Home Prices in 20 U.S. Cities Decline More Than Forecast

Residential real estate prices dropped more than forecast in the year ended September, showing the industry at the center of the 2008 financial crisis continues to struggle.
The S&P/Case-Shiller index of property values in 20 cities dropped 3.6 percent from September from the same month in 2010 after decreasing 3.8 percent in the year ended August, the group said today in New York. The median forecast of 32 economists in a Bloomberg News survey projected a 3 percent decrease.

Unemployment at 9 percent, tight lending standards and a looming supply of distressed properties that may drag down home values further will probably keep hurting housing demand into next year. Sliding prices have left some people with loans that exceed the value of their properties, preventing them from boosting spending on other goods and services.
“Housing probably won’t go anywhere for the next couple of years,” Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said before the report. “We’re just mired in this swamp with a huge overhang of distressed properties that prevents the market from gaining any traction.”
Estimates in the Bloomberg survey for the price change ranged from declines of 2.7 percent to 3.9 percent. The Case- Shiller index is based on a three-month average, which means the September data were influenced by transactions in July and August.
The year-over-year decline in September was the smallest in seven months.

September Decrease

Home prices adjusted for seasonal variations fell 0.6 percent in September from the prior month after falling 0.3 percent in August. Unadjusted prices also decreased 0.6 percent from August as 17 of 20 cities showed declines. Only Washington, New York and Portland, Oregon, showed gains.
Atlanta, Las Vegas and Phoenix posted new post peak lows in September, the report showed.
The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Eighteen of the 20 cities in the index showed a year-over- year decline, led by a 9.8 percent drop in Atlanta.
Detroit showed the biggest year-over-year increase, with prices rising 3.7 percent in the 12 months to September. Property values in Washington were up 1 percent.

Prices Nationally

Nationally, prices decreased 3.9 percent in the third quarter from the same time in 2010. They increased 0.1 percent from the previous three months before seasonal adjustment and dropped 1.2 percent after taking those changes into account.
A pipeline of seized properties threatens to weigh on prices even more as a temporary halt on foreclosures stemming from faulty seizures comes to an end. In the third quarter, U.S. lenders started foreclosures on more homes, the first increase in a year, as bank moratoriums that clogged the pipeline abated.
“Housing market activity remained very weak,” minutes from the Federal Open Market Committee’s Nov. 1-2 meeting showed last week. “The large overhang of foreclosed and distressed properties along with limited demand in an environment of uncertainty about future home prices and tight underwriting standards for mortgage loans” weighed on the market, it said.
Builders, which are competing with the 3.33 million unit glut of previously owned homes, sold fewer new houses in the U.S. than forecast in October, Commerce Department data showed yesterday. Demand is on pace to reach 301,000 this year, less than the 323,000 homes sold in 2010, which marked the fewest sales since data-keeping began in 1963.
“We’re in a market that’s quite fragile,” Ara Hovnanian, chairman and chief executive officer of Hovnanian Enterprises Inc. (HOV), said during a Nov. 9 investor conference. “While delinquency rates have taken a little dip, on the whole, there is nothing that says that foreclosures are going to change dramatically over the near term, however you define that.”

By Alex Kowalski - Nov 29, 2011 9:00 AM ET  
Bloomberg.com

 Mortgages

Knowing When to Refinance

 

REFINANCINGS made up 79 percent of all 2011 mortgage applications as of early October, according to the Mortgage Bankers Association, about the same level as last year but well above the 54 percent average of the last decade. Many of these applications have come from so-called serial refinancers in a constant search for the lowest possible interest rate.

Industry experts warn against rushing into a refinancing, especially if you’re a first-timer.
“The first question I ask people is, ‘What are your long-term plans — what are your plans for this house?’ ” said David Boone, a first vice president for residential lending at Provident Bank in Jersey City.
If you don’t plan on staying in your home long enough to recoup the closing costs of a refinancing, it may not be worth the effort, he said, adding that it takes about a year, on average, for that to happen these days. (A homeowner can expect to pay an average of 3 to 6 percent of the outstanding principal in refinancing costs, according to LendingTree.com.)
“You have to do the math,” Mr. Boone said. If, for example, closing costs are $2,000 but your monthly savings will be $200, you will break even in 10 months.
Homeowners may also want to forego a refinancing if the difference between their current mortgage rate and new loan rate is a quarter of percentage point or less, he said — although other mortgage experts say the gap should be closer to a percentage point.
Borrowers will need to consider other financial goals, like saving for college or retirement. “Think about it in a big-picture kind of way,” said Betsy Billard, an adviser at Ameriprise Financial in Manhattan. “Make sure it makes sense all around.” Can the monthly savings from the refinancing be invested and used toward these goals? How will the refinancing affect your tax bill?
After these issues have been discussed, don’t jump at the first advertised low rate dangled in front of you, Ms. Billard said, advising borrowers to shop around for a broker who can offer a variety of loan choices.
Phillip Loria, the president of Amerimutual Mortgage, a broker in Astoria, Queens, says borrowers should also resist becoming fixated on obtaining the lowest possible rate. “Sometimes people get caught up in that eighth of a percent,” he said, mentioning one recent client who calculated savings of $90,000 over the life of his refinanced loan. When rates ticked up an eighth of a point, the client held off — even though he still would have saved some $88,000 over all. “They try to time the market so perfectly that they end up doing nothing,” Mr. Loria said.
Here are four questions that borrowers should consider carefully before proceeding with a refinancing, according to experts.
HOW SECURE IS YOUR JOB? If you feel you could be out of work in six months or a year, then don’t use up savings to cover fees or increase the down payment. “You don’t want to rob yourself of liquidity because you’re throwing it all in your house,” Ms. Billard said. A follow-up question could be: “If you think you could potentially be out of a job in six months, how will the refi work for you?”
WHAT ARE THE SAVINGS? Get a good-faith estimate from your lender and make sure it includes all the costs involved. Then compare these numbers with the amount you would save in the first year of the new mortgage. (Look at the difference between your old monthly payment and your expected new one and multiply by 12.)
WHAT ABOUT THE RATE? Are you getting it locked in — and for how long? How many points are you paying to get a lower rate? Ask to see a rate sheet, Mr. Loria said.
WHAT’S THE RIGHT TIME FRAME? If your children are heading for college in nine years or your retirement is likely in 15, your mortgage term should match up. Most mortgages are made in five-year increments, but some lenders will offer more variety. “You actually can get a 23-year loan,” Mr. Boone said. “You just have to ask.”

A version of this article appeared in print on October 23, 2011, on page RE6 of the New York edition with the headline: Knowing When to Refinance.