Optimism about remodeling a reason to be optimistic about housing?

Posted on February 17, 2011 by grim

From CNBC:

It May Be Time to Believe in Housing Again

It’s hard to know what to believe in the housing market today, with so many conflicting data reports, some analysts claiming the market has hit bottom, and others seeing further doom.

The home builders themselves can’t seem to find anything to be optimistic about; their sentiment index has been stuck at the same lackluster level for four straight months.

It’s not as hard, however, to believe in housing. By that I mean that as the economy improves, and consumers start to feel better about their personal finances, they are starting to think about investing in their homes again.

Too much price uncertainty in the market turns them off trading up, so they are looking around their current home instead.

Yesterday I met with an architect in suburban DC who says that in just the past two months the phone has been ringing off the hook.

“It’s ringing with people saying, you know I want the $200,000 addition, which is the family room/kitchen or I can afford my screen porch now,” says Michael Bruckwick of Katinas Bruckwick Architecture.

Just last year, clients told Bruckwick a very different story.

“Their biggest concerns was simply where is the world going ? The world that we live in. Is it to continue going down?”

And it’s not just in the DC area, which has the benefit of lower unemployment thanks to government jobs. A remodeling index from Texas-based BuildFax shows a national surge in remodeling work toward the end of the year, which appears to be continuing now. It’s returning, but cautiously.

Posted in Economics, National Real Estate | 168 Comments

Will rising rates destroy any chance of recovery?

Posted on February 16, 2011 by grim

From CNN/Money:

Don’t sweat rising mortgage rates

Will rising interest rates slam the door on a fragile housing recovery?

No — though that only underscores just how grim the housing picture is.

The rate on the 30-year conforming mortgage has risen to a recent 5.1% from 4.2% last October (see chart, right), tagging along behind an even larger rise in the yield on the 10-year Treasury note over that period.

The jump in the mortgage rate has added around $50 to the monthly tab on a 30-year, fixed-rate mortgage on a median-price house ($170,000 or so) purchased with 20% down, estimates Paul Dales of Capital Economics in Toronto.

Those figures could yet rise further in coming weeks. Many observers expect the yield on the 10-year Treasury rise to 4% or above from a recent 3.6%, amid questions about whether U.S. policymakers have the guts to rein in the galloping U.S. budget deficit. Higher Treasury rates generally translate into higher mortgage rates.
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He also expects low house prices to limit the fallout of higher costs that will result from the Obama administration’s makeover of the deeply troubled U.S. mortgage finance system.

“Relatively low house prices mean that affordability remains very high by historical standards,” says Dales.

Unfortunately, that doesn’t mean a housing recovery is anywhere in sight. Few Americans have either the means or the inclination to plunk down $34,000 for a down payment on a house now, regardless of how reasonable the monthly payment might be.

That unwillingness to invest in housing only stands to increase now that house prices are falling in earnest again. House prices fell in 19 of the 20 biggest regions in November, S&P said in its latest survey of national house prices, and the Case Shiller indexes are down around 30% from their 2006 peaks, within a few points of their recent lows.
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“High affordability will still not prevent house prices from falling further,” says Dales.

Posted in Economics, Mortgages, National Real Estate | 169 Comments

No more mortgage interest deduction?

Posted on February 15, 2011 by grim

From HousingWire:

Mortgage interest tax deduction may be in danger

President Obama’s 2012 budget proposes an across-the-board 30% cut to itemized deductions for high-income taxpayers. This includes the mortgage interest tax deduction.

Currently, interest on a mortgage taken out to buy or improve a home can be fully deducted if the amount of the loan is less than $1 million for married couples and $500,000 for singles. Home equity loans taken out for anything else is limited to $100,000 for couples and $50,000 for singles.

In December, a commission appointed by President Obama to reform the tax code and reduce the nearly $14 trillion in U.S. deficit submitted a proposal to lower the cap on the mortgage interest tax deduction for purchase loans from $1 million to $500,000.

Obama’s budget did not specifically name the mortgage interest tax deduction. But he does propose cuts “across-the-board.” These cuts will pay for a three-year fix to the alternative minimum tax (AMT), which the president said in his budget has driven the country deeper into deficit year after year in order to prevent this tax from hurting too many middle-class families.

A spokesperson for the office of management and budget said the proposal caps the value of itemized deductions at the 28% tax bracket.

“For too long, we have tolerated a tax system that’s a complex, inefficient and loophole-riddled mess,” Obama said in the budget.

The National Association of Realtors, the biggest advocate for the mortgage interest tax deduction, voiced concerns when the commission first brought up the proposal in December.

“The tax deductibility of interest paid on mortgages is a powerful incentive for homeownership and has been one of the simplest provisions in the federal tax code for more than 80 years,” said NAR President Ron Phipps at the time.

Posted in Employment, National Real Estate, Politics | 115 Comments

NJ Foreclosure Timeline Shocker – 849 Days from Default to Sheriff Sale

Posted on February 13, 2011 by grim

From the Press of Atlantic City:

Bottom Lines: Foreclosures in New Jersey now take an average 849 days

We have started to feel the consequences of the robo-signing controversy. There was nationwide concern that the expedited processing set up by lenders to handle record foreclosure volume does not meet normal standards and might result in an increase in unwarranted seizure of homes.

A few months ago, we were all aghast that foreclosure paperwork was being signed the same way consumers agree to the terms of service for software: without reading it and with the reasonably confident belief that everything’s OK in all that legal text.

The reaction to such robo-signing was predictable, and now has come true. The processing of foreclosures has slowed greatly, especially in states such as New Jersey where foreclosure has to go through courts.

Despite a media search for responsible homeowners unfairly evicted from their homes by shoddy paperwork, next to none have been found.

But while the backlash against lenders hasn’t yet turned up much harm to innocent homeowners, it has already managed substantial harm to the housing industry as well as the economy and homeowners in general.

By putting off the resolution of the foreclosure crisis and the return to a normal housing market, the robo-signing crisis has substantially extended how long housing will be a drag instead of a boost to the economy. Among builders, Realtors and analysts, the common guess I’ve heard is that the foreclosure mess will drag out an extra year now.
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The results for New Jersey are shocking.

In the fourth quarter of 2007 — near the beginning of the housing crisis — the foreclosure process in New Jersey took an average 340 days.

“As of the fourth quarter 2010, it’s actually taking 849 days from that initial court filing to when the REO (property repossession) occurs,” he said.

And this is still the early days of the effects of the robo-signing slowdown. Not until mid-December did state Supreme Court Chief Justice Stuart Rabner order six lenders to demonstrate why the state shouldn’t suspend their foreclosure actions.

“There’s a lot of pressure to make sure foreclosures are not done improperly, as there should be, but it’s also harmful to the market to prolong these foreclosures for such a long time,” Blomquist said.

Another RealtyTrac number shows the magnitude of the problem: In New Jersey alone, there are more than 12,000 properties that already have been repossessed but have yet to sell.

Having a lot of distressed properties on the market pulls down prices, prompting potential buyers to wait for lower prices and keeping the housing industry at an artificially low level.

Posted in Economics, Foreclosures, Housing Bubble, New Jersey Real Estate | 114 Comments

Sell Hamptons, buy LBI, and move your pied-a-terre to Hoboken

Posted on February 11, 2011 by grim

From the WSJ:

Out-of-State Owners Could Face Tax Bill

Connecticut and New Jersey residents with a Hamptons summer cottage or a Manhattan pied-a-terre are about to get a nasty surprise: New York state wants more taxes from them.

A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year. They have been hit with an additional tax bill of $1.06 million.

Tax experts and real estate brokers say this ruling could boost the tax bill for thousands of business executives who own New York City apartments they use only occasionally. It could also hurt sales in the Hamptons and New York’s other vacation-home communities.

“People will think twice about spending any summer time in New York,” says Robert Willens, a New York-based tax consultant. “The amount of tax they could be subjected to is likely to outweigh the benefit.”

A spokesman for the state Taxation Department issued a written statement that said it was “pleased” with the decision. “However, these cases are fact-intensive and as such each case stands on its own specific fact pattern,” it said.

For years, New York law stated that residents of another state who spend more than 183 days a year in New York have to pay taxes on any income they make in this state. But they generally haven’t had to pay New York taxes on income they make outside of the state or on their spouses’ income if they work elsewhere.

Under the recent ruling, this might change for many out-of-state residents who own vacation homes or apartments here. In effect, it reinterprets what counts as a permanent residence.

In defining a “permanent place of abode,” New York tax code specifically excludes “a mere camp or cottage, which is suitable and used only for vacations.” New York tax experts say the new ruling is the first they recall that counts summer homes as permanent residences.

Posted in Economics, New Jersey Real Estate, Politics | 139 Comments

NJ delays foreclosure hearing again

Posted on February 10, 2011 by grim

From the Star Ledger:

Foreclosure court hearing postponed a third time

For the third time in nearly a month, the state has postponed a hearing for six of the country’s biggest mortgage lenders that have been called to court to defend their foreclosure practices.

Edward Dauber, the attorney appointed to represent the state in the case, requested a third extension to allow the parties additional time to negotiate a settlement, according to the court order released yesterday.

In December, Chief Justice Stuart Rabner ordered six banks, including Citibank, JPMorgan Chase and Bank of America, to outline their past and present foreclosure processes amid fears homeowners were unnecessarily forced out of their homes. The banks responded with hundreds of pages of documents, arguing new systems are already in place to avoid that from happening and plans for additional changes are underway.

The banks must now appear in court March 15, instead of earlier dates of March 1 and Feb. 14. At the hearing, Judge Mary Jacobson will decide whether the banks’ pending foreclosures should be suspended, unless the case is settled out of court earlier.

Posted in Foreclosures, New Jersey Real Estate | 68 Comments

Zillow: Big drop in fourth quarter home prices

Posted on February 9, 2011 by grim

From Inman:

Real estate prices close out 2010 in tailspin

U.S. home prices fell 2.6 percent from the third quarter of 2010 to the fourth, the biggest drop in nearly two years, according to a report by property portal Zillow.

The Zillow Home Value Index, which is not seasonally adjusted, fell 5.9 percent on a year-over-year basis, to $175,200 — 27 percent below a June 2006 peak.

The accelerated decline in home prices after the expiration of the federal homebuyer tax credits in mid-2010 forced a record percentage of those selling homes in December — 34.1 percent — to sell at a loss.

Zillow estimated that 27 percent of homeowners with mortgages were underwater, owing more than their house was worth, up from 23.2 percent in the previous quarter.

The good news is that the declines “mean we’re getting closer to the bottom,” said Zillow Chief Economist Stan Humphries in a statement.

“The housing recession is likely in its death throes, and we expect to see sales pick up in early 2011,” Humphries said. “That will lead the way to home values stabilizing and an eventual bottom later this year, although it will take several months of increased sales activity before values begin to respond.”
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A home-price index released Tuesday by mortgage data aggregator CoreLogic showed U.S. home prices falling for the fifth month in a row in December, although the rate of depreciation is slowing, the company said.

Posted in Economics, Housing Bubble, National Real Estate | 159 Comments

Rise in renters contributes to homeownership decline

Posted on February 8, 2011 by grim

From MarketWatch:

More people choosing to rent, not buy, their home

The share of Americans who own their home dropped again last year, but that decline is not being driven by foreclosures pushing people out of the real-estate market. Instead, more people appear to be rejecting the idea of a home as an investment.

About 66.5% of U.S. households owned their home at the end of 2010, down from 67.2% in 2009. The rate was 69% at the end of 2005, according to the U.S. Census Bureau.

The main driver of last year’s drop was the substantial rise in renters. The number of homeowner households dropped by just 30,000 in the fourth quarter last year compared with a year earlier, but 1.1 million renter households were added in that time period.

“We’re keeping steady on the total number of homeowners at 75 million, but all of the [household] additions are renters so the ratio goes down,” said David Crowe, chief economist for the National Association of Home Builders. It’s the younger demographics where homeownership rates are falling most, while the rate among those ages 55 and older have been more stable, he pointed out.

Popular reasons for why people are choosing to rent rather than buy have been widely reported: Some Americans remain concerned about home prices falling more, while others remain uncertain about the stability of the job they have. And for some, tighter credit standards for mortgage loans have been a factor.

But there might be another trend here, one that could have legs even after the economy recovers and housing markets are looking stable again: A return to making purchase decisions based on what is appropriate for the individual’s situation — not based on an expected return on investment.

“Traditionally, housing choices in the U.S. have been made based on need — what is the appropriate housing for your lifestyle,” said Greg Willett, vice president of research at MPF Research, a provider of market intelligence and insights for the multifamily housing industry. “During the boom period… [people] got off track.”

Posted in Economics, National Real Estate | 162 Comments

Shiller: Another housing bubble unlikely

Posted on February 7, 2011 by grim

From Robert Shiller and the NYT:

Housing Bubbles Are Few and Far Between

WHAT’S the outlook for home prices over the next decade? It’s not easy to tell. We need to confront the basic fact that near the beginning of the 21st century, the market for homes in much of the world suddenly became more speculative than ever.

This enormous housing bubble and burst isn’t comparable to any national or international housing cycle in history. Previous bubbles have been smaller and more regional.

We have to look further afield for parallels. The most useful may be the long trail of booms and crashes in the price of land, particularly of farms, forests and village lots. Those upheavals may give some insights into the present situation, and some guidance for the next decade.

In the 19th century and most of the 20th, speculation in land was a powerful phenomenon. There was little speculative activity around homes, however, which were usually viewed as rapidly depreciating assets whose value was to be found almost entirely in physical buildings, not the land beneath them. Eventually, the buildings were expected to be torn down and replaced, so there was little bubble psychology for housing on any large scale. People generally didn’t think about housing as an investment.
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There have been many highly localized land price bubbles in the United States over the last couple of centuries, although bubbles over large areas have been rather rare. Those with the biggest national impact were in the 19th century, when speculators found opportunities that had been created by government land sales and by shifts in land prices set off by construction of canals and railroads. Stories of fortunes in land speculation captured the imagination, and led to bubbles. (That is typically how bubbles form, by titillating the public imagination.)
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Ultimately, bubbles are impossible without extreme public enthusiasm. Opinions about housing seem to change in rather trendy ways, but investor enthusiasm for housing has now been down for more than five years — a decline that started well before the collapse of the housing bubble in 2007.

With Karl Case of Wellesley College, who developed the S&P/Case-Shiller Home Price Indices with me, I have been surveying opinions of home buyers in the United States on and off since 1988. We have found a fairly steady downtrend since the early-to-mid-2000s in a number of speculative attitudes. On questionnaires, people are less likely to report that they think of housing as an investment, or to express the view that real estate is the “best investment.”

As an investment, in fact, they are more likely to see housing as risky. Although they still have solid expectations of home price increases over the next 10 years — a median of 5 percent annually, in nominal terms — those expectations have been declining and are not nearly as extravagant as they were before the market peak.

IT will take a while for the housing market to recover fully. Still, many people continue to think of housing as an investment, and so it does seem that we are in danger of encountering another whopper bubble someday. Even so, both the history of land bubbles and the slowness of shifts in public opinion suggest that such bubbles will be fairly rare.

Add the new policy restraints, and a new national housing bubble looks even less likely anytime soon.

Posted in Economics, Housing Bubble, National Real Estate | 131 Comments

Blame it on the snow

Posted on February 5, 2011 by grim

From the NY Times:

Brokers Face Challenges in This Snowy Winter

PAPER booties beside the door? Check. Fresh salt on the driveway? Check. Broker standing in the street to direct traffic around giant piles of snow? Check.

Sure, the scented candles were lighted and the soft jazz was playing recently inside the house for sale at 76 South Terrace here. But in this snowy winter in New Jersey it takes more than that to stage an open house.

“It takes ingenuity and hardiness,” said Karen Eastman Bigos, the broker from the Towne Realty Group of Short Hills who assumed the role of traffic cop after the local police department told her no one could be spared to help her in the aftermath of yet another significant snowstorm. She had also tried to hire a valet service at the last moment, but not one was ready to wing it on a snowbound suburban street.
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The brokers and agents who went inside the five-bedroom three-and-a-half-bath colonial, offered at $1.15 million, dutifully donned the paper booties or took the tour in their stocking feet.
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Last Sunday Jacqueline O. Denk, an agent with Weichert Realtors, walked to one of her listings in West Orange from her own house several blocks away for an open house. Two inches of snow had fallen the night before, so she got busy shoveling.

The house was bought not long ago and completely renovated, then returned to the market several months ago. Ms. Denk said she felt sorry for the seller, who was probably “going to lose his shirt.” A previous open house, also held on a snowy day, attracted only two potential buyers.

Posted in New Jersey Real Estate | 81 Comments

No easy choices for Paterson (The shape of things to come?)

Posted on February 4, 2011 by grim

From the Record (Hat tip Gator!):

Paterson officials will argue to limit tax increase

City officials will travel to Trenton on Monday to plead their case for a lighter municipal tax increase.

The state Department of Community Affairs, which must approve Paterson’s budget by Feb. 28, has recommended the city raise municipal taxes by more than 40 percent in order to close a $54 million deficit.

The 40 percent increase would mean taxes on a home assessed at $350,000, the city average, would go up $1,400.

The City Council wants to limit the increase to $544, meaning next quarter’s tax bill on an average home would increase by $272.

Meanwhile, a temporary compromise was struck before this quarter’s tax bills were sent out, with a $467 increase for the average home.

A smaller tax hike would be possible, in part, through spending cuts across all departments. and by slashing salaries by 15 percent for top earners.

Employees making between $10,000 and $25,999 a year would see only a 1 percent pay cut. Council members, who are paid $41,000 annually, would take a 15 percent cut.

The salary cuts should save about $7 million and avoid more than 100 layoffs, said Councilman-at-Large Kenneth Morris, who, as finance chairman, drafted the amendment to the budget. Morris said the salary cuts would be paid back upon retirement.

Mayor Jeffery Jones has already submitted a plan to the state that calls for about 150 police layoffs.

His administration has so far brought the deficit down to $12 million, but mostly through a 29 percent tax hike.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 107 Comments

Double dip over so soon?

Posted on February 3, 2011 by grim

From HousingWire:

Clear Capital: Home prices showing life in 2011

Home prices stopped declining in early January and even increased for the first time since August, according to the Clear Capital home price index.

Over the last three months, home prices did decline 1.6% from the previous period. But at the start of 2011, Clear Capital said prices began “showing life.” The company’s senior statistician Alex Villacorta said it is the first uptick since the homebuyer tax credit was in force. It expired in April 2010, and prices have dropped off since.

Villacorta warned however that any conclusions of a recovery would be premature, but he did say it was a positive sign.

“This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery,” Villacorta said.

The changes in prices, especially during a point in the year when sales are slow, is a sign that demand may be returning. Even more encouraging, Clear Capital said the main driver of the price increase was the slowing rate of sale of REO properties, those repossessed through foreclosure.
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“Although many markets still remain under significant downward pressure in light of increased distressed sale activities, it is clear that the severity of the downturns observed in October and November have subsided,” Villacorta said.

Posted in Employment, Housing Bubble, National Real Estate | 118 Comments

Why 30? Why subsidize?

Posted on February 2, 2011 by grim

From the WSJ:

What’s So Special About the 30-Year Mortgage?

One remarkable feature of the current debate in Washington about the future of Fannie Mae and Freddie Mac is the prominence given to one kind of mortgage—the 30-year, fixed-rate loan. The proponents of a continuing role for government in housing finance are going from office to office on Capitol Hill arguing that, without government backing, American homeowners will not have access to this particular loan. Many legislators believe that the 30-year, fixed-rate mortgage is good for homeowners and good for the government to support as a matter of policy.

There are two questions to ask. Is it true that this loan will only be made to homeowners if the government stands behind it? And is government support for this particular kind of loan good policy?

The idea that government backing is required for a 30-year, fixed-rate loan has some surface plausibility. Many people who don’t follow the financial markets might assume that lending money for that long a period at a fixed rate would be too risky for the private sector.

Anyone can prove this assumption is wrong, however, simply by going to Google and typing in “30-year jumbo fixed rate mortgage.” The word “jumbo” is mortgage market jargon for loans that are too large to be bought by Fannie or Freddie, or insured by the Federal Housing Administration. That means a jumbo mortgage is not backed in any way by the government. But a Google search will return dozens of offers. In other words, government backing is not necessary in order to make this loan available to homeowners.

When confronted with this fact, proponents of government mortgage guarantees will argue that these jumbo fixed-rate mortgages—because they don’t have government backing—are more expensive than those available from Fannie and Freddie.

This is true. The 30-year, fixed-rate mortgages offered by Fannie and Freddie are somewhat less expensive (recently about .5%) than those offered by banks and others without government backing. But that is only because the taxpayers are subsidizing this loan. That subsidy is hidden most of the time, except when—as now—Fannie and Freddie become insolvent and the taxpayers’ subsidy becomes all too visible.

So, one might ask: Is this kind of mortgage loan such a good deal for homeowners that it makes policy sense to have the taxpayers take the losses that inevitably seem to flow from government guarantees? The answer is clearly no.
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This brings us to the 30-year, fixed-rate mortgage. This loan amortizes principal very slowly. It is popular because it maximizes the benefits of the mortgage interest tax deduction and keeps the homeowner’s monthly payment low. But it also means that homeowners accumulate equity in their homes very slowly. Most of the monthly payments are interest (very little is principal) for many years.

Following the enactment of affordable housing standards for Fannie and Freddie in 1992, mortgage underwriting standards deteriorated in this country. As I argued in my dissent from the recent report of the Financial Crisis Inquiry Commission, it seems to have been a deliberate policy of the Department of Housing and Urban Development to reduce mortgage standards and down payments in order to assure that mortgage credit was available to a wider section of the U.S population. By the late 2000s, more than one-third of all new mortgages had down payments of 3% or less. Here, too, homeowners have very little equity in their houses at the outset. And building equity takes longer in the case of 30-year, fixed-rate mortgages.

We should have no objection, of course, if homeowners want this type of loan. That’s certainly their right. The question is whether the taxpayers should subsidize them.

Posted in Employment, National Real Estate | 180 Comments

A Squatter’s Market

Posted on February 1, 2011 by grim

From CNBC:

Nearly 11 Percent of US Houses Empty

I usually find the quarterly homeowner vacancy and homeownership report from Census pretty lackluster, but the latest one released this morning was anything but.

America’s home ownership rate, after holding steady for a while, took a pretty big plunge in Q4, from 66.9 percent to 66.5 percent. That’s down from the 2004 peak of 69.2 percent and the lowest level since 1998.

Homeownership is falling at an alarming pace, despite the fact that home prices have fallen, affordability is much improved and inventories of new and existing homes are still running quite high.

Bargains abound, but few are interested or eligible to take advantage.

More concerning than the home ownership rate is the vacancy rate. The Census tables don’t tell the entire story, but they tell a lot of it. Of the nearly 131 million housing units in this country, 112.5 million are occupied. 74.8 million are owned, and that’s only dropped by about 30 thousand in the past year. 38 million are rented, but that’s up by over a million year over year. That means more new households are choosing to rent.

Now to vacancies. There were 18.4 million vacant homes in the U.S. in Q4 ’10 (11 percent of all housing units vacant all year round), which is actually an improvement of 427,000 from a year ago, but not for the reasons you’d think.

The number of vacant homes for rent fell by 493 thousand, as rental demand rose. 471,000 homes are listed as “Held off Market” about half for temporary use, but the other half are likely foreclosures. And no, the shadow inventory isn’t just 200,000, it’s far higher than that.

So think about it. Eleven percent of the houses in America are empty. This as builders start to get more bullish, and renting apartments becomes ever more popular. Vacancies in the apartment sector have been falling steadily and dramatically, why? Because we’re still recovering emotionally from the toll of the housing crash.

Posted in Economics, Housing Bubble, National Real Estate | 183 Comments

High noon at the O.K. Corral

Posted on January 31, 2011 by grim

From the WSJ:

Home Prices Sink Further

Home values are falling at an accelerating rate in many cities across the U.S.

The Wall Street Journal’s latest quarterly survey of housing-market conditions found that prices declined in all of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier.

The size of the year-to-year price declines was greater than the previous quarter’s in all but three of the markets, the latest indication that the housing market faces considerable challenges.

Inventory levels, meanwhile, are rising in many markets as the number of unsold homes piles up.

Home values dropped the most in cities that have already been hard-hit by the housing bust, including Miami, Orlando, Atlanta, and Chicago, according to data from real-estate website Zillow.com. But price declines also intensified in several markets that so far have escaped the brunt of the downturn, including Seattle and Portland, Ore.

Falling prices are a reflection of weak demand and tight credit conditions that reduce the number of potential buyers.

“There are just not a lot of renters with confidence, with a down payment, with good credit, and without a lot of additional debt,” said John Burns, a homebuilder consultant in Irvine, Calif.

On the inventory front, New York’s Long Island had enough homes on the market at the end of December to last 15 months at the average sales pace. The supply of unsold homes stood at 14 months in Charlotte, N.C., and Nashville, Tenn., and at nearly 13 months for northern New Jersey.

Markets are generally considered balanced when the supply is around six months.
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“We’re still running at half speed,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. “Sales are below year-ago levels and inventory is higher than it was a year ago.” Far-flung suburbs continue to fare worse than homes located closer to core metro centers, he says.

Economists say that the biggest risk to the housing market is that job growth doesn’t pick up. “Without improvement in unemployment, confidence stays low. Purchasing stays low,” says Stan Humphries, chief economist at Zillow.

Market conditions could get worse in the months ahead. Millions of homeowners are in some stage of foreclosure or are seriously delinquent on their mortgages, and millions more owe more than their homes are worth.

Real-estate agents are bracing for an uptick in distressed properties hitting the market, including foreclosures being sold by banks and homes sold by owners via a short sale, in which banks agree to a sale for less than the amount owed.

Sales of foreclosed homes are partly responsible for reducing home values because banks tend to reduce prices quickly to sell the homes. Sales of foreclosures slowed in some markets at the end of last year as document-handling problems raised questions about the integrity of their foreclosure processes. But that could change as banks pick up the pace of foreclosures.

Real-estate agents say that the threat of future price declines has led to a months-long standoff between buyers and sellers.

Sellers spurn what they see as low-ball offers, while buyers are demanding discounts because they are “convinced prices will drop further, and they don’t want to feel like suckers six months later,” says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based real-estate brokerage that operates in nine states. The result is that “it’s high noon at the O.K. Corral on every single transaction.”

Posted in Economics, Housing Bubble, National Real Estate | 135 Comments