Friday, March 20, 2009

Housing Market on the Rise?

Wall Street Journal | Reuters


The housing market bubble bursting which led to the current financial crisis started over a year ago, and was hardest hit in California. There are signs of it hitting bottom and starting to turn around where it all began. Perhaps Fed Chairman Bernanke is right to call the recession ending this year. Many real estate properties still have intrinsic value. That's why they are called real estate. Once the unemployment scare is over, with the stimulus package pouring enough money to halt the fear and lay-offs, with the current saving rate of 5%, which is the highest in decades, there is every reason to believe those houses and properties that have been foreclosed will be occupied again, and this time for much longer.

Perhaps as Winston Churchill once said, this is not the end, not even the beginning of the end, but it is perhaps the end of the beginning.


(Wall Street Journal) California's mortgage crisis hit this master-planned community particularly hard last year, and eventually 90% of mortgage holders here owed more than their homes were worth.

But residents are allowing themselves the first twinges of optimism amid the gloom. The 2,600 existing homes in this development 60 miles east of San Francisco are selling at nearly three times last year's pace. One builder has sold about 30% more homes in 2009 than a year ago. And homeowners here are seeing the welcome return of another phenomenon: the bidding war.

When Catrina Koleva and her husband found their dream home listed here for $299,900 in February, they figured they would try to win the five-bedroom spread. Instead, they faced 12 other bidders and gave up. The winning bid was 30% over asking price, said Tabari Palmer, a representative of the listing agent. "I think people are seeing there are some pretty good values here," Ms. Koleva said.

No one wants to call a bottom in Mountain House after what happened. Home prices have fallen more than 50% from their peak amid masses of foreclosures. (The home Ms. Koleva wanted last sold for $781,900 in January 2007.) But 48 homes have sold so far this year and another 59 are in escrow, compared with just 19 sales in the year-earlier period, said MetroList Services Inc., an industry-tracking firm.

Adding to the hint of new life, Little League participation has grown to 220 from 178 last year. "People I see here have as much hope as I've seen in a long time," said Lemuel Vergara, principal of the local Wicklund Elementary School.

Mountain House's nascent revival is representative of a phenomenon playing out here and there around California, offering glimmers of wary optimism as fallen home prices and interest rates entice buyers. Pulte Homes Inc., one of Mountain House's builders, reported a "marked" increase in its California sales this year from last. January existing-home sales doubled from January 2008, according to the California Association of Realtors, and sales are still growing.

California homes were on the market an average 6.7 months in January, compared with 16.6 months in January 2008, the Realtors association said. Nationwide, it was 9.6 months. In Tracy, a city of about 80,000 people next to Mountain House, there are 900 homes for sale, down from 1,800 a year ago, said Tracy Mayor Brent Ives.

Meanwhile, economists say California is leading a resurgence in the West of existing-home contracts. January contracts signed in the 13 states stretching from New Mexico to Wyoming to Alaska to Hawaii rose 13.5% from a year ago, compared with a nationwide decline of 6.4%, the National Association of Realtors estimates.

Some of California's strongest housing resurgence is in the hard-hit Central Valley, where Mountain House lies. In Stockton, which had the country's highest foreclosure rate, sales year-to-date were 1,331 homes on March 18, up from 501 in the year-ago period, MetroList said. In the Sacramento suburb of Elk Grove, sales over the same period rose 54% to 192 from 125; in Modesto, sales rose to 702 from 320. "It really does look like we are getting to the end of this," said Jerry Nickelsburg, senior economist at the Anderson Forecast, an economics think tank at UCLA.

Few economists say California's housing debacle is over, and things could even get much worse. The state's unemployment rate of 10.5% in February is likely to rise, they say. So are foreclosures, which rose 5% in February from the month before, according to industry researcher RealtyTrac Inc. The median home price in California fell 57% to $254,350 in January from $594,530 in May 2007, and prices continue to drop in many places.

There is another potential time bomb: What happens when banks put on sale the thousands of homes they have repossessed, but kept off the market?

That is a nagging question in Mountain House, where about 280 homes have been taken off the market since the first of the year, many of them foreclosures. "We can't reach a bottom in the housing market until all of the foreclosures get processed," said Tom Beede, chief executive of MetroList.

But Mountain House has fallen so hard that even a slowing rate of descent gives residents a reason to see some light. When Mountain House sprouted out of a farm field near Tracy in 2003, some people camped in line to snap up houses. Home values soared to more than $700,000, peaking in early 2007 before they collapsed.

In 2008, Mountain House had gained notoriety as the most-underwater community in America, with nine of 10 of borrowers owing more than their homes' values, according to First American CoreLogic, a real-estate-data firm. Banks foreclosed on hundreds of homes, prompting an exodus of residents.

Then, buying slowly started picking up, as people like Larry and Kathleen Wishart began to bet that prices were now a bargain. They paid $335,000 for a four-bedroom, 2.5-bath home that sold for more than $600,000 in 2006. "Had the market not dropped, we could not have afforded to move here," Mrs. Wishart said.

Prices have declined more since then, but buyers aren't waiting around for further discounts. A year ago, most sales were well below asking price. Now, many are close to asking. Broker Leo Apostol says he is representing buyers of two four-bedroom homes, both in escrow for more than the asking price: One is listed at $305,000 and drew four offers; another is listed at $294,950 and drew two offers. "When you have multiple offers, that usually means prices will go up" eventually, he said.

Ms. Koleva, who lost out on her first dream home, said she and her husband, who live in a rented home here with their two young boys, have looked at 30 other homes here and expect to find a good buy soon. "We're not desperate," she said, but "we really like Mountain House. It's a great place to raise a family."

(Reuters) Sales of previously owned U.S. homes plunged in January, reversing the previous month's surprise jump, and prices spiraled down to a six-year low as the deep recession and rising joblessness took its toll.

A drop in number of unsold homes offered some hope for the housing market, the main trigger of the worst financial crisis in the post-war period.

The pace of sales of existing home fell 5.3 percent to a 4.49 million-unit annual rate in January, the National Association of Realtors (NAR) said, from the 4.74 million rate reported for December.

U.S. stocks extended losses on the dour housing report. Government bond prices, which normally rally on weak economic data, were depressed by worries about the amount of debt the Obama administration will issue to rescue the economy.

"The housing market remains the Achilles heel of the U.S. economy as prices fall and demand wanes," said Kathy Lien, director of currency research at GFT Forex in New York.

The median national home price declined 14.8 percent from a year ago to $170,300, the lowest since March 2003 when the median was $169,400, the NAR said.

Lawrence Yun, chief economist at the NAR said roughly two in five home sales were "distress" transactions where the mortgage company must erase some of the original loan amount in order to complete the sale.

"We are seeing worsening economic conditions - loss of housing wealth and in the stock market ... Very low confidence," Yun told reporters.

The collapse of the U.S. housing market and the resulting global credit crisis pushed the domestic economy into recession in December 2007.

Few buyers are willing to take advantage of the lowest home prices in several years as most households are experiencing sharp declines in wealth, compounded by rising unemployment and collapsing stock market prices.


"Home prices are continuing to slide. They're down 14.8 percent over the past year. That makes housing very affordable relative to income, but buyers are still holding back," said Gary Thayer, a senior economist at Wachovia Securities in St. Louis, Missouri.

"We probably need to see a little more confidence in the economy to get buyers back into the housing market and that's just not happening yet."

A separate report showed applications for mortgages fell last week as mortgage rates edged higher. The decline followed recent robust increases in applications after the government unveiled its strongest action yet to aid struggling homeowners.

The Mortgage Bankers Association's seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, fell 15.1 percent to 743.5 in the week ended February 20 after surging 45.7 percent the prior week.

A decline in the glut of unsold homes offered a glimmer of hope that the housing market could find some stability later this year, a key ingredient for a turnaround in the economy's fortunes.

The inventory of existing homes for sale fell 2.7 percent to 3.60 million from the 3.70 million overstock reported in December, the NAR said.

"The good news is that the inventory of unsold homes fell a bit more," said Pierre Ellis, a senior economist at Decision Economics in New York.

However, sales fell faster than supply of unsold homes, and the 9.6 months it would take at the current pace to clear the market was up from December's 9.4 months.

The NAR said it expected a recent federal stimulus package and other rescue measures to spur 900,000 home sales this year. Still, some economists don't expect Washington's encouragement or lower prices to quickly restore the confidence of prospective buyers.

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