No reprieve for real estate

From Bloomberg:

U.S. Housing Sales to Tumble to Six-Year Low on Rates

U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.

Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world’s second-largest mortgage buyer. It would be the lowest since 6.20 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the McLean, Virginia-based company said in today’s forecast.

Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average U.S. rate for a 30-year fixed rate home loan probably will be 6.7 percent this quarter, according to the forecast. That’s the highest level so far this year, and it’s half a percentage point above the 6.2 percent average in the first three months of the year.

“Several risks — the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers — point to continued weakness in the months ahead,” Freddie Mac Chief Economist Frank Nothaft said in the forecast.

The number of previously owned homes on the market, the so- called inventory, reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualized pace, the lowest in four years, and the median price fell 2.1 percent from a year earlier, the 10th consecutive monthly decline, the real estate trade group said in a June 25 report.

“We’ll hit bottom in 2007 in terms of sales, but we’ll continue to see price declines into 2008,” said Richard DeKaser, chief economist at National City Corp. in Cleveland. “Prices tend to weaken for about six months after inventory normalizes, and we probably won’t see that begin to happen until the end of this year.”

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2 Responses to No reprieve for real estate

  1. john says:

    National City Puts TradeOn Real-Estate Woes

    By MOHAMMED HADI
    Wall Street Journal
    July 10, 2007

    Traders snapped up put options on National City Corp. after two of the banks’ rivals in the Midwest raised concerns about the impact of crumbling real-estate markets on their earnings.

    Trading in puts on Comerica Inc. was also much heavier than usual, though less notable than in National City’s case.

    About 8,000 put options on National City traded during the session compared with only 1,700 call options, according to Track Data. The volume of puts traded is about four times the daily average in June.

    With shares of National City slipping 48 cents to $33.21, traders were most interested in contracts that allow them to sell the stock for $32.50 by late August — after National City reports earnings. About 4,800 changed hands compared with 3,264 previously outstanding, and they rose 40 cents to $1.

    At that price the insurance these puts offer kicks in once National City’s shares fall below $31.50, said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. That is about 5% below their current price, and would mark a year-to-date drop of about 14%, putting the stock at its lowest price since October 2005.

    In Comerica’s case, with the stock falling 77 cents to $60.06 the focus was on puts conveying the right to sell the shares for $60 in the next two weeks. About 1,100 of these July $60 puts changed hands compared with 1,464 already outstanding, and these rose 25 cents to $1.05.

    The trading followed cautionary statements from Huntington Bancshares Inc. and Independent Bank Corp. about their quarterly earnings. Huntington Bancshares said in a statement that “difficult and deteriorating residential real-estate markets” will hit its bottom line in the quarter. Huntington, like National City, is based in Ohio and operates throughout the Midwest.

    In its own statement, Independent Bank pointed out the impact of “a weak Michigan economy, particularly in the real-estate development sector, on our loan credit

  2. TSmith says:

    I agree. We operate CurrentForeclosures.com, a foreclosures site and have seen a huge increase in the number of foreclosures in the past 4 months. I believe it is a combination of not only sub-prime and ARM mortgages, but also the high number of people who have gotten loans with interest rates at an all time low… in addition to the rapid depreciation in some areas and the difficulty some are experiencing in selling their homes.

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