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Jul. 09, 2008
Copyright © Las Vegas Review-Journal

Housing slump will slog on, signs suggest

Economists reluctant to say worst is over

By ALAN ZIBEL
THE ASSOCIATED PRESS
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A sale pending sign stands by a house in Alhambra, Calif., on Monday. The National Association of Realtors' pending home sales index slipped by 4.7 percent in May.
Photo by The Associated Press

WASHINGTON -- Signs are emerging that the U.S. housing market's long slump is likely to fester through the summer, and the real estate market may not recover for at least another year.

The latest report, the National Association of Realtors' pending home sales index, slipped by 4.7 percent in May to the third-lowest reading on record. The decline "suggests we are not out of the woods by any means," said Lawrence Yun, the trade group's chief economist.

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    • The bad news came as the regulator for Fannie Mae and Freddie Mac tried to reassure investors that an accounting rule change wouldn't force the government-chartered mortgage finance companies to raise tens of billions in capital to offset losses.

    With more negative data about the housing market continuing to emerge as the economy weakens and job losses accelerate, economists are reluctant to say the worst is over.

    "Even if housing market activity does manage to bottom out later this year, it is likely that any recovery would be exceedingly slow," Jeffrey Lacker, president of the Federal Reserve Bank of Richmond said in a speech in Washington.

    Although home sales are likely to fall to their lowest point late this year or early next year, any recovery is likely to be weak through at least 2010, said Mark Vitner, senior economist with Wachovia Corp.

    Meanwhile, prices shouldn't hit bottom for another year at the earliest, Vitner said, since the housing market is glutted with unsold new homes and foreclosed properties.

    Worsening matters, rates on 30-year mortgages have been above 6 percent since late May, leading to a steep decline in new applications.

    The Realtors' seasonally adjusted index of pending sales for existing homes fell 4.7 percent to 84.7 from an upwardly revised April reading of 88.9. The index was 14 percent below year-ago levels. Sales are considered pending when the seller has accepted an offer, but the deal has not yet closed.

    Wall Street economists surveyed by Thomson/IFR had predicted the index would come in at 87. The index, which sank to a record low of 83 in March, stood at 98.5 in May 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

    Pending sales fell around the U.S., sinking the most in the South, and the least in the West.

    In Las Vegas, the number of units listed as "contingent" or "pending" declined slightly in the final week of June to 7,155, Las Vegas-based research firm Applied Analysis reported. That's more than double the number from the same period a year ago.

    More than half of the 22,192 available units in Las Vegas' inventory were reported as vacant, while another 10 percent were occupied by tenants. Compared with a year ago, owner-occupied units represented the largest decrease from 12,226 to 8,429, down 31.1 percent, Applied Analysis reported.

    Despite the negative numbers, "the worst of the hemorrhaging is behind us" and a modest recovery is likely to take shape next year, said Bernard Baumohl, managing director of the Economic Outlook Group.

    Homeowners shouldn't get too excited, though, as Baumohl predicts median prices will show year-over-year gains of no more than 6 percent by next year.

    By the Realtors' measurement, prices nationwide were down 6.3 percent in May, but are falling faster in big cities. The Standard & Poor's/Case-Shiller home price index of 20 cities fell by 15.3 percent in April compared with a year ago, dropping prices to their lowest levels since August 2004.

    As the housing market and broader economy continue to sag, Senate lawmakers appeared on track to approve -- possibly by week's end -- a rescue plan designed to save hundreds of thousands of homeowners from foreclosure.

    But it was still uncertain whether lawmakers would reach a deal with the White House, which is balking at key portions of the bill, particularly $3.9 billion included for buying and fixing up foreclosed properties. Democrats argue the money is key to preventing neighborhood blight, but most Republicans call it a bailout for lenders who helped cause the mortgage mess.

    Review-Journal writer Hubble Smith contributed to this report.

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    willy wrote on July 10, 2008 12:00 AM: There are a lot of single family houses now selling for around $175k. With FHA loans buyers can get in with 3% or less. So affordability is not even an issue anymore, probably 75% of the households in this town can afford these houses as long as they haven't scorched their credit. Besides if you are worried houses can go down another 10-15%, just make aggressive bids and even that shouldn't be much of a problem.

    The housing issue has now purely become one of negative sentiment and a slow economy. All the other issues are just diversions for people to blame.


    Naked Truth wrote on July 09, 2008 06:48 PM: Solution: have a naked man run through neighborhoods with foreclosure problem. That should lift spirits and fix the problem.


    No Vaseline wrote on July 09, 2008 02:05 PM: Money..when you look at the big picture, all asset classes are falling including land, except for oil and energy which will collapse within 12 months. The US economy is in transition and the big question for the USA is...what is it tranistioning into? Where will jobs come from, what will we build and what will we export? No country is buying our funny(mortage)paper any longer and even our banks don't want the mortage paper, so what is it that will create the income to stabilize our economy and give needed Vegas visitors the discretionary income to come drop it off in Vegas so that people can make these house payments. When that is in focus, you can say that you see the first true sign of a bottom in the housing market...until then don't lose a finger, or an arm and a leg trying to catch a house in this market..BTW..the article says a normal 6% gain in housing in 09, no way!


    Mark wrote on July 09, 2008 02:03 PM: On July 19th there was a article that said house sales SURGED. What happened?

    Good, Oh, I meant bad. No, I don't know what is going on. It must be an educated guess.. Hehe..


    MONEY guru wrote on July 09, 2008 01:42 PM: Wiseowl, I will you a "C" for effort. I am aware of all the studies that predict further, home-value decline. While I agree that the surplus and credit crisis should lead to further price declines, inflation would tend to have counter effect (cost to build is greater, as dollar value declines). I was being critical of your understanding of inflation.


    Wiseowl wrote on July 09, 2008 01:17 PM: Ok Money and You too J. Sorry, but no spell check, LOL! As to the "facts". Here's the source for the 18% decline in real estate prices. (1) Case Shiller Housing Index. Been right on the button predicting both sales and inventory. (2) UNLV School of Business Report May 2008. Shows housing SFR inventory flat thru 2011. Also graphs inflation at 4%. Given projected negative appreciation in housing, prices will tend to be flat or down thru 2013, per report. Both these sources can be found on line. Finally, SalesTraq report June 15,2008 projects increased foreclosures thru 2011 and targets Clark County as increasing loss of real estate value primarily in North, NW and Eastern parts of the Valley. In addition, LV Chamber commerical property index report shows increases in commerical vacancy rates thru 2010 due to failing economics and rising costs of fuel, transportation fo goods and material costs associated with construction, manufacuring and distribution. Take a look and then respond.


    J wrote on July 09, 2008 10:27 AM: Money, you're on the money. However, one caveat, the 20% down for first time homebuyers. You don't have to have that, but what you do have to have is buyers that can afford the payments. Require 15 or 30 year fixed and 28% maximum dti for first time homebuyers. Until they prove they can pay they shouldn't be treated the same as long-time homeowners.


    MONEY wrote on July 09, 2008 09:55 AM: WiseOwl, your theory that "their" will be further price decline, despite inflation, is inconsistent. Please explain yourself, before I grade your posting (A-F).


    WiseOwl wrote on July 09, 2008 09:45 AM: NAR and GLVAR have been consistently wrong and hyped the market for over two years! If you listened to them you would be broke or worst if you had bought an home during this period. Multiple independent analysis of LV market warns that their is another 18% drop in prices set over the next 12 to 18 months! Try to catch this falling knife at your own peril. We still have more loan resets and credit problems facing this country in the next year! Dont expect any real recovery for at least 3 to 5 years! Remember you have to factor in "inflation" which is rising above 4% to the equation. At best prices will be down or flat. So you are in negative terrritory from the gate. Better to rent in this market and wait for real bottom, most likely 2012-2013!


    vern wrote on July 09, 2008 09:16 AM: hey ths, how is it that you know that the investors who bought properties recently in your neighborhood have fallen behind in payments? where would one obtain that information?


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