Dec
28
New Home Sales Hit 12-year Low
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Annual rate of 647,000 marks worst level since April 1995 after a 9% drop in November.
NEW YORK (CNNMoney.com) — Sales of new homes have plunged even more than expected to their lowest level in more than 12 years, leaving the market glutted with unsold homes and pointing to more trouble ahead for the battered housing market.
New home sales tumbled 9 percent in November to a seasonally adjusted annual rate of 647,000, according to a Census Bureau report Friday.
That was the worst showing since April 1995, when the pace of sales was 621,000, and is much worse than the 715,000 sales pace forecast by economists surveyed by Briefing.com.
The sales pace is down more than a third from year-ago levels. Furthermore, the decline is widespread nationwide, ranging from a 28 percent drop in the Northeast to a 38 percent plunge in the Midwest.
The weak sales pace still probably overstates demand for new homes since it counts a home as sold when a contract is signed, even though in many cases a contract is cancelled before a sale is closed. In fact, most major builders have reported sharp increases in cancelled orders in recent months because buyers have struggled to arrange financing or sell their existing homes.
While the median sales price of $239,100 in November represented a 4.2% jump from October, that previous reading was the lowest in more than two years. The new price reading is still off 0.4 percent from year-earlier levels and off 8.9 percent from the record high price of $262,600 hit in March before the full impact of the meltdown in subprime mortgages was felt.
Michael Larson, a real estate analyst with independent research firm Weiss Research, said the report understates price weaknesses because it does not account for the incentives like picking up buyers’ closing costs builders are using to spur sales.
“You see the builders are still struggling to get the business right,” said Larson. “They’re cut back on production; now they’ve got to get that pricing right to get the buyers to move.”
The glut of new homes on the market rose to a 9.3-month supply, as the number of completed homes for sale reached a record 193,000 at the end of the reporting period. Builders now typically have to wait 6.2 months to sell a completed home, the longest wait since July 1993.
While new home sales make up only a fraction of the overall real estate market, this report is closely watched as a more leading indicator of market strength than the report on existing home sales, which is due out Monday from the National Association of Realtors. The existing home sales report tracks existing home sales when they are closed, typically a month or two after a sales contract is signed.
Economists surveyed by Briefing.com forecast that existing home sales edged up to a 5 million annual sales rate in November from October’s 4.97 million, which was the weakest sales reading of existing homes on record despite the largest drop in prices.
How they got housing wrong
The downturn in new home sales has hammered the results of the nation’s leading home builders. Many of them have been forced to take large charges to writedown the value of their holdings.
A month ago Lennar (LEN, Fortune 500), the No. 1 home builder by revenue, reported that it was selling 11,000 properties to the real estate arm of Wall Street firm Morgan Stanley (MS, Fortune 500) for only 40 percent of their previously stated value.
The charges taken by many builders have caused many builders to report larger-than-expected losses. D.R. Horton (DHI, Fortune 500), the No. 3 builder, reported a smaller-than-expected loss in late November, but that followed a quarter with a loss that was much wider than forecast.
Hovnanian Enterprises (HOV, Fortune 500), the nation’s No. 6 builder by revenue, posted a full-year loss this month and said the market remains very challenging, prompting credit rating agency Moody’s to say it was reviewing whether to downgrade its debt further into junk-bond status.
Builders’ chief: We built too many homes
In October, Moody’s downgraded the debt of Lennar, No. 2 builder Centex (CTX, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) to junk bond status.
Earlier this month, luxury home builder Toll Brothers (TOL, Fortune 500) posted its first loss in 22 years as a public company.
Dec
28
How They Got Housing Wrong
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Experts thought 2007 would bring a real estate recovery – not the worst collapse on record. What does that say about forecasts of a turnaround next year?
NEW YORK (CNNMoney.com) — Before you put much hope in forecasts for a 2008 rebound in the battered housing market, consider this: A year ago at this time many top economists were looking for that recovery to begin in 2007.
Instead, the year saw historic declines in nearly every measure of housing strength and home building, and left a trail of predictions from some of the nation’s top economists that look – at best – foolish.
Former Federal Reserve Chairman Alan Greenspan and his successor Ben Bernanke, after reviewing home sales and mortgage rates in fall 2006, were hopeful that the market had bottomed out.
“It may be too soon to say that it’s over. It may not be too soon to say that the worst is over,” said Greenspan in an October 2006 speech in Richmond, according to press reports.
In a November 2006 speech, Bernanke said he saw some “encouraging” signs in recent housing reports.
“Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets,” Bernanke said.
But those signs of life were short-lived.
By Feb. 7, HSBC (HBC) was warning that rising losses on mortgage-backed securities would cause it to take a $10.5 billion charge. The phrase “subprime mortgage” was on its way to becoming the key global business term of 2007. And few would use the word “encouraging” in relation to housing again.
Dec
26
NEW YORK – U.S. home prices fell in October for the 10th consecutive month, posting their largest monthly drop since early 1991, a widely watched index showed on Wednesday.
The record 6.7 percent drop in the Standard & Poor’s/Case-Shiller home price index also marked the 23rd consecutive month prices either grew more slowly or declined.
“No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim,” said Robert Shiller, who helped create the index, in a statement.
The previous record decline was 6.3 percent, recorded in April 1991. The S&P/Case-Shiller home price index tracks prices of existing single-family homes in 10 metropolitan areas compared to a year earlier. The index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.
The broader Case-Shiller index of 20 metropolitan areas fell 6.1 percent. Among the 20 metropolitan areas used in the broader index, 11 posted record monthly declines and all 20 declined in October compared to September.
Miami posted the largest decline among those 20 markets. Home prices in the Miami metropolitan area fell 12.4 percent in October compared to the same month last year, surpassing Tampa, Fla. as the worst-performing city. Tampa posted a year-over-year loss of 11.8 percent.
Besides those two cities, Detroit, Las Vegas, Phoenix and San Diego also posted double-digit year-over-year declines.
Atlanta and Dallas, which had previously posted price appreciation, fell in October. Prices fell 0.7 percent in Atlanta and 0.1 percent in Dallas compared to a year earlier.
Only three areas � Charlotte, N.C., Portland, Ore. and Seattle � posted year-over-year home price appreciation in October. Charlotte posted the largest gains at 4.3 percent.
Bob Morgan, president of the Charlotte Chamber of Commerce, said the area’s economy continues to create jobs at record levels. While the numbers are preliminary, more than 14,000 jobs were created in the Charlotte area in 2007, he said, compared with more than 12,000 jobs in 2006.
The job growth is coming from a “pretty healthy” variety of sectors, including the financial industry, Morgan said. Charlotte is home to two of the nation’s four largest banks, Bank of America Corp. and Wachovia Corp.
Carole Brake, the sales manager at Bissell Hayes Realtors SouthPark Office in Charlotte, said prices are still up despite an increase in inventory.
“Sellers are not in a mode to reduce their prices. They want a fair market price for their home,” Brake said.
Dec
18
The US Sub-Prime Crisis in Graphics
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The US sub-prime mortgage crisis has lead to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.
Before the crisis:
How it went wrong:
Dec
14
WASHINGTON – Fannie Mae’s CEO told shareholders Friday he does not expect a housing market recovery until late 2009, “at the earliest,” and that the mortgage-finance company is strong enough to ride out the downturn.
Fannie Mae “will weather the turbulence of today’s mortgage market and prosper when better conditions return,” the president and CEO, Daniel Mudd, said as he and other top executives faced shareholders for the first time in three-and-a-half years at an annual meeting.
After posting a third-quarter loss of $1.4 billion, the largest U.S. buyer and guarantor of home mortgages recently cut its dividend and announced plans to sell $7 billion in preferred stock to raise capital to keep its cushion against risk within regulatory requirements.
One shareholder unconvinced by Mudd’s assurances was investor activist Evelyn Y. Davis, who rose at the meeting and urged the government-sponsored company’s directors to replace Mudd with Louis Freeh, the former FBI director elected to the Fannie board last spring.
Freeh is “the only one who would clean this up and really do this right,” said Davis, whose mordant criticism of the company’s leaders dominated much of the two-hour meeting.
Davis, who often peppers corporate CEOs with questions at shareholder meetings, said she would not vote for any of the directors standing for re-election other than Freeh. Freeh previously was general counsel and ethics officer of credit-card issuer MBNA Corp.
Despite Davis’s protestations, the 12 Fannie directors â€â€? nine of whom came to the company after its accounting crisis in 2004 â€â€? were re-elected.
Mudd said Fannie Mae was “in a stronger position” because of the extensive changes to its management and operations over the past three years made in the wake of its $6.3 billion accounting scandal and with the recent steps taken to curb losses and buttress its finances.
He called them “extraordinary steps, but steps we believe are prudent.”
The Fannie chief reaffirmed his gloomy forecast for the housing market, saying “This is the worst housing and mortgage market in recent memory, and we are still working our way to the bottom, in our view.”
It was Washington-based Fannie Mae’s first annual meeting since May 2004, five months before the accounting crisis erupted and led to the ouster of its highest executives, tarnished its reputation, and prompted federal regulators to fine it and impose restraints on its operations.
“We are rebuilding our culture,” Chairman Stephen Ashley told the shareholders.
Fannie’s stock price has been battered. On Friday, shares fell 8 cents to $34.68, or about 50 percent below the high point of $70.57 over the past year.
Dec
6
Foreclosures Reach Record High
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Lenders report sharpest rise in foreclosures ever and highest level of homeowners late in payments since 1986, and warned worst is still ahead.
NEW YORK (CNNMoney.com) — The rate of homeowners going into foreclosure hit a record high in the third quarter, while those late with their payments rose to the highest level since 1986, according to mortgage lenders’ trade group, which forecast that the meltdown in the mortgage and real estate markets shaking the U.S. economy will continue to worsen over the next year.
The Mortgage Bankers Association reported that 0.78 percent of mortgages entered the foreclosure process in the three months ended Sept. 30. That figure is up from 0.65 percent in the second quarter – the previous record high – and more than double the 0.32 percent rate a year earlier.
The homeowners entering foreclosure brought the total percentage of loans in the foreclosure process to a record high as well of 1.69 percent, or 768,000 homes.
The report also showed that 5.59 percent of borrowers are now at least 30 days late making their mortgage payments, which is just below the record high of 5.68 percent set in 1986. And 1.26 percent of the borrowers were 90-plus days late, putting them at significant risk of going into foreclosure.
Doug Duncan, chief economist for the lenders’ trade group, said those rising delinquencies rates suggest that the problems have not hit bottom. He therefore expects late payments and foreclosures could continue to increase through the third quarter of 2008.
Dec
6
Home losses to cost $482M
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Memphis to feel effects more than county
Commercial Appeal: Real Estate
Home foreclosures will drain $482 million from the Memphis area economy next year.
That’s the conclusion of a U.S. Conference of Mayors study of 361 metropolitan areas done by Global Insight of Lexington, Mass.
“That includes reductions in activity in the construction sector and retail sales, then all the smaller economic activity that depends on those,” said James Diffley, who headed up the Global study group.
There was no breakdown on those categories or on lost property or sales taxes, he said.
“Some of that (economic loss) would be reflected in lost tax revenue,” Diffley said.
The metro area figures were based on Global’s models of each city economy, he said.
The findings make sense, said John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis.
“It seems reasonable that we would have a lot of losses, primarily because subprime mortgages are a substantial proportion of the mortgages made here since 2000,” he said. “We have a lot of poor people who were more inclined to take out a subprime mortgage.”