August was a worse month for mortgage brokers and borrowers, according to a just-released Campbell Communications survey sponsored by Mortgage Finance. About 33 percent of home purchase closings of loans originated by mortgage brokers were canceled during August. Worse, approximately, 57 percent of the brokers’ customers found they could not refinance their adjustable rate mortgages that had resetting interest rates.

Washington-based Campbell Communication’s survey of 1,744 mortgage brokers was conducted August 23-31, and is one of the earliest “quantitative measures of the major disruptions in the mortgage originations market which started in early August,” says the survey.

Not surprisingly, the survey found that home purchase closings were most often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings compared to 21 percent of homebuyers seeking prime conforming mortgages who had canceled closings, a startling high number. In 2004, in another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4 percent of home purchase closings failed to close for mortgage-related reasons.

What a difference interest rates and investors’ appetite for risk can make.

Thomas Popik, a designer of the survey, noted that the reasons for canceled closings were different depending on credit class and product category. Prime conforming homebuyers were more likely to withdraw from the transaction while subprime homebuyers were more likely to have problems getting mortgage approval, he said.

“The survey found that both prime and subprime homeowners are having trouble refinancing adjustable rate mortgages,” Popik said. “Sixty-four percent of subprime homeowners could not refinance while 50 percent of homeowners seeking prime conforming mortgages could not refinance. Subprime homeowners most commonly had issues with subprime loan programs no longer being offered and FICO scores. Those seeking prime conforming mortgages most commonly found appraised property values and loan-to-value (LTV) ratios as impediments.”

Other product categories covered in the survey were Alt A loans and prime jumbo loans. Alt A loans have lower documentation requirements for borrowers’ income and assets.

Jumbo loans have a loan amount greater than the Fannie Mae and Freddie Mac conforming limit of $417,000.

The bottom line is that loan-to-value ratios have returned to more traditional limits. For prime jumbo loans, the maximum acceptable LTV has tightened to 90 percent, the lowest of any of the four product categories surveyed. For prime jumbo loans, the minimum acceptable FICO score now averages 679, the highest of the four product categories surveyed.

Subsequently, the survey found substantially reduced mortgage broker production in the month of August 2007 as compared to August 2006. Production of prime conforming loans was down approximately 20 percent while production of Alt A loans was down nearly 50 percent.

One of the major reasons is that lenders are failing to meet their commitments to fund loans that they had previously fully approved. Twenty percent of commitments to fund subprime loans through mortgage brokers were not met during the month of August. Survey respondents indicated that one-third of their most frequently used subprime lenders in August are no longer accepting applications or funding loans. For prime jumbo lenders, approximately 15 percent are no longer accepting applications or funding loans.

The subprime problem has changed the way mortgage brokers operate. They typically submit identical applications for the same borrower to multiple lenders for the following reasons: rate shopping, uncertainty regarding mortgage approval, uncertainty regarding prevailing underwriting guidelines, and concern that lenders will not honor funding commitments. While mortgage brokers more often submit multiple applications for subprime and Alt A borrowers, this practice has become more prevalent for prime credit applicants as well. On average, mortgage brokers are currently submitting 1.7 applications for prime conforming loans; another Campbell Communications survey of mortgage brokers in 2006 found only 1.2 applications submitted on average for prime conforming loans.

“There is very little hard data available about what is currently going on in the mortgage originations and home sales markets,” Popik noted. “The Mortgage Bankers Association weekly application index is likely being skewed by mortgage brokers submitting multiple applications. The National Association of Realtors Pending Home Sales Index does not account for sales that will fall through because of mortgage issues. Our survey shows that the number of home purchase transactions falling through due to the mortgage market disruption was substantial for the month of August. Mortgage originations statistics for the month of August from government registries of deed and industry surveys will not become available for another 60-90 days. To the best of my knowledge, we have the most current and actionable data available on the wholesale mortgage market and on homebuyers served by mortgage brokers.”

Editor’s note: For information about obtaining the new survey report, contact John Campbell at (202) 363-2069, email john@campbellsurveys.com. The full survey instrument is available for viewing online at www.campbellsurveys.com/chgmkt07.

Prepared at the Federal Reserve Bank of Chicago and based on information collected before July 16, 2007. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
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Reports from the twelve Federal Reserve Banks indicated that economic activity continued to expand in June and early July. New York, Richmond, St. Louis, Minneapolis, and San Francisco described the pace of growth as “moderate” while Cleveland and Chicago saw it as “modest.” Philadelphia noted that economic conditions improved. Kansas City said the regional economy continued to grow but at a moderating pace, and Dallas characterized its economy as strong but said it decelerated. Boston and Atlanta described business contacts’ reports as “varied” or “mixed.”

On balance, consumer spending rose at a modest pace, although a number of Districts indicated that sales were mixed or below expectations. Several reports indicated that capital spending increased, and expenditures for most business services continued to rise. Employment increased further in most regions and in many sectors of the economy. Most Districts said that residential construction and real estate activity continued to decline. Commercial construction and real estate markets were generally more active than during the previous reporting period. District reports indicated that manufacturing activity continued to expand during June and early July. Household lending declined in most regions, while commercial and industrial lending expanded at a modest pace. Contacts generally reported ongoing input cost pressures, particularly for petroleum-related inputs, while prices at the retail level continued to increase at a moderate rate. Energy and natural resource activity remained at high levels, or in some instances, rose further. Many Districts described overall wage gains as moderate and/or similar to the previous reporting period. Agricultural conditions varied widely, as the impacts of drought were felt east of the Mississippi River and heavy rains affected the Dallas and Kansas City Districts.
Construction and Real Estate
Most Districts said that residential construction and real estate activity continued to decline on balance. Many Districts, however, noted increased activity in some individual market locales or segments. Atlanta, Chicago, St. Louis, and Minneapolis said construction decreased. Boston and Kansas City said housing markets remained “soft” and “weak,” respectively, while San Francisco indicated that residential markets were weak and had slowed further in some areas. New York said markets were mixed but stable. Two notable exceptions were the Cleveland and Richmond regions, which experienced slight increases in sales. Atlanta said home inventories remained high, as did Dallas (even after a slight decline in the recent period). Inventories increased in Kansas City, but they declined in New York, and contacts in Boston and Cleveland described the number of homes for sale as “normal” and “acceptable,” respectively. District reports on home price appreciation were mixed: Boston noted a return to price appreciation and Kansas City indicated slower rates of decline. But Richmond and Chicago reported slower rates of increase or the beginning of declines, and in the Dallas District, some contacts projected a correction in entry-level home prices. Looking ahead, contacts in the Cleveland District were uncertain about how long it would be until the market turned, and analysts in Dallas had revised their housing outlook down. Contacts in Atlanta expected further declines overall, though they anticipated the market in Florida would be flat.

Commercial construction and real estate markets were generally more active than during the previous reporting period. New York said markets strengthened and San Francisco reported continued firming. Cleveland, Atlanta, Minneapolis, and Kansas City indicated small gains in development. Richmond and Dallas described local markets as still “solid” and “robust,” respectively. Chicago said the pace of development was steady, and St. Louis said markets were mixed. Richmond and Chicago observed that overall commercial vacancy rates were stable. Office vacancy rates fell in four regions. Demand for industrial space increased in four Districts, while net absorption in the Minneapolis District was negative. Richmond, Kansas City, and San Francisco reported increases in rental rates for commercial space, and New York said that the asking rents for space “continued to soar.”

NEW YORK (Reuters) - Countrywide Financial Corp. (CFC.N) shares sank 13 percent, their biggest one-day decline since the 1987 stock market crash, on fears the largest

U.S. mortgage lender could face bankruptcy as liquidity worsens.

“If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,” Merrill Lynch & Co. analyst Kenneth Bruce wrote. “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”Countrywide debt prices fell and the perceived risk of owning its bonds rose, suggesting less confidence that the Calabasas, California-based company can pay its bills and fund operations.This helped drag down U.S. stocks, as investors bought safe U.S. government debt to escape clouds enveloping the

U.S. mortgage industry.Bruce downgraded Countrywide to “sell” from “buy” on Wednesday. “The company can survive a period of secondary market instability; however, the steps that it would take to preserve shareholder value would be expensive, likely leading to further share price declines,” he said.Shares of Countrywide closed down $3.17 at $21.29 on the New York Stock Exchange. They have fallen 50 percent this year, and the company’s market capitalization has dropped to about $12.3 billion. Countrywide did not immediately return requests for comment on Wednesday’s share price decline.Bruce’s downgrade suggests deepening problems at Countrywide, which has in the last month tried to assure investors it would thrive once the credit crunch afflicting

U.S. mortgage lenders passed.The downgrade came a day after Countrywide said foreclosures and mortgage delinquencies rose in July to their highest levels since at least early 2002. DEBT YIELDS RISEShares of several other companies exposed to mortgages also suffered double-digit percentage declines on Wednesday, including Deerfield Triarc Capital Corp (DFR.N), KKR Financial Holdings LLC (KFN.N) and Scottish Re Group Ltd (SCT.N). The KBW Mortgage Finance Index (.MFX) fell 2.7 percent.The mortgage industry is struggling as defaults rise, investors refuse to buy many home loans, and bankers curtail lending to mortgage providers. Dozens of lenders have quit the industry this year, and several have gone bankrupt.Countrywide spokesman Rick Simon declined to discuss Bruce’s report, but said: “Management is completely focused on running the business in a changing environment.”Reuters obtained a copy of Bruce’s report.Countrywide’s 5.8 percent notes maturing in 2012 fell 1.9 cents on the dollar to 90 cents, yielding 8.37 percent, according to Trace, the Financial Industry Regulatory Authority’s bond pricing service.The perceived risk of owning Countrywide bonds rose. Credit default swaps rose about 100 basis points (1 percentage point) to 500 basis points, or $500,000 per year for five years to insure $10 million of debt, traders said.Countrywide’s unsecured 30-day commercial paper yielded 6 percent to 6.25 percent, according to Deborah Cunningham, chief investment officer for money markets at Federated Investors. DISRUPTIONSBruce said market disruptions have made it difficult for many companies to obtain even short-term financing. He pointed to

Canada’s Coventree Inc. a structured finance firm that on Monday found itself unable to sell its own short-term debt. It said it later found buyers for C$600 million (US$556 million) of the debt. The Countrywide downgrade is “a big deal,” said Blake Howells, director of research at Becker Capital Management in

Portland, Oregon. The disruptions are “an issue for Countrywide and for anyone accessing pretty reliable short-term funding.” Earlier this month, Countrywide said it had access to $186.5 billion of cash as of June 30, including $46.2 billion of “highly reliable” short-term financing. Chief Executive Angelo Mozilo on July 24 said Countrywide expected to add market share, and eventually be among perhaps five lenders to dominate the mortgage market. Countrywide added nearly 7,000 jobs from January to July. Bruce said “we like” Countrywide’s franchise, but industrywide liquidity problems could erode its value.

By Jonathan Stempel  

(Additional reporting by Karen Brettell, Doris Frankel, Chris Sanders, Neil Shah and Dan Wilchins)

WASHINGTON - Sales of existing homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported Wednesday. The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years.However, Realtors officials said they saw some glimmers of hope in the data. They noted that existing home prices were up in 97 of the 149 metropolitan areas surveyed compared with the sales prices of a year ago.That represented price gains for 65 percent of the areas surveyed, an improvement from the first quarter of this year when only about 55 percent of the metropolitan areas reported price gains from the same period a year ago. In the fourth quarter of last year, less than half of the metropolitan areas reported price gains.“Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006,” said Lawrence Yun, senior economist for the Realtors.The states suffering the biggest drop in sales in the second quarter, compared to the same period a year ago, were Florida, down 41.3 percent, and

Nevada, down 37.5 percent. Other states with big declines were Arizona, down 23.4 percent; Tennessee, down 21.5 percent; Maryland, down 21.1 percent, and

California, down 19.8 percent.Bucking the downward trend, six states actually showed sales increases during the second quarter while one state had unchanged sales and there was incomplete data for two states, the Realtors reported.

Wyoming had the biggest sales increase, a rise of 10.8 percent in the second quarter of this year compared to the second quarter of 2006. Sales were up 4.1 percent in Iowa from a year ago while sales in

North Dakota rose by 2.9 percent, the third strongest gain.Nationwide, sales of existing homes totaled 5.91 million units at an annual rate in the second quarter, down 10.8 percent from the sales pace of the second quarter of 2006.The national median sales price in the second quarter was $223,800, down 1.5 percent from a median price in the spring of 2006.

“Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets,” Yun said.

By MARTIN CRUTSINGER, AP Economics Writer

PARIS (AFP) -

US home loan woes caused more turmoil on world markets Friday despite the tens of billions of dollars released by central banks to stop the problem turning into a global economic crisis. London’s FTSE stock market closed a whopping 3.71 percent lower and US, European and Asian shares slumped after losses tied to

US subprime mortgages — high-risk home loans to people with poor credit histories — spread. The growing crisis caused the price of oil to fall for the third straight day as speculators rushed to bank profits on concerns that subprime fears might weaken energy demand.Central banks across the world responded by pumping tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.“The European financial system is facing a serious but not ‘catastrophic’ crisis,” said an analyst at

US investment bank Morgan Stanley, adding that “it may take weeks before the true depth of the credit problem is revealed.”After years of booming house prices and cheap credit — interest rates have been historically low — the

US housing market is now in reverse with loans becoming more expensive and house prices falling.This has caused high numbers of mortgage defaults and repossessions as borrowers, particularly high-risk subprime borrowers, struggle to make their repayments.Dozens of

US mortgage lenders have been put out of business and major Wall Street banks such as Bear Stearns have taken a hit.After several weeks of turmoil on world stock markets due to the subprime crisis, fears appeared to recede earlier this week.But on Thursday French banking giant BNP Paribas spooked the market when it said it had suspended three investment funds exposed to the

US housing market because it was unable to value the assets.A short time later the European Central Bank pumped a record 94.8 billion euros into the money supply — far more than it injected in the aftermath of the September 11, 2001 attacks in the

United States — and followed up with another 61.05 billion euros on Friday.The Federal Reserve for its part has pumped 38 billion dollars into the

US banking system since Thursday, intervening three times on Friday to shore up the country’s financial system.Central banks in Australia, Canada and

Japan also injected liquidity into their markets.But stock markets continued to slump across the world, with volatile US markets opening lower before rebounding and then falling back again in afternoon trade.“It’s that unnerving effect of the unknown which is spooking investors at the moment,” said analyst Henk Potts of Barclays Stockbrokers in

London.Banking stocks were among the worst hit.“Investors don’t know which banks have got exposure (to the credit problems) and the extent to those potential losses,” said Potts.But he added: “We suspect that the underlying picture is more positive than the knee-jerk reactions that we have been seeing in terms of the (stocks) sell-off for the last couple of sessions.” The International Monetary Fund agreed. The multilateral lender said Friday that the global financial market turmoil sparked by the

US mortgage sector should be “manageable” and that global economic growth would likely not be derailed. The human face of the current financial crisis is likely to be a low-earning American, possibly someone who took on a mortgage they could ill-afford and whose mortgage broker did inadequate checks on their ability to repay. The link between these people and turmoil in financial markets involves much financial wizardry that enabled banks and funds all over the world to make investments that are essentially bets on borrowers repaying their mortgages. Banks are now setting aside cash as a precaution against further losses from their bad investments and have become far more cautious about lending. This is known as a “credit squeeze,” but the fear is that this could become a veritable “credit crunch” in which companies and consumers have inadequate access to loans. A shortage of liquidity would restrict the ability of companies, and eventually consumers, to borrow, potentially slowing economic growth worldwide.by Rory Mulholland

Sales of existing homes fell for the fourth straight month in June, but prices defied the gravitational pull not only in

California, but the nation. The National Association of Realtors reported that the sales of existing homes dropped 3.8 percent in June, the slowest pace in four and a half years. Down from an annual rate of 5.98 million units set in May 2007, the June rate pulled annually adjusted sales down to 5.75 million units.

 It sounds worse when you compare year-over-year. Sales dropped 11.4 percent in June from June 2006.

In California, where one in nine

U.S. residents lives, home sales decreased 24.7 percent in June compared with June 2006.

Yet, the median price of an existing home rose nationally by a meager 0.3 percent in June. Considering sales were slower in May, that’s a 3.3 percent jump in price in one month and the first upswing over same-month prices in a year. And in

California, the median price of an existing home rose 3.2 percent. That’s in a market with a supply of about 10 months of inventory on hand. Six months on hand is considered well balanced for buyers and sellers.

That’s why rising prices don’t make sense when sales are slowing and inventories are building. With more to choose from, buyers tend to negotiate harder.

Nationally, the supply of unsold homes on hand in June dropped 4.2 percent to an 8.8-month supply. That’s still high, but down from the 15-year high set In May.

Economists speculate that one reason that home prices haven’t come down is because market fundamentals such as growing job bases are supporting home prices and that some sellers have pulled their homes from the market to wait for better offers. Others, such as the NAR’s senior economist Lawrence Yun that “it appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer.”

This suggests a classic standoff, and which way it goes is anybody’s guess, but here’s what could happen.  

Both buyers and sellers may begin to look at opportunity costs as well as their actual costs:

· Money’s not going to get better. Currently, mortgage interest rates are lower than they were this time last year, but economists are bullish that rates will go up, due to higher competitive rates being offered by foreign banks such as China and

England. That means that American banks will have to compete to attract foreign investment. If lending rates go up, mortgage rates will too.

· Selection’s not going to get better. If that doesn’t move buyers along, another reason might — home sales are declining and anticipated to decline further, but sellers are proving to be both stubborn and resilient. Unless something induces a panic and more sellers pour into the market, absorption will pick up, inventories will come down, and buyers will find they are paying higher prices for inferior properties.

· Advantage isn’t going to get better. Now’s the time to trade up, while inventories are saturated. When absorption starts, the best properties are picked off first. Buyer competition’s not going to get better. Now is the best opportunity for buyers to find and negotiate for a home while other buyers are still wondering what to do. When they decide to jump in and buy, the competition for homes will get worse. Even so, the NAR forecasts that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.

But only if buyers win the standoff.

 

Realty Times

This week the minimum wage increased for the first time in over 10 years, but there are some good reasons why having more money won’t make much difference to homebuyers. The Fair Minimum Wage Act of 2007 raises the minimum wage to $5.85 an hour from $5.15 an hour. Congress plans to phase in more increases every summer until the minimum wage reaches $7.25 an hour in the next two years. According to estimates, about 1.7 million workers earned $5.15 an hour or less in 2006, so by the time wage increases are completed, about 13 million workers will be favorably impacted. Some economists predict that employers will respond by trying to cut personnel, but others say that the minimum wage increase is long overdue. One estimate noted that the minimum wage was at a 52-year low when adjusted for inflation. That’s a lot of time and money to make up, and the new federal wage guidelines do neither. If you are a minimum wage earner and want to buy your first home, you could be looking at paying about $180,500, the median priced home for first-time homebuyers. With a 10 percent downpayment and a fixed-rate loan of 6.67 percent counting private mortgage insurance, your monthly payment would be about $1,045. To qualify for a home in that price range, you’d have to be making an annual income of $50,160. As a minimum wage earner today, you’ll bring home about $12,168. By summer 2009, you’ll earn $15,080. You’ll still need another income or a co-signer, or you’ll need to buy a far less expensive home than the first-time buyer is able to. Other reasons why the wage increase won’t impact housing is that some states have already raised their minimum wage much higher than federal standards. In

Washington, the lowest wage is $7.93. In California, it’s $7.50, and in

Vermont, it’s $7.53.

So, the workers most impacted will be those who live in states that follow the federal wage guidelines. That means housing affordability is still going to be a problem for many low-wage earners, and that keeps the pressure on first-time homebuyers and move-up homebuyers. 

Realty Times July 25th, 2007

A new report projects home-price declines for the next two years. The riskiest markets are in Florida, California, Nevada and

Arizona. Here’s how to ride out the hard times.  

As if the housing market isn’t bleak enough. The Standard & Poors’ Case-Shiller Home Price Index reported in late June that home prices dropped more in the first quarter of this year than at any other quarter in the last 17 years. Now, a report from PMI Mortgage Insurance says home values could decline across much of the country for at least two more years. There’s a 34.6% chance on average that home prices will drop in the nation’s top 50 markets in the next couple of years, according to PMI Mortgage Insurance’s new U.S. Market Risk Index, which heavily factors in recent price volatility.How far and how fast prices actually fall remains to be seen. But the report underscores the fact that today’s market is decidedly different from that of recent years, when homeowners could bank on rapid home-value appreciation.  Headed for decline Not surprisingly, the riskiest markets identified by the index are located in areas that saw rapid price appreciation, a reduction in affordability followed by a rapid decrease in the rate of price appreciation. Of the 15 biggest cities with the greatest risk for price decline — with more than a 50% chance of lower home values by mid-2009 — five were in California and four were in

Florida.

At the highest end of the spectrum, the following major markets all have a greater than 60% chance of declines, according to PMI:

• Riverside-San Bernardino-Ontario, Calif. (65.2%);

• Phoenix-Mesa-Scottsdale, Ariz. (64.6%);

• Las Vegas-Paradise, Nev. (61.4%);

• West Palm Beach-Boca Raton-Boynton Beach, Fla. (60.7%).

 “There’s no question that our housing prices are declining here,” says Jay Thompson, an agent with Century 21 Aware near

Phoenix. “Our appreciation rate was 54% average at one point in mid-2005-2006, so it is no surprise to anybody here … that prices were going to go down.”

The inventory numbers tell the story: In January 2005, Thompson’s multiple listing service showed 3,500 homes for sale. Today: about 54,000.Also at risk for dropping valuesThe next-riskiest top 50 metro areas on the PMI index, with a 50% or greater chance of dropping values in two years, are:

• Los Angeles-Long Beach- Glendale, Calif. (58.6%);

• Santa Ana-Anaheim-Irvine, Calif. (57.7%);

• Oakland-Fremont-Hayward, Calif. (57.2%);

• Orlando-Kissimmee, Fla. (56.3%);

• Sacramento-Arden-Arcade-Roseville, Calif. (56.0%);

• San Diego-Carlsbad-San Marcos, Calif. (55.5%);

• Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (54.2%);

• Miami-Miami Beach-Kendall, Fla. (52.4%);

• Tampa-St. Petersburg-Clearwater, Fla. (50.6%);

• Boston-Quincy, Mass. (50.1%);\

• Washington, D.C.-Arlington-Alexandria, Va.-W.Va. (50%).

 Even where PMI found relatively low risk for dropping prices, sales have slowed way down. In

Everett, Wash., in the Seattle-Bellevue-Everett region with a 34.3% risk of lower prices in two years, homes are sitting on the market an average of 59 days before selling, says Susan Funk, agent with Keller Williams Realty. “Last year, you knew you were overpriced if you did not have offers within the first 10 to 14 days,” Funk says.

Rust belt less riskyYou might expect the list of high-risk regions to include Midwestern industrial cities like

Detroit, where prices fell 9.3% in the last year and foreclosures rose 140% between May 2006 and May 2007, according to RealtyTrac. But

Detroit hasn’t had much volatility, just steadily falling prices and a huge backlog of properties for sale. There’s less risk there because prices already have fallen a good deal, says Mark Milner, chief risk officer at PMI Mortgage Insurance. “Simply put, prices can’t fall forever,” PMI’s report says. “The more volatile it is, the more likely it will be volatile in the future,” says Milner, explaining how risk is calculated.

Phoenix, the second-riskiest city, saw a precipitous drop in the rate of home appreciation — from 37.3% in the first quarter of 2006 to 4.52% in the first quarter of 2007. Affordability — how much of your income is eaten up by housing — is another component of the risk scores. To arrive at risk scores, the PMI economists use a formula that includes data on house sales (including prices, volatility, acceleration and deceleration), affordability (including per-capita income, appreciation and mortgage rates) and employment.One encouraging note: In most markets where price reductions are predicted there are strong local economies and low unemployment. Nationally, “on average, employment is very strong,” says LaVaughn Henry, PMI’s director of economic analysis.The least-risky areasThe major metros with the least risk of price decline by 2009 were in Texas and the

Midwest, stable markets largely untouched by the real estate boom:

• Cincinnati-Middletown, Ohio- Ky. (9.7%);

• Columbus, Ohio (9.3%);

• Indianapolis-Carmel, Ind. (8.4%);

• Houston-Sugar Land-Baytown, Texas (7.9%);

• Dallas-Plano-Irvington, Texas (7.5%);

• Fort Worth-Arlington, Texas (7.4%);

• Pittsburgh (6.4%).

Lessons from a changed marketWhat does all this mean to buyers and sellers? In short, says one agent, forget what you thought you knew about real estate.For buyers

• Consider whether and where to leap. For buyers, the changing market may mean it’s time to think about buying if homeownership previously was too costly. “Yes, there are affordability problems in California, the Southwest and Florida,” says PMI’s Milner. “But there are also huge swaths of the country where housing is still very affordable, and in some cases more affordable (in percentage of income spent on housing) than it was 10 years ago.” The most affordable regions are the South and
  Midwest. Just be certain you can weather the storm if home values drop after you buy.

• Realize it’s a home, not a cash machine. Think of your home as a place to live, not as a way to make quick money. “Instead of a stock, which is just a piece of paper, you get to consume shelter,” says Milner. Your home probably will appreciate, but slowly. Historically, homes appreciate at a rate of about 4% to 6% a year, on average, over any given 10-year period, he says.

• Choose a mortgage by interest rate, not payment amount. Proceed cautiously when shopping for a mortgage. Consider a traditional fixed-rate loan so you’ll know exactly what your payment will be for the entire life of the loan. You may find adjustable-rate mortgages (ARM) with lower payments that later adjust up, but don’t gamble that you can make a higher payment when the introductory period is over or when interest rates rise, as they are likely to do.

• Don’t bet on house appreciation. Don’t make financial plans or take on debts that bank on the near-term rising value of real estate. In the post-bubble world, the risk to your financial stability is just too great. A number of the 176,137 foreclosures filed in May — a 90% increase from last year at this time, according to RealtyTrac — were by borrowers who’d gambled they could refinance a risky mortgage once their home had appreciated. Buyers “are going to need to be very prudent because they are not going to be bailed out by an appreciating home,” says Milner.

 For sellers

• Sweeten a sale by helping a buyer with closing costs. Potential buyers may be sitting on the sidelines because, although they can make monthly payments, they haven’t got a down payment saved up, says Steven Schafer, an agent with Boca Executive Realty in Boca Raton, Fla., one of the riskiest markets identified by the PMI study. Consider contributing up to 3% of closing costs. (Just be aware that states and lenders often limit seller contributions.)

• Exploit the Internet. Open houses, while still an important sales tool, are being eclipsed by the Internet. Buyers now use Web research to learn what’s for sale locally before stepping a foot out of their homes. With scads of homes on the market, you must figure out how to distinguish your home from others like it on the Internet. Schafer and Thompson, the Phoenix-area agents, create a Web site for each house they represent, usually using the home’s address as the site address. If your agent can’t register the link for you, do it yourself. You can also set up a Web page yourself with a modicum of computer skills or pay a Web site creation company to do it for around $30, says Schafer.

• Load your listing with pictures. Schafer advises “visually communicating” with buyers by choosing an agent with an outstanding Web site and contributing plenty of great photos of the house.

• Use a “virtual” tour. Sophisticated real-estate sites use panoramic photo features or streaming video so buyers can get a 360-degree view of the property from a single vantage. With virtual tours, buyers in other states and other countries can get a good feel for your home without actually stepping foot inside.

By Marilyn Lewis

It’s not just the cost, it’s the upkeep. That old saw holds true in homebuying and maintenance. Repair and replacement costs mount each decade of a home’s life, and each generation of homes has its own frailties. Understanding home life cycles is key to making informed buying and remodeling decisions. Census data put the median age of

U.S. homes at 32 years. Wood decks, garage doors, faucets and some appliances start showing their age at 10 to 15 years or even earlier. Other parts of a home — such as wood floors, some kinds of doors, insulation, fiberglass and toilets — can last more than 35 years or the life of a house, according to a National Association of Home Builders study. These are only averages, however. To find out how a particular home is aging, and whether its diet and exercise regimen (repair and maintenance plan) is working, homebuyers can turn to experts. An experienced home inspector can alert them to looming repair needs and a timeline for ongoing maintenance. Learn What You Have A general inspection of the entire home should be the first order of business for buyers, says Max Curtis, a home inspector working in the

East San Francisco Bay area. “We’re kind of the general practitioner,” he said. “If we see problems, we may send them to a specialist.” Waterworks woes might warrant calling in a plumbing inspector, for example. Costs for comprehensive inspections vary around the country. Curtis says he charges $200 to $250 for what’s typically a three- or four-hour visit. He advises buyers to get an inspection even if the house is new or almost new. It’s important because shoddy construction or installation issues can cause unexpected problems down the road. The expected issues are enough to cope with. Here’s a rundown on how long home components last: Eight to 10 years: Some appliances age rapidly, the NAHB study found. Trash compactors have the shortest average life span at just six years. Small refrigerators and humidifiers also have a relatively short life span at eight years on average, followed by dishwashers and microwave ovens at nine years. Out in the real world, remodeling contractors and inspectors say they see problems with thermal pane windows, sometimes in a home’s first decade. Fogging between the panes is the most common issue, Curtis says. “It’s almost routine,” he said, and “hard to pick up because they change hourly.” Eleven to 20 years: In this age group, homeowners can expect to replace some appliances and they’ll want to look closely at the roof and any wood decks or balconies, paint and siding. Also, lighting and electrical panels should be evaluated. Even buyers of younger homes are adding home theaters, spa tubs and smart-home features (lighting, heat and other controls), and these usually require updating the electrical system, says Greg Johnson, co-owner of remodeling firm Lee Kimball in

Winchester, Mass. Twenty to 35 years-plus: At 20 years and older, the roof needs a thorough inspection and probably some work, if not replacement. Whole house systems — plumbing (including faucets), electrical, heating and venting — need to be inspected and maybe updated. The furnace could need replacement, and some flooring (carpets, vinyl, wood floors) likewise. Homes built in the 1950s usually need wiring and plumbing updates, says Scott Gregor, president of Master Plan Remodeling in

Portland, Ore. One electrical panel used in the 1950s and ’60s, Federal Pacific Brand, was faulty; John Fryer, a home inspector in

Berkeley, Calif., says to replace it when found in a home. Exterior Insulation Finish Systems’ (EIFS) stucco is a synthetic stucco that leaks if not properly sealed and installed, says Fryer. Curtis says synthetic shake roofs need to be looked at closely — failures of these roofs have led to many lawsuits. Also, in the mid-1980s some plumbers used defective ABS pipe, Curtis says. Root Of Big Problems One very costly issue with homes 15 years and older is trouble with sewer lateral lines, which connect homes to the public sewer system. In Northern California, problems have been so prevalent that nine cities now require a sewer pipe certification when homes 15 to 25 years and older are sold, says Pamela Vivion-Brooks, co-owner of Pipe Cams in

Livermore, Calif. She says even newer sewer lines in areas with many trees should get inspections. In Arizona, older homes have cast-iron sewer lines now needing replacement, says Rocky Dunn, owner of Greenwood Contracting in

Phoenix.

Some problems are due to pipe degradation. In

California, older pipes of clay and Orangeburg (wood fiber with pitch) are the troublemakers. But overall, 59% of problems are tree-root related, says Vivion-Brooks. Trees can start messing with pipes after just a few years, especially with newer ABS pipe that hasn’t been properly glued.

Kathleen Doler

This morning the U.S. Census Bureau and the Department of Housing and Urban Development announced that for the month of June, privately owned housing starts increased 2.3 percent from May’s levels, to a seasonally adjusted annual rate of 1.467 million.

Quicken Loans Chief Economist, Bob Walters, says that while builders may be starting to bet on the housing sector, it is far too early to call it a comeback.

“With long-term interest rates remaining at favorable levels, today’s report shows that builders are again starting to put their faith in the housing market,” said Walters. “However, it is important to keep in mind that the summer months are historically a strong period for housing starts, so it would be unwise to read too much into this report. I would wait for a long run of positive news before deeming this a comeback.”

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