America's Housing Troubles Won't End with 2007
"The bottom has nowhere near been reached," said William Wheaton, an economist with MIT's Center for Real Estate. Wheaton said there was a great deal of overbuilding, driven in part by speculators. The result, he said, is that there are now more than 1 million extra homes sitting on the market. That's even after home-building had been cut by 50 percent and massive layoffs. Economy.com says when it's all added up, there will be 750,000 foreclosures in 2007. Looking forward, he said, "I think we're in store for at least a million lost properties in '08." "The average household size is a couple [to] three people," Zandi said, "so you're talking 3 million people actually lose their homes."

America's Housing Troubles Won't End with 2007

by Chris Arnold

 

 A for-sale sign on a lawn in Atlanta notes that the house is in foreclosure. Gregory Smith

Morning Edition, December 26, 2007 · With the collapse of the housing market, many economists are warning that a recession has become more likely. Gone are the days when homeowners flush with rising equity buoyed the economy with confident spending.

Now entire neighborhoods are plagued by foreclosures, mortgage lenders are skittish and the real estate industry is shedding tens of thousands of jobs.

This time last year, the housing sector was looking shaky. But few had any idea what was coming. Hundreds of billions of dollars in losses on subprime loans sent shocks through credit markets around the world. Scores of mortgage companies went bankrupt. Many in the industry had massive layoffs.

While there are areas and neighborhoods that have weathered the crisis with little effect, home prices over the past year on average have been falling more broadly than they have since before World War II.

Not too long ago, foreclosures were considered a rare, unhappy event. Now entire cities are plagued by foreclosures — which are at their highest level since the Great Depression. At the same time, new home construction has fallen to the level it was at in 1991.

And those events are rippling through the nation's economy.

In New Bedford, Mass., a working-class town and fishing port south of Boston, carpenter Steven Alves, founder of Steven's Home Improvement, is seeing the effects.

During the housing boom, a lot of people were pulling money out of their homes as if they were ATMs to do renovations and build additions. The construction business was booming. This year, with house prices falling, that has all changed.

"People are not spending as much money as they have in the past," Alves said. "If you look at our core products — roofing, siding — [they are] down about 30 percent."

Alves said he has been trying to make up the difference by taking on more small jobs. But he still has had to trim his workforce from 30 people down to about 20. Homebuilders, Realtors, banks, plumbing companies, door manufacturers and scores of others have laid off hundreds of thousands of people.

And the worst may not be behind us.

"The bottom has nowhere near been reached," said William Wheaton, an economist with MIT's Center for Real Estate.

Wheaton said there was a great deal of overbuilding, driven in part by speculators. The result, he said, is that there are now more than 1 million extra homes sitting on the market. That's even after home-building had been cut by 50 percent and massive layoffs.

Wheaton said for the market to recover, building needs to be cut back even more.

"We haven't seen construction levels like that at any time in the last 30 years," Wheaton said. "So, I am not optimistic we are anywhere near the bottom."

And then there is the whole foreclosure crisis. Over the past year, one Wall Street firm after another announced eye-popping billion-dollar losses on subprime mortgage investments.

In August, the global credit markets seized up, as investors around the world realized there were many securities floating around that no one was sure how to value.

"This summer was shocking," said Paul Willen, an economist with the Federal Reserve Bank of Boston. "Those days in August when there was bizarre stuff happening in interest rates… I mean, you'd look at the screen and you'd think, 'That must be a mistake.'"

Willen conducted a study on people in Massachusetts who bought homes with subprime loans; he found that nearly 20 percent of them ended up in foreclosure.

Subprime loans were designed for people with credit problems. But in recent years, borrowers and lenders got intoxicated by ever-rising home prices. Many people got loans for the full value of their house — and they couldn't really afford the high-interest payments.

With rising prices, they could refinance and pull more money out of the home. But then the music stopped, prices fell — and a lot of people didn't have a chair to sit down on.

"The role that subprime lending has in this crisis and the reason why it's very important right now is that it created a class of people that were extremely vulnerable" to disruptions on the housing market, Willen said.

"They buy the house and then something goes wrong," Willen said. "Like, it needs a new roof, new furnace — and that's $10,000, and there's just no way they can do it."

On top of that, millions of people are in adjustable-rate loans that have big jumps in their monthly payments built in. Mark Zandi of Moody's Economy.com says when it's all added up, there will be 750,000 foreclosures in 2007.

Looking forward, he said, "I think we're in store for at least a million lost properties in '08."

"The average household size is a couple [to] three people," Zandi said, "so you're talking 3 million people actually lose their homes."

Of course some of those facing trouble are speculators; others bought houses with no money down.

But at least some of those facing foreclosures are people who've been in their homes for a long time and just didn't understand the loans they were getting into.

There are various programs and legislative proposals aimed at avoiding foreclosures. Managing the ongoing fall-out is sure to be a main challenge for the U.S. economy in 2008.

AP News Wire: Business

October Home Prices Post Record Decline

from The Associated Press 

 

 for sale in Charlotte, N.C., in this March 26, 2007 file photo. U.S. home prices fell in October for the 10th consecutive month, posting their biggest monthly decline since early 1991, according to the Standard & Poor's/Case-Shiller home price index. Only three areas _ Charlotte, N.C., Portland, Ore. and Seattle _ posted year-over-year home price appreciation in October, with Charlotte posting the largest gains at 4.3 percent. Associated Press © 2007

 A real estate sign stands outside a home in North Las Vegas, Nev., Tuesday, Oct. 23, 2007. U.S. home prices fell in October for the 10th consecutive month, posting their biggest monthly decline since early 1991, according to the Standard & Poor's/Case-Shiller home price index. Las Vegas, Miami, Tampa, Fla., Detroit, Phoenix and San Diego all posted double-digit year-over-year declines. Associated Press © 2007

 John Malone, from Mountain View, Calif., looks at a flyer of one of the townhouses that is for sale in San Jose, Calif., in this Oct. 6, 2007 file photo. U.S. home prices fell in October for the 10th consecutive month, posting their biggest monthly decline since early 1991, according to the Standard & Poor's/Case-Shiller home price index. Associated Press © 2007

 

 A vacant home for sale in Chandler, Ariz. is seen in this Oct. 24, 2007 file photo. U.S. home prices fell in October for the 10th consecutive month, posting their biggest monthly decline since early 1991, according to the Standard & Poor's/Case-Shiller home price index. Associated Press © 2007

NEW YORK December 26, 2007, 5:35 p.m. ET · U.S. home prices fell in October for the 10th consecutive month, posting their largest drop since early 1991, according to a key index released Wednesday.

The record 6.7 percent slide in the Standard & Poor's/Case-Shiller home price index also marked the 23rd consecutive month that prices either fell or grew more slowly than the month prior.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, who helped create the index, in a statement.

The previous record decline was 6.3 percent, recorded in April 1991. The index tracks prices of existing single-family homes in 10 metropolitan areas.

It is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

Home prices could fall another 10 percent over the next 12 to 18 months before bottoming out, said Patrick Newport, an economist with financial consultancy Global Insight, in an interview.

Newport said four of the largest groups currently trying to sell homes — banks holding foreclosed properties, homebuilders, speculators and unemployed consumers — are typically flexible about lowering house prices because they need to get rid of the property.

Sales of homes will likely start to rebound late in 2008, with price appreciation to follow, Newport said.

A second, broader Case-Shiller index, which measures 20 metropolitan areas, fell 6.1 percent in October. Among the 20 areas used in the broader index, 11 posted record year-over-year declines and all 20 declined in October compared to September.

Leading the index lower was Miami, where prices fell 12.4 percent in October compared to the same month last year. That led it to surpass Tampa, Fla. as the worst-performing city. Tampa posted a year-over-year loss of 11.8 percent.

Besides those two cities, Detroit, Las Vegas, Phoenix and San Diego also posted double-digit year-over-year declines.

Atlanta and Dallas, which had previously posted price appreciation, fell in October. Prices fell 0.7 percent in Atlanta and 0.1 percent in Dallas compared to a year earlier.

Only three areas — Charlotte, N.C., Portland, Ore. and Seattle — posted year-over-year home price appreciation in October. Charlotte posted the largest gains at 4.3 percent.

Among the three, only Charlotte is likely to be saved from declining house prices within the coming few months, Newport said, because the area has not seen periods of rapid appreciation like the other markets.

Kevin Johnson, co-founder of Homes of the South Inc. in Charlotte, agreed.

"We never jumped very high like other areas," Johnson said. "We don't have a hard fall as other places."

Bob Morgan, president of the Charlotte Chamber of Commerce, said the area's strong economy is also playing a role in supporting price appreciation. While the numbers are preliminary, more than 14,000 jobs were created in the Charlotte area in 2007, he said, compared with more than 12,000 jobs in 2006.

The job growth is coming from a "pretty healthy" variety of sectors, including the financial industry, Morgan said. Charlotte is home to two of the nation's four largest banks, Bank of America Corp. and Wachovia Corp.

Carole Brake, the sales manager at Bissell Hayes Realtors SouthPark Office in Charlotte, said prices are still up despite an increase in inventory.

"Sellers are not in a mode to reduce their prices. They want a fair market price for their home," Brake said.

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AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.