It's getting harder to hide from the housing bust.
Tight credit, fragile consumer confidence and a weakening economy are slowing sales and depressing prices even in some places -- such as the Pacific Northwest and North Carolina -- that until recently had avoided the housing slump afflicting most of the country.
Even Manhattan, where prices continued to rise briskly last year, looks more vulnerable to a slowdown. Falling home prices and soaring defaults elsewhere have created more than $100 billion of losses on mortgage-related securities at Wall Street firms, destroying many jobs in the New York area. The number of homes listed for sale in Long Island and Queens at the end of 2007 was enough to last 18 months at the current sales rate, up from a 12-month supply a year before.
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Local markets still vary hugely around the country, according to The Wall Street Journal's quarterly survey of housing data in 28 major metropolitan areas. Inventories of unsold homes are enormous in much of Florida, Phoenix, Las Vegas and the Detroit area. But the number of homes listed for sale declined last year in Boston and Denver, and they were flat in Dallas.
Few expect a quick recovery. Stricter credit policies at mortgage lenders have disqualified many potential buyers, and foreclosures are adding to an already glutted supply in many areas. In California, notices of default filed by lenders in the fourth quarter totaled 81,550, more than double the 37,994 filed in the year-earlier period, according to DataQuick Information Systems, a research firm in La Jolla, Calif. Meanwhile, builders caught with too much inventory are slashing prices.
All those factors create "a lot of indigestion, and I think it's going to take all of this year to work its way out," says Ronald Peltier, chief executive of HomeServices of America Inc. in Minneapolis, which owns brokerages in 19 states. He expects the market to begin slowly improving in 2009 beauty.
For now, people trying to sell homes "don't seem to have a prayer" in competing with lenders offering foreclosed homes and builders dumping excess inventory, says Don Schriver, owner of Assist-2-Sell Good Sense Realty in Buckeye, Ariz., a suburb of Phoenix. He points to a four-bedroom house in Buckeye that was built in 2005 and sold in August 2006 for $775,000. After a lender acquired the home through foreclosure last year, it sold again in December for $380,000.
In California's Orange County, around a quarter of the listings are either foreclosed properties owned by lenders or homes owned by people trying to do "short sales," or sell for less than the amount they owe the bank, says Steven Thomas, president of Re/Max Real Estate Services in Aliso Viejo, Calif. Short sales require approval from the lenders, often a lengthy process.
Steve Karsten, a plumber who rents a small house in the Los Angeles area, is typical of today's wary home shopper. He has been going to open houses and looking into possible bargains on foreclosed homes. But he aims to make a down payment of more than 10% and get a fixed-rate loan. And he won't jump at the first decent house he finds.
"I'm in no hurry," Mr. Karsten says. "The longer I wait, the more money I save."
With buyers on the fence, sales are stalled. December sales in the San Francisco Bay area and in Southern California were the slowest in at least two decades, according to DataQuick.
DataQuick says sales have dried up partly because of relatively high rates on "jumbo" mortgages, those over the $417,000 limit on loans that can be guaranteed by government-sponsored investors Fannie Mae and Freddie Mac. Rattled by defaults, investors are shying away from jumbo loans. The resulting higher costs for these large loans are pinching sales in California and other high-price areas. Home sales in the Bay Area financed with jumbo loans were down 66% in December from a year before, according to DataQuick.
Some of the fastest increases in home listings have occurred in relatively strong markets. The inventory in the Seattle metro area counties of King, Snohomish and Pierce leapt 50% last year. At the end of December, when listings are lower than usual because of the holidays, the inventory there was enough to last 4.9 months, denoting a fairly balanced market -- but up from a very lean 2.7 months at the end of 2006. In King County, the median price in December was down 2.6% from a year ago.
Given the rise in supply, home prices in Seattle probably will fall further, says Glenn Kelman, chief executive of Redfin, a real-estate broker based there. "If you walk around town, you see cranes everywhere," he says.
In Portland, Ore., another fairly buoyant market, the inventory at year end was 5.7 months, up from 3.7 months a year earlier, and the median price fell 4%. In Charlotte, N.C., the supply grew to 7.8 months from 5.9 months.
Listings in the eight-county San Francisco area surged 42% last year, but there are big differences in price trends, depending on location. In December, DataQuick reports, the median price was down 22% from a year before in outlying Sonoma County but just 1.9% lower in San Francisco and virtually unchanged in Santa Clara County, home to many thriving technology companies.
Manhattan so far has dodged the housing slump, but it may not escape completely unscathed. The median price of condominiums and cooperative apartments sold in the fourth quarter was about $850,000, up 6.4% from a year earlier, according to Jonathan Miller, research director at Radar Logic Inc., a research firm. (In the luxury end of the market, the median price jumped 28% to $4.3 million.) The inventory of co-ops at the end of 2007 was down 26% from a year earlier, while the supply of condos was unchanged.
Now, though, the housing slump that afflicts most of the country is creating huge losses at some Wall Street firms that gambled on mortgage securities. That means more job cuts and smaller bonuses this year. On the plus side, the weak dollar continues to bring in foreign buyers. Mr. Miller sees "very modest" price increases this year.
But Dean Baker, an economist at the Center for Economic and Policy Research in Washington who has been bearish on housing for years, says Wall Street's woes make New York's real-estate market look "quite vulnerable."
Job growth in the next two years is likely to be very weak in the New York metro area, where financial services account for about a quarter of income earned, says Mark Zandi, chief economist at Moody's Economy.com. "Wall Street is unraveling and taking the economy with it," he says.
In Miami-Dade County, there was a 37-month supply of condos listed for sale at year end, according to figures compiled by Esslinger-Wooten-Maxwell, a big local real-estate broker. But that excludes "for sale by owner" units that aren't listed, as well as about 19,000 units due to be completed this year, says Jack McCabe, a real-estate consultant in Deerfield Beach, Fla., who says he advises investors who hope eventually to find bargains in the area. He notes that foreclosures will add to the supply and predicts that 2008 will be "the year of the great condo meltdown."
Monica Harvey, a real-estate agent for Esslinger-Wooten-Maxwell in Miami Beach, says sales have slowed so much that she can work out at her gym more often and even drive to the airport to meet potential buyers. Ms. Harvey is encouraged, though, by the flow of buyers from Europe and Latin America, taking advantage of a weaker U.S. dollar. Already a Spanish speaker, she's thinking of studying Mandarin. "I'm waiting for the Chinese," she says. "I know they're going to come at some point."
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