U.S.Real Estate:How it affects your financial future

Economic implications of the real estate bubble

http://www.youtube.com/watch?v=11sG3zgE9Hk&feature=relmfu

 22 Oct 2007

US Home Prices and Income, 1987 – 2008

Home Prices and Income, 1987 – 2008, Nominal [top] and Real [bottom]

As the bottom chart of inflation-adjusted home prices and income demonstrates, even as real household income meandered along a relatively flat path, home prices exploded after 2001. This was due, in part, to:

• A steep yield curve;
• The widespread use of ARMS;
• Flexible mortgage underwriting standards; and
• Mortgage product innovations (subprime, Alt-A, Option ARMs).

All of the above encouraged home ownership. By 2006, prices had peaked, and began to correct.

http://mortgagenewsclips.com/2009/04/15/ira-artmans-sterling-slivers-greed-fear-and-loathing-whats-next-for-home-prices/

A History of U.S. Home Values

http://seekingalpha.com/article/180690-7-salient-economic-trends-of-the-last-decade

Making Sense of the U.S. Housing Slowdown

Economic Letter—Insights from the Federal Reserve Bank of Dallas
Vol. 1, No. 11
November 2006
Federal Reserve Bank of Dallas

Making Sense of the U.S. Housing Slowdown
by John V. Duca
A robust housing market buoyed the U.S. economy during the 2001 recession and fueled growth once recovery began. The record-setting building of single-family homes created construction jobs and spurred demand for building materials, appliances and home furnishings. Business was brisk for mortgage lenders and real estate brokers alike.

Perhaps even more significant, rapidly rising housing prices had allowed consumers to tap into their mounting home equity, providing them the financial wherewithal for a buying spree. By mid-2004, however, home prices had risen to the point where many analysts worried that markets were overheated, making homes less affordable, particularly for first-time buyers already facing the drag of rising energy prices.

Today, signs of a housing market slowdown are unmistakable. New and existing home sales have been declining since mid-2005, although they remain high by historical standards (Chart 1A). Building activity has begun to cool a bit, while single-family housing permits have fallen 34 percent from their peak, settling back to pre-2002 levels (Chart 1B). The building permits data suggest further declines in single-family construction are likely, given the usual six to eight months it takes to complete a home.

http://www.dallasfed.org/research/eclett/2006/el0611.html

For US Housing Crisis, the End Probably Isn’t Near

For Housing Crisis, the End Probably Isn’t Near

By DAVID LEONHARDT
Published: April 21, 2009
The closest thing to a real estate crystal ball in the last few years has been the house auctions that are regularly held around the country.
At the real estate auction, a bidder assistant yells to signal to the auctioneer that an audience member decided, after a tense moment, to place a higher bid.
In 2006 and early 2007, the official housing statistics were still showing that house prices were holding up. But that was largely because so many sellers were refusing to sell. The auctions, made up mostly of foreclosed homes, showed the truth: house values were starting to plummet in many places.
So a few weeks ago, I decided to go to an auction at a hotel ballroom in Washington — and to study the results of several others elsewhere — with an eye to figuring out whether prices may now be close to bottoming out.
That’s clearly a huge economic question. Last week, JPMorgan’s chief financial officer told Eric Dash of The New York Times that JPMorgan, and presumably other banks, would be under pressure “until home prices stabilize and unemployment peaks.” As long as home prices are falling, foreclosures are likely to keep rising and the toxic assets polluting bank balance sheets are likely to stay toxic.
There are reasons, though, to think that prices may be on the verge of stabilizing. Relative to fundamentals, like household incomes and rents, houses nationwide now appear to be overvalued by only about 5 percent. You can make an argument that the end of the housing crash is near.
But that’s not what I found at the auctions.
•
“This is a perfect storm of opportunity,” Bob Michaelis, goateed with a shaved head, told the 300 or so people who had come to downtown Washington for the auction.
Mr. Michaelis, the auction manager, spoke from a lectern on stage, and his goal seemed to be to persuade people that they might never see a buyers’ market as good as this one. Prices have plunged, and interest rates, he said, are at “generational lows.” (The National Association of Realtors has been running a radio commercial this spring making a similar case.)
“Look around to your left and your right, and you’ll see someone who sees an opportunity just like you do,” Mr. Michaelis said. “We’re approaching the bottom of the market, I think. We’re approaching the bottom of the market, if we’re not there already.”
He then told the audience that, in the last 100 years, house prices have recovered from every downturn and gone on to reach record highs. Oh, and Wells Fargo and Countrywide were standing by, ready to offer financing to qualified auction buyers.
If nothing else, this sales pitch certainly had chutzpah. It combined the old bubble-era notion that house prices always rise over time (ignoring the fact that incomes, stock values and the price of bread do, too) with the new postcrash idea that houses must be a bargain because they’re a lot cheaper than they used to be. Even Countrywide, which was taken over by Bank of America after so many of its subprime mortgages went bad, is still part of the housing pitch.
Yet as soon as the auction began, it was clear that the pitch wasn’t working.
The winning bid on the first home auctioned off, a two-bedroom townhouse in Virginia Beach, was $115,000. Just last July, it sold for $182,000, according to property records. A four-bedroom brick house with a two-car garage in Upper Marlboro, Md., went for $375,000. Last year, it sold for $563,000.
Throughout the evening, such low-ball prices continued to win the bidding. At one point, the auctioneer, Wayne Wheat, interrupted his sing-song auction call to cheerfully ask, “Where are my investors?”
The tables that had been set up around the edges of the ballroom, reserved for people planning to buy multiple houses, were mostly empty. Many audience members, like the man in a camouflage baseball cap just in front of me, were attending their first auction.
On Sunday, my colleague Carmen Gentile went to a larger auction, in Miami, to see if my experience had been unusual. It wasn’t. The homes there also sold for just a fraction of what they would have even a year ago. The rate of decline in Miami hasn’t even slowed noticeably in recent months, according to data kept by Real Estate Disposition Corporation, known as R.E.D.C., which runs the auctions.
A recently transplanted New Yorker named Michael Houtkin won the bidding on a one-bedroom condominium on the outskirts of Boca Raton, a few blocks from three golf courses, for the incredible price of $30,000. “Things were almost being given away,” he said later.
As is often the case at these auctions, the seller of the condo — Fannie Mae — retained the right to refuse the winning bid and keep the property. But Mr. Houtkin told me he was optimistic his bid would be accepted. An R.E.D.C. employee suggested to him that $30,000 wasn’t much below the minimum price that Fannie Mae had hoped to receive.
How could that be? Because Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.
The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.
This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.
Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive.
So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, but the difference isn’t enormous.
I’ll confess that this bearish picture isn’t exactly what I had hoped to find. A year ago, as part of a move from New York to Washington, my wife and I bought our first house.
We did so fully expecting prices to continue falling (though perhaps not as much as they ultimately will, given the severity of the financial crisis). But we decided they had fallen enough for us to take the plunge. We preferred buying before the bottom of the market instead of renting and having to move again in a year or two.
Still, when I wrote about that decision last spring, I argued that anyone who didn’t have to probably should not buy yet. Prices still had a way to fall.
They don’t have as far to fall today, but the great real estate crash is not over, either. So if you are part of the 30 percent of American households who rent and you’re trying to decide when to buy, relax.
The market is still coming your way.
E-mail: Leonhardt@nytimes.com

http://www.nytimes.com/2009/04/22/business/economy/22leonhardt.html?em

How she owed more than her home was worth?

No Good Deed Goes Unpunished
by Laura Rowley

Posted on Wednesday, January 28, 2009, 12:00AM

Eve Pidgeon, communications director for a nonprofit credit counseling service in Michigan, says she'll never forget the day she realized she owed more than her home was worth.
"I was at work, saying, 'Can you believe I can't refinance my house?'" recalls Pidgeon, who had made timely payments on her 30-year mortgage for nine years and has a credit score over 800. "Then a [colleague] said, ‘You're upside down -- like our clients.' I thought, ‘My God -- I am?' I thought that happened to people who had $50,000 on credit cards and refinanced into adjustable-rate mortgages."
A Canadian immigrant who became a U.S. citizen, Pidgeon bought her home in 1999. Her mortgage broker said she qualified for a $240,000 loan -- on her then-salary of $33,000 per year and her husband's volatile income as a freelance photographer.
Passing Up the Big, Fabulous House
"Calculations for insurance, escrow for property taxes -- none of that was considered," recalls Pidgeon, who has two children. "Of course we wanted a big, fabulous house, but when I crunched the numbers, I thought, 'If the cost of any one thing in our [budget] goes up, we're going to be in a deficit every month.' It put a lot of pressure on my marriage because my husband said, ‘You're terrible at math; this is a professional who knows what he's doing, and we should get this house.'"Instead they bought a quaint 1918 Victorian for $135,000. Pidgeon, who eventually divorced and navigated a job layoff without ever missing a mortgage payment or accumulating high-interest credit card debt, has refinanced twice -- from 8 percent to 6.8 percent, and then again to 6.3 percent, always locking in for 30 years. She wanted to refinance again when rates slipped under 5 percent, but widespread foreclosures have depressed her home's value; comparable dwellings are selling at or below the $117,000 she still owes.
Pidgeon is emblematic of the financial insecurity afflicting millions of Americans who are being punished despite doing all the right things with their money. Hard work, steady savings, and thoughtful sacrifices haven't protected their jobs, nest eggs, or home values from an economy twisted by fraud and stupidity, coldly indifferent to responsibility and productivity.
Homeowners Underwater
By one estimate, 12 million homeowners -- one in six -- are underwater on their mortgages. In 20 major metropolitan areas, home prices dropped an average 18 percent in November compared to the year-earlier period, according to the S&P/Case-Shiller Index, released earlier this week.
Unemployment rose in all 50 states in December and surpassed 10 percent in two -- Rhode Island and Pidgeon's home state of Michigan. Moreover, in the year following October 2007 -- the stock market's peak -- more than $1 trillion of stock held in 401(k)s and other defined-contribution plans evaporated, according to the Center for Retirement Research at Boston College.
"The new insecurity doesn't look like the old insecurity -- grainy Dorthea Lange photos of Depression-era men and women, their weathered faces projecting despair and helplessness," writes Yale political scientist Jacob Hacker in his book ‘The Great Risk Shift'. "Those who experience it have homes, cars, families, degrees. They've usually tasted the fruits of success, if sometimes only fleetingly. They very rarely end up on the streets or in shelters. For most, insecurity is a private experience, hidden away behind closed doors, felt in quiet despair."
A Fair Question in Unfair Times
Consider a reader's comment last week following my column on the difference between optimism and magical thinking. The poster wrote that he was a computer programmer who had been employed for 25 years, worked hard, lived frugally, and was now laid off. His 401(k) had lost half its value and his home equity had declined sharply.
"Please tell me again why you believe I should be optimistic?" he wrote. "Is it that you expect folks (suckers) in my situation to get up, brush off, and once again toil to accumulate wealth that will be seized from me in one way or another?"
That's a fair question in unfair times. At the very least, we can mitigate the risks of having our hard-earned cash seized in the future by asking ourselves a series of questions:
1. Do you live within your means? How long could you live without your current income if you lost your job? Do you know exactly how much money comes in and where it goes each month? What areas of your budget could you slash immediately? What expenses can you cut back for the next year and reallocate toward a cash cushion?
2. If you consistently ratchet up your lifestyle to match rising income, can you divert half of any raise, bonus, or other increase you receive into savings instead?
3. Have you considered a strategy to obtain severance or other benefits in the event you're laid off? How up-to-date is your resume and network of contacts, and what would be the first five steps you would take to find a new position? Have you investigated your options for continuing or obtaining health insurance?
4. If you are living on two incomes, how can you shift your lifestyle and spending to rely on one for needs and the other for wants?
5. How well do your insurance policies protect you and the people you love? Have you shopped around for the lowest premiums?
6. If you carry high-interest, revolving debt, what is your plan for eliminating it, and how long will it take?
7. Do you have written goals -- short-, medium- and long-term -- for your money that reflect what you value most, with specific dollar amounts and time frames? Do you know how fast the cost of your goal is rising?
8. Do you understand how your money is invested, how much risk you're taking, and what expenses and fees you are paying? Do you understand the tax implications of your financial decisions (and your geographic choices)? If not, are you making an effort to learn about these critical areas of your portfolio?
9. Are you taking good care of your health to reduce the risk of financially devastating medical costs?10. Do you give as much energy to your family and friends as you do to your finances? (Losing your shirt is a lot more painful when you go through it alone.)
The Risks We Face
"Studies consistently suggest that we are good at some kinds of risk assessments and very bad at others," Hacker writes. "And unfortunately, the kinds of risks that we face today -- diffuse, interwoven, mounting, uncertain -- are precisely those we are most likely to overlook. Economic losses for families are often like system failures in engineering -- they cascade from seemingly small events into major crises. Yet few of us worry much about the small events that can set off the chain."
Pidgeon says she never imagined she'd be in her first home nearly a decade after she bought it, but she is focused on the positive. "If I could [refinance], I could gain a few hundred dollars in my monthly surplus and use it to stimulate the sagging local economy," she says. "But my priority was to move to the States and make the most of my education and my career, and raise a wonderful family in a safe, comfortable, and loving environment. Whether I'm paying 6.3 percent or 4.5 percent, I feel very proud that I accomplished that."

http://finance.yahoo.com/expert/article/moneyhappy/137398;_ylt=ArMJDpteaSKgQNT6eQGJXB27YWsA

US: More Pain Ahead

APLayoffs spike, housing tumbles; outlook worsens

Thursday January 22, 4:42 pm ET
By Jeannine Aversa, AP Economics Writer

Worse-than-expected reports on jobless claims, housing further dim outlook, challenge Obama

WASHINGTON (AP) -- The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic recovery plan President Barack Obama and Congress are scrambling to advance.
The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.
The reports "paint a bleak economic landscape ahead," said Stuart Hoffman, chief economist at PNC Financial Services Group.
And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months. Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors. Those -- as well as other employers -- have seen customer demand wane and are cutting costs to survive the fallout.
"The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade," warned Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The labor market remains a disaster area."
Wall Street ended a volatile trading day sharply lower following the worse-than-expected economic data, concerns about the nation's banks and disappointing results from Microsoft. The Dow Jones industrial average lost more than 105 points.
On Capitol Hill, House Democrats rolled up their sleeves to nail down pieces of Obama's $825 billion stimulus package -- a blend of tax cuts and increased government spending that includes boosting unemployment benefits-- with the goal of a floor vote next week.
And the Senate Finance Committee cleared Obama's nomination of Timothy Geithner to be Treasury secretary -- despite what the nominee called "careless" and "avoidable" tax mistakes. The full Senate still must clear Geithner, president of the Federal Reserve Bank of New York, before he can take office.
Already Geithner is helping shape the Obama administration's new plan to bust through the debilitating credit and financial crises that are aggravating the recession. The package -- likely to be unveiled in a few weeks-- may include a program to mop up bad mortgages and other toxic assets so banks would be in a better position to lend money more freely.
On the layoffs front, first-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported. That was much more than the 540,000 tally economists expected. It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.
Part of the rise was blamed on a backlog of claims that piled up in recent weeks as several states experienced computer crashes from a crush of filings, a government analyst said.
The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million. That figure, too, was above analysts' expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid. The pickup shows that those out of work are having trouble finding a new job.
Some economists believe the number of people continuing to draw unemployment benefits could rise to 5.5 million -- possibly more -- this year even if a new stimulus package is enacted.
On top of the 4.6 million covered by the regular unemployment insurance program, another 2 million Americans requested benefits under an emergency extension authorized by Congress last year. But the 2 million figure is not seasonally adjusted and is volatile.
Obama's stimulus package -- which is running into Republican resistance -- includes plans to extend and boost unemployment benefits, give states $87 billion to deal with Medicaid shortfalls and help unemployed people retain health care. Tax credits for workers, tax cuts for businesses and money for public works projects, such as road and bridge construction, also are being put forward.
Meanwhile, the miserable state of the U.S. housing market was in full view Thursday, and the outlook remains dim.
The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959. Last month's performance was weaker than economists expected, and shattered the previous record low set in November.
"The extent of the decline was breathtaking," said Joel Naroff, president of Naroff Economics Advisors. "Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon."
For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.
The report also showed that applications for building permits -- considered a reliable sign of future activity -- sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.
Rising defaults, tighter lending standards and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.
The collapse of the once high-flying housing market has been devastating to the United States' economic health.
Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.
The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.
The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief. It is buying certain types of mortgage securities and has slashed a key interest rate to a record low of between zero and 0.25 percent. To help brace the economy, the Fed is expected to hold rates at that level at its meeting next week and probably for the rest of this year.
In other housing-related news, rates on 30-year mortgages climbed above 5 percent this week, ending a five-week streak at record low levels. Average rates on 30-year fixed mortgages rose to 5.12 percent this week, from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971, the mortgage giant reported.
Builders and economists are skeptical about the prospects of a housing turnaround. Unemployment last month hit a 16-year high of 7.2 percent and is expected to march upward this year -- a situation that can put stresses on existing home owners and make it less likely new buyers will stream into the market.
Against this backdrop, Patrick Newport, economist at IHS Global Insight, summed up the outlook: "More pain ahead."

http://biz.yahoo.com/ap/090122/economy.html

US November Home Sales Fell Faster Than Expected

November Home Sales Fell Faster Than Expected

http://www.nytimes.com/2008/12/24/business/economy/24housing.html?em