Hovnanian Reports $80.5 Million Dollar Loss

The large national home building company Hovnanian reported a $80.5 million dollar loss for the third quarter of 2007. The president of the company, Ara K. Hovnanian, stated he expects the challenges in the housing market to persist throughout 2008. He attributes this decline to the tightening to the credit market reducing the number of qualified buyers, high inventory levels in many of the markets, and the psychology of the buyer being impacted by all the news & media coverage about the rate of foreclosures and mortgage availability. He also goes on to comment that the credit tightening of lenders has impacted the jumbo loan market since the beginning of the third quarter 2007.

Home Prices See Worst Decline Ever Recorded by the S&P’s Case Schiller Index

Home prices fell 3.2% in the second quarter of 2007 when compared to the same period in 2006. 15 out of the 20 cities tracked by Case Schiller saw declines. This decline for the nation is the largest ever recorded by the Case Schiller index in its 20 year history.For us in Central Florida, Tampa saw the second worst decline at 7.7% meaning we’re basically the worst market in the nation. Yikes! Another way to look at this situation is that it is a great time to buy at the bottom of the market. You can’t ever figure out the exact bottom but we’ve gotta be getting close.

What is more worrisome is that these figures ended in July before we really started hearing about the sub prime crisis with consumers. My guess it that the numbers will be even worse for this reason in Q3 and we’ll end up at levels similar to the real estate market following the savings & loan crisis in the early 90’s. Here is the link to the full report from Standard & Poor’s Case Schiller index.

NY Times online published an article by Robert Shiller entitled “A Time for Bold Thinking on Housing” that’s one of the best assessments of the current housing market.

Standard & Poor’s Case-Schiller Home Price Index

The Case-Schiller Home Price Index is a quarterly report that reflects the state of the residential housing market in 20 metropolitan regions across the United States. It is the most relied upon index to gauge the state of the real estate market as a whole but keep in mind that real estate markets are extremely localized and that the micro view will give a much more accurate picture. For example, many cities in the northeast are still seeing rising markets while the rest of the country has declined and numerous mortgage companies are shutting its doors. It’s still location, location, location and a little bit about the market conditions. You can download these quarterly reports for free at the Standard & Poor’s Case-Schiller Website.

On November 25, 2007, NY Times online published an article by Robert Shiller entitled “A Time for Bold Thinking on Housing” that’s one of the best assessments of the current housing market. 

The Mortgage Crisis Trickles Up

The uncertainty and fear of the crash in sub prime mortgages are now affecting the jumbo loan market which are loans greater than $417,000. Numerous lenders are refusing these loans altogether and according to bankrate.com numerous lenders are charging exorbitantly high interest rates on such programs and really just pricing themselves out of the market.

In addition, numerous banks are not offering “stated income” loans anymore either even with perfect credit. These are loans where the bank just verifies the borrower’s assets and does not verify their income so borrowers can state any income they want.  According to a WSJ article today, small business owners are also finding it tougher to obtain financing due to the woes in the sub prime market.

Since many luxury home buyers typically obtain these two types of loans in the Orlando market, the homes in the luxury market will begin suffer even more in the coming months.

Median home prices expected to fall this year and rebound in ‘08

The National Association of Realtors expects new single-family home sales to fall 18.9 percent and single-family housing starts to plummet 23 percent this year from 2006 levels, according to the group’s latest forecast according to an article by Inman News.

The median price of new homes is expected to fall 2.3 percent this year, with the median existing-home price falling 1.2 percent compared to 2006, the group also reported.

Existing-home sales are expected to fall 6.8 percent this year to 6.04 million, compared with 6.48 million in 2006, and to rebound to 6.38 million in 2008. The forecast calls for new single-family home sales to reach 852,000 this year, compared with 1.05 million in 2006, and to fall further to 848,000 in 2007.

This latest forecast represents some changing expectations compared to previous forecasts. The association’s previous annual forecast, released in July, anticipated 6.11 million existing-home sales and 865,000 new-home sales in 2007, for example, while calling for a 2.6 percent drop in the median new-home price and a 1.4 percent drop in the median existing-home price.

“More buyers, and cutbacks in new construction, will eventually draw down the inventory levels and support future price appreciation, but general gains will be modest next year,” stated Lawrence Yun, NAR senior economist.

The forecast released today calls for the median existing-home prices to rise 2 percent and for the median new-home price to rise 2.3 percent in 2008 compared to 2007. The association expects existing-home sales to rise 5.6 percent and for new single-family sales to drop 0.5 percent in 2008 compared to 2007.

“Mortgage disruptions will hold back sales over the short term,” Yun stated, and he expects a “modest upturn … for existing-home sales toward the end of the year, with broader improvement to include the new-home market by the middle of 2008.”

The 30-year fixed-rate mortgage is forecast to average 6.7 percent in the fourth quarter and to drop to the 6.5 percent range next year.

Growth in the U.S. gross domestic product is projected to be 1.9 percent this year compared to a 2.9 percent growth rate in 2006, and is expected to reach 2.8 percent in 2008.

The unemployment rate is estimated to average 4.6 percent this year, unchanged from last year. Inflation, as measured by the Consumer Price Index, is forecast at 2.7 percent this year, down from 3.2 percent in 2006, and is forecast to fall to 2.2 percent in 2008. Inflation-adjusted disposable personal income should rise 3.1 percent in 2007, the same rate as last year, and is expected to drop to 2.4 percent in 2008.

 

Prices for Homes in Orlando See Steeper Price Declines than the Rest of the Florida Housing Market

Statewide sales of existing single-family homes and condominiums continued to slide, as did the home values, the Florida Association of Realtors reported Wednesday.

Existing Florida single-family homes sales totaled 12,954 in June, a 30 percent decrease from the 18,607 homes sold in June 2006. Florida condo sales, meanwhile, fell by 28 percent, from 5,532 in June 2006 to 4,004 in June of this year.

Florida’s median sales price for existing single-family homes dropped by 5 percent last month, from $256,200 in June of last year to $243,200 last month. The median is the midpoint; half the homes sold for more, half for less.

But sales in the Orlando area saw a steeper decline. The Orlando market saw existing single-family home sales drop by 43 percent, from 2,800 in June 2006 to 1,595 last month. Existing condo sales plummeted by 63 percent – from 502 to 188 — between June of last year and this year.

Median sales prices, meanwhile, saw a 3 percent decrease, as existing single-family homes went from $266,300 last June to $258,100 this June, and existing condo prices slid from $161,600 to $156,900 in the same period.

The state and the Orlando market are both still reporting significantly fewer home sales than the rest of the United States, according to the latest National Association of Realtors report. Nationwide total home sales declined 11 percent, from 6.49 million in June 2006 to 5.75 million last month.

The national median existing-home price in June, meanwhile, was $230,100, a slight increase from June 2006’s $229,300.

Orlando Real Estate Makes S&P List of Top 50 Markets for Dropping Values in the Next 2 Years

A new report projects home-price declines for the next two years. The riskiest markets are in Florida, California, Nevada and Arizona. Here’s how to ride out the hard times.

As if the housing market isn’t bleak enough. The Standard & Poor’s Schiller Case Home Price Index reported in late June that home prices dropped more in the first quarter of this year than at any other quarter in the last 17 years. Now, a report from PMI Mortgage Insurance says home values could decline across much of the country for at least two more years.

There’s a 34.6% chance on average that home prices will drop in the nation’s top 50 markets in the next couple of years, according to PMI Mortgage Insurance’s new U.S. Market Risk Index, which heavily factors in recent price volatility.

How far and how fast prices actually fall remains to be seen. But the report underscores the fact that today’s market is decidedly different from that of recent years, when homeowners could bank on rapid home-value appreciation.

Not surprisingly, the riskiest markets identified by the index are located in areas that saw rapid price appreciation, a reduction in affordability followed by a rapid decrease in the rate of price appreciation. Of the 15 biggest cities with the greatest risk for price decline — with more than a 50% chance of lower home values by mid-2009 — five were in California and four were in Florida.

At the highest end of the spectrum, the following major markets all have a greater than 60% chance of declines, according to PMI:

• Riverside-San Bernardino-Ontario, Calif. (65.2%);

• Phoenix-Mesa-Scottsdale, Ariz. (64.6%);

• Las Vegas-Paradise, Nev. (61.4%);

• West Palm Beach-Boca Raton-Boynton Beach, Fla. (60.7%).

“There’s no question that our housing prices are declining here,” says Jay Thompson, an agent with Century 21 Aware near Phoenix. “Our appreciation rate was 54% average at one point in mid-2005-2006, so it is no surprise to anybody here … that prices were going to go down.”The inventory numbers tell the story: In January 2005, Thompson’s multiple listing service showed 3,500 homes for sale. Today: about 54,000.

The next-riskiest top 50 metro areas on the PMI index, with a 50% or greater chance of dropping values in two years, are:

• Los Angeles-Long Beach-Glendale, Calif. (58.6%);

• Santa Ana-Anaheim-Irvine, Calif. (57.7%);

• Oakland-Fremont-Hayward, Calif. (57.2%);

• Orlando-Kissimmee, Fla. (56.3%);

• Sacramento-Arden-Arcade-Roseville, Calif. (56.0%);

• San Diego-Carlsbad-San Marcos, Calif. (55.5%);

• Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (54.2%);

• Miami-Miami Beach-Kendall, Fla. (52.4%);

• Tampa-St. Petersburg-Clearwater, Fla. (50.6%);

• Boston-Quincy, Mass. (50.1%)

• Washington, D.C.-Arlington-Alexandria, Va.-W.Va. (50%).

What does all this mean to buyers and sellers? In short, says one agent, forget what you thought you knew about real estate.

For buyers

• Consider whether and where to leap. For buyers, the changing market may mean it’s time to think about buying if homeownership previously was too costly. “Yes, there are affordability problems in California, the Southwest and Florida,” says PMI’s Milner. “But there are also huge swaths of the country where housing is still very affordable, and in some cases more affordable (in percentage of income spent on housing) than it was 10 years ago.” The most affordable regions are the South and Midwest. Just be certain you can weather the storm if home values drop after you buy.

• Realize it’s a home, not a cash machine. Think of your home as a place to live, not as a way to make quick money. “Instead of a stock, which is just a piece of paper, you get to consume shelter,” says Milner. Your home probably will appreciate, but slowly. Historically, homes appreciate at a rate of about 4% to 6% a year, on average, over any given 10-year period, he says.

• Choose a mortgage by interest rate, not payment amount. Proceed cautiously when shopping for a mortgage. Consider a traditional fixed-rate loan so you’ll know exactly what your payment will be for the entire life of the loan. You may find adjustable-rate mortgages (ARM) with lower payments that later adjust up, but don’t gamble that you can make a higher payment when the introductory period is over or when interest rates rise, as they are likely to do.

• Don’t bet on house appreciation. Don’t make financial plans or take on debts that bank on the near-term rising value of real estate. In the post-bubble world, the risk to your financial stability is just too great. A number of the 176,137 foreclosures filed in May — a 90% increase from last year at this time, according to RealtyTrac — were by borrowers who’d gambled they could refinance a risky mortgage once their home had appreciated. Buyers “are going to need to be very prudent because they are not going to be bailed out by an appreciating home,” says Milner.

For sellers

• Sweeten a sale by helping a buyer with closing costs. Potential buyers may be sitting on the sidelines because, although they can make monthly payments, they haven’t got a down payment saved up, says Steven Schafer, an agent with Boca Executive Realty in Boca Raton, Fla., one of the riskiest markets identified by the PMI study. Consider contributing up to 3% of closing costs. (Just be aware that states and lenders often limit seller contributions.)

• Exploit the Internet. Open houses, while still an important sales tool, are being eclipsed by the Internet. Buyers now use Web research to learn what’s for sale locally before stepping a foot out of their homes. With scads of homes on the market, you must figure out how to distinguish your home from others like it on the Internet. Schafer and Thompson, the Phoenix-area agents, create a Web site for each house they represent, usually using the home’s address as the site address. If your agent can’t register the link for you, do it yourself. You can also set up a Web page yourself with a modicum of computer skills or pay a Web site creation company to do it for around $30, says Schafer.

• Load your listing with pictures. Schafer advises “visually communicating” with buyers by choosing an agent with an outstanding Web site and contributing plenty of great photos of the house.

• Use a “virtual” tour. Sophisticated real-estate sites use panoramic photo features or streaming video so buyers can get a 360-degree view of the property from a single vantage. With virtual tours, buyers in other states and other countries can get a good feel for your home without actually stepping foot inside.

Just remember, even this tough market will pass. Time is needed for wages to catch up to prices so more people can afford to buy homes. “It takes time to adjust back to affordability,” says PMI’s economist Henry.