It's Going to Bite People in the Butt...
"Homes sales in the Bay Area fell to their lowest level in a decade last month, while home values increased at their slowest pace in three years, a real estate tracking firm reported Wednesday."
"Bay Area home sales fell more than 30 percent compared to a year ago, and the median price was up only 3.5 percent from a year ago and were down from a record in June, DataQuick Information Systems reported."
"That could spell trouble for borrowers with creative mortgages who rely on rising appreciation to work most effectively. Sellers also may have to accept smaller appreciation gains and be willing to negotiate more with buyers."
'"The housing market has become the victim of its own success," said Kei Matsuda, senior economist at San Francisco-based Union Bank of California. "In the last couple years you have had phenomenally high transactions" along with appreciation."
Not so any more.
"Increased inventory and climbing interest rates are factors behind the housing slowdown, which began in spring 2005 with decreasing year-to-year sales."
'"How much of today's demand has already been met? If the market is indeed going through a lull, expect low sales and flat prices through fall and on into next year," DataQuick President Marshall Prentice said."
'"There is a lot more inventory and more for people to choose from, and housing is staying on the market a lot longer," said David Kerr, a senior sales association at Emeryville-based online real estate firm ZipRealty."
"Appreciation slowed to single digits in March after two years of double-digit gains."
"The slowing appreciation could be bad news for people with creative financing who are counting on home prices to climb at a good clip. Among many options, these mortgages include no-money down 100 percent financing."
"Another type is the negative-amortization loan, which lets borrowers hold back on payments in exchange for having a growing loan balance."
"In cases where the borrower has skipped or deferred loan payments, creative loans can result in a borrower ending up with a larger loan balance than equity held in the home when housing prices flatten or drop."
'"It's going to bite (those) people in the butt," said Sue Rainwater, a loan officer with CMG Mortgage in San Ramon and past-president of the East Bay chapter of the California Association of Mortgage Brokers."
'"And we are going to see more foreclosures and short sales, and we are going to see more people who are unable to refinance because they are going to end up owing more than the home is valued."'
"The pace of activity in building new homes fell in July to the lowest level in nearly two years, adding another piece of evidence indicating a slowing U.S. economy."
"Housing starts, tracking the nation's rate of construction on new homes, fell 2.5% last month to 1.8 million on a seasonally adjusted annual basis, the Commerce Department said Wednesday.
This marked the fifth decline in housing starts in the last six months. It's the lowest level since November 2004. Read full government report."
"Meanwhile, building permits -- an indicator that foreshadows future construction activity -- plunged 6.5% to 1.75 million annual units for July. This was the sixth straight monthly decline and the largest drop seen since September 1999."
"Permits are at their lowest level since August 2002."
"Economists generally agree that the housing market's rolling over. There remains a debate about the magnitude of the decline and its impact of the overall economy."
"Joel Naroff, president of Naroff Economic Advisors, said it is no longer correct to describe the weakening housing sector as a slowdown. "Rout" is now the proper word, he said."
Housing’s crumbling foundation
The latest statistics are numbing:
"Mortgage application volume was down nearly 30% year-over-year in the week ending July 28; in June, housing starts were down 11% from a year ago, while existing home sales and new home sales were down 9% and 11%, respectively; the inventory of unsold homes was up nearly 40%; and most alarming, the decline in the growth of median existing home prices was the most precipitous since 1981."
"With mortgage equity withdrawal having essentially replaced wage gains as the primary source of income gains over the last several years, consumers’ tapping of their home equity has allowed them to withstand the burgeoning cost of the aforementioned “essentials.”'
"Although household net worth remains at record levels, 37% of it is now accounted for by real estate, up from 24% in 2000."
"The severe weakness in housing unequivocally reduces aggregate demand, has strong direct (home equity drawdowns) and indirect (net worth) effects on consumption, and reduces employment."
(30% of the growth in payrolls in the last several years was directly or indirectly related to housing).
"Consumers account for about two-thirds of GDP, and they’re under increasing pressure."