Out

In many parts of Southern California, prices are still on the upswing, although analysts such as Celia Chen, director of housing economics at Moody's Investor Service's Economy.com, says the area is at "high risk" for a fall. Although the local economy is strong, incomes haven't kept pace with the sizzling double-digit price increases these markets experienced from 2001 to 2005. And with federal regulators pressuring lenders to cut back on creative financing, fewer buyers are able to stretch their incomes to buy million-dollar homes.

That's what banker David Jaffe discovered when he put his five-bedroom stucco home in Ventura, Calif., on the market 2½ months ago for $979,900. Ventura's prices are still rising -- they increased 4% from 2005 to 2006, the study showed -- and Mr. Jaffe attracted an offer close to his asking price soon after he listed it. But the deal fell apart in escrow when the buyer couldn't qualify for the loan.

Mr. Jaffe bought the place in April 2005 for $935,000 in a bidding war, and still hopes to find someone who will meet his asking price. But he doesn't expect to see lines forming at his door, especially since homes in his price range are affordable to fewer people and no longer have quite the cachet that they once did. "The market is changing," he says. "It's definitely a buyer's market now."

Article in January 26, 2007 Wall Street Journal

Two Weak Spots in Economy
Show Strength at End of 2006
Durable-Goods Orders Climb;
Monthly New-Home Sales Rise

By JEFF BATER
January 26, 2007

WASHINGTON -- Two sore spots in the U.S. economy showed some strength at the end of 2006, with demand rising for expensive manufactured goods and new homes.

Durable-goods orders climbed 3.1% during December in a broad-based increase that included a 2.4% rise in bookings for nondefense capital goods excluding aircraft, the Commerce Department said Friday.

A separate government report showed sales of new homes went up a second straight month, rising 4.8% -- a positive ending to a troubling year that saw demand take its biggest spill since 1990.

"The economy, after a brief respite last year, appears re-energized and eager to accelerate," said Bernard Baumohl, managing director of The Economic Outlook Group. "As a result, we expect to hear a more hawkish tone from the Fed when it meets next week. This places the equity and fixed-income markets in a vulnerable position for the next few weeks."

The Federal Reserve will hold a two-day meeting on interest rates. It has held rates steady since August as the economy weakened and inflation turned milder. (See related article3.)

One bugaboo for the economy has been manufacturing. Friday's durables data was another sign things weren't so bad.

"The 3.1% increase in new orders for durable goods and 2.4% increase in non-defense capital goods, excluding aircraft, in December is a positive sign that the manufacturing slump is a pause, not a recession, and is starting to turning around," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI trade group.

Transportation orders surged 4.8%, including the biggest climb in motor vehicle bookings since August 2004. Demand increased 2.5% for fabricated metals, 4.5% for primary metals, 5% for machinery, and 1% for computers and electronics. Demand decreased 1.4% for electrical equipment.

"It looks like the manufacturing side of the economy is holding its own," A.G. Edwards & Sons chief economist Gary Thayer said. "It's not as robust as it was previously, but there's still some signs of life."

The manufacturing sector weakened in the second half of 2006 because inventories started to back up too much as the economy slowed, leading to cuts in production. Declining car sales, for example, caused a contraction in output.

Recent signs of resilience, however, have emerged. The Institute for Supply Management's index of manufacturing activity moved to 51.4 during December from 49.5 in November. Readings above 50 point to expansion in activity; below 50 suggests contraction. Federal Reserve data on industrial production in December showed a 0.7% gain in manufacturing output, the largest increase since June. Manufacturing makes up 80% of all U.S. industrial production.

"It's still a little early to say manufacturing is out of the woods," Mr. Thayer said. "Durables is a volatile report. What we need is a string of good numbers."

While up in December, the yardstick for business spending -- nondefense capital goods excluding aircraft -- dropped by 1% in November and 4% in October. "Broadly speaking, this lead indicator of capital goods spending does not point to unusual strength in business equipment spending," Goldman Sachs said in a research note.

The Commerce Department reported new-home sales finished 2006 on a positive note, increasing 4.8% to a seasonally adjusted annual rate of 1.120 million. November sales rose 7.4%. Mortgage rates have been drifting lower and homebuilders are offering incentives to entice buyers.

On a not seasonally adjusted basis, new-home sales fell 17.3% in 2006 to an estimated level of 1.061 million, the largest drop since 17.8% in 1990.

The housing sector has restrained economic growth, which slowed in the third quarter to a 2.0% 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.

"While the back-to-back gains in new home sales are a positive development, it may be too early to conclude that the housing market has decisively turned the corner," said Brian Bethune, an economist for Global Insight. "Builders are still complaining about very high cancellation rates, indicating that final demand for new homes is much less robust than the headline numbers would suggest."

Article in January 25, 2007 Detroit Free Press

FORECLOSED

Record number of region's homeowners are in trouble as economy flounders

January 25, 2007

BY FRANK WITSIL

FREE PRESS STAFF WRITER

Home foreclosure filings surged to record levels across metro Detroit in 2006, adding to the misery of a region already suffering the effects of a sagging job market, plant closures and layoffs.

RealtyTrac Vice President Rick Sharga, whose company follows foreclosure rates nationwide, called it "the perfect storm" for Michigan -- a situation in which slow housing sales, loss of income and increasing monthly payments are bringing the house down on homeowners.

The figures, which RealtyTrac will release in a report today, are staggering:

• In Macomb County, the number of foreclosure filings nearly tripled, from 2,755 in 2005 to 8,192 last year, translating to one home for every 39 in the county.

• In Oakland County, Michigan's wealthiest county, the number jumped from 3,754 in 2005 to 7,282, meaning one of every 68 homes.

• In Wayne County, the number of filings more than doubled, from 18,176 to 40,220, translating to one of every 21 homes. That, RealtyTrac said, is higher than any county in any of the nation's largest metropolitan areas.

"It's the repercussions of a bad economy -- and in stark contrast to other parts of the country that are growing," said Dana Johnson, chief economist for Comerica Bank in Ann Arbor. "It's unfortunate, but it's not surprising."

The foreclosure data is just one indicator of the economic stress battering Michigan as manufacturers downsize and the job market fails to recover. The state's 7.1% unemployment rate last month was the second highest in the nation, after Mississippi.

The National Association of Realtors said last year that metro Detroit had suffered the sharpest decline in home values of any large urban market in the nation. In December, a survey by the Washington, D.C.-based Mortgage Bankers Association showed that in the third quarter, Michigan ranked third behind Mississippi and Louisiana in mortgage delinquency rates.

RealtyTrac noted that nationwide, foreclosure filings were up -- by 42% -- but that increase was dwarfed by the Michigan numbers, which showed 127% more filings in 2006 than in 2005.

"It's a sad state right now," said Chris Cotzias, a real estate broker for Re/Max in the Grosse Pointes.

Trend predicted to worsen

There are several kinds of foreclosures. Most are initiated by a mortgage lender for failing to keep current on payments. Others occur because homebuyers fail to make good on property taxes.

Philip Bozenski, broker of the Allen Park-based Bozenski Real Estate & Appraisals, said he noticed the number of foreclosures beginning to increase six years ago, as the state's economy started to slide. Now, he said, it seems everyone in metro Detroit knows someone who is losing their house or is in the foreclosure redemption period and trying to save it.

"It's only getting worse," he said, predicting the trend will continue.

Wayne County Chief Deputy Treasurer Terrance Keith noted that during a three-day period last week, 457 people applied for the county's hardship exemption to delay the deadline to pay their taxes. In 2006, more than 1,100 applied for the hardship exemption.

"That would suggest that the economic concerns that we thought about and have been watching these last 18 months are on target, that they are as dire as we believe them to be," he said. "And it would suggest that it will likely continue for next year."

The treasurer's office is preparing an outreach campaign to inform county residents about its hardship programs, Keith said. Cable TV advertisements were scheduled to begin Wednesday, and network television, radio and print ads are planned, too.

Moreover, county officials have raised the income eligibility threshold to qualify for the program from below the poverty level to 25% above it.

Concerns about tax revenue

Macomb County officials were unavailable to comment Wednesday, but, in Oakland County, officials worried that if the number of foreclosures continues to rise precipitously, it could hurt county revenues -- and, by extension, services.

"Long term, it's dangerous to the amount of revenue counties, cities and townships can get from property tax values," said Oakland County Deputy Executive Robert Daddow. He predicted that if the trend continues, property tax revenues could start to decline as early as 2011.

Oakland County officials put the number of foreclosures last year at 5,321 -- lower than RealtyTrac. But that is because the company, based in Irvine, Calif., counts all foreclosure filings, whether the house is eventually put up for auction or not. In some cases, the lender or government attempting to foreclose reaches an agreement with the buyer to allow him or her to keep the house.

Oakland County's number still translates into an average of more than 100 homes per week going to auction, the largest number county officials ever have seen and more than twice the number in 2004.

"There are a lot of different variables why," said Oakland County Sheriff's Capt. Mike Johnson, who oversees the division responsible for handling foreclosures. "But I think a lot of these short-term mortgages -- the adjustable rate mortgages -- are blindsiding folks."

In some cases, Johnson said, owners simply walk away from homes after overextending themselves. "This isn't the orphan and widow being shoved out in the cold," he said.

Dave Trott, managing partner of Trott & Trott, a Bingham Farms-based law firm that represents banks in foreclosure proceedings, said his clients often take huge losses on foreclosures and don't begin proceedings until a loan holder is three to five months behind on payments.

Trott estimates that half of the homeowners who enter foreclosure get out of it by negotiating with their lender.

He added: "I've never had a client that wanted to foreclose."

Article in January 25, 2007 Wall Street Journal

Housing Glut Gives
Buyers Upper Hand
As Spring Home-Shopping Season Looms,
Supply Mounts and Prices Fall in Some Areas;
Builders See Slow Recovery

By JAMES R. HAGERTY and RUTH SIMON
January 25, 2007

Amid a continuing glut of homes for sale in most of the country, buyers should have plenty of choices and lots of bargaining power in the spring selling season -- typically the busiest time of the year.

Many builders and real-estate brokers, for their part, hope the housing market will start recovering this year as buyers respond to price cuts and other sweeteners offered by increasingly nervous sellers. In some markets, agents say, buyer traffic has picked up in the last month or two.

But any recovery is likely to be gradual. Donald Tomnitz, chief executive officer of D.R. Horton Inc., a home builder, told investors this week that the market, which began slumping in 2005, may bottom out by mid-2007, but that "we don't see any rapid improvement thereafter."

Given all that, sellers should expect buyers to take their time and be tougher negotiators. David Lee, who recently moved to Wenham, Mass., to take up a post as an associate professor of physics at Gordon College, has rented a home for his family and says they plan to be "quite picky and choosy" as they look for a home to buy. Dr. Lee doesn't feel any pressure to decide quickly because he figures prices won't rise in the near term and could fall further.

A quarterly survey of housing conditions3 in 28 major metropolitan areas by The Wall Street Journal showed that the inventory of unsold homes at the end of 2006 was up substantially in nearly all of the markets from the already plentiful level of a year earlier. The biggest increases were in the metro areas of Miami-Fort Lauderdale, Orlando, Tampa and Jacksonville, Fla.; Phoenix; and Portland, Ore. (Unlike the other cities, Portland had a lean supply of homes a year before.)

The survey also includes recent pricing trends -- nearly all negative -- based on surveys of real-estate agents by Banc of America Securities in New York, a unit of Bank of America Corp., as well as data on late mortgage payments and job-creation prospects from Moody's Economy.com, a research firm in West Chester, Pa. Employment figures have a huge effect on housing demand.

Home-price trends vary greatly from one region to another and even within metro areas. For instance, housing demand remains weak in the Detroit area, sapped by auto-related job losses, while the chic urban zones of San Francisco and Manhattan -- where space for new construction is extremely limited -- generally have stayed firm, though price appreciation is far slower than a year or two ago.

The good news for home sellers is that unemployment remains low in most areas, wages are growing and energy prices have fallen from their recent peaks. What's more, mortgage interest rates are still low, allowing people with good credit records to obtain 30-year fixed-rate loans at around 6.2%.

But many lenders are growing more cautious about how much debt home buyers should be allowed to take on and more inclined to ask for proof of income. This tougher attitude will exclude some marginal buyers from the market, hurting demand, even as a rising number of foreclosures throws more supply on the market. DataQuick Information Systems, a research firm in La Jolla, Calif., said yesterday that mortgage lenders sent 37,273 default notices to California homeowners in the fourth quarter, up 145% from a year earlier and the highest in more than eight years.

Meanwhile, home builders still have lots of unsold homes that they will unload by further cutting prices and dangling such incentives as help with closing costs or kitchen upgrades. Discounts on new houses, in turn, will make it harder for some sellers of previously occupied homes to attract buyers.

Some of the biggest gluts of new homes are in Florida, Phoenix and the outer suburbs of Washington, D.C., says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. Many of the gluts are due to frantic building of condominiums over the past few years. The supply of condos listed by real-estate agents is up 86% from a year earlier in the Las Vegas metro area, 43% in Washington, D.C., and 21% in the Northern Virginia suburbs of Washington. In Florida's Miami-Dade and Broward counties, the listed condo supply has more than doubled from a year earlier.

In Miami-Dade, the number of existing condos on the market is enough to last 27 months at the current sales rate, says Jack McCabe, a real-estate consultant in Deerfield Beach, Fla. The oversupply will grow, he says, as about 8,000 condos are expected to be completed this year and 12,000 in 2008.

"It's going to get bloody down here," Mr. McCabe says. He estimates that condo prices in Miami-Dade fell between 8% and 10% last year and will drop 20% in 2007. Eventually, he predicts, hedge funds and other investors will step in to buy surplus condos in bulk at huge discounts.

10,000 Condos for Sale

In California's San Diego County, developers have more than 10,000 condos available for sale in new buildings, projects under construction or properties being converted from rentals, says Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a consulting firm based there. He says that supply is enough to last more than 20 months at the current sales rate. That number excludes several thousand condos being offered for resale by speculators and others.

Mr. Dennehy estimates that condo prices have fallen at least 15% to 20% in the county over the past year, though it's hard to measure price changes because sellers often give incentives such as free upgrades or help with closing costs that aren't reflected in the price.

In the Boston area, lower-priced homes in blue-chip neighborhoods are moving pretty quickly. But ones that are overpriced or located on main streets are languishing, says Sam Schneiderman, broker-owner of Greater Boston Home Team. "It's got to be a really good deal," he says. "An OK deal doesn't quite cut it. Buyers are holding out."

The glut in inventories is likely to increase in some markets as sellers try to take advantage of what they hope will be a stronger selling season. Some sellers pulled their homes off the market late last year, intending to relist them in the spring.

At the Coldwell Banker Residential Brokerage office in Scottsdale, Ariz., near Phoenix, listings are up roughly 30% since the end of December. The office expects listings to increase further in late February and early March as sellers who pulled their homes off the market before the holidays relist them.

Some of last year's strongest housing markets now are showing signs of cooling a bit. In the San Francisco Bay area, the median price paid for new and resale homes in December was $612,000, up just 0.5% from a year earlier, according to DataQuick. But prices fell in parts of the Bay Area; they were down 6.3% from a year earlier in Sonoma County and down 5.1% in Solano County, DataQuick says.

One of California's weakest markets last year was the Sacramento area. Anthony Graham, an analyst at Trendgraphix Inc., a provider of housing data, says sellers of previously occupied homes there have had trouble competing with the huge discounts and incentives offered by builders.

Mr. Graham expects average home prices in the Sacramento metro area to fall between 6% and 8% this year, but believes the market will begin to recover modestly by the fourth quarter, assuming that home builders continue to cut their production. Greg Paquin, president of Gregory Group in Folsom, Calif., which gathers data on new home construction throughout the state, also thinks Sacramento is stabilizing after last year's price cuts. "Buyers who were on the fence are starting to say, 'Hey, this is a pretty good deal,' " Mr. Paquin says.

California's Central Valley, which includes such cities as Bakersfield, Fresno, Merced and Stockton, may take longer to absorb excess new-home inventory and bring prices down to more affordable levels, Mr. Paquin said. He said that area may not bounce back until next year.

In Manhattan, big bonuses recently doled out by Wall Street firms will help support the market in this year's first half, says Jonathan Miller, chief executive officer of Miller Samuel Real Estate Appraisers in New York. But a rash of new condo developments will help moderate prices. He expects price increases this year to average 5% to 6% in Manhattan. On Long Island, he believes prices are likely to be flat to slightly higher this year.

In New Jersey, "I'm optimistic that home sales will begin to rebound in the spring," says Jeffrey Otteau, president of Otteau Valuation Group Inc., an appraisal and research firm in East Brunswick, N.J. "However, that would signal the end of the decline -- not a return to higher prices."

Mr. Otteau figures home prices fell an average of about 10% in New Jersey last year. For 2007, he believes homes costing less than about $600,000 are likely to rise modestly, around 3%, while homes above that level are about flat. In the luxury end of the market, prices may edge down again this year, Mr. Otteau says.

In the Chicago area, some homes that have sat on the market are finally moving, says Barbara O'Connor, an agent with Baird & Warner. But some sellers have had to accept far less than they had hoped for. Jody Andre, a restaurateur, put her three-story Victorian-style home in the Edgewater neighborhood on the market in August at $679,000. She later lowered the price to $634,900 but still got no offers. "This is a hot neighborhood and a lot of people couldn't understand why the house didn't sell," says Ms. Andre, who accepted a $605,000 offer last week. "I waited too long to put it on the market," she says.

Buyer Traffic Picks Up

The end of the year is normally a slow time, but in some parts of the country traffic has increased in the last month or two, helped by unseasonably warm weather. In Philadelphia's Center City, buyer traffic began to pick up in November and has continued to climb over the last two months, says Mike McCann, an associate broker with Prudential Fox & Roach, Realtors.

A recent open house for a three-bedroom home priced at $469,000 drew 17 parties, Mr. McCann reports. In the summer and early fall, he says, "we didn't want to do open houses because it was a wasted day." Sales are also increasing, but negotiations are taking longer and many offers are contingent on the buyers selling their current homes, Mr. McCann adds. Prudential Fox & Roach is also seeing more people asking to get pre-approved for a mortgage, a sign that they may be ready to buy.

In Atlanta, where the housing market began to soften in August, business started picking up again in December, says Lewis Glenn, president and chief executive of Harry Norman, Realtors. "There's more negotiation," and builders are cutting prices and offering concessions, such as buying down the borrower's mortgage rate, he says.

In Scottsdale, some sellers are cutting prices by 10% or more, says Dale Pavlicek, sales manager for the Coldwell Banker Residential office there. "There are a lot of vacant homes on the market," he says. Sellers who bought in the past year or two are barely breaking even or are coming to the closing table with money to pay off their mortgage and other costs, he adds.

Houston remains one of the nation's more buoyant housing markets, supported by job growth in the energy industry. Rob Cook, chairman of the Houston Association of Realtors, says the supply of homes on the market is enough to last about six months at the current sales rate -- what he calls a "balanced" market. Prices are rising only modestly, though, because Texas has plenty of room for new construction. "We just keep expanding out farther and farther," Mr. Cook says.

Article in January 16, 2007 Detroit Free Press

Home sales fall fast in state

New construction also down in '06

January 16, 2007

BY JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

The Michigan Association of Realtors reported Monday that 2006 sales of existing single-family homes in the state were down nearly 14% through November from the same period in 2005.

Sales of existing homes were down even more sharply in some parts of metro Detroit. The Monroe County Association of Realtors reported that sales there were down nearly 30% through November compared with the same period of 2005. The Realtors association in Livingston County reported that its sales were off nearly 25% through November.

The city of Detroit continued to show modest strength, with sales up 7.6% through November over year-ago levels.

If the slump in the residential market is bad news for sellers and home builders, it provides opportunities for buyers, said Irvin Yackness, executive vice president of the Building Industry Association of Southeastern Michigan.

"All of these things make this a great time to buy," Yackness said Monday. "Interest rates historically are very low. That is a very positive reason for buying."

A weak housing market also led to a sharp drop in new-home construction in metro Detroit in 2006.

A report from Housing Consultants Inc. of Clarkston showed that builders took out 48% fewer permits in 2006 than in 2005 over a nine-county southeast Michigan region.

The slowdown in residential real estate sales and new building has affected many other regions of the nation, too. But metro Detroit saw home prices fall at the sharpest rate in the country during the July-September period.

The National Association of Realtors reported in November than the median price in metro Detroit during that period -- half sold for more, half for less -- was $154,100. That was down about 10.5% from the same period in 2005.

Article In January 2, 2007 Wall Street Journal

Economy Poised For '07 Rebound,
Forecasters Say Weakness in Housing,
Manufacturing Is Likely To Take a Lighter Toll

By MARK WHITEHOUSE
January 2, 2007

The U.S. economy is poised to shake off the housing slump and regain momentum by the end of this year, and the credit goes to techies, bankers, chefs and shoppers, according to a Wall Street Journal survey of economists.

The panel of 60 economists who participated in the Journal's latest semiannual economic forecasting survey offered an optimistic outlook for 2007: The service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates. That would allow the economy to expand at a rate fast enough to keep investors happy, but slow enough to keep inflation at bay.

Even so, economists haven't stopped worrying about what could happen if the current slowdowns in housing and manufacturing spread further -- a pattern that has characterized previous recessions. In another potentially ominous sign, they increasingly differ about the economy's trajectory.

On average, the economists predict that inflation-adjusted gross domestic product, a broad measure of economic activity, will grow at an annualized rate of 2.3% in the first half of 2007 and 2.8% in the second half. That's up from a sluggish 2% in the third quarter of 2006, but still far below the robust annual growth rates of 3.2% for 2005 and 4.1% for early 2006.

"As long as you don't think the labor market is going to collapse or financial conditions are going to change, then you're starting to have the conditions for better growth down the road," says Bruce Kasman, head of economic research at J.P. Morgan Chase & Co. in New York.

The rapid expansion of technology companies such as Google Inc. and the huge bonuses lavished on New York investment bankers are just a couple of signs of the service sector's strength. Across the country, restaurants, hospitals, software makers and consulting firms are growing and hiring. All told, service businesses, which make up about 80% of the nation's economy, added 1.1 million jobs from May through November.

"We've been extremely busy," says Anthony Kolton, president and chief executive of Logical Information Machines, a Chicago company that provides research software to hedge funds, trading firms and investment banks. "There's a lot of money out there, and people have to put it to work."

The upbeat attitude in services contrasts sharply with the recent pain in the housing and manufacturing sectors. Builders have been slashing prices and production as they attempt to get rid of a large backlog of unsold homes. Despite a rise in November, new-home construction was down 30% from its January peak.

Housing-related industries shed 145,000 jobs from May though November, according to Zoltan Pozsar, an economist at Moody's Economy.com. Falling home values have also left people with less power to extract cash from their homes through home-equity loans and refinancings, a factor that many economists expect to take a bite out of consumer spending.

Along with slumping auto sales, the drop in housing activity has affected all kinds of manufacturers, from drywall factories to furniture makers. The Institute for Supply Management, a purchasing managers' trade group, said that its index of manufacturing activity for November fell to 49.5, the lowest point since April 2003. (Any number below 50 indicates contraction.) By contrast, the ISM's index of service-sector activity for the same month rose.

"It's really two very different economies, depending on whether you're looking at the goods or service industries," says J.P. Morgan's Mr. Kasman.

The bottom line is that the strength in services will help to keep the job market relatively healthy. In the consensus scenario, nonfarm businesses will add about 100,000 jobs a month in 2007. That should be strong enough to slowly lift wages, but not to keep the unemployment rate from creeping up to 4.9% from 4.5% in November.

The economists surveyed expect year-to-year inflation to decline to 1.7% in May from 2.0% in November. As a result, they expect the Fed to shift its focus from fighting inflation to helping the economy grow, lowering short-term interest rates to 4.75% by the end of 2007 from the current 5.25%.

That's a big change from six months ago, when forecasters saw the Fed's battle with inflation as the greatest challenge facing the economy. "The Fed was hoping to slow the economy down enough to take the wind out of inflation without triggering a recession," says Nariman Behravesh, chief economist at consulting firm Global Insight in Waltham, Mass. "So far it looks like it has succeeded."

Most forecasters expect 2007 to be a good -- not great -- year for the economy. While six in 10 said they think the worst of the housing downturn's impact on the broader economy had passed, they still see a deeper housing slump as the biggest risk looming over the economy. That concern was reflected in the odds they placed on a recession in the next 12 months, which rose to 27% from 20% in June.

More so than in recent surveys, forecasters differ on the economic outlook. One measure of their disagreement -- the standard deviation of their forecasts for inflation-adjusted GDP for the coming half year -- widened to about 0.7 percentage point in December, up from a 20-year low of 0.5 percentage point in June. Each of the past two recessions have been preceded by sharp increases in the deviation measure -- to levels greater than one.

Ian Shepherdson, chief U.S. economist at consulting firm High Frequency Economics and one of the survey's most pessimistic forecasters, places the odds of a recession at one in two. He believes that home construction still has a long way to fall before it levels off with demand, and that the Fed's rate increases, which helped push corporate borrowing costs upward by about a full percentage point between fall 2005 and spring 2006, have yet to take their full toll on business activity. Mr. Shepherdson expects real GDP to grow at an annual rate of 0.5% in the first half of 2007 and 2.25% in the second half.

"It's going to be worse than the consensus expects," he says. "My guess is that we'll probably avoid a recession, but by the skin of our teeth."

Most other forecasters believe the economy will prove more resilient. For one, stronger growth abroad should help boost U.S. exports: More than three out of four forecasters pointed to Asia as the biggest contributor to global growth in 2007.

Beyond that, money remains easy to borrow despite the Fed's efforts to raise interest rates. Global investors' appetite for U.S. bonds has helped fuel a boom in mergers and acquisitions, and low long-term interest rates have kept mortgages accessible for potential home buyers. Even people with shaky credit, whose tendency to default has proved greater than many investors expected, still have access to money.

"We've had a remarkably benign credit environment," says Richard Berner, chief U.S. economist at Morgan Stanley in New York. "That's partly a tribute to our flexible and resilient capital markets, but I think it's also just plain good luck."

To some extent, the hit U.S. manufacturing has taken in recent years has made the sector's outlook less consequential today because there just aren't as many American manufacturing jobs left to lose, says Ed Leamer, head of the forecasting center at the University of California's Anderson School of Management. Manufacturing has been shedding jobs since the recession of 2001.

"There's no fat to trim," says Mr. Leamer. "And without the trimming of fat in manufacturing, you just can't get the job loss that can add up to a recession."

Article in December 31, 2006 Detroit Free Press

Real estate still a sound investment

Even in slow market, buying pays off

BY KEN TARBOUS
GANNETT NEWS SERVICE

December 31, 2006

Despite the recent fluctuations in real estate prices nationwide and sale prices that have fallen short of sellers' expectations, homeownership has proved to be a good long-term investment, financial experts agree.

Buying a home is the largest investment most people will ever make, said Shrikant Nadkarni, a certified public accountant, certified financial planner and shareholder at WithumSmith+Brown PC's Somerville, N.J., office.

"Owning a home over a long period of time is a good investment idea," Nadkarni said. "It brings financial obligations and forces savings through paying down the mortgage while building equity."

Andrea Pemberton-Fowler, 54, who recently sold her North Brunswick, N.J., home for $349,000 -- considerably more than the $155,000 she and her late husband bought it for in 1990 -- has considered the cost of upkeep on the house over the years and its impact on her finances. The youngest of her three children is now in college.

"I guess if I hadn't had the house I wouldn't have the money that I'm getting now, because I probably would have spent it instead of putting it somewhere. ... With kids there's always something," she said.

"I think anybody who's buying now should not be looking at a house as an investment," said David Walter, president and chief investment officer of Halberstadt Financial Consultants Inc. in Princeton, N.J. "Look at it as a place to live for the long term, but don't look at it to give you a return the way it did over the last 10 years."

Nadkarni said that in today's market, with rising interest rates and softening real estate prices, buying a home to make a short-term profit is certainly not an attractive proposition.

"When purchasing your home and taking on a mortgage, it is important to review your cash flows and factor the tax benefits from the deductions prior to deciding on the home you can afford to own," he said.