historic home price declines shadow

Historic Home Price Declines Shadow Housing Market

California is Ground Zero

by Broderick Perkins

� 2007 DeadlineNews.Com

Deadline Newsroom - History-making home price declines announced this

week by two national sources, along with home price implosions in

California, Florida, New England and other states, are growing

indicators that the housing market malaise is reaching epidemic

levels.

Chipping away at the economy by becoming more national and less local

-- largely due to the crippled mortgage system -- home price declines

are not abating and that portends a prolonged downturn.

Denial will not prevent it.

The national median price for all housing types fell 5.1 percent in

October compared to a year ago, the greatest national home price

decline since the National Association of Realtors (NAR) began record

keeping in 1968 -- 39 years ago, according to NAR.

A lagging indicator of perhaps what's to come, the Office of Federal

Housing Enterprise Oversight (OFHEO) Home Price Index came in down 0.4

percent in the third quarter, compared to the second quarter this year

-- the first quarter-to-quarter decline in the index since 1994, 13

years ago. The index revealed prices were still rising from the third

quarter 2006 to the third quarter 2007, but not by much -- 1.8

percent. The fourth quarter numbers will likely bear out what NAR data

has already revealed.

"While select markets still maintain robust rates of appreciation, our

newest data show price weakening in a very significant portion of the

country," said OFHEO Director James B. Lockhart.

He added, "Indeed, in the third quarter, more than 20 states

experienced price declines and, in some cases, those declines are

substantial."

State of the States

Ten states saw price declines over the latest four quarters -- the

greatest number of declines since the 1996-97 period a decade ago,

according to OFHEO. Twenty-one states saw price declines in the latest

quarter, OFHEO reported.

Of course that means flat or rising appreciation continues in the vast

majority of states, but not the kind of appreciation experienced

during the boom.

The states with the greatest rates of home price depreciation for the

four-quarter period were: Michigan ( down 3.7 percent), California

(down 3.6 percent), Nevada (down 2.4 percent), Massachusetts (down 2.3

percent), and Rhode Island (down 2.2 percent).

For the fifth consecutive quarter, Utah remained the home price growth

leader with a 12.9 percent rate of appreciation. That was more than a

percentage point higher than the four-quarter appreciation in Wyoming,

the state with the second highest rate.

On the city level, 287 cities on OFHEO's list of "ranked" MSAs, 204

had positive four-quarter appreciation and 83 had price declines.

Seventeen of the 20 cities having the most depreciation were in

hard-hit Florida and California. The other three were in Michigan.

Twenty-four of the 26 California cities on the ranked list experienced

price declines between the third quarter of 2006 and the third quarter

of 2007. Thirteen of the 24 had price declines of 5 percent or more.

California Screamin'

California is ground zero.

The Golden State making it's own history in the annals of home price

depreciation.

The California Association of Realtors reported the median price of an

existing, single-family, detached home in California dropped 9.9

percent in October, compared to the same month a year ago. The decline

was the largest year-to-year decline in CAR's history books. Condo

prices slipped 2.1 percent during the same period.

Of the 20 major markets covered in the CAR report, only 4 revealed

year-to-year increases in the median price of existing single-family

homes.

However, a look at the county level and all types of housing reveals

home price turmoil even within appreciating major markets.

In Silicon Valley (Santa Clara County), for instance, when all types

of homes (new, existing, condos and single-family) were included,

DataQuick data reveals an 2 percent increase in the median home price

county-wide in October, but only three of the nine cities enjoyed any

home price appreciation. In San Jose, for example, the county seat and

largest city, the median price for all homes was down 3.8 percent.

The growing levels of depreciation nationwide has the experts divided

on when it will end, but there's greater consensus that it will be

later, rather than sooner. The devil is in the details.

The housing market's bad is the result of unsustainable appreciation

fueled by easy mortgage money which became hard money after investors

fled, homeowners bled and lenders shed risky loans.

California, like other hard hit states, is a victim of mounting

foreclosures with few bail out options from the mortgage makers.

The California Reinvestment Coalition (CRC), surveyed 33 of the

state's more than 80 mortgage counseling agencies that offer

assistance to financially strained borrowers, and found that most

lenders send defaulting homeowners packing.

Fifty-seven percent of counselors surveyed said foreclosure was the

end game and 33 percent said short sales is what brought homeownership

to a screeching halt when California homeowners couldn't afford to pay

the mortgage.

"The survey findings are distressing," says CRC Associate Director

Kevin Stein.

He added, "Until lenders begin to deal honestly with this crisis and

act in earnest, thousands upon thousands of Californians will suffer

from foreclosure and the forced sale of their homes. The consequences

will be devastating for homeowners, their neighborhoods, local

governments and the state's economy."

That's true in other once hot markets that, unfortunately, have become

victims of their own "success."

Goldman Sachs' recent "Americas: Specialty Finance: Mortgage Finance"

says California home prices have a ways to fall because they are

overpriced by 35-40 percent compared to 13 to 14 percent nationwide.

In California, the median home price was $589,000 at the end of

August, but real-world economic conditions support prices at or below

$380,000, Goldman reported.

That's because, until 2004, Californian home prices were boosted by

high levels of disposable income and low interest rates. That changed

in 2004 with a spike in "affordability products" including subprime

loans and non-traditional mortgages.

The loans helped qualify those who otherwise couldn't, but later

proved to risky to hold.

"They spiked in 2004 and drove California home prices above levels

supported by economic conditions, now that the secondary market for

these products has evaporated, we expect home prices to return to

normalized levels (as prices fall and disposable incomes grow)," the

report says.

The report concedes California's home prices had been resilient during

the first signs of the downturn, but the state's housing future is now

a candidate for a reversal of fortunes.

"We believe that a downturn is imminent, with sales volumes down 52

percent from the peak (in January 2005) and inventory (11.8 months) up

100 percent since last year. House price depreciation and credit

deterioration go hand-in-hand. We anticipate residential mortgage

credit deterioration to follow house price declines in California.

Presently, credit quality (in absolute terms) is better in California

versus the national average, but the rate of deterioration is much

worse. For instance, in the second quarter of 2007 delinquency rates

for prime ARMs and subprime ARMs rose 92 percent and 73 percent

year-on-year respectively in California, versus 53 percent and 38

percent nationally," Goldman Sachs reported.

Rome (NY) Isn't Burning

The picture is darkening over a growing number of markets.

RealtyTrac's latest litany of lost homes reveals foreclosures were up

94 percent in October this year compared to last October --

nationwide.

With each passing month and at the end of every quarter, new rounds of

numbers make the housing bust look more and more like the dot com bomb

-- with a nauseating spin. Dot commers found some respite in real

estate and even helped give birth to the boom. Foreclosed homeowners,

left twisting in the winds of a bubble gone bust, get no quarter.

And, while the housing market is beginning to burn like an uncontained

California brush fire, realty leaders fiddle with media rights,

futilely hoping to censor the press or force it to mantra chant the

dogma of local conditions and long-term investments when what

consumers really need is a clue about how to make the next mortgage

payment.

The denial is blinding.

Even local markets that have managed to escape depressed prices are

unable to over come the scourge of the mortgage money changers who

show little mercy in any market, local, regional or national.

Then there's that anecdotal evidence, local commentary, the word on

the street

It's what really brings the story home.

The November 28, Federal Reserve "Beige Book", is a collection of just

such anecdotal evidence about market conditions. It was gathered from

economic and business contacts with boots on the ground in the

reserve's 12 districts.

Here's what they are saying:

o "Demand for residential real estate remained quite depressed, with

only a few tentative and scattered signs of stabilization amidst the

ongoing slowdown."

o "Most Districts pointed to further increases in the inventory of

available homes, with the earlier tightening of credit conditions for

mortgage lending continuing to create barriers for some buyers."

o "Consequently, prices on new and existing homes sold were reported

to be down on a short-term or year-earlier basis in most Districts."

o "Contacts generally do not expect a significant pickup in

homebuilding until well into next year at the earliest."

As is often the case, as goes California, so goes the rest of the

nation and perhaps the economy as well.

Said Bill Higgins, chief lending officer at online banker Ing Direct,

"The bizarre thing is as we are looking at more foreclosures and real

estate values, what's probably going to happen next year is the whole

housing inventory market will change and you'll have almost as many

foreclosures on the market as non foreclosures and that will make it

hard to sell. It will hurt prices."

If it walks like a duck, quacks like a duck and has a market tension

headache as throbbing as Chicken Little's...yeah, it's going to hurt.

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o California's First Home Price Decline Since 1997

o California Gold To Lose Glitter in 2008

o Silicon Valley's Micro Markets

o Silicon Valley Bullish On Buying, Not Selling

o SF Bay Area Home Sales Nose Dive

o Foreclosure Fallout Landing On Other Homes

o Finding News That Really Hits Home

o Media Still Not Responsible for Housing Woes

� 2007 DeadlineNews.Com

Advertise on 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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From The Deadline Newsroom on 11/30/2007 03:12:00 PM