Latest housing data provide fresh evidence market is cooling

A government report Friday confirmed what home buyers and sellers have been finding out recently: The once red-hot U.S. housing market is cooling off. The result is that sellers in many parts of the country have been cutting prices, and buyers are finding they have more bargaining power when they go house hunting.

Sales of new homes plunged in February, while the median price of a new home dropped for the fourth straight month, providing fresh evidence that after five years of record setting sales, the nation’s once-booming housing market is cooling off.

The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month -- the largest amount in nearly nine years and the second straight monthly drop.

The "danger years" for homeowners
Delinquencies peak the third and fourth years of mortgages. Will risky terms add to the problem?
By Les Christie, CNNMoney.com staff writer
March 28, 2006: 2:40 PM EST


NEW YORK (CNNMoney.com) - Millions of mortgage borrowers are entering their "danger years," when delinquencies peak and owners risk losing their homes.

Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages, according to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA).

"As a mortgage ages, things can go wrong," he says....

http://money.cnn.com/2006/03/28/real...ears/index.htm

`For Sale' Signs Rise, Home Sellers Cut Prices as Fed Tightens

By Matthew Benjamin and Kathleen M. Howley
March 31 (Bloomberg) -- Maryam Safai's 5,000-square-foot,
five-bedroom colonial in Mahwah, New Jersey, has been on the
market for a year, even after three reductions in asking price.
``I'm not going to give in to the market,'' says Safai, 44,
a dentist. ``I'm not selling below our current asking price'' of
$1.69 million.
Like Safai's northern New Jersey neighborhood, housing
markets around the nation are cooling, mostly as the result of
the Federal Reserve's drive to push up interest rates. That has
slowed price increases in most of the country and reduced demand
for risky types of financing that caused former Fed Chairman Alan
Greenspan to worry about ``froth'' in the housing market.
Sales of new homes fell 10.5 percent in February, the
biggest drop since 1995, and sales of existing homes slipped in
five of the last six months, leaving a record 3 million unsold
houses on the market. Sales will fall further this year and price
gains will slow, predicts the Washington-based National
Association of Realtors. High-end properties and markets that had
the biggest increases during the boom are cooling the most.
``The markets that were the high flyers over the past couple
of years have more adjusting to do,'' says Jeff Lyons, general
manager of RealEstate.com, a consulting firm in Charlotte, North
Carolina. ``Entry-level buyers are still strong, while buyers
looking to step up to bigger houses are becoming more cautious.''

Signs Abound

Signs of the cooling market aren't hard to find on Bradford
Street in Boston's South End, where Victorian townhouses are
listed for as much as $4.5 million.
``Last year, houses were snapped up as soon as they were put
on the market, so you never even saw a sign,'' says Kenneth
Kinna, 41, a film producer who owns a 10-room townhouse in the
neighborhood. Now there are three ``For Sale'' signs on his
block.
The trend is most pronounced in affluent neighborhoods in
the Northeast, where prices soared the most during the real-
estate boom. Median prices for existing homes in the Northeast
were up 5.2 percent in February from a year earlier, compared
with almost 18 percent in the previous 12-month period, according
to the Realtors group.
Price growth slowed to about 4 percent in the Midwest in
February, down from 7.7 percent the previous year. Growth in the
West has remained in the 12 to 14 percent range, with New Mexico
and Arizona gaining while the California market slows. Prices
increased in the South, to nearly 12 percent in February, from
6.5 percent the year before.
The Fed, which last May warned that easier credit was
fueling home price speculation, has since increased short-term
interest rates seven times, most recently on March 28.

Monthly Payments

Buyers of houses in the $1 million to $4 million range are
``particularly sensitive to interest rates because the monthly
payments on houses in that range are substantial,'' says Anthony
Hsieh, chief executive officer of LendingTree.com, a mortgage-
provider Web site based in Charlotte, North Carolina.
While damping price growth the most at the high end of the
market and in the Northeast, rising rates have also reduced
demand for riskier forms of financing and begun a shift of power
from sellers back to buyers, economists and brokers say.
In a sign that buyers are starting to gain the upper hand,
pre-sale home inspections are back in vogue in Montgomery County,
Maryland, says Meg Finn, a Long & Foster agent based in Bethesda.
Just a year ago, buyers who insisted on inspections jeopardized
their chances of getting a house in a bidding war, she says.

Unsold Homes

In Montgomery County, which includes the affluent Washington
suburbs of Bethesda and Potomac, unsold homes were on the market
an average 58 days in February, compared with 37 days a year
earlier, according to Metropolitan Regional Information Systems
Inc. The 3,030 homes for sale in the county in February were
almost triple the 1,190 listed a year earlier.
Economists still expect 2006 to be a strong year for
housing. David Berson, chief economist at Washington-based Fannie
Mae, the nation's largest buyer of mortgages, expects sales of
existing houses to fall 9.2 percent to 6.4 million, and new home
sales to fall 7.4 percent to 1.19 million. Sales in both
categories would be the third-best on record.
``The greatest proportion of the decline in home sales we're
looking at this year will come from investors,'' he says.

Source of `Froth'

That will remove one source of the ``froth'' in the housing
market of which Greenspan warned. Partly as a result of the Fed's
15 consecutive increases in interest rates, adjustable-rate and
interest-only loans, closely tied to short-term rates, are on the
decline. Such loans were popular with buyers trying to stretch
their dollars and with speculators seeking to minimize the cost
of buying property for short-term profit.
``That's probably a good thing,'' says former Fed Governor
Edward Gramlich, who left the Fed in August. ``When you raise
rates, and we knew what we were doing, one of the consequences is
fewer people getting involved in riskier short-term mortgage
products,'' says Gramlich, now interim provost at the University
of Michigan in Ann Arbor.
In Medford, Massachusetts, newlyweds Amy Stewart and Jason
Walker chose a traditional 30-year fixed-rate mortgage for their
first home after flirting with the idea of an adjustable-rate
loan with a lower initial payment.
``We thought about an ARM, but the rates are so close we
opted for the security of a 30-year fixed,'' says Stewart, 29, a
lawyer in Boston.

ARMs Reduction

Adjustable-rate mortgages represented less than 30 percent
of all loan applications in January, down from an average 36
percent during all of 2005, according to Fannie Mae, the largest
U.S. mortgage buyer. Interest-only loans accounted for 22 percent
of all adjustable-rate mortgages in 2004, more than double the
share the previous year, according to Freddie Mac, the No. 2
mortgage buyer. The loans, which allow borrowers to defer
principal payments during the initial years of the mortgage, have
been declining since last year, Freddie Mac says.
``Borrowers are now opting for the security of long-term
fixed rates,'' says Dean Hackemer, president of Access National
Mortgage Corp. in Reston, Virginia. ``The spread between the ARMs
and fixed-rate products is so small, most homeowners are willing
to pay the difference for peace of mind.''
Buyers are looking for more than peace of mind. They're
looking for a deal.
``It's switched to a buyer's market,'' says Karen McCormack,
39, co-owner of McCormack & Scanlan Real Estate in Boston's
Jamaica Plain neighborhood. ``Homes are still selling, but the
buyers have much more say in prices this year.''
On a Boston street, lined with a dozen ``For Sale'' signs,
McCormack is trying to sell a three-bedroom house listed at
$535,000. She's holding ``commuter hours'' open houses on Monday
nights to lure would-be buyers on their way home from work.
``When the market was hot, we never would have had to do
this,'' she says.

source: bloomberg

For the past decade, homeowners in the United States have been living in “Housing Heaven”. In this heavenly place, profits are always made; prices only go up; interest rates only go down; developers keep building, marketing, and selling megabuck, luxurious spa-like residences, that are all sold pre-construction; property speculators always make money, and pyramid their purchases into owning many properties to flip for a quick profit; and, second-homes are not an expensive luxury, but a wise investment for retirement.

http://www.moneyweek.com/file/10891/...sing-hell.html

Real estate insiders go bearish in blogs

In mostly anonymous postings, agents are reporting big problems in the markets.

NEW YORK (CNNMoney.com) - If the secret worries of real estate professionals are any indication, home prices could be heading for a swoon.

When Brad Inman of Inman News, which tracks the real estate industry and is widely read by industry insiders, recently gave real estate agents the opportunity to blog about market conditions, they almost uniformly described them as bad – and getting worse.
Latest home prices for 145 markets

"Normally, brokers and agents tend to sugarcoat the news; they don't want to affect consumer confidence," says Inman. "By letting them post anonymously, we gave them a way to really share their thoughts."

Most responded with tales of high inventories, slow sales and languishing prices.

Here's a sampling of their comments:

* "Portland, Oregon is mixed . . . more inventory, sitting longer. . . . Sellers no longer king." Posted by anonymous.

* "Minneapolis/St.Paul . . . 15 houses per buyer. If we had buyers. Huge inventory in every price range. More foreclosure properties coming on daily." Posted by anonymous.

* "East Central Florida Coastal area inventories up four times year to year and sales down 75%." Posted by Ramon Rivera (Not all bloggers craved anonymity).

* "Some Realtors, Mortgage Brokers & some clients have been more testy than in months previous. Something is in the air." Posted by S. Crowe.

* "Northern Ca. Let's not beat around the bush here. There is a slow down!! Home prices are not going up. Sales are down." Posted by anonymous.