Attention Home Buyers: Lock in Your Rate

Interest rates on mortgages have spiked in the past 10 days, and there's a serious risk that they're going get a lot higher. If you act quick, you can still find some good deals.
By: BRETT ARENDS: WSJ.com
If you are thinking about buying a home, it's time to look into locking in your rate.

Now.

Rates have suddenly spiked in the past 10 days and there is a serious danger that this could get a lot worse.

The average interest rate on a typical 30-year fixed loan has jumped to 6.02% from 5.82% in a week, according to data tracked by Bankrate.com. That's because rising inflation fears have caused a jump in the interest rates on long-term government bonds.

On a $300,000 mortgage, the increase will add $38 to your monthly payments. It will cost an extra $4,000 in interest over the total life of the loan.

You can still get some good deals. Bankrate shows some lenders still offering rates below 6%, though not many.

(These rates only apply to so-called "conforming" loans, which are $417,000 or less, in most parts of the country. These mortgages are effectively underwritten by Uncle Sam. Rates for "jumbo" loans, which are above these limits, are higher; more on jumbos below.)

No one knows where rates will go next. But if you find a reasonable deal now, it may be worth risking a deposit to lock it in for a month or two if you can.

Regular readers know I was warning about this through the winter. While others were panicking about a mythical "great depression," I was cautioning about the more likely danger – namely that as the central bankers flooded the entire system with extra cash, they would end up stoking more inflation. Higher inflation means higher interest rates and the end of cheap mortgages.

Whether we have already arrived at this unhappy state remains to be seen. But it's a danger.

How much more does a higher rate actually cost you?

As a rule of thumb, for each $100,000 you borrow, an additional tenth of a percentage point on your mortgage rate will add about $2,300 to the total amount of interest you will pay over the life of the loan.

Yes, that's before mortgage interest tax relief, and to be really technical you'd need to shrink this sum by a discount rate to put it in true, present value terms (I only mention these things because too often financial media leave them out). So the effective cost will be less. But it's still more than petty cash.

Now, about those jumbo loans. There's some good news for those buying a home in higher-cost regions, such as New York and California, and seeking to borrow a bit more than $417,000.

For those so-called "jumbo comforming" loans, says Bankrate chief economist Greg McBride, "rates have dropped dramatically in the past few months."

The reason? Uncle Sam, as part of the emergency bailout during the financial crisis, raised the size of the mortgages it would underwrite in these areas. Nationwide, loans up to $417,000 were already backed by Fannie Mae and Freddie Mac. Now lenders get some Federal protection for making bigger loans in areas where prices are higher. In some areas like New York City and San Francisco, where prices are simply absurd, these limits can go above $700,000.

(Initially, after the government first announced this measure, the lenders still remained reluctant. A few weeks ago they at last started acting. Rep. Barney Frank, chairman of the House banking committee, says this happened after he threatened to hold hearings on the matter. It may also be that the financial panic had begun to subside).
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Recessions Don’t Matter: 8 Keys to Thriving in Real Estate Investments

When the news reports that our economy is falling into a recession, many investors are afraid there’s too much risk investing in real estate, especially.
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Millionaire real estate investor David Lindahl, aka the “Apartment King,” offers eight key steps that help worried investors not only survive uncertain economic times, but also prosper in them:
Lindahl is the author of “Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits” (Wiley, April 2008) and “Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas” (Wiley).Lindahl, who went from living in a one-bedroom apartment to owning more than 4,600 apartment units, is the principal owner of The Lindahl Group, a real estate investment company and is a popular speaker and expert at real estate investment clubs, conventions and seminars throughout the country.

Key #1: Focus on the Motives behind the Messages: Pause a moment to consider the quality of information next time you read about a real estate “crisis” or “meltdown.”

Key #2: Don’t Be a One-Trick Pony: Don’t stop learning. Make sure your tool-belt is sagging with techniques.

Key #3: Don’t Be a One-Market Pony, Either: Don’t just stick close to home. Invest in markets all over the country.

Key #4: Trust Your Instruments: Know the key financial numbers about you local market and property.

Key #5: Guard Your Cash: Invest with someone else’s instead!

Key #6: Pump up Your Lead Generators: Be on the lookout for several deals so you can choose the very best ones.

Key #7: Price Changes Everything: There’s no such thing as a bad risk, only a bad price.

Key #8: Comfort Makes Competition; Discomfort Makes Dollars: Don’t just feel comfortable about your deal, do the unexpected when your instruments tell you it’s a good one!

According to the author, “Multi-Family Millions” explains how to read the market cycle, and explains why now is a great time to get started investing in apartment buildings-especially since other forms of real estate investing are suffering. The author also says “Emerging Real Estate Markets” has a system that finally “cracks the code” to investing outside your local real estate market.
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A property tax base that moves with you.

Homeowners over the age of 55 may transfer their existing property tax base to a replacement home of the same or lesser market value.
By: Patrick Duffy: latimes.com
LIKE MANY other baby boomers, Manhattan Beach residents John Osten, 62, and his wife Rose, 61, were in search of a simpler life.

After raising their family in the "tree" section of this ocean-side city, and with plenty of equity built up during 18 years at their 3,000-square-foot, single-family home, the Ostens were hoping to return to the Strand area adjacent to the city's beach, where they had once lived an active life of surfing, running and biking.

Everything in their grand plan seemed workable except for one thing: the higher property taxes the Ostens would have to pay if they moved. Although they would have been able to sell their existing home for about what a smaller house near the beach would cost, they worried their taxes would quadruple from their existing tax base of just $220,000. Until, that is, the Ostens learned about California Proposition 60.

Proposition 60, a constitutional amendment passed by California voters in 1986, provides tax relief to homeowners older than 55 by allowing them, with certain restrictions, to transfer their existing property tax base to a replacement home of the same or a lesser value within the same county if the transactions take place within a two-year period. In 1990, Proposition 110 extended those same benefits to severely physically disabled homeowners of any age. Proposition 90, approved in 1988, allows California counties to accept an existing property tax base from another participating county.

The savings in taxes was the deciding factor for the Ostens to sell their larger home three miles from the beach for $880,000 and buy - for $1,000 less - a three-level house on a lot shared with another home just steps from the sand.

"I really could not have afforded to get back to the beach," said John Osten, who credits real estate agents Serene and Barry Sulpor for telling him about the money-saving tip and following up with the paperwork.

The Sulpors, a Shorewood Realtors husband-and-wife team covering the South Bay region for 20 years, said they are seeing the use of this tax break increase as boomers begin to retire and look to trade more spacious homes in the suburbs for smaller ones, often in lifestyle-oriented locations near golf courses, lakes and beaches.

"It's becoming more and more popular," Serene Sulpor said, "but we're often surprised at how unfamiliar people are with the law."

Consequently, the Sulpors strongly recommend sellers work with agents and escrow companies familiar with the necessary paperwork to ensure that all rules are followed and deadlines met.

Benefit can be used once

For one, there are numerous restrictions for eligibility: either a single person or a spouse must be at least 55 years of age when selling the original property, the replacement property must be a principal residence with a current market value equal to or less than the original principal residence, and the new property must be purchased or built within two years of the first home being sold. Moreover, because homeowners can benefit from Proposition 60 only once, it's important to choose that second home wisely.

But Proposition 60 covers only property transfers within the same county. Proposition 90 allows broader existing property tax base transfers - but only if the county in which the replacement property is located chooses to participate.

So far Proposition 90 has not proved very popular, with only seven of the state's 58 counties allowing these inter-county exchanges, and several others passing ordinances in favor of it, then rescinding them later. So, although Southern California residents over 55 who live in the counties of Ventura, Los Angeles, Orange and San Diego can downsize and keep their existing tax base, those who might consider a move to retirement areas around Riverside County's Coachella Valley (including the cities of Palm Springs, Rancho Mirage, Palm Desert and La Quinta), the vast mountain areas of San Bernardino County or even much of the San Francisco Bay Area, are out of luck.

Riverside County rescinded its ordinance allowing Proposition 90. According to Larry Ward, the tax assessor for Riverside County, his office received several thousand applications between 1990 and 1995 - an average of 1,200 to 1,500 per year - but a financial analysis discovered ongoing losses from the assessment roles, so the county Board of Supervisors decided to repeal participation in 1995.

Given that Ward still receives regular calls about the now-defunct law - and must inform potential applicants that county leaders have yet to consider reinstatement - he suggests that some sort of means test or income cap for eligibility might help persuade more counties to enact it.

Real estate agent Lana Fears, with Prudential California Realty in Palm Springs, said it's traditional retirement communities like hers that suffer the most from Riverside County's decision to disallow Prop. 90. Fears also argues that since the potential tax benefit is specifically oriented toward retired people, its absence can severely limit newcomers from other counties. "People on very limited incomes simply can't afford that higher tax base."

Southeast of Palm Springs in La Quinta, agent Carey Ann Parker, with Desert Homes Today Realty, regularly receives calls from potential buyers who are surprised and upset to learn that Proposition 90 doesn't apply there. "For some, it would truly make a difference, allow them to buy their dream homes and live out their retirement."

Prop. 90's pluses

Meanwhile, San Bernardino County could soon be the eighth county statewide to allow Proposition 90. Armed with a proposal drafted by Assessor Bill Postmus, a pair of county supervisors recently introduced a compromise measure that would enact the tax-relief program for five years. It is currently under review but not yet approved. Supervisor Brad Mitzelfelt argues that even a five-year period could help boost the county's attraction as a relatively low-cost alternative to coastal regions.

Since many county governments see Proposition 90 only as a revenue loss, they miss its potential benefits, such as assisting retirees, supporting local businesses or reducing foreclosures, according to Michelle Steel, the 3rd District board member for the state Board of Equalization, which oversees California sales tax revenues.

"Local governments will easily make up this lost revenue in the economic activity and tax revenue generated by new residents," she said, citing recent government studies. Assuming 500 applicants per year, Steel said, an anticipated property tax loss of less than $400 compares to an estimated $860 in sales taxes each new resident to the county generates.

Proposition 90 also might make a dent, however small, in the rising tide of foreclosures now hitting the Inland Empire, she suggested.

"In most cases, foreclosed homeowners fail to pay the assessments for park fees, lighting districts, Mello-Roos taxes and other specialized fees in addition to property taxes," Steel said. These are essential to maintaining basic neighborhood infrastructure, including schools, parks, roads and fire protection.

Given that San Bernardino County recorded the state's third-largest number of mortgage default notices during the first quarter of 2008 - more than 11,000 homes according to DataQuick Information Systems - she argues that the county's real estate market needs all the help it can get.

Palm Springs agent Fears echoes her sentiment. "Anything any government entity can do to activate the real estate market in any form is good."

It certainly helped the Ostens of Manhattan Beach. Thanks to Proposition 60, John Osten said, "I went home."
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Where Home Prices Are Holding Up

Downtown: It's been among the safest places to hide from the housing downturn.
By: Jeff D. Opdyke: WSJ.com
Much has been made of the way the nation's real-estate bust is affecting some American cities far more than others. But even within a single metro area, changes in housing prices can show wild variations.

And in big cities, prices in the central cores often fare the best. Far-flung suburbs - where home building exploded in recent years - have more typically gotten hammered. In between is a patchwork of established suburbs and city neighborhoods peripheral to downtown that can be all over the map in terms of price declines - or even increases.

Consider the San Francisco Bay area. Overall, prices there slid 17% in the 12 months through February, the most-recent data available, and were down 8% over the first two months of 2008 alone, making it one of the worst-performing metro areas in the country, according to the S&P/Case Shiller Home Price Indices. Yet prices within the city of San Francisco are up 0.3% over the first quarter of 2008, according to DataQuick Information Systems, a San Diego-based real-estate-data firm.

For today's buyers, all this means that shopping for housing bargains is increasingly complicated. The best deals may be where prices have slid the most, but such areas could easily fall a good bit more before hitting bottom. Meanwhile, you'll get few bargains if you buy a home in San Francisco or Manhattan or downtown Boston. Of course, if the housing crisis broadens, the central core areas also could see price drops.

Here's a cheat sheet to understanding home-price patterns in some of the country's biggest metro areas.

Chicago

It's a mixed picture in Chicago's downtown area. A flurry of condominium building has kept prices down on much new construction. At the same time, some established apartment buildings are still seeing buoyant prices, even as properties spend more time on the market. The Carlyle, a 1960s-era glass-and-concrete tower along the city's prized Gold Coast neighborhood, recorded the highest price ever - $2.4 million - for one of its "C"-tier units earlier this year, for example.

Jim Kinney, president of Rubloff Residential Properties in Chicago, says "80% to 90% of the buildings along the Gold Coast achieved a record sales price in the last year." The older buildings are often in blue-chip locations and are generally cheaper, per square foot, than new units.

Bargains abound in Chicago's periphery. Seven miles south of the Carlyle is Bronzeville, a gentrifying community that during the housing boom was a favorite of buyers who couldn't afford Chicago's glitzier core. Just last month, a bank that owns a foreclosed duplex in Bronzeville dropped the asking price to just $85,000, from the January listing price of $129,900. The owners who lost the property originally paid $330,000 in November 2005, about a year before the Chicago market peaked.

But beware: Prices may be stagnant or worse for a long time to come. "Because of the huge inventory, it will take years to recover," says Christina Miller, a Rubloff agent, citing periphery neighborhoods such as Wicker Park, Ukrainian Village and Bucktown.

Chicago's desirable North Shore suburbs are, for the most part, doing well. Median prices in Evanston, Wilmette and Winnetka, all hugging Lake Michigan's shoreline, are up over the past year to varying degrees, though sales volume is down sharply, according to a Zip Code analysis by DataQuick. Sellers are receiving about 89% of the list price, according to March data from the North Shore-Barrington Association of Realtors. That's down from about 95% at the peak of the market.

In upscale Highland Park, about 25 miles north of downtown, prices are down more than 6%. But that average is being skewed by a high number of sales of low-end homes, some forced by foreclosure.

New York

While New York's commuter market - which includes suburban New York, New Jersey and Connecticut - is down about 8% from its peak in mid-2006, much of Manhattan continues humming along. Neighborhoods such as SoHo, the Lower East Side, Greenwich Village, Chelsea, Murray Hill, the Upper West Side and Harlem are all up in the past year, according to DataQuick's Zip Code analysis.

Bidding wars still happen. Toni Haber, an executive vice president at Prudential Douglas Elliman, a New York City real-estate firm, says 60 people waited in line recently at an open house to view a three-bedroom apartment in Greenwich Village. The owner had four competing offers within the week, and agreed to sell for about $2.5 million - $300,000 over the asking price.

Part of the city's strength comes from the fact that few buyers were investing in properties to flip them. Moreover, many apartment buildings in New York aren't condominiums but co-ops, which impose financial demands on potential buyers far more rigorous than banks do - which helps keep the number of foreclosures down. In addition, foreign investors have been exploiting the weak dollar by grabbing Manhattan real estate.

One area of weakness: the Financial District in Lower Manhattan, where median prices are down, in part because of an abundance of new construction in the area.

Those areas of Brooklyn that are close to Manhattan are also holding up well. On the periphery, places like Jamaica, Queens; parts of the Bronx; and nearby New Jersey towns such as Jersey City and Hoboken are off between 3% and 14%.

Farther out, popular commuter towns like Summit and New Providence, N.J., are down at much as 16%. Pockets of suburban strength do exist, though. High-end suburbs in New York's Westchester County such as Chappaqua are up over the past year.

Boston

Michael DiMella, managing partner at Charlesgate Realty Group, recently sold a one-bedroom condo in Boston's South End district for $365,000, roughly $100,000 more than the owners originally paid in 2000 and about what they could have expected at the peak of the Boston real-estate market in late 2005. But the condo sat on the market for nearly four months before a buyer came along.

That sale typifies many parts of core Boston these days: flat to modestly higher prices but a longer time to sell. Prices in the city's core are off less than 1% over the past year, according to first-quarter data from Listing Information Network, Boston's MLS system. The real difference today is that homes are staying on the market for 111 days on average, up from 85 days in 2005.

Prices in key neighborhoods, such as Back Bay, the South End, Fenway and the Waterfront, are all up between 3% and 10%. Beacon Hill and the North End, however, are down sharply, as much as 33%. That's partly the result of a slew of high-end properties that hit the market in 2006 and 2007 that were priced as high as $1.5 million, skewing the price data upward. Even without those sales, however, the median price would be down by double-digit amounts.

"No one is taking prices higher these days just to see if they can get it, like they used to," Mr. DiMella says of Boston's downtown core. "But you have to come with realistic expectations. This is a highly desirable area, and you're not going to find a steal."

Nearby communities are a mixed bag. Condos in suburban Brookline, one of the most desirable Zip Codes - 02445 - are down about 8%, while neighboring 02446 is up nearly 7%, for example. Among city neighborhoods, Dorchester is down across the board by as much as 25%, yet Jamaica Plain and West Roxbury are each up between 7% and 9%.

San Francisco

"I get buyers who come in thinking they're going to get a real bargain these days because prices are down all over the country, and we just laugh," says Caroline Werboff, an agent with San Francisco real-estate firm Hill & Co.

People want to live in San Francisco's urban core. Median prices around the Financial District, North Beach, Telegraph Hill and Russian Hill are up - in some case strongly.

Ms. Werboff says a Russian Hill home that sold for $7.7 million in April 2004 sold again in February for $10.3 million. A newly listed house in Pacific Heights, another core neighborhood with strong price appreciation, sold three years ago for $6 million. Ms. Werboff says that the owners "will get $10 million now."

Still, some San Francisco neighborhoods are down, particularly along the edges of the city, such as Portola, Bayview, Hunters Point and Sunset. Edward Leamer, director of the UCLA Anderson Forecast, an economic research center at the University of California Los Angeles, warns that "the housing problems won't bypass San Francisco proper. The decline will just take more time."

Meanwhile, both closer-in and distant suburbs are weak, too, often markedly so. On the periphery, San Mateo County and high-end Marin County are doing the best, both down more than 4% between March 2007 and 2008, according to DataQuick. Alameda and Contra Costa, across San Francisco Bay from the city and chockablock with anonymous tract housing, are down 18% and 27%, respectively. Bargains exist, but with so much inventory, prices aren't expected to rebound quickly.

Santa Clara County, home to Silicon Valley, is down more than 9%, though pockets of strength exist in communities such Sunnyvale, Mountain View and Los Altos. Napa County, meanwhile, is one of the weakest in the region, with median prices off more than 20%.

Los Angeles

L.A. is an anomaly. No real urban core exists. The area is just a sprawling string of suburbs that run together.

And most of that sprawl is bathed in red ink. Median prices in communities throughout Riverside and San Bernardino counties -the distant, inland suburbs that are at the epicenter of the region's subprime and foreclosure crises - are down, often sharply.

Lower-priced homes in tony Palm Springs have lost about 24%, though more-expensive homes are up slightly. Less-affluent cities such as Ontario, Chino and Rancho Cucamonga are all down between 15% and 31%. Los Angeles County, Orange County to the south and Ventura County to the north are suffering equally.

The only notable area of strength: high-end real estate. L.A.'s Westside, home to affluent neighborhoods such as Brentwood and Westwood, "tends to be more insulated because this is where people with money want to be," says Madison Offenhauser, regional director in Los Angeles for Keller Williams Realty.

Median prices in Brentwood are up 16%. The Hollywood Hills, up 26% to a median price of more than $2.1 million. Rancho Palos Verdes and the Palos Verdes peninsula, up 17%. Parts of Newport Beach, one of Orange County's poshest addresses, are up as much as 67% to $2.75 million. The coastal village of Laguna Beach is up 6%.

Lee Ann Canaday, owner of the Canaday Group, a Laguna Beach real-estate firm, says "almost every deal I've done this year" in Laguna and Newport Beach has had multiple offers.
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Home Sales, Prices to Pick Up In Second Half of 2008, Says NAR Chief Economist

Home sales and prices throughout most of the country are poised for improvement in the second half of 2008, and the recovery will vary by market, Lawrence Yun, chief economist for the National Association of Realtors® said during NAR’s Midyear Legislative Meetings & Trade Expo.
RISMEDIA
More than 9,000 Realtors and guests attended the conference that ran through Saturday.

Middle-America cities that performed evenly over the past few years - like Cincinnati, Milwaukee and the Kansas City, Mo., area - are likely to experience home price gains in the 20 to 30% range over the next five years, while markets like Miami, Las Vegas and Phoenix could see prices go up as much as 50% during that time period, Yun said.

Yun blamed most of the softening of the housing market over the last year on the “subprime mess,” where consumers with blemished credit records got loans they couldn’t afford when the interest rates reset to higher levels.

“In fact, if you look at where home prices fell the most, it’s the markets were subprime loans were prevalent,” Yun said. Cape Coral, Fla.; Detroit; Las Vegas; Miami; Orlando, Fla.; Phoenix and Riverside, Calif. were among the cities with a high percentage of subprime lending and where the markets suffered the biggest downturns, he explained.

“It’s important to keep things in context,” he said. “While much of the media is focusing on the fact that the rate of foreclosures doubled this year from historic averages, the foreclosure rate has gone from 1 percent of all homeowners with mortgages to 2 percent. Foreclosures are being driven principally by subprime loans.”

He further explained that more than half of today’s foreclosures are concentrated in the subprime market. The great majority of homeowners are making their mortgage payments on time.

Now that the subprime market has dried up, and loans insured by the Federal Housing Administration and those purchased by Fannie Mae and Freddie Mac are making a comeback, the housing markets will strengthen and prices are likely to begin a steady uptick in the coming months, Yun said.

Yun urged the Congress and White House to enact NAR-supported legislation to modernize FHA programs, reform regulation of the government-sponsored enterprises (Fannie Mae and Freddie Mac), establish a first-time home buyer tax credit, and make the temporary increases to the conforming loan limits established by the Economic Stimulus Act of 2008 permanent.

“These measures would quickly stabilize the housing markets and get fence-sitters into the market to buy homes,” Yun said.

“There are many reasons for people to get into the housing market today, and very few reasons not to. With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions are ripe for buyers,” he added. “Those are the facts, plain and simple.”

As for a recession, it’s not happening, Yun said. “A slowdown, yes, but the definition of a recession is two consecutive quarters of negative GDP growth. It’s not in the cards - no matter how you look at it.”
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Bernanke urges banks to raise capital if needed

Recent turmoil in financial markets underscores the need for banks to hold "generous" capital cushions, U.S. Federal Reserve Chairman Ben Bernanke said on Thursday as he urged them to actively raise money.
By: Ros Krasny: Reuters
"I strongly urge financial institutions to remain proactive in their capital-raising efforts," Bernanke told a conference on bank structure and competition in Chicago. Analysts said the Fed was saying that banks need to step up their efforts to get past a credit crisis just as the U.S. central bank did.

"Doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve," Bernanke said.

He said he has been encouraged at the success of many banks in raising new capital and praised foreign-owned sovereign wealth funds for the positive role they were playing as suppliers of badly needed capital.

"They have generally provided unleveraged, patient money, which is what is needed here. They have not asked for extensive control or management of the firms," Bernanke said. "So I think it has been very constructive to have had this source of funding coming into our banking systems."

CLEAR OUT LOSSES

Economist Cary Leahey of Decision Economics in New York said Bernanke was clearly telling banks to carry on with their efforts to not only raise capital but get rid of less productive assets as they have been doing since a credit crunch developed last year so that they can resume lending.

"The Fed thinks it's done a lot to ease the credit crisis and now the financial institutions have to pick up the ball and run with it," Leahey said.

Bernanke said regulators were pushing for better disclosure by banks to increase transparency and to bring greater market discipline on them. He said lax risk management at financial firms had contributed to credit turmoil.

Bernanke said, in hindsight, it was evident "problems occurred at each step of the credit-extension chain" and had contributed to the credit crisis that the economy encountered.

He said stiffened capital requirements set by the newly introduced Basel II regulatory standards will help bring more discipline to the industry but won't be a panacea.

"Although Basel II will by no means eliminate future episodes of financial turbulence, it should help to make financial institutions more resilient to shocks and thus enhance overall financial stability," Bernanke said.

RISKS MANAGEABLE

In response to questions, Bernanke said he did not think banks faced significant risk from the problems that big bond insurers like MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) had run into as a result of losses on residential mortgages.

"The large financial guarantors have raised some capital and they have maintained their ratings, which is certainly good news," he said. "Our assessment is that the implications of the financial guarantors' situation for banks are moderate and manageable relative to the capital of those banks."

Bernanke acknowledged financial turbulence is not yet fully past but pointed to evidence that lenders already were taking the remedial steps for an eventual return to normal conditions.

"I have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital from diverse sources," Bernanke said.

"Importantly, capital raising and balance sheet repair allow for the extension of new credit, which supports economic expansion," he added.

(Additional reporting by Alister Bull; Writing by Emily Kaiser and Glenn Somerville in Washington; Editing by Neil Stempleman)
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7 Tips to Buy Smart in Today’s Market

When it comes to home purchases, everyone wants to buy low and sell high. “Now is the low; high is just around the corner,” says Alexis McGee, foreclosure information expert, educator, and president of foreclosure property information specialists ForeclosureS.com.
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“Already pending home sales are climbing in the North, and appear poised to rebound in the South and West, according to the most recent National Association of Realtors Pending Home Sales Index. NAR also predicts existing home sales will climb more than 6% next year, and that median prices — down this year — also will climb in 2009.”

With interest rates at a 35 year low, affordable financing, and abundant inventory, it’s a buyer’s market. “There are plenty of great opportunities that make the American dream of homeownership more affordable today if you know where to look and how to make the right deal,” says McGee, also author of “The ForeclosureS.com Guide to Advanced Investing Techniques You Won’t Learn Anywhere Else” (Wiley) and “The ForeclosureS.com Guide to Investing in Pre-foreclosures Without Selling Your Soul” (Wiley).

A recent survey from Trulia.com by Harris Interactive® indicated that more than half of Americans would consider purchasing a foreclosed home. “It sounds like those Americans recognize a good deal,” adds McGee. “So what are you waiting for? It’s bargain time. Buy now.”

McGee offers a few tips to help you buy right in today’s markets:

- Do your homework before you buy. That means know the local market, the going price in a specific neighborhood, and what kind of financing is available. You can get free information and guidance online at sites like ForeclosureS.com (www.ForeclosureS.com) and the National Association of Realtors (www.Realtor.org). But beware those websites that promise instant riches for “no effort and no money down.”
- Open your eyes to the opportunities that surround you. Even cities with high foreclosure rates have motivated sellers in sought after neighborhoods — where well-priced homes resell quickly.
- Make sure you know the current prices for comparable properties in the area. With markets in flux, prices from three months ago no longer are good enough.
- Don’t be afraid to ask for a discount. To figure your offering price don’t forget to deduct the costs of necessary repairs and rehab and your profit. If you’re buying a property with plans to turn around and resell it, deduct from your offering price the cost of buying, holding and selling the property until you find a buyer - and don’t forget to pencil in your profit!
- Don’t be derailed by marketing come-ons, gimmicks, and “insider secrets”. If it sounds too good to be true, it is.
- Beware the “great deals” at the auctions. Competitive bidding drives up prices. Instead of buying a house at discount, you could end up paying full market price or more if you factor in auction commissions and fees.
- Consider FHA as a low-cost, safe financing alternative. With new higher loan limits, interest rates at 35 year lows, and home buyer tax incentives still being ironed out in Congress, this is an excellent opportunity for you to buy low.
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Home Buyers, Start Your Engines

The latest data on the housing market shows that prices are falling at last. If you're thinking of buying, now's the time to look.
By: BRETT ARENDS: WSJ.com
If you were thinking of buying a home, start looking.

The latest data from the housing market shows that sellers, after months and years in denial, are finally giving in to reality and slashing prices.

There is a distance still to go. There may even be a lot to go. But the process, long delayed, is now well underway.

The National Association of Realtors on Tuesday released its long-awaited report on prices from the first quarter. The price drops were startling.

In many of the former hot spots, from Florida to Nevada to the Californian "Inland Empire," single-family home prices plunged by 20% to nearly 30% in a year.

Even more remarkable was how far prices had fallen just from the previous three months. In greater Las Vegas, for example, single-family home prices are down about 20% compared to the first quarter of 2007… and about 9% compared to last fall. In certain parts of California, the quarter-on-quarter declines are more than 10%. And there are similar pictures from Boston, Mass., to Tucson, Ariz., to, well, lots of places in Florida.

Nationwide, the decline from the previous quarter was about 5%, says the NAR.

And this, ultimately, is good news. We know prices have to fall. The sooner it happens, the quicker the market can clear.

We may not be at that stage known on Wall Street as "capitulation," but there is more than a whiff of it in the air.

Far too many people in the real estate market have spent far too long insisting that denial is just a river in Egypt. They refused to accept there was a bubble on the way up, and refused to admit it even on the way back down. (There's a few still out there: Last week I got an angry email from a broker who blamed the whole slump on "the media".)

It is simply remarkable how slow this bubble has been to deflate. That, bluntly, is part of the problem.

In the Las Vegas area, for example, NAR data shows single home prices peaked in early 2006. Yet by the middle of last year, when everyone and their Aunt Sally already knew we were deep into the biggest housing bust since the Great Depression, prices had only been cut by around 4%.

No wonder sales volumes collapsed and the number of unsold homes skyrocketed.

You can imagine what fantasies the sellers were clinging to. "Well, two years ago this home was worth half a million bucks."

The problem: So what? It doesn't matter what prices were three or two years ago. We were in a bubble. Market psychologists call this "anchoring", because people anchor their expectations to the past, and it's a fallacy.

Just five years ago, the same home sold for $270,000 and 10 years ago just $200,000. Are those relevant anchor points too?

Fact: Even though Las Vegas single family home prices are down about a quarter from their peak, NAR data shows they are still nearly 45% above their levels in early 2003.

The picture is similar in other former hot spots.

It remains to be seen how much further prices have to fall.

As always, quality and scarcity command a premium. But remember that a burst bubble is still a burst bubble and everything is affected.

Cisco Systems is a top quality technology company with real profits, but its shares still fell about 80% in the dotcom crash.

There is no desperate rush to buy real estate. (The best way to play the real estate crash was to buy the homebuilding stocks when they bottomed out in January, as written in this column at the time.)

But sellers have at least returned to the bargaining table. If you are in the market for a home, it is time, cautiously, to take a look and, maybe, see if you can play, "Let's Make A Deal."
Read more!

Sales Increase as Home Prices Fall

County home sales continued to rebound in April, with the number of homes sold rising 15 percent compared to March.
By: DEBORAH CROWE: Los Angeles Business Journal Online
REAL ESTATE: Volume rises 15 percent from previous month.

Los Angeles County home sales continued their rebound in April as warmer weather and falling prices coaxed homebuyers back into the market.

Sales for the month rose about 15 percent over March as the median price slid 2 percent to $456,000, according to data provided to the Business Journal by Melville, N.Y.-based HomeData Corp.

That increase is more typical of spring sales volume than what occurred a year ago as the region’s housing boom began to sputter: March-to-April 2007 sales fell nearly 4 percent.

Steven Thomas, a regional president for RE/MAX Real Estate Services, said that the increased sales last month partly reflect more first time home buyers entering the market as prices fall.

“We’re seeing a first-time-home-buyer wave in both L.A. and Orange County,” said Thomas, who doesn’t believe prices will stop falling year-over-year until early next year. “I think we’ll be at a flat market for a couple of years price-wise, probably moving not more than the rate of inflation. But at least we’ll have a lot more transactions.”

Still, home sales are sharply down from a year ago when 5,096 homes were sold in April. In raw numbers there were 3,647 home sales last month, but that reflects a five-week HomeData reporting period. Adjusted to reflect the four-week period of a year ago, that number falls to 2,918 units – a 43 percent drop year-over-year.

While prospective buyers are leaving the sidelines, real estate observers believe it will take the market a few years or more to recover as foreclosures continue to muddy the market.

Foreclosures rose 130 percent in Los Angeles County in the first quarter year-over-year, with 20,339 homeowners receiving foreclosure notices, according to DataQuick Information Systems of La Jolla. And in places where foreclosures were hitting particularly hard, such as the Antelope Valley, sales were being supercharged as prices continued to fall.

In Lancaster’s 93536 ZIP code, sales fell 42 percent in March year-over-year, but in April jumped 28 percent year-over-year. At the same time, the April median price fell to $285,000 –$9,000 less than March and $90,000 less than a year ago.

Conversely, home sales in the county’s priciest neighborhoods were at a virtual dead standstill – the opposite of last year when luxury home sales were propping up the market. In Beverly Hills’ 90212 and 90210 Zip codes, where median prices top $2 million, there were a total of just 10 sales.

Falling too fast

Cal Poly Pomona finance and real estate professor Michael Carney said he is worried about the sharp drop in prices, especially when compared to the last real estate bubble that burst in the early 1990s. He believes it may mean the bottom is even further off than most people expect.

This time last year he was anticipating that prices might bottom out 15 percent lower than at the peak of the boom. He now fears that a fall of more than 20 percent could be possible. Carney tracks long-term price trends with a model that follows changes in appraised value of individual homes over time.
“That prices are falling faster than sales is not a good sign in terms that the bottom is near,” said Carney, noting that in the 1990s housing bust it took almost six years for prices to drop 20 percent. “You’ll start seeing year-to-year sales volume pick up long before we see a turnaround in prices.”

The median home price jumped off a cliff last October as the credit crunch, which started in the subprime category, spread to more affluent homebuyers. They became unable to obtain jumbo loans (exceeding the $417,000 conforming loan limit) at a time when the county median price topped the limit – and homes in desirable areas could easily double it.

Earlier this year Congress temporarily stretched the definition of a conforming loan to as much as $729,500 in high-cost areas like California, but the program has been slow getting off the ground. In San Pedro’s 90732 ZIP code – where a median-priced home last year would have required a jumbo loan – there were just 10 sales last month as the median price fell 40 percent to $475,000.

Rock bottom models

Conversely, some first-time homebuyers who have been waiting on the sidelines for years are now finding prices within their range.

In Covina’s 91722 ZIP code, sales volume rose 80 percent to 27 homes, as the median price fell 30 percent to $345,000. In Palmdale’s 93550 ZIP code, the median price fell 39 percent to $202,000 as sales rose to 62 homes, 35 percent higher than a year ago and 63 percent higher than March.

Even so, just three years ago a typical month in that once fast-growing Palmdale neighborhood might see more than 150 sales. That change in the market is causing particular challenges for sellers of new homes.

Typically, when a development is nearly sold out, the highly desirable model homes – fully landscaped and filled with upgrades like marble counters and granite floors – get sold at auction for premium prices. But not these days.

Rhett Winchell, president of Beverly Hills’ Kennedy Wilson Auction Group, has just such an auction scheduled June 1 to help builders in the Palmdale-Lancaster area dispose of 17 luxury model homes.

Winchell said that given the current market conditions, the starting price will range only between $125,000 and $250,000 – for homes that during the height of the boom would have sold for $289,000 to $605,000 on the open market.

That’s much lower than the discounted minimum starting bid Kennedy Wilson normally sets.

“There are properties in this area that have been on the market six months to a year,” Winchell said. “We don’t have that much time to sell these (model) homes. Our program works for builders because we price them below market, and let the buyers determine the market.”
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Senate to Wrestle With Home-Loan Package

It is now the U.S. Senate's turn to craft its own version of the homeowner rescue legislation that the House approved last week.
By: REALTOR®Magazine
It is now the U.S. Senate's turn to craft its own version of homeowner rescue legislation, following the U.S. House of Representatives' approval last week of a home-loan package aimed at easing the foreclosure crisis.

The White House has released a statement threatening to veto any bill that "would force the FHA and taxpayers to take on excessive risk, and jeopardize FHA's solvency."

The Bush administration says it's worried that lenders would seek to use the new law to transfer their highest-risk loans to the federal government.

Meanwhile, Pew Center on the States research shows that American homeowners are falling into foreclosure at a rate of 7,000 to 8,000 per day.
Read more!

Drop Price and Sell, or Find a Renter?

Sellers may cringe at lowering the price, but have they considered the costs and other implications of becoming a landlord?
By: Benny L. Kass: REALTOR®Magazine
Home owners who are having a tough time selling their homes face a hard decision – should they drop the price in hopes of attracting a bargain hunter, or should they find a renter and hold on until prices go back up?

Benny L. Kass, real estate attorney and columnist for the Washington Post, offers these reasons why selling now is better than waiting it out.

    • Tax implications. Living in a home has its tax benefits. A home owner who has
      lived in a house for at least two of the five years before it is sold and
      files a joint income tax return can exclude up to $500,000 of the gain from
      taxation. Single people can exclude up to $250,000.

    • Tenants can make a sale tough. Some tenants don’t keep a home in the same
      condition as an owner would. Also they may not cooperate with showings, even
      if the lease says they must.

    • Being a landlord can be a challenge. Calls in the middle of the night with
      demands to repair the toilet are tough.

    • Carrying costs are daunting. Some months the house will be vacant, but the
      owner still has to pay the mortgage, real estate tax and insurance.
      Maintenance bills don’t stop either.

    • No one has a crystal ball. The real estate market may take a long time to
      recover.

Read more!

NAR - Soft Existing-Home Sales Expected Near-Term But to Rise Midsummer

A flat pattern in home sales activity should continue for the next couple months before improving over the summer, according to the latest forecast by the National Association of Realtors®.
RISMEDIA
Lawrence Yun, NAR chief economist, said the extent of an expected recovery hinges on better access to affordable loans. “Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas,” he said. “As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, edged down 1.0% to 83.0 from a downwardly revised level of 83.8 in February, and was 20.1% lower than the March 2007 index of 103.9.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said additional costs in many markets are hindering a recovery. “Our members are telling us that more buyers are looking at homes but are slow in signing contracts, and that’s contributing to the weakness in pending home sales,” he said. “In many cases buyers are waiting for greater access to affordable credit, especially in higher cost areas, but some are disappointed with what appears to be unnecessarily restrictive lending requirements. The good news this week is there is some discussion toward relaxing some of the burdensome lending practices.”

The PHSI in the Northeast jumped 12.5% in March to 80.8 but remains 15.4% below a year ago. In the South, the index slipped 0.1% to 84.9 and is 26.7% lower than March 2007. The index in the West declined 1.4% in March to 91.2 and is 9.5% below a year ago. In the Midwest, the index fell 10.4% in March to 74.1 and is 22.3% below March 2007.

Existing-home sales are projected to rise from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter. For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1% to 5.72 million next year. “Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4% in 2008, driven by a relatively few markets that are very oversupplied,” Yun said. The median price is forecast at $213,700 this year before rising 4.1% to $222,600 in 2009.

Some areas already are seeing sales increases, underscoring that all real estate is local. In March, unpublished snapshot data shows sales in Bakersfield, Calif., and Jackson, Miss., were higher than a year ago. At the same time, price gains were noted in markets such as Buffalo-Niagara Falls, and Cedar Rapids, Iowa. On May 13, NAR will report first-quarter data on metropolitan area home prices, covering about 150 metro areas, and state home sales.

“Although some market adjustments are necessary, a downward overshooting of the housing market would cause unnecessary loss in economic output, income and jobs,” Yun said. “It is critical to stimulate housing demand by inducing fence sitters back into the market. A home buyer tax credit on any home purchase would accomplish that.”

New-home sales are expected to fall 30.9% to 536,000 this year before rising 10.1% to 590,000 in 2009. Housing starts, including multifamily units, will probably drop 29.5% to 955,000 in 2008, and then rise 1.3% to 967,000 next year. The median new-home price is estimated to fall 3.7% to $238,000 this year, and then rise 5.4% in 2009 to $250,900.

The 30-year fixed-rate mortgage is likely to rise gradually to 6.2% by the end of the year, and then average 6.3% in 2009. NAR’s housing affordability index is expected to rise 10%age points to 127.0 for all of 2008.

Growth in the U.S. gross domestic product (GDP) should be 1.5% this year and 2.3% in 2009. The unemployment rate is projected to average 5.3% in 2008 and 5.5% next year.

Inflation, as measured by the Consumer Price Index, is seen at 3.4% this year and 2.2% in 2009. Inflation-adjusted disposable personal income is forecast to grow 1.2% in 2008 and 3.0% next year.
Read more!

Expect a Summer Rise in Home Sales

A flat pattern in home sales activity should continue for the next couple of months before improving over the summer, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
NAR: REALTOR®Magazine
Lawrence Yun, NAR chief economist, said the extent of an expected recovery hinges on better access to affordable loans. “Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas,” he says. “As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, edged down 1.0 percent to 83.0 from a downwardly revised level of 83.8 in February, and was 20.1 percent lower than the March 2007 index of 103.9.

NAR President Richard F. Gaylord says additional costs in many markets are hindering a recovery. “Our members are telling us that more buyers are looking at homes but are slow in signing contracts, and that’s contributing to the weakness in pending home sales,” he says. “In many cases buyers are waiting for greater access to affordable credit, especially in higher cost areas, but some are disappointed with what appears to be unnecessarily restrictive lending requirements. The good news this week is there is some discussion toward relaxing some of the burdensome lending practices.”

The PHSI in the Northeast jumped 12.5 percent in March to 80.8 but remains 15.4 percent below a year ago. In the South, the index slipped 0.1 percent to 84.9 and is 26.7 percent lower than March 2007. The index in the West declined 1.4 percent in March to 91.2 and is 9.5 percent below a year ago. In the Midwest, the index fell 10.4 percent in March to 74.1 and is 22.3 percent below March 2007.

Existing-home sales are projected to rise from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter. For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1 percent to 5.72 million next year. “Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4 percent in 2008, driven by a relatively few markets that are very oversupplied,” Yun says. The median price is forecast at $213,700 this year before rising 4.1 percent to $222,600 in 2009.

Some areas already are seeing sales increases, underscoring that all real estate is local. In March, unpublished snapshot data shows sales in Bakersfield, Calif., and Jackson, Miss., were higher than a year ago. At the same time, price gains were noted in markets such as Buffalo-Niagara Falls, and Cedar Rapids, Iowa.

On May 13, NAR will report first-quarter data on metropolitan area home prices, covering about 150 metro areas, and state home sales. “Although some market adjustments are necessary, a downward overshooting of the housing market would cause unnecessary loss in economic output, income, and jobs,” Yun says. “It is critical to stimulate housing demand by inducing fence sitters back into the market. A home buyer tax credit on any home purchase would accomplish that.”

Here are some highlights from NAR's report:

    • New-homes. Sales of new homes are expected to fall 30.9 percent to 536,000
      this year before rising 10.1 percent to 590,000 in 2009. Housing starts,
      including multifamily units, will probably drop 29.5 percent to 955,000 in 2008      and then rise 1.3 percent to 967,000 next year. The median new-home price is
      estimated to fall 3.7 percent to $238,000 this year, and then rise 5.4 percent
      in 2009 to $250,900.
    • Rates. The 30-year fixed-rate mortgage is likely to rise gradually to 6.2
      percent by the end of the year, and then average 6.3 percent in 2009.
    • Affordability. NAR’s housing affordability index is expected to rise 10
      percentage points to 127.0 for all of 2008.
    • GDP. Growth in the U.S. gross domestic product (GDP) should be 1.5 percent
      this year and 2.3 percent in 2009. The unemployment rate is projected to
      average 5.3 percent in 2008 and 5.5 percent next year.
    • Inflation. Inflation, as measured by the Consumer Price Index, is seen at 3.4
      percent this year and 2.2 percent in 2009. Inflation-adjusted disposable
      personal income is forecast to grow 1.2 percent in 2008 and 3.0 percent next
      year.

Read more!

The Housing Crisis Is Over

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market.
By: CYRIL MOULLE-BERTEAUX: WSJ.com
Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply- by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years.
Nonetheless, housing led us into this credit crisis and this recession.
It is likely to lead us out. And that process is underway, right now.
Read more!