California Home Prices Up, Despite Subprime Problems

Despite increasing mortgage delinquency and foreclosure rates in California...
By: Kate Berry and Harry Terris: REALTOR® Magazine Online
The state's median home price shot up 4.8 percent to $591,180 during the year-over-year period ended in May, according to the CALIFORNIA ASSOCIATION OF REALTORS®.

A recent report from the Mortgage Bankers Association showed a subprime delinquency rate of 7.5 percent, versus a prime delinquency rate of 1.22 percent for adjustable-rate mortgages, in California during the first quarter.

University of California-Los Angeles Anderson Forecast economist Ryan Ratcliff believes job gains in the professional services sector could prevent a recession, provided that the state — which the California Association of Mortgage Brokers says accounts for 48 percent of home loans nationwide — is not hit too hard by problems in the subprime market.

Following years of rapid home-price appreciation, PMI Group Inc. Chief Risk Officer Mark Milner says Los Angeles, Santa Ana, Oakland, Sacramento, and San Diego have a more than 50-percent chance of price drops in the coming years.
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Existing-Home Sales Ease Slightly in May

Psychological factors are the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers, NAR says.
REALTOR® Magazine Online
Existing-home sales eased slightly in May, as potential buyers hold out until they see more signs of stability in the housing market, according to the NATIONAL ASSOCIATION OF REALTORS®.

“I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” says Lawrence Yun, NAR senior economist.

Total existing-home sales — including single-family, townhomes, condominiums, and co-ops — eased by 0.3 percent to a seasonally adjusted annual rate of 5.99 million units from an upwardly revised pace of 6.01 million in April. Last month’s sales were 10.3 percent below the 6.68 million-unit level recorded a year earlier.

Household formation has slowed dramatically since late 2006, implying that many people are adding roommates or moving in with parents, Yun says.

The national median existing-home price for all housing types was $223,700 in May, a 2.1 percent drop from May 2006 when the median was $228,500. The median is a typical market price where half of the homes sold for more and half sold for less, but there is a temporary downward distortion in the current national comparison because sales have shifted away from many high-cost markets in the past year.

“The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices,” Yun says.

Buyers Have Negotiating Power

Higher inventories are helping to offset an affordability impact from higher mortgage interest rates, says NAR President Pat V. Combs.

Total housing inventory rose 5.0 percent at the end of May to 4.43 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.4-month supply in April.

Meanwhile, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.26 percent in May, up from 6.18 percent in April, according to Freddie Mac. That compares with a rate of 6.60 percent in May 2006.

“Although mortgage interest rates are trending up, they are historically favorable,” Combs said. “The good news is buyers have more negotiating power with a fairly large supply of homes available in much of the country. Buyers who’ve been on the sidelines may want to take a closer look at current conditions in their area —if they wait for sales to rise, their choices and negotiating position won’t be as good as they are now.”

In Detail: Sales, Prices by Home Type and Region

Single-family homes: Sales slipped 0.8 percent to a seasonally adjusted annual rate of 5.20 million in May from an upwardly revised 5.24 million in April, and are 10.8 percent lower than a 5.83 million-unit pace a year ago. Prices: The median existing single-family home price was $223,000 in May, which is 2.4 percent lower than May 2006.

Condos and co-ops: Existing condominium and co-op sales rose 2.6 percent to a seasonally adjusted annual rate of 790,000 units in May from 770,000 in April, but are 6.7 percent below the 847,000-unit level in May 2006. Prices: The median existing condo price was $228,200 in May, down 0.4 percent from a year ago.

Northeast Region: Existing-home sales in the Northeast rose 5.8 percent to a level of 1.10 million in May, but are 3.5 percent lower than May 2006. Prices: The median existing-home price in the Northeast was $282,700, which is 0.5 percent higher than a year ago.

Midwest: Existing-home sales in the Midwest rose 0.7 percent in May to a level of 1.41 million, but are 6.6 percent below a year ago. Prices: The median price in the Midwest was $168,800, which is 1.7 percent below May 2006.

West: Existing-home sales in the West slipped 0.8 percent in May to an annual pace of 1.18 million, and are 16.3 percent below May 2006. Prices: The median price in the West was $341,900, which is 0.5 percent lower than a year ago.

South: Existing-home sales in the South fell 3.4 percent to an annual sales rate of 2.30 million in May, and are 11.9 percent below a year ago. Prices: The median price in the South was $184,000, down 3.8 percent from May 2006.
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Managing Your Money to Keep The Debt Monkey Off Your Back

When it comes to borrowing money, caution is coming into vogue.
By: Jaclyne Badal: The Wall Street Journal Online
Financial advisers have long warned people against taking on too much debt. But as debt loads for companies and individuals climb, a growing number of people - from regulators and Wall Street analysts to home lenders and economists - are picking up the cry.

This growing fondness for moderation is fueled by a multifaceted expansion in borrowing:

• Climbing housing debt, along with a sharp increase in delinquencies and foreclosures.

• Record levels of margin debt, or money borrowed to buy stocks.

• Government figures showing that consumers for the past two years have spent more than they made, something that hadn't happened since the Great Depression.

As a growing number of people get swept up in the borrowing binge, this is a good time to assess your finances and determine how much debt is too much.

Paying with Plastic

Take credit-card debt, which is usually the most expensive (as far as interest rates) and also the easiest to obtain. Consumers often think about their credit-card debt in terms of the minimum monthly payment, and glaze over the balance outstanding. That's a big mistake, says Nigel Taylor, a financial planner in Santa Monica, Calif., because it allows people to underestimate their debt load while balances creep up to unmanageable levels.

Data from Equifax and Moody's Economy.com show credit-card balances in the U.S. at a record $746.74 billion as of March - up 18% from five years earlier.

A good exercise is to periodically tally the balances on all your consumer debt, like credit cards and car loans (but not home loans). Divide the total by your annual gross income. You want that figure below 30%, according to a common rule of thumb.

People on the high side don't need to panic, but they should do some soul searching to determine why they borrow so much and whether they're comfortable with those amounts.

Consumers who take on too much credit-card debt run the risk of hurting their credit scores, which makes it more expensive to borrow money in the future. And they can potentially wind up in bankruptcy proceedings, a process that's more painful and has more rules than it did a few years ago.

On the House

Mortgage lenders have tightened standards recently. But consumers still have the potential to get approved for a bigger home loan than they can afford.

A general rule of thumb is that no more than 28% of gross monthly income should go toward house-related debt (including taxes and insurance). Besides first mortgages, this includes home-equity loans, which allow people to take out a lump-sum loan against the house, and home-equity lines of credit, which allow people to borrow against the house over time, taking out money when needed.

A person who makes $5,000 a month before taxes, for example, wouldn't want the monthly bill for house debt to exceed $1,400.

Note that the 28% guideline has a caveat: Monthly debt payments for everything - house, credit cards, car loans, student loans, etc. - shouldn't be above 36% of gross monthly income. So if you spend 28% of your monthly pay on house debt, you have only 8% left for the remainder of your debt payments. In the example of someone who earns $5,000 a month, 8% would come to $400. Many car payments are more than that.

And those percentages - frequently called debt-to-income ratios - are maximums, not recommendations for healthy living. People who spend 36% of their pay on debt are "teetering on the edge of being financially unstable," says June Walbert, a financial planner with San Antonio-based USAA, a financial-services company that largely focuses on military families.

She counsels clients to limit total debt payments to 20% of pretax income, so they have a buffer for surprise expenses.

One way to keep from getting in too deep is to run a worst-case scenario before taking out any money. Home-equity lines of credit, for instance, often come with variable interest rates, but banks are required to disclose a rate cap in the loan documents. Calculate what the payment would be if you borrowed up to the limit at the highest interest rate.

Financing Stocks

While most people stick to consumer and house debt, a growing number of investors also are borrowing money from brokerage firms to buy stocks or other securities.

Such margin debt for individual investors hit a record $295.87 billion in February, according to NYSE Euronext data. Before this year, the record was $278.53 billion, set in March 2000 near the peak of the high-tech bubble.

Buying stocks on margin magnifies price gains, but also losses. The National Association of Securities Dealers, which regulates securities firms, warned last month that "many investors may underestimate the risks of trading on margin."

Margin debt is regulated by strict rules from the Federal Reserve, the NASD and the NYSE. Investors can't borrow more than 50% of the price of the stock. And their equity in the account can't fall below 25%.

Confused? Let's say a person finances 50% of a $25,000 stock purchase, and the market crashes immediately afterward, so the stock is worth only $15,000. Since the investor still owes the brokerage $12,500, his equity in the account is now only $2,500, or 16.7% of the stock's value - below the 25% maintenance margin requirement.

At that point, the investor would face a "margin call." He would need to deposit another $1,250 immediately or the brokerage would have to sell $5,000 of stock. (That would reduce the debt to $7,500 or 75% of the remaining $10,000 stock position.)

The NASD notes that the firm can sell securities without contacting the investor and can set its own "house" limits on margin, which can be bumped up at any time. (For more, go to nasd.com and click on "Investor Alerts" on the right side.)

Investors can get pummeled using margin debt and, unlike with other types of debt, the situation can implode in a matter of days or even hours. "Generally, I don't think it's worth the risk," says Steve Margulin, a financial planner in Albuquerque, N.M.

Before investing on margin, it's a good idea to understand the worst-case scenario. Ask yourself if you're comfortable losing much of what you deposited and borrowed, plus interest and fees. If not, consider backing off.
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Boomers Expected to Age in Place, Stay in Suburbs

Baby boomers will create a new demand for health care, senior housing, and transportation in the suburban areas where they're expected to stay.
By: Camilla McLaughlin: REALTOR® Magazine Online
As baby boomers age in place — especially in the suburbs of slower-growing metropolitan areas — public policies must respond to the new stresses that aging residents will exert on health, transportation, and social-support systems, according to a new study by the Brookings Institution.

After modest gains during the current decade, the U.S. senior population will begin to mushroom when the leading edge of the huge baby boom generation reaches age 65 in the year 2011.

As a result, the so-called “pre-senior” populations are growing rapidly everywhere, especially in the Sun Belt areas previously known for their youth, such as Las Vegas, Austin, Atlanta, and Dallas. While these states are growing fastest, the growth is brisk around the country. In fact, the state with the slowest projected growth in 55-to-64 year olds is New York, where their numbers will still increase by a hefty 33 percent from 2000 to 2010.

Growth is seen mostly from boomers who choose in age in place — usually in their predominantly suburban locales — or move to new homes or rentals in their community, rather than relocate to a new city for their golden years.

“There is little evidence of a widespread ‘back to the city’ movement nationwide among older populations,” the report says. “Suburban areas still gain more pre-seniors and seniors annually than they yield back to cities."

However, that means that many suburbs will have to play catch-up to create social support, affordable housing, and accessible health care for their older residents, the report says.
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Home Prices to Drop Further, But Recovery May Be Ahead

It's still too early to tell exactly when this housing slump is going to end, with house prices just beginning to soften, mortgages at risk of defaulting beginning to hit reset dates and lending standards that are starting to tighten, according to researchers at the Harvard University's Joint Center for Housing Studies.
By: Amy Hoak: The Wall Street Journal Online
One thing's for sure: Before the sun shines again on the housing industry, a good amount of excess inventory will have to be sold, according to the center's "State of the Nation's Housing" report, released Monday. Employment growth will play a role as well in the recovery, as will interest rates, the report said.

In a telephone interview, Nicolas P. Retsinas, director of the center, said the housing industry was going through a "bumpy landing." Yet despite the severe contractions in home sales and starts seen during this correction, home prices have flattened but haven't crashed, and as a result, "we're not seeing a return to affordability," he said.

"If you were an economist, you would think that prices would have fallen precipitously," Retsinas said. Instead, home-price gains have been near flat, relative to the high appreciation rates seen over the first half of the decade - which in many markets amounted to home price gains of 60% or more during those five years, he said.

According to the report, median house prices increased at least 10% in 2006 in 23 of 149 metropolitan areas studied; prices fell in 34 of the metros. Of the 11 metros that had declines of greater than 3%, nine were in economically depressed areas in the Midwest - suggesting local economic trends had a greater influence on markets than national trends.

Home prices should slide further, however, according to the report. As for home sales figures, Retsinas said sales of existing homes could bottom out and begin to recover by the end of this year, with the new-home market following in 2008. The Mortgage Bankers Association also expects the market to hit its bottom at the end of the year, gradually improving from there as homes become more affordable.

And after markets burn through excess inventories, demand for new and remodeled housing will be lifted to new highs, the report predicts. In fact, if it weren't for some of the population trends - including the influx of immigrants into the country - the slowdown could have been much worse, said Moises Loza, executive director of the Housing Assistance Council.

The correction

Records were set for home sales, single-family starts and house-price appreciation in 2005. The next year ushered in contrasting numbers, according to the report.

Total home sales fell 10%, starts fell 13% and house-price appreciation slowed to a few percentage points in 2006. Between the end of 2005 and the end of 2006, the number of vacant homes on the market jumped more than 500,000 units, the report noted -- and that figure might even understate the overhang because some homes including seasonal or occasional-use homes might be brought back on the market when conditions improve.

Falling interest rates and unprecedented house-price appreciation started the boom, inspiring more Americans to become homeowners and more investors to buy with the intention of flipping their properties to make a quick profit. Builders tried to meet the demand, but lag time between predevelopment work and completions brought about bidding wars. "Affordability" products with lower initial payments helped more people jump into homeownership.

The study pegs the turning point of this boom in late 2005, when rising mortgage interest rates and higher home prices started forcing out buyers. Indeed, affordability remains an issue for many low- and middle-income Americans, the report pointed out, calling for a combination of structural and public policy shifts to address it.

"In just one year the number of households spending more than half their income on housing increased a startling 1.2 million to 17 million in 2005," Rachel Drew, research analyst for Harvard's Joint Center of Housing Studies, said in a news release.

Now, too, stricter standards of some lenders are having an effect on the ability of some would-be homeowners to get into the market, said Jonathan Kempner, CEO of the Mortgage Bankers Association. While products such as subprime and Alt-A loans were "controversial for some people," they did address the affordability issue for many Americans.

"Some people will have to wait longer on the margin," delaying their home buying, he said. Already, evidence of that wait is showing up in new and existing home sales, he added.

A look ahead

The report also points out the persistence of a wealth effect in 2006, which kept Americans borrowing more against their equity to support their spending. The amount of home equity cashed out set a record last year, as the volume of refinances dropped. The effect of the housing slowdown on consumer and remodeling spending hasn't been seen yet, according to the study.

Look farther ahead, however, and the outlook for housing is bullish.

For one, the baby boomers will continue to move into the age where second-home ownership is at a high. Evidence of this demographic trend has already been seen, with the sale of vacation homes hitting a record in 2006, according to the National Association of Realtors. Read more.

At the same time, children of the baby boomers will continue to move into the ranks of homeownership, boosting housing demand.

In addition, immigration is expected to hit a record 12 million between 2005 and 2015.

The upcoming growth in new households puts estimates for new-home demand at about 19.5 million units from 2005 to 2014, surpassing the 18.1 million units added between 1995 and 2004, according to the report.
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Home Sales Expected to Take Gradual Upturn

Home sales are projected to move in a relatively narrow range with a gradual upturn becoming more pronounced by the end of the year, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
REALTOR® Magazine Online
“Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom,” says Lawrence Yun, NAR senior economist. “It’s important to keep in mind that all real estate is local, and many markets are expected to have higher sales and strengthening prices during the second half of this year.”

What to Expect

NAR makes the following projections on the housing market:

    • Existing-home sales: projected to total 6.18 million in 2007 and 6.41 million
      next year, in contrast with 6.48 million in 2006.
    • New-home sales: forecast at 860,000 this year and 901,000 in 2008, down from
      1.05 million last year.
    • Housing starts: likely to total 1.43 million units in 2007 and 1.49 million
      next year, below the 1.80 million recorded in 2006.

Meanwhile, the 30-year fixed-rate mortgage is likely to increase to 6.6 percent in the third quarter and then hover at that level through 2008.

The national median existing-home price should ease by 1.3 percent to $219,100 in 2007, before rising 1.7 percent next year. The median new-home price will probably fall 2.3 percent to $240,800 this year, and then grow by 2.6 percent in 2008.

“We continue to experience a temporary distortion in comparing median existing-home prices,” Yun says. “Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison. When you look at other measures, such as this week’s price index from Freddie Mac which is based on repeat sales, overall home prices are rising slowly.”

Other factors to take into account that affect housing include:

    • Gross Domestic Product: growth in the U.S. GDP is estimated at 2 percent this
      year, lower than the 3.3 percent growth in 2006. Yun forecasts GDP to grow 3
      percent in 2008.
    • Unemployment rate: projected to average 4.6 percent in 2007, unchanged from
      last year.
    • Inflation: expected to decline to 2.5 percent this year, down from 3.2 percent
      in 2006. Inflation-adjusted disposable personal income is likely rise 2.8
      percent this year, compared with a 2.6 percent increase in 2006.

Buyers Need to Change Perspective

Buyers today need to have a traditional view of housing as a long-term investment, Yun says. “That investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,” Yun adds.

“Because of reductions in home sales and new home construction, the economy will expand at a subpar pace in 2007,” Yun says. “As housing market conditions improve going into 2008, the economy will reach back to its growth potential next year.”
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A Warning to Those Who Use 1031 Exchanges

Investors using 1031 exchanges to defer capital-gains taxes on an investment property they have sold can run into trouble if the Internal Revenue Service-required qualified intermediary, known as a QI, has financial trouble.
By: Peter Lattman and Kemba Dunham: REALTOR® Magazine Online
IRS regulations say that investors can’t touch the money from the sale of an investment property and must use a QI to manage the money while their search for a “like kind” property to invest in. The IRS doesn’t place restrictions on where the money is invested.

In the past year, at least two independent QIs have allegedly misappropriated client funds. In one case, businessman Donald McGhan is accused of operating a Ponzi scheme with money in his care — he lost more than $95 million of customer proceeds. The 1031 Tax Group has filed for bankruptcy protection after its principals lost $151 million through bad investments and loans.

The Federation of Exchange Accommodators, the qualified intermediaries' industry-trade group, says it has been working with states and the federal government to enhance oversight of the industry.
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Amex Says: 'Pay the Mortgage with Plastic'

American Express Co. is announcing today that cardholders will be able to pay their mortgages using plastic — and get credit-card rewards for doing so.
REALTOR® Magazine Online
American Home Mortgage Investment Corp. and IndyMac Bancorp Inc., two of the top 10 residential-mortgage originators, are the first lenders to sign up for the program.

Participants will be charged a one-time fee of $395 paid to the mortgage lender to cover account management. Once enrolled, the cardholder will earn cash back, airline points, or other types of rewards offered by their American Express card.

A cardholder with a $2,500 monthly mortgage would amass 30,000 card points a year.
Read more!

Tax Credits Can Boost Housing Affordability

Housing costs in many areas have continued to rise, making it increasingly difficult for many people to live near where they work, said Mike Szymanski, legislative aide to U.S. Sen. Hillary Rodham Clinton (D-N.Y.), during the NATIONAL ASSOCIATION OF REALTORS® Midyear Legislative Meetings & Trade Expo.
REALTOR® Magazine Online
Syzmanski talked to attendees about the benefits of expanding employer-assisted housing initiatives across the nation and the Housing America’s Workforce Act, which addresses the lack of affordable housing opportunities for private sector workers by promoting EAH programs. NAR supported a similar bill introduced into Congress in June 2005; however, the bill never became law.

Aiming for EAH Tax Relief

Since 2003, NAR has sought enactment of an income tax credit or similar tax incentive for developing entry level and affordable housing. NAR also supports an incentive for employers to provide a down payment assistance fringe benefit to their employees and to assure that employees will not be taxed on any cash or loan forgiveness benefit provided to them.

The bill was recently reintroduced by Clinton and U.S. Rep. Nydia Velazquez (D-N.Y.) in both chambers of Congress. The bill would provide tax relief to working individuals by allowing them to exclude funds from EAH programs from their taxable income. Current law requires employees to include any housing assistance they receive from an employer as taxable income.

The legislation would also encourage businesses to offer EAH programs to their workers by creating an employer tax credit for qualified programs. Finally, the bill would establish a grant program available to nonprofit housing organizations to provide technical assistance, program administration and education to support employers undertaking EAH programs.

“Developing successful EAH programs can help employers reduce turnover, which helps lower training and hiring costs, increase employee morale, support bottom line business goals, and enhance the economic stability of the local community,” NAR President Pat V. Combs said.

What You Can Do

To help create more affordable housing opportunities for workers through EAH programs, NAR’s Housing Opportunity Program launched “Home from Work” in 2006. The program provides training and tools to get more information on working with local businesses to develop EAH benefits for their employees.

The benefits can include homebuying workshops, one-on-one housing counseling offered by a REALTOR® or in partnership with a nonprofit homeownership counseling organization, or an EAH financial incentive. NAR also provides employers with a free technical assistance toolkit to help develop a customized EAH plan for their workers.
Read more!

Affluent Owe Much of Wealth to Real Estate

Fewer than 20 percent of all U.S. households are affluent, yet that group controls nearly half of all aggregate income, according to a new report from Packaged Facts, a division of MarketResearch.com.
By: Camilla McLaughlin: REALTOR® Magazine Online
A major component of their wealth? Residential real estate, thanks to “the run-up in values in major metropolitan areas, where the affluent tend to live,” according to the company.

Nearly 21 million households fall into an affluent category — singles earning at least $75,000 and households with more than one adult earning at least $100,000 — and wield an aggregate income of $3.6 trillion, an amount Packaged Facts predicts will grow by 27 percent over the next four years to $4.6 trillion in 2011.

Affluent Profile: Risk Takers, Workaholics

Eighty-seven percent of the affluent own their own home. And on average, households with an annual income of $150,000 or more live in a house worth more than $550,000, according to the report. They’re likely to be married with comparatively large families and live in the Northeast and Pacific regions.

Compared with the general population, affluent households are more likely to depend on multiple wage earners. Also higher than the general population is the number of self-employed: 10.6 percent of all affluent households and 15.3 percent of the super affluent.

The affluent also tend to:

    • Be risk takers.
    • Characterize themselves as workaholics who want to get to the top of their
      career.
    • Spend more than twice the average on home furnishings and appliances.

Different Categories of Affluence

Packaged Facts divides the affluent market into three groups:

    • Mass affluent: one-person households with an income of $75,000-$99,999 and/or
      adults with a household income of $100,000-$149,999
    • Highly affluent: household incomes of $150,000-$249,999
    • Super-affluent: household incomes of $250,000 or more

The two million households defined as super affluent have an average annual household income of $435,000. They account for only 1.2 percent of all households but generate 12 percent of U.S. household income.
Read more!

L.A. Housing May Be Going Steady

L.A.’s median home price rose for a second consecutive month in April, indicating the market may be stabilizing even though sales continue to languish.
REAL ESTATE: Median price rises for second straight month.
By: RICHARD CLOUGH: Los Angeles Business Journal online
L.A.’s median home price rose for a second consecutive month in April, indicating the market may be stabilizing – despite a slowdown in sales and the collapse of the subprime lending sector.

The median price of a home sold in Los Angeles County rose $15,000 from the previous month to $575,000. That was 2.7 percent higher than March, which itself was up $10,000 over February, according to HomeData Corp., a Melville, N.Y.-based company that tracks housing data nationwide. Those increases came after 11 straight months in which the price was stuck at or within $5,000 of the $550,000 mark.

The April median price also represented a solid 5.5 percent hike compared to a year earlier. The price rose even as just 5,096 homes were sold in April – 29 percent less than the same month last year. The sales figure is the second-lowest monthly total in more than three years, behind only February when 3,661 units sold.

Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate, said the price rise reflects a trend toward equilibrium, though other experts say the effects of the subprime market’s troubles may not have fully played out.

“Right now everything looks like it is stabilizing,” said Conway, who considers the April price rise negligible in itself. “So far we’ve seen an orderly decline in volume and an orderly stabilization of price.”

Nationwide and locally, foreclosures are rising to levels not seen since the last housing bust in the early 1990s as some holders of subprime, adjustable rate mortgages fail to make payments. At the same time, the pool of available buyers has shrunk as lenders of all stripes tighten their credit criteria.

However, Conway said that barring any major downturn of the economy, she does not expect prices to fall, given what she refers to as the “downward stickiness of housing prices.”

“People are very reluctant to lower the price of their homes when they’re selling their homes,” she said. “Instead, what they’ll do is wait.”

Conway also said that the decline in sales volume may represent a more normal market as the higher levels of the past few years were inflated by the activity of investors who sought to make a quick buck by buying and flipping housing – sometimes without not even fixing them up.

“In 2005 and 2006 there was quite a bit of investment buying,” she said. “Once those buyers left, that reduced volumes tremendously.”

Robert Kleinhenz, deputy chief economist for the California Association of Realtors, agreed that the latest home price data was encouraging. “We’ve seen stability in sales. We’ve not seen any major price erosion anywhere in the state,” he said.

But Kleinhenz warned that it was too early to tell if the market has bottomed out, given how the collapse of the subprime sector may have some lingering effects on the psychology of buyers.

One sign of that, he said, is the average time a house for sale sits on the market in Los Angeles County. That time has crept up recently to 9.6 months, which is within an acceptable range but is higher than the country’s long-term average of about 8.3 months.

Ups and downs

Meanwhile, in individual communities, the housing market picture in April was somewhat murky.

For example, the Pico Rivera 90660 ZIP code saw 25 homes sell – the same as last year – with a modest 2.4 percent increase in median price to $475,000.

But John Stupin, an assistant manager with the Huntington Beach office of Tarbell Realtors, said high interest in a recent listing in the Pico Rivera area seemed to indicate a market that was heating up – something which may be hard to read from the housing data alone.

“Things are still moving, but maybe not as fast as it was during the housing boom,” he said. “And there’s a good outlook for 2008.”

The price data seem to show no overriding patterns in the Ventura County border area. For example, the Agoura Hills 91301 ZIP code saw a 24 percent jump in median price to $846,000, while the nearby West Hills 91307 ZIP code’s median price dropped 3.8 percent to $625,000.

Tina Weinstein, a realtor with Tina Weinstein & Associates in Thousand Oaks, said houses in the area have been staying on the market longer, but favorable interest rates have made the market attractive for buyers.

“It is a good buyer’s market, because interest rates are so low,” she said. “If interest rates stay the same, the market will go up.”

With eight homes sold in April, the Santa Monica 90402 ZIP code saw the highest median price in the county at $2.6 million, up 22 percent from last year.

Malibu’s 90265 ZIP code as well as Bel Air’s 90077 ZIP code and Westlake’s 90057 ZIP code were the only other areas with median prices over $2 million – each jumping more than 45 percent from last year.

But not all communities were so prosperous. The median price of houses in the Westlake Village 91361 ZIP code was $725,000, falling 57 percent from 2006, the biggest drop in Los Angeles County. The community did see a 14 percent increase in volume, with 25 homes selling in April.

And despite falling more than 35 percent, sales volume in Lancaster’s 93536 ZIP code was the highest in the county, with 76 homes sold.
Read more!

Powerhouses

About 30 ultra high-end penthouses are expected to come on the market in the next three years with towering prices not seen before in Los Angeles.
By: DANIEL MILLER: Los Angeles Business Journal online
Los Angeles has long been known as a city where the ultra rich purchase expansive homes on the beach or a gated compound in the hills.

But the mega wealthy will soon have a new kind of place to live – over-the-top urban penthouses.

Top-floor condominiums costing up to $9 million or so have been around for decades in Los Angeles, mostly on the Wilshire Corridor in Westwood. But the latest wave of development is promising a slew of penthouses with staggering views and staggering price tags that are double or triple the prices of old units.

About 30 ultra high-end penthouses are expected to come on the market in the next three years, according to local real estate industry figures. Priced at up to $25 million with talk of $28 million, these units will crown new high-rise buildings in Beverly Hills, Century City and Westwood.

“These penthouses are like rare gems,” said Steve Fifield, president and founder of Fifield Cos., which is building Club View, a high-end condo tower just east of the Los Angeles Country Club. “They are like large De Beers diamonds; they sell at a factor that is different from regular real estate.”

For all that extra money, buyers will get huge units in new, tall buildings, several of which command views of the ocean, downtown and the mountains.

Some of the typical features include five-star hotel-style services, cathedral ceilings, floor-to-ceiling windows, marble staircases and multiple terraces. In addition, some of the buildings are being designed by world famous architects.

Aside from the general run-up in real estate prices over the last several years, multiple factors are at play in creating a market for the penthouses, as well as the less expensive but still multi-million dollar units located on lower floors.

To begin with, improved amenities and cultural options have made urban living in Los Angeles more appealing to prospective buyers – as worsening traffic has made it less attractive to live in suburban locales.

There’s also the buoyant stock market and L.A.’s reinvigorated, tech industry, which have created a new class of millionaires. Many of them are older baby boomers whose children have left home and for whom a penthouse, rather than a house, is attractive. And as Los Angeles has matured, it is attracting more international buyers accustomed to vertical, urban living and who have no problem paying big sums for a condo.

“In the 1980s, it was a tough time. The mentality was, who would ever give up their suburban home and give up their big house and big yard?” said Bill Schwarz, chairman of Wilshire Realty Co., who has brokered the sales of several penthouses. “Now people are more than willing to go vertical.”

Present perfect

Currently, most of Los Angeles’ high-end penthouses are situated on the Wilshire Corridor, from the western border of Beverly Hills to Westwood proper. Over the years, several have traded in the $6 million to $9 million range. Many of these buildings include 24-hour valet service and full security teams. Marquee units can be found on the corridor in the Remington, the Californian, and the Wilshire House.

It is difficult to say what the record price is for a Los Angeles penthouse because the buyers can work to keep their purchase prices hidden. But Stephen Shapiro, chairman of Westside Estate Agency Inc., a high end residential brokerage, says his firm sold two penthouse units in the Remington condo tower in 2003 to the same buyer for a total of $14 million. The buyer combined the units for a total of 15,000 square feet of space.
Still, the new class of buildings is something else.

For example, the Century, a development by Related Cos. in Century City, is designed by acclaimed architect Robert A.M. Stern and includes almost four acres of “estate grounds.” Then there’s the Montage Hotel and condo development by the Athens Group. It is set in the heart of Beverly Hills and condo residents will have full access to the hotel’s amenities. And the Carlyle on the Wilshire Corridor by Woodridge Capital LLC will include private wine cellars.

So far, it appears the priciest unit to go on the market will be a 12,000-square-foot penthouse at the Century, a 42-story condo tower under construction at One Century Drive, site of now razed St. Regis hotel. Related has not released specific plans for the unit, but sources said it’s expected to be priced at $25 million, and be completed in the first quarter of 2010.

Related will not confirm the price, but David Wine, vice chairman of the New York City-based company, said there has been a sea change in recent years as Los Angeles has emerged as a gateway, international city.

“You have international people who need residences in L.A. in a way that they didn’t before,” Wine said. “We are very confident that our building will redefine peoples’ ideas of what condo living is about.”

Related, also the lead developer of the $2 billion Grand Avenue development in downtown Los Angeles, has experience building and selling ultra high-end penthouses. Penthouses in the company’s Time Warner Center in New York sold for $25 to $50 million, Wine said.

However, Los Angeles is still not New York, where the highest-end penthouses often fetch $4,000 per square foot. But things are changing in Los Angeles, with the current crop of units expected to easily top $2,000 per square foot, and in a few cases hit or exceed $4,000.

“By most standards around the world, we look pretty inexpensive,” said Schwarz of Wilshire Realty, comparing Los Angeles to London or Tokyo. “But it seems that all of a sudden we have been able to break through almost a glass ceiling in terms of the product that is desired by this market.”

Big plans

Indeed, Fifield’s 35-unit 1200 Club View tower in Westwood will include a penthouse that is said to be for sale in the $18 million range. At that price, the 8,328-square-foot penthouse would sell for $2,161 a foot.

But with the rush of multiple high-end projects expected to hit the market the company is actually considering raising prices. The top five floors of the 21-story building will be penthouses, with just one unit per floor. The condo tower is scheduled to open in fall 2009.

“Our market is primarily in their 50s and up; it is a wealthy crowd and they don’t want to cut corners. They want space. But they want services they can’t get in their 20,000-square-foot home, like valet service and full security,” Fifield said.

Also underway is the Carlyle, Woodridge Capital’s Wilshire Corridor project that is expected to be completed in mid-2009. According to Schwarz, whose company is marketing the project, the 23-story building will include a minimum of four penthouse units.
“It is acceptable now to live in a very, very, fine high-rise building. You will find that the upper end of our market is not only accepting it but pursuing it,” he said.

The penthouse units at the Montage Hotel in Beverly Hills are somewhat of a wild card – the building tops out at eight stories, making the project shorter than many of the buildings slated for Century City or Westwood. However, the project includes just 20 condo units that sit atop a first class hotel.

Slated to open October 2008, the development will include two 5,700-square-foot penthouse units on the top floor. Jay Newman, chief operating officer for developer Athens Group, said that his company has been receiving offers in the $4,000 per foot range for units in the building. He said the penthouses may sell for $5,000 a foot, or about $28.5 million.

“That is on par with what people are paying for condos in London or New York City,” said Newman, Athens Group’s project manager for the development. “It’s Beverly Hills, and it’s the only project in the (Golden Triangle) amenitized with a five-star luxury hotel.”

Another unique project is 9900 Wilshire Blvd., which made headlines last month when London developer Candy & Candy bought the property from New Pacific Realty Corp. for $500 million.

The project, which is still awaiting final approvals from Beverly Hills, is designed by Pritzker Prize-winning architect Richard Meier and is slated to include a few two-story penthouses. Those units could easily hit $15 million.

“The Beverly Hills corridor is becoming an international city,” said Harvey Englander, spokesman for Candy & Candy.

Despite the glamour of big-money penthouses, some in the business wonder whether all of the planned projects will actually be built. The late 1980s also saw numerous plans for posh Wilshire Corridor high-rises, some of which were not completed for years after the real estate market collapsed in the early 1990s.

“I think the jury is out,” said Shapiro, the broker. “At some point, the absorption will not be equivalent to the new amount of inventory. If you go back to when this happened last, there were a couple of arrested structures on Wilshire Boulevard that just sat there.”
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Existing-Home Sales Post Biggest Rise in Three Years

The number of homes sold increased last month by 3.9%, though inventories ticked higher. The median home price fell from a year earlier.
By: Jeff Bater: The Wall Street Journal Online
U.S. existing-home sales unexpectedly climbed in February, but subprime-market woes could chill demand farther down the road.

Home resales rose to a 6.69 million annual rate, a 3.9% increase from January's revised 6.44 million annual pace, the National Association of Realtors said Friday. January's rate was originally estimated at 6.46 million.

The median home price was $212,800 in February, compared with a revised $210,900 in January and a revised $215,700 in February 2006.

NAR chief economist David Lereah said some of the rise might have been due to mild weather. "But fundamentals have improved in the housing market," he said.

The February resales level was above Wall Street expectations of a 6.33 million sales rate for previously owned homes.

Delinquency rates for subprime mortgage loans rose at the end of last year. Wall Street is worried tighter lending standards for borrowers with less-than-sterling credit could slow home sales in the future.

Mr. Lereah predicts subprime problems could cost between 100,000 and 250,000 annual sales of new and existing homes over the next couple years. "Will it affect the housing market? Yes," he said. "But it's not going to lead to an economic recession."

Inventories of homes were up 5.9% at the end of February to 3.75 million available for sale, which represented a 6.7-month supply at the current sales pace. There was a 6.6-month supply at the end of January.

Regionally, existing-home sales were mixed. Sales rose 3.9% in the Midwest, 14.2% in the Northeast, and 1.6% in the South. Demand in the West was flat.
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Have a Home Loan? Pay Less to Uncle Sam

This time next year, some homeowners who pay mortgage insurance will have an extra deduction on their federal income tax returns.
By: Amy Hoak: The Wall Street Journal Online
Under a new law, certain borrowers who take out a mortgage for purchase or refinance in 2007 are eligible to write off all or a portion of their mortgage insurance premiums for the year. It's a tax break many in the industry have sought for years because the insurance is often regarded as a cost akin to mortgage interest or points.

Mortgage insurance is required for borrowers who make less than a 20% down payment; its purpose is to protect lenders from losses if the borrower defaults on the loan. The insurance is cancelled when there is enough equity built up in the home.

But premium deductibility aside, mortgage insurance has been gaining in popularity these days, some in the industry say.

According to the Mortgage Insurance Companies of America, 118,214 borrowers used private mortgage insurance while buying or refinancing a loan in February, an 8.5% increase compared with January's 108,980 borrowers. In February 2006, 104,146 borrowers used PMI, the group reported.

"The mortgage-insurance industry has had a very, very good first quarter," said David H. Katkov, president and chief operating officer of PMI Mortgage Insurance Co. "People are looking at mortgage insurance today as they haven't in previous years."

Katkov calls the tax break a "bonus" benefit to homeowners, adding that there have been other factors fueling the growth in the mortgage-insurance industry.

In recent years, many borrowers have opted to get around using the insurance by taking two loans: a primary mortgage as well as a second, "piggyback" loan in the form of a home equity loan or line of credit. The equity from the second loan fulfills the down payment of the first, and there are tax breaks on the interest of both loans.

But many piggyback mortgages have variable rates that fluctuate based on the prime rate, which has risen over the last year. The set rate for mortgage insurance has become attractive to homeowners aiming for predictable loan costs, Katkov said. There's also the lure of simplicity that the mortgage insurance offers, since borrowers only need to deal with one set of loan documents in that option, he added.

Tightened lending standards might also contribute to additional popularity of mortgage insurance; as lenders get more conservative in the aftermath of problems in the subprime market, the risk associated with a piggyback loan probably isn't as attractive, said Corey Carlisle, senior director for government affairs at the Mortgage Bankers Association. The cost of the second loan, along with the hard look at underwriting standards, could have a "double whammy effect" on piggyback loans, he said.

That said, piggyback loans are certainly not going away, he added. For some borrowers, the dual loan structure might still make sense, he said, adding "everyone needs to weigh their own financial needs separately and do what's best for them."

To help in the decision, PMI Mortgage Insurance Co. has an online calculator for determining which option is best suited to an individual borrower. Visit the calculator.

Deduction details

To qualify for the full mortgage insurance premium deduction in 2007, a homeowner needs an adjusted gross income of $100,000 or less; those with adjusted gross incomes of $109,000 or less are eligible for partial breaks. Currently, the deduction is limited to the 2007 calendar year, although there are efforts to extend it.

The tax deduction applies to coverage provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration in addition to private mortgage insurance, according to the Internal Revenue Service's Web site.

Some tax and consumer advocates, including Bruce Hahn, president of the American Homeowners Grassroots Alliance, think the deduction should have been available years ago.

"Finally, enough legislators came to recognize this is truly a cost of lending," he said. Low- and moderate-income homeowners stand to benefit the most, he added.

The cost of mortgage insurance varies based on the size of the down payment, type of mortgage and the amount of coverage. But insurance on a $224,500 home typically costs about $50 to $100 per month, according to Mortgage Insurance Companies of America. Annual tax savings for those using the deduction will range between $300 and $350, according to the group's estimates.

But is it enough?

Some argue, however, that the qualifications for the deduction are too restrictive.

While middle-class homeowners in the middle of the country will benefit from the deduction, those living in areas where housing is more expensive might not, said Pete Sepp, vice president for communications for the National Taxpayers Union.

"Clearly this has to be made available to more homeowners," he said, adding that lawmakers need to "recognize the reality that $100,000 of income doesn't necessarily support a mansion." On the coasts, for example, homeowners' income doesn't stretch as far as it does in the Midwest, he said.

In addition, Sepp criticized the phase-out of the deduction for being too steep: Those with adjusted gross incomes up to $100,000 receive the full break, but the deduction reduces 10% for every $1,000 over $100,000 until it reaches zero at an adjusted gross income of $110,000.

"Congress has taken perhaps the toes of one foot through the door, and now we need to see them follow through and walk through all the way," he said.

If enough homeowners benefit from the deduction, there's a good chance lawmakers could move to extend it into future tax years, Sepp said. Carlisle has noticed a general support of extending the benefit on Capitol Hill; making it permanent is another issue, he said.
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