National Housing Bust: Four More Quarters

Moody's Economy.com says look for a housing market turnaround in early 2009 -- provided market conditions cooperate.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - If you've been wondering when the housing market will turn around, Moody's Economy.com says it has the answer -- early 2009 -- provided market conditions cooperate.

The report, "Aftershock: Housing in the Wake of the Mortgage Meltdown," forecasts the beginning of the end to housing market woes early next year, but only with the alignment of significant housing market conditions.

Given the current state of those conditions, a planetary alignment may also be necessary.

Economy.com's report says to generate a 2009 turnaround, home builders must further curtail housing starts, sellers must shave more off asking prices and lenders will have to loosen their purse strings, among other cooperating market conditions.

To put the housing market on the road to recovery, new homes constructed must fall to 1 million this year, down from the estimated 1.2 million last year.

The report, which incorporates the respected Case-Shiller Home Price Index, a measure of home price appreciation, says the national median home price will have to tumble 12 percent from peak levels. Prices have already fallen 5 percent from their high point, according to "Aftershock" data.

Along with a smaller inventory of homes and lower home prices, a market turnaround will also require more loan modifications to help stop foreclosures from flooding the already oversupplied market.

Creditors must also ease their grip on financing so more consumers can buy homes.

"In this scenario, the housing market finds a bottom by early 2009," the report says.

Unfortunately, the downturn could be prolonged if prices slide too much, too many mortgages fail and money stays hard.

"The ramifications of this for the economy, and thus housing, would be overwhelming. Behind this worry is the financial system's substantial exposure to hundreds of billions in mortgage losses that are set to come," the "Aftershock" report warns.

Another risk is home owners suffering equity losses that amount to too much "wealth effect" erosion.

"As consumers turn more cautious in response to their eroding wealth, the economic expansion will surely waver, but if it falters significantly it will ignite a further devolution of the already reeling housing market," the report further warns.

Without a cooperating convergence of key factors, analysts could begin to use the "C" word -- as in "crash," says the report.

Making no mention of a supposed "media effect," postulated by real estate leaders who say media coverage has exacerbated the housing market slowdown, "Aftershock" sees some light in what it considers "promising" federal policy making efforts.

The report says the Bush Administration, federal legislators and federal regulators are fully engaged in heading off the recessionary impact of the hard-pressed mortgage market.

The Federal Reserve has lowered interest rates, Congress recently passed the "Mortgage Forgiveness Debt Relief Act of 2007," effective January 1, 2008, and lawmakers have several more major pieces of legislation in the pipeline to assist homeowner.

"The most significant upside risk to the housing outlook is that policymakers appear fully engaged in stanching the financial turmoil and ensuring that the economy avoids recession," the report concludes.

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© 2008 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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Blue Notes From the Beige Book

by Broderick Perkins
© 2007 DeadlineNews.Com

Deadline Newsroom – Using perhaps the gloomiest language yet this year, realty market sources on the ground around the nation found little cheer in a housing market that appears on the verge of hibernation.

Anecdotal evidence from the Federal Reserve's 12 banking districts suggests further that this winter's housing market could get slammed into a deep freeze that likely won't thaw in the spring.

As the housing market cycles down into what's traditionally the slowest buying season of the year, the seventh of the Federal Reserve's eight Beige Books a year tells the tale of a tired and trying housing market.

Tight credit and higher energy prices are the primary culprits blamed for turning previous market froth into a frosty precursor of what could become a Big Chill.

Adding commentary rather than statistical evidence about the nation's housing market, the Beige Book gathers anecdotal information on a variety of economic indicators, from agriculture, consumer spending and energy, to employment, industry performance and wages.

Comments are solicited from representatives of the reserve's dozen district branch banks as well as from economists, market experts and other sources in those districts.

District-by-district, from the October 17, 2007 Beige Book, here's what sources in the field had to say about the residential real estate market since August.

• Boston, First District -- There was some positive August-to-August data from state real estate associations showing increases in sales and median prices for homes and condos, but the Book reported that data conflicted with more comprehensive information that included foreclosure sales, for sale by owner listings, and new home sales. Sources say, overall, prices and sales are down in Connecticut, Massachusetts, New Hampshire and Rhode Island. Unfinished condominium developments (some with only 10 percent to 15 percent of units sold) are in "very bad shape" as talk heated up over converting condos to rentals.

• New York, Second District -- Housing markets were mixed with New Jersey home builders reducing construction levels. Builders "all but ceased seeking approvals" for new developments. New home prices fell 10 percent as new home and existing home sellers tried to get ahead of the market by pricing properties more realistically. New York State real estate associations said both sales of existing single-family homes and prices were down. Conversely, the Manhattan market remained steady and "relatively strong" with condo and co-op sales rebounding more than 60 percent from a year ago. Likewise some Manhattan rents were up 15 percent from a year ago due to a dearth of available units.

• Philadelphia, Third District -- A source said flatly, "the middle is dead" in the district's new and existing home markets with little more activity in the high and low ends. Builders reported making "large price reductions with little effect on sales." Exiting home sales declined since August in nearly all corners of the district. Sources did not expect a turnaround any time soon, due also to large inventories. Several sources said they expected housing demand to "remain subdued for some time." Buyers will "recognize a deal, if you give the houses away," said one source.

• Cleveland, Fourth District -- Sources said a late summer surge in sales was considered a seasonal adjustment rather than a trend. New homes sales were down compared to the same period last year, builders discussed reducing workforces, and cancellations and price discounts were up, but inventories were shrinking somewhat. Sources remained uncertain about the timing of a turn around.

• Richmond, Fifth District -- Area real estate agents reported "generally sluggish home sales," with two advising sellers "just sit and wait" and "stay where you are unless you absolutely have to sell." Scattered reports said conditions were improving and expectations were growing for improved home sales in the coming months. Home price appreciation was "very modest." Rents were reported as "firm" with vacancy rates "unchanged."

• Atlanta, Sixth District -- Home builders and real estate agents said new and existing sales remained well below year-ago levels in September as the pace of new home construction "continued to decline sharply" as inventories rose.

• Chicago, Seventh District -- "Residential construction and home sales continued to weaken in most areas of the District." Tightening credit for jumbo mortgage loans was specifically mentioned as contributing to the declines in local housing markets. Builders added price discounts and incentives, but showroom traffic became more sporadic and many customers were forced to withdraw from contracts after failing to sell their own home.

• St. Louis, Eighth District -- Home sales weakened more throughout the District. Compared with the same period in 2006, August 2007 year-to-date home sales increased 1.4 percent in Louisville, but declined 3 percent in Little Rock, 7.4 percent in greater St. Louis, and 13 percent in Memphis. Residential construction continued to decline. August 2007 year-to-date single-family housing permits fell in all major metro areas compared with the same period in 2006.

• Minneapolis, Ninth District -- Residential construction remained slow. The value of permitted units in the Minneapolis-St. Paul area was down 38 percent in August from a year earlier. In contrast, a representative of a western Montana builders' association described recent activity there as consistent with recent strong years. In Sioux Falls, the value of new residential construction in September was down slightly from the previous year.

• Kansas City, Tenth District -- Residential real estate activity declined further, home sales weakened in September and were expected to slow further with flat home prices and rising inventories. Demand for low- to mid-priced homes remained strong, but sales of higher-priced homes were weak.

• Dallas, Eleventh District -- Lower priced homes felt most of the market softening as builders curbed construction and took the edge off inventories. Sources pushed out their forecast for recovery of the housing sector to 2009. Apartment demand picked up, and rental rates increased, causing sources to reveal optimism. There was concern that competition from rental housing will increase when the peak of adjustable rate mortgages reset in 2008.

• San Francisco, Twelfth District -- Tighter lending standards for home mortgages took greater tolls on sales of new and existing homes in most areas. Title and escrow sources said sales activity "fell as much as 40 percent" in some areas during the last few months. The reduced pace of home sales restrained price growth, particularly for lower-priced homes, which have been most affected by changing credit terms and conditions in the subprime-mortgage market.

• New Wave Optimism Means Calling An End To Housing Slump
• Economy 'Certainly Close' To Realty-Made Recession
• Beige Book: Lackluster Housing Market
• Homeownership Rate Slides Again
• State of the Real Estate Union: Beige
• Federal Reserve's Grim Real Estate Report


© 2007 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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