Home Sales Rise in Hard-Hit Areas

Buyers Snatch Up
Foreclosed Properties
After Big Price Cuts

By JAMES R. HAGERTY
May 27, 2008; WSJ

Home sales are rising in some U.S. metropolitan areas where lenders have slashed prices on foreclosed properties.

Generally, home sales remain weak. The National Association of Realtors reported last week that sales of previously occupied homes in April were down about 18% from the already depressed year-earlier level.

But sales are up sharply in some of the areas hit hardest by foreclosures and falling prices. They include: Las Vegas; Sacramento, Calif.; Fort Myers, Fla.; and inner-city Detroit.

Though Americans remain wary of further drops in housing prices, the data from these areas show that some buyers are trolling for bargains. Sellers "have moved into the acceptance mode" and are pricing homes more realistically, says Thomas Lawler, a housing economist in Leesburg, Va. "I think it is the first stage of good news for the market."

Lenders' inventory of foreclosed homes has steadily increased in the past couple of years and is believed to total around half a million homes. Many lenders initially were slow to slash prices, partly because they hoped to avoid huge losses. But more lenders have been capitulating as it becomes clear that delays often merely result in lower proceeds and higher costs for taxes, insurance and upkeep.

That doesn't mean housing is poised for a quick recovery. In much of the U.S., there is still a huge glut of homes for sale, and foreclosures continue to dump more property on the market. Realtors reported that the number of single-family homes on the market in April was enough to last 10.7 months at the current sales rate, the highest since 1985. During the housing boom of the first half of this decade, the supply typically was four to five months.

For the first four months of this year, home sales in Detroit, excluding suburbs, totaled 3,360, up 48% from a year earlier, according to the Michigan Association of Realtors. The average price dropped 56% to just $20,514. That average is so low because many of the sales involve decrepit homes in neighborhoods with few jobs.

Most of the recent sales in Detroit involve investors buying foreclosed homes, says Carl Williams, president of the local association of Realtors. The homes are selling, he says, because "the prices are dirt cheap."

Sales of "normal" homes, those that haven't been foreclosed, remain very slow, Mr. Williams says. Still, he sees it as a good sign that lenders are finding buyers for the foreclosed homes. To the extent that investors can renovate and find tenants for vacant houses, neighborhoods can start to heal.

In California's Sacramento County, sales of single-family homes totaled 1,669 in April, up 41% from a year earlier, according to DataQuick Information Systems, a research firm. The median sales price was $226,250, down 34%.

Alan Wagner, president of the Sacramento Association of Realtors, says the rise reflects more aggressive pricing by lenders. "They've got to liquidate inventory. They're taking that house and dropping $100,000 off the price, and all of a sudden they've got multiple offers," he says. Some homes that sold for more than $400,000 a couple years ago now go for $225,000 to $260,000, Mr. Wagner says.

That means some renters previously priced out of the market finally can afford homes -- if they can qualify for mortgages. That has become much tougher because lenders have tightened standards, but Mr. Wagner says the growing availability of U.S.-insured loans insured by the Federal Housing Administration is helping.

In the Las Vegas area, sales of single-family homes in April were up 30% from a year earlier. The Greater Las Vegas Association of Realtors says properties being sold by lenders account for more than half of recent sales.

Will Upgrading Your Home Help You Sell It?

Big-Ticket Renovations Lose
Value Amid Market Slump;
Investing in Curb Appeal

By M.P. MCQUEEN
May 15, 2008; Wall Street Journal

If you're putting your home on the market anytime soon, you may want to rethink those plans to bump out the kitchen or add an extra bath.

During the housing boom, such ambitious projects would recoup as much as 90 cents on the dollar. Not today. The resale value of improvements in general is sliding, according to experts. In a departure from recent trends, homeowners are getting the best payback from relatively mundane improvements, such as sprucing up the exterior of their house or putting in new windows.

After spending $400,000 remodeling the suburban East Greenwich, R.I., home he bought for $820,000 in 2002, Jonathan Salinger learned he probably couldn't sell it for more than $1.1 million in today's market. That's after posh additions that included landscaping, a pool, an outdoor kitchen, first-floor laundry and mud rooms, and custom cabinetry. As a result, the 45-year-old district manager for a mortgage lender recently decided not to list his house for sale and scratched plans to move the family closer to his children's private school in Providence.

The slumping housing market has made remodeling much trickier. When house prices were climbing ever higher, buyers knew they could spend big bucks to expand their homes and still make a profit when it came time to sell. But today, a buyer who spends unwisely on remodeling may be simply digging a deeper hole when it comes time to move.

Further complicating the equation: Even though housing prices are slumping, construction prices have continued to climb. That means adding that new bath will cost more, even as it contributes less to the resale value.

Homeowners have taken note. Remodeling activity peaked in 2006 before slowing last year. And it is expected to fall 4.8% this year, according to a report by the Harvard Joint Center for Housing Studies released last month.

Since many homeowners remodel using borrowed money, tighter credit means it's also harder for many homeowners to afford big projects. Still, American homeowners will spend an estimated $166 billion on remodeling this year, according to the Harvard housing center.

Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, according to a Remodeling magazine survey of real-estate professionals conducted late last year. That's down from 80 cents in 2004. Back then, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93% if the home was resold within a year. Today, a similar remodel costs $21,100 and would recoup only about 83%.

This doesn't mean all remodeling is a waste of money. Home improvements that help a property stand out in a glut of newly built houses and foreclosed properties are most likely to pay off now, as are those that make a house lower-maintenance or more energy-efficient.

"Make the outside of the house look really great so that people fall in love between getting out of the car and the front door. That is money that is worth spending," says Diane Saatchi, senior vice president at the Corcoran Group real-estate agency, who sells high-end properties in the Hamptons of New York's Long Island.

Freshly painted trim and new hardware also help a home show well, says Ms. Saatchi. And landscaping, including well-manicured trees and shrubs, can help older homes compete against new ones that lack mature vegetation, she says.

New windows and doors and siding help homes look well-tended and spiffy from the street. They also help make houses more energy-efficient, which increasingly matters to buyers grappling with rising fuel and air-conditioning costs, experts say.

Some elaborate remodels, though, may actually make your home harder to sell, says New Mexico builder Lonny Rutherford. He notes that lenders are nixing higher-than-normal appraisals, and that many buyers are looking for a deal. Even if someone wanted to pay extra, they "would have a hard time financing the house unless they have a lot of cash," he says.

Inferior remodeling work may be worse than none at all. Cheap cabinets and poor workmanship won't fool buyers as they might have a few years ago, when many had to make snap decisions about buying a house, says Anslie Stokes, a real-estate agent in Washington, D.C.

"Buyers can spot shoddy renovations, and they aren't willing to pay for it anymore," Ms. Stokes says.

Some improvements have regional appeal. Backup power generators bring greater returns in the West and Southwest, following several seasons of extreme weather that can knock out electrical power, than in New England. Steel replacement roofs bring greater returns in wildfire-prone California than in Iowa or Minnesota, according to the Remodeling magazine survey. As for interior amenities, home buyers in some high-tech-focused cities find "wired" homes very desirable, but they aren't in demand everywhere.

"People are looking for broadband access and alarm systems," says Jim Amorin, a real-estate appraiser in Austin, Texas. "That is almost getting to be a necessity in my market." He says barbecues, pools and other home-entertaining amenities are also in demand in his part of the country. "In downward-trending economies, people spend more time at home, so they like things that make that more enjoyable."

Despite the real-estate meltdown, some homeowners are still putting their faith in renovations. Susie Hastings, a 61-year-old homemaker, recently spent $60,000 upgrading her mother's 1948 four-bedroom house in Farmington, N.M., for possible resale or rental. Ms. Hastings replaced all the windows and doors with double-paned energy-efficient ones, redid the stucco exterior and added a high-efficiency boiler to slice the utility bill. Now she hopes the house will sell for more than its previous appraised value of $220,000.

"It has made a big difference in the look," she says.

Suite spot

Today's floor plans reflect dimensions of modern life

BY MIKE FOLEY • GANNETT NEWS SERVICE • May 11, 2008

In the not-too-distant past, two-story homes had the master bedroom on the second floor along with the other bedrooms.

The master bedroom was usually not much larger than others and most often could be distinguished only by the attached bathroom, or the parents inhabiting the space.

Not anymore.

Today, master bedrooms are in on the ground floor of home design. They are also bigger than ever, often with sitting areas, spacious walk-in closets or dressing rooms and even efficiency kitchens.

And by the way, it's not a "master bedroom" anymore -- it's a "master suite."

In the developing world of home design, deciphering the buying public's changing wants and needs has become a science.

Most often, consumers want more, and they're willing to pay for it, says Heather McGowen, communications director for Donald A. Gardner Architects in Greenville, S.C. That's one reason the average size of homes nationwide has grown over the years, according to the U.S. Census Bureau. In 1970, the average newly constructed home was 1,400 square feet. In 1990, that increased to 2,080 square feet and by 2005, the average size jumped again, to 2,434 square feet. The decline of the housing market, which began in November 2005, may cause average square-footage numbers to recede when new census numbers are announced in 2010.

The Northeast has the largest average size of new homes, followed by the South, the West and the Midwest, the census shows.

The one overlying trend is that everything is bigger -- from closets, to great rooms, to kitchens and more. But one of the most-tossed-about terms these days for buyers, real estate agents and designers alike is "master on main."

"I don't know of a new house we're selling that doesn't have a master on main, or even more common, a master and another bedroom on the main floor," says Kirby Britt, a Realtor with Keller Williams in Greenville. "They use that second bedroom as a second bedroom, an office or a guest room."

To add utility, the spare bedroom is usually accompanied by a full bath.

Even more impressive -- and trendy -- is the idea of making these masters on main larger than ever and yet still packed with features. McGowen says the suites often have refrigerators, a coffeemaker, sitting areas and oversize bathrooms with huge shower rooms, a large tub and giant walk-in closets.

When people aren't in their bedrooms, it seems like they want to be in their kitchens or outside. Keith Smith, owner of Keith Smith Builders in Greenville, says the new features he's finding people want in their homes are screened porches, grilling decks and of course, monster master suites.

Formal living rooms are rapidly going the way of the dinosaurs, and in their place are rooms that no one knows exactly what to call. Some choices are "hearth rooms," "keeping rooms," "morning rooms" or "family rooms." Call it what you will, Smith says people want them for everyday life and for entertaining.

"Keeping rooms are what people want now," he says. "We're putting fireplaces in those. And a lot of flat screens over the mantle."

The rooms are used as places to talk, for children to do homework while parents cook, or as spillover locations for parties when the kitchen gets too crowded.

Luxurious deals in the $400,000-plus range

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • May 5, 2008

In the exclusive market for homes priced over $400,000, buyers can choose just more premium properties including a private rural setting, a lakefront home or an elegant Tudor in a historic urban neighborhood.

And the deals are even better than in more affordable price ranges as home prices and sales have steadily declined from their 2005 peaks.

Homes selling in this range -- from $400,000 up to $1 million and up -- are in cities such as the Grosse Pointes, Novi, Bloomfield Hills, Birmingham, Ann Arbor, New Haven, Washington Township and Northville.

And the homes are loaded with luxuries, such as finished daylight basements, gourmet kitchens, wine cellars, butler's pantries, home theaters and more.

Steven Roby, 51, a Royal Oak lawyer, and his wife, Annemarie, 50, recently bought a house in Birmingham for $700,000 that was listed at $819,000. They sold their Bloomfield Township home for nearly $300,000 less than they had hoped in order to make the big lifestyle change.

"We had 1.2 acres of grass. It was massive. It was extremely laborious to maintain after all the kids moved out," Roby said. "Once you discover Birmingham and realize how fantastic it is ... we could kick ourselves that we didn't move 15 years ago."

They looked for more than two years for the right house and found a 4,000-square-foot home with features including a finished daylight basement, home theater room with stadium seating, controls for the television and radio throughout the house, premium fixtures, marble countertops and virtually no lawn to cut.

As people move up to the top of the market, they are shedding their old homes as quickly as possible and taking the losses in stride.

Be practical and realistic

Dan and Sandra Quick, local attorneys, just moved their family into a new home in Bloomfield Hills but have not sold their home in Clarkston yet.

The Bloomfield Hills house was listed at $630,000, but the Quicks paid $592,000.

The 3,586-square-foot home has four bedrooms, three full bathrooms and two half baths. It has a gourmet kitchen, high ceilings, hardwood floors, designer fixtures and an attached three-car garage.

With a new job an hour away from Clarkston, Sandra Quick decided it was time to give up the old house, even though the family loved it. The house went on the market last week.

"Our house in Clarkston we listed at $279,000. We know we are taking a loss, particularly in light of the investment we made in a finished basement, updated bathrooms, hardwood flooring and other amenities, but we are gaining more on the other side," she said. "We have to be practical in this market."

Quick said the Bloomfield Hills home originally was listed at $847,000 and then taken off the market. The previous owner then put in $150,000 worth of improvements, including the gourmet kitchen complete with a Wolf professional stovetop and a Sub-Zero refrigerator that really sold her. Quick said she knows she got a steal on the house.

"There wasn't anything that worked for us in the $300,000 to $500,000 range. We definitely wanted an updated kitchen. We spend a ton of time in our kitchen and dining room as a family," she said.

Quick's agent, Sue Peterson with Hannett-Wilson-Whitehouse in Birmingham, said that it is critical in the upper price ranges that sellers are realistic in their pricing.

"They need to understand the amount of money they put into a home does not determine the amount a buyer wants to pay," Peterson said. "Everything is reduced to a buyer feeling they are getting good value for their money. Otherwise, the buyer will go on to another property."

And some sellers in this price range will take their home off the market if they can't get the price they want now, hoping things will improve in time.

Buyer's advantage

Buyers know they have the upper hand and are looking for recently updated kitchens with granite and premium appliances, as well as baths with jetted tubs and steam showers. These are features that previously were usually only found in higher-priced homes, she said.

Mike Fayz, an agent with Real Estate One in Dearborn Heights, who recently sold a $1-million home in Dearborn for $900,000, said the area is holding its value well.

"It's not like 50-cents on the dollar here. A lot of people would like to settle in this area," Fayz said.

The buyer was looking for a lot of amenities and also had looked in the Grosse Pointes and Northville before settling on the Dearborn home. It features three master suites, gourmet kitchen, theater room, finished daylight basement with a wine cellar, butler's pantry and a three-car attached garage in a gated golf community.

"They are still asking the same price that people did five years ago, and those are going to take longer to sell," Fayz said.

Local Realtors who specialize in the upper-tier market say these types of homes take a solid 6-10 months to sell.

Theresa Bunker Meushel, an agent with Coldwell Banker Schweitzer in Commerce Township, said the hot neighborhoods in the upper price ranges are in Washington Township, Hartland, Highland, Birmingham, Bingham Farms and Beverly Hills.

Other expected amenities include radiant floor heat, hardwood floors, more land and at least a three-car garage.

She said many of the buyers in this range are insulated from the job and real estate market disturbances.

"The people in the $500,000 and up range are the executives, and they don't have to worry about their jobs. I'm working with people coming in from Colorado, Pennsylvania and Florida, and they are executives relocating," she said.

Patient purchasers can get more house for their money

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • May 4, 2008

As the spring home-selling season begins, metro Detroit buyers will delight in the high home inventory and falling prices: They will get more for their money in every price range, from location to amenities.

Much has changed since 2005, when the local market was at its peak. Places like Novi, Birmingham, Royal Oak, Ann Arbor and Sterling Heights, for instance, are more affordable now as home prices reach pre-2000 levels.

"Buyers are out there in this market, but they are looking for a deal. When they see the houses in the right range, they come out and start buying," said Paul Mychalowych, an agent with Keller Williams in Farmington Hills. "In the range of $200,000 to $400,000, you can buy in downtown Birmingham now. A few years ago, you couldn't touch it for under $500,000."

Because metro Detroit home values and sales are down substantially from three years ago and interest rates have come down, the buyer's market is heating up.

Home prices have dropped 23.2% since peaking in December 2005, according to the S&P/Case-Shiller Home Price Indices. And Michigan home sales fell 26.5%, from the peak of 137,558 homes sold in 2004 to 101,094 in 2007, according to the Michigan Association of Realtors.

"Everything's on clearance now," said Amanda Callahan, an agent with Keller Williams in Plymouth. "People are putting in $30,000 kitchens just to sell their houses and they don't get that investment back. This is absolutely the best time for first-time homebuyers to buy."

Time to upgrade

Dan Schwegler, 28, an actuarial analyst for AAA Michigan, and his wife, Lyndsey, 27, an actuary with an auto club, decided to give up their Warren starter home to grab a deal in South Lyon.

The Schweglers bought the 3,600-square-foot home even though they couldn't sell their 1,400-square-foot home in Warren. They leased it for the next two years in hopes that the market improves. But even if they lose money on the Warren house, they will more than make it up with the $54,000 they saved on the new house.

"The person we are buying from is losing the same percentage-wise, so it is a huge gain for us," Dan Schwegler said. "We are planning on starting a family soon and we don't want to ever move again."

They were able to buy the 4-bedroom, 2 1/2 -bath house in the Lyon Ridge subdivision for $358,000 after the original buyers backed out when their financing fell through.

"My only motive was financial reasons. We liked our old house and put a lot of work in it," he said. "But we are only going to move up and I doubt the market is going to get this bad again for at least a decade."

Now, the Schweglers live in a luxurious home with granite countertops, a large kitchen, a three-car garage, hardwood floors throughout and a master bathroom that makes them feel like they are in a five-star hotel every day.

Those amenities are not uncommon in the $200,000 to $400,000 price range. That money also buys you into better neighborhoods in cities like Milford, Pleasant Ridge, Chelsea, Ann Arbor, Birmingham, Carleton and Sterling Heights.

In the under $200,000 price range, buyers can find many choices in communities such as Allen Park, Westland, Dearborn, Ypsilanti, Detroit, Howell, Harrison Township, Fraser, Clinton Township, Warren, Holly, Farmington Hills, Keego Harbor, Waterford, Monroe, Royal Oak and Ferndale, according to data compiled by multiple listing service Realcomp in Farmington Hills.

And in the $400,000 to $1 million range, homes in the more exclusive neighborhoods in Novi, Bloomfield Hills, Birmingham, Ann Arbor, New Haven and Northville are seeing price reductions as well.

"The market cool-off has made all these areas more affordable," said Mychalowych. "People are finding updated kitchens and bathrooms, stainless steel appliances. And builders are throwing in all kinds of incentives including landscaping."

Mychalowych said many buyers are still sitting on the fence waiting for prices to drop more. But trying to time the market can be tricky. Recently he sold a home in Birmingham that had been on the market for a year. The price started at $350,000, but it sold for $260,000 to a couple that had been watching it for a year.

Perry Gatliff, an agent with Coldwell Banker Schweitzer's Grosse Pointe office, said the east-side area is holding its value better than other areas, but there are still good deals. Recently he sold a home in Grosse Pointe Farms for $135,000 to a first-time homebuyer who would have spent at least $175,000 on the house three years ago.

And although homes priced above $400,000 in the Grosse Pointes are selling, they take longer because the pool of potential buyers is smaller, he said.

Some great deals won't be around forever, said John Babcock, president of Babcock Homes in Commerce Township.

He said speculative houses that builders constructed when the market was at its peak -- those houses built without a buyer lined up -- are not being replaced when they sell. Builders are building almost exclusively to order now.

"We haven't put a new spec in the ground for a year and a half. I don't know of any builders who are building specs because there isn't any money in that now," Babcock said. "While the existing home market is still flooded with homes and foreclosures, the new home market seems to be drying up."

Detroit prices dropping faster

Maureen Maitland, vice president of index services at Standard & Poors, which issues the S&P/Case-Shiller Home Price Indices, said metro Detroit gave back price gains made in the market since January 2000. Then, the index was set to 100. By the end of February, Detroit became the only city of the top 20 nationwide with an index value of under 100, at 97.61.

"We have a nationwide decline in home prices that is occurring because of a 15-year run-up," Maitland said. "While all home prices are coming down, Detroit's are coming down more than others because of what is happening in the Detroit economy."

Dana Johnson, chief economist for Comerica Bank, said that from 2001 to 2005, Michigan house prices rose at a 3.5% annual rate compared to the national 8% growth rate.

"The implication for Michigan is that its housing sector will start recovering when the local economy begins to expand," Johnson wrote in an April 30 briefing. "I continue to believe that Michigan will finally begin to grow again in 2009."

Home sales fell 7% in metro Detroit in 2007 as the region lost 93,400 jobs over the past two years, according to Lawrence Yun, senior research forecaster for the National Association of Realtors.

Most economists are certain that the bottom of the housing market hasn't been reached yet, but some expect that to occur later this year.

"There is absolutely nothing in data out this week -- not from the Case-Shiller home price indexes or RealtyTrac's foreclosure stats -- that contains even a hint that the housing is bottoming out," said Bernard Baumohl, managing director of the Economic Outlook Group in Princeton, N.J.

Carol Copping, an agent with Real Estate One in Novi, said despite such reports, she is seeing more buyers out looking.

"We have really seen a tremendous pickup in the last month. Some of it is weather related," she said. "I think we are getting very close to bottom ... a lot of these homes are getting multiple offers, which we haven't seen, for like, five years. I think a lot of people who were waiting have decided maybe now is the time to stop waiting."

One way to sell your home? Buy a new one

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • April 21, 2008

Newlyweds Tracie and Jeremy Moy were outgrowing their West Bloomfield condominium and dreaming of buying a new house last year.

Seven months after putting it on the market with scant interest from buyers, the Moys knew they needed another option.

They found out about the Forte Group in Birmingham. The company works with local builders to move inventory by purchasing the buyer's existing home for 90% of the appraised value.

The Forte Group organized in 2006 to capitalize on the huge oversupply of homes on the market. At the end of 2007, there were 40,298 houses on the market in Wayne, Oakland, Macomb, Livingston and Washtenaw counties. That represents a 17.4-month supply at the current sales pace, nearly double the 9.6-month national supply.

The supply of new single-family homes is lower, ranging from 4 to 6 months in the tri-county area, according to Housing Consultants Inc. in Clarkston. The supply of attached new housing, such as condominiums, ranges from 14 to 24 months in the three counties. Supplies of six months and under are considered normal levels.

Other companies running similar programs catering to new-home builders include Trade & Trade Up in Washington Township and Marketplace Homes LLC in Birmingham.

A chance to move up

The Moys expect to close on their new four-bedroom, 2,300-square-foot home in Novi at the end of the month. Their condo sold in two weeks, and Forte Group is putting them up at no cost in another condo until their house is built.

"If it wasn't for Forte Group, absolutely we would still be in the condo," Tracie Moy said. "We didn't make any money on our condo, but we didn't lose any either."

The purchase prices Forte Group make may surprise potential homeowners, but they are made after a thorough review similar to what a bank looks at, said President Chris Forte.

Forte looks at foreclosures, what similar homes nearby have sold for, what is on the market that isn't selling and does its own appraisal of the home.

"We are trying to give fair value of what the market will pay," said Joshua Britton, Forte's partner. "There are a lot of people in this market who are stuck. But there are a lot who aren't."

Forte works primarily with people moving up from a starter home and empty nesters looking to buy in the $250,000-$400,000 price range.

They accept just one out of eight applications because the owner isn't ready to accept a price lower than anticipated, or he or she owes too much on the house.

Forte has completed 30 deals and has just secured private financing to do more. The firm is working with several builders including Hunter Pasteur Homes, Upland Development, Winnick Homes, Crosswinds Communities and Ivanho Huntley Homes.

Many homes on market

Phil Upland, owner of Upland Development in Rochester, started working with Forte Group last year to sell some homes in Belleville.

So far one has sold, and he still has six speculation houses -- homes built with no committed buyer -- to go with about 60 more homesites to develop there.

"It's a means of getting someone into a new home where they might not have an opportunity otherwise," Upland said.

If they cannot quickly sell a home they buy, Forte would fashion a lease-to-own deal.

But the money isn't in selling the houses, and they sell many at a loss to control inventory. Builders pay their fees ranging from 12.5% to 15% on the purchase price of the new home.

"We usually sell the house at a loss," Britton said. "You can either sell a house for a gain or you can sell a house fast, but you can't do both."

Trade & Trade Up works with Lombardo Homes and Centex Homes to get buyers to move up from manufactured homes to their subdivisions.

The houses range in price from $120,000 to $300,000, said Sal Pianello, sales and marketing manager for the company that formed a year ago.

"We hope to generate 250 to 275 sales this year," Pianello said. "With a manufactured home, it is an untapped market, and people don't owe $200,000 on their home."

The company was formed by Lombardo Homes about six months before it became a separate company, he said.

Lombardo, like some builders, has its own program to buy a customer's existing home.

The struggle to sell

Marketplace Homes LLC, which started in 2002, began operations with a rent-to-own program and that changed when the real estate bubble burst.

"Now the market has shifted, and people can't get rid of their homes. They are competing against banks that are dropping the prices," said Skip Chelton, the company's vice president. "It is a terrible time to sell in Michigan. Conversely, it is a terrific time to buy."

Marketplace's buyout program includes a guaranteed three-year lease so the customer can purchase a new home, knowing that the old home will generate income to pay the mortgage and expenses until it sells.

The company last year purchased or leased more than 40 homes and generated more than $10 million in new construction sales for builders. It works with more than 100 communities in southeast Michigan, including those developed by Winnick Homes and Pinnacle Homes.

Chelton said the company also has an exclusive agreement with Keller Williams Realty. The homes are generally leased for corporate relocations, he said.

Relief on the way?

The National Association of Realtors forecast last week that home sales would begin recovering in the summer and inventories will start dropping.

"We're looking for essentially stable sales in the near term before higher loan limits translate into more sales in high-cost markets," said Lawrence Yun, the association's chief economist. "The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met."

At the end of February, there were 4.03 million existing homes for sale nationwide, or a 9.6-month supply at the current sales pace. And there were 471,000 new homes on the market at the end of February, or about a 9.8-month supply.

Yun predicts that new-home sales will fall 25.7% to 576,000 in 2008 and then rise 4.6% to 602,000 next year. Existing homes sales are forecast to hit 5.39 million for 2008 and then rise by 6.6% to 5.74 million in 2009.

Award-winning builders take over incomplete subdivisions in tough market

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • March 23, 2008

Ever wonder what happens to those half-done subdivisions?

Sometimes, the owners walk away, leaving the whole neighborhood in the hands of a bank that doesn't really want it.

That's when companies like Pinnacle Homes of Farmington Hills and Livonia Builders in Livonia enter the picture.

Pinnacle, a homebuilding firm run by a former Pulte executive, has picked up four projects throughout metro Detroit after workout deals with banks.

The projects are unfinished subdivisions in Lyon Township, Commerce Township, Lake Orion and Novi.

Howard Fingeroot, managing partner of Pinnacle Homes and the former president of Pulte Land Development Co., said the projects are the result of many contacts to banks.

"We started looking in 2006 because it became evident when the market turned down that the banks would be saddled with a number of properties that they would have to take back," he said.

Fingeroot said some of the projects were purchased from the banks. In other deals, Pinnacle agreed to finish building the homes and handling marketing and sales for the banks.

Kirkway Estates in Lyon Township is one such project. In a venture with AmTrust Bank of Cleveland, Pinnacle will finish building 85 homes in the 100-lot development for a fee and the bank retains ownership. The homes will range from 2,800 to 3,400 square feet and will list around $330,000, Fingeroot said.

Pinnacle is providing the same service for Comerica Bank at the Hills of Oxford in Lake Orion, a 200-home subdivision with 150 homes left to build.

Pinnacle purchased the Novi project from Citizens Bank and changed its name to Bella Terra. There were 67 fully developed lots with plans for homes ranging from 2,800 to 3,800 square feet. The company has not started building there yet.

And at Greenbriar, a 102-unit duplex development in Commerce Township, Pinnacle purchased the project from Comerica Bank. Fingeroot said he plans to convert 50 of the duplexes to single-family homes to reposition it in the market. The properties are to start at 1,900 square feet and $200,000.

"We were fortunate that when the downturn took place, we weren't strapped with a lot of inventory at high prices," Fingeroot said. "You can't make money in times like these. The best you can do is position yourself for the market to improve."

He did not disclose the purchase prices for the projects.

Danny Veri, partner in Livonia Builders of Livonia, also saw the market bust coming and was prepared for it. Now he's buying unfinished projects and building homes to sell.

He's recently bought four projects and is negotiating on a fifth.

"Housing was so good for so long that some people never thought it would end. Being that I am a second-generation builder, I saw what my parents went through in the late '70s and '80s, and it put a caution into what we were doing," Veri said.

Plans scaled back

Generally when a second builder comes in to finish a project, the houses get smaller and sell for less.

Veri said that was the case at Covington Estates in Westland. About 21 homes were completed out of 57 when the building stopped. Two years went by before Livonia Builders purchased the project last January. By July, the rest of the homes were up and selling.

These were single-family homes from 1,600 to 1,800 square feet selling for $169,900 to $200,000. When the homes were first selling with the original builder, prices were starting at $275,000, Veri said.

"Initially, residents were displeased. But those homes that they had were much bigger than the ones we were building," he said. "At the speed that we got in and out of there, they were very happy. What was an abandoned subdivision where there was construction debris, is now finished."

He said he brought the scope and prices of the homes down because that's what is selling now.

Livonia Builders also purchased projects at Newberry Estates in Westland, Brookfield Estates in Westland and Cherry Hill Village in Canton. It is negotiating to buy Forester Square in Auburn Hills, where there are 47 unfinished lots.

Michelle Grant, a homeowner in Kirkway Estates in Lyon Township, is looking forward to having Pinnacle come in and fill out her neighborhood.

Grant was one of the first three buyers in the subdivision of upscale homes in August 2006. She paid in the mid-$500,000 range for her 3,200-square-foot colonial and had three neighbors before work halted. The new homes are to start at $330,000.

"It's a beautiful neighborhood and house. We are about three and a half miles from downtown Northville," Grant said. "We thought this is really going to take off. Then, of course, things started to deteriorate."

The undeveloped lots have taken on a sort of prairie look, she said.

"Pinnacle is coming in, and we have high hopes for that. We want to maintain the integrity of the neighborhood because that's all we have in terms of resale," she said.

"Our biggest concern was that a builder would come in and build much lesser homes. It's not what we really bought into, but life does go on and you have to keep hopeful," Grant said.

Tight credit spurs rentals

Some would-be buyers are waiting for market growth

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • March 13, 2008

There is a bright spot growing in the long-beleaguered rental market.

Occupancy rose 3% last year at the 1,600 units in metro Detroit owned by Kaftan Enterprises, said owner Jeffrey Kaftan, who also is president of the Apartment Association of Michigan.

"The apartment market has really been hurt for the past four years because of the proliferation of condos and easy money," Kaftan said. "We now are starting to see that change."

Kaftan said he expects the trend to continue this year as the buyers' market continues and tight credit keeps some potential home buyers on the sidelines.

Some people are renting now because they had a foreclosure, cannot get financing with the tighter lending practices, or are just waiting out the new and existing housing markets to see if they improve. The most optimistic industry forecasts predict that upswing will begin in the middle of this year.

Taking the Fifth

At the Fifth in Royal Oak, an 18-story, 78-unit contemporary condominium development that opened last fall, owner John Hanna said he has leased some units to people who intend to buy at a later date. He did not say how many have sold or leased.

The units are priced from $278,900 to $1 million and are attracting people from other cities and countries who are looking for the urban lifestyle where they can walk to shops and restaurants.

Jeremy and Jane Pritchard, both 33, moved to Michigan from England in November for Jeremy Pritchard's job with Clifford Thames Inc., which had an office in Livonia. It does information-technology work for Ford Motor Co. They stayed in corporate housing for three months before moving into the Fifth in February.

They looked all over metro Detroit for housing, but were leery of buying a large property when they didn't understand local property laws, the market and taxes.

"We like to be a bit different and the Fifth allowed us to do that," Jeremy Pritchard said. "It is a fantastic building with a fantastic outlook and we fell in love with it."

Craig and Tanya Bell moved to Dusseldorf, Germany, in July 2005 with Henkel Corp. and just moved back to metro Detroit in January. They sold their home in South Lyon just before leaving, which Craig Bell, 45, calls "the best financial decision we've made."

They were smitten with the European style of living in central cities.

"We were also tired of the typical big house-big yard that Americans seem to live for. Downsize, de-complex and enjoy life," Craig Bell said. "When you are looking at a depressed market and never know where the bottom is, you want to find something unique. And this place we thought was unique."

The Bells bought a unit in the Fifth that faces south. From their floor-to-ceiling windows, they can see the Detroit skyline and the Ambassador Bridge.

"It was a good investment point for me in a down market," he said of the view.

Homes are leasing, too

Leasing of unsold homes also has grown in the metro area, said Randy Repicky, office manager of Johnstone & Johnstone in Grosse Pointe Farms.

"We are seeing the number of leases go through the roof. Sellers are starting to rent them while they are waiting for a buyer to come along or waiting for the market to improve," Repicky said. "We used to do one a month in my office and now we are doing 10 a month."

February home sales leap 12.8%

Low prices draw buyers, exec says

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • March 12, 2008

Sales of homes and condos in metro Detroit rose 12.8% in February compared with a year ago, according to figures released Tuesday by Realcomp.

There were 3,591 home and condo sales in the metro area in February compared with 3,184 in the same month in 2007. Realcomp figures are tallied from listing agents' reports of closed sales.

Karen Kage, president of Realcomp, a Farmington Hills-based real estate listing service, said the reason for the rise is that many of last year's foreclosures -- stemming from the sharp decline in the housing industry that began in August 2005 -- are being sold and, with prices down as much as 15% in some areas and interest rates stabilizing, buyers are beginning to step forward.

Detroit saw the greatest improvement as 804 homes and condos were sold in the month compared with 538 in February 2007, a 49.4% jump.

While the area is expected to see its high foreclosure trend continue, the February sales figures are a hopeful sign for the market as spring nears, Kage said.

"We started to see things go up in the fourth quarter of last year but nothing like we are seeing now," Kage said. "We are very optimistic that sales will continue to rise.

"If you are a first-time buyer, I have never in my 30 years in the business seen a better time to buy," she said.

Other highlights from the February sales report include:

• Macomb County sales rose 21.7% to 483 from 397.

• Oakland County sales rose 7.54% to 818 from 761.

• Livingston County sales rose 19.5% to 104 from 87.

• St. Clair County sales fell 9.4% to 87 from 96.

• Wayne County sales rose 28.1% to 1,481 from 1,156.

Foreclosure filings fall in Michigan

By GRETA GUEST • FREE PRESS BUSINESS WRITER • February 26, 2008

Michigan was knocked out of the top five nationally as its foreclosure filings fell 7% in January as compared to a year ago.

Michigan now ranks 10th nationwide for foreclosure filings, according to figures released this morning by RealtyTrac Inc., an Irvine, Calif.-based foreclosure Web site.

Overall, foreclosure filings rose 8% nationwide from December and were up 57% from January 2007.

Michigan had 1,362 notices of default, 6,947 auction sale notices and 2,437 bank repossessions during January for a total of 10,746 properties in some stage of the foreclosure process, RealtyTrac said.

Michigan’s total was 7.7% below December’s tally.

Nevada, California and Florida had the highest foreclosure rates in the country for January, the Web site said. Other states in the top 10 were Arizona, Colorado, Massachusetts, Georgia, Connecticut and Ohio.

James J. Saccacio, chief executive officer of RealtyTrac, said that several key states had decreased foreclosure activity from December. That could mean that some government and lender efforts are making an impact to minimize foreclosures.

“The big question is whether those efforts are truly helping homeowners avoid foreclosure in the long term or if they are just temporarily forestalling the inevitable for many beleaguered borrowers,” he said.

Congress to consider bankruptcy relief, foreclosure assistance proposals to help homeowners

Sunday, February 24, 2008

March Gordon / Associated Press

WASHINGTON -- Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.

Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.

Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.

The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.

Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.

A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.

"This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again," said Sen. Richard Durbin of Illinois, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules.

The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.

The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.

Consumer advocates, meanwhile, are pushing senators to approve the change.

Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.

In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.

The focus on new housing proposals isn't limited to the legislative branch.

The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.

The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.

On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis. The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.

Wayne County led nation in '07 foreclosures

February 13, 2008

By GRETA GUEST
FREE PRESS BUSINESS WRITER

Wayne County ended 2007 at the top of a list it would rather avoid.

It had the highest foreclosure rate among the nation's 100 largest metro areas for the year, according to RealtyTrac Inc. of Irvine, Calif.

It beat out Stockton, Calif., and Las Vegas, which held second and third place on the list.

But unlike the two western metro areas, metro Detroit's foreclosure problem is a bit more intractable, said James J. Saccacio, chief executive officer of RealtyTrac.

RealtyTrac defines metro Detroit as Wayne County.

"Most of the metro areas with the highest foreclosure rates were either cities like Stockton and Las Vegas, which experienced meteoric growth and unsustainable price appreciation over the past few years, or cities like Detroit, which are undergoing a more widespread economic downturn along with higher unemployment rates," Saccacio said.

Michigan's unemployment rate in December was 7.6%.

The state ranked third nationwide for foreclosures last year, with 1.9% of Michigan households in some stage of foreclosure.

Foreclosure filings that include default notices, auction sale notices and bank repossessions rose 75% nationwide in 2007 with 2.2 million filings on 1.28 million properties, according to RealtyTrac.

The 2007 rate for Wayne County was 4.9% of households entering some stage of the foreclosure process. That was a 68% increase from 2006 and about 4.8 times the national average of about 1% of households in some stage of foreclosure.

Wayne County had 72,616 foreclosure filings on 41,273 properties during the year.

The area including Warren, Farmington Hills and Troy ranked No. 17 on the list with more than 2% of households in the foreclosure process. The area had 30,378 filings on 21,607 properties, RealtyTrac said.

Tom Varner, associate broker and manager of Century 21 Elegant Homes in Southfield, said he hoped foreclosures soon would be cleared from inventories, as they are slowing sales of other properties and diminishing property values.

Varner said that of his 45 total residential listings, 30 of them are bank-owned foreclosed properties. His office, which has 54 agents, is handling about 360 listings, and 30% of them are foreclosures.

"I think we are going to have a very similar year this year," Varner said. "Until we get rid of the bank properties that are out here, we are going to continue to have the same problems. The foreclosed properties are just leveling our equity that we have built up over the years."

Lenders Step Up Effort to Avert Foreclosures

By DAMIAN PALETTA and JAMES R. HAGERTY

February 12, 2008; Wall Street Journal

Prodded by the Bush administration, six major mortgage lenders are due to announce today a stepped-up effort to rescue homeowners on the brink of foreclosure.

Under the latest plan, dubbed Project Lifeline, the lenders promise to seek contact with homeowners who are 90 or more days overdue on their mortgages. In some cases, homeowners will be given the chance to "pause" their foreclosure for 30 days while lenders try to work out a way to make the loans affordable. Lenders could begin sending letters to these borrowers as soon as this week.

Homeowners wouldn't qualify for the program if they are in bankruptcy, if they already have a foreclosure date within 30 days or if the loan was for an investment or vacant property.

Unlike the plan announced in December to freeze interest rates at current levels on certain adjustable-rate loans, this latest effort is to involve all kinds of home loans, not just subprime mortgages, a higher-cost variety for people with blemished credit records or high debt in relation to income.

The participating banks, which service about half of the U.S. mortgage market, are Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., J.P. Morgan Chase & Co., Washington Mutual Inc. and Wells Fargo & Co. -- all members of the so-called Hope Now Alliance. They are working with the U.S. Treasury and Department of Housing and Urban Development. Those two departments scheduled a briefing on the plan for 11:15 a.m. today. The plan was reported yesterday by the Reuters News Service.

Almost immediately after the Bush administration announced the freeze plan in December for certain subprime borrowers, Treasury Secretary Henry Paulson indicated an interest in developing a strategy to address a broader range of distressed homeowners.

At least 1.3 million home-mortgage loans were either seriously delinquent or in foreclosure at the end of the third quarter, according to the Mortgage Bankers Association. Not all of those loans would qualify for the program, however.

Analysts at the investment-banking firm Lehman Brothers recently estimated that the number of foreclosures will surge to one million this year and next, about four times the 2007 level.

Some nonprofit groups that work with troubled borrowers say lenders have become more flexible in recent months in efforts to find ways for more borrowers to keep their homes. But they also say the industry needs to do more.

Martin Eakes, chief executive of the Center for Responsible Lending, a nonprofit research group based in Washington that frequently bashes the mortgage industry, said moves announced so far have been "baby steps." He said lenders should move more aggressively to reduce loan balances to current home values and make monthly payments affordable. He acknowledged, however, that servicers of loans -- the firms that collect payments and handle foreclosures -- face the risk of lawsuits from investors that own loans if those investors believe borrowers have been given overly generous terms.

Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, a Boston-based nonprofit that works with distressed homeowners, dismissed Project Lifeline as a "PR stunt." He said it already should have been automatic for loan servicers to pause foreclosure proceedings for homeowners seeking to qualify for a more affordable loan.

Congressional Democrats also have grown increasingly hostile toward the Bush administration and lenders over the past several months, arguing that not enough is being done to prevent foreclosure. Mr. Paulson is scheduled to testify before the Senate Banking Committee Thursday, and Project Lifeline could help blunt criticism from lawmakers.

The latest initiative came as Countrywide announced a plan to work with the Association of Community Organizations for Reform Now, or Acorn, to seek alternatives to foreclosure for distressed borrowers.

Fed Moves to Curb Risk of Recession

Central Bank Lowers
Target Rate by Half Point,
Open to Further Cuts

By GREG IP
January 31, 2008; Wall Street Journal

Seeking to nip an incipient recession in the bud, the Federal Reserve cut interest rates for the second time in nine days, in one of its most aggressive campaigns in decades to boost the nation's economy.

The Fed lowered its target for short-term interest rates by 0.5 percentage point to 3% yesterday, and left the door open to further cuts.

In its statement accompanying the move, the Fed said "downside risks to growth remain," and that the central bank would "act in a timely manner as needed to address those risks." Investors widely expect the Fed to lower its benchmark rate again in March by 0.25 percentage point to 2.75%

Yesterday's rate cut comes as the latest news suggests the economy continues to skirt recession despite a steep slump in housing and the continuing credit crunch, but financial markets remain fragile.

Stocks rose on news of the cut, which some investors had expected to be smaller, but the market tumbled late in the day after a downgrade of Financial Guaranty Insurance Co. by Fitch Ratings intensified worries about the credit ratings of bond insurers, which insure about $2.4 trillion of debt. Such downgrades could leave banks exposed to additional losses on the mortgage-backed debt they hold, further eroding their capital and limiting their ability to lend.

The Dow Jones Industrial Average, up as much as 201 points after the Fed announcement, ended the day down 37.47 points at 12442.83.

Trimming Inventories

The government reported yesterday that the economy grew at a slower-than-expected 0.6% annual rate in the fourth quarter of 2007. Most of the weakness stemmed from companies trimming inventories, which makes future production cuts less likely. Consumer spending slowed, though to a still-respectable pace.

A private payroll survey also found employment jumped in January. That led some economists to expect the Labor Department tomorrow to report robust job growth for the month, after a slump in December.

Last week, on the heels of a global stock selloff, the Fed made a surprise 0.75-percentage-point cut in its target for the federal-funds rate, charged on overnight loans between banks. That it went ahead with yesterday's rate cut despite some encouraging economic data underlines its worries that slumping housing prices and associated losses on mortgages could yet drag the entire economy down. The Fed's 2.25 percentage points in rate reductions since September roughly equal the initial pace of cuts in early 2001 -- following the bursting of the tech bubble -- as the most rapid in two decades.

The big question now facing the Fed is whether it has done enough. Officials yesterday signaled continuing concerns about growth.

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Fed said in its statement. "Recent information indicates a deepening of the housing contraction as well as some softening in labor markets," it added, echoing previous comments. But yesterday's statement also dialed back the sense of urgency, dropping the "appreciable" from what it said last Tuesday were "appreciable downside risks to growth."

The latest statement included a reminder of how much the Fed has done to date: "Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity."

Some analysts took that to mean the Fed doesn't expect to cut rates as low as 2.25%, as markets currently anticipate. "While the Fed certainly left the door open for further action, the policy assessment did seem to tilt toward reining in expectations of significant additional action," Morgan Stanley economist Dave Greenlaw said in a note to clients.

But Tom Gallagher, an analyst at brokerage ISI Group, said, "You can't be confident the Fed is done until you feel the market has a good handle on the extent of the financial crisis," which it clearly hasn't yet.

Delicate Challenge

Fed Chairman Ben Bernanke, who celebrates his second anniversary in the job tomorrow, now faces a delicate challenge. If his policy is successful, the economy will escape recession, few additional rate cuts will be needed and, paradoxically, his actions to date may end up looking excessive.

"If we end up worrying about inflation later this year that could well be the good outcome for the Fed because odds are it will mean that the economy has stabilized," said Peter Fisher, a former Fed official who is now co-head of fixed income for money manager BlackRock Inc. "It may end up looking like the pre-emptive easing was unnecessary...but that's the point of taking out insurance against the downside."

If so, that would require the Fed to quickly reverse some of its rate cuts. "They acted aggressively on the way down; that suggests they'll act as aggressively on the way up," said Vincent Reinhart, a former top Fed staffer now at the American Enterprise Institute, a Washington think tank.

But the Fed, like most of Wall Street, has already been fooled by several false dawns since the current credit crisis began in August. That means it's unlikely to sound the all-clear while financial markets remain jittery and credit markets remain tight. Yesterday's statement, while less dire than last Tuesday's, made it clear the next Fed move is far likelier to be a rate cut than an increase.

Until this month, the Fed had expected the troubles in housing and mortgage markets wouldn't spill over to the broader economy, and that inflation pressures would continue to percolate. That led it to release statements that continued to play up the risks of inflation, implying that rates might not fall much more.

That changed in January with news that consumer spending, employment and manufacturing activity had all downshifted. Concerns in the financial markets grew, as signified by the sharp drop in stocks at the start of the year.

The possibility that falling house prices will lead to more defaults and foreclosures, loss of bank capital, tighter lending and yet further declines in prices is now Mr. Bernanke's dominant concern. Yesterday afternoon, rating firm Standard & Poor's downgraded or threatened to downgrade more than 8,000 mortgage investments.

Mortgage rates have dropped in the past month, and that has enabled many borrowers with adjustable-rate mortgages either to refinance into fixed-rate mortgages or see their current mortgages adjust to rates one to two percentage points lower than would have been the case several months ago, says Doug Duncan, chief economist at the Mortgage Bankers Association. He said while that means foreclosures may be less than expected, the drop in home prices means many borrowers will be unable to take advantage of lower rates, limiting the benefit.

If home prices fall 10%, a mortgage that was originally 95% of the home's value is now about 105%, and "you may be required to bring some equity to the table in order to refinance," Mr. Duncan said.

Yesterday, many commercial banks responded to the Fed's action by lowering their prime rate, a benchmark for many consumer and business loans, to 6% from 6.5%. But long-term bond yields rose in anticipation that the rate cut would boost growth and the risk of inflation. That could lead to higher, rather than lower, mortgage rates in coming weeks.

Playing Down Inflation

Both last week's and yesterday's Fed statements played down concerns about inflation. The Fed "expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

That view isn't universally shared at the Fed. Nine of the Federal Open Market Committee's 10 voting members approved yesterday's rate cut; Federal Reserve Bank of Dallas President Richard Fisher dissented, arguing for no cut. Three of the Fed's 12 reserve banks didn't ask for a corresponding half-point reduction in the discount rate, charged on direct Fed loans to banks, to 3.5%.

Indeed, in the past few weeks, expectations for inflation a few years from now, as measured by the behavior of Treasury-protected bonds, have risen by a quarter percentage point.

While Mr. Bernanke won't welcome that, he will likely conclude that the weaker economy he now expects, together with stable to lower energy prices, will help suppress those inflation pressures.

Fed's big rate cuts mean now could be the perfect time to refinance

January 31, 2008

By SUSAN TOMPOR
FREE PRESS COLUMNIST

The Federal Reserve took another enthusiastic whack at interest rates Wednesday, slashing short-term rates by a half point to 3%. This was on top of an emergency rate cut of three-quarters of a point last week.

Why are rates falling as fast as snowflakes in January?

"This is aggressive risk management," said Diane Swonk, chief economist for Mesirow Financial in Chicago.

The Fed is out to skirt the first U.S. recession since 2001. After Wednesday's cut, banks lowered the prime rate to 6%. Many consumers will see lower rates for some credit cards, car loans and other consumer loans.

Some fortunate homeowners are saving money by joining the refinancing boom, too.

Chuck Hixson had been looking into refinancing into a fixed 30-year mortgage, but he moved fast the minute he heard news on the radio about the dramatic rate cut by the Fed on Jan. 22.

"I heard it driving to work, and it was like, 'Today's the day,' " said Hixson, 52, who has a 2,500-square-foot home in Farmington Hills.

The 30-year fixed mortgage rate is not directly tied to action by the Federal Reserve. But long-term interest rates have fallen dramatically on recession fears.

Nationwide, the average 30-year fixed mortgage rate hit 5.88% this week, down from 6.71% as of Aug. 1, according to Bankrate.com.

The 30-year rate edged up some from last week's level of 5.57% nationwide.

Anytime the 30-year mortgage rate gets below 6%, consumers take notice.

Hixson, who bought the house in 1985, was able to take his existing home equity line of credit with a rate of 6.5% and refinance it into a 30-year fixed mortgage at 5.625%.

"I was kind of shocked that it was that cheap when I looked into it," Hixson said. He ended up talking two friends into refinancing, too.

This week, the Mortgage Bankers Association reported that its refinancing index was at the highest point since July 2003. Activity remains below those 2003 levels, however.

When homeowners are able to refinance to lower rates, it frees up cash to spend on other goods.

And even in this struggling housing market, there are still some consumers who may be able to take cash out of their homes for remodeling or other big-ticket purchases

"For the overall economy, it's unquestionably a healthy development," said Dana Johnson, chief economist for Comerica Inc.

"Whether it's enough to avoid a recession remains to be seen," Johnson said.

Officially, we are not in a recession nationwide. But the Federal Reserve has launched the fastest round of rate cuts since 1990 to overcome the widespread troubles in housing and credit markets and stop the economic slump that has hit Michigan and the industrial heartland from spreading.

Wednesday's rate cut is the fifth since September. The federal funds rate -- the rate that's used when banks lend one another money overnight -- was 5.25% last summer.

If you're looking for a silver lining, and we've got a lot of clouds here, it is that lower rates give life to economic growth.

In some cases, lower rates can prevent foreclosures. Adjustable-rate mortgages won't soar as high as they would have this spring. That helps many homeowners who had ARMs but have bad credit, too. Often those with bad credit histories can't just refinance to lower rates.

On Wednesday, we learned that U.S. economic growth slowed to an annual rate of 0.6% in October through December, far below forecasts. The annual rate was 4.9% in the third quarter.

Given today's troubles, it is essential to note that refinancing won't help everyone.

"The dilemma is that the 30-year fixed interest rate could go to zero, and there are still some people who couldn't take advantage of it," said Bob Walters, chief economist for Quicken Loans and Rock Financial in Livonia.

In Michigan, falling home values in many areas make it far tougher for people to get equity out of their homes and refinance. Others who have lost jobs will have a tough time finding a lender willing to refinance.

"The borrowers in the driver's seat are those with good credit, proof of income and either money for a down payment or equity in the existing home," said Greg McBride, senior analyst for Bankrate.com.

"If you're missing any of those three pieces, you have some big hurdles to getting approved for a refinance."

No one, obviously, knows how low mortgage rates can go this time around.

Swonk expects the Federal Reserve to cut rates again at its next meeting March 20-21.

Long-term rates, though, could even edge upward, if the U.S. economy picks up steam, thanks to rate cuts and a likely-to-be-passed stimulus package out of Washington.

So it may be wise to look into refinancing now -- especially if you have an adjustable rate mortgage and want to lock in a low fixed rate.

"If you've got a mortgage that can do it, take advantage of it," Swonk said.

"Sleep at night."

Subprime Borrowers Get Easier Terms

Mortgage Firms
Gave 370,000
A Break in 2nd Half

By MICHAEL M. PHILLIPS
January 19, 2008; Wall Street Journal

WASHINGTON -- With house prices sliding and defaults on the rise, mortgage companies negotiated easier terms with 370,000 troubled subprime borrowers during the second half of last year, according to industry data released Friday.

The assistance included new repayment plans for 250,000 borrowers in the third quarter. Another 28,000 borrowers in the quarter, and triple that number in the final three months of the year, had their terms modified, such as rate freezes.

The numbers are expected to jump further since the mortgage industry, backed by President Bush, said last month that it would expedite refinancing or five-year rate freezes for as many as 1.2 million troubled subprime borrowers, a program that is now becoming operational and wasn't reflected in Friday's lending data.

"The point is we're helping homeowners by changing the terms of their mortgages," said Steve Bartlett, president of the Financial Services Roundtable, a trade association of the 100 largest banks, insurance companies and other financial-services firms. The group is part of the Hope Now Alliance, which released the data and is coordinating the industry response to the mortgage meltdown.

Loan servicers, lenders and investors who own mortgage-backed securities have come under pressure from consumer groups, Congress and the administration to find ways to help subprime borrowers stay in their homes. An estimated 1.8 million subprime borrowers will see their interest rates jump over the next two years, unless they manage to get new mortgages or win looser terms on their existing loans.

The impending rate increases have raised fears of a new wave of foreclosures that could ripple into financial markets and the already-weakened economy.

Treasury Secretary Henry Paulson called the industry's progress in preventing defaults "heartening," but he said the administration "will look for additional measures to reach more borrowers to prevent as many avoidable foreclosures as possible." In recent weeks, Mr. Paulson has suggested that the industry might expand its help to include borrowers with nonsubprime adjustable loans.

"Obviously, much more is needed," said Rep. Barney Frank (D., Mass.), chairman of the House Committee on Financial Services. "But I welcome the progress that has been made."

Until the market dried up in recent months, lenders usually provided pricier subprime mortgages to borrowers with poor credit ratings.

Feds working on housing crisis

Treasury Secretary says mortgage protection is a priority in any solution.

Tuesday, January 8, 2008

Martin Crutsinger / Associated Press

WASHINGTON -- The Bush administration is working to combat the country's severe housing crisis but there is no simple solution, Treasury Secretary Henry Paulson said Monday, adding that a correction in the housing market is "inevitable and necessary."

Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.

"By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy," Paulson said in a speech in New York. "However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years."

Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration's plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.

In his speech, Paulson raised the possibility that some sort of "systematic approach" may need to be developed to help homeowners with other types of adjustable-rate mortgages that are resetting to higher rates. The current plan only involves subprime mortgages, loans offered to borrowers with weak credit histories.

The steep slump in housing has been a serious drag on the overall economy. There are rising fears that the country could topple into a recession. Those worries were heightened after a report Friday showing that the unemployment rate jumped to a two-year high of 5 percent in December with job growth slowing to a crawl.

Some Home Fix-Up Tasks Are Worth Skipping

Real-Estate Agents
Say Big Upgrades
Don't Give Paybacks

By AMY HOAK
January 2, 2008; Wall Street Journal

If your New Year's resolution is to sell a home in 2008, it's probably time to start thinking about how to make that home stand out from the rest.

But before planning any projects, beware: Homeowners aren't recouping as many improvement costs as they could in recent years, according to a recent study by Remodeling magazine. In fact, real-estate agents advise clients not to overdo it, regardless of what the local market conditions are like.

"It's more important that it's neat, it's clean and it looks spacious, rather than making sure it's the top of the line," said Cheri Kuhn, owner-broker of Waters Realty in Minnetonka, Minn. She cautions her clients to bypass projects that aren't necessary.

"The thing I find with sellers: If they do a lot of remodeling, they will take the cost of the remodeling and add it to the cost of the home and ask the buyer to pay for it," she said. Often, though, sellers won't get that higher price.

The reason is that asking prices are based largely on comparisons with similar homes in the area, Ms. Kuhn said. And in the many markets that aren't exactly booming right now, buyers have more negotiating power over the price of a home.

To keep costs down and spend remodeling dollars wisely, consider the following tips.

1. Ask for advice. Before making any remodeling plans, clear your home of clutter and rent a storage unit, if necessary, to hold extra stuff while the home is on the market, said Shannon Aldrich, a Realtor licensed in Maine and New Hampshire with Keller Williams Coastal Realty. Then, get some advice from a local real-estate agent on how the home stacks up against the competition.

"I see more houses in a month than most people see in their lifetimes," said Ms. Aldrich, whose blog includes a series about getting rooms ready to sell. Sellers can use that experience to their advantage when deciding what projects to do.

When Ms. Kuhn first meets with clients -- sometimes six months before the house is listed -- she makes a prioritized list of improvements that will make a difference. Cleaning the carpets, painting the walls and removing wallpaper are common fixes. It is wise to budget for these tasks before putting money aside for more expensive projects.

2. Dig deeper. It also could pay to look below the surface by getting a home inspection before listing the property. That way, problems that could hold up a sale are addressed in advance, said Dan Steward, president of Pillar to Post, a home-inspection company in Tampa, Fla.

Some estimate that for every dollar of perceived defect, buyers want a $2 to $3 discount, Mr. Steward said. If that's true, it might pay to spend $2,500 to replace an old furnace.

Also, replacing something as necessary as a furnace helps create a favorable perception of how well a seller took care of the home, Ms. Kuhn said. If there is a problem with an essential element of the house, a buyer might think, "If that was neglected, what else was?" she said.

3. Look outside. Pay attention to exterior details like the condition of siding and windows, Ms. Aldrich said.

According to Remodeling magazine's 2007 Cost Vs. Value Report, a wooden-window replacement recovers on average 81.2% of its cost at resale, and siding replacement recovers on average 83.2% of its cost. The payoff for those projects is much better than for an upgrade that a buyer might not need. A home-office remodeling, for example, recovers 57% of its cost on average. The estimates are national averages for midrange homes, not upscale ones.

4. Spend time in the bathroom. Freshening up the bathroom doesn't have to be expensive, but it could be important.

"People will put up with a lot of cosmetic challenges in a house if they know they could use the bathroom right away," Ms. Aldrich said.

It's most important for the bathroom to be clean, but sellers should also consider replacing the fixtures, tub, sink and toilet -- if they need it, she said. Replace cracked tiles and curled linoleum.

The replacements don't have to be expensive, Ms. Aldrich added. A toilet can cost less than $250, and she recommends taller, handicap replacement toilets to appeal to an aging population.

5. Keep it small in the kitchen. The other room that often sells a house is the kitchen, but it might be best to keep renovations modest. Remodeling magazine's report found that homeowners could recover 83% of the cost of a minor kitchen remodel at resale, compared with 78.1% of a major kitchen remodel.

Ms. Kuhn cautions her clients not to replace refrigerators, stoves or dishwashers. Buyers considering remodeling the kitchen will likely have their own preferences, she said.

Along those same lines, sellers should replace a countertop if it is crumbling but not if its only fault is that it is outdated, Ms. Kuhn said. Even then, seriously consider material costs: There is no need to update to granite unless the competition has granite countertops as well.