Real Estate Information For Residential, Investor and Commercial Clients

The Worst Economic Recovery Since The Great Depression - Forbes

2012-01-13T08:13:00.001-08:00

MUST READ. Please SHARE Widely. TRUTH. "...under President Obama’s public policy malpractice", "The unemployment rate with the full measure of discouraged workers is reported at www.shadowstats.com as about 23%, which is depression level unemployment." ANYONE BUT BARRY HUSSEIN in 2012!!!!

From: http://www.forbes.com/sites/peterferrara/2012/01/12/the-worst-economic-recovery-since-the-great-depression/

America's most overvalued and undervalued housing markets - Jan. 11, 2011

2011-01-11T05:57:00.001-08:00

Columbus 16% Undervalued. Great real estate purchase opportunities. Call me for more information: 614.571.9054 or visit our site: http://www.ServingColumbus.com

From: http://money.cnn.com/2011/01/10/real_estate/overvalued_housing_markets/index.htm?section=money_realestate&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_realestate+%28Real+Estate%29

6799 Ballantrae Pl, Dublin, OH 43016 - MLS#: 211000071

2011-01-10T17:54:00.001-08:00

Bank Owned Deal Of The Day! Ballantrae ~ Priced $150K below original purchase. Don't miss another opportunity. Great kitchen and floor plan. BANK OWNED FORECLOSURE" "NOT a short sale" REO "Easy, quick purchase process." Call me directly for more information: 614.571.9054

From: http://ping.fm/7Sr7V

Mortgage Applications Index in U.S. Declines for a Third Week - Bloomberg

2010-09-22T07:18:00.001-07:00

Mortgage applications in the U.S. declined last week for a third consecutive time, hurt by a drop in purchasing and refinancing.

The Mortgage Bankers Associationâ€™s index fell 1.4 percent in the week ended Sept. 17 to the lowest level in six weeks, the Washington-based group said today. Purchases decreased 3.3 percent and refinancing lost 0.9 percent.

From: http://ping.fm/Jnrdu

2010-09-20T09:42:00.001-07:00

Dublin, OH and Columbus, Ohio Real Estate and Homes For Sale - Columbus MLS Real Estate Listings http://ping.fm/uxDfR

2010-09-20T05:50:00.001-07:00

House Bill Would Force Lenders to Decide on Short Sales in 45 Days | Real Estate News and Information from Dublin, Ohio http://ping.fm/54J1Q

Dublin, OH Information

2009-04-20T15:00:00.001-07:00

Dublin is a city in Delaware, Franklin, and Union counties in the U.S. state of Ohio. Dublin
is home to the corporate headquarters of Wendy’s Restaurants, and was featured recently in
the “Dublin, Ohio: Home of Wendy’s” commercials. Cardinal Health is also headquartered in
Dublin. Technology is also on top of the list for Dublin, being one of leaders in creating a city wide internet (mesh wifi)
hotspot; being developed by DHB Networks.
Although its earliest settlements date back to 1802, the village that came to be known as Dublin didn’t begin to take
shape until the arrival of the Sells family of Huntingdon, Pennsylvania. Brothers Peter and Benjamin Sells purchased
400 acres of land on the west banks of the Scioto River as a gift for their brother John. In 1808, John Sells brought his
family to the region, and by 1810 he had begun to survey lots for the new village with his partner, an Irish gentleman
named John Shields. According to historians, Shields is responsible for naming the town after his native birthplace of
Dublin, Ireland.
By 1970, Dublin was still a small village with only 681 residents. However,
the construction of Interstate 270 facilitated a population boom, spearheaded
by the acquisition of major corporate headquarters such as Ashland Inc.
and Wendy’s International. In addition, the growth of the Muirfield Village
Golf Club and its residential subdivision attracted a large number of affluent
citizens to the rapidly growing suburb. Dublin was officially declared a city in
1987, after reaching a population of 10,000 residents.
Now, each year in late May or early June, the city hosts
The Memorial Tournament, a stop on golf’s PGA Tour.
Consequently, a large number of golf aficionados choose
to make Dublin their home. There are also three other
fine golf courses in Dublin.
Other annual events include the 4th of July music
event, a St. Patrick’s Day parade, and the Dublin Irish
Festival. The Mall at Tuttle Crossing, which is the
third-largest shopping center in Columbus, can also be
found nearby.
General Info Dublin Ohio
Population 31,392 11,353,140
Land area (sq. mi) 21 40,948
Average household size 2.8 2.49
Persons per sq. mile 1,486.1 277.3
Households 11,209 4,445,773
Education
High school graduates 97.3% 83.0%
Bachelor’s degree or higher 64.7% 21.1%
Income and Housing
Median household income 0$91,162 $40,956
Median house/condo value $243,200 $103,700
Total number of houses 12,038 4,783,051
Transportation
Mean travel time to work (mins) 23.7 22.9
Sources: U.S.Censes Bureau, Wikipedia, Official City Website
*All info is from 2000.
Search for homes in Dublin, OH
@ www.servingcolumbus.com

134,900 4793 Midlane Dr 3 Bed 1 Bath Home in Hilliard

2009-04-19T07:54:00.000-07:00

Don't miss this one! Desirable neighborhood convenient to I270, library, parks and schools. Completely gutted and renovated in 2004 with new everything: hot water tank, furnace, central air, roof, flooring, trim, ext/int doors, new kitchen/bath and some new windows. Open floor plan, large fenced yard. A must see!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2911929&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

177,400 Columbus For Sale 170 Olentangy St

2009-04-19T07:53:00.000-07:00

CLASSIC Clintonville 2 Story w/Front Porch. Updated kitchen w/cabinets, new 1/2 bath, new roof house & garage, new garage door w/opener, new electrical panel, freshly painted, some original woodwork. Great condition - Immediate move-in possible. 1.5 car garage. Security system. Possible office/den off bedroom.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2904895&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

185,000 Marysville, OH Property For Sale 18364 Poling Rd

2009-04-19T07:52:00.000-07:00

Enjoy carefree ranch living in this immaculate home. Conveniently close to Honda and town on over 2 acres. Concrete patio, storage shed, and brick walkway. Family room and dining room have new wood laminate flooring. Bright kitchen with recessed lighting, breakfast bar and planning desk. Move-in ready!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2903838&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

189,9003 Bed 3 Bath Property for Sale in Lewis Center, OH 2989 Pleasantdale Dr

2009-04-19T07:51:00.000-07:00

3 bed, 3 bath property for sale in Lewis Center. Extremely reasonable asking price of 189,900. Location: 2989 Pleasantdale Dr Lewis Center, OH. See below for more information or to set up a visit.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2841184&noreg=1

219,900 Dublin, OH For Sale - 2 Bed 2 Bath Home 4891 Rays Cir

2009-04-19T07:50:00.002-07:00

Gorgeous unit with wood floors, vaulted ceilings, light cabinets and Corian countertops. Kitchen opens to great room and open eating area. Corner fireplace, beautiful window groupings. Two separate suites each with large baths. Sophisticated decor and colors. Large basement with high ceilings and poured walls.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2901284&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

243,500 4 Bed 2.1 Bath Home for Sale in Lewis Center, OH 1398 Aniko Ave

2009-04-19T07:50:00.001-07:00

Lewis Center home for sale. Asking 243,500. Location: 1398 Aniko Ave Lewis Center, OH. For more info, pictures, or to set up a visit, see below.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2840673&noreg=1

249,950 Columbus, OH - 3 Bed 1.5 Bath Property for Sale 454 Midgard Road

2009-04-19T07:48:00.000-07:00

The quintessential CLINTONVILLE home! All original woodwork including hardwood floors in excellent condition. Large living room and dining room. Updated kitchen and half-bath. LARGE bedrooms and a LARGE full bath. This home is in great condition and includes a two car detached garage, private deck and fenced rear yard. Very clean basement with laundry area. Please call the OWNER to schedule your private tour: 614. 397.5741

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-1002009004s&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

272,500 Dublin Property - 4 BD 2.1 BA 6340 Kendall Ridge Blvd

2009-04-19T07:47:00.000-07:00

Close distance to the park and the pool. MI Baxter floor plan with many upgrades. Full front porch with a deck and paver patio in the back. Deluxe master package with cathedral ceilings. The great room flows nice into the kitchen and eat n area. Huge bonus room that can be converted to a 4th bedroom.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2903893&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

283,900 Pickerington Property For Sale 13808 Bainwick Dr

2009-04-19T07:41:00.000-07:00

Private 0.5 acre lot. Impressive natural woodwork thorughout. 6 Panel doors. First floor den or study. Vaulted family room with beautiful fireplace. Newer roof and several windows. Mechanicals have been well maintained. Security system. Water filtration/softener. Home warranty. Great landscaping.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2913756&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

294,000 Columbus, OH - 3 Bed 1.1 Bath Property 54 Medbrook Way

2009-04-19T07:35:00.001-07:00

West of High. Great updated kitchen/eating area/half-bath. Granite counters and stainless appliances. Original woodwork in excellent condition. Hardwood floors. Full front porch with dual entry doors. Large master w/walk-in's. Fenced yard. Deck. Newer roof/gutters. Excellent move-in condition. Won't last.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2911809&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

299,900 London, OH - 3 Bed 2.1 Bath Property 6005 State Route 56

2009-04-19T07:34:00.001-07:00

9+ Acres. 2,388 Sq.Ft., Two-Story w/Two Car Attached Garage. 30/20 Pole Barn w/Stall, Electric, Water. Den on Main. Fenced area. Animal Pen. Creek. New Carpet, Fresh Paint, Updated Appliances, Counters, Lighting. WBFP. Well water, water softener, electric heat, septic system. BIG PARCEL! AWESOME SITE!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2902462&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

339,000 Property For Sale in Dublin, OH 6664 Bantry Ct

2009-04-19T07:33:00.000-07:00

Welcome to Dublin's finest condominium opportunity. The Golf Club of Dublin is the centerpiece for this lifestyle community with paths, parks and pools. Inside you will love the wood floors, pond views from the screen porch, luxury kitchen with upgraded appliances. Finished basement with bedroom and bath. Exquisite.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2904803&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

374,900 For Sale - 3 Bed 3 Bath Powell Home 4180 Bishopsgate Way

2009-04-19T07:32:00.000-07:00

Better than a model. Wood floors, glass block shower, Kitchen cabs to ceiling with glass front upper doors. Gourmet appliances. 2 sided fireplace between vaulted great room and family room. Radiant floor heat. Exceptional location within area's most desirable detached condo complex. Seller will consider any offer.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2904689&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

385,000 Spacious Dublin home - 4 Bed, 2.1 Bath 5576 Caplestone Ln

2009-04-19T07:28:00.002-07:00

Trees, trees, trees. Dublin's most desirable under $500K neighborhood. Island kitchen with wood floors. Living, dining, family room plus den and large private laundry. "Treetop" master suite with separate tub and shower and spacious closet. Finished lower level. Large backyard with mature trees. BELOW MARKET COMPS.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2905093&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

394,900 4 Bed 2.1 Bath Home for Sale in Dublin 7682 Kestrel Way

2009-04-19T07:28:00.001-07:00

SUPERIOR VALUE. Across from park. Island kitchen with new granite, Viking oven and gas cooktop, wood floors. New master bath with large clear glass shower, whirlpool tub, furniture quality cabinetry including tower cabinet, granite, undermount sinks, dark bronze fixtures. Finished lower level with den and media room.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2913780&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

399,000 4 Bed 2.1 Bath Columbus Property for Sale 7716 Hidden Hollow Dr

2009-04-19T07:27:00.000-07:00

$16.0k PRICE REDUCTION! New Neutral Carpet, Freshly Painted. Updated Lighting. Finished Lower Level w/1,300 SQ.FT., Home Theater w/Surround Sound, Game Room space. Vaulted Oversized Mstr Bdrm Suite, Jacuzzi Tub. HUGE Wrap-Around Deck. BIG Yard, LOTS of Landscaping. GREAT LOCATION!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2902444&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

399,900 LOFT Condo in Buggyworks, Arena District, next to NEW HUNTINGTON BALL PARK. 448 W Nationwide Blvd

2009-04-19T07:26:00.000-07:00

LOFT Condo in Buggyworks, Arena District, next to NEW HUNTINGTON BALL PARK. Great Open Floorplan. Granite Counters. Stainless Appliances. Oak Hardwood Floors. Authentic Brick Loft stle finishes. 2 Deeded Parking Spots, 1 in/1 out. Deeded (12x6) Storage Unit. Community Rooftop Deck. CLOSE TO ALL.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2902434&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

415,000 The Perfect Dublin Property! - 4 BD 2.1 BA Home 7476 Pharoah Ct

2009-04-19T07:25:00.000-07:00

Beautiful! Model condition and decor. Large cul-de-sac lot. Island kitchen/hearth room with fireplace, wide plank wood floors, tall cherry cabinets and stainless appliances. Spacious floor plan with main floor owner suite. Master bath with separate shower and Jacuzzi tub. Dual vanities with oil rubbed bronze fixtures.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2843740&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

439,000 Dublin, OH - 4 Bed 4.1 Bath Property for Sale 6592 Carinlough Pl

2009-04-19T07:23:00.000-07:00

Welcome to Dublin's finest community. The Golf Club of Dublin is the centerpiece for this lifestyle community with park,paths and pools. Inside you will love the wood floors, luxury kitchen with upgraded appliances. 4 bedrooms and 4 full baths. Finished lower level/media room with wet bar. This is a must see!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2913597&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

444,500 Dublin For Sale - 4 Bed 2.1 Bath Home 5707 Lynx Ln

2009-04-19T07:22:00.000-07:00

Centrally located, angled, switchback staircase, open flowing floor plan. Full wall of Amish bookcases in den. Full basement, walkout. Luxurious master suite, jetted tub, separate shower, huge closet, vaulted ceiling, split vanities. Granite tops island kitchen, wet bar with glass front cabinets. Sunny eastern exposure

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2909227&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

474,900 Dublin For Sale - 4 Bed 2.1 Bath Property4893 Carrigan Ridge Dr

2009-04-19T07:21:00.000-07:00

Priced reduced $72,000! Former Model Home. Beautifully decorated and landscaped. A great private wooded yard with patio and gazebo. Open floor plan with a fantastic view from the first floor master. Upgrades galore a must see. All brick home. No maintenance ready to move in condition.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2825501&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

525,000 Dublin - Value, Location, Space.... 3 BD, 2.1 BA 9087 Portofino Pl

2009-04-19T07:20:00.000-07:00

Rare opportunity. Located in the heart of Dublin's finest residential community. Old World European kitchen with tumbled stone & commercial appl. Bar overlooks great room with 2 stories of south facing glass. Brkfst room opens to paver patio with amazing grill that stays with the home. Large home office/bonus room.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2905630&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

599,900 LOFT Condo in Buggyworks. Top Floor Corner Unit w/PRIVATE ROOFTOP DECK and ACCESS. 448 W Nationwide Blvd

2009-04-19T07:19:00.001-07:00

LOFT Condo in Buggyworks. Top Floor Corner Unit w/PRIVATE ROOFTOP DECK and ACCESS. Nxt to NEW HUNTINGTON BALL PARK. Huge Kitchen Island w/Granite. Custom Glass Tile backsplash. Stainless Appliances. Authentic Brick Loft style finishes. 1 Deeded Garage Parking Spot. Great Open Floorplan. Lost of NATURAL LIGHT!

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2902433&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

679,900 Delaware Property For Sale 1141 Haverhill Ct

2009-04-19T07:17:00.000-07:00

To be built spec home by Schoch Associates. Gorgeous finishes, walkout lower level. Lot available for purchase prior to construction, or combine with lot next door on Shale Run.

Full Details: http://www.servingcolumbus.com/moreinfo.html?mlsid=111-2846705&noreg=1

Listing Courtesy of Help-U-Sell Home Consultants

The Wall Street Bailout (Otherwise known as: The Economic Stabilization Bill)

2008-09-30T10:31:00.000-07:00

An open letter to our elected officals:

Reference: The Wall Street Bailout (Otherwise known as: The Economic Stabilization Bill)

I strongly urge you to vote AGAINST any additional measures to bail-out Wall Street, financial and mortgage firms.

As a citizen who pays a lot of attention to politics and votes every time an opportunity presents itself, I also spend a lot of time talking with friends, associates, clients, and anyone who is willing to listen, and I espouse a strong conservative and libertarian point of view. I will make a very determined and pointed effort to share my perspective with anyone that is willing to listen. I will also identify those politicians who exercised good judgment and voted AGAINST any and all measures designed to bailout these firms. I will make a very determined effort to expose those who vote FOR such bailouts.

I am a well educated professional with an MBA in Corporate Finance and Investments, and am also someone who spent many years in the corporate world and am now a small business owner as well as home-owner; I am a strong supporter of the free market system.

I know that my success as a business owner is completely dependent on my ability to keep my business solvent and to generate sales and manage my business in a competent fashion.

I also know that I cannot depend on a government bailout, I cannot pay lobbyists and that I cannot make large campaign contributions in an effort to sway my politicians points-of-view.

Any business that makes poor business decisions MUST be accountable to the free market system. Therefore if liabilities exceed assets, these firms MUST be dissolved, forced into bankruptcy or otherwise shuttered. There cannot be any other response.

The strong will survive and the weak will succumb. This is what our free market system should be all about. These are the options that I face every day.

I am appalled at the thought of government further entwining itself within the free market system. The democrats, as well as many republicans, set the stage for this financial debacle. Everyone who helped Fannie May and Freddie Mac should be held FULLY accountable. What happened to Sarbanes-Oxley? What happened to regulatory checks and balances?

Where are the investigations and hearings into these individuals and issues? Why are Barney Frank, Maxine Waters, Charles Rangel, Chuck Schumer, Franklin Raines, Chris Dodd, Bill Clinton, Nancy Pelosi, Harry Reid and other GUILTY individuals not being put on trial for their criminal actions?

If you have voted AGAINST these bailout measures, I applaud you and further encourage you to stand strong and resist the pressure to succumb to the pressures that will ultimately lead to the elimination of the free market system as we know it.

If you have voted FOR or are considering voting for these measures, I will tell you that the average American citizen is not stupid and naïve as many of you would like to believe, and you will be held fully accountable for your ignorant and dangerous pandering to the lobbyists and financial firms.

We are actively participating in this process; we are closely watching your actions. We will reward those who act with prudence and good judgment. Come election time, we will punish harshly those who exercise bad judgment.

Home For Sale - 5675 Lancaster-Kirkersville Road, Baltimore, OH 43105 www.ServingColumbus.com

2008-09-09T12:39:00.000-07:00

Home For Sale - 910 Lenore Avenue, Columbus, OH 43224 www.ServingColumbus.com

2008-09-09T12:38:00.002-07:00

Home For Sale - 1897 Denise Drive, Columbus, OH 43229 www.ServingColumbus.com

2008-09-09T12:38:00.001-07:00

Home For Sale - 13808 NW Bainwick Drive, Pickerington, OH 43147 www.ServingColumbus.com

2008-09-09T12:37:00.000-07:00

Home For Sale - 6005 SR 56, London, OH 43140 www.ServingColumbus.com

2008-09-09T12:35:00.000-07:00

Condo For Sale - 7246 Colonial Affair Drive, New Albany, OH 43054 www.ServingColumbus.com

2008-09-09T12:33:00.000-07:00

Home For Sale - 1940 Malabar Court, Delaware, OH 43015 www.ServingColumbus.com

2008-09-09T12:32:00.002-07:00

Home For Sale - 2836 Louise Place, Grove City, OH 43123 www.ServingColumbus.com

2008-09-09T12:32:00.001-07:00

Home For Sale - 1282 Aberdeen Avenue, Columbus, OH 43211 www.ServingColumbus.com

2008-09-09T12:31:00.000-07:00

Home For Sale - 604 Blenheim Road, Columbus (Clintonville), OH 43214 www.ServingColumbus.com

2008-09-09T12:30:00.000-07:00

Home For Sale - 3445 London-Lancaster Road, Groveport, OH 43125 www.ServingColumbus.com

2008-09-09T12:29:00.000-07:00

Home For Sale - 1361 Pannelly Place, Westerville, OH 43081 www.ServingColumbus.com

2008-09-09T12:28:00.000-07:00

Home For Sale - 101 Orchard Drive, Worthington, OH 43085 www.ServingColumbus.com

2008-09-09T12:27:00.000-07:00

Home For Sale - 243 Northridge Road, Columbus (Clintonville), OH 43214 www.ServingColumbus.com

2008-09-09T12:26:00.000-07:00

Home For Sale - 1534 Elmwood Avenue, Columbus, OH 43212 www.ServingColumbus.com

2008-09-09T12:21:00.000-07:00

Home For Sale - 7716 Hidden Hollow Drive, Columbus (Worthington), OH 43235 www.ServingColumbus.com

2008-09-09T12:20:00.001-07:00

Home for Sale - 798 Northbridge Lane, Columbus (Worthington), OH 43235 www.ServingColumbus.com

2008-09-09T12:17:00.000-07:00

Home For Sale - 3445 London Lancaster Road, Groveport, OH 43125 www.ServingColumbus.com

2008-07-27T12:09:00.000-07:00

Home For Sale - 604 Blenheim Road, Columbus, OH 43214 www.ServingColumbus.com

2008-07-27T12:08:00.001-07:00

Home For Sale - 1282 Aberdeen Ave., Columbus, OH 43211 www.ServingColumbus.com

2008-07-27T12:06:00.000-07:00

Home For Sale - 5675 Lancaster Kirkersville Road, Baltimore, OH 43105 www.ServingColumbus.com

2008-07-27T11:43:00.001-07:00

Home For Sale - 13808 NW Bainwick Drive, Pickerington, OH 43147 www.ServingColumbus.com

2008-07-27T11:39:00.000-07:00

Home For Sale - 1897 Denise Drive, Columbus, Ohio 43229 www.ServingColumbus.com

2008-07-27T11:20:00.000-07:00

Home For Sale - 6005 St. Rt. 56, London, Ohio 43140 www.ServingColumbus.com

2008-07-27T11:18:00.000-07:00

Home For Sale - 410 Lenore Avenue, Columbus, OH 43229 www.ServingColumbus.com

2008-07-27T10:54:00.000-07:00

A current assessment of the economy

2008-05-07T15:43:00.000-07:00

Check out this article on Inman News, I agree completely with the assessment of the author and would recommend that everyone with a vested interest in understanding where we really are in this economic cycle, take a read:

"Recession could run deep, economist cautions
Industry analysts cite declining dollar, oil spikes and foreclosuresBy Glenn Roberts Jr., Wednesday, May 7, 2008.
Inman News"

http://www.inman.com/news/2008/05/7/recession-could-run-deep-economist-cautions#comment-4777

Vito Boscaino
Managing Partner
Help-U-Sell North High Realty

http://www.ServingColumbus.com

The Mortgage Mess - FHA's Risky Business

2008-04-22T08:08:00.001-07:00

Joshua Zumbrun and Maurna Desmond

In the wake of the subprime mortgage debacle, who on Earth would loan to "first-time home buyers whose high rents left them strapped for cash" or borrowers "with strong current incomes but not a lot of savings"? Wells Fargo says it will--with a little help from the federal government.
Touted as a savior in the housing crisis by Congress and the White House, the Federal Housing Administration is being turned into a bank's best friend. Major U.S. lenders are again aggressively enticing risky borrowers, offering FHA-backed mortgages with attractive terms and as little as 3% down. Meanwhile, the agency watches as its liabilities balloon.
As a result, the nation's mortgage market is quietly undergoing a radical and potentially risky transformation that shifts liability for hundreds of billions of dollars on to the government's books.

"FHA delinquencies tend to be quite high," says Alex Pollock, a fellow at the American Enterprise Institute and former president of the Federal Home Loan Bank of Chicago. "They are substantially higher than the prime market--not as high as the subprime market, but nonetheless quite high. You're in a sector of the market that is by definition risky."

Bill Glavin, special assistant to FHA Commissioner Brian Montgomery, says the FHA has been "inundated" with requests by business-strapped banks to become FHA-certified lenders. He expects the FHA to increase loan volume by 168.2% in fiscal year 2008 (ended September 30), insuring 1.14 million loans, up from 425,000 in 2007. The agency expects to guarantee $224 billion worth of loans in 2008.

On Thursday, Ginnie Mae--a government-owned company with more than two-thirds of its securities portfolio comprised of FHA-backed loans--announced a 114% surge in volume. They issued $39.1 billion in the first quarter of 2008, up from $18.3 billion during the same period last year. The company also expects its total portfolio of outstanding securities to grow to more than $600 billion by the end of the year, reflecting a 35.2% increase from the $443.8 held by Ginnie in 2007.

From Wells Fargo (nyse: WFC - news - people ) to Countrywide (nyse: CFC - news - people ), lenders see opportunity, driving the numbers. Bank of America (nyse: BAC - news - people ) Government Lending Executive Allen Jones says his company is "actively promoting" FHA-insured loans through "all of its sales channels." Jones expects the percentage of BofA mortgages insured by the FHA to be 30% to 35% by the end of the year, up from just 2% in 2006.

The FHA's growing role in the mortgage market "will clearly fill the void of subprime financing," says Vicki Wagner, an analyst at Standard & Poor's. Wagner said an FHA loan "by definition, looks and acts like a subprime loan."

The FHA's admirable, longstanding aim, of course, is to help home buyers snag keys to their American Dreams. Throughout the housing boom, more than 80% of FHA-insured loans went to buyers with less than 5% equity in their homes. In the early years of the boom, this was a safe bet. A $200,000 home might be purchased with a $190,000 loan--a 95% loan. In a few years, the home price might rise to $250,000, meaning the borrower has a 25% equity stake in the home. That's about the same portion of a loan that a private mortgage insurer would vouch for, even though FHA backs its loans 100%.

Unlike private mortgage insurers, the FHA requires an up-front premium, providing an extra cushion to cover its costs. Another difference from the worst of the online click-and-borrow hucksters: FHA's government-backed mortgages require income and asset documentation and have real underwriting rules. The FHA Secure program, through which subprime loans can be refinanced into FHA-insured loans, is only open to owner-occupied housing; properties purchased by speculators hoping to flip a home quickly amid rising prices are unable to benefit.

In July, the FHA celebrated these prudish lending practices, which had resulted in half the foreclosure rate of commercial subprime lenders. (See "Mortgage Lending's Benevolent Bureaucracy.")

But as the housing market melted, politicians looking to soften the blow turned to the agency for help. In August, President Bush announced a program expanding the FHA so an additional 240,000 risky borrowers could benefit from its mortgage insurance program this year alone. The program also altered the code to help borrowers refinance their loans with FHA insurance. (See "This Is Not A Bailout.") Then, in February, a congressional stimulus package allowed the FHA to increase its loan maximum to 125% of a market's median value, up to $729,750 from $362,790 for single-family homes.

Now legislators have proposed allowing borrowers unable to pay off the full value of their loans to reduce their debt to fit their home's diminished market value, backed by FHA insurance. If a lender were to foreclose, it could not recover more than this value anyway. With FHA insurance, the argument goes, everyone gets an incentive to refinance. (See "Third Way For FHA.")

Combined with a credit-starved mortgage market, the moves resulted in 87.8% growth in government loan applications from Aug. 3 to April 4. Conventional loans averaged just 12.6% growth during the same time.

The FHA estimates that, ultimately, 500,000 borrowers will avail themselves of the refinancing program announced in August and expanded earlier this month. Thus far, the average refinancing has been $190,000. If this average remains constant, the FHA portfolio would increase by $95 billion. In fact, this estimate may be low: The average loan price is likely to rise, as the ceiling on these loans was raised by the Economic Stimulus Act, making even more expensive loans eligible.

The FHA's default and delinquency rates fall between subprime and prime rates. In the Mortgage Bankers Association's most recent National Delinquency Survey, FHA foreclosure starts stood at 0.91%, much higher than the 0.22% rate for prime fixed-rate loans, but much lower than subprime fixed-rate loans at 1.52% and subprime adjustable-rate mortgages at 5.29%.

In 2007, the FHA's liability for loan guarantees amounted to $7 billion, an increase from $3 billion in 2006. With its portfolio continuing to increase, this liability will rise, but so will income from its initial premiums. In the FHA's report to the Office of Management and Budget, the FHA projected its premiums would continue to cover its liabilities in 2009, but only narrowly.

FHA only provides "guidelines" for who can benefit from an FHA loan. Glavin said the agency allows individual lenders to independently define what a "first-time home buyer" means, and also to decide whether a borrower is creditworthy.

FHA loans have no minimum credit score and no income cap. The only rock solid requirement is a 3% down payment; some politicians are also proposing to lower this to 1.5%, and others advocate zero payment.

Regardless of credit risk or how much equity a homeowner has, FHA borrowers pay a flat initial premium of 1.5%. On a $200,000 loan, the premium works out to $3,000. The borrower then pays an annual premium of 0.5%, in this case, $1,000 a year.

But while 0.5 % is also a fairly standard insurance rate in the private mortgage insurance market, the FHA does not have an average portfolio of borrowers. Once home prices stopped rising, FHA continued insuring homes with less than 95% equity. In 2006 and 2007, the insuring of homes with minimal equity continued--75% and 78% of the loans it insured were in this high-risk group.

The FHA is pressing Congress for permission to adjust insurance premiums to reflect risk. Glavin said that with increased volume, the inability to factor in the likelihood of default could create real solvency problems for the FHA down the road.

Nonetheless, the Department of Housing and Urban Development defends the FHA's practices.

"It's reasonable risk and it's compassionate, given the circumstances that we find ourselves in," says HUD spokesman Brian Sullivan.

Taxpayers had better hope he's right. As FHA's Glavin points out: "Now that subprime financing has dried up, you will see more of those borrowers in FHA loans--because we are virtually the only game in town."

Existing-Home Sales Decline

2008-04-22T07:42:00.001-07:00

By MAYA JACKSON RANDALL

WASHINGTON -- Existing-home sales fell during March after making a surprising climb in February.

Home resales fell to a 4.93 million annual rate, a 2.0% decrease from February's unrevised 5.03 million annual pace, the National Association of Realtors said Tuesday. Resales fell 19% from March 2007's 6.11 million rate.

The median home price was $200,700 in March, down 7.7% from $217,400 in March 2007. The median price in February this year was $195,600. Falling prices have kept would-be buyers from signing off on property as they wait for still-lower price tags.

NAR economist Lawrence Yun said the market is performing unevenly. "Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets," Mr. Yun said. "At the same time, many buyers continue to bide their time with a larger number of homes to choose from, while other potential buyers remain on the sidelines."

Lenders have tightened their standards on home loans, contributing to the credit crunch that is restraining the U.S. economy. Those tighter standards have priced marginal buyers out of the market and made purchasing more difficult and costly for prime borrowers.

The March resales level was right in line with Wall Street expectations of 4.93 million sales rate for previously owned homes. The average 30-year mortgage rate was 5.97% in March, up from 5.92% in February, according to Freddie Mac.

Inventories of homes increased 1.0% at the end of March to 4.06 million available for sale, which represented a 9.9-month supply at the current sales pace. There was a 9.6-month supply at the end of February.

Regionally, existing-home sales in March were mixed.

Sales fell 6.5% in the Midwest, rose 2.2% in the Northeast, rose 2.2% in the West, and fell 3.5% in the South.

Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com

What's Analyst Worth? Not Even Penny a Share as Estimates Miss

2008-04-22T06:30:00.000-07:00

By Peter Robison

April 22 (Bloomberg) -- This earnings season may expose how much Wall Street analysts rely on guidance in making estimates, as the credit crunch and weakening economy make it harder for companies to meet or beat the numbers.

At least 27 companies have matched or topped Wall Street estimates in every quarter since 2000, including Coach Inc. and Starbucks Corp., according to data compiled by Bloomberg. General Electric Co. ended a 32-period winning streak on April 11. Goldman Sachs Group Inc. called GE and other early misses ``a sign of things to come,'' saying it expects more companies to fall short of first-quarter estimates.

In good times, companies often use the flexibility of accounting rules to choose when they book revenue and costs, creating an impression of predictable earnings, said Thomas Russo, a partner at Gardner Russo & Gardner. The economy's decline and the freeze in credit markets are making that harder.

``Companies are smooth and steady and growing, right up until the point they collapse,'' said Russo, who manages about $3.5 billion. His largest holding is Warren Buffett's Berkshire Hathaway Inc., famous for not providing quarterly forecasts.

The real puzzle is why GE hadn't missed estimates since at least 2000, said Shiva Rajgopal, an accounting professor at the University of Washington in Seattle. If analysts made their own judgments independent of company forecasts, the probability of compiling a record like GE's by sheer chance would be about 1 in 100 billion, based on a standard statistical equation, similar to a coin flip, he said.

`Silly' Game

``The whole game is silly,'' said former U.S. Securities and Exchange Commission Chairman William Donaldson, who led a group that recommended abolishing quarterly forecasts and reducing the amount of executive compensation tied to quarterly earnings per share. ``Earnings themselves are subject to interpretation.''

The so-called earnings game each quarter makes stock prices more volatile, wastes corporate resources and may encourage managers to use aggressive accounting or delay investments, according to a report Donaldson helped produce in June for the Committee for Economic Development, a Washington nonprofit policy group formed in 1942 to promote ``sustained economic growth.''

The earnings game costs anyone who invests in a mutual fund, by obscuring real corporate performance and through commissions from short-term, speculative trades, according to the report. Those extra fees may have cost $70 billion in 2005 alone, it found.

`Buy' Ratings

Most analysts missed the earnings shortfall for Fairfield, Connecticut-based GE, the world's biggest supplier of power- plant turbines, locomotives and medical imaging machines.

Sixteen of nineteen had ``buy'' ratings on the shares before the company said April 11 that profit from continuing operations fell 12 percent to $4.36 billion, or 44 cents a share, 7 cents less than the average Wall Street estimate. Its shares have fallen 12 percent since then to $32.46 yesterday. General Electric, which also sells financial services, said the seize-up in credit markets prevented it from closing some transactions.

``We're doing the best job forecasting that we know how,'' Chief Financial Officer Keith Sherin said the day General Electric reported earnings. ``I guess we could have forecast much lower earnings and just left an open category called unknown volatility, but that's not the way we do business.''

A 2000 SEC rule, the 2002 Sarbanes Oxley Act and a 2003 SEC settlement with securities firms all contained provisions intended to make Wall Street research more independent. By some measures, research has become less accurate.

Moving Target

In the fourth quarter, the almost 1,800 equity analysts overestimated final results by 33.5 percentage points, the biggest miss ever, based on data compiled by Bloomberg. Yet 62 percent of companies in the Standard & Poor's 500 Index beat average estimates -- because analysts lowered their forecasts as the quarter progressed. First-quarter numbers show a similar trend, with 55 percent of the 111 companies reporting so far exceeding the average estimate.

Until the recent quarter, GE and 27 other companies in the S&P 500 always met or exceeded Wall Street's average estimates dating back to 2000, Bloomberg data show.

While those companies' shares outperformed the S&P 500 during that span, seven of them -- including GE, Seattle-based Starbucks, the world's largest coffee retailer, and Atlanta- based Coca-Cola Co., the world's largest soft-drink maker -- lagged behind the benchmark index during the past five years.

GE, for instance, rose 36 percent from April 4, 2003, through April 4, 2008, compared with a 56 percent gain for the index. During the 32 quarters when its earnings met or beat estimates, GE's share price dropped 39 percent, while the S&P 500 was unchanged.

`Wrong Reasons'

``Quarterly earnings per share are at best a finger in the wind,'' said Nicholas Heymann, an analyst at Sterne, Agee & Leach Inc. who started his career as a General Electric auditor in 1977.

``People are obsessed for the wrong reasons.''

Other companies performed well for a time, only to stumble. KB Home exceeded profit estimates for 29 straight quarters, until the real estate market collapsed and the Los Angeles homebuilder lost $1.93 a share in the second quarter of 2007.

After rising fivefold from April 2003 to April 2007, New York-based Coach, the largest U.S. luxury-goods maker, fell 40 percent in the past year, compared with a 9 percent drop for the S&P 500. In one stretch from 2003 to 2005, Coach beat the average estimate by exactly 1 cent for 10 consecutive quarters.

Revenue growth and productivity gains are fueling the earnings streak, said Andrea Resnick, a Coach spokeswoman. The company is scheduled to report today.
Earnings Priority

Rajgopal, the University of Washington professor who has studied the earnings game, said pressure to meet quarterly targets can hurt investors. He helped survey 400 executives about management choices in 2005, and said he was surprised to find that 78 percent would sacrifice long-term investments for smoother earnings.

``Guidance serves a purpose,'' he said. ``It helps managers communicate a summary number that captures all the changes in the business. On the other hand, it can easily be abused.''

A 2006 paper by researchers at the University of Southern California in Los Angeles and New York's Columbia University, ``Earnings Management and Managerial Myopia,'' sought to document the costs of the earnings game.

The paper labeled 989 public U.S. companies as either dedicated guiders or occasional guiders, based on how often they gave quarterly direction. The study found that the value of dedicated guiders' assets declined 2.7 percent from 2000 to 2003, while occasional guiders achieved a 7.8 percent gain.

Less R&D

Frequent guiders spent about 25 percent less on research and development. The authors theorized that some companies scale back on R&D to meet earnings goals.

``Everyone is so focused on one number, forgetting that the much more important thing is the long-term growth of the company,'' said Yuan Zhang, who co-wrote the paper and teaches accounting at Columbia's Graduate School of Business.

Quarterly forecasts are an unintended consequence of the 1995 Private Securities Litigation Reform Act, which exempted companies from legal liability for making forward-looking statements. Investors had pressed for the law as a way to increase the information available.

Instead, it became a way for analysts to avoid doing their own legwork, said former Tupperware Corp. CEO Warren Batts, who said he was irritated by frequent requests for guidance in the 1990s.

`Hero to Bum'

``We went from hero to bum every three months,'' Batts said. ``It's such a ridiculous game.''

The SEC began regulating how companies communicate with analysts in 2000, when it passed Regulation FD, for fair disclosure. The rule barred officers from slipping market-moving news to favored investors before general dissemination.

Accounting scandals at Enron Corp. and WorldCom Inc. led to the 2002 Sarbanes Oxley Act, the most sweeping reform of U.S. financial laws since the 1930s. In addition to stiffening criminal penalties for financial fraud, the law forced analysts to disclose conflicts of interest and barred employers from retaliating against analysts who wrote negative reports.

In 2003, Citigroup Inc., Merrill Lynch & Co. and eight other securities firms paid a $1.4 billion fine to settle allegations of biased research and agreed to stop compensating analysts based on how much investment-banking business they helped generate.

Guidance in Statements

While Regulation FD prevented companies from making selective disclosures, they still can guide analysts to an estimate they know they can beat by forecasting in a public statement. Analysts still have incentives to avoid writing negative reports, because it might hurt their relationship with the company or their employer's goal of encouraging customers to buy shares.

Investors view analysts as ``a necessary evil,'' said Bryan Armstrong, who surveyed 30 portfolio managers in 2005 on how they use estimates. Many said they like to learn what others are saying about a company and compare with their own models, said Armstrong, a partner at Ashton Partners, a corporate advisory firm in Chicago.

Criticisms of analysts are overstated, said Paul Nisbet, an analyst with JSA Research Inc. in Newport, Rhode Island. Analysts stand to lose clients if their reports are inaccurate, he said.

``All of a sudden, the people you're selling the stock to try to find another analyst who didn't get caught,'' Nisbet said.

Analyst Uneasiness

In the months leading up to General Electric's results, analysts hinted at concern that the company was straining to meet its own growth forecasts. Credit Suisse analyst Nicole Parent wrote that she wanted GE to stop setting quarterly targets and focus instead on ``lower, higher-quality'' earnings.

Former GE auditor Heymann rated the stock ``hold'' when he began coverage Nov. 13 for Sterne Agee. He joined the Birmingham, Alabama, firm last year after 25 years as a Wall Street analyst. Now he looks at longer-term measures: research spending, internal growth, sales from emerging markets.

``Most guys, they're still carving wooden figurines: `Hey, this quarter's going to be 37, not 36, and the tax base is going to be low, so buy the stock,''' Heymann said, mimicking an analyst report. ``That stuff is so yesteryear.''

To contact the reporter on this story: Peter Robison in Seattle at Robison@bloomberg.net.

Mortgage Crisis Just Beginning

2008-04-21T17:53:00.000-07:00

Courtesy of MoneyNews.com

The subprime mortgage crisis is far from over and may still only be in its early stages, says money fund guru John Hussman, who manages the $3.18 billion Hussman Strategic Growth Fund.

Hussman reckons the U.S. economy is just starting the game of mortgage defaults and has many more innings to go. He points to the number of adjustable mortgages yet to reset to higher rates — so high that many more foreclosures are inevitable.

"We appear to be quite early in the mortgage crisis, with only about a quarter of the cumulative resets having occurred. That places us near the start of the third inning, where we can expect each of the ‘nine innings’ to be about three months in duration.”

The next three quarters, he writes, are when the "the cumulative amount of resets will surge. With that surge, loan losses and foreclosures will also predictably spike higher,” Hussman notes.
Story continues below . . .

Other analysts tell MoneyNews they agree with Hussman’s forecast.

"We’re hearing a cavalcade of talking heads telling us the housing market could right itself later this year,” says Robert Sheridan, a housing developer with Robert Sheridan & Partners.

"Let me be clear. It won’t. Some markets may not recover until 2010, and, in cases like Florida, a turnaround could take as long as three to five years. There is lots of grim news to come.”

Experts reckon that many homeowners with high interest rate subprime loans are staving off foreclosure by taking second, or even third, jobs, to make the money to meet the payments.

Eventually, these folks will have to give up, out of sheer exhaustion.

"These families are not going to be able to make it out of the ‘seventh inning stretch’ if their interest rates don’t stop increasing at a faster rate than their home values are decreasing,” Dr. Gary Lacefield, president of financial risk management consultancy Risk Mitigation Group, tells MoneyNews.

The refusal of many economic elites and of the financial media to recognize these issues is part of the reason policymakers haven’t responded properly to the mortgage crisis, Hussman charges.

"One of the fascinating aspects of Wall Street is the ability of analysts to provide opinions without the faintest backing from evidence,” notes Hussman.

"Among the latest topics of opinion is how far the mortgage crisis has to go. Evidently, the idea is that the recession that these analysts didn't forecast is already over, so it is time to look across the valley on the belief that most of the write-downs are behind us.”

U.S. Housing Starts Slide to Lowest Level in 17 years

2008-04-16T07:17:00.000-07:00

U.S. Housing Starts Slide to Lowest Level in 17 Years (Update3)
By Bob Willis

April 16 (Bloomberg) -- Housing starts in the U.S. dropped more than twice as much as forecast in March to a 17-year low, signaling that declining construction will keep eroding economic growth this year.

Work began on 947,000 homes at an annual rate, down 11.9 percent from February and the fewest since March 1991, the Commerce Department said today in Washington. Building permits, a gauge of future construction, fell to a 927,000 rate from 984,000 the prior month.

Foreclosures are pushing down property values by adding to the glut of unsold homes, prompting buyers to hold out for better bargains and undermining new construction. The Federal Reserve will probably lower the benchmark rate again at its meeting this month to cushion the economy against the housing- led slowdown.

"Home construction is probably going to continue to fall right through this year,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. ``While we see a bottoming in sales in 2008, we really don't see an improvement until later 2009, early 2010.''

A separate report today showed that consumer prices rose 0.3 percent in March from the previous month, matching economists' forecasts. Excluding food and energy costs, prices increased 0.2 percent, the Labor Department said.

Economists' Forecasts

Starts were projected to fall 5.2 percent to a 1.01 million pace from an originally reported 1.065 million rate in February, according to the median forecast in a Bloomberg survey of 72 economists. Estimates ranged from 950,000 to 1.1 million.

Permits were forecast to drop to a 970,000 pace, according to the survey median.
The yield on the benchmark 10-year note dropped to 3.58 percent at 9:47 a.m. in New York following the reports, from 3.60 percent late yesterday. The Standard & Poor's homebuilder index rose 1.5 percent to 397.2.

Work on single-family homes decreased 5.7 percent to a 680,000 pace, Commerce said. Construction of multifamily homes, such as townhouses and apartment buildings, fell 25 percent to an annual rate of 267,000 in March.

Starts dropped in all four regions, led by a 21 percent slump in the Midwest.

Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.
Annual Forecast

The National Association of Home Builders yesterday forecast housing starts would fall 30 percent this year, compared with a previously estimated 27 percent drop, as the credit crisis persists.

"It's now clear that we have entered what we anticipate will be a mild recession,'' David Seiders, chief economist for the homebuilders' group, said in a statement.

As property values tumble and adjustable-rate mortgages reset, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14 in a statement.

JPMorgan Chase & Co., the third-biggest U.S. bank, said today that profit fell 50 percent in the first quarter after $5.1 billion of writedowns and provisions linked to subprime mortgages, bad home-equity loans and financing for leveraged buyouts. The company set aside $1.1 billion for future home- equity loan defaults, almost three times as much as in the fourth quarter.

Job Losses

The construction slump is causing job losses to mount and sales of building materials and appliances to drop. Falling home prices undermine consumer confidence and spending, which accounts for two-thirds of the economy.

Homebuilders are also pessimistic. The National Association of Homebuilders said yesterday its confidence index held near a record low this month.

KB Home, the fifth-largest U.S. homebuilder, last month reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.

``Many potential buyers either cannot or will not make a purchase commitment today,'' Chief Executive Officer Jeffrey Mezger said on a conference call March 28. ``Many are simply unable to qualify for financing given the more restrictive lending environment.''

Economists surveyed by Bloomberg this month forecast the economy will not grow at all in the first half of the year, the weakest performance since the 2001 downturn.

Fed Stance

Fed policy makers are more focused on the threat of recession than inflation, believing that the economic slowdown already under way will help tame prices.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' according to the minutes of Fed's March 18 meeting released last week. While

``uncertainties about the outlook for inflation had risen,'' the minutes said, ``the Committee expected inflation to moderate in coming quarters.''

Investors project the central bank will lower the benchmark rate by at least a quarter point later this month.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net Last Updated: April 16, 2008 09:53 EDT

Foreclosures jump 52 percent in last 12 months

2008-04-15T06:06:00.000-07:00

By Lynn Adler Tue Apr 15, 5:26 AM ET

NEW YORK (Reuters) - Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.

For the month of March, foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent, led by Nevada, California and Florida, RealtyTrac said.

The rise in March to filings on a total of 234,685 properties followed a 4 percent decline in February, RealtyTrac reported.

RealtyTrac said the peak has yet to be reached.

"What we're really looking at is ongoing fallout from people overextending themselves to buy homes they couldn't afford and using highly toxic loan products to get into the houses in the first place," Rick Sharga, vice president of marketing at RealtyTrac, based in Irvine, California, said in an interview.

"We're going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter," reflecting sharp payment increases on adjustable-rate subprime mortgages in May and June, Sharga said.

One in every 538 U.S. households living in single-family dwellings received a foreclosure filing in March. The single-family dwellings can include condominiums.

There are three phases of the foreclosure process in most states -- an initial default notice, notice of a scheduled auction, and an "REO" filing if the property is not sold at auction but instead repossessed by the bank, Sharga said.

REO refers to real estate-owned property.

All of the households in the report received at least one of these filings last month.

AUCTION NOTICES UP 32 PERCENT

While default notices and repossessions soared in March, auction notices rose a relatively small 32 percent, James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.

That suggests "more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," he said. "This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction."

The states with the highest foreclosure filing rates -- Nevada, California and Florida -- also are among those that had the biggest price appreciation in the five-year boom before the housing meltdown that began in 2006.

These states tend to also be plagued by defaults on unoccupied homes bought by speculative investors. In many cases, home prices have now fallen below the size of the mortgages and some owners are walking away.

In Nevada, one in every 139 households received a foreclosure filing in March, keeping the state at the top of the ranks for the 15th straight month.

The 7,659 Nevada properties receiving foreclosure filings last month represented a 24 percent jump from February and a nearly 62 percent spike from March 2007.

California had the second highest rate of foreclosure filings, one for every 204 households, followed by Florida with one of every 282 households.

Arizona's filings fell about 5 percent, but it retained its standing as with the fourth highest pace of foreclosure activity for the third month straight.

Foreclosure activity in Colorado dropped 8 percent in March from February and 1 percent from a year ago, but it ranked No. 5, with one filing for each 339 households.

Georgia, Ohio, Michigan, Massachusetts and Maryland were the other states with the highest foreclosure rates in March.

The states with highest total number of foreclosure filings were California, Florida and Ohio.

Foreclosure filings were reported on 64,711 California properties in March, the most of any state for the 15th consecutive month, up nearly 21 percent from February and up almost 106 percent from March 2007.

Florida posted the second highest total, with foreclosure filings reported on 30,254 properties in March. While down about 7 percent from February, filings were about 112 percent higher than last March.

Georgia, Texas, Michigan, Arizona, Illinois, Nevada and Colorado were the other states with the highest foreclosure totals in March.

(Editing by Leslie Adler)

Minding the Gap: Home-Price Downside

2008-04-05T18:43:00.000-07:00

By Scott Patterson and Mark Gongloff
From The Wall Street Journal Online

The economic balance hangs in large part on how much further home prices will fall. A look at one important measure -- the relationship between home prices and household income -- suggests we might not even be halfway there.

Over the long run, home prices and income should march along the same path. As households earn more, they can afford to pay for more expensive homes.

But the two can get out of whack. During much of the 1990s, incomes grew faster than home prices. The landscape shifted around 2000. From the start of the decade through the mid-2006 peak, home prices nearly doubled, thanks in part to falling interest rates. Over the same period, income per household rose just 26%, according to Moody's Economy.com.

In certain states, the disparity was extreme. Seven states, including California, Florida and Arizona, saw annualized growth in home prices outpace income growth by 10 percentage points from 2002 through 2006, according to housing expert Thomas Lawler.

The difference between income growth and home prices has started to narrow. Home prices were down 10% through the fourth quarter from their peak in mid-2006, according to the S&P/Case-Shiller national home-price index. But to bring prices in line with incomes, they will need to fall further. If incomes continue to grow in the next year as they have in the past decade -- probably an optimistic assumption -- it would take a 9% to 12% drop in home prices to bring the two measures in line with each other.

In states that saw bigger housing bubbles, the correction will be more severe, says Mr. Lawler.

It is also possible that home prices will overshoot on the downside, just as they did on the upside. Goldman Sachs economists say prices could fall another 15%. Merrill Lynch economists say they could drop another 20% to 30%. Both banks have been more bearish than others on the economy -- and so far look correct to have been so pessimistic.

Retailing Likely Checks In With More Glum Numbers

Consumer spending is one potential casualty of falling home prices. When home values fall, households have less home equity to tap when they want to buy a new flat-screen television.

Today's February retail-sales report from the Commerce Department could provide evidence of that. Sales were up 3.9% in January from a year earlier. That paled in comparison with year-over-year gains of more than 6% that prevailed from 2004 to 2006. It was also less than the 4.3% increase in consumer-price inflation registered in January from a year earlier.

Economists don't expect strong numbers for February. On average, they see an increase of 0.1% from the month before. Auto makers and retailers reported a slow February -- with the exception of Wal-Mart Stores and other discounters, which benefited as shoppers tightened their purse strings. The Federal Reserve's latest "beige book" compilation of economic anecdotes described retail sales as "below plan, downbeat, weak, or having softened" in most of the country since mid-January.

Tax rebates might temporarily boost spending again later this year. But consumers are walking into pretty stiff headwinds.

Email your comments to rjeditor@dowjones.com.

Fed Official: Housing Could Tank Badly

2008-03-10T10:54:00.000-07:00

Breaking from MoneyNews.com

WASHINGTON (Reuters) - A decline in U.S. home prices is needed to attract buyers back and end the housing slump, but with no bottom in sight, more trouble lies ahead for an economy that may already be in recession.

This is a growing concern among Wall Street analysts and policy-makers, like Federal Reserve Governor Frederic Mishkin, that potential home buyers may wait on the sidelines for an extended period.

"If house prices fall more than expected, and that condition leads to more adverse expectations for future changes in house prices, then housing demand could fall as a result," Mishkin warned a group of key economists meeting in the Washington area this week in one of the bleakest public speeches by a Fed official during this business cycle.

Typically, falling home prices help stave off a downturn by boosting demand for homes and reducing the backlog of unsold homes. Even though U.S. home prices fell last year for the first time in a generation, sales continue to slow, only adding to the glut of inventories.

At the current sales pace for previously owned homes during January, there was more than 10 months' worth of homes for sale, according to the National Association of Realtors.

That was much more than the 6.5 months' supply available during the peak of the housing boom in 2006. That also comes as sales have slipped for the past six months, according to the real estate group.

NO BOTTOM SEEN

But economists fear there is no bottom in sight and that's making everyone jittery: the buyer, the lender and the investor.

"I think it's freezing the market right now," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. "Home buyers are not going to catch that falling knife and that's going to weigh very heavily on the housing market through this year and next."

Home prices have indeed fallen according to the real estate group, which reported a nearly 5 percent drop in median prices for previously owned homes, the bulk of the housing market, in January from prices a year ago.

The group projects that prices for new homes will tumble 6 percent this year and 1.2 percent for previously owned homes.

Analysts warn that until there are signs the housing market has stabilized or bottomed out, buyers and lenders are likely to be very cautious.

"We're not near there yet so people are going to continue to wait on the sidelines," said JPMorgan economist Michael Feroli.

Since September, the Fed has slashed its benchmark interest rate by 2.25 percentage points in an effort to end a growing credit crisis and boost the economy. Economists are expecting the central bank will continue on this path even though there are signs of inflationary pressures.

Even with such price pressures, analysts believe the central bank needs to continue with rate cuts, saying this is key in bringing an end to what has been seen as the worst housing downturn since Great Depression.

"The Fed should forget about everything else now and just do whatever is necessary to bring a bottom for home prices into sight," said John Lonski, chief economist at Moody's in New York.

Timing is crucial because the Fed's latest data shows that the net wealth of U.S. households in the final three months of last year fell for the first time in five years as the value of real estate holdings and stocks weakened.

In that report, the percentage of equity that Americans have in their homes sank to the lowest since 1945.

"Not only have the fundamentals for housing shifted, but the psychology has shifted. Now it's pessimism with expectations of future price declines and this is not going to resolve itself quickly," said Zandi.

© NewsMax 2008.

NAR: Home sales, prices expected to drop this year

2008-03-06T16:00:00.000-08:00

Forecast anticipates 2009 turnaround for housing
By Inman News, Thursday, March 6, 2008.

The National Association of Realtors expects the median price of U.S. resale homes to drop 1.2 percent this year, following a 1.4 percent decline in 2007, with sales of resale homes slipping for the third consecutive year.

The forecast report released today also anticipates a 31.1 percent drop in single-family housing starts, a 6.1 percent decline in new-home prices, a rise in housing affordability and a dip in consumer confidence this year compared to 2007.

The federal funds rate is expected to average 3 percent in 2008, compared with 5 percent in 2007, according to the NAR forecast.

Sales of resale homes are expected to fall to 5.38 million this year, compared with 5.65 million in 2007 and 6.48 million in 2006. The association expects a 4.2 percent rise in resale home sales in 2009 compared to 2008.

The aggregate resale home price is projected to fall to $216,300 this year and then increase 3.5 percent to $223,800 in 2009, with the median new-home price falling to $232,200 this year and rising 5.1 percent to $244,100 in 2009.

Single-family housing starts, which fell 14.6 percent in 2006 and 28.6 percent in 2007, are expected to drop another 31.1 percent to 721,000 units this year, and to fall 5.6 percent to 680,000 units in 2009.

New single-family home sales, which dropped 18.1 percent in 2006 and 26.4 percent in 2007, are expected to fall another 23.7 percent this year compared to 2007. New single-family home sales are expected to turn around in 2009, rising 7.2 percent.

The average mortgage rate for a 30-year fixed-rate loan is expected to be 5.8 percent this year, down from 6.3 percent in 2007, with the average rate for a one-year adjustable-rate loan falling from 5.5 percent in 2007 to 4.8 percent in 2008, according to the NAR forecast.

An index measuring pending sales of previously owned homes, also released today by NAR, was down 19.6 percent in January compared to the same month last year and remained flat compared to December 2007, the National Association of Realtors trade group reported today.

The Pending Home Sales Index is based on contracts signed in January, and a sale is listed as pending when the contract has been signed but the transaction has not yet closed. A sale is typically finalized within one to two months of a contract signing.

In January the index stood at 85.9 -- an index of 100 equals the average level of contract activity in 2001, which was the first year examined for the index and the first of five consecutive record years in sales of resale homes, the association reported. In January 2007 the index was 106.8.

Regionally, the index plunged 28 percent in the Northeast, 23.8 percent in the South, 13.3 percent in the Midwest and 12.7 percent in the West in January 2008 compared to January 2007.

NAR will release resale home-sales data for February on March 24, and the next Pending Home Sales Index and forecast report is scheduled for release on April 8.

***

In Business, Integrity Still Matters

2008-03-04T10:17:00.001-08:00

By Christopher Ruddy
Money News Editor's Corner

Word last month that the FBI was opening up a criminal probe into the subprime mortgage mess should come as no surprise. Greed usually sprouts corruption.

One of the reasons America has been the safe haven for the world and has been its economic leader (though we have just 5 percent of the world population, we generate about 25 percent of global GDP) is that world investors have, for a long, long time, trusted America.

The subprime crisis is undermining that worldview. Investors liked the United States not simply because of our free enterprise system, but because of the values reflected in our financial and legal systems: trust, honesty, integrity.

I remember as a child, maybe 8 years old, accompanying my dad to the bank on pay day — always a big deal for me. Every time Dad cashed his check, the teller would quickly count out a bankroll of bills.

Invariably, my dad would step to the side and count every single bill to make sure that the count was accurate. I remember one occasion when the teller miscounted and gave Dad an extra $20 bill. When my father discovered the error, he moved to return the money — which left his son perplexed. No doubt my imagination went wild with what $20 could buy me!

My dad poked me in the chest and said, “Never take anything that isn’t yours. God will take care of you.”

It was an important lesson for a young child, just one of many Mom and Dad taught me.

American values such as these showed that people here agree to behave in certain ways even when the impersonal facts of the case make getting away with something easy (my dad did not know the teller, she did not know him, and the bank would have made up for the $20 error at the end of the day). Still, my dad intuitively saw a much bigger picture of how his actions in a small way might affect the larger world.

Looking back at this childhood incident, I can see how American values have frayed. No, we are not a banana republic, as some pessimists suggest. The rule of law and values still prevail. But they are under attack by a “whatever-it-takes” culture that emphasizes material success over spiritual values.

At the heart of the subprime banking crisis, I think we will see how core American values have been discarded.

So far, financial institutions have written off more than $100 billion in subprime debt. Low interest mortgages (ARMS) only began resetting en masse in January 2007. We have three more years for massive ARM resets. We could easily see $500 billion to $1 trillion in losses when the dust settles.

There is increasing evidence that mortgage lenders systematically encouraged applicants to lie on their applications about income and credit worthiness. Even low interest mortgages were supposed to be approved on the basis that the borrower could still repay the loan when it reset at a higher monthly payment.

Apparently, many borrowers got loans they should never have. Why would banks and lenders encourage loan applicants to lie?

To understand this, one has to understand how the banking business has fundamentally changed. Decades ago, your local bank wanted to underwrite your mortgage as the basis of its relationship with you as a customer. You paid your mortgage to Main Street Bank and also kept your checking and other accounts with them.

But in recent years, banks got away from holding mortgages long term. As soon as they sold you a mortgage, they would bundle it with others, “securitize” it in a bond-like instrument called a CDO (collateralized debt obligations ) and then sell these CDOs to global investors who wanted the income the underlying mortgages seemingly provided.

But as many mortgage holders have stopped paying their mortgages and foreclosed on their homes, the CDO holders have realized they were sold junk. Big and small CDO investors, including many foreigners, are left holding the bag.

Now creditors are exacting revenge. They are demanding a huge premium from borrowers across the board. Even credit card holders are feeling it as rates are skyrocketing to 30 percent.

This credit squeeze is spilling over and affecting consumers and businesses, helping to push the economy into a recession.

All of this because someone lied on their mortgage application thinking they could beat the “teller.” My dad could have told them otherwise.

© 2008 Newsmax. All rights reserved.

Auto, Home Buys `Won't Happen' as Rates Don't Budge (Update1)

2008-03-01T10:06:00.000-08:00

By Matthew Benjamin

Feb. 29 (Bloomberg) -- Consumers like Valerie Jacobsen aren't getting much of a break on borrowing costs even after five months of interest rate cuts by the Federal Reserve.

Jacobsen, 30, wants to refinance her 7.25 percent first and 8.5 percent second mortgages into one loan at a lower cost. To cut the payments enough to recoup her $3,000 in closing costs, she needs a rate well below 6 percent. She wasn't ready when costs dipped in January and now they're back at levels that make her plan too expensive, the Austin, Minnesota, resident says.

``Rates I'm seeing aren't really mimicking what the Federal Reserve is doing,'' said Jacobsen. ``I'm wondering why that is.''

Trying to spur lending and avert a recession, the Fed has chopped 2.25 percentage points off its benchmark rate since September. Wariness among lenders and fears of inflation are keeping mortgage and auto loan rates close to or above levels before the central bank began easing, while credit-card issuers are tightening their standards.

The slippage between the Fed's rate cuts and consumers' ability to borrow or reduce loan costs is weakening the central bank's ability to stimulate the biggest part of the economy, consumer spending. It accounts for more than two-thirds of goods and services output and stalled for the second consecutive month in January after adjusting for inflation, the Commerce Department said today.

`Missing Activity'

With many households unable to borrow, ``those transactions won't happen, and that missing activity is the missing economic growth,'' said Neal Soss, chief economist at Credit Suisse Group in New York. ``So the Fed will have to do more than otherwise to compensate.''

Fed Chairman Ben Bernanke told the House Financial Services Committee Feb. 27 that ``the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn.''

The Fed lowered the cost of overnight loans between banks by 125 basis points, or 1.25 percentage points, over nine days in January, the fastest easing since 1990. The rate, now at 3 percent, sets the benchmark for other credit.

Consumer costs for mortgages barely budged. The average interest rate on a conventional 30-year fixed-rate mortgage stands at 5.88 percent, according to Bankrate.com, 2 basis points below the September level. For jumbo loans, those exceeding $417,000, borrowers are paying an average of 6.82 percent, just 20 basis points lower than when the Fed began easing. Lenders say they are requiring a bigger down payment for that rate than before, as much as 20 percent.

For buyers of new cars, a five-year loan costs 6.95 percent, 4 basis points more than in September. In some states, the rate is closer to 7.5 percent.

Disconnected Rates

Loan costs for individuals and businesses declined 45 basis points since September, or a fifth as much as the Fed's benchmark, according to Merrill Lynch & Co., based in New York. While consumer interest rates have never moved in lockstep with the central bank, now they are even more disconnected, according to David Rosenberg, Merrill Lynch's chief North America economist.

``For every 5 basis points cut by the Fed, only 1 basis point is reaching Main Street,'' said Rosenberg. ``The Fed is cutting rates, which is wonderful for the government yield curve, but most interest rates are not following suit.''

Credit-card rates, which tend to reflect Fed changes quickly, are down an average of 1.32 percentage points since the easing began, according to Cardweb.com, a Fort Myers, Florida, research organization.

At the same time, ``card issuers have tightened lending standards, so fewer people qualify for those lower rates,'' says Cardweb.com President Robert McKinley.

Reduced Credit

Credit-card lenders including New York-based Citigroup Inc. have reduced lines of credit for borrowers they consider likely to default.

No matter how low rates go, certain consumers may be out of luck. Banks tightened standards and terms for a broad range of loan types over the past three months, according to the Fed's quarterly survey of senior loan officers.

GMAC LLC, the lender controlled by New York-based Cerberus Capital Management LP, tightened underwriting standards three times last year to the least credit-worthy borrowers, according to spokeswoman Gina Proia.

Passing On Risk

``Mortgage and consumer credit are, and will almost certainly become, even harder to come by,'' said Credit Suisse's Soss. He blames growing risk aversion among lenders and widespread fears that inflation will limit the Fed's ability to lower rates further.

In addition, lenders can't pass on the risk as easily as they could before the subprime crisis began, as secondary markets for many loans have dried up.

``There's less availability of securitization financing, so lenders have to price it such that they're comfortable living with the credit risk on their own balance sheet,'' said Eric Wasserstrom, a New York-based UBS AG analyst.

For homebuyers, conditions will get worse, industry analysts say. Loan purchasers like Freddie Mac, the second- largest provider of home-loan money, have added new charges that will ultimately be paid by consumers, says Dean Hackemer, president of Access National Mortgage in Reston, Virginia.

``If you're a consumer with great credit, you're paying a quarter of a percentage point to three-eighths of a percentage point more than you were in September,'' Hackemer said. ``If you've got marginal credit, God help you.''

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net ;

Last Updated: February 29, 2008 10:33 EST

U.S. Home Foreclosures Jump 90% as Mortgages Reset (Update2)

2008-02-26T07:22:00.001-08:00

By Sharon L. Lynch

Feb. 26 (Bloomberg) -- Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.

Repossessions rose 90 percent to 45,327 last month from the same period a year ago, RealtyTrac Inc. said today in a statement. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.

``The most troubling thing is that we are seeing more and more of these properties actually going all the way through the process and going back to the banks,'' Rick Sharga, executive vice president of Irvine, California-based RealtyTrac, said in an interview.

Defaults among subprime borrowers and those unable to meet rising payments on adjustable-rate loans drove foreclosure filings to the highest since August and the second-highest since RealtyTrac started keeping records. About $460 billion of adjustable mortgages are scheduled to reset this year, raising minimum payments for borrowers, according to New York-based analysts at Citigroup Inc.

More than 233,000 properties were in some stage of default last month. Total filings increased 8 percent in January from December, said RealtyTrac, a seller of foreclosure statistics that has a database of more than 1 million properties.

Nevada, California and Florida recorded the highest foreclosure rates among the 50 states, RealtyTrac said.

Nevada Leads

The rate of foreclosure filings in Nevada continued to lead the nation, with 6,087 properties in default or having been repossessed. That's 95 percent more than in January 2007 and 45 percent less than in December.

California had the highest total number of default and foreclosures with 57,158 properties facing possible seizure last month. That was more than double the year-earlier figure and was up 7 percent from December.

Florida had the second-highest number of homes in default or foreclosure with 30,178 in January, more than double the figure for the prior year and 3 percent less than in December.

Arizona, Colorado, Massachusetts, Georgia, Connecticut, Ohio and Michigan rounded out the top 10 states worst off in terms of missed payments and property seizures, RealtyTrac said.

Cape Coral-Fort Myers, Florida, had the highest January foreclosure rate among 229 metropolitan areas. Stockton, California, had the second highest, followed by the Riverside- San Bernardino area.

Prices Sink

New Jersey ranked 18th in terms of the proportion of households at some stage of default or seizure, with 1.5 percent. New York was 30th with 0.6 percent of households facing possible foreclosure.

Banks may be forced to resell as many as 1 million foreclosed properties this year, adding to a glut of inventory and forcing prices down even further, Sharga said.

January was the sixth straight month with more than 200,000 foreclosure filings, RealtyTrac said. The fourth-quarter total of 642,150 filings was the most since the company began records in January 2005. More than 1 percent of U.S. households were in some stage of foreclosure during 2007.

U.S. home prices fell last year for the first time since the Great Depression. That made it more difficult for homeowners to sell or refinance properties encumbered by mortgages that may be higher than the value of the houses themselves. Sales of existing homes fell last month to the lowest in at least nine years, the National Association of Realtors said yesterday.

Bush Plan

The median price of an existing home fell 4.6 percent to $201,100 from January 2007. The median for a single-family home dropped 5.1 percent to $198,700, and condominium and co-op prices fell 1 percent to $220,400.

President George W. Bush's proposal to help 1 million subprime borrowers avoid foreclosure with tax-exempt bonds is doing little to slow the increase in defaults.

State housing agencies are turning away many applicants because their homes have lost too much value or they've accumulated too much debt, according to estimates from Geoffrey Cooper, emerging markets director at a unit of MGIC Investment Co., the country's biggest mortgage insurer.

Mortgage companies including Fannie Mae and HSBC Finance have joined a U.S. Treasury Department-led effort to offer 30- day foreclosure freezes to give delinquent borrowers more time to arrange payment plans.

Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. have initially agreed to participate in the effort.

To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net .

Bargain hunters may toss a lifeline to housing

2008-02-24T18:31:00.000-08:00

Sun Feb 24, 2008 8:16pm EST

NEW YORK (Reuters) - The distressed U.S. housing market should get a lift this spring as bargain prices lure prospective buyers out of hibernation, but tighter lending means no one should expect the boom days to return any time soon.

Spring is a pivotal season in the housing market. Potential buyers typically emerge from a winter hiatus and shop in earnest for a new home or an investment. The strength of the market in March, April and May usually sets the tone for the entire year.

This year, spring has assumed even greater importance as it coincides with a sharp U.S. economic slowdown, triggered largely by a dysfunctional real-estate market. After sales of existing homes sank almost 13 percent last year, a housing revival could put the economy back on solid ground.

When the housing sector is thriving, so does the economy as buyers spend heavily on new appliances and furniture while owners pump cash into remodeling or additions.

Even in Arizona and Florida, which are among the states most hard-hit by the collapse of the housing market, a few rays of light are starting to shine through.

"If I would have described this whole process as a hurricane coming through Phoenix, I would tell everybody that for the last month I've been taking the shutters off the windows because I think the eye of the storm and most of it is behind us," said Floyd Scott, president of Century 21 Arizona Foothills, which has 10 offices and 460 agents in Phoenix. "Now we're in the process of picking up the debris."

In many areas, the choice of homes on the market has increased considerably, with unsold inventory double the typical supply as foreclosures mount and sellers hold out for higher bids.

Indeed, possible buyers are already coming out the woodwork seeking deep discounts.

Signed contracts that have yet to close were higher in January than any month in the prior six, though down 30 percent from January 2007, said Scott. "We've seen quite a bit of increase in traffic. A lot of people are shopping for deals right now," he said.

HIGH HURDLES

But the roadblock to closing the contracts is ominous.

Many lenders are shutting down the money pipeline to all but the most credit-worthy borrowers, looking to avoid repeating mistakes that led to the current wave of bad mortgages.

"One of the difficulties that we are having obviously in the home market is that lending conditions have really tightened up dramatically," Scott said.

While a flurry of sales this spring may highlight the pent-up demand in the market, it probably would not signal a sustainable housing upturn this year, most economists agree.

"We have this continuing battle with tightening lending standards and it's going to be tough for prospective buyers, even though they want the homes -- that's going to be an obstacle," said Young Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

Still, demand is stirring as sellers grow desperate to off-load properties. Fixed mortgage rates are low, and some home prices are looking too attractive to pass up.

Bidders are emerging for foreclosed homes and for so-called "short sales" at sharply reduced prices, real-estate agents said. In a short sale, the lender agrees to take a loss and avoid foreclosure costs if the borrower is unable to command a sale price that will pay the remaining mortgage balance.

Gary Kent, a real estate agent with Gary Kent Team-RE/MAX Associates in La Jolla, California, said he had his best sales month ever in January, selling foreclosure homes for banks.

Meanwhile, the average 30-year mortgage rate is around 6 percent. That's up a half percentage point from four-year lows set last month, but it's roughly a quarter point less than a year ago, based on data from Freddie Mac, the second-largest U.S. home funding company.

The median price for an existing single-family home dropped in 2007 for the first year since the National Association of Realtors began tracking them in 1968, sliding 1.8 percent to

$217,800.

By contrast, prices on average have risen 6.6 percent annually over the past 40 years, NAR said. Annual double-digit gains were the norm in some areas earlier this decade.

A new government stimulus package will likely also open the doors for more buyers in high-cost areas. It temporarily raises the size of mortgages that can be purchased by Freddie Mac and Fannie Mae, the No. 1 federally chartered home funding company, making some lenders more inclined to approve home loans.

"I think this is the best buyer's market that has existed in a decade, maybe longer," said Russell Shaw, in his 30th year with John Hall & Associates real estate in Phoenix. "There are tons of inventory, great interest rates and the prices are back in line to where houses are decently priced again."

"If people have a good track record of paying their bills, the loans are there," Shaw said.

Arizona is one of several states slammed by overbuilding and buying by investors looking to sell quickly for a big profit. This "flipping" strategy worked well when prices soared, but when prices tanked, many owners could not sell and just walked away.

SENSE OF URGENCY RETURNS

South Florida is another area overrun with speculators, leading to overbuilding, particularly in the condominium market.

"People who are desperate are selling at any price," said Susan Weitz, an agent with Buy the Beach Realty in the South Beach district of Miami Beach. "Buyers that have been waiting for really, really good buys are in the market now. I am putting in a lot of offers on short sales."

Still, Weitz thinks the market won't stabilize for another two years, "I am talking people out of selling if they don't have to sell. I am convincing them this is not the time to sell," she said.

In Boston, a sense of urgency is also returning to the market, according to John D. Murray, a broker/Realtor with Realty Executives Prestige Properties.

A buyer he represents was the winning bidder at the asker's selling price for a condo in the city's upscale Back Bay neighborhood. At least three competing bids surfaced.

Until recently, the vast majority of would-be sellers have had to slice their asking prices to lure buyers.

Still, "even if you talk to people who refinanced recently, a lot of them are finding that the banks are asking a lot more personal and critical questions. It's more daunting and troublesome" to get a loan, said Murray.

(Additional reporting by Jim Loney in Miami, Marty Graham in San Diego, David Schwartz in Phoenix; Editing by Frank McGurty)

Tracking Housing Prices, Why The Numbers Conflict

2008-02-19T11:22:00.000-08:00

Courtesy of WSJ.com

(See Corrections & Amplifications item below.)

By David Wessel
From The Wall Street Journal Online

Predicting how much worse the U.S. housing market will get is tough. The future is never certain. But when it comes to home prices, getting a clear picture of the recent past turns out to be surprisingly hard as well.

That's confusing to homeowners, who fret about the value of what for many is their single largest asset. There is a huge psychological difference between a slower climb in the value of one's house and an outright decline -- and, as a result, a difference in the political reaction.

Tracking home prices is harder than tracking the price of stocks, which are traded constantly in public view on exchanges. And it's harder than tracking the price of toothpaste. That just involves sampling posted prices on grocery-store shelves and Web sites.

The two best -- though far from perfect -- measures of housing prices are the Office of Federal Housing Enterprise Oversight's index and the gloomier Standard & Poor's Case/Shiller index. Both are based on a concept, developed in the 1980s by Karl Case of Wellesley College and Robert Shiller of Yale University, that looks at repeat sales of the same houses.

Ofheo's index says home prices rose nationally by 1.8% between the third quarters of 2006 and 2007. But the S&P/Case-Shiller national index of home prices was down 4.5% in the same period. The Ofheo index showed a 2.16% increase in house prices in Chicago; the Case-Shiller index showed a decline of 2.48%.

Those discrepancies persist even though both barometers avoid distortions that occur in other widely cited measures -- such as the National Association of Realtors' median home price -- that reflect the mix of homes actually sold in a given month as well as the change in prices. Such measures rise in months when a lot of high-end houses are sold and fall at times when a lot of low-end houses are sold.

The Realtors' measure fell 6% in 2007. The group says the index was pulled down by a drop in the number of high-end home sales, which have been hurt by disruptions in the market for mortgages exceeding $417,000, the maximum mortgage giants Fannie Mae and Freddie Mac are allowed to guarantee.

The big picture here is clear: House prices rose rapidly in the early years of this decade. They have stopped rising in many places. And, in many markets, they are now falling. (Even Ofheo's index showed a quarterly decline at the end of 2007.) And prices don't appear to have touched bottom yet. But Charles Calomiris, a Columbia University economist, says, "Too much weight is being attached to the Case-Shiller index. ... Housing prices may not be falling as much as some economists say they are."

With house prices so central to the economy right now, there is intense public (as well as scholarly) interest in why these two carefully constructed measures differ.

Ofheo gets a steady stream of inquiries from ordinary homeowners trying to figure out what's happening to the price of their houses, and offers an online calculator to make estimates. Ofheo's quarterly numbers -- to be released monthly beginning in March -- go into the Federal Reserve's estimates of household wealth. Case/Shiller is increasingly prominent and is the basis for future contracts that allow investors to bet on the price of houses.

There are a couple of very big differences. The Ofheo index relies on data collected by Fannie Mae and Freddie Mac, which Ofheo regulates, so it excludes loans too big for Fannie and Freddie to guarantee (those exceeding $417,000) or too shaky (the riskiest of the subprime). Case/Shiller includes those, but its data are limited to 20 major markets because it relies on the costly process of going to local property records for data. One of Mr. Calomiris's complaints is that house prices in these markets may be doing worse than those in other places.

A recent dissection of the two indexes in 10 metropolitan areas by Ofheo economist Andrew Leventis, posted on the agency's Web site, sheds some light on other differences. Part of the discrepancy is technical, such as different approaches to adjusting data when there's a long interval between repeat sales of a house.

But puzzles remain. It turns out, for instance, that prices of low- and moderate-priced homes with mortgages that aren't guaranteed by Fannie and Freddie are falling particularly sharply, buoying the Ofheo index -- even though that index includes plenty of other of low- and moderately priced homes in the same neighborhoods.

Of course, by the time the experts get the measures perfected, we'll be onto a bubble in some other asset market.

Email your comments to rjeditor@dowjones.com.

-- February 15, 2008
Corrections & Amplifications:

In addition to its widely followed 20-city survey of home prices, S&P/Case-Shiller publishes a national home price index based on data from more than 100 metropolitan areas.

The 100-Page Start-Up Plan -- Don't Bother

2008-02-19T11:16:00.000-08:00

Courtesy of WSJ.com
By KELLY SPORS

If you've considered starting a business, or actually have done it, you've probably been instructed to write a business plan. Perhaps you even bought a business-planning guide walking you through elaborate details of market analysis, sales projections and operational plans.

But while there's a lucrative industry of software, how-to books and business coaches preaching the merits of lengthy planning -- and selling their business-planning expertise -- a growing body of research suggests that some entrepreneurs spend way too long polishing 50- or 100-page business plans when they should be out in the marketplace selling their product or service.

"It doesn't take a year of planning to figure out whether someone is going to buy your product," says William Bygrave, a Babson College entrepreneurship professor. "All you have to do is start selling it."

Important Questions

Some entrepreneurs get so caught up in polishing their written plan, they lose sight of make-or-break issues, such as whether they have actual people clamoring to buy their product and who will sell it. Sometimes, the product can't be manufactured and sold at a price that will make a profit.

But it shouldn't take a year of long-winded planning to figure that out.

Mr. Bygrave and a few of his colleagues were so curious about the value of written business plans that they analyzed 116 businesses started by Babson alumni who graduated between 1985 and 2003.

Comparing measures such as annual revenue, employee numbers and net income, they found no statistical difference in success between those businesses started with formal written plans and those without.

The study concludes: "Unless you need to raise external start-up capital from institutional sources or business angels, you do not need to write a formal business plan."

Other research has come to similar conclusions. Columbia University professor Amar Bhide analyzed Inc. magazine's 1989 list of the 500 fastest-growing private businesses and found that 41% of them didn't have any business plan, and 26% had rudimentary plans.

He found that many opportunities need to be pursued quickly -- and to take advantage of them you can't wait for the planning process to be completed.

Dumping the Plan

Many business plans get tossed out the window the day after launch, because the plan wasn't grounded in reality.

Traditionally, when a business plan has been essential is when a start-up is pitched to potential investors. But even that's changing. Many venture capitalists and angel investors now say an effective 10-minute slide presentation or executive summary can be more effective than a full-blown written plan.

Investors often base their decision to invest on their trust in the people running the business as much as the idea itself.

"Most venture capitalists base the decision on a five-minute conversation or 10 PowerPoint slides," says Guy Kawasaki, a Silicon Valley venture capitalist and creator of AllTop.com.

Too often, he says, entrepreneurs try to pitch venture capitalists with projected sales forecasts that show a large upward trajectory, when "we know it has no relation to the truth."

Forget About Planning?

So ditch the planning altogether? Not so fast. While the formal written plan itself may not be worth much, the planning process can be very helpful in honing strategy and dodging potential calamities. Just don't spend too long on it.

Mr. Kawasaki says entrepreneurs should spend no more than a few months planning and writing a plan of less than 20 pages. He recommends addressing three key questions: Who's going to make it? How are we going to sell it? How are we going to service it?

"The most important thing they should do is create a prototype" of their product, Mr. Kawasaki says. "Spend your time creating prototypes, not plans."

The value of the planning is it forces you to go through the various scenarios and troubleshoot hypothetical problems or roadblocks. You can address, for instance, what sales channel will be most lucrative and the most opportune sales price -- decisions that have to be made before you hit the market.

Flexibility Is Crucial

But for certain, much of the real planning happens once you start selling and hit realities you may not have anticipated.

And it's important to recognize when there's a flaw in the plan and be willing to change directions or ditch plans altogether when they're clearly not working, says Tom Kinnear, executive director of the entrepreneurial studies institute at the University of Michigan.

A business plan should just be a compass, he says, pointing entrepreneurs in the right direction before starting their business. Too many entrepreneurs get wrapped up in perfecting their written plans, which he says shouldn't take more than a few weeks to write.

"No business plan has ever survived contact with the marketplace," he adds.

Write to Kelly K. Spors at kelly.spors@wsj.com

Homes in Bubble Regions Remain Wildly Overvalued

2008-02-12T17:59:00.000-08:00

R.O.I.
By BRETT ARENDS
February 12, 2008

If you own a home in a former bubble region like California or southern Florida, there's bad news… and really bad news.

And they suggest that it is still way too early to go bargain hunting in these markets, although -- of course -- there is always the occasional deal around.

The bad news is fresh market data published Monday night by real-estate Web site Zillow.com. They show prices, as expected, kept slumping through the end of last year.

A new report from Zillow.com shows home values dropped nationwide by 3%. Chief Financial Officer Spencer Rascoff discusses which cities saw the largest declines.
But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren't cheap. They remain wildly overvalued compared to average personal incomes.

There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line.

How far?

Try around a third in Florida and Arizona -- and closer to 40% in California.

Yes, from here. The long-term chart for California is shown below.

Even if house prices stabilized, it would take a decade or more for rising incomes to catch up.

The data on median house prices and per capita personal income in these states have been tracked by Karl Case, economics professor at Wellesley College. (He is one half of the duo behind the closely-watched Case-Schiller real estate index).

Professor Case's numbers ran through the end of the third quarter. I decided to see how they might look today, using Zillow's data for the fourth quarter.

The company hasn't posted statewide data, but the price falls across the many cities it tracks give a pretty strong picture. From these I assumed, for the sake of calculations, that California prices fell 8% last quarter from the third quarter, a huge number by historic measures but not out of line with Zillow's data. For Florida and Arizona I assumed declines of 5% and 5.5%. You could use other, more modest estimates for the recent declines: They won't change the outcomes much. I also assumed personal incomes in these states rose in line with recent and historic averages."

The results? In all three markets, the prices are well off their peaks when compared to incomes. But they remain far above historic averages.

Median prices in California peaked in 2006 at 13.3 times per capita incomes. Hard to believe, but true. They may be down now to about 11.1 times.

But that's still way above the ground. Throughout most of the 80s and 90s they ranged between six and seven times incomes.

Just to get down to seven times incomes, prices would have to fall 37% tomorrow.

Those who bought at the peak of the cycle may be pinning their hopes instead on "incomes catching up" instead. But they had better be patient. Even if house prices stayed exactly where they are, it would take around 10 years for rising incomes to bring the ratios back into any sort of alignment.

And it would take even longer before prices started to look very cheap again.

That's based on average personal income growth of 4.6% a year in California and Florida and 4.2% in Arizona.

Yes, these are projections and estimates. Time and chance will play their usual roles. And there will doubtless be different pictures within regions of the same state.

Nonetheless the overall picture is pretty clear. And, if you are a homeowner in any of these regions, none too appealing.

Write to Brett Arends at brett.arends@wsj.com

US home loan demand rises to highest since '04-MBA

2008-02-06T08:41:00.000-08:00

Reuter
Wed Feb 6, 2008 11:23am EST

By Julie Haviv

NEW YORK, Feb 6 (Reuters) - U.S. mortgage applications rose last week to the highest level in nearly four years, fueled by demand for home purchase loans as interest rates hovered near recent lows, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Feb. 1 rose 3 percent to 1,086.6, its highest since the week ended March 26, 2004.

The sharp rise in home purchase applications last week may offer a glimmer of hope for the hard-hit U.S. housing market.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said those seeking to purchase a home have had plenty to cheer about in recent weeks as long term interest rates plummeted to near historic lows.

"Right now they have the best of both worlds," he said. "Home prices have become more affordable due to a sizable inventory of unsold homes, and they can finance their purchase at decade-low interest rates."

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.61 percent, up 0.1 percentage point from the previous week and 0.12 percentage point above where it stood two weeks prior when it reached its lowest since late June 2005.

Interest rates were below year-ago levels at 6.23 percent.

Mortgage rates have fallen along with U.S. Treasury yields in recent weeks. The benchmark 10-year U.S. Treasury note yield fell further on Tuesday after data showed the vast U.S service sector contracted sharply last month, sending recession-wary investors into safe-harbor government bonds. Yields move inversely to price.

Many analysts, however, say the MBA's data has been skewed in recent months as prospective borrowers have been filing multiple applications to obtain a single loan due to widespread tightening of lending standards.

The MBA's data also counts all applications, including borrowers who are ultimately denied.

Furthermore, the MBA's data only includes retail lenders, which have most probably witnessed an increase in applications as wholesale lenders pull back from the market, according to Michelle Meyer, an economist at Lehman Brothers in New York.

"The home purchase data is incredibly volatile on a weekly basis and last week's jump does not suggest a turnaround in home sales," she said. "It is quite unreliable and a poor indicator of future home sales because purchase applications have been little changed over the past year and a half while home sales have fallen sharply."

The MBA's seasonally adjusted purchase index jumped 12.0 percent to 405.3. The index came in above its year-earlier level of 404.7, a rise of 0.1 percent.

Overall mortgage applications last week were 72.4 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 10.4 percent to 1,007.4.

REFINANCING BOOM LOSES MOMENTUM

The rise in applications last week was largely due to increased demand for home purchase loans. Demand for home refinancing loans, however, dropped last week after surging the previous three weeks.

The group's seasonally adjusted index of refinancing applications decreased 1.0 percent last week to 5,054.0.

However, the index, which is closely tied to mortgage rates, was up 160.1 percent from its year-ago level of 1,943.4.

Fixed 15-year mortgage rates averaged 5.09 percent, up from 5.04 percent the previous week. Rates on one-year adjustable-rate mortgages decreased to 5.62 percent from 5.70 percent.

The refinance share of applications decreased to 69.2 percent from 73.0 percent the previous week. The ARM share of activity increased to 8.8 percent, up from 8.6 percent the previous week. (Reporting by Julie Haviv; Editing by Tom Hals)

Tips for Buying A Foreclosed Home

2008-02-06T07:19:00.000-08:00

RealEstateJournal.com
By June Fletcher
From The Wall Street Journal Online

Question: I have been considering relocating to Charlotte, N.C., where I can purchase more home for the money. With the recent housing slump and increase in foreclosures, I figure it's an opportune time to purchase an affordable property. My questions: Is this a good time to buy, and if so, where can I find bargains? Also, where can I locate foreclosed properties without having to join an online site that charges a membership fee?

-- Johnna Richard, New York. N.Y.

Johnna: In good markets and bad, real-estate agents are constantly announcing that "now" is the best time to buy. With housing prices weakening, inventories rising and sales slumping, this attitude has drawn a lot of ridicule in the press.

But you know what? Now may actually be a very good time to buy, or at least start looking seriously.

Though no one can really tell when the downward-trending housing market will reach its nadir -- most economists predict it will bottom out sometime in 2008 or 2009 -- there's no doubt that sellers have let go of bubblelicious notions of what their homes are worth. According to S&P/Case-Shiller, existing home prices dropped 4.5% nationally in the third quarter over the year before; price appreciation was even slowing in Charlotte, one of the few cities that the research group covers that showed price appreciation year-over-year. It rose at a tepid rate of 4.7%.

The media makes this out as a tragedy, but it's really not. For buyers, a market that's nearing its bottom is only a concern for flippers, who need a rising market to make money. For buyers making a long-term investment, it's a reason to rejoice.

Yes, loans are hard to find, but they are still being made, especially if you have good credit. While the qualifications for getting a loan are becoming stricter -- but no more strict than they were in the mid-1990s -- mortgage money is still cheap by historical standards and will likely remain so in the near future. The Mortgage Bankers Association projects that 30-year fixed rates will hover around 6% throughout 2008 and the first two quarters of 2009.

Meanwhile, as you have noted, bargains abound, particularly in foreclosure properties. While many Web sites sell foreclosure information (sometimes after letting you sample the Web site for a week-long free trial), you don't have to pay an online membership fee to find them. Title companies, real-estate agents and lenders -- including credit unions -- all have information on homes in various stages of foreclosure.

Homes that are being auctioned are listed in the legal notices section of the main local newspaper and can usually be found on the newspaper's Web site.

But generally, you will get a better deal if you buy a house before it goes to auction, or after -- if it doesn't sell on the courthouse steps. Bidders at an auction sometimes get caught in the heat of the moment and push up prices.

For a simple and up-to-date explanation of the foreclosure process, you may want to read "Finding Foreclosures" by real-estate investor Danielle Babb and mortgage broker Bill Nazur (Entrepreneur Press; 2007). But keep in mind that the book was prepared with RealtyTrac, an online database of foreclosure and pre-foreclosure properties, and promotes that Web site heavily.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005).

Risk of property defaults growing

2008-02-05T17:26:00.001-08:00

The Financial Times
By Daniel Pimlott in New York and Gillian Tett in London

Published: February 5 2008 18:47 | Last updated: February 5 2008 18:47

There is a growing risk of defaults on loans on commercial property this year, in a trend that could spill over into tumbling values and create more jitters in the credit world, analysts and bankers warn.

US property companies that took out big short-term loans to finance acquisitions in the past couple of years at low-interest rates are now struggling to refinance this debt, as banks curb lending and commercial property prices fall.

EDITOR’S CHOICE
Squeeze halts sales in office property - Jan-25Insight: An international approach to commercial real estate - Jan-16Banks gloomy on commercial property debt - Jan-14Punitive barriers ‘threatening progress’ - Jan-11Singapore’s GIC builds stake in British Land - Jan-10Savills defies gloom with upbeat outlook - Jan-09In recent days, Harry Macklowe, the New York developer, has failed to refinance $5.8bn in short-term loans he used to buy seven Manhattan office towers from Equity Office Properties last February. Deutsche Bank, which provided the loan, has taken control of the buildings and will put them up for sale, a person familiar with the matter said.

Analysts warn of a pattern that could spread. US commercial property prices have fallen 10 per cent in some markets since August, after rising more than 90 per cent since 2001, according to Real Capital Analytics.

“For [recent] loans coming to maturity this year . . . it will be very difficult to acquire refinancing,” said Sam Chandan, chief economist at Reis, a property re-search company.

Signs of growing stress also exist in the UK commercial property sector. Tomorrow, UK group British Land is expected to announce a sharp writedown in the value of its commercial property. The Bank of England highlighted its unease in its recent quarterly bulletin, noting that “commercial property prices fell sharply” in recent months, and “returns on commercial property slowed significantly”.

Most analysts think the scale of problems building in the commercial property sector are far smaller than in the subprime loans market. However, if the sector produces tangible losses this year, this will be deeply unwelcome for banks and investors in commercial mortgage-backed securities

One area of concern revolves around property companies that have taken out floating rate loans in the past couple of years.

This year $22bn out of a total $38bn in outstanding floating rate CMBS is coming due, according to Wachovia Capital Markets data, of which $2bn faces the greatest risk of default because it has a final maturity this year with no option to extend.

Worried Sellers Splurge on Home Renovations

2008-02-05T11:50:00.000-08:00

By June Fletcher
From The Wall Street Journal Online

Christina Lee just spent $150,000 to remodel her house -- for a stranger.

Ms. Lee has lived in her 19th century New York City brownstone for nearly three decades and in that time did just one major upgrade -- a $25,000 makeover of a kitchen 13 years ago. Now, the attorney wants to relocate her law practice to Seattle and sell her place -- which she bought in the Hamilton Heights neighborhood of northern Manhattan back in 1979 for $70,000. So for the past few months, the 4,400-square-foot house has been a frenzy of contractors, who have refinished floors and woodwork, overhauled her second kitchen, changed two bedrooms into sunrooms and redone a bath, complete with vessel sink, new shower and recessed lighting.

The modernistic redo doesn't quite match her own taste. But it did mimic the décor in newspaper real-estate sections. Ms. Lee says she hopes it will cement a quick sale when she puts her house on the market at "something north" of $2 million. "If I didn't do this, I wouldn't get my best price," she says.

Add another hassle to the headache of home selling: the last-minute renovation. With the housing market continuing to weaken, many sellers are going beyond the usual cleaning, painting and "staging" with flowers and pillows, by taking on big-ticket projects.

Payback Time

Selected remodeling projects with average estimated percentage of costs recovered when home is sold.

Some experts warn that sellers are unlikely to get their money back from extensive renovations. But owners often feel they have no choice if they want to sell, especially when builders of newly constructed homes are throwing in hardwood floors, finished basements and other free upgrades.

"There's so much competition, you need to stand out," says Brian Goe, a waterproofing-company owner. He spent $28,000 to upgrade a Bedminster, N.J., house that he bought in 1987 for $187,000. Before it hit the market a couple of weeks ago, Mr. Goe had contractors add pickled oak flooring to the dining room and new carpeting. They installed skylights in the living room, new stainless-steel kitchen appliances and separate sinks in the master bath. He had the interior walls painted in faux finishes.

Such are the decisions homeowners make in a market where the news, for sellers, goes from bad to worse. According to the National Association of Realtors, the pace of sales of existing homes fell 22% in December compared with a year earlier. The median price fell 6% to $208,400.

The depressed market is hurting remodeling overall. Homeowner spending is expected to fall at an annual rate of 2.6% through the third quarter this year, according to Harvard University's Joint Center for Housing Studies. The center doesn't break out separate home-improvement spending by owners preparing to sell. But Kermit Baker, director of the center's Remodeling Futures Program, says, "I suspect that there is a fair amount of this happening, given the softness in the housing market."

An online poll of 445 contractors conducted last week for The Wall Street Journal by ServiceMagic, a national contractor-referral service in Golden, Colo., indicates last-minute renovating is propping up a sizable chunk of the remodeling industry. According to the poll, 26% of contractors said they had been contacted in the past year by prospective home sellers looking to do substantial work. Of those contractors, 48% said such work had boosted their business by 20% or more.

Extensive presale remodeling is often fraught with conflicted decisions, because homeowners are making aesthetic choices they hope will please people they don't know. Tracey Born Fitzgerald, a marketing consultant, recently spent weeks visiting 20 open houses, buttonholing real-estate agents and watching makeover shows on TV to figure out what to do to the 1930s Los Angeles house that she and her two sisters inherited from their mother. She discovered that it wasn't important to install top-of-the line appliances. Instead, she put in good-quality, matching appliances and new countertops -- she had them tiled in seafoam green -- and replaced cabinet fronts, carpeting, doors, faucets, fixtures and lighting in a traditional style that didn't clash with the English Tudor home. All these upgrades cost her $55,000.

Ms. Fitzgerald says it was essential to let go of her personal preferences for the house, which she is planning to list "in the upper $3 million range." "I had to think, if I were a buyer, what would I want?" she says.

No matter what the upgrade, homeowners aren't likely to recoup all the money spent when they sell. According to Remodeling magazine's annual Cost Versus Value Survey, the overall return for remodeling projects is on the decline, falling to an average of 70% in 2007 from 86.7% at the market peak in 2005.

For a project using midrange products, the best returns come from putting on a new deck, replacing the siding and sprucing up the kitchen; the lowest returns come from remodeling a home office, adding a sunroom or putting in a backup power generator.

Tricia Sinn, a Ladue, Mo., remodeler who recently oversaw a seller's $24,000 last-minute redo, says rather than splurge on major upgrades, it is often better to remove aging window treatments and other dated features and to selectively replace worn and "icky" items, such as countertops, shower doors and hardware. "A comprehensive, clean look is better than one newly renovated area," she says. The house she worked on sold at the first open house for $645,000 -- $4,900 less than the asking price.

Some sellers aren't worried about recouping what they've spent. Carl Frederick, a landscape-lighting company executive, spent $23,000 preparing to sell his four-bedroom Boston Heights, Ohio, home. It was only nine years old, but Mr. Frederick replaced laminated countertops with granite, installed new sinks with brushed-nickel faucets, replaced light fixtures -- and put the house on the market in April for $879,000.

Several contracts fell through before it finally sold for $775,000. Mr. Frederick paid $700,000 for the house five years ago -- leaving him with little profit after the agent's fees and closing costs. But he has no regrets. "At the end of the day, I sold the house," he says.

You May Not Want to Wait to Refinance That Mortgage

2008-02-03T11:42:00.000-08:00

TheStreet.com Market Features
02/03/08 - 12:17 PM EST
Terry Savage

With all the headlines about Federal Reserve rate cuts, it's easy to jump to the wrong conclusion: that you can afford to wait to refinance your home. But that's a dangerous position to take. It's one thing to speculate with interest-rate futures.

It's quite another to gamble with the roof over your head.

Last week, mortgage rates ticked slightly higher across the board, from fixed-rate 30-year loans to adjustable-rate mortgages. The bond market, and the mortgage market, may be looking across the temporary decline in rates to the inflation that is likely to follow this current round of Fed easing.

Dangers of Playing the Refi Game

There are two important reasons not to "game" the mortgage rate if you know you need to refinance, or are one of the very few still buying a new home.

First: The Fed does not "control" long term rates! The Fed can pump liquidity into the system, and can set short-term rates. But it can't control the longer-term bond market, where trillions of dollars of debt are freely traded each day. In that bond market, the very sophisticated participants are considering the impact of all that liquidity -- and its potential to create inflation down the road.

Typically, the 30-year fixed-rate mortgage tracks the yield of the 10-year Treasury note (because very few mortgages are actually held for 30 years). It is not the same rate as 10-year treasuries, of course, because individual mortgages have a higher degree of risk -- as we've all seen lately!

Inflation Fears Push Rates Up, Bond Prices Down

If bond buyers are worried about inflation, they're going to demand higher rates to compensate. In reality, if they sniff inflation coming, they start to sell the bonds they own, pushing prices down and yields up.

Remember, in bonds, the yield moves inversely to the price. A bond may have a fixed rate promise to pay off the principal in ten years, and a promise to pay a certain interest rate every year until then. But though the face value of the bond may be $1,000 -- which you'll get back at maturity -- the trading price of the bond may be much lower.

When you purchase a bond at a lower price than face value, your "yield to maturity" is higher than the interest rate on the face of the bond. That's how existing bonds trade to compensate for fears of future inflation. So even "old" 10-year Treasurys may be trading to give a higher yield as sellers push bond prices down.

Here's the simple rule to keep in mind: When interest rates rise, bond prices fall.

That's something beyond the Fed's power to control over the long run. The market is bigger than the Fed when it comes to long-term interest rates.

Which brings us back to your mortgage.

What Could Happen to Mortgage Rates

Mortgage rates might fall a bit farther if there is a deep recession, lowering the business demand for money. Or, there could be an economic recovery because of all this liquidity, with renewed growth causing rates to rise.

But the worst case is that the liquidity the Fed is pushing into the economy now doesn't create growth, but does create fears of future inflation. That creates the possibility of stagflation -- higher rates, but still a slow economy.

That's the first and main reason why you want to refinance as soon as possible into a fixed rate loan. Don't try to beat out the bond traders, because the upside risk on rates definitely exists, and could be devastating if you still have an adjustable-rate mortgage.

The Other Risk: Home Prices Fall Farther

I mentioned that there are two reasons to lock in rates now. The second reason is that if we do have a continued economic slowdown, the appraised value of your home could fall still farther. In fact, if you don't have enough equity in your home, you simply can't refinance -- as millions of homeowners have already learned. They're stuck in adjustable rate loans, worrying about the possibility of higher monthly payments.

Take advantage of this possibly temporary dip in mortgage rates to start the refi process now. And as you start the process, get a written rate guarantee from your lender.

If rates drop again, and your house retains its value, you can always refi another time. But if rates rise, you may not get this chance again. And that's The Savage Truth!

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book, The Savage Number: How Much Money Do You Need? in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald's and Pennzoil.

Home Prices Decline at Record Rates

2008-01-29T10:03:00.000-08:00

Courtesy of WSJOnline.com
By KATHY SHWIFF and KEVIN KINGSBURY
January 29, 2008 12:37 p.m.

A closely watched gauge of U.S. home prices shows they are falling sharply at record rates as a deepening slump in the housing market threatens to damp consumer spending.

Home prices in 10 major metropolitan areas in November were down 8.4% from a year earlier, according to the S&P/Case-Shiller home-price indexes, released Tuesday by credit-rating firm Standard & Poor's. In October, they fell 6.7%, exceeding the previous record year-to-year decline of 6.3% in April 1991, when the economy was emerging from a recession.

November was the 11th consecutive month of negative annual returns and the 24th straight month of decelerating returns.

Robert Shiller, chief economist at MacroMarkets LLC and co-developer of the index, said, "We reached another grim milestone" in November, as 13 of the 20 metro areas in the 20-city index, all of which have data dating to 1991, hit record price drops as well.

The indexes include some places most affected by the fast-growing home-price bubble during the past few years. Miami home prices were down 15% in November from a year earlier, while prices fell 13% in San Diego, Las Vegas and Detroit.

The expanded 20-city index, which dates back to 2001, fell 7.7% from a year earlier and 2.1% from October. Portland and Seattle are the only two metro areas with year-over-year increases - 1.3% and 1.8%, respectively.

The Case-Shiller Index is now one of the most closely watched measures of home prices. But some economists argue that it paints an overly bleak picture.

Columbia University economist Charles Calomiris has noted that the Case-Shiller Index does not cover the entire U.S. market, "and the omitted parts of the U.S. market seem to be doing better than the included parts."

Mr. Calomiris said an alternative measure -- compiled by the federal Office of Federal Housing Enterprise Oversight -- doesn't show as deep a decline and that may be representative of all markets in the U.S. The Ofheo index, however, only tracks houses with mortgages under $417,000, the ceiling on loans that can be purchased or guaranteed by government-sponsored mortgage giants Fannie Mae or Freddie Mac.

Ofheo said at the end of November that, for the first time in nearly 13 years, U.S. home prices fell. A seasonally adjusted index that tracks value of homes purchased and refinanced was 0.4% lower in the third quarter than in the previous quarter, though it was 1.8% above year-ago levels.

Rising home prices plus refinancing options and home-equity loans previously allowed homeowners to squeeze money out of their homes to finance their spending - an important trend because consumer spending fuels about 70% of economic growth. Economists now worry that falling home prices will prompt consumers to pull back on spending enough to slow growth or even tip the economy into recession.

Nevertheless, people who bought their homes several years ago typically are sitting on sizable gains in most of the country. Home sales began to slow in mid-2005. Prices leveled off then started declining in 2006. During the past year, mortgage defaults have soared, leading to rapid growth in foreclosures.

Write to Kathy Shwiff at kathy.shwiff@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com

Home Resales Probably Fell in December: U.S. Economy Preview

2008-01-20T14:01:00.000-08:00

By Courtney Schlisserman

Jan. 20 (Bloomberg) -- Sales of existing homes in the U.S. probably fell in December, capping the biggest yearly slump in almost a generation, economists said before a report this week.

Purchases fell 1 percent last month to a 4.95 million rate, the fewest since comparable records began in 1999, according to the median forecast in a Bloomberg News survey ahead of the National Association of Realtors' report due Jan. 24.

Falling property values and tougher borrowing rules will lead to more foreclosures and keep the real-estate market in recession for most of this year, economists said. A housing- related slump in consumer spending poses the biggest risk to the economic expansion in coming months.

``We're still on the way down in housing,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The first half of the year is going to be crucial to determining whether we have a recession.''

Sales of existing homes probably dropped 13 percent last year, the most since 1989, according to a forecast by the real- estate agents group.

The same day as the sales report, the Labor Department is scheduled to release its weekly figures on first-time jobless claims. Filings for unemployment benefits probably increased to 320,000 from 301,000 the prior week, according to the survey median.

An unexpected decline in the number of claims in recent weeks caused many economists to question whether the government has accurately monitored the situation. It's often difficult for the Labor Department to adjust the data during holidays, adding to volatility in the readings, economist said.

Claims May Rise

Economists are expecting to see a pickup in claims to confirm the labor market has weakened. The jobless rate jumped up to 5 percent in December.

``We've been a little puzzled by the continued strength of the overall labor market, particularly claims,'' Peter Hooper, chairman of the American Bankers Association's Economic Advisory Committee, said at a press conference on Jan. 18. ``Our sense is the labor market is likely softening.''

Hooper is chief economist at Deutsche Bank Securities Inc.

The deepening housing slump is one of the reasons the job market has deteriorated. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, said last week it will eliminate 1,300 jobs in the firm's fourth round of cuts resulting from the collapse of the mortgage market.

Lehman, the fourth-largest U.S. securities firm, cut 2,450 jobs last year by shutting its subprime-mortgage unit.

Construction Drops

Builders broke ground in December on fewer houses than forecast, making last year's decline in homebuilding the worst in almost three decades, a report from the Commerce Department last week showed. For all of 2007, starts were down 25 percent, the biggest decline since 1980.

Spending on residential construction projects will drop 21 percent this year after declining 17 percent in 2007, according to a forecast by Lehman economists.

Federal Reserve Chairman Ben S. Bernanke said earlier this month that the central bank would take ``substantive'' action in response to the increasing risk of slower growth. Central bankers will cut interest rates by at least half a percentage point when they meet this month, according to futures trading.

President George W. Bush last week proposed a growth package of as much as $150 billion to counter escalating risks to the economic expansion.

``The biggest issue we have in our economy is housing,'' Treasury Secretary Henry Paulson told reporters on Jan. 18. The stimulus proposals will help the economy ``better withstand and weather effects that are coming about largely as a result of this decline in home prices and the housing slump.''

Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Initial Claims ,000's 1/24 Jan. 20 301 320
Cont. Claims ,000's 1/24 Jan. 13 2751 2728
Exist Homes Mlns 1/24 Dec. 5.00 4.95
Exist Homes MOM% 1/24 Dec. 0.4% -1.0%
================================================================
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: January 20, 2008 08:52 EST

Subprime Nation

2008-01-15T11:56:00.000-08:00

By Patrick J. Buchanan

Since it began to give credit ratings to nations in 1917, Moody's has rated the United States triple-A. U.S. Treasury bonds have been seen as the most secure investment on earth. When crises erupt, nervous money seeks out the world's great safe harbor, the United States. That reputation is now in peril.

Last week, Moody's warned that if the United States fails to rein in the soaring cost of Social Security, Medicare and Medicaid, the nation's credit rating will be down-graded within a decade.

Our political parties seem oblivious. Republicans, save Ron Paul, are all promising to expand the U.S. military and maintain all of our worldwide commitments to defend and subsidize scores of nations.

Democrats, with entitlement costs drowning the federal budget in red ink, are proposing a new entitlement – universal health coverage for the near 50 million who do not have it – another magnet for illegal aliens. Moody's is telling America it needs a time of austerity, while the U.S. government is behaving like the governments we used to bail out.

California has already hit the wall. With an economy as large as a G-8 nation, the Golden State is looking at a $14 billion deficit in 2009 and a $3 billion shortfall in 2008. Gov. Schwarzenegger has called for slashing prison staff by 6,000, including 2,000 guards, early release of 22,000 inmates, closing four dozen state parks and a 10 percent across-the-board cut in all state agencies. The Democratic legislature is demanding tax hikes, which would drive more taxpayers back over the mountains whence their fathers came.

Meanwhile, Washington drifts mindlessly toward the maelstrom. With the dollar sinking, oil surging to $100 a barrel, the Dow having its worst January in memory, foreclosures mounting, credit card debt going rotten, and consumers and businesses unable or unwilling to borrow, we appear headed into recession.

If so, tax revenue will fall and spending on unemployment will surge. The price of the stimulus packages both parties are preparing will further add to the deficit and further imperil the U.S. credit rating. This all comes in the year that the first of the baby boomers, born in 1946, reach early retirement and eligibility for Social Security.

To stave off recession, the Fed appears anxious to slash interest rates another half-point, if not more. That will further weaken the dollar and raise the costs of the imports to which we have become addicted. While all this is bad news for the Republicans, it is worse news for the republic. As we save nothing, we must borrow both to pay for the imported oil and foreign manufactures upon which we have become dependent.

We are thus in the position of having to borrow from Europe to defend Europe, of having to borrow from China and Japan to defend Chinese and Japanese access to Gulf oil, and of having to borrow from Arab emirs, sultans and monarchs to make Iraq safe for democracy.

We borrow from the nations we defend so that we may continue to defend them. To question this is an unpardonable heresy called "isolationism."

And the chickens of globalism are coming home to roost.

We let Europe to get away with imposing value-added taxes averaging 15 percent on our exports to them, while they rebate that value-added tax on their exports to us. Thus, the euro has almost doubled in value against the dollar in the Bush years, as NATO Europe begins to bail out on Iraq and Afghanistan.

We sat still as Japan protected her markets and dumped high quality goods into ours and China undervalued its currency to suck jobs, technology and factories out of the United States. Now, China and Japan have $2 trillion in cash reserves. The Arabs have an equal amount of petrodollars. Both are headed here to spend their depreciating dollars snapping up U.S. assets – banks, ports, highways, defense contractors.

America, to pay her bills, has begun to sell herself to the world.

Its balance sheet gutted by the subprime mortgage crisis, Citicorp got a $7.5 billion injection from Abu Dhabi and is now fishing for $1 billion from Kuwait and $9 billion from China. Beijing has put $5 billion into Morgan Stanley and bought heavily into Barclays Bank.

Merrill-Lynch, ravaged by subprime mortgage losses, sold part of itself to Singapore for $7.5 billion and is seeking another $3 billion to $4 billion from the Arabs. Swiss-based UBS, taking a near $15 billion write-down in subprime mortgages, has gotten an infusion of $10 billion from Singapore.

Bain Capital is partnering with China's Huawei Technologies in a buyout of 3Com, the U.S. company that provides the technology that protects Pentagon computers from Chinese hackers.

This self-indulgent generation has borrowed itself into unpayable debt. Now the folks from whom we borrowed to buy all that oil and all those cars, electronics and clothes are coming to buy the country we inherited. We are prodigal sons, and the day of reckoning approaches.

Mortgage-Meltdown Upside: Lower Rates

2008-01-10T18:44:00.000-08:00

By BRETT ARENDS
Brett Arends writes R.O.I., or Return On Investment, daily for the Online Journal, dissecting where personal finance meets current affairs, and how the latest news can make you money."

A lot of the time, that comes from going against the herd.

Brett has spent his life rifling through department store bargain bins in London, Boston and New York, and that's pretty much the same way he views markets. A good stock-market panic yields the cheapest deals. And there's only one thing better: a scandal. That's when you get a firesale. R.O.I. will be looking for bargains anywhere, and for opportunities on the spending side as well.

It isn't really true that $1,000 saved is just $1,000 earned. If you're in the top income-tax bracket, it's $1,500 earned. And salted away for 30 years in a tax-deferred account, $1,000 saved is nearly $9,000 towards your retirement. That's some return.

Mortgage-Meltdown Upside: Lower Rates
January 10, 2008 7:23 p.m.

The doom and misery enveloping Wall Street brings with it a cheerier by-product: Cheaper mortgages.

The rate on standard 30-year, fixed-rate loans has "fallen about half a percentage point in the last two weeks owing to the dour economic outlook," says Greg McBride, senior analyst at Bankrate.com.

If you are borrowing less than $417,000, the limit backed by Federal housing agencies, and you are making a down payment of 20% or more, you can get a 30-year loan mortgage for well under 6%.

Bankrate.com, which surveys lenders, says the average rate is now 5.88%. As our chart shows, that's well below levels of nearly 7% seen as recently as last summer.

And you can find better if you shop around. Some loans are as low as around 5.5%, including fees.

Of course, everybody's mortgage decision is going to involve a lot of independent variables, including the size of the loan and the down payment, and whether to get a fixed or variable rate. Interest rates are higher on "jumbo" loans of more than $417,000, and where the down payment is less than 20% of the home's value. There's no such thing as one-size-fits-all advice.

The reason mortgage rates have fallen so far isn't hard to find: Deepening fears over the economy.

Nervous investors have shifted their money from riskier assets into U.S. government bonds, bidding up the price of the bonds and thereby lowering the yield. And that brings down the cost of long-term capital for other loans, including mortgages.

Ten-year Treasurys now pay a measly 3.79%, compared to 5.3% earlier last year. The yield on the 30-year has fallen from 5.4% to 4.32%.

Given these declines in Treasury yields, mortgage rates should probably be even lower. But the lending industry's obvious crisis has gummed up the works.

Are mortgages rates going to fall further? Should you wait to refinance?

Maybe. But rates right now are very cheap by historic standards. The law of mean reversion would suggest they are more likely to rise from this point than to fall further.

Anything from a boost in economic sentiment to fears about inflation would be likely to raise long-term interest rates.

You can usually have it both ways -- sort of. You can generally pay a fee to lock in a good interest rate for a period. If rates fall still further, you surrender the fee, but you can then take advantage of the lower rate.

Overall, cutting your cost of capital is probably the easiest way to boost your net worth. On a $400,000 loan, cutting your interest rate from 6.8% to 5.5% will save you about $4,000 a year before tax -- or about $120,000 over 30 years.

Of course, to make sure switching mortgages is worthwhile you need to factor in fees, points and other costs as well as the interest rate.

Write to Brett Arends at brett.arends@wsj.com

Lennar's New Homes Fetch 60% Less as U.S. Market Slump Deepens

2008-01-10T14:27:00.000-08:00

By Bob Ivry

Jan. 10 (Bloomberg) -- Lennar Corp.'s November sale of 11,000 properties in eight states set a price that may mark the bottom for the U.S. housing market: 40 cents on the dollar.

That's how much Morgan Stanley Real Estate paid for an 80 percent stake in the 32 communities, 60 percent less than the price at which the properties were valued just two months earlier. That's also what some investors say they would pay for distressed land, condominiums, homes and whole developments, whether it's now or later this year.

``If you're an opportunistic buyer with enough cash and credit, it will be one of the best opportunities for acquiring property in our lifetime,'' said Jack McCabe, whose McCabe Research & Consulting LLC in Deerfield Beach, Florida, advises hedge funds and other investors on real estate sales.

As the U.S. housing slump drags into its third year, sellers will start cutting prices as much as it takes to find buyers, said Marcel Arsenault, a self-described ``vulture investor.'' Properties will be available to buyers with the financial strength to ride out the slide. Now that a price has been set, all that's left is the waiting.

Arsenault, based in Broomfield, Colorado, bought real estate during the savings-and-loan collapse of the early 1990s. He said he has put together a $200 million fund he expects to expand to $800 million this year to buy distressed condos.

`Eroding by the Minute'

``We're watching Denver, Phoenix, Austin and Tucson, but South Florida is our principal focus,'' said Arsenault, 60. ``If you're a vulture, Florida has more carrion. This stuff is lying on the ground. It's lost life. Some of the stuff in Phoenix is still breathing. Perhaps not for long.''

Arsenault said he and his three partners may buy a block of about 50 new, unsold condominiums in Orlando, Florida. They have a price in mind and they're willing to wait until they get it: 40 cents on the dollar.

``There's a risk to buying too early in the downturn, but buying too expensive is our biggest pitfall,'' he said.

Companies such as Miami-based Lennar, the biggest U.S. homebuilder by revenue, need to generate cash to make up for slowing home sales, especially this time of year, said Vicki Bryan, a Friendswood, Texas-based senior high-yield debt analyst for Gimme Credit LLC.

``They sold land at 40 cents on the dollar and they're happy to get it,'' Bryan said. ``The value of land is eroding by the minute.''

$10,000 an Acre

New-home sales fell to a 12-year low in November as rising foreclosures, increased credit restrictions and a swelling inventory of unsold houses have persuaded potential buyers to wait.

More than half of all U.S. home sales occur in April, May and June, according to Frank Nothaft, chief economist at McLean, Virginia-based Freddie Mac, the No. 2 U.S. mortgage buyer.

About 150 so-called real estate opportunity funds have been formed to buy distressed properties and other assets, a 21 percent increase over the number this time last year and an all- time high, according to Real Estate Alert, a trade publication based in Hoboken, New Jersey.

Fort Worth, Texas-based D.R. Horton Inc., the biggest U.S. homebuilder by market value, sold 20,000 lots on 6,884 acres outside Phoenix to Wolff Co., a closely held real estate investment and development company based in Scottsdale, Arizona, and Langley Properties of Gilbert, Arizona, in November.

The price, $70 million, or about $10,000 an acre, was lower than the sale price for the same land that Horton had in escrow six months ago, said Wolff Co-President Tim Wolff.

Land Inventory

``We are going to wait for as long as it takes the market to recover and figure it out from there,'' Wolff said.

The sale reduced the amount of time D.R. Horton calculates it would take to sell off all its land by about six months, to five years, Chief Executive Officer Donald Tomnitz said in a November conference call with analysts.

``We're going to be looking to sell land opportunistically,'' Stacey Dwyer, the company's executive vice president and treasurer, said in the call.

Standard Pacific Corp., the worst-performing of the 15 companies in the Standard & Poor's Supercomposite Index of Homebuilders last year, sold more than 2,500 home lots, some ready for building and some raw, in the San Antonio area earlier this week.

``Standard Pacific is reviewing a number of ways to adjust our business to changing market conditions,'' the company said in an e-mailed statement. ``As a part of our plan, we sold most of our excess land in San Antonio and will continue to explore ways to optimize our business, while continuing to provide our customers with high quality homes at an excellent value.''

`Aggressive Right Now'

The buyers were Cleveland-based Forest City Enterprises Inc. and closely held Covington Capital Corp. The price wasn't disclosed.

``We're very aggressive right now because the homebuilders are in survival mode,'' said Ken Sheer, chief executive officer of Santa Monica, California-based Covington. ``Like any other business group that has some softness, everybody is scrambling to survive. The guys left standing are the guys who are going to be kings of the hill.''

Lawrence Gottesdiener, chairman of Northland Investment Corp. in Newton, Massachusetts, pounced last week when New York- based Tarragon Corp. offered five apartment complexes in Florida and another in South Carolina for $156 million.

``I could say I bought for 50 cents on the dollar of last year's price, because I did, but I think that's a little bit of hyperbole because last year's price was last year,'' Gottesdiener said.

`Portfolio Optimization'

Orleans Homebuilders Inc. of Bensalem, Pennsylvania, sold 1,400 lots to nine different buyers in December for $32 million. The book value of the properties was $86 million, the company said in a statement. Orleans also anticipates receiving about $20 million to $25 million in federal income tax refunds as a result of the sales, the statement said.

Most of the lots, which represented about 18 percent of the land the company owned, were in weaker performing communities in Florida, Illinois and Arizona, said Garry Herdler, the company's executive vice president and chief financial officer. Orleans is keeping properties in the Northeast and the Carolinas, areas where prices have held up well on a relative basis, he said.

``We call this strategy portfolio optimization,'' Herdler said in an interview. ``These sales provided cash to repay bank debt, reduced operational costs and allowed us anticipated significant federal tax refunds.''

John Levy, a real estate investment banker in Richmond, Virginia, said he's passed up opportunities in the past to join forces with homebuilding companies. Now he said he's planning a joint venture with a national builder to buy communities abandoned by bankrupt developers in the middle of construction.

``That's where you can buy at the biggest discount,'' Levy said.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .

Last Updated: January 10, 2008 00:24 EST

U.S. Economy: Pending Sales of Existing Homes Fell in November

2008-01-08T09:47:00.000-08:00

By Joe Richter

Jan. 8 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell more than forecast in November, signaling further deterioration in housing.

The National Association of Realtors' index of pending home sales decreased 2.6 percent to 87.6, following a 3.7 percent gain in October that was larger than previously estimated, the group said today in Washington.

The figures underscore Treasury Secretary Henry Paulson's forecast that the housing recession will continue, posing the biggest risk to economic expansion. Economists said more stringent lending practices following the collapse in subprime mortgages and prospects that home prices will keep falling are deterring buyers.

``There is no evidence it is bottoming,'' Paulson said today about the housing market. He added that a plan designed to stem a wave of foreclosures may need to be expanded beyond subprime homeowners.

Economists predicted the index of signed contracts for existing homes would fall 0.7 percent following a previously reported 0.6 percent October increase, according to the median of 33 projections in a Bloomberg News survey. Estimates ranged from a drop of 3 percent to a 0.3 percent increase.

Compared with a year earlier, the index was down 19 percent.

`Further to Fall'

``We'll probably see more weakness in existing home sales given that inventories are so high,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``Prices may keep dropping for a while.''

The housing slump is likely to last well into 2008, hurting economic growth and prompting Federal Reserve policy makers to lower interest rates, analysts said.

Stocks extended gains following the report and later dropped, led by a slump in financial shares. Treasury securities were little changed. The benchmark 10-year note yielded 3.85 percent at 11:54 a.m. in New York, compared with 3.83 percent late yesterday.

Today's figures showed pending resales fell in three of four regions. Purchases decreased 13 percent in the Northeast, 4.1 percent in the Midwest and 2.1 percent in the West. Sales rose 2.3 percent in the South.

KB Home Loss

KB Home, the fifth-largest U.S. homebuilder, today reported a fourth-quarter loss as tumbling demand for new homes forced the company to write down land values. Los Angeles-based KB Home operates in 13 states, including California, Florida, Nevada and Arizona.

The bigger gain in October than previously estimated suggested the market may be stabilizing, according to Lawrence Yun, the NAR's chief economist.

``Although there could be some minor slippage in the first quarter, existing home sales should hold in a narrow range before trending up,'' Yun said in a statement. ``The exact timing and the strength of a home-sales recovery is a bit uncertain.''

Paulson, speaking on CNBC television during a visit to New York, said evidence shows the housing decline ``has further to run.''

The Treasury chief indicated the outlook may prompt an expansion of the plan Bush administration officials brokered with mortgage lenders last month. The initiative was designed to make it easier to negotiate affordable loans and freeze some adjustable-rate mortgages at current rates.

``One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers,'' Paulson said.

Unsold Homes

There was a 10.3 months' supply of previously owned homes on the market in November at the current sales pace, compared with an average 6.5 months in 2006 and 4.5 months a year earlier.

That excess is one reason property values are dropping. Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, based on the S&P/Case-Shiller home- price index. The decrease, reported last month, was the biggest since the group started keeping year-over-year records in 2001.

The Realtors association estimates 5.7 million homes will be sold in 2008, little changed from an estimated 5.65 million last year. Purchases of new homes will fall to 669,000 from 773,000.

While traders anticipate the Fed will lower its benchmark rate by at least a quarter point this month, Philadelphia Fed Bank President Charles Plosser said he hasn't made up his mind yet.

Fed's Plosser

``A substantially weaker outlook than expected, particularly if that weakness is projected to be more prolonged than anticipated, may require further adjustments to policy,'' Plosser said in a speech in Gladwyne, Pennsylvania.

Boston Fed chief Eric Rosengren, who last month dissented from the majority in voting for a larger rate cut, said in a speech today that ``The continued decline in residential investment has heightened the risk of a more significant downturn in the overall economy.''

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The group's existing-home purchases report tracks closings, which typically occur a month or two later.

To contact the reporter on this story: Joe Richter in Washington at Jrichter1@bloomberg.net

Last Updated: January 8, 2008 11:58 EST

Owning vs. Renting: Still Not Close

2008-01-04T15:07:00.001-08:00

By Greg Ip
From The Wall Street Journal Online

U.S. house prices "likely would have to fall considerably" to return to a normal relationship with rents, says a study by one former and two current Federal Reserve economists.

The study, which doesn't necessarily reflect the views of Fed policy makers, suggests prices would have to fall 15% over five years, assuming rents rose 4% a year. House prices would have to fall further if the adjustment took place more quickly.

The study tracks rents and home prices back to 1960 and found annual rents fluctuated at around 5% to 5.25% of home prices until 1995. At the end of that year, the average monthly rent was about $553 (or about $6,600 a year) and the average home price was about $134,000.

Related Links

Econ Blog: Houses, Rents and Bubbles

Manhattan Prices Still Surging -- but Will It Last?

But starting in 1996, home prices started to grow much more rapidly than rents. By the end of 2006, they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818. That drove the annual rent/price ratio down to 3.48%.

That means the rent/price ratio is about a third below its long-term average. To return to normal would require some combination of falling prices and rising rents. The paper suggests house prices would need to fall about 3% a year, if rents grew in line with their 4% average annual growth this decade.

Of course, the link between house prices and rents can remain out of whack for years.

The U.S. study is by Morris Davis, an economist at the University of Wisconsin-Madison and until 2006 a staff economist at the Fed; and Andreas Lehnert and Robert F. Martin, staff economists at the Fed.

The authors' methodology was based in part on previously published work by Fed economist Joshua Gallin. The same approach is used by many other analysts, including the Congressional Budget Office, which arrived at similar conclusions.

In an interview, Mr. Davis said lower long-term interest rates can explain only a small part of the drop in the ratio. "To justify current price levels, you need rapid growth in rents." But it's hard to imagine the scenario that would justify such rapid growth in rents, he added. Indeed, it's possible rents will grow more slowly than 4%, reflecting the overhang of unsold homes that might be rented out.

Mr. Davis said the authors postulated a five-year horizon for the rent/price ratio to return to normal by looking at previous downturns. "When a downturn begins, it will last for a while."

Email your comments to rjeditor@dowjones.com.

Happy 2008! Buckle-up, this is going to be one scary ride down.....

2008-01-01T10:40:00.000-08:00

I read this article over at the Wall Street Journal Online and made a few comments, along with many others who commented as well. Everyone is trying to figure out how and when housing is going to land. I am concerned by those same issues, but I consider housing to be but one of the major economic issues we need to think about. Housing is the fuse, the question in my mind is when will the bomb blow-up and what other components of the economy will be destroyed along with the housing bubble?

http://blogs.wsj.com/economics/2007/12/31/will-home-prices-hit-bottom-by-june/

My post from the WSJ Online:

"Some macro-trends that very few seem to be considering as it relates housing demand and valuations:

1. Retiring baby-boomers and their changing requirements for housing. In my opinion, likely to only further aggravate and put downward pressure on single family residences.

2. Recession? Stagflation? One or both are underway. A lot of consumer spending activity will dry up from the combination of evaporating equity in real estate in conjunction with higher costs for everything from gasoline to simple commodities and food products. Also need to factor in the prospect of severly declining employment levels as corporate earnings fall short and companies start adjusting workforce levels in an effort to prop up earnings and better align capacity with falling demand. I’m sorry, but I don’t believe that increasing exports will materially offset declining domestic demand.

For what its worth, my personal projection (primarily based on midwest perspective) is that a bottom won’t be seen until deep into 2009 at best, and that assumes no recession/stagflation/inflation impacts. If any or a combination of those occur, we could easily be looking at a scenario where real estate markets don’t begin to significantly recover until well after 2010."

I may be somewhat more of a pessimist on this than many others, but I do believe the mainstream Wall Street media has a lot invested in fooling the innocents into thinking that things are not as bad as they really are. I am simply trying to read between the lines to obtain a more balanced perspective of just how much potential trouble we are facing. I personally do not expect politicans and Wall Street professionals to be sincere and honest in their perspectives.

Let me know your thoughts.

Vito Boscaino

Recession or not, Middle America will continue to feel the pinch in 2008

2007-12-31T09:02:00.001-08:00

From The Times
December 31, 2007

Recession or not, Middle America will continue to feel the pinch in 2008
The decline in the housing market that led to the squeeze on lending is widely expected to carry over into the new year – and it is not the only pressure on the US economy

A small 1950s bungalow in Stockton, California, is up for sale for $169,950. Sitting off a quiet road dotted with American flags, the Funston Avenue home has two bedrooms, one bathroom and a covered porch.

It was built as part of President Truman’s Fair Deal, a federal promise to guarantee economic opportunity and housing for America’s servicemen returning from the war.

Sixty years on, however, the American Dream has turned into a nightmare. The bungalow’s value has fallen by $110,000 in two years and the family who live in it have fallen so far behind with their rising mortgage repayments that they have been foreclosed by the bank.

This family’s story is a common one in the neighbourhood, which houses the bank workers and civil servants who zoom up Highway 205 to commute for two hours each day to and from the pricier city of San Francisco.

According to David Sousa, the real estate broker who is selling the house, the number of properties up for sale in the area has risen from around 1,800 two years ago to about 8,000 now. Most of those properties are in the process of being repossessed by mortgage lenders. Moreover, there is no sign that the residents of Stockton are past the worst. Their lot seems a far cry from the town’s sunny motto: “Stockton’s Great, Take a Look!”

Stockton is one of America’s foreclosure capitals – according to RealtyTrac, in November one in 99 households had entered the foreclosure process, six times the national average. “One of the biggest challenges we face is that the number of foreclosures have left the market saturated with unsold property,” Mr Sousa said. He estimated that prices were falling at “between half and 1 per cent a month” and said that that local mortgage lenders had been so overwhelmed by the number of repossessed homes on their books that they are trying to sell, that real estate brokers – estate agents to you and me – cannot get a decision from them for at least 30 days over whether they will accept an offer price.

So how bad can America’s housing market get? Robert Shiller, of Yale University, one of the world’s leading economists, thinks that the property market could continue to deteriorate “for years”, with the estimated $1 trillion-worth of losses in the market, ballooning to “three times” more. Professor Shiller, who famously predicted the top of the dot-com boom, told The Times at the weekend that the likelihood of Americans having to endure a Japan-style recession with property values declining for years is a “realistic scenario”.

“At the same time as this slowdown, the stock market is highly priced and we have high oil prices. There are a lot of negatives. We are facing a substantial possibility of a big recession,” he said.

This month, the S&P Case/Shiller house price index showed that property values had fallen in October at their fastest rate for six years, with all 20 of the cities monitored showing a decline. In some states, such as Florida, California and Arizona, property prices have fallen by 40 per cent in the past two years.

A world away from the Ivy League office of Professor Shiller, Max Spann, a property auctioneer in New Jersey, told the same story. The bulk of assets that went under Mr Spann’s hammer three years ago used to be agricultural land or government buildings in New York State, New Jersey and Pennsylvania. Now, most of his business is from builders trying to get rid of unsold new homes and banks desperate to remove repossessed homes from their books.

“The situation has really got worse,” Mr Spann said. “We are getting calls from the banks. The last thing lenders want to do is take back real estate. All the time that property is on its books, it is accumulating tax demands and is potentially a declining asset. They are using auctions to get out of that position.” Mr Spann’s business has doubled each year in revenues for the past three years, and he is expecting sales to triple in 2008.

“I think the real estate market will continue to slide at this rate in 2008 and 2009. And that’s all provided that there isn’t a recession. If that happens, all bets are off,” he said.

Yet the housing slowdown is not the only risk to America’s economy. One of the biggest threats is neatly expressed in marketing material welcoming visitors to Stockton, “California’s Sunrise Seaport – twinned with Foshan, Guangdong”. The closeness between the American town and one of China’s fastest-growing cities underlines America’s growing dependence on an economy that is expected to apply the brakes in 2008.

Carl Weinberg, chief economist at High Frequency Economics, believes that China poses one of the greatest threats to the health of the US economy and could force America to slow next year. “The American and Chinese economies are now inextricably linked,” he said. “The US imports a quarter of a trillion dollars-worth of goods a year from China. There is now a new leader on China’s state council and we are expecting them to impose harsh measures next year to slow their economy. They could well introduce fiscal measures with real teeth, like blocking exports of mobile phones, for example. A slowdown in China would have big repercussions for us. The risks could be awful.”

Mr Weinberg is still sanguine about America’s prospects next year and insists that its economy is far from facing a catastrophe. “The odds of a recession are still slim,” he said, explaining that while growth looks to have slowed sharply since the third quarter of 2007, from 4.9 per cent to about 1 per cent in the fourth quarter, the US Federal Reserve is likely to stave off a sharper slowdown by cutting rates by another 1 per cent to about 3.25 per cent next autumn. He forecasts that even though unemployment will rise next year, he is expecting the percentage of the workforce unable to find a job to rise from 5.1 per cent to about 5.3 per cent in 2008.

While the forecasts of some of Wall Street’s top number-crunchers suggest that America may avoid a nasty recession, it is unlikely to feel that way for many families across the United States. Americans, who for the past two years have spent more than they took home for the first time since 1933, are arguably at their most financially vulnerable for generations. The risk that Americans may be forced to tighten their belts, dampening consumer demand, is a real one, now that they are confronted with a decreasing value of their homes, rising fuel prices and uncomfortably high food costs.

The milk price has doubled this year, to keep pace with the soaring cost of maintaining a dairy herd. Corn prices used to feed dairy cattle have doubled because of the rising demand for corn to ferment to make ethanol, the biofuel.

Amy Green, the proprietor of the Ivanna Cone Ice-cream Emporium in Lincoln, Nebraska, has raised her ice cream prices by 37 per cent in the past 18 months. “Everything has gone up. All the raw materials that I need to run my business have risen – the butterfat, the milk, the sugar and the fuel. I had to pass on the rising costs,” she said.

Ms Green, who at the height of summer makes 600 gallons of ice cream a week, said that the fuel price was so prohibitive that her suppliers would not deliver her goods for an order of less than $500: “We’re a small firm. I have to be really creative at finding ways to get my orders up to $500. I’m only ordering small items like spoons and ice cream cones.”

One of her neighbours, Mike Biggs, a third-generation cattle farmer just west of Lincoln, told The Times that business had been very difficult this year. Mr Biggs, who feeds up his 10,000 cows from about 500lb to as much as 1,400lb, explained that the volatility in corn prices and the rising fuel price meant that it had become very challenging to manage the farm’s costs. “The increase in the corn price was not anticipated. The rises meant that a lot of us got caught in the middle,” he said.

Rising food and fuel costs, increasing health insurance and declining property values have made economists jumpy about whether America’s consumers will continue to drive the economy.

The plight of the swath of struggling Americans has not gone unnoticed.

According to research compiled over the past three years by Harvard University, Middle America is experiencing the most severe financial hardship for more than five decades, and Edward Wolff, Professor of Economics at New York University, predicts that the squeeze on the middle classes would get tighter as banks are expected to tighten their lending criteria in the wake of this summer’s credit crisis.

Professor Wolff said: “These families are just not going to be able to take out additional debt. Credit-card companies and auto-loan groups are just going to start saying no.” He said that Americans had not been profligate in their spending – “they’re not expanding consumption, they are just trying to tread water”. He said that median household income has nose-dived by 7 per cent between 2000 and 2004, increasing only 6 per cent between 1983 and 2004.

Americans are being delivered a grim New Year warning, Professor Shiller said: “People aren’t scared yet – but once all this unwinds, they will be.”

Perils for US

Key risks to America's economy in 2008

— Rising energy prices

— Middle East unrest

— Rising food prices

— Worsening financial markets

— Slowdown in China

Source: Carl Weinberg, High Frequency Economics

Wall Street braces itself for more sub-prime misery

2007-12-31T08:57:00.000-08:00

From The Times December 31, 2007
Tom Bawden in New York

New year celebrations may not always usher in a better year. As Wall Street reflects on the misery of the past six months – the credit crisis, sub-prime losses, executive sackings and share-price slides – many say that the worst is yet to come.

As Goldman Sachs pointed out last week, Citigroup still has an estimated $25 billion (£12.5 billion) of collateralised debt obligations (CDOs) on its books, the bundled packages of sub-prime loans that are now perceived as so risky they are effectively worthless.

Merrill Lynch, which is expected to admit to writedowns of almost $12 billion in the fourth quarter alone, has about $8 billion of CDOs in its portfolio. According to Goldman estimates, JPMorgan is exposed to around $5 billion of the securities.

Even though American banks have collectively written off at least $60 billion in combined sub-prime-related securities, James Owers, Professor of Finance at Georgia State University, says that “the worst credit crunch in modern history still has some way to go yet . . . The repercussions will eventually be more widespread than the savings and loan crisis.” (This occurred in the 1980s and led to the closure of 1,000 American building societies, with the loss of $150 billion).

The bank also thinks that its rivals are unlikely to be able to hope that they can offset the misery of their sub-prime investments with revenues from investment banking and M&A, both of which it expects to stagnate in 2008.

Yet while few Americans are likely to feel sympathy with Wall Street bankers, they may worry that banks’ reluctance to take on more risk and extend credit lines to American businesses could push the country into recession. Moody’s Investors Service pointed out to clients last week: “The continued uncertainty of what land-mines remain on bank balance sheets has the potential to spill over into restricted lending to industrial firms.”

The fallout from the sub-prime mortgage meltdown has hit all lending. Private equity firms have been hit particularly hard because, typically, they finance about two thirds of each leveraged buyout with debt in high-risk deals that, in this climate, are causing the banks to balk.

The impact on private equity deals has been enormous. Some deals that were agreed before the credit crunch took hold, such as the takeover of Home Depot’s building supplies unit by a consortium including Carlyle, saw their prices cut dramatically – in that case, by $2 billion. Other deals collapsed as the private equity firms were unable to secure financing or were not prepared to complete the transaction. In October, Kohlberg Kravis Roberts and Goldman Sachs walked away from their $8 billion takeover of Harman International, the audio speaker maker. JC Flowers’s bid to buy Sallie Mae, the student lender, for $26 billion, fell through.

Risk on Wall Street

— Citigroup Tipped to cut dividend by 40 per cent and to write off $18.7bn in Q4. Expected to raise up to $10bn of new capital. Sitting in $25bn of CDO investments

— Merrill Lynch Expected to write off $11.5bn in Q4; still exposed to $8bn in CDOs

— JPMorgan Expected to write off $3.4bn in Q4; still exposed to $5bn of CDOs

Source: Goldman Sachs Note December 26 2007

Top economist says America could plunge into recession

2007-12-31T08:53:00.000-08:00

From The TimesDecember 31, 2007
Suzy Jagger in New York

Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”

He said that US futures markets had priced in further declines in house prices in the short term, with contracts on the S&P Shiller index pointing to decreases of up to 14 per cent.

“Over the next five years, the futures contracts are pointing to losses of around 35 per cent in some areas, such as Florida, California and Las Vegas. There is a good chance that this housing recession will go on for years,” he said.

Professor Shiller, author of Irrational Exuberance, a phrase later used by Alan Greenspan, the former Federal Reserve chairman, said: “This is a classic bubble scenario. A few years ago house prices got very high, pushed up because of investor expectations. Americans have fuelled the myth that prices would never fall, that values could only go up. People believed the story. Now there is a very real chance of a big recession.”

He pointed out that signs at the beginning of 2007 that had indicated that some states were beginning to experience a recovery in house prices had proved to be false: “States such as Massachusetts had seen some increases at the beginning of the year. Denver also looked like it had a different path. Now all states are falling.”

Until two years ago, each of America’s 50 states had experienced a prolonged housing boom, with properties in some – such as Florida, California, Arizona and Nevada – doubling in price, fuelled by cheap credit and lax lending practices to borrowers who ordinarily would not have been able to secure a mortgage. Two years ago, the northeastern states of America became the first to slide into a recession after 17 successive interest-rate rises between June 2004 and August 2006 hit the property market.

Last week, new numbers from the S&P/Case Shiller index showed that house prices had declined in October at their fastest rate for more than six years, with homes in Miami losing 12 per cent of their value.

Existing-Home Sales Edged Up In November, but Still Weak

2007-12-31T08:02:00.000-08:00

By JEFF BATER
December 31, 2007 10:21 a.m.

WASHINGTON -- Existing-home sales managed a small climb during November, the first increase in nine months, but that didn't change the overall bleak picture for the ailing housing industry.

Home resales rose to a 5.00 million annual rate, a 0.4% increase from October's revised 4.98 million annual pace, the National Association of Realtors said Monday. October's rate was originally estimated at 4.97 million.

The median price of a previously owned home was $210,200 in November, down 3.3% from $217,300 in November 2006. The median price in October this year was $206,900.

The NAR said disruptions in mortgage availability and pricing peaked in August, which caused sales to slow in subsequent months. The November resales increase was the first since February 2007; the sales level of 5.00 million was in line with Wall Street expectations.

"Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that's good news because it'll be a further sign that the housing market is stabilizing," NAR chief economist Lawrence Yun said.

The housing slump has been a drag on the economy for nearly two years. In the third quarter, the economy roared despite the burden. But in the fourth quarter, which ends with the year, the economy is seen much weaker, restrained by the dead weight of housing. New-home sales retreated to a 12-year low in November, the government reported last week; that is, sales of single-family homes decreased by 9.0% to a seasonally adjusted annual rate of 647,000, the lowest since 621,000 in April 1995.

Get alerts for breaking news -- such as Fed moves, major world events and big mergers -- delivered straight to your desktop. Alerts will appear in a small window on your screen, much like an instant-messaging window. See a sample and get more information.Also receding are prices for new homes. Falling prices can chill consumer spending, which makes up 70% of U.S. economic activity as measured by GDP. When consumers watch the value of their homes shrink, they tend to feel less wealthy, a mood that can act as a damper on spending plans and, in turn, slow economic growth.

But on a bright note, data from Freddie Mac show the average 30-year mortgage rate was 6.21% in November, down from 6.38% in October.

"Mortgage interest rates are near historic lows and the most current data shows decelerating price declines, along with a modest reduction in the number of homes on the market," Mr. Yun said.

Inventories of homes fell 3.6% at the end of November to 4.27 million available for sale, which represented a 10.3-month supply at the current sales pace. There was a 10.7-month supply at the end of October, revised from a previously estimated 10.8 months.

Regionally, existing-home sales were mixed in November. Sales rose 10.3% in the West and were unchanged in the Midwest. Demand fell 2% in the South and 3.3% in the Northeast.

Write to Jeff Bater at jeff.bater@dowjones.com

Shiller: Fed to Cut Rates Below 3 Percent

2007-12-30T19:58:00.000-08:00

Courtesy of MoneyNews.com

The housing crisis will likely continue for another five years before hitting bottom.

As a result, the Federal Reserve will cut rates regularly this year, predicts Yale economics professor Robert Shiller.

Shiller, who was spot-on in forecasting the bursting of bubbles in the stock market in 2000 and then the housing market this year, sees the Fed slicing the federal funds rate below 3 percent from 4.25 percent currently.

"We’re continuing to see a weakening of the housing market,” Shiller says in an interview with Bloomberg News.

"What’s new is the record territory for the rate of decline. It’s faster than the worst part of the last cycle in the early 1990s.”

As for the housing crunch’s impact on the economy, Shiller foresees a softening, but not a meltdown. "Despite the disaster in the housing market and high oil prices, people are still spending.”

Personal spending soared 1.1 percent in November, the biggest rise in more than two years.

Still, Shiller thinks the housing crunch will drag the economy down enough to make the Fed cut the fed funds rate on overnight interbank loans to less than 3 percent next year. This year, the Fed lowered the rate one percentage point to 4.25 percent.

"I’m at odds with the fed funds rate futures market and most people, but I see a sequence of rates cuts in 2008,” Shiller says.

The S&P/Case-Shiller index for October showed the average price of homes in 20 major metropolitan markets plunged 6.1 percent in from a year earlier, the biggest drop since the index began in 2001.

"That momentum will continue in 2008, because in the real estate market, historically you see accelerations in the rate of decline,” Shiller says.

"That’s different from the stock market, which is largely a random walk.”

What we’re now witnessing is the unraveling of the biggest housing boom in U.S. history, indeed in the history of the entire world, Shiller says. From March 1997 to February 2007, home prices in the 20 metro markets jumped at an annual rate of 10.93 percent.

"The psychology finally unraveled,” Shiller says. "But it’s not just psychology. There was a lot of construction. Now there’s a huge inventory of unsold homes. It’s hard to see how market will pick up with this overhang.”

The amount of homes up for sale in October represented an 8.5-month supply, up a whopping 20 percent from 7.1 months a year earlier.

"I don’t expect any sudden change in the trend, because we’re not talking about professional Wall Street investors,” Shiller says.

"Most of us don’t make decisions fast, so the market doesn’t turn on a dime. Prices might not bottom out for another five years.”

The five-year forecast makes him an outlier, Shiller acknowledges. "The Chicago futures market predicts an increase for housing prices starting in 2009.”

"That’s typical of what others think. But I’m a historian and don’t see any reason for a bottom in 2009.”

The current credit market crisis represents a natural outgrowth of the housing bubble’s burst, Shiller says.

"Loans were made very freely in the early 2000s. Now with prices falling, people are starting to default, so we’re getting a seizing up of credit markets.”

Unemployment May Rise, Factories Slow: U.S. Economy Preview

2007-12-30T19:05:00.001-08:00

By Bob Willis

Dec. 30 (Bloomberg) -- Employers in the U.S. hired fewer workers in December and the unemployment rate rose, signaling one of the few remaining bright spots in the economy dimmed heading into 2008, economists said before reports this week.

Payrolls rose by 70,000 after increasing 94,000 in November, according to the median forecast in a Bloomberg survey of economists before a Jan. 4 government report. The jobless rate probably rose to 4.8 percent, the highest level in more than a year.

The figures may raise concern that wage gains, which have kept American consumers afloat, will weaken in coming months. Other reports this week are likely to show existing-home sales matched a record low in November and manufacturing almost stalled this month, suggesting the housing recession was spreading throughout the economy heading into the new year.

``In a slow-motion fashion, we're beginning to see more spillover,'' from the real-estate slump, said Edward McKelvey, senior U.S. economist at Goldman, Sachs & Co. in New York. ``It will be the dominant issue of '08.''

The December gain would put the total payroll increase for 2007 at 1.4 million, the fewest in four years. The jobless rate stood at 4.5 percent at the end of 2006.

The hiring slowdown became more pronounced as the year progressed and the housing slump deepened. An average 147,000 jobs a month were created from January through May, compared with 94,000 in the six months to November.

Housing's Influence

Residential construction has fallen for seven consecutive quarters, weakening job growth as builders, mortgage companies and manufacturers reduce staff.

The collapse of the subprime mortgage market in August hastened firings at financial companies. Seattle-based Washington Mutual Inc., the largest U.S. savings and loan, said earlier this month it will eliminate 3,150 jobs as mortgage losses increased.

Manufacturers are also cutting back as sales of building materials, appliances and furniture weaken, reflecting the slump in home sales.

Factory payrolls shrank by 15,000 workers this month, economists said the jobs report may show. That would cap an almost 200,000 drop in manufacturing employment for the year.

The Institute for Supply Management's factory index fell to 50.5 this month, an 11-month low, from 50.8 in November, the Tempe, Arizona-based group may report Jan. 2, according to economists surveyed. A reading of 50 is the dividing line between expansion and contraction.

Services to Slow

ISM's index of service industries that make up the nearly 90 percent of the economy may have dropped to the lowest level since March. The non-manufacturing gauge fell to 53.5 in December from 54.1 the prior month, according to a Bloomberg survey. The report is due Jan. 4.

The world's largest economy will grow at a 1 percent pace in the fourth quarter after expanding at a 4.9 percent rate the previous three months that was the strongest since 2003, according to the median estimate of economists surveyed earlier this month. Growth for all 2008 is projected at 2.3 percent.

A report tomorrow from the National Association of Realtors may show existing home sales in November were unchanged at an annual rate of 4.97 million units for a second month, according to the survey median. That's the lowest since the Realtors began keeping records in 1999 and 31 percent down from a September 2005 peak.

Risk to Spending

The weaker housing market is forecast to undermine consumer spending, which makes up two thirds of the economy, as falling property values leave owners feeling less wealthy and with less equity to tap for extra cash.

Retailers have placed fewer orders with Black & Decker Corp. this quarter because consumers are buying fewer tools for home remodeling projects as the housing slump enters its third year.

``We are seeing the U.S. economy slowing,'' said Alexander M. Cutler, chief executive officer at Eaton Corp., the world's second-largest maker of hydraulic equipment, in a Dec. 21 interview.

So far, income gains have helped prevent a collapse in consumer spending. The Labor Department is forecast to report hourly wages grew 0.3 percent on average in December after rising 0.5 percent the prior month. Year-over-year, average hourly wages probably rose 3.6 percent after a 3.8 percent gain in the prior 12-month period, economists said.

Investors project the Federal Reserve will lower its benchmark rate a quarter point at the end of January, its fourth consecutive rate decline since September, as it seeks to head off recession.

Minutes of the Fed's Dec. 11 meeting, when policy makers lowered the target rate to 4.25 percent, will be issued on Jan. 2. At the time, some investors were disappointed the central bank didn't drop the rate even more.

Bloomberg Survey

===========================================================
Release Period Prior Median
Indicator Date Value Forecast
===========================================================
Exist Home Sales Million 12/31 Nov. 4.97 4.97
ISM Manu Index 1/2 Dec. 50.8 50.5
Construct Spending MOM% 1/2 Nov. -0.8% -0.4%
Initial Claims ,000's 1/3 Dec. 30 349 345
Factory Orders MOM% 1/3 Nov. 0.5% 0.5%
Nonfarm Payrolls ,000's 1/4 Dec. 94 70
Unemploy Rate % 1/4 Dec. 4.7% 4.8%
Manu Payrolls ,000's 1/4 Dec. -11 -15
Hourly Earnings MOM% 1/4 Dec. 0.5% 0.3%
Hourly Earnings YOY% 1/4 Dec. 3.8% 3.6%
ISM NonManu Index 1/4 Dec. 54.1 53.5
==========================================================
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: December 30, 2007 09:39 EST

Wizardry Amplified The Credit Crisis

2007-12-29T12:31:00.000-08:00

By Carrick Mollenkamp and Serena Ng
From The Wall Street Journal Online

In recent years, as home prices and mortgage lending boomed, bankers found ever-more-clever ways to repackage trillions of dollars in loans, selling them off in slivers to investors around the world. Financiers and regulators figured all the activity would disperse risk, and maybe even make markets safer and stronger.

Then along came Norma.

Norma CDO I Ltd., as its full name goes, is one of a new breed of mortgage investments created in the waning days of the U.S. housing boom. Instead of spreading the risk of a global home-finance boom, the instruments have magnified and concentrated the effects of the subprime-mortgage bust. They are now behind tens of billions of dollars of write-downs at some of the world's largest banks, including the $9.4 billion announced last week by Morgan Stanley.

Norma illustrates how investors and Wall Street, in their efforts to keep a lucrative market going, took a good idea too far. Created at the behest of an Illinois hedge fund looking for a tailor-made bet on subprime mortgages, the vehicle was brought into existence by Merrill Lynch & Co. and a posse of little-known partners.

In its use of newfangled derivatives, Norma contributed to a speculative market that dwarfed the value of the subprime mortgages on which it was based. It was also part of a chain of mortgage-linked investments that took stakes in one another. The practice generated fees for a handful of big banks. But, say critics, it created little value for investors or the broader economy.

"Everyone was passing the risk to the next deal and keeping it within a closed system," says Ann Rutledge, a principal of R&R Consulting, a New York structured-finance consultancy. "If you hold my risk and I hold yours, we can say whatever we think it's worth and generate fees from that. It's like...creating artificial value."

Only nine months after selling $1.5 billion in securities to investors, Norma is worth a fraction of its original value. Credit-rating firms, which once signed off approvingly on the deal, have slashed its ratings to junk.

The concept behind Norma, known as a collateralized debt obligation, has been in use since the 1980s. A CDO, most broadly, is a device that repackages the income from a pool of bonds, derivatives or other investments. A mortgage CDO might own pieces of a hundred or more bonds, each of which contains thousands of individual mortgages. Ideally, this diversification makes investors in the CDO less vulnerable to the problems of a single borrower or security.

The CDO issues a new set of securities, each bearing a different degree of risk. The highest-risk pieces of a CDO pay their investors higher returns. Pieces with lower risk, and higher credit ratings, pay less. Investors in the lower-risk pieces are first in line to receive income from the CDO's investments; investors in the higher-risk pieces are first to take losses.

But Norma and similar CDOs added potentially fatal new twists to the model. Rather than diversifying their investments, they bet heavily on securities that had one thing in common: They were among the most vulnerable to a rise in defaults on so-called subprime mortgage loans, typically made to borrowers with poor or patchy credit histories. While this boosted returns, it also increased the chances that losses would hit investors severely.

Also, these CDOs invested in more than simply subprime-backed securities. The CDOs held chunks of each other, as well as derivative contracts that allowed them to bet on mortgage-backed bonds they didn't own. This magnified risk. Wall Street banks took big pieces of Norma and similar CDOs on their own balance sheets, concentrating the losses rather than spreading them among far-flung investors.

"It is a tangled hairball of risk," Janet Tavakoli, a Chicago consultant who specializes in CDOs, says of Norma. "In March of 2007, any savvy investor would have thrown this...in the trash bin."

Penny Stocks

Norma was nurtured in a small office building on a busy road in Roslyn, on the north shore of New York's Long Island. There, a stocky, 37-year-old money manager named Corey Ribotsky runs a company called N.I.R. Group LLC. Mr. Ribotsky came not from the world of mortgage securities, but from the arena of penny stocks, shares that trade cheaply and often become targets of speculation or manipulation.

N.I.R. and its affiliates have taken stakes in 300 companies, some little-known, including a brewer called Bootie Beer Corp., lighting firm Cyberlux Corp. and water-purification company R.G. Global Lifestyles. Mr. Ribotsky's firms are in litigation in New York federal court with all three companies, which claim N.I.R. manipulated their share prices. Through its lawyer, N.I.R. denies wrongdoing and has accused the companies of failing to repay loans.

Mr. Ribotsky's firm attracted the attention of Merrill Lynch in 2005. The top underwriter of CDOs from 2004 to mid-2007, Merrill had generated hundreds of millions of dollars in profits from assembling and then helping to distribute CDOs backed by mortgage securities. For each CDO Merrill underwrote, the investment bank earned fees of 1% to 1.50% of the deal's total size, or as much as $15 million for a typical $1 billion CDO.

To keep underwriting fees coming, Merrill recruited outside firms, called CDO managers. Merrill helped them raise funds, procure the assets for their CDOs and find investors. The managers, for their part, choose assets and later monitor the CDO's collateral, although many of the structures don't require much active management. It was an attractive proposition for many start-up firms, which could earn lucrative annual management fees.

Mr. Ribotsky's entry into the world of CDO managers began at Engineers Country Club on Long Island. There, in 2005, he met Mitchell Elman, a New York criminal-defense lawyer who specializes in drunk-driving and drug cases. Mr. Elman introduced Mr. Ribotsky to Kenneth Margolis, then a high-profile CDO salesman at Merrill, according to people familiar with the situation. Mr. Elman declined to comment.

'It Sounded Interesting'

Mr. Margolis, who in February 2006 became co-head of Merrill's CDO banking business, played a key role in seeking out start-up firms to manage CDOs. He put Mr. Ribotsky in contact with a few people who had experience in the mortgage debt market. They included two former Wachovia Corp. bankers, Scott Shannon and Joseph Parish III, who left Wachovia and established their own CDO management firm.

Mr. Ribotsky decided to team up with Messrs. Shannon and Parish. "It sounded interesting and that's how we ventured into it," Mr. Ribotsky says. Messrs. Parish and Shannon declined to discuss specifics of Norma.

Together the trio set up a company called N.I.R. Capital Management, which over the next year or so took on the management of three CDOs underwritten by Merrill.

In 2006, Mr. Ribotsky says Merrill came to N.I.R. with a new proposition: One of the investment bank's clients, a hedge fund, wanted to invest in the riskiest piece of a certain type of CDO. Merrill worked out a general structure for the vehicle. It asked N.I.R. to manage it.

"It was already set up when it was presented to us," Mr. Ribotsky says. "They interviewed a bunch of managers and selected our team."

The CDO would be called Norma, after a small constellation in the southern hemisphere. According to people familiar to the matter, the hedge fund was Evanston, Ill.-based Magnetar, a fund that shared its name with a powerful neutron star. Magnetar declined to comment.

On Dec. 7, 2006, Norma was established as a company domiciled in the Cayman Islands. N.I.R., as its manager, would earn fees of some 0.1%, or about $1.5 million a year.

Norma belonged to a class of instruments known as "mezzanine" CDOs, because they invested in securities with middling credit ratings, averaging triple-B. Despite their risks, mezzanine CDOs boomed in the late stages of the credit cycle as investors reached for the higher returns they offered. In the first half of 2007, issuers put out $68 billion in mortgage CDOs containing securities with an average rating of triple-B or the equivalent -- the lowest investment-grade rating -- or lower, according to research from Lehman Brothers Holdings Inc. That was more than double the level for the same period a year earlier.

Buying Protection

For Norma, N.I.R. assembled $1.5 billion in investments. Most were not actual securities, but derivatives linked to triple-B-rated mortgage securities. Called credit default swaps, these derivatives worked like insurance policies on subprime residential mortgage-backed securities or on the CDOs that held them. Norma, acting as the insurer, would receive a regular premium payment, which it would pass on to its investors. The buyer of protection, which was initially Merrill Lynch, would receive payouts from Norma if the insured securities were hurt by losses. It is unclear whether Merrill retained the insurance, or resold it to other investors who were hedging their subprime exposure or betting on a meltdown.

Many investment banks favored CDOs that contained these credit-default swaps, because they didn't require the purchase of securities, a process that typically took months. With credit-default swaps, a billion-dollar CDO could be assembled in weeks.

Multiplying Risk

In principle, credit-default swaps help banks and other investors pass along risks they don't want to keep. But in the case of subprime mortgages, the derivatives have magnified the effect of losses, because they allowed bankers to create an unlimited number of CDOs linked to the same mortgage-backed bonds. UBS Investment Research, a unit of Swiss bank UBS AG, estimates that CDOs sold credit protection on around three times the actual face value of triple-B-rated subprime bonds.

The use of derivatives "multiplied the risk," says Greg Medcraft, chairman of the American Securitization Forum, an industry association. "The subprime-mortgage crisis is far greater in terms of potential losses than anyone expected because it's not just physical loans that are defaulting."

Norma, for its part, bought only about $90 million of mortgage-backed securities, or 6% of its overall holdings. Of that, some were pieces of other CDOs mostly underwritten by Merrill, according to documents reviewed by The Wall Street Journal. These CDOs included Scorpius CDO Ltd., managed by a unit of Cohen & Co., a company run by former Merrill CDO chief Christopher Ricciardi. Later, Norma itself would be among the holdings of Glacier Funding CDO V Ltd., managed by an arm of New York mortgage firm Winter Group.

A Winter Group official said the company declined to comment, as did Cohen & Co.

Such cross-selling benefited banks, because it helped support the flow of new CDOs and underwriting fees. In fact, the bulk of the middle-rated pieces of CDOs underwritten by Merrill were purchased by other CDOs that the investment bank arranged, according to people familiar with the matter. Each CDO sold some of its riskier slices to the next CDO, which then sold its own slices to the next deal, and so on.

Propping Up Prices

Critics say the cross-selling reached such proportions that it artificially propped up the prices of CDOs. Rather than widely dispersing exposure to these mortgages, the practice circulated the same risk among a relatively small number of players.

By early 2007, Norma was ready to face the ratings firms. Different slices of CDOs get different ratings because some protect the others from losses to defaults. A "junior" slice might take the first $30 million in losses on a $1 billion CDO, while a triple-A "senior" slice would not be affected until losses reached $200 million or more.

But the system works only if the securities in the CDO are uncorrelated -- that is, if they are unlikely to go bad all at once. Corporate bonds, for example, tend to have low correlation because the companies that issue them operate in different industries, which typically don't get into trouble simultaneously.

Mortgage securities, by contrast, have turned out to be very similar to one another. They're all linked to thousands of loans across the U.S. Anything big enough to trigger defaults on a large portion of those loans -- like falling home prices across the country -- is likely to affect the bonds in a CDO as well. That's particularly true for the kinds of securities on which mezzanine CDOs made their bets. Triple-B-rated bonds would typically stand to suffer if losses to defaults on the underlying pools of loans reached about 10%.

Easy Credit

When rating companies analyzed Norma, though, they were looking backward to a time when rising house prices and easy credit had kept defaults on subprime mortgages low. Norma's marketing documents noted plenty of risks for investors but also said that CDO securities had a high degree of ratings stability.

Beyond that, rating firms say they had reason to believe that the securities wouldn't all go bad at once as the housing market soured. For one, each security contained mortgages from a different mix of lenders, so lending standards might differ from security to security. Also, each security had its own unique team of companies collecting the payments. Yuri Yoshizawa, group managing director at Moody's Investors Service, says the firm figured some of these mortgage servicers would be better than others at handling problematic loans.

In March, Moody's, Standard & Poor's and Fitch Ratings gave Norma their seal of approval. In its report, Fitch cited growing concern about the subprime mortgage business and the high number of borrowers who obtained loans without proof of income. Still, all three rating companies gave slices comprising 75% of the CDO's total value their highest, triple-A rating -- implying they had as little risk as Treasury bonds of the U.S. government.

Merrill and N.I.R. took Norma to investors. Together, they produced a 78-page pitchbook that bore Merrill's trademark bull. Inside were nine pages of risk factors that included standard warnings about CDOs. The pitchbook also extolled mortgage securities, which it noted "have historically exhibited lower default rates, higher recovery upon default and better rating stability than comparably rated corporate bonds."

Most importantly, though, Norma offered high returns: On a riskier triple-B slice, Norma said it would pay investors 5.5 percentage points above the interest rate at which banks lend to each other, known as the London interbank offered rate, or Libor. At the time, that translated into a yield of over 10% on the security -- compared with roughly 6% on triple-B corporate bonds.

Network of Contacts

Mr. Ribotsky says the selling required little effort, as Merrill drummed up interest from its network of contacts. "That's what they get their fees for," he says.

Norma sold some $525 million in CDO slices -- largely the lower-rated ones with higher returns -- to investors. Merrill declined to say whether it kept Norma's triple-A rated, $975 million super-senior tranche or sold it to another financial institution.

Many investment banks with CDO businesses -- Citigroup Inc., Morgan Stanley and UBS -- frequently kept or bought these super-senior pieces, whose lower returns interested few investors. In doing so, they bet that the top CDO slices, which typically comprised as much as 60% of the whole CDO, were insulated from losses.

By September, Norma was in trouble. Amid a steep decline in house prices and rising defaults on mortgage loans, the value of subprime-backed securities went into a free fall. As increasingly worrisome delinquency data rolled in, analysts upped their estimates of total losses on subprime-backed securities issued in 2006 to 20% or more, a level that would wipe out most triple-B-rated securities.

Within weeks, ratings firms began to change their views. In October, Moody's downgraded $33.4 billion worth of mortgage-backed securities, including those which Norma had insured. Those downgrades set the stage for a review of CDOs backed by those securities -- and then further downgrades.

Mezzanine CDOs such as Norma were the hardest hit. On Nov. 2, Moody's slashed the ratings on seven of Norma's nine rated slices, three all the way from investment-grade to junk. Fitch downgraded all nine slices to junk, including two that it had rated triple-A.

Worse Performances

Other mezzanine CDOs, including some underwritten by other investment banks, have had worse performances. Around 30 are now in default, according to S&P. Norma is still paying interest on its securities. It is not known whether it has had to make payouts under the credit default swap agreements.

Ratings companies say their March opinions represented their best read at the time, and called the subprime deterioration unprecedented and unexpectedly rapid. "It's one of the worst performances that we've seen," says Kevin Kendra, a managing director at Fitch. "The world has changed quite drastically -- and our view of the world has changed quite drastically."

By mid-December, $153.5 billion in CDO slices had been downgraded, according to Deutsche Bank. Because banks owned the lion's share of the mezzanine CDOs, they bore the brunt of the losses. In all, banks' write-downs on mortgage investments announced so far add up to more than $70 billion.

For larger banks, holdings of mezzanine CDOs could account for one-third to three-quarters of the total losses. In addition to the $9.4 billion fourth-quarter write-down Morgan Stanley just announced it would take, Citigroup has projected its fourth-quarter write-down could reach $11 billion. UBS said this month it would take a $10 billion write-down after taking a $4.4 billion third-quarter loss.

Merrill, for its part, took a $7.9 billion write-down on mortgage-related holdings in the third quarter. Analysts expect it to write down a similar amount in the current quarter, which would represent the largest losses of any bank. News of the losses have led to the ouster of CEO Stan O'Neal and Osman Semerci, the bank's global head of fixed income. Mr. Margolis left this summer.

Mr. Ribotsky says he doesn't have plans to do any more CDOs at the current time. "Obviously, we're not happy about the occurrences in the marketplace," he says.

Email your comments to rjeditor@dowjones.com.

Equity capital markets poised for boost

2007-12-29T12:27:00.001-08:00

By Rachel Morarjee

Published: December 28 2007 18:52 | Last updated: December 28 2007 18:52

Equity capital markets will get a boost next year from financial institutions seeking to shore up their tattered balance sheets and from private equity firms looking for an exit from earlier investments, bankers said.

“What looks very likely for 2008 is a wave of capital increases by financial institutions in the EMEA region [Europe, the Middle East and Africa] looking to repair their stretched balance sheets,” said Viswas Raghavan, head of international capital markets at JPMorgan.

With the share prices of some of the biggest investment banks down by as much as a third from their summer highs, troubled financial institutions will be reluctant to issue straight equity that would dilute their share prices further.

Instead, like Citigroup, many are likely to look at convertible bonds which can be changed into equity at a later date, allowing existing shareholders to cash in on any upside and giving the issuer the benefit of a tax deduction on the coupon.

“There will much more activity in the Tier 1 space next year,” said David Lyon, a managing director in the financial institutions group at Barclays Capital. “In order to bolster their capital ratios, banks will continue to issue a variety of flavours of Tier 1 securities, including fixed interest, preference shares and convertible instruments.

“Issuing equity is the most expensive option,” he said.

Given the current tumult in the wider credit world and the cautious sentiment in the equity markets, convertible bonds are likely to become a speedy, cost-effective and liquid financing alternative.

“2007 has been a great year for global convertible volumes and we expect more of the same in 2008,” said Mr Raghavan.

With liquidity in credit markets at a low ebb, private equity firms may increasingly look to initial public offerings as the swiftest exit route from investments made over the last three or four years.

John Crompton, head of EMEA equity capital markets at Merrill Lynch, said that IPO activity could be increasingly driven by private equity in the coming year.

Public equity markets are the least damaged of all of the major pools of capital. With private equity-driven takeovers hit by weakness in the credit market, corporates which were previously priced out of the market could become bidders again, using their equity as currency.

“This will see a wave of acquisition financing, providing a boost to equity capital markets activity,” Mr Raghavan said.

Copyright The Financial Times Limited 2007

It may pay to keep on eye on overseas residential markets

2007-12-28T15:24:00.000-08:00

Homes away from home
By Thomas Kostigen, MarketWatch
Last update: 7:28 p.m. EST Dec. 26, 2007

SANTA MONICA, Calif. (MarketWatch) -- Some investment analysts such as Bill Gross of Pimco say we're in a recession here in the United States. But overseas it looks like times are booming. And that means foreigners are looking at opportunities here, which in turn poses opportunity for U.S. investors.

Two large foreign investors are bailing out financial institutions here from their exposure to losses in the domestic subprime mortgage market. Asia and Middle Eastern companies and countries seem to be putting capital to work in every corner of the world. And the global superrich are redefining what it means to be super rich. (In London it means a million-dollar salary just to lead an average affluent lifestyle, a recent survey shows.)

Sort of all makes us look poor in the grand scheme of things.

But where we are "poor" also means we have opportunity, particularly in the real estate sector. Here's why: trepidation.

Sales and values of real estate on the whole in the U.S. may have sunk. But it's largely not because of lack of demand; it's largely because of hesitation of demand.

There's a big difference between the two. It means there is a lingering lag in the market, not an outright stall. At the first blush of renewed energy, the real estate market will bounce back.

Wealthy investors are still putting their dollars to work in the market, which means allocations to real estate as an investment class haven't gone away altogether.

Instead, sales of high-end homes have soared. Like with any investment class, it's best to take a look at global supply and demand not just domestic variance.

If equities were on the outs with investors, that would spill around the world and the asset class itself would be out of favor, meaning fewer people would be buying and selling stocks. Same thing with bonds, or commodities ...or real estate.

But that isn't happening. Prices of homes in certain high-end sections of London, for example, have risen between 25% and 35% this year, according to the Financial Times. There is an Indian, Asian, and Middle Eastern boom of development too.

Strong price increases in London are "giving the elite the confidence to invest heavily in the properties," the FT says.

Confidence-building is what any market is about. There is enough capital to push about and increase prices in virtually every capital market. What makes some markets soar and others dribble is confidence.

To be sure, confidence in U.S. properties has waned. But for how long? When wealthy investors from abroad look to invest in the agents of markets -- the Merrills, UBSs and the like -- how long before they then take it to the next level of the game and invest directly?

With the value of the U.S. dollar low and real estate prices dropping, it isn't hard to imagine foreigners taking bigger positions in properties here as part of their overall portfolios. Meanwhile, they wait...wait...wait...Then they'll buy large when prices get low enough.

Prices are quickly getting low enough

I'm betting that Miami and southern Florida will kick-start the trend. There, prices and sales volumes are down 25% or more in hot areas. What happens when values fall 50%? That should catch some foreign investors' attention.

With the largest segment of the population retiring and likely headed South, too, there is long-term viability to the bet.

It's worth following the buying patterns of wealthy individuals and foreign institutions when it comes to their investments in real estate. Confidence will build again. This time maybe just more slowly, but it will come back.

Investment resolutions for 2008 should be to spot bottoms -- and then buy. Those with capital have already begun.

Home sales plunge, feed recession fears

2007-12-28T15:20:00.001-08:00

By JEANNINE AVERSA, AP Economics Writer

WASHINGTON - The housing market plunged deeper into despair last month, with sales of new homes plummeting to their lowest level in more than 12 years.

The slump worsened even more than most analysts expected, heightening fears that the country might be thrust into a recession.

New-home sales tumbled 9 percent in November from October to a seasonally adjusted annual sales pace of 647,000, the Commerce Department reported Friday. That was the worst sales pace since April 1995.

"It was ugly," declared Richard Yamarone, economist at Argus Research. "It is the one sector of the economy that doesn't show any signs of life. It doesn't look like there is any resuscitation in store for housing over the next year," he said.

The housing picture turned out to be more grim than most anticipated. Many economists were predicting sales to decline by 1.8 percent to a pace of 715,000.

By region, sales fell in all parts of the country, except for the West.

In the Midwest, new-home sales plunged 27.6 percent in November from October. Sales dropped 19.3 percent in the Northeast and fell 6.4 percent in the South. In the West, however, sales rose 4 percent.

Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.

"I think you can classify what we are seeing in the housing market as a crash," said Mark Zandi, chief economist at Moody's Economy.com. "Sales and home prices are in a free fall. The downturn is intensifying."

The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.

On Wall Street, the Dow Jones industrials, after an erratic session, managed to squeeze out a small gain even as the grim home sales report added to some investors' angst. The Dow closed up 6.26 points at 13,365.87.

Would-be home buyers have found it more difficult to secure financing, especially for "jumbo" mortgages — those exceeding $417,000. The tighter credit situation is deepening the housing slump. Unsold homes have piled up, which will force builders to cut back even more on construction and look for ways to sweeten the pot to lure prospective buyers.

"A lot of borrowers are being disqualified for loans. If you can't qualify for a mortgage the game is over. For those who do qualify, it takes longer to get loans," said Brian Bethune, economist at Global Insight.

The housing market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

Problems in housing are expected to persist well into 2008 — a major election year.

The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, the situation has given Democrat and Republican politicians_ including those who want to be the next president — plenty of opportunities to spread blame around.

The economy's growth is expected to have slowed sharply to a pace of just 1.5 percent or less in the final three months of this year. Former Federal Reserve Chairman Alan Greenspan recently warned that the economy is "getting close to stall speed." The big worry is that the housing and credit troubles will force individuals to cut back on spending and businesses to cut back on hiring and capital investment, throwing the economy into a tailspin.

To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Its latest rate cut, on Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year low. Many economists are predicting the Fed will lower rates again when they meet in late January.

"The risks are as high as they've ever been during this expansion that started in late 2001 that the economy will fall into a recession," said Bethune. "The odds are now nudging up close to the 50 percent mark."
___

On the Net:

New-home sales report: https://www.esa.doc.gov/ei.cfm

Greenspan: Global Economy Going into ‘Reverse’

2007-12-28T08:57:00.000-08:00

Breaking News from MoneyNews.com

Former Federal Reserve Chairman Alan Greenspan repeated his argument this week that the world’s central banks have lost control over long rates – but suggested that global economies would slow, a factor which should eventually support higher rates.

Interest rates now are set by the supply of investment money worldwide, a force much larger than the concerted efforts of central banks, including the Fed, Greenspan said in an interview with National Public Radio.

"We and all other central banks lost control of the forces directing higher prices in homes,” Greenspan said.

Nevertheless, he implied, long rates could rise going forward as economies slow and less money is sloshing around looking for a home.

"What I point out is that we’re in a turning phase and that the extraordinary improvements that have occurred in the world economy in the last 15 years are transitory, and they’re about to change,” Greenspan said.

"So, I think this whole process will begin to reverse,” he said.

Global economic growth has brought "hundreds of millions” of people out of abject poverty, particularly in Asia, the former Fed chief pointed out, and that has been the result of market forces at work.

"The most extraordinary example is China. China is moving towards capitalism. It doesn’t say that, obviously, it can’t. But that’s precisely what it’s doing,” Greenspan said.

Nevertheless, Greenspan argued, rising inequality of income is creating new problems, and declining U.S. education standards, especially in math and science, are doing harm to the historic "balancing” of income levels.

Greenspan also took on critics who have pointed out his own poor record at predicting recession, despite sitting at the helm of the U.S. monetary authority for nearly two decades.

"The record of forecasting not only of myself and of companies I have developed – but of the profession as a whole – is not particularly spectacular,” Greenspan said. "I’ve been forecasting since the early 1950s. I was as bad then as I am now.”

Yet he cautioned again that the elements for a downturn are in place, and reiterated his warning that a recession is more likely than not.

The key is human psychology, which cannot yet be measured well enough to predict without that prediction affecting the outcome by giving markets time to adjust and avoid recession, Greenspan said.

"What I have to forecast is that something will happen which is unexpected, which will knock us down,” Greenspan said. "The odds of that happening, I think, are rising, because we are getting in vulnerable areas.”

U.S. Economy: Sales of New Homes Tumble 9% to 12-Year Low

2007-12-28T08:40:00.003-08:00

By Bob Willis

Dec. 28 (Bloomberg) -- Sales of new homes in the U.S. fell to a 12-year low in November, pointing to bigger declines in construction that will hinder economic growth in 2008.

Purchases dropped 9 percent to an annual pace of 647,000 and October sales were revised lower, the Commerce Department said today in Washington. Last month's sales were weaker than the lowest forecast in a Bloomberg News survey of economists.

Treasury notes extended their rally and traders added to bets that the Federal Reserve will cut interest rates again in January to prevent a recession. New-home sales are down 25.4 percent so far this year, heading for the biggest annual decline since at least 1963.

``This gives a dire picture of the U.S. housing market,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York. ``The weakness of the housing industry does raise the risk of recession.''

A separate report showed the National Association of Purchasing Management-Chicago's index of American business activity rose this month as new orders increased. The group's index climbed to 56.6, from 52.9 the previous month.

The deepest housing recession in 16 years will worsen as discounts fail to lure buyers and mounting foreclosures swell the glut of unsold properties, economists said. Falling property values may cause consumer spending to cool, increasing the odds the expansion will falter in 2008.

``The most important implication of this is it's going to drive down construction outlays and that's a direct effect on GDP,'' said Neal Soss, chief economist at Credit Suisse Group in New York.

Yields Retreat

The yield on the benchmark 10-year note fell 9 basis points to 4.11 percent at 10:21 a.m. in New York. The dollar weakened against the euro and stocks pared their advance. The Standard & Poor's Supercomposite Homebuilding Index, which includes KB Home, Pulte Homes Inc. and D.R. Horton Inc., declined 2.8 percent to 306.44.

A Bloomberg survey of 68 economists forecast sales would fall to an annual pace of 717,000 from a previously reported 728,000 rate in October, according to the median estimate. Economists' forecasts ranged from a low of 685,000 to a high of 750,000. Government records only go back to 1963.

Sales of new homes were down 34 percent from the same time last year, the biggest 12-month drop since January 1991. The median price fell 0.4 percent from November 2006 to $239,100.

The number of homes for sale at the end of November decreased 1.8 percent to 505,000, the fewest in two years. Still, because sales dropped even more, the inventory of unsold homes at the current sales pace jumped to 9.3 months from 8.8 months in October.

Regional Picture

Purchases fell in three of four regions, led by a 28 percent plunge in the Midwest. Sales dropped 19 percent in the Northeast and 6.4 percent in the South. They rose 4 percent in the West.

The housing recession has deepened since the August turmoil in subprime mortgages led to a worldwide credit shortage. Stricter borrowing standards and a freeze on lending to borrowers with poor credit put mortgages out of reach for more potential buyers. That's driving home prices lower, weakening sales as people hold out for even bigger reductions.

Sales of new houses will probably tumble 8.9 percent in 2008 after a 25 percent drop this year, according to a Dec. 13 forecast from Fannie Mae, the largest mortgage buyer. Sales of new homes in November were 53 percent down from their July 2005 peak.

Prices Decline

Home prices in 20 metropolitan areas fell 6.1 percent in the 12 months to October, the most in at least six years, according to a report this week by S&P/Case-Shiller. The decline raises the risk that more Americans will walk away from properties that are worth less than they owe, economists said.

Lehman Brothers Holdings Inc. is forecasting prices will fall at least 15 percent from peak to trough. By that measure, the S&P/Case-Shiller index is down 6.6 percent so far.

With sales and prices falling, foreclosures rose 68 percent in November from a year earlier. They may continue surging in 2008 as mortgages for some subprime borrowers with adjustable rates reset.

As foreclosures throw more homes onto the market, homebuilders such as Hovnanian Enterprises Inc., New Jersey's largest, are scaling back.

Hovnanian plans to ``pare down our inventories in virtually all our markets,'' Chief Executive Officer Ara Hovnanian said on a conference call Dec. 19. ``It will be a difficult year.''

Construction

Housing starts are near a 14-year low and have fallen 48 percent since their January 2006 peak. Declining home construction has subtracted from economic growth for the last seven quarters, and economists are expecting the drag to continue in 2008.

The weaker housing market is also forecast to undermine consumer spending, which makes up two thirds of the economy, as falling property values leave owners feeling less wealthy and with less equity to tap for extra cash.

The odds of recession have increased since the credit markets froze as a result of the subprime crisis. The economy will expand at a 1 percent annual pace in the fourth quarter after growing at a 4.9 percent rate from July through September, according to the median forecast of economists surveyed this month by Bloomberg News.

`The probability of recession is 50 percent for next year at some point,'' Martin Feldstein, head of the National Bureau of Economic Research, which determines when contractions start and end, said in a Dec. 14 interview. ``We could see a downturn starting sometime in the spring or the second quarter of next year.''

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: December 28, 2007 11:15 EST

U.S. Economy: Sales of New Homes Tumble 9% to 12-Year Low

2007-12-28T08:40:00.001-08:00