Home prices post record 18% drop

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row.

NEW YORK (CNNMoney.com) -- Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday.

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

"The bear market continues; home prices are back to their March 2004 levels," says David Blitzer, Chairman of the Index Committee at Standard & Poor's.

Sunbelt cities suffered the most, but most of the country is watching home values fall. In Phoenix prices have plunged 32.7% since October 2007, Las Vegas home values are down 31.7% year-over-year, while San Francisco prices fell 31%. Miami, Los Angeles and San Diego recorded year-over-year declines of 29%, 27.9% and 26.7%, respectively.

As of October 2008, the 20-City Composite is down 23.4%," said Blitzer. "In October, we also saw three new markets enter the 'double-digit' club."

Atlanta, Seattle and Portland reported annual rates of decline of 10.5%, 10.2% and 10.1%, respectively.

"While not yet experiencing as severe a contraction as in the Sunbelt, it seems the Pacific Northwest and Mid-Atlantic South is not immune to the overall demise in the housing market," Blitzer added.

First Published: December 30, 2008: 9:15 AM ET

I got this off CNN for those who insist prices have dropped 50%. It's not a pretty picture, but San Diego is down less than 30%

Top Selling Zips Nationwide

I was rather surprised to see Scripps Ranch listed as one of the fastest selling areas in the nation.  I hadn't expected anything in San Diego to be on the list considering how depressed some other areas of the country are (hence bargain areas on sale) but I guess San Diego is still one of the more desirable places to live and people are willing to pay the price to be here. 

 

The key I guess is that the statistic is for the shortest market time, not the lowest or highest price or most foreclosures or short sales those may be statistically tied to the shortest market time.  The fact that market time anywhere in san Diego is so low I feel is indicative of the recovery process beginning.  Buyers are finding what they are looking for and making an offer without letting the property sit on the market for months on end.  

On a side note; Sunnyvale is a relatively high priced are up in the Bay Area but its market time is a very respectable 66 days.  I think this bodes well for the real estate market in the coming year.

A copy of the article from Realtor Magazine is below:

Daily Real Estate News  |  September 8, 2008

ZIPs Where Property Is Selling Fastest 
Altos Research, which tracks real estate data all over the country, identified these ZIP codes in which homes for sale spent the fewest days on the market. 

In cases where communities of relatively fast-selling real estate were clustered, the best ZIP Code in the area was chosen.

Overall, expensive homes and big bargains are selling with general ease, says Ken Gold, director of the Center for Real Estate Education and Research at Ohio State University. Meanwhile, homes in middle-income neighborhoods are selling the slowest, he says. 

Here's the list of the Top 10 fastest-selling ZIPs: 

1. Sunnyvale, Calif. 94087: 66 days on market
2. Austin, Tex. 78749: 68 days on market
3. San Diego, Calif. 92131: 70 days on market
4. Plano, Tex. 75075: 75 days on market
5. Portland, Ore. 97202: 77 days on market
6. Houston, Tex. 77094: 77 days on market
7. Wakefield, Mass. 01880: 79 days on market
8. Seattle, Wash. 98117: 86 days on market
9. Littleton, Colo. 80130: 90 days on market
10. Atlanta, Ga. 30340: 91 days on market

Source: Business Week, Prashant Gopal (09/05/2008)

Todays Market

Finally the news media is starting to publish articles that support when Realtors have seen happening over the last few months (see article below). Granted it is a real estate spokesman being quoted, but if he's right, then the worst is over. We need to flush out the foreclosure mess and get things stable after the mortgage debacle. It is an election year so I don't know how skewed the recovery data will be due to that, but it looks like people who buy now will be the ones sitting pretty in five years.

Home Sales, Prices to Pick Up in Second Half of 2008, Says NAR Chief Economist

WASHINGTON, May 15, 2008

Home sales and prices throughout most of the country are poised for improvement in the second half of 2008, and the recovery will vary by market, Lawrence Yun, chief economist for the National Association of REALTORS® said today during NAR's Midyear Legislative Meetings & Trade Expo. More than 9,000 REALTORS® and guests are attending the conference that runs here through Saturday.

Middle-America cities that performed evenly over the past few years – like Cincinnati, Milwaukee and the Kansas City, Mo., area – are likely to experience home price gains in the 20 to 30 percent range over the next five years, while markets like Miami, Las Vegas and Phoenix could see prices go up as much as 50 percent during that time period, Yun said.

Yun blamed most of the softening of the housing market over the last year on the "subprime mess," where consumers with blemished credit records got loans they couldn't afford when the interest rates reset to higher levels.

"In fact, if you look at where home prices fell the most, it's the markets were subprime loans were prevalent," Yun said. Cape Coral, Fla.; Detroit; Las Vegas; Miami; Orlando, Fla.; Phoenix and Riverside, Calif. were among the cities with a high percentage of subprime lending and where the markets suffered the biggest downturns, he explained.

"It's important to keep things in context," he said. "While much of the media is focusing on the fact that the rate of foreclosures doubled this year from historic averages, the foreclosure rate has gone from 1 percent of all homeowners with mortgages to 2 percent. Foreclosures are being driven principally by subprime loans."

He further explained that more than half of today's foreclosures are concentrated in the subprime market. The great majority of homeowners are making their mortgage payments on time.

Now that the subprime market has dried up, and loans insured by the Federal Housing Administration and those purchased by Fannie Mae and Freddie Mac are making a comeback, the housing markets will strengthen and prices are likely to begin a steady uptick in the coming months, Yun said.

Yun urged the Congress and White House to enact NAR-supported legislation to modernize FHA programs, reform regulation of the government-sponsored enterprises (Fannie Mae and Freddie Mac), establish a first-time home buyer tax credit, and make the temporary increases to the conforming loan limits established by the Economic Stimulus Act of 2008 permanent.

"These measures would quickly stabilize the housing markets and get fence-sitters into the market to buy homes," Yun said.

"There are many reasons for people to get into the housing market today, and very few reasons not to. With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions are ripe for buyers," he added. "Those are the facts, plain and simple."

As for a recession, it's not happening, Yun said. "A slowdown, yes, but the definition of a recession is two consecutive quarters of negative GDP growth. It's not in the cards – no matter how you look at it."

'Cyclical' real estate market will improve, Realtors told

State commissioner offers strategies

By Emmet Pierce

UNION-TRIBUNE STAFF WRITER

May 10, 2008

Although the current real estate market downturn eventually will reverse itself, agents should prepare for difficult times, California Real Estate Commissioner Jeff Davi yesterday told about 300 members and guests of the San Diego Association of Realtors.

"The market is cyclical, you know that," he said. "There's no quick fix. There's no silver bullet."

Several years ago, during the fevered housing boom, some agents could make sales simply by going to work and answering the telephone, Davi said. "Well, those days are over."

He suggested that agents who haven't worked through previous housing slumps network with veterans have who seen the ups and downs of the business. They also should turn their attention to the rising number of foreclosure properties, he added.

"I see that as an opportunity for agents," he said.

Davi's remarks came during the association's Home Expo 2008, which ends today at the San Diego Convention Center. He was one of three luncheon speakers, along with Mayor Jerry Sanders and Greg Smith, the county's assessor, recorder and clerk.

It's Davi's responsibility to oversee the licensing and regulation of real estate agents and to investigate complaints. Because the ranks of agents grew rapidly during the recent boom, competition now is keen, he said. There are well over 500,000 licensed agents in the state.

"One in 53 adults in California has a real estate license," Davi said, drawing laughter from the crowd.

Many analysts blame the current market downturn on weak loan underwriting standards. Davi said the blame for the subprime mortgage crisis extends beyond real estate professionals. In cases of consumer loan fraud that his department investigates, borrowers often are in complicity.

He said he needed the help of Realtors to regulate the industry.

"I want to make sure we put the bad people out of business so they don't hurt people," he said.

While Davi emphasized the need for agents to work through the housing slump, Smith said that tough times are almost over. Taking the stage after Davi, the assessor predicted that the housing market will soon rebound.

"We're going to be in a trough for a while, but '08 is basically the bottom," Smith said. " . . . This is an outstanding time to buy real estate."

A key hurdle to the recovery is the recent surge in home foreclosures, he added. "Before the market can take off, we've got to get through these foreclosures."

Smith criticized the loose loan underwriting standards that enabled people to continue purchasing homes as prices soared.

"We had people offering 1 percent teaser rates, no down (payments), stated income. How in the world do you suspend the laws of economics?"

In his talk to the Realtor group, Sanders, who is seeking re-election, focused on his accomplishments in office, including his efforts to resolve the city's pension fund problems. In part, he said the city, under his leadership, had made progress in restoring finances, streamlining operations and developing new budget priorities.

The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX
May 6, 2008
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP,
a hedge fund firm based in New York.

Update On Realtor Being Sued

I read the following article regarding the resolution to the lawsuit filed against a Realtor in Carlsbad with a slight sigh of relief that the agent was vindicated and had done no wrong, but was shocked to read the last line that all his lost business and legal fees were gone with no chance for recourse!  What is this country coming to when someone can take you to court for what is determined to be a false accusation, but not be responsible for the thousands of dollars the lawsuit costs you.  I remain speechless....

Home buyers not duped, jury finds Carlsbad couple lose lawsuit claiming they overpaid for house By Lori Weisberg UNION-TRIBUNE STAFF WRITER April 11, 2008 A Carlsbad couple who sued their real estate agent, claiming he duped them into overpaying for a $1.2 million home, said they have no regrets about taking the case to court, despite a unanimous jury verdict yesterday that the Realtor had done nothing wrong. The case, which attracted national attention, involved the purchase of a 3,700-square-foot Aviara-area home in the summer of 2005, when housing prices in San Diego County were still climbing. Marty and Vernon Ummel, who moved to the county after selling their Bay Area home for more than $1 million, argued they would never have bought the upscale tract house near the Aviara Four Seasons golf course had their real estate agent told them that other homes on their same street had sold for substantially less within the same time frame. "Of course, it's devastating and shocking that the standard of care (provided by an agent) doesn't seem to include having the agent tell you about houses that sold on your block for much less money," Marty Ummel said. "I believe it's the agent's responsibility to do his due diligence and inform his clients of any material fact that would impact their willingness to buy or not buy. "But I don't have a single regret. I really thought we were doing the right thing. The jury spoke, but what they decided hurts the real estate industry. It says the Realtors don't have to do their due diligence." The 10-woman, two-man jury apparently had little trouble reaching a decision, delivering a unanimous verdict within two hours yesterday afternoon. Jurors were charged with determining whether the Ummels' agent, Michael Little of Re/Max Associates, had breached his "fiduciary duty" and committed "negligent misrepresentation" when handling their home purchase. The original lawsuit included a number of other allegations, including fraud, but the Ummels' attorney later removed those. Also named in the lawsuit was the Carlsbad area Re/Max office where Little worked. In reviewing all the evidence, the jurors remained unconvinced that Little had done anything unprofessional, jury forewoman Wendi Brick said. "We felt that yes, he had acted on their behalf, and we felt he met his fiduciary duties as defined," she said. "In any kind of purchase, especially one that big – and most of us have had our own situations we'd been through – the bottom line really stops with you. Whose final responsibility is it to sign a contract? It's yours. "It's just a very sad situation for everyone. You could tell the strain on everyone." Little said he has had a difficult time carrying out his real estate business since the lawsuit was filed in 2006. "I feel incredibly relieved and vindicated," Little said. "It has been more than two years of quite problematic times for me, and I'm happy to get it behind me. I've just had a very difficult time working, approaching clients. You just get leery. "I sit on pins and needles. I've never had problems with anyone in my career, and now I look at things through a different looking glass." Marty Ummel, 60, and her husband, Vernon, 71, had asked for a damage award, claiming their home at the time they purchased it was worth $150,000 less than what they paid. Before finally agreeing to buy the house on Amanta Court in May 2005, the Ummels say they had repeatedly reminded Little they were out-of-town buyers unfamiliar with the San Diego County real estate market and wanted to make sure that the $1.2 million purchase price was a good value. Little assured them that it was, they said in their lawsuit. They also claimed that Little never provided them with lists of comparable properties that had sold in the immediate area. According to county assessor records, one Amanta Court home sold for $1,025,000 on July 29, 2005, the same day the Ummels closed escrow, and the other sold for $1,095,000 three months earlier. Each house is identified as having the same square footage as the Ummels' house. Little's attorney, David Bright, argued there were valid reasons the houses sold for less. One house had a lap pool, which was unappealing to many prospective buyers, and the sellers were also asking to lease back the home for two years, Bright pointed out. "This is a manufactured case," Bright told the jury. "It's nothing more than an effort to renegotiate a deal at Mr. Little's expense." Attorneys on both sides said there is no opportunity in this case for Little or the Re/Max office to recoup attorney fees. Marty Ummel declined to say how much she and her husband had spent on their lawyer fees.