When the economy revives, how will the public know?

Jeannine Aversa
Associated Press
May. 23, 2008 12:00 AM

WASHINGTON - With any luck, the second half of this year will be better than the rocky first half. The Federal Reserve chief hopes that is the case. So does President Bush.

For the rest of us mere mortals, it feels like the pain is getting worse.

When the economy begins to snap out of its funk, how will we know?

Like calling a recession, pinpointing the turnaround can be as much art as science. Economists agree there could be some signals to look for: a calmer stock market, an end to falling home prices and more jobs being created.

We're not there yet.

The economy by all accounts is suffering through difficult times, although some economists have backed off their recession talk. Economic growth has slowed sharply and employers have cut jobs for four months in a row as problems in housing, credit and financial markets forced skittish people and businesses alike to hunker down.

Even though a Labor Department report Thursday showed the number of newly laid-off workers filing for unemployment benefits dropped last week to the lowest level in a month, claims remain high enough to indicate the labor market is sluggish.

Still, there's hope that the economy's growth will begin picking up later this year.

Experts will be looking at a variety of barometers to mark the arrival of a rebound, but it's by no means definitive.

One important indicator is the stock market. The turbulence that has engulfed Wall Street since last summer and hit a crisis point with the near collapse of investment firm Bear Stearns, has calmed somewhat, but the situation is still "far from normal," Fed Chairman Ben Bernanke recently observed.

The Dow Jones industrial average, for instance, has clawed its way out of a recent bottom - of 11,740.15 - hit in March. However, the index hovering just under 13,000 is well below its peak of 14,087.55 set in early October of last year. Financial markets remain fragile.

Investors are looking ahead - at the economy's prospects and individual businesses - when they make investment decisions and are buying or selling stocks.

"The canary in the coal mine is really financial markets," said Sung Won Sohn, an economics professor at California State University. "The stock market recovery almost always precedes the economic recovery by about six months or so. The exception was in the 2001 recession. Because of the dot-com crisis, the stock market was so badly battered it took a while for it to get back to full speed," Sohn said. By his count, after the 2001 recession, the stock market lagged the economic recovery by one year.

In the current bout of economic troubles, though, fallout from the 2-year-old housing collapse and subsequent credit and financial problems has driven the pullback by consumers, businesses and Wall Street.

That's why economists - this time around - will be looking for signs of stabilization in the housing market. Specifically, house prices will have to stop falling or at least decline at a slower pace in many parts of the country. As many Americans have watched their single-biggest asset - their home- shrink in value, they have become much more cautious in the spending.

Study: State must plan for growth

Infrastructure needs $417 billion

by Ryan Randazzo - May. 22, 2008 12:00 AM
The Arizona Republic

Arizona's electric, communications, water and transportation infrastructure needs more than $400 billion to match expected growth within the next 25 years, and existing funding methods won't keep up with population, according to a new study from Arizona State University.

The Arizona Investment Council commissioned the report from the W.P. Carey School of Business at ASU. It will be made public today.

If the state and its residents don't pony up the estimated $417 billion to $532 billion needed, the report's authors conclude that failing infrastructure will limit the state's economic growth and may end up "stifling growth itself."

Among the report's conclusions:

• Electricity prices are going to rise at or above the rate of inflation to keep up with the need for more power plants.

• Businesses will be reluctant to relocate to the state without significant investment in telecommunications because the state's networks don't stand out in any way from the rest of the country, and many rural areas don't have high-speed connections.

• Even with planned improvements, roads, railways and airports in the state will be more crowded and handle traffic worse.

• The water-delivery systems, particularly Salt River Project and the Central Arizona Project, are outdated and can't keep up with growth. Central Arizona will need additional water supplies well before 2050, it said.

The Arizona Investment Council was formed in 1994 to represent investors in public utilities and since has expanded to advocate infrastructure planning to accommodate the state's population growth.

Although the report's conclusions seem to echo concerns that Arizona Public Service Co. raised in its current rate-hike request, council President Gary Yaquinto said the authors came to their conclusions independently.

"Take it as corroboration of the point that we are nearing our constraints on delivering power to Arizona," he said.

Tim James, director of research and consulting for the L. William Seidman Research Institute at ASU, said his team approached the research with a balanced perspective and found the condition of the state's infrastructure startling.

"We've been sweating our equity," he said. "And now it's time to pay the piper. We are an economy that eats itself here. Housing feeds housing."

The study predicts the state will continue to grow rapidly - about 65 percent between 2008 and 2032, adding 4.2 million more people to the current 6.3 million.

James said that the current economic slowdown could even spur growth in Arizona because it still offers an attractive lifestyle compared with many other regions. Asked if slower growth is preferable, James responded that even when attracting high-paying, high-tech jobs, infrastructure is a key consideration for executives to bring in those companies.

In the energy sector, the state has been meeting growth by building mostly natural-gas plants, which the study said likely is unsustainable because natural-gas prices are rising and global-warming concerns will discourage more reliance on the fuel as well as coal-fired power.

Instead, utilities will have to turn to more costly energy sources such as nuclear power or non-polluting coal, the report said. The latter isn't commercially viable but is getting lots of research.

"The era of declining electricity prices is over," the report said. "Retail prices will have to rise to allow producers to recover the higher cost of fuels and more expensive methods of generation that are necessary if the industry is to support environmental initiatives."

James advocated creative financing measures to prevent current residents from shouldering the entire financial burden of growth.

"If you've been living here and you've paid your fair share, you ask, 'Why do I have to pay this?' " he said. "It seems unfair."

The report lists several financing suggestions, from development fees on new homes, bonding measures, toll roads, and even more frequent yet smaller rate increases at utilities.

Telecommunications would benefit from creative solutions such as tax incentives, cutting right-of-way fees and higher standards in building codes, it said.

SE Valley foreclosures skyrocket

Kerry Fehr-Snyder - May. 17, 2008 07:05 AM

The Arizona Republic

The Southeast Valley stood out with some of the largest percentage increases in foreclosed homes even as the number of home loan defaults soared across the Valley in the first four months of the year compared with the same period last year.

The number of foreclosed homes in two of Tempe's three ZIP codes posted 1,000 percent increases, an unfathomable number that is hard to comprehend because of the way percentages are calculate.

Indeed, the 85282 ZIP code south of U.S. 60 between McClintock Drive and Rural Road saw a 1,367 percent increase, according to Information Market. That increase gave it the unenviable rank of No. 2 in Valley in the first four months of the year. Sun City's ZIP code 85351 was No. 1, going to 31 foreclosures from two for the same period a year ago.

Nearly as bad was Tempe's 85281 ZIP code, which saw a 1,350 percent increase through April compared with the first four months of 2007.

Many of the loan defaults have come because of investors and home buyers who found themselves upside down financially because they owed more than the home's appraised value.

Some of those home owners decided to walk away from their homes and risk a black mark on their credit ratings rather than trying to stay up with mortgages that were calculated in the sub-prime lending debacle and ballooned beyond their affordability as the national, regional and local real estate markets collapsed.

Scott Stone, who owns a home in north Phoenix's Tatum Ranch and is waiting to buy a home today, in the new northeast Mesa Blandford Homes Mountain Bridge development, said he has neighbors who refinanced during the real estate run-up.

"You're morons for refinancing and being upside right now," Stone said.

The real estate crash has left many mortgage lenders and brokers scrambling to sell homes they foreclosed on or are trying to unload through a short sale in which lenders accept less than what is owed on a home.

In the Southeast Valley, some of the hardest hit areas are on the fringes, such as in Queen Creek or Pinal County.

But some of the biggest percentage increases in foreclosures have occurred in closer-in communities, such as Chandler and Mesa. In Chandler's southeast 85226 ZIP code, for example, the percentage of foreclosures jumped 925 percent.

Mesa's 85207 ZIP code, meanwhile, saw an increase of 870 percent. And Gilbert's 85234 ZIP code saw a loan default increase of 872.7 percent.

But like all numbers based on percentage changes, the numbers can be misleading. For example, Chandler's 85226 ZIP code went to 41 from 4 foreclosures during the four-month period this year and in 2007, respectively.

Gilbert's 85234 ZIP code, by contrast jumped to 107 from 11 foreclosures and yet posted a smaller percentage increase than Chandler's 85226 ZIP code default percent of 872.7 percent.

Similarly, the increase in Ahwatukee's foreclosures look huge percentage-wise but are still relatively low at 35, 20 and 54 for the ZIP codes 85044, 85045 and 85048, respectively.

Regardless of a community's default numbers, lenders and real estate agents warn borrowers to think twice before walking away from their investment especially since the federal government revised mortgage debt rules by no longer taxing borrowers on the amount lenders forgive.

Under a Feb. 12 revised IRS rule, homeowners whose mortgage debt was partly or entirely forgiven may be able to claim tax relief with newly revised Form 982. Previously, debt forgiveness was reported by lenders as taxable income to borrowers.

Housing rebounds; outlook shaky

Housing rebounds; outlook shaky

Martin Crutsiniger
Associated Press
May. 17, 2008 12:00 AM

WASHINGTON - Construction of new homes posted the biggest increase in more than two years in April. Although it was a rare spot of good news for the housing market, analysts said it's far too soon to declare an end to the prolonged slump.

The Commerce Department reported Friday that housing construction rose by 8.2 percent in April to a seasonally adjusted annual rate of 1.03 million units. Building of single-family homes continued to weaken, however. The growth came from a big jump in apartment construction.

Analysts predicted the surprising rebound in April would be temporary given the headwinds builders are still confronting, from slumping sales to soaring home foreclosures.

"It is definitely too early to uncork the champagne on the long and winding road to more-healthy housing-market conditions," said Brian Bethune, an economist at Global Insight. He said he did not expect housing activity to stabilize until the end of this year.

The prolonged slump in housing has been a major drag on the overall economy, raising worries that the country is in danger of falling into a recession. A second report Friday said that consumer confidence as measured by a University of Michigan/Reuters survey fell to a 28-year low of 59.5 in early May, down from 62.6 in April. The drop was blamed in part on rising concerns about higher gas and food prices.

The strength in housing construction in April came entirely from a huge increase in apartment construction, which can be extremely volatile from month to month. Building of apartments, defined as two or more units, jumped by 36 percent to a seasonally adjusted annual rate of 340,000 units.

The single-family sector dropped by 1.7 percent to an annual rate of 692,000 units. It was the 12th consecutive monthly decline and pushed single-family building activity to its lowest point in 17 years.

Applications for building permits, considered a good sign of future activity, also recorded an increase in April, rising by 4.9 percent to 978,000 units. It was the first gain in permits in five months.

But economists believe housing construction will remain under pressure until builders have more success in reducing a huge backlog of unsold homes.

That effort is being made more difficult by a record wave of foreclosures as millions of borrowers lose their homes because they cannot keep up with escalating payments, particularly on subprime mortgages, loans extended to people with weak credit histories.

By region of the country, construction posted the largest gain in the Midwest, an increase of 24.4 percent when compared with March. Construction rose 18.5 percent in the West and was up 3.6 percent in the South. However, construction fell by 12.7 percent in the Northeast.

Housing rescue deal stalls in Senate

"It is my desire that we fashion legislation that will enjoy broad-based support. It may not be possible in the end," Dodd said. "If it doesn't happen, so be it, but we're not going to have it not happen because we didn't try."

In a statement issued late Thursday, he said he was "very close" to an agreement with Shelby and was "optimistic" the two could bring a bipartisan bill to the Senate floor.

Shelby said the two had reached a deal that was "palatable to everybody," which would tap a fund designed to pay for building housing for poor families to finance the new foreclosure-prevention program.

Without it, Republicans call the program a bailout that would open taxpayers to undue risk. President Bush cited that concern when he threatened to veto a similar, House-passed rescue plan.

Diverting the affordable housing fund - which is to be drawn from Fannie Mae and Freddie Mac profits - will "save the taxpayers money," Shelby said. It's "something the White House will sign," he added.

Some Democrats were unhappy about the plan, which would at least temporarily steer a funding stream they have long sought to help low-income people avoid homelessness to a homeowner rescue program aimed instead at helping middle-income people avoid foreclosure.

Still, it appeared most would be willing to accept the bargain in the interest of advancing the homeowner rescue plan, said senior Senate Democratic aides, speaking on condition of anonymity because the deal is not yet final.

May. 15, 2008 06:34 PM
Associated Press

WASHINGTON - A key senator postponed action Thursday on a homeowner rescue package that could help half a million strapped borrowers get government-backed mortgages, as negotiators inched toward a bipartisan deal.

The delay on the action until next week clouded the prospects of an emerging compromise between Sen. Christopher J. Dodd, D-Conn., the Banking Committee Chairman, and Sen. Richard C. Shelby of Alabama, the panel's senior Republican. It also highlighted the tricky political calculations involved in reaching a bipartisan housing deal in an election year when the two parties are competing intensely to appeal to voters who cite the economy as their top concern.

Dodd and Shelby said Thursday that they were near agreement, but after hours of stop-and-start haggling, particularly over how to pay for the plan, Dodd canceled a committee session to vote on the measure. Also at issue was how tightly to regulate government-sponsored mortgage giants Fannie Mae and Freddie Mac.

The measure allows the Federal Housing Administration to back up to $300 billion in new loans for debt-ridden homeowners facing foreclosure, who would otherwise be considered too financially risky to get a fixed-rate, government-insured loan. Congressional analysts project it would cost about $1.7 billion over the next five years.

Affordable housing advocacy groups unleashed a barrage of telephone calls and e-mails on senators to protest the emerging agreement.

"We will be deeply disappointed if money which has been advocated for and intended for some time to help build housing for extremely low-income people gets diverted away for this foreclosure problem," said Sheila Crowley, president of the National Low Income Housing Coalition. "It would be just a travesty."

Staff aides to Dodd and Shelby, who have been negotiating for weeks in search of an elusive deal, worked overnight Wednesday and were still haggling over details late Thursday.

A major sticking point has been how to insulate taxpayers from risk should homeowners who got government help default on their new mortgages.

Sen. Mel Martinez, R-Fla., called the idea of using the affordable housing fund "brilliant."

Under a tentative agreement, the entire $600 million fund would be used to pay for the mortgage rescue in the first year of the plan, three-quarters of it in the second year, and one quarter of it in the third year. After that, all the money would go to affordable housing as originally intended.

To qualify for the proposed FHA program, borrowers would have to show they could afford the new loans, while mortgage holders would have to agree to take a substantial loss on the existing loan in exchange for avoiding a costly foreclosure. The FHA would share at least half of any proceeds if the homeowner refinanced again or profited from selling the home.

The Senate developments came as Rep. Barney Frank, D-Mass., the Financial Services chairman who wrote the House bill, signaled that his hopes for a broad housing agreement with the White House were fading.

"I won't tell you I'm optimistic, but I think there's a reasonable chance," Frank told reporters after addressing a Realtors' conference. "We're still trying to keep working together."

Frank told the Realtors they should encourage Senate Republicans to back the homeowner rescue plan, and said Bush's opposition was no excuse for inaction.

"The Constitution says the president gets to veto the bill after we pass it," Frank said, "not that he gets to threaten to veto it so we can all duck a tough issue."

Fannie Mae Scraps Declining Markets Policy

Daily Real Estate News May 16, 2008

Fannie Mae will no longer require borrowers to put up an extra 5 percent down payment when purchasing homes in areas deemed "declining markets," the country’s largest secondary mortgage market company said Friday.

Fannie Mae had been hearing concerns from REALTORS® and others for months that its declining-markets policy was bad for the housing market because it discouraged consumers from buying homes in markets hardest-hit by foreclosures.

"It stigmatized communities with lower sales and prices," said Dick Gaylord, president of the NATIONAL ASSOCIATION OF REALTORS®.

NAR met several times this spring with Fannie Mae officials and sent letters reflecting members' unease with the policy. “We heard the concerns of NAR and we reviewed and determined that changes in our policy were needed,” Gwen MuseEvans, Fannie Mae vice president for credit policy and controls, said in a statement Friday.

Fannie Mae's announcement comes as more than 8,000 REALTORS® are gathered in Washington, D.C., where Fannie Mae is headquartered, for NAR's 2008 Midyear Legislative Meetings & Trade Expo.

Under the policy change, borrowers can get loans up to 95 percent loan-to-value, even in markets in which prices have been falling. Prior to the change, borrowers could only get loans up to 90 percent to give lenders a 5-percentage-point cushion to protect against possible price declines in the future.

“This new down payment policy reinforces our goal to support successful home-owning,” says Marianne Sullivan, Fannie Mae's senior vice president of credit policy and risk management for single-family homes.

The new policy takes effect June 1.

— By Robert Freedman for REALTOR® magazine online

Airpark proposal hinges on Luke AFB

Some fear site by field may hinder exercises

Erin Zlomek
The Arizona Republic
May. 12, 2008 12:00 AM

An out-of-state developer wants to build a community of million-dollar homes surrounding a private airpark that would be used for recreation and business travel by its northwest Valley residents.

But the proposed airpark, which could be annexed by Surprise within five years, is close to a Luke Air Force Base auxiliary field and could hinder military-training exercises unless an agreement is reached.

Unless the private airpark accommodates Luke, the project will not be endorsed by city staff, said Surprise spokesman Ken Lynch.

Real-estate developer Bill Wiemann of Wyoming plans to build a community similar to Chandler's Stellar Airpark on 480 acres in the unincorporated northwest Valley, near the confluence of U.S. 60 and Arizona 74, the Morristown-New River Highway.

The property, called the Surprise Airpark, already houses a mile-long, Federal Aviation Administration-approved runway near 243rd Avenue, said Wiemann's attorney, Jim Bullis. But the runway is rarely used.

Developers want a change in the property's agricultural zoning so that it can be fully developed as a residential community whose property owners would use the airport for general-aviation purposes.

The site is not far from Wickenburg Municipal Airport, which operates near Vulture Mine Road and Wickenburg Way. In addition to affluent private users, some of whom live in or travel to Surprise and surrounding communities, the Wickenburg facility caters to area businesses and to firefighting aircraft during Arizona's forest-fire season.

Wiemann's idea is that his proposed community's affluent homeowners would pay a yearly fee to use the neighborhood runway. Most residents would own their own planes or jets, and have hangars attached to their homes, Bullis said.

The airpark is in the unincorporated community of Morristown, in Surprise's 300-square-mile general-planning area. But assuming Surprise successfully annexes swaths of state trust land in between, the airpark could end up within city limits. For that reason, Wiemann and Bullis submitted a General Plan amendment to the city this year, requesting an airport land-use classification for the property.

"They want to make sure they get in there and have the area reserved so that there are no conflicts with people, and so that Maricopa County and the city don't start planning subdivisions around the area," said city planner Janice See.

But for some northwest Valley residents, the primary potential conflict is with Luke Air Force Base.

Though Luke pilots do not land at the nearby auxiliary field at Crozier and Jomax roads, they do use the airspace above it for training.

Bullis said the proposed airpark would create minimal air traffic and is unlikely to conflict with Luke. But Luke officials said they have had little contact with Bullis and until notified, are being cautious about the proposal.

"We are really working in a vacuum, in that we don't know what the scope of their operations will be, so it's hard to predict the impact it will have on us," said Rusty Mitchell, director of Luke's Community Initiatives Team.

Bullis said he expected to start meeting with Luke officials in the next 40 days to iron out any complications.

He said other airparks operate in the area and have little impact on Luke, and that the Surprise Airpark would likely be the same.

The Thunder Ridge Airpark operates in Morristown and is used by area homeowners for business and recreation travel.

Home sales show first gain since July 2005

Skeptics cautious about April home-sale uptick

Misty Williams, Tribune

May 13, 2008

The Valley’s ailing housing market showed a glimmer of life last month with existing home sales posting the first year-over-year gain since July 2005. Some 5,585 resale homes were sold in April — up from 4,855 a year ago, an Arizona State University report shows. But experts say it’s unclear whether the increase marks the beginning of recovery or just a blip in the market.

“One month does not make a trend,” said Jay Butler, who heads up ASU’s Realty Studies department. “You just sort of have to wait and see.”

Year-to-date through April, sales totaled 16,975, compared with 19,045 last year, according to the study. Still, real estate agents say they’re seeing more buyer activity as home prices continue to slide.

The Valley’s median home price dropped to $210,000 in April, compared with $265,000 a year ago.

That’s the lowest median recorded since February 2005 at $200,000, the report shows.

Those lowered prices have opened up opportunities for first-time homebuyers and others who were priced out of the market during the boom.

Investors are also getting back into the game, and lenders are aggressively trying to offload foreclosure and bank-owned properties, Butler said.

The beleaguered economy continues to play a role, however, in some individuals’ reluctance to buy, he said.

People are worried about getting laid off, salary cutbacks, high gas prices and other costs, he said.

They’re saying, “Now may be a great time to buy, but maybe we need to be a little bit more cautious,” Butler said.

The market won’t level off until the huge inventory of foreclosure and bank-owned properties is whittled away, said Mike Wasmann, president of the Arizona Association of Realtors.

Those properties are driving down prices in some areas, making it tough for average home sellers to compete, Wasmann said.

3 experts sift through rubble of Valley market for signs of life

by Catherine Reagor - May. 12, 2008 12:00 AM
The Arizona Republic

At Valley dinner parties and soccer games, the talk still turns to real estate. Whose home is for sale? What is it worth? Why did they lower the price so much? Did you see that foreclosure sign on the next block? Is now the time to buy low?

So we invited the state's three wise men of real estate - RL Brown, Jay Butler and Marshall Vest - to a dinner party at Kai restaurant to talk about the Valley's market. After the wild years of 2004-05, when home prices jumped 50 percent, prices are down in most parts of metropolitan Phoenix, and foreclosures are outpacing sales in some far-flung suburbs.

What does it all mean for the economy and home values? Over steak, scallops, lobster and foie gras, we found out. Republic reporter Catherine Reagor talks with three leading experts about the Valley's real-estate market - the challenges and the future.

Catherine Reagor: So, gentlemen, when is the housing market going to come back or at least stop slowing?

Jay Butler: Builders are telling me over and over again that they're seeing better traffic. There's some encouragement there, but it's grim. There are just fewer buyers out there.

RL Brown: I think a lot of people are looking for the deal.

Butler: When we do find the bottom, we are going to find it's uneven. For example, Pinal County is probably a couple years further away from recovering than other parts of the Valley.

Marshall Vest: Foreclosures are key to a recovery, and they continue to rise.

Butler: I think what we're now going to start to see is the traditional foreclosure: people losing their job and their home. It's been mostly the investors who have lost most of the homes to foreclosure so far. Nobody cares about them.

Brown: Take your typical young family: Their loan resets, their payments go up and they say forget it and are walking away and letting it go into foreclosure. But they don't say "foreclosure," they say, "We're giving it back to the bank." Then that couple moves a few doors away to a rental, where the payment is $1,000 a month, instead of the $2,500 their mortgage was costing them.

Butler: A lot of these people can afford a house; they just can't afford the house they bought.

Brown: That's right. They just overbought because of the frenzy and the aggressive advertising of loans that didn't make sense.

Vest: It used to be you'd fall behind on your credit cards but you made your house payment no matter what. It's a different generation, I guess.

Reagor: What does people walking away from homes do to home prices?

Butler: Prices are dropping about where they should be.

Brown: They haven't gotten down to where they should be yet.

Vest: Prices are likely to drop another 10 percent.

Reagor: Whose fault is all of this?

Butler: Everybody's, and everybody is blaming everyone else. A few years ago, if a lender told a borrower a loan wasn't right for them, that borrower could walk out the door and . . . get the loan from someone else.

Reagor: What's the fallout from the housing market's problems?

Vest: The economy appears to be in a freefall. I'm talking about the national economy. . . . I think we're in the panic stage right now.

Brown: You mean the policymakers are panicked? Or are the consumers panicked?

Vest: Some of the economic statistics for the nation just look really dismal. It's clear that the economy is contracting, certainly in Arizona. The economy has to improve before the housing market can. That could be two years.

Butler: It used to be that the industry would lay off and then hire again when the market came back. But the mortgage brokers aren't going to go back to $100,000-a-year jobs.

Reagor: Will Arizona fare better than other parts of the country during this downturn?

Brown: We're faring worse because we had a higher level of greed or a higher level of frenzy. Arizona's going to suffer more in the near term. In the long term, the general outlook is good. You can argue or discuss or speculate when job growth will come back, but it will come back.

Reagor: What about a recession?

Vest: What's different this time is Arizona is leading the nation. If you look back in history, we've always lagged behind the national economy in recession times. It goes back to what's going on in housing. Housing was the driver of our economy.

Brown: I don't think there's any question that the confidence of the consumer has to come back first. . . . There's no confidence in jobs, there's no confidence in government. We have to see confidence come before we can expect housing to start some form of recovery.

Vest: A well-respected national economist recently said housing sales will pick up by the end of the year, and home building will bottom out and pick up early 2009.

Butler: It's difficult to measure price changes in new homes because of the chronic concessions.

Brown: True, you can't measure what's been given away with concessions on new homes, and there's no question there are deals. A guy told me ... that he bought a new Shea home for $183,000. . . . The same house sold for $300,000-something in the Valley two years ago.

Reagor: How can we best track the housing market now?

Butler: There's no such thing as a national housing market. There's no such thing as a Maricopa County housing market. It's really what's happening in your neighborhood. Some neighborhoods are holding up. There's very little turnover, and people are very happy. . . . In others, you're going to get foreclosures and sellers cutting prices to get out.

Vest: By the end of this downturn, prices are going to be back to the same place they were at the end of 2004 (before the run-up).

Butler: There are parts of the Valley where nobody wants to be in at the moment. Young households don't want to spend too much time on the freeway. So if you buy a home to raise your family, you're not going to do it in Maricopa or Casa Grande or Buckeye or Surprise because it's too far away.

Brown: Let me ask you an obvious question, Jay. Let's assume everything you say is true. If housing prices in Pinal (County) regress to where they were five years ago, will the area's affordability draw people again?

Butler: I think people are going to be very cautious about what and where they buy. A lot of people that already live out in Pinal County want out but can't get out.

Reagor: What about the subprime loans? What will the ultimate fallout be from those?

Butler: There are two groups of people who are losing their homes. One's the investor, especially the amateur, and those who simply stretched their income to buy. Both used loans they shouldn't have. Should they have been able to get those loans in the first place?

Brown: And there are the homeowners who tapped all their equity to buy toys. Now they are candidates for foreclosures. . . . Think about the homeowners in the Valley who have had their houses for several decades and seen them triple in value.

Vest: You think, 30 years from now, people who just bought are going to see that kind of appreciation?

Brown: I think there's potential to see that.

Vest: Is Arizona a better place to live today than it was 20 years ago? Are we headed in the right direction?

Brown: We're not headed in the right direction because we've not done what's required to keep up with the same level of service and infrastructure that we had 20 years ago.

Butler: One of the examples I always use is that we used to have flower growers on Baseline Road. Now they're condos and apartments. That's good housing, affordable housing for people who live in the area, but the flower gardens are gone.

Reagor: What role did speculators from a few years ago play in the problems the housing market is having today?

Butler: The professional speculators bailed in 2004-05. Who really got suckered were the amateurs because they didn't understand what is required to manage investment properties, and they believed all those infomercials. I had a student who worked for UPS, and a few years ago, they were shipping enough of those little infomercial tapes about investing in Phoenix homes to fill eight semitrucks a night.

Brown: The real investors are scoping out the neighborhoods and doing the right kind of homework.

Butler: I have a neighbor who owns 10 homes, but he knows how to manage them. The amateur doesn't because they think these tenants are actually nice people. My friend, the investor, once told me he's having a good day when DEA (Drug Enforcement Administration) isn't kicking in the door of one of his houses.

Reagor: What will the employer-sanctions law, which will crack down on illegal immigration, do to the housing market's labor force?

Butler: I did a thing for the Arizona Landscaping Association, and the small guy's convinced that the big guy's trying to force them out of business with the sanction law. It's the small guy who uses the labor, and if they have to pay someone $12 an hour instead of $6, they are going out of business. In today's economy, people will pay $30 or $40 a week to have their lawn done. But if they have to pay $60 or more, they will mow their own lawn.

Brown: The approach in the home-building industry is that they're going to go through the verification process.

Vest: It will mean higher inflation.

Reagor: Should Valley homeowners keep putting money into their homes?

Brown: If you're going to live there, you should invest enough to make it the way you want it. You shouldn't double the size....

Vest: The real problem is the word "invest." People are looking at homes as investments instead of a safe and comfortable place to live. Do something to your house that you're going to enjoy. Right now it's cheap to renovate because there are contractors available.

Brown: If you'd have bought that house 10 years ago, you would not have bought it as an investment. You would have bought it as a place to live, and that's the approach people should take now.

Reagor: What surprised you all the most about the boom and then the downturn?

Brown: The real ramifications relative to the whole credit issue. The credit markets have to get squared away before we rebound. I'm really hoping this is the bottom, but it might not be. It's certainly not the bottom in terms of home-price wars. There's too much inventory.

Reagor: Is this a good time to buy, even though prices could continue to fall and credit is tight?

Butler: Yes. Prices may drop some more, but you can sit around and worry about a car hitting you in the intersection, too.

Vest: You need a place to live, and if you can afford the loan and plan to hold on for a while, then buy.

Brown: It's the best time to buy a house that we've seen in at least the last three years. Decide where you want to live, and then start focusing on that neighborhood. When you see the "for sale" signs start disappearing, it's a clue that the area is in the process of recovery. Then prices in that neighborhood have probably bottomed out, and you'd better make your move.

Report: US Airways could move headquarters

May 12, 2008 - 6:56PM

Donna Hogan, Tribune

Speculation on whether Tempe-based US Airways and Chicago-based United Airlines can complete a deal, when it might happen and what the merged carrier is likely to look like continues unabated this week.

The Chicago Tribune reported Sunday, citing an unnamed source familiar with the negotiations, that the two giants are close to an agreement that would form the second-largest U.S. airline, with US Airways' management team in charge but the corporate headquarters in Chicago.

US Airways won't comment on any topics under discussion, but analysts are far from agreeing about what may happen with a merger of the two major carriers.

Airline expert Bob Mann of R.W. Mann & Co. said it makes sense that if a deal is struck, US Airways CEO Doug Parker would take the reins, along with his entire management team.

"Parker and company are much more efficient," Mann said. "I don't think much of United (top management) would be left."

But Mann said he's not convinced that the company would be run from Chicago and, if it were, just how many of the administrative jobs would move there.

Mann said that even if Parker and other top management relocate to Chicago, administrative and support positions don't have to make the move.

"A lot can be said for not taking the low-cost, well-run operation and changing locations," he said.

Real estate is much more expensive in Chicago than in Tempe, he said. And the decision on a location just might depend on leases and when they expire.

US Airways would not reveal information about its Tempe lease.

The hometown airline has about 10,380 employees based in the Valley, spokeswoman Valerie Wunder said. That's a combination of administrative and operational positions. The operational slots include pilots, flight attendants, mechanics, ticket agents and others tied to operations at Phoenix Sky Harbor International Airport.

Just 2,191 of the local positions are considered administrative, Wunder said, and some of those may also be associated with Sky Harbor functions.

So even if Chicago lands the headquarters, Tempe's biggest loss may be the prestige of being home to an airline.

Tempe Mayor Hugh Hallman said he'd rather have the jobs than the prestige, "since they rarely mention headquarters location anyway."

"Glendale found that out with Super Bowl," he said.

While US Airways has been "a good community partner" with Tempe and the Valley and, because the bulk of the local jobs would stay put, that's unlikely to change even if the company's home base is in Chicago, Hallman said.

"Tempe's success does not depend on any particular employer," he said.

Mann doesn't envision any changes to the Sky Harbor operation if a merger is completed. While United has five hubs and US Airways has four (if Las Vegas las Vegas is included), there is no reason not to have that many "focus cities," as long as they are profitable, Mann said.

While frequency and capacity are likely to be reduced in a merger where routes overlap, that will mostly include flights from hub to hub, he said.

US Airways has about 186 flights a day departing Terminal 4 at Sky Harbor, and Mesa Air Group, flying regional routes as US Airways, has 88, said Deb Ostreicher, deputy aviation director.

That's nearly 20 percent of the busy terminal's business.

United has 70 departures a day, she said.

Likely losers in a merger would be the regional partners, Mann said. Those partners are small airlines that fly connecting routes under the banner of the major companies.

United and US Airways have eight to 10 between them, which may not be as needed with the bulk of a combined giant.

That could be bad news for Phoenix-based Mesa Air, a regional partner for both and already in danger of being dumped by Delta Air Lines, which is in the midst of a merger with Northwest Airlines.

Home resales rise as prices are slashed

Home resales rise in West Valley as asking prices are cut up to 30%

by Erin Zlomek - May. 12, 2008 12:00 AM
The Arizona Republic

Home sellers in the West Valley have slashed their asking prices up to 30 percent since February, and the price cuts are spurring sales in Surprise, El Mirage and Goodyear, according to a report from Arizona State University.

Though home resale activity has dropped in Glendale, Peoria and Avondale, it is only because fewer homes are for sale in those communities, since they have more established economies and infrastructures and less housing turnover, said Jay Butler, director of realty studies at ASU's Morrison School of Management and Agribusiness.

The ASU report measured the Valley's home resale activity from February to March. The school is expected to release April sales figures later this month.

In the West Valley, resale figures show that home values in the newest West Valley communities are still correcting while values in the more established municipalities closer to metro Phoenix have become more stable, Butler said.

"You really got two sets of communities: Glendale and Peoria are older, more mature communities. And then, there are the new ones under development like Surprise, El Mirage to some degree, and Goodyear . . . those are the ones that really got hit hard (by the housing slowdown)," he said.

The steep price drops in those newer communities have revived buyer interest, however.

Butler said that investors are once again purchasing homes in those areas, as are new snowbirds - older winter visitors who are migrating to the northwest Valley's retirement communities.

Maricopa housing market 'underwater'

May 9, 2008 - 4:40PM

Salvatore Caputo, For the Tribune

Most likely the house has gone "underwater," and the owners swam away. A house is considered underwater when the debt owed on the mortgage is greater than the value of the house on the market.

This is not a huge problem for people who can make their mortgage payments and who don’t have to sell a home, but for those who have needed to sell homes since the last quarter of 2005 through today, things have been tough.

In the first quarter of 2008, there were 310 resales of homes in Maricopa at a median price of $170,000, according to a real estate report issued by Arizona State University’s Morrison School of Management and Agribusiness.

In the same quarter of 2007, there were 90 resales with a median value of $246,500 ("median" is the midpoint in a series of prices, meaning that roughly an equal number of homes sold at prices higher and lower than the median).

Paul Jepson, an assistant to Maricopa’s city manager, who has been given the task of determining how widespread the problem is, said that about 31 to 34 percent of resales in the city have been of such underwater, or "distressed" as he called them, homes.

Sales appear to be on the upswing, but as the median numbers indicate, at prices well below what owners originally paid.

One of the market casualties is Daryl Fox, a 40-ish, recently unemployed cosmetics salesman.

Foreclosure rate rising in Phoenix metro area

After his divorce several years back, Fox and his ex-wife sold their home in Chandler. It took a while to sell the house, and they had to reduce the price to find a buyer in the already-slumping Valley real-estate market, he said.

In April 2006, Fox took his half of the equity from the Chandler home and whatever other savings he had scraped up through the years and used them to pay 15 percent down on a three-bedroom home in Rancho El Dorado. The $212,000 purchase price was down from the home’s highest value.

He thought he was hitting the market at the right time, getting the most bang for his buck.

"I thought the market had bottomed out when I bought it," Fox said. That’s why he was willing to take out a 2/28 adjustablerate mortgage from Chase Bank.

A 2/28 is a 30-year mortgage. For the first two years, Fox would pay 7.5 interest on principal. After that, the interest would go up and increase the monthly payments.

Fox was willing to take a chance because he thought that in two years the market would bounce back, bringing the value of his house up and he’d be able to refinance the note before the interest rate adjusted. He did refinance right after closing, drawing the equity of that 15 percent down out of the house to finance a few renovations, he said. He owed the full $212,000 now.

"My intention was to live in that house as my primary residence, that’s why I remodeled it," Fox said.

In June 2006, Fox met Teri Parks, his future wife, at the Native New Yorker. Parks soon moved from Minnesota to Maricopa, buying a home in Acacia Crossings.

"After we were dating for a while, we got engaged and we moved in together," Fox said.

Parks’ house was the larger of the two, so it made sense for Fox to move in there and sell his place.

But the short market downturn Fox had expected turned into a free fall.

The median housing price in Pinal County "has steadily eroded from $220,000 in fourth quarter 2005 to $193,000 in third quarter 2007 and $156,160 for the current quarter," stated a report released April 29 by Jay Butler, director of Realty Studies in the Morrison School of Management and Agribusiness at Arizona State University’s Polytechnic campus in Mesa.

For Fox and others like him, this meant that a normal real estate sale was out of the question. So he tried renting the house out, hoping to hang on until it recovered value and he could sell. However, while he was paying $1,800 a month on the mortgage, the best rent he could get was $900 a month.

After spending thousands trying to hang on, Fox was staring down the barrel at foreclosure. A lawyer advised him just to walk away from the home, but he decided that he would try to sell the property in a short sale.

Fox has a buyer willing to pay $90,000 as of early May. If the bank accepts that offer, Fox could get out of the house without being foreclosed upon and the remainder of his debt would be forgiven. He’d walk away with no financial return on the biggest investment of his life, the $30,000-plus down payment and the thousands more he’d spent in monthly payments. At least, his credit would not be dinged and he could be satisfied to know that he retired the debt in an ethical fashion.

Fox said the bank told him that the house would be foreclosed upon on May 19. Even if the short-sale offer was on the table? He said he didn’t know and referred me to his real estate agent, Rita Weiss, the broker and owner of Desert Canyon Properties in Maricopa.

"I’ve spoken to Chase but they won’t tell me," Weiss said. "It could very well be that they don’t want it to go to foreclosure." She said that it typically costs a lender about $50,000 to foreclose on a property and all that the lender gets out of it is one more unsold house on its hands.

"If there’s an offer on the table, they’re going to try to make it work," said Weiss, who specializes in the Maricopa and Casa Grande markets. "There’s a flood of homes on the market. They don’t want to take back the houses.

"Forty-two percent of all houses that are actively on the market in Pinal County are either foreclosures or short sales," she said. "There are 56,000 listings in the MLS (Multiple Listing Service) right now. When we were in the big boom in 2005, there were only 8,000 houses on the market."

The law of supply and demand says that nobody will be seeing much return of value until that excess supply is sopped up.

During Maricopa’s wild growth spurt after incorporation, about 13,500 homes were built in the city, Jepson said. He based that number on cross-referencing building permits the city issued, water hookups in the city and housing completion certificates. None of them exactly match, but they seem to end up in the same general ballpark.

When Jepson said that 31 to 34 percent of the homes for sale in the Maricopa "market district" are what he called distressed, he meant they are either foreclosed-upon bank-owned homes or homes being marketed for a short sale, with the split between short sales and foreclosures at roughly 50-50.

"The bank-owned (foreclosures) are on the way down, and the short sales are on their way up," he said. That appears to be good news because it seems to indicate that an increasing number of residents in trouble with their mortgage are trying to avoid just walking away from the property.

People who walk away can’t keep up their homes, which has a ripple effect on neighbors and the city.

Arizona is now in recession

Moody's: Valley bad, but Tucson in worse shape

by Betty Beard - May. 9, 2008 12:00 AM
The Arizona Republic

The Phoenix and Tucson metropolitan areas, as well as the state of Arizona, are in a recession, economists at Moody's Economy.com have declared.

The company first concluded several weeks ago that Arizona was in a recession and, in a separate report released Thursday, said that metro Phoenix is "firmly" in one.

Industries are shedding jobs, the housing market remains tumultuous, the mortgage-delinquency rate is rising faster than the national rate and credit conditions aren't likely to improve in the near term, says the Phoenix report written by Rebecca Seweryn, a senior economist with Moody's in West Chester, Pa.

To show how far the economic malaise has spread, she says that consumer-driven industries such as retail, leisure and hospitality are shedding jobs and remain under strain, despite a temporary boost from the Feb. 3 Super Bowl.

The housing industry in particular will be a drag on the local economy, Seweryn says in her report. "As (Phoenix) had one of the largest booms in the housing markets in recent years, it is in the midst of one of the biggest corrections."

Housing-related employment is falling fast, and because it makes up more than 15 percent of employment in the Phoenix area, the impact on the economy is extreme.

Nationwide, an average of about 10 percent of jobs are related to housing.

"Phoenix was pretty flat (in job growth) during 2007 and has been contracting a little bit since the third quarter," she said in an interview.

"Tucson is worse than Phoenix. If you look at Tucson, you definitely see that employment kind of topped out in the first quarter of 2007 and has been declining since. Its (decline) is much stronger than what you see in other areas."

She also said that Yuma's economy remained "decent" and that conditions are improving in Prescott and Flagstaff.

"Flagstaff was a lot weaker. It entered the recession a lot earlier than the metro areas, but it's picking up a little bit lately," Seweryn said.

Ariz. economists concur

Some Arizona economists have been saying for months that the state had entered a recession as they watched dismal numbers continue to be released from agencies and universities.

The Blue Chip Economic Forecast, produced by the W.P. Carey School of Business at Arizona State University, surveyed economists with 16 agencies and companies in January, and 35 percent said then that the state was in a recession.

Marshall Vest, a University of Arizona economist who has been saying since December that Arizona is in a recession, said, "I think the Arizona economy is contracting, and I still don't see any signs that we are near bottom yet."

Home building continues to contract, and now, consumers face higher gasoline prices, which further reduce their other spending. That, in turn, reduces sales-tax revenues for state and local governments and causes them to slash budgets.

Vest hopes the recession will be over by the end of the year.

"It may be awhile for Arizona because of the problems in home building and the housing market," he said. "As the rest of the economy moves up, it will take us a while longer."

Scottsdale economist Elliott Pollack said, "It's going to be a tough year. There will be no full recovery until the housing is back to normal.

"That could easily be three years."

8 other states hit

Although the Moody's reports aren't an official pronouncement of a recession (that requires two consecutive quarters of a declining gross domestic product), they do offer recognition that Arizona was one of the first states to sink.

Moody's reports are written primarily for subscribers such as banks and utilities and other companies looking for economic data on an area.

Moody's reported in its April "Dismal Scientist" report that weakness is spreading across the U.S. economy and that Arizona and eight other states are in a recession. The others are California, Nevada, Florida, Michigan, Ohio, Rhode Island, Tennessee and Wisconsin.

The industrial Midwest, Northeast and mid-Atlantic areas are also at risk while "the New York metro area is at imminent risk of recession" because of cutbacks in finance and banking, the report said.

Economists usually rely on the National Bureau of Economic Research, a private organization in Cambridge, Mass., to officially pronounce recessions. But because the data is so time-consuming to gather and to verify, the bureau's pronouncements of the beginning and ending of recessions usually come six to eight months after the fact.

The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX
Wall Street Journal

May 6, 2008; Page A23

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Expect a Summer Rise in Home Sales

A flat pattern in home sales activity should continue for the next couple of months before improving over the summer, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.

Lawrence Yun, NAR chief economist, said the extent of an expected recovery hinges on better access to affordable loans. “Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas,” he says. “As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, edged down 1.0 percent to 83.0 from a downwardly revised level of 83.8 in February, and was 20.1 percent lower than the March 2007 index of 103.9.

NAR President Richard F. Gaylord says additional costs in many markets are hindering a recovery. “Our members are telling us that more buyers are looking at homes but are slow in signing contracts, and that’s contributing to the weakness in pending home sales,” he says. “In many cases buyers are waiting for greater access to affordable credit, especially in higher cost areas, but some are disappointed with what appears to be unnecessarily restrictive lending requirements. The good news this week is there is some discussion toward relaxing some of the burdensome lending practices.”

The PHSI in the Northeast jumped 12.5 percent in March to 80.8 but remains 15.4 percent below a year ago. In the South, the index slipped 0.1 percent to 84.9 and is 26.7 percent lower than March 2007. The index in the West declined 1.4 percent in March to 91.2 and is 9.5 percent below a year ago. In the Midwest, the index fell 10.4 percent in March to 74.1 and is 22.3 percent below March 2007.

Existing-home sales are projected to rise from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter. For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1 percent to 5.72 million next year. “Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4 percent in 2008, driven by a relatively few markets that are very oversupplied,” Yun says. The median price is forecast at $213,700 this year before rising 4.1 percent to $222,600 in 2009.

Some areas already are seeing sales increases, underscoring that all real estate is local. In March, unpublished snapshot data shows sales in Bakersfield, Calif., and Jackson, Miss., were higher than a year ago. At the same time, price gains were noted in markets such as Buffalo-Niagara Falls, and Cedar Rapids, Iowa.

On May 13, NAR will report first-quarter data on metropolitan area home prices, covering about 150 metro areas, and state home sales. “Although some market adjustments are necessary, a downward overshooting of the housing market would cause unnecessary loss in economic output, income, and jobs,” Yun says. “It is critical to stimulate housing demand by inducing fence sitters back into the market. A home buyer tax credit on any home purchase would accomplish that.”

Here are some highlights from NAR's report:

• New-homes. Sales of new homes are expected to fall 30.9 percent to 536,000 this year before rising 10.1 percent to 590,000 in 2009. Housing starts, including multifamily units, will probably drop 29.5 percent to 955,000 in 2008, and then rise 1.3 percent to 967,000 next year. The median new-home price is estimated to fall 3.7 percent to $238,000 this year, and then rise 5.4 percent in 2009 to $250,900.

• Rates. The 30-year fixed-rate mortgage is likely to rise gradually to 6.2 percent by the end of the year, and then average 6.3 percent in 2009.

• Affordability. NAR’s housing affordability index is expected to rise 10 percentage points to 127.0 for all of 2008.

• GDP. Growth in the U.S. gross domestic product (GDP) should be 1.5 percent this year and 2.3 percent in 2009. The unemployment rate is projected to average 5.3 percent in 2008 and 5.5 percent next year.

• Inflation. Inflation, as measured by the Consumer Price Index, is seen at 3.4 percent this year and 2.2 percent in 2009. Inflation-adjusted disposable personal income is forecast to grow 1.2 percent in 2008 and 3.0 percent next year.

Source: NAR

Fannie Mae loses $2.2 billion

May. 6, 2008 08:10 AM
The Associated Press

WASHINGTON - Fannie Mae reported losses of $2.2 billion in the first quarter and the nation's largest buyer of home loans said Tuesday it would cut its dividend and raise $6 billion in new capital, with expectations that the housing slump will persist into next year.

Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said, and it will open a $4 billion share offering immediately, with the remainder being offered in the "very near future."

Fannie Mae's federal regulator, the Office of Federal Housing Enterprise Oversight, announced Tuesday that following the stock sale, it will cut the capital surplus cushion the company has to maintain by 5 percentage points to 15 percent. Another five-point cut will come in September, provided there is "no material adverse change" in the company's regulatory compliance.

The agency's director, James B. Lockhart, said capital requirements were eased because Fannie Mae has improved internal financial controls following a multibillion-dollar accounting scandal in 2004.

The company's estimated fair value of net assets as of March 31 was $12.2 billion, down 66 percent from $35.8 billion at the end of December. The huge decline was attributed to falling home prices and changes made to reflect new accounting methods. The assets are not counted toward the overall loss.

Fannie Mae's first-quarter loss contrasts with a profit of $961 million in the January-March period last year. The company reported Tuesday that the early 2008 loss was equivalent to $2.57 a share. It earned 85 cents a share a year earlier.

Wall Street analysts polled by Thomson Financial had expected the company to lose 81 cents a share in the latest period.

Following Fannie's earnings release, Moody's Investors Service downgraded Fannie's financial strength rating because of the potential for credit losses over the next two years.

Reflecting the ravages of the housing crisis, Washington-based Fannie Mae was forced to set aside $3.2 billion to account for bad loans. The losses were greatest in the hardest-hit states: California, Florida, Michigan and Ohio.

And the company said it only expects credit losses to worsen next year.

"Going forward, we expect our financial results to continue to be affected by the difficult (housing) market," Fannie's chief financial officer, Stephen Swad, said in a statement.

Revenue rose 38 percent in the first quarter, to $3.8 billion, bolstered by increases in fees that Fannie Mae charges lenders to guarantee mortgages and in interest income.

After falling 6 percent, Fannie Mae shares rose 81 cents to $28.52.

Amid the deepening housing downturn and the financial turmoil it sparked, the government has increasingly looked to Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, to step up their role and help restore stability to the market by buying up more mortgages and bundling and selling them as securities. Three-quarters of mortgage-backed securities are issued by the two companies.

In March the regulators reduced by a third the mandatory cash cushion that must be held by Fannie and Freddie, in order to free up an additional $200 billion to finance new mortgages and help existing homeowners battered by the roiling market to refinance into more affordable mortgages.

But analysts worry that the opening for Fannie and Freddie could put too much financial risk on the backs of the companies, which have taken multibillion-dollar hits from the foreclosure wave and have been hungry for capital. Critics have said that allowing the companies to take on more debt could threaten the global financial system.

On Tuesday, Fannie Mae said it would cut its dividend, starting in the third quarter, from 35 cents to 25 cents a share, freeing up around $390 million a year.

The company already had slashed the dividend 30 percent in December, when it also raised $7 billion in capital in a special stock sale.

Fannie Mae said it expects "severe weakness" in the housing market in 2008, bringing increased mortgage defaults and foreclosures.