Graying boomers.

As boomers have aged and prospered, they have begun to buy vacation or second homes in increasing numbers. This trend will widen as they near retirement.

A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.

Mr. Heebner: I'm worried that more people will default on their mortgages. Risky mortgages such as interest-only and pay-option adjustable-rate mortgages require no principal amortization and in some cases payment of only a fraction of the interest due, have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic. When housing is going up rapidly and you can buy far more than your income can support, some people are eager to make big profits by extending themselves financially.

By Courtney Schlisserman
July 18 (Bloomberg) -- Confidence among U.S. homebuilders
dropped this month to the lowest level in more than 14 years, a
private survey found, as sales fell and orders were canceled.
The National Association of Home Builders/Wells Fargo index
of builder confidence declined to 39, the lowest since December
1991, from 42 in June, the Washington-based association said
today. It was the eighth decline in nine months for the measure.
Homebuilders including D.R Horton Inc. have lowered profit
forecasts for the year as demand dwindles and cancellations
mount. While the homebuilders' survey has painted a dimmer
outlook than other housing reports, home sales still are
expected to fall this year for the first time since 2000,
weighing on economic growth, economists said.
``The housing market's in trouble,'' said Joseph Lavorgna,
chief U.S. economist at Deutsche Bank AG in New York. ``We have
become decidedly more cautious on the outlook since the index
has started falling.''
The survey asks builders to characterize current sales as
``good,'' ``fair'' or ``poor'' and also asks them to gauge
prospective buyers' traffic. Readings below 50 mean more
builders view sales conditions as poor than as good. Builders
are also asked to gauge prospective buyer traffic and
expectations for the next six months.
Economists polled by Bloomberg News forecast a reading of
41 this month, according to the median of 23 projections. The
index averaged 67 last year and has dropped 31 points in 12
months.

Expectations, Traffic

A measure of sales expectations for the next six months
fell to 46 from a revised 51 in June. The index of buyer traffic
fell to 27 from 29.
Expectations were the lowest since February 1995 and the
traffic measure was the lowest since January 1995. The builders
group's index of current sales fell to 43 this month, the lowest
since March 1995, from 47.
Confidence fell in three of four regions this month, with
the biggest decrease occurring in the West, which fell to 51
from 60. Measures declined in the Northeast, to 36 from 41, and
in the Midwest, to 21 from 25. Confidence rose 2 points in the
South, to 50.
The drop in overall confidence ``reflects growing builder
uncertainty on the heels of reduced sales and increased
cancellations related to eroding affordability as well as an
ongoing withdrawal of investors/speculators from the
marketplace,'' David Seiders, chief economist at the National
Association of Home Builders, said in a statement.

Fed Tightening

``Just as concerning to many builders is the potential for
more monetary tightening by the Federal Reserve that could drive
interest rates, and thereby homeownership costs, even higher,''
Seiders said in the statement.
The Fed raised its benchmark overnight lending rate between
banks by a quarter point for a 17th straight time in June, to
5.25 percent, and said further increases depend on future
information about the prospects for growth and inflation.
Economists surveyed by Bloomberg News expect the central bank to
raise rates another quarter point at the Federal Open Market
Committee's next meeting on Aug. 8.
The average rate on a 30-year fixed mortgage was 6.68
percent in June and reached a four-year high of 6.79 percent the
first week of this month, according to Freddie Mac, the No. 2
purchaser of home loans.

Horton Hurting

D.R. Horton said on July 13 that earnings for the year
would be $3.65 a share or more, down from its previous forecast
of $5.25 to $5.35 a share and from $4.62 in 2005. Earnings fell
to about 93 cents in the quarter ended June 30, the No. 2 U.S.
homebuilder said in a preliminary earnings release.
The housing market is being hurt by ``an increase in both
existing and new homes available for sale, higher than normal
cancellation rates and an increase in the use of sales
incentives,'' Chairman Donald R. Horton said in a statement. The
company plans to report full third-quarter results on July 20.
The number of unsold new homes equaled a 5.5-month supply
in May, the Commerce Department said on June 26. While that was
down from April's 5.8 months, it was up from a year earlier. The
supply of previously-owned homes for sale rose to 6.5 months in
May, the highest level in nine years, the National Association
of Realtors said on June 27.
The Realtors group forecast on July 11 that sales of new
homes would fall to 13 percent to 1.12 million this year.

--With reporting from Kathleen Howley in Boston. Editor: Rohner

Story illustration: To chart the NAHB's index, type
{USHBMIDX <Index> GP <GO>}
To see more NAHB report data: {ALLX USHB <GO>}
For today's business and financial stories: {TOP <GO>}
For today's top economy stories: {TOP ECO <GO>}
For stories about Federal Reserve actions: {FEDU <GO>}

The supply of previously-owned homes for sale rose to 6.5 months in May, the highest level in nine years, the National Association of Realtors said on June 27.

This bubble sustained the economy through the 2001 recession and provided the basis for the recovery. The housing sector directly employs more than 6 million people in construction, mortgage issuance and real estate. The indirect effect of the bubble was even larger, as people took advantage of the rapidly growing value of their homes to borrow huge amounts of money. This borrowing binge supported rapid consumption growth in a period of weak wage and job growth. It also pushed the U.S. savings rate into negative territory for the first time since the beginning of the great depression.

Angelo R. Mozilo, CEO of Countrywide Financial Corp., the US's biggest home-mortgage lender, rarely misses a chance to remind people that he has been in the business for more than 50 years. Now he has a sobering message for investors about the near-term outlook for housing and mortgages: Buckle your seat belts. "I've never seen a soft landing in 53 years."

Fortune's Shawn Tully dispels four myths about the future of home prices.

http://money.cnn.com/2006/08/24/real...ex.htm?cnn=yes

September 13 2006: 11:52 AM EDT

NEW YORK (CNNMoney.com) -- With real estate markets slowing and mortgage rates well above levels of recent years, times are getting tougher for homeowners - the number of homes entering into some stage of foreclosure is surging, according to a survey released Wednesday.

In August, 115,292 properties entered into foreclosure, according to RealtyTrac, an online marketplace for foreclosure sales. That was 24 percent above the level in July and 53 percent higher than a year earlier.

Where foreclosures are jumping

* Nevada: Up 255%

* California: Up 160%

* Florida: Up 62%

It was the second highest monthly foreclosure total of the year; in February, 117,151 properties entered foreclosure.

Some of the bellwether real estate market states are among the leading foreclosure markets. Florida, had more than 16,533 properties in foreclosure in August. That led all states and was 50 percent higher than in July and 62 percent higher than in August 2005.

California foreclosures are increasing at an even faster annual rate, up 160 percent since last year to 12,506. And the formerly red-hot Nevada market recorded a spike of 24 percent compared with July and a whopping 255 percent increase from August 2005.

Rick Sharga, RealtyTrac's vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period.

"Usually, foreclosures are a lagging [market] indicator," he says. "But we've never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year."


For a homeowner with a 5/1 ARM (an adjustable rate loan with an initial fixed rate for five years that then adjusts annually) that's now resetting, the adjustment could add at least two percentage points to the interest rate. That could send the payment on a $200,000 loan up from about $950 a month closer to $1,200.

These exotic mortgages, which have been issued by lenders at much higher numbers the past few years, default at a higher rate than do fixed-rate mortgages. And sub-prime loans, which are much more common than in the past, have a higher default rate as well.

But, Sharga says, "The real wild card is the nature of the loans themselves. Historically, ARMs were underwritten pretty conservatively. There has been a loosening of standards with lower credit worthiness and smaller down payments."
Underlying causes

Homeowners are also in Dutch because of underlying economic conditions. Many of the worst hit markets, such as in the Midwest, are in areas hard hit by layoffs or other economic ills.

When housing markets were hot, homeowners could often avoid default through two ready made options, according to Sharga: They could sell to a ready market or they could use the increase through appreciation in their equity to refinance their homes. Increasingly, both those options are evaporating.

Contrary to what many consumers may believe, lenders are not anxious to foreclose on homes and put families out on the streets. Foreclosures tend to be money losers for lenders and are done mostly as a last resort.

Sharga says lenders are beginning to recognize that a problem is brewing and are taking steps to address it. They are much more amenable to a short sale, for example, in which they accept a low-ball, cash bid early in the default process that may not even cover their mortgage, in order to avoid a larger loss later. That can help homeowners by preserving their credit scores and easing their transitions into the rental market.

"Lenders say they're looking for ways to work with homeowners in trouble," reports Sharga. "So for homeowners looking at a default situation, the sooner they talk to their lender - and see what options are available - the better."