When will YOUR housing market recover?

By Marcie Geffner, Bankrate.com

Pundits love to make predictions as to when home prices will stabilize in U.S. housing markets. But even well-respected forecasters and analysts may disagree, and even if a forecast proves true nationally, your local market may behave in a wildly different way. This disconnect between broad-stroke forecasts and small-scale local markets presents quite a puzzle for homebuyers and home sellers, who need to make major financial decisions on the basis of facts, not fiction.

Two examples nicely illustrate the divergent opinions of respected economists, some of whom suggest a housing rebound is just around the corner and others of whom say a recovery could take years just to get started.

Lawrence Yun, chief economist for the National Association of Realtors, expects a “soft” first half of this year for housing and the economy and then “notable improvement” in the second half of the year. But U.S. Treasury Secretary Henry M. Paulson Jr. notes in a recent speech that “most forecasters expect a prolonged period of adjustment” in housing.

Who’s right? In the long run, both comments may prove prescient because the national housing market is more than large enough to encompass a wide variety of trends in different places and on different timelines. And that means, at the end of the day, you’ll need to rely on your own best judgment to make decisions for yourself and your family.

Local data may be more meaningful for homebuyers, sellers
So how can you figure out when home prices and sales hit bottom and begin to recover in your neighborhood? You may need to do your own research to find the answer. Dig up facts and figures about your own city or town and then combine that data with information about national trends to formulate your own conclusions.

Plenty of data are as close as your keyboard, though the process of sifting through it may take quite a lot of time and thoughtful analysis. If you’re tempted to skip out on what may seem like a burdensome homework assignment and instead rely on your own gut instincts, you might want to take a tip from Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate in Los Angeles. He says, “some investors are very instinctual and this has worked out well for them, but most of us rely on the acquisition of information.”

“There is a whole litany (of factors that affect housing) — home sales, housing starts, building permits, house prices — and all of those are important indicators,” he says, “but the inventory numbers in particular are really important.”

The inventory of for-sale homes in a local area is usually measured as a number of months’ supply at a current pace of sales. For example, in March 2008, the inventory of existing single-family detached homes for sale in California was 7.6 months, which means it would take that long to deplete the supply of for-sale homes at the current sales rate, according to the California Association of Realtors.

The general rule is that more months of supply indicates a weaker housing market. Many months suggests plenty of homes are for sale or the pace of sales is slow. Those conditions are indicative of a market that favors buyers. Few months suggests a limited number of homes for sale or the pace of sales is fast. Those factors are indicative of a market that favors sellers.

Many local Realtor associations and multiple-listing services, or MLS, collect and publish this type of information. Ideally, the data should be segmented by locale, type of home and price range, though that degree of specificity is rarely on offer.

Housing starts increase supply of for-sale homes
Two other important housing market indicators are residential building permits and new-home construction starts, according to Gabriel. Bernard Markstein, senior economist at the National Association of Home Builders, or NAHB, in Washington, D.C., agrees. These indicators are measured by local government building officials and the U.S. Census Bureau. A spike in permits or starts may indicate more optimism among homebuilders, but can also suggest a dramatic rise in the supply of for-sale homes in the near future.

Housing starts generally are a better leading indicator than housing permits because “housing starts turn into homes for sale very quickly,” Gabriel says.

The NAHB’s Web site offers access to a wealth of forecasts and economic and housing data from the association and government agencies.

Markstein also cites local employment trends and unemployment rates as important indicators of local housing market conditions.

“Employment is important because ultimately people need a place to live, and if people are moving into an area because employment is expanding, that will be positive for homeowners,” he says.

Most local newspapers publish stories about large employers’ hiring and downsizing plans as well as unemployment figures. Employment data also can be obtained from the Bureau of Labor Statistics.

Homebuyers and sellers can also glean useful insights from reports and newsletters published by the Federal Reserve and its 12 district banks, Markstein suggests. Each of the banks puts out its own periodicals about local economic conditions, and these reports usually contain sections about the outlook for commercial and residential real estate. The Fed’s Beige Book and map of the district banks may help you locate these reports.

Quality of data is crucial to good analysis
Much like do-it-yourself remodeling, personal economic analysis is not without certain pitfalls.

Risks of do-it-yourself analysis:
• Inaccurate, incomplete, faulty or outdated data, which may be misleading.
• Small-scale surveys, which may suffer from sampling errors.
• Individual data points, which may not represent a true trend line.

It’s important to track inventory, starts, unemployment and other figures over time and compare them to historical highs, lows and averages to understand their importance, Gabriel suggests.

“Look at these numbers relative to the typical level that would exist in a period of economic growth to see whether the levels are aberrantly high or aberrantly low. Look over a long time frame and measure existing levels relative to, say, a long-run average to get a sense of where (the market) is in the cycle,” he says.

And remember: In housing markets, “a long time frame” usually means a number years, not just a few months.

Marcie Geffner is a freelance real estate reporter in Los Angeles.

Housing crunch, 90210

Places like Beverly Hills, Calif. and Greenwich, Conn. have been hit by steep price declines, and a jump in foreclosures.

By Les Christie, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — Across the country, real estate agents and home sellers in wealthy neighborhoods who grew accustomed to seven-figure bidding wars during the boom are feeling the sting of the housing crunch.

Ed McMahon can vouch for that. The former Johnny Carson sidekick and TV pitchman recently saw his $5 million Beverly Hills home go into foreclosure.

In fact, McMahon is a celebrity face to a broader trend.

Three of the nation’s richest zip codes saw particularly steep home-price declines in the three months ending April 30, compared with the previous three months.

In Palm Beach, Fla. (zip code 33480), median home prices fell 38% during that period, according to the real estate Web site Trulia. Prices in Greenwich, Conn. (06831), dropped 15%, while homes in Wayzata, Minn. (55391), are selling for 28% less.

Prices in other wealthy towns also declined: Gladwyne, Penn. (19035), was down 6%, and Beverly Hills (90210), Lincoln, Mass. (01773), and Ladue, Mo. (63124), each slid 2%.

“What I’m finding is that million dollar plus homes declined 4% or so [over the past 12 months],” said Don Kelly, a spokesman for Zaio, which is building a national data base of home value appraisals.

And foreclosure data tracks the pricing information. In Beverly Hills, filings nearly doubled to 41 in the first four months of this year, up from 22 in the same period last year, according to RealtyTrac, which compiles foreclosure stats. In Palm Beach, there were 34 foreclosure filings, up from 9 in the period a year ago. Greenwich had 23, up from 10, while Wayzata had 18, compared with 14 a year ago. Kenilworth, Gladwyne and Medina had just one each, while Lincoln had none.

Of course, the high-priced areas have generally held up better than overall home prices, which plunged a record-setting 14.1% in the 12 months ending March 31, according to the S&P Case/Shiller Home Price Index. And a handful of posh outposts are still posting gains. Prices rose 18% in the swanky Chicago suburb of Kenilworth, Ill. (60043), 9% in Medina, Wash., which is home to Bill Gates just outside Seattle, and 5% in Silicon Valley’s Atherton, Calif. (94027).

But many ritzy areas are finding they are not immune to the housing slowdown.

Drew Peterson, an agent with Weichert Realtors in Greenwich, says sales volume has slowed as buyers have become more cautious.

“There are motivated sellers, and opportunities for buyers to capitalize on sellers downsizing,” he said. Some of the owners of large estates are moving out and resettling in Greenwich’s more urban downtown area.

In the Philadelphia suburb of Gladwyne, the wealthiest town in Pennsylvania which lies along the fabled “Main Line,” the market has also slowed, according to Judy Getson, the sales manager for Prudential Fox & Roach in Haverford.

According to Trulia, just six homes sold in Gladwyne during the three months ending April 30, down from 14 sold in the same three months during 2003, a boom year. There are now 42 homes in town on the market for a million dollars or more, according to Realtor.com, ranging from $1.195 million to $17 million.

Getson is seeing a downsizing phenomenon similar to Greenwich in the Philadelphia area, although not in Gladwyne proper. “A lot of people are moving from mansions and buying condos in the city,” she said.

Perhaps the hardest hit of the 10 wealthy zips in our sample is Palm Beach, Fla. Corcoran Group agent Paulette Koch says inventory is building up in the “low end” of the local market there – the $2 million to $6 million range.

“The volume of sales has declined,” she said, “and the selling season this year started very late and slowly.”

The ultra-high-end has, however, been very good. “There have been records set all over the place,” she said.

Sales are also moving much more slowly in the Minneapolis suburb of Wayzata, according to Linda Blyth, director of previews for Coldwell Banker Burnet.

“One of our own agents had his own $4.2 million house on Lake Minnetonka as part of the waterfront tour we do every Fall. It sold in April, at full price, to someone who was on that tour,” she said. “People are taking longer to make a decision.”

Even in stronger markets, like Medina, Wash., sales volume is down.

The market slowdown has unleashed a “fair amount of inventory,” said Larry Williams, a real estate agent for John L. Scott Real Estate. And homes are often overpriced. “Many sellers haven’t figured out that it’s not a seller’s market anymore,” he said.

Still, Williams sold a $2.2 million house recently in less than a day, with multiple offers. And he had a waterfront lot for $4.4 million that went in nine hours.

“The stuff that is selling is going in 30 days or less, and the average sale is more than 100% of the asking price,” said Williams. But to sell, it has to be high quality and the marketing – photos, advertising, pricing and staging – all have to be top-drawer as well.

Of course, most of the homeowners in the country’s wealthiest zip codes – hedge fund chiefs, industrial moguls and dot-com billionaires – will probably have the means to wait out a slump. It’s doubtful that these areas will see the flood of distressed sales that sent so many other areas into a downward spiral.

And that alone can be enough to give places like Beverly Hills a boost. 

Homes in FORECLOSURE top 1 million

By Chris Isidore, CNNMoney.com senior writerMortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy.
NEW YORK (CNNMoney.com) — More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.

The Mortgage Bankers Association’s first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That’s up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.

The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That’s up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007.

The seasonally-adjusted rate of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans, or 6.4%, have missed at least one payment, while about 737,000 are at least three months past due, but not yet in foreclosure.

Grim numbers
“The figures aren’t surprising, but they’re pretty ugly nonetheless,” said Michael Larson, real estate analyst with Weiss Research. “We’re talking higher delinquencies and foreclosures pretty much across the board.”

And he doubts that there’s much reason to expect the foreclosure crisis to abate until next year at the earliest, adding that it could be a couple of years or more before foreclosure rates retreat to more normal historical averages.

“It’s the same story we’ve been seeing for a while now – we had too much reckless lending, and buyers who got over-extended,” he said. “We’ve had an unprecedented decline in home prices on a nationwide basis, which is public enemy number one for mortgage loans. And now you’ve got an overall economy that has slowed adding to this toxic stew.”

Good credit, bad credit
Much of the problem lies with subprime loans given to borrowers with weaker credit records, especially those loans that had adjustable rates. Nearly four out of ten subprime ARM loans are a month or more late, or in foreclosure. And subprime ARMs account for 39% of the loans that fell into foreclosure during the quarter.

Prime fixed-rate loans, which are considered very low risk, have also seen sharp increases in their delinquency and foreclosure rates, although they are performing far better than the riskier loans on the market.

There are 431,000 prime loans in foreclosure, a seasonally adjusted rate of 1.2% that is more than double the 0.5% rate a year ago.

The report showed about 1.2 million prime mortgages are now a month or more past due, a seasonably adjusted rate of 3.7% of those loans. That’s up from a rate of 2.6% a year ago.

According to Jay Brinkman, MBA’s vice president for research and economics, the prime loan segment was hurt by so-called Alt-A loans, which didn’t require income verification for buyers with good credit. Prime loans are also getting into trouble in places such as Florida and California, which have seen sharp home price declines.

“You still have people with prime fixed rate loans who lose their jobs, who get a divorce or have an illness come up, and can no longer afford a house,” Brinkman said. “In areas where there’s been home price appreciation, you can get out of that with the sale of a home or some other negotiation.”

Getting worse before it gets better
This marks the sixth straight quarter in which a record percentage of loans went into foreclosure.

The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans.

Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.

California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have nearly 400,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.6% of all of the loans in these states are now in foreclosure.

“Clearly things in California and Florida are going to get worse before they get better,” said Brinkman.

The other two states that are ground zero for the crisis – Michigan and Ohio – have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.

Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.

There is a glimmer of good news. The rate of homes going into foreclosure in Ohio and Michigan was narrowly lower than it was in the fourth quarter, and 18 other states also saw a decline in that rate.

Brinkman said he hoped that means the crisis is at or near a bottom in much of the country, and that foreclosure prevention efforts have started to have an effect. But he added that a slight improvement in one quarter doesn’t necessarily mean the end is near.

Indeed, the rate of homes going into foreclosure continued to climb sharply higher in California and Florida, as has the rate of loans in those states that are 90 days or more past due but not yet in foreclosure. Brinkman said that in markets like these, where home prices have fallen so far from the market’s peak, finding solutions to keep a home out of foreclosure are more difficult.

He also added that, given the large impact California and Florida are having on the national foreclosure numbers, and the fact that historically foreclosures peak about three years into the loan’s life, he expects the number of foreclosures will continue to rise.