Demand for Housing Slacking Off

"The U.S. economy is beginning to slow as a result of weakening demand for housing, rising energy costs and flat consumer spending, the chief economist for Kentucky's largest bank said yesterday."

"Potential problems are developing nationally. The demand for housing is slacking off, but construction is "trending upward," he said. Nationally, inventories of available housing are "at record levels by a large margin."'

"The biggest uncertainty facing forecasters is energy prices, particularly for gasoline, DeKaser said. Gasoline will remain high this summer, but the long-term trend is uncertain because of international situations that are impossible to predict."

'"Energy has been a drag on the economy, especially on consumer spending," he said. Current prices are not a problem; much higher prices resulting from some disaster in the Middle East could be."

"DeKaser and National City economist Ryan Reed presented a Web cast program."

"They predicted:

• The U.S. economy, which grew by 3.5 percent in 2005, will grow by 3.6 percent in 2006, but only 3 percent in 2007.

• Consumer spending, which has driven the U.S. economy in recent years, will increase by 3.5 percent in 2006 -- the same as in 2005 -- and by only 3.2 percent in 2007.

• National home sales, which increased by 7.1 percent last year, will decline 2.1 percent this year and fall 8.7 percent in 2007."

Rent it out or Bail out?
(WSJ)

"Got caught up in the real-estate fever? Let's start with the painfully obvious: If you have no choice but to sell, then you ought to sell -- and you should probably sell quickly."

"Speculators are finding they can't flip their investment properties for a quick gain. That leaves them with a tough decision: Should they hang on and rent or should they bail out, possibly at a loss?"

"To find out if you're in the "no choice" camp, simply run the numbers. Take the rental income on your investment property and subtract your costs, including the mortgage, property taxes, insurance and maintenance. If the house or condominium is a sizable cash drain and there's no way you can keep covering the shortfall, you've clearly got a problem."

'"I'm not selling anything," says John Schaub, author of "Building Wealth One House at a Time" and a real-estate investor in Sarasota, Fla. "But you have to be able to afford to hold your properties. Most of these people ought to sell, because they don't have the aptitude to be a landlord and they don't have the cash flow."'

"And don't kid yourself: If you have a cash-flow problem now, it could get a lot worse. You could be hit with rising borrowing costs, as the rate adjusts upward on your mortgage or as principal becomes due on your interest-only loan. "A lot of the people who bought investment properties are using these exotic loans," says Karl Case, an economics professor at Wellesley College in Massachusetts. "You could have the double whammy of falling prices and rising carrying costs."'

"Chris Mayer, a real-estate professor at Columbia University's business school, notes that home sales are slowing. That usually foretells a period of stagnant or falling house prices."

"Over the past 30 years, home prices have outpaced inflation by two percentage points a year. But over the past five years, that inflation-beating margin has jumped to seven percentage points a year. The implication: Recent returns are unsustainable."

"Even if real-estate prices simply stagnate, many property speculators will be reluctant to sell their homes and condominiums, because they will be under water once they figure in the 5% or 6% selling commission."

"Indeed, this reluctance to sell at a loss helps explain why a slowdown in home sales typically precedes a price decline. Homeowners have a target selling price -- it might be the price they paid, or the price they could have got at the market peak -- and they initially refuse to accept anything less."

"But waiting to "get even, then get out" could be a huge mistake."

'"When prices start to fall, they usually continue to fall for a while," Prof. Mayer warns. "You want to be aggressive in setting a price that allows the property to sell, rather than slowly lowering your asking price and following the market down."'


Mortgage indicator stats skipped a beat again...

Analysts differ on whether there is a housing bubble, but most agree that the market is cooling off from its record run.

The MBA's seasonally adjusted purchase mortgage index fell 4.7 percent to 417.7 from the previous week's 438.2.

The index -- considered a timely gauge of U.S. home sales -- was also below its year-ago level of 474.5.

The group's seasonally adjusted index of refinancing applications decreased 6.6 percent to 1,532.4 compared to 1,640.8 the previous week. A year earlier the index stood at 1,899.6.

The refinance share of mortgage activity decreased to 36.0 percent of total applications from 36.6 percent the previous week. It was the lowest refinance share since the week ended July 30, 2004 when it reached 35.8 percent.

But if you happen to want to try your hand at catching a falling knife, Mark Nash has some advice for you....

"Finding your dream home is exciting, but in the real estate market, it pays to shelve your emotions and look at the facts."

"Although the feverish pace of home buying has eased, it's not yet a buyer's market."

"To find the best value, you need to know the fair price. Otherwise, "if you go in unarmed, you're going to overpay," said Mark Nash, author of "1,001 Tips for Buying and Selling a Home."'

"RESEARCH HOME VALUES: Despite national trends, home prices depend on the neighborhood and sometimes vary street to street. Web sites such as zillow.com allow you to investigate what individual homes are worth. Compare those values with the sale price of homes recently sold, otherwise known as sold comparables."

"TIME YOUR SEARCH: Be aware that spring is the busiest season for home sales. If sellers won't come down to a price you're comfortable with, and you can wait, you may get a better value in the fall when there are fewer buyers, and the housing bubble could potentially deflate more."

"START NEGOTIATING: If the owners won't meet your offer, and you want the house, ask if they'll instead cover some of the closing costs, a practice that's becoming more common again. And hire an independent inspector to evaluate the home's condition. If you haven't already slashed the price, the owners may agree to replace, say, an aging furnace."