Biggest Gain in Home Sales Since July 2003

Written By Patrick Rucker
WASHINGTON (Reuters) - Sales of previously owned U.S. homes rose 5.5 percent last month, the biggest gain since July 2003, and the inventory of unsold homes fell, a hopeful sign for a housing market mired in a long slump.

The National Association of Realtors said on Friday that sales of existing homes rose to a 5.18 million-unit annual rate from the 4.91 million unit pace set in August. Economists had expected sales to rise to only a 4.93 million unit rate.

It was the first time the sales pace had risen above its year ago level in nearly three years, a sign the market could be stabilizing.

The surprisingly large jump in sales pushed the inventory of unsold homes down by 1.6 percent to 4.27 million, or a 9.9 months' supply at the current pace, the lowest since February.

"We're not out of the woods yet by any means when it comes to falling house prices and our fundamental problem of an oversupply of homes, but we're getting near to the bottom every day," said White House spokeswoman Dana Perino.

Home prices, however, showed no signs of escaping their long, deep slide and economists said the number of homes on the market would likely have to fall further before they do.
The median national home price declined 9 percent from a year ago to $191,600, the lowest level since April 2004.

"As the median price continues to decline, seeking out that new equilibrium level, demand is -- slowly and hesitantly -- moving back into the market," said Lindsey Piegza, an economic analyst at FTN Financial in New York.

A Reuters poll taken October 21-24 found economists expect prices to continue to fall through next year. The median forecast from the survey was for a 15 percent drop this year and a 6.4 percent fall in 2009. Economists expect prices to turn up in 2010, but by a meager 1 percent.

'VULTURE INVESTORS'

Rising U.S. mortgage defaults have sent credit markets into a tailspin, threatening economies worldwide. A majority of economists polled said finding a floor for house prices is an essential condition for ending the financial crisis.

In order for prices to recover, the glut of unsold homes needs to be whittled down further, analysts said.

"Most, if not all, the rise in sales is due to vulture investors buying cheap foreclosed homes, but all sales reduce inventory," said Ian Shepherdson, the chief U.S. economist at High Frequency Economics in Valhalla, New York.

"If this continues, people will stop expecting further price falls and activity will start to recover."
Lawrence Yun, the chief economist for the Realtors' trade group, also pointed to a rise in foreclosure and other 'distress' sales in regions hard-hit by the housing downturn.

"In some regions, the lower prices are seeing buyers return to the marketplace," he said. "This was a nice jump and hopefully this trend can continue because the first step to stabilizing the market is an increase in home sales."

Sales jumped 16.8 percent in the West, while rising 4.4 percent in the Midwest and 2.2 percent in the South. In the Northeast, sales fell 1.2 percent.

Sales of single-family homes, which represent the lion's share of the market, rose 6.2 percent. Sales of condominiums held steady.

"We're still struggling with falling home prices and we will for a while, but we're forming a bottom here," said Bob Walters, chief economist at Quicken Loans in Livonia, Michigan.

(Additional reporting by Pedro Nicolaci da DaCosta, Ellen Freilich and Nick Olivari in New York; Polling by Bangalore polling unit; Editing by Andrea Ricci)

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NAR: NAR: Home Sales Rise as Affordability Improves

Existing-home sales increased last month as buyers responded to improved housing affordability conditions, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.5 percent to a seasonally adjusted annual rate of 5.18 million units in September from a level of 4.91 million in August. Home sales are 1.4 percent higher than the 5.11 million-unit pace in September 2007.

Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri, and Rhode Island,” he says. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”

NAR President Richard F. Gaylord says low home prices and low interest rates have helped attract buyers. “This is the first time since November 2005 that home sales have been above year-ago levels,” Gaylord says. “Credit tightened at the end of September, but the improvement demonstrates that buyers who’ve been on the sidelines want to get into the market to make a long-term investment in their future.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04 percent in September from 6.48 percent in August; the rate was 6.38 percent in September 2007.

Yun says there may still be market disruptions.

“The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac," Yun says. "Inventory remains high, and price declines are pressuring owners." Yun says that an additional housing stimulus would stabilize prices more quickly and help bring faster stability to Wall Street. "Removing the repayment feature on the [$7,500] first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory,” Yun says.

A Closer Look at the Numbers

Total housing inventory: at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.

National median existing-home price: $191,600 in September, for all housing types. That's down 9 percent from a year ago when the median was $210,500. “Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40 percent of transactions," Yun says. "These are pulling the median price down because many are being sold at discounted prices. The current market is not being dominated by speculative investors. Rather, 80 percent of current buyers are purchasing a primary residence, which is a bit higher than historic norms.”

Single-family home sales: increased 6.2 percent to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8 percent above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6 percent below September 2007.

Existing condominium and co-op sales: were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7 percent below the 664,000-unit pace in September 2007. The median existing condo price was $199,400 in September, down 10.2 percent from a year ago.

By Region

Here's a breakdown across the country of existing-home in September:

West: sting-home sales in the West jumped 16.8 percent to an annual rate of 1.25 million in September, and are 34.4 percent higher than September 2007. Median price: $253,600, down 18.5 percent from a year ago.

Midwest: sales increased 4.4 percent to an annual pace of 1.19 million in September, but are 2.5 percent below a year ago. Median price: $152,500, which is 7.9 percent lower than September 2007.

South: sales rose 2.2 percent in September to a pace of 1.9 million but remain 7.8 percent below September 2007. Median price:$167,200, down 4.1 percent from a year ago.

Northeast: sales slipped 1.2 percent to an annual pace of 840,000 in September, and are 7.7 percent lower than a year ago. Median price: $246,800, down 5.4 percent from September 2007.

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/24/08

Treasury Aims to Disperse Rescue Funds Quickly

Senior Treasury official Neel Kashkari, who is heading up the $700 billion financial rescue effort, told Congress Thursday that the Treasury is working hard to get the plan up and running.

Kashkari said the plan would include setting standards for changing mortgages to make them more affordable and giving loan guarantees to banks that need them.Kashkari told the Senate Banking Committee that "we are passionate about doing everything we can to avoid preventable foreclosures."

Kashkari has been openly supportive of the position taken by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who has pushed for a program that forces banks and loan services to modify troubled borrowers’ loans.

Source: The Associated Press, Marcy Gordon (10/23/08)

This article is from Realtor Magazine Online Edition Dail Real Estate News for 10/24/08

Both presidential candidates have announced plans to help voters deal with the challenging housing economy.

Here are their ideas as posted on their election Web sites:

Sen. John McCain:
*Direct assistance to homeowners. No taxpayer money should go to real estate speculators who made bad decisions about investments.
*Reform financial and lending systems to prevent a repeat.
*Require participating lenders to forgive part of subprime borrowers' loan principals and place them into new 30-year Federal Housing Administration loans.
*Give financing to municipal and civic groups trying to solve problems within their own communities.

Sen. Barack Obama
*Create a standardized disclosure plan that allows for full-disclosure of loan costs and provisions.
*Crack down on mortgage fraud.
*Give a mortgage credit to those who don’t itemize deductions.
*Create a fund to help homeowners who face foreclosure refinance.
*Allow bankruptcy courts to modify a homeowner's mortgage payments.

Source: The San Diego Union-Tribune, Lori Weisberg (10/19/08)

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/23/08

Foreclosure Filings Slowed by New State Laws

Foreclosure filing were reported on 765,558 U.S. properties during the third quarter, up more than 3 percent from the second quarter and up 71 percent from the third quarter of 2007, according to RealtyTrac, an online foreclosure market.

In September, foreclosures declined 12 percent compared to August, but that doesn’t appear to be necessarily good news. "Much of the 12 percent decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures," said James J. Saccacio, chief executive officer of RealtyTrac.

Compared with September 2007, foreclosures in September 2008 rose 21 percent.

States with the highest rates of foreclosure in September were Nevada, Florida, California, Arizona, Georgia, Michigan, Ohio, New Jersey, Indiana and Colorado.

Six states accounted for more than 60 percent of U.S. foreclosure activity in the third quarter with California alone accounting for 27 percent. Other states with the most foreclosures were Florida, Arizona, Ohio, Michigan and Nevada.

Source: RealtyTrac (10/23/2008)

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/23/08

Analysts: Many Are Underwater on Mortgages

More than 12 million U.S. homeowners are underwater on their mortgages, owing more than their homes are worth.

"When you're underwater and you have some kind of hit to your income or some kind of unintended expense, that's when you default. And so now we've got this noxious mix of millions of people under water and quickly rising unemployment," says Mark Zandi, chief economist at Moody's Economy.com.

Zandi calculates that there will be another 14.6 million homeowners under water by September 2009. Zandi and other economists believe this housing crisis will prove to be much more costly for the U.S. taxpayer than the $700 billion the U.S. government has already promised to recapitalize banks and buy up distressed debt from financial institutions.

"The government is going to have to start filling this negative equity hole and that's just going to be a direct cost to taxpayers," Zandi said. "This is going to be the really costly part, I think, for taxpayers."

Source: Reuters News, Tom Brown (10/21/2008)

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/22/08

Baby Boomers Face Need to Save, Not Spend

Baby Boomer homeowners are putting their homes up for sale and finding that there are fewer buyers, in part because younger generations can’t afford expensive property.

Many observers, including economist and author Harry S. Dent, say things are unlikely to get better until at least 2020 when the millennial generation, which is 79.4 million strong, will finish college and start buying homes.

Many boomers, who lost about $2 trillion of wealth in the recent economic meltdown, plus billions in home equity in the housing downturn, are facing life without much of a financial cushion.

Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton (business) School, believes the recent market crash should have been a wake-up call for boomers. "The Baby Boomers are going to have to work longer and [spend] less," Mitchell says.

Source: The Wall Street Journal, Joe White (10/21/2008)

This article is from Realtor Magazine Online Edition Daily Real Estae News for 10/22/08

Mortgage Workouts Increase as Banks Ramp Up

Banks, faced with rising foreclosures, government pressure and economic realities, are growing more willing to modify loans to keep borrowers out of foreclosure.

More than three million U.S. homeowners over the last 15 months have either received loan modifications or are involved in programs where that will be the result.

* About 2.26 million mortgages have been modified under the Hope Now program, an alliance of mortgage servicers, counselors and investors.

* An estimated 400,000 homeowners are expected to participate in a new Federal Housing Administration program that allows borrowers in trouble to refinance into a 30-year FHA loan.

* Nearly 400,000 borrowers whose loans came from Countrywide Financial will be refinanced through new owner Bank of America as part of an agreement resulting from a class action lawsuit.

Source: USA Today, Stephanie Armour (10/22/2008)

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/22/08

Banks Weigh Other Uses for Rescue Money

Despite the fact that the $250 billion the government plans to invest in banks is intended to help them make new loans, J.P. Morgan Chase, BB&T, and Zions Bancorporation are among the financial institutions hoping to use the money to acquire other banks.

While some experts are worried such deals could further the trend of creating banks "too big to fail," others believe they could prevent the failure of numerous small banks and boost the economy.

U.S. Treasury Secretary Henry Paulson acknowledged that the money could be used to acquire smaller, weaker banks. "There will be some situations where it's best for the economy and for the banking system for there to be a consolidation," he says.

Source: Washington Post, Peter Whoriskey and Zachary Goldfarb (10/22/08).

This article is from Realtor Magazine Online Edition Daily Real Estate News for 10/22/08

Well, we may as well be up front about it - we are either in or about to enter an economic recession. My forecast calls for the next two quarters to post zero or negative GDP growth. (Remember: the "official" definition of a recession is two consecutive quarters of negative growth.) Housing will need to lead us out of this recession. On that front, there have been some positive developments. Both the housing stimulus package passed earlier this summer and the $700+ billion rescue package (or bailout, if you prefer) will, eventually, help turn housing around.

Of course, recession is hardly good news for the housing market because few jobs are created and many are lost. Indeed, so far this year the economy has shed 760,000 payroll jobs. Fewer jobs holders means lower housing demand. But if a recession is accompanied by rising housing affordability then home sales can trend higher. Indeed, we see that happening now. NAR's housing affordability index rose to 123.3 in August of 2008; compare that with the 106.6 level registered a year ago.

But a prolonged deep recession - certainly a possibility in light of the most severely tested financial market stress since the Great Depression - can dampen consumer confidence and put up barriers to homebuying. Fortunately, the economic downturn appears manageable. Let's see why by reviewing some of the key economic trends to watch.

Consumer Spending

Consumer spending accounts for nearly 70 percent of economic activity. A normal healthy consumer spending growth figure is about 3 percent (in real terms above the inflation rate). In the first half of this year consumer spending grew at only one percent -- and is expected to record a mild contraction in the upcoming quarters. Aggregate personal income is also likely to have fallen because of fewer jobs. In addition, there has been a sizable decline in net wealth from falling stock prices and falling home values. The combined income and wealth effects will be such that consumer spending, at best, will add nothing to economic growth in 2009. Another government stimulus plan may temporarily raise consumer spending but will do nothing for a long-term sustained rise unless the overall economy recovers and begins to add jobs.

Business Spending

Business spending for equipment turned negative in the recent quarter, not surprising given that corporate profits have fallen for four straight quarters and weak sentiment regarding consumer spending prospects. Construction activity for commercial real estate, which had been growing solidly, will be weakening in light of the credit crunch and rising vacancy rates. One positive picture is on the current lean business inventory conditions. Unlike many past economic downturns when companies had to hold back production because of bloated inventory, the very thin inventory conditions will permit companies to ramp up production at the first sign of economic recovery.

Government Spending

Government spending can create jobs. Upgrading and expanding nation's infrastructure, hiring more teachers, or building jets and tanks can stimulate the economy over the short-term. But spending without additional tax revenue over the long run can result in higher interest rates. For the short-term at least through 2009, government spending is expected to rise 1 to 2 percent.

Net Exports

Net exports have been steadily improving in the past year. The U.S. continues to import more items, but the exports have been booming over the past five years, growing at near double-digit pace. The export growth in the second quarter was very impressive, clocking in at a 12.3 percent growth rate. Why the surge? The weak U.S. dollar has made U.S. products more competitive. Interestingly, the dollar has actually strengthened of late since the start of the global financial crisis. While foreign countries may blame the U.S. for the subprime loans and the credit market turmoil, they (as well as we) turn to and trust the dollar in times of crisis. The strengthening in the U.S. dollar this time around is a positive development because there is about a two-year lag time in impacting international trade flows from changes in currency. So the net exports continue to be a positive factor for the economy going into 2009. Also, oil prices, which are denominated in dollars, fall when the dollar strengthens. Given that REALTORS® traditionally are heavy drivers, lower oil prices are welcome.

The Bottom Line

Put it all together and what do we have? A recovering economy will help consumer and business spending to turn the corner and the economy to move in a self-sustaining pace. But it requires a catalyst to get things started. The tumbling housing market and the subprime mortgage defaults have caused financial markets to freeze and have pushed the economy to fall into a recession. But the rising home sales of late and a sustained momentum will bring the economy back into the fold. Rising home sales will also thin out housing inventory and begin stabilizing home prices. The credit market will start to unfreeze once home prices have hit bottom. Simply put, the economy will not recover without a housing market recovery.

Fortunately, policymakers and both Presidential candidates clearly recognize the need to get the housing market moving. The two housing stimulus bills (homebuyer tax credit and higher loan limits), $700 billion Treasury plan and the Federal Reserve's actions are designed to assure steady mortgage flow and help revive the housing sector. To push the "revival" along, additional stimulus - such as removing the repayment feature of the homebuyer tax credit and raising the loan limit higher - would be welcome. As housing recovers, the economy will expand and create jobs. America and its exceptional ingenuity always find a way to move past crises and back to economic prosperity.

Home Sales Skyrocket in Southern California

Home sales in southern California rose 65 percent in September compared to the same month a year ago.

A total of 20,497 new and existing houses and condominiums sold last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino, and Orange counties. It was the largest increase MDA DataQuick has recorded in the 20 years it has been keeping records, the company said Monday.

The increase was fueled by foreclosures, which drove down prices, MDA DataQuick said, pushing the median price down 33 percent from a year earlier to $308,500. Sales so far this month appear to have been slowed by bad financial news, says Andrew LePage, an analyst with MDA DataQuick.

Source: Bloomberg, Daniel (10/20/08)

This article is from Realtor Magazine Online Edition Daily Real Estate News for October 21, 2008

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