Homebuilder reports greater loss than analysts expected, but not as steep as this time last year.
Last Updated: September 23, 2008: 9:37 AM EDT
MIAMI (AP) -- Lennar Corp., one of the nation's largest homebuilders, said Tuesday its third-quarter loss narrowed as it cut costs, but revenue fell by more than half amid a prolonged housing slump.
The Miami-based company's loss for the quarter ended Aug. 31 was $89 million, or 56 cents per share, compared with a loss of $513.9 million, or $3.25 per share, a year ago.
Revenue fell 53% to $1.11 billion from $2.34 billion.
Analysts surveyed by Thomson Reuters, on average, predicted a loss of 52 cents per share on revenue of $1.07 billion.
Deliveries of homes fell 49% in the quarter and the average sale price of homes fell 9%.
Lennar: More government help needed
"While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards," Chief Executive Stuart Miller said in a statement.
Miller said that the landmark housing stimulus bill enacted in July, which included a temporary, $7,500 tax credit for first-time homebuyers, has failed to stabilize the skid in U.S. home prices. He said more government intervention is needed.
Lennar (LEN, Fortune 500) has homebuilding operations in 14 states, including California and Florida, the hardest-hit housing markets in the nation.
Like other builders, the company's business has been hurting due to the combination of weakened demand for new homes, tightening mortgage lending standards and buyer uncertainty over how long home values will continue to drop. The business is also facing mounting competition from deeply discounted, foreclosed properties and other preowned homes on the market.
Builder cutting construction costs, jobs
To cope, Lennar has cut prices and is "aggressively" reducing construction costs, cutting jobs and consolidating divisions in an effort to improve results.
The builder ended the third quarter with $857 million in cash - an increasingly important indicator as the slide in home sales continues - and no outstanding borrowings under its credit facility.
During the quarter, Lennar delivered 3,791 homes, down from 7,636 in the same period last year. The sharpest drop occurred in Western markets.
The average sale price of homes delivered fell to $270,000 as the builder cut prices or offered incentives, such as discounts matching the $7,500 tax credit for first-time buyers.
In all, Lennar offered sales incentives amounting to $45,900 per home delivered during the quarter. That compares with incentives valued at $46,000 per home delivered in the same period last year.
New orders totaled 3,387 homes, down 42% from 5,804 last year.
Fewer buyers back out of home contracts
The cancellation rate from buyers backing out on home contracts was 27%, improving from 32% in the same quarter last year.
Lennar's backlog, or homes under contract yet to be delivered, fell during the quarter. As of Aug. 31, the figure stood at 3,554, compared with 6,367 units at the close of the same quarter last year.
The value of homes in backlog plunged by 53% from a year ago to about $1.05 billion.
Loss on land sales totaled $28.8 million in the third quarter, including $21.4 million of valuation adjustments and $10.9 million of write-offs of deposits and pre-acquisition costs related to about 900 home sites under option that Lennar does not intend to buy.
For the first nine months of Lennar's fiscal year, the company's net loss narrowed to $298.1 million, or $1.88 per share. That compares with a loss of $689.4 million, or $4.37 per share, in the same period last year.
Revenue fell to $3.3 billion, compared with $8.01 billion in the same period last year.
Sunday, September 28, 2008
4 Fannie Mae senior execs resign
The troubled mortgage finance giant announces restructuring of organization with more direct reports to CEO.
September 20, 2008: 7:39 AM EDT
WASHINGTON (AP) -- Mortgage finance giant Fannie Mae, taken over by the government earlier this month, announced Friday the resignations of four senior executives and said it was restructuring its organization.
The company, the biggest buyer and guarantor of home loans in the country, and its sibling Freddie Mac (FRE, Fortune 500) were taken over on Sept. 7 in a rescue plan that eventually could require the Treasury Department to put up as much as $100 billion for each of them over time if needed to keep them afloat as mortgage losses mount.
The executives and boards of both companies are being replaced. Herbert Allison, the former head of the TIAA-CREF retirement investment fund, was immediately selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp (USB, Fortune 500), was chosen to head Freddie Mac.
The Fannie Mae (FNM, Fortune 500) executives whose resignations were announced Friday are Chief Business Officer Peter Niculescu, Executive Vice President and General Counsel Beth Wilkinson, Executive Vice President and Chief Information Officer Rahul Merchant, and Senior Vice President for Government and Industry Relations Duane Duncan.
In addition, Fannie Mae said its three lines of business - single-family mortgage guaranty, capital markets, and housing and community development - and their top managers will report directly to Allison, who is president and CEO. The technology and operations division will report to Chief Operating Officer Michael Willliams, while the structure of the government and industry relations division is under review, the company said.
"Fannie Mae is building a new organizational structure as we take the company in a new direction to serve a dramatically changing market," Allison said in a statement.
September 20, 2008: 7:39 AM EDT
WASHINGTON (AP) -- Mortgage finance giant Fannie Mae, taken over by the government earlier this month, announced Friday the resignations of four senior executives and said it was restructuring its organization.
The company, the biggest buyer and guarantor of home loans in the country, and its sibling Freddie Mac (FRE, Fortune 500) were taken over on Sept. 7 in a rescue plan that eventually could require the Treasury Department to put up as much as $100 billion for each of them over time if needed to keep them afloat as mortgage losses mount.
The executives and boards of both companies are being replaced. Herbert Allison, the former head of the TIAA-CREF retirement investment fund, was immediately selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp (USB, Fortune 500), was chosen to head Freddie Mac.
The Fannie Mae (FNM, Fortune 500) executives whose resignations were announced Friday are Chief Business Officer Peter Niculescu, Executive Vice President and General Counsel Beth Wilkinson, Executive Vice President and Chief Information Officer Rahul Merchant, and Senior Vice President for Government and Industry Relations Duane Duncan.
In addition, Fannie Mae said its three lines of business - single-family mortgage guaranty, capital markets, and housing and community development - and their top managers will report directly to Allison, who is president and CEO. The technology and operations division will report to Chief Operating Officer Michael Willliams, while the structure of the government and industry relations division is under review, the company said.
"Fannie Mae is building a new organizational structure as we take the company in a new direction to serve a dramatically changing market," Allison said in a statement.
Applications to refinance mortgages surge
Refinance applications jump 88% from prior week as 30-year fixed-rate mortgage drops to 5.82%.
September 17, 2008: 2:47 PM EDT
WASHINGTON (AP) -- Homeowners rushed to take advantage of the drop in interest rates following the government's takeover of Fannie Mae and Freddie Mac, data released Wednesday showed.
Applications by homeowners looking to refinance their mortgages spiked 88% last week, according to the Mortgage Bankers Association. Refinances accounted for nearly 52% of all application activity, up from 36% the previous week, the trade group said.
The volume of purchase applications also edged up last week by 5%.
The average rate for traditional, 30-year fixed-rate mortgages dropped to 5.82% from 6.06% the prior week. The average rate for 15-year fixed-rate mortgages, often a popular option for refinancing a home, fell to 5.54% from 5.73%.
September 17, 2008: 2:47 PM EDT
WASHINGTON (AP) -- Homeowners rushed to take advantage of the drop in interest rates following the government's takeover of Fannie Mae and Freddie Mac, data released Wednesday showed.
Applications by homeowners looking to refinance their mortgages spiked 88% last week, according to the Mortgage Bankers Association. Refinances accounted for nearly 52% of all application activity, up from 36% the previous week, the trade group said.
The volume of purchase applications also edged up last week by 5%.
The average rate for traditional, 30-year fixed-rate mortgages dropped to 5.82% from 6.06% the prior week. The average rate for 15-year fixed-rate mortgages, often a popular option for refinancing a home, fell to 5.54% from 5.73%.
Analysts predict housing bottom
A handful of economists and analysts predict the slump will bottom out, and home prices will level off by next summer - advice worth listening to.
By Les Christie, CNNMoney.com staff writer
Last Updated: September 18, 2008: 3:34 PM EDT
NEW YORK (CNNMoney.com) -- Alan Greenspan famously declared the worst was over back in November of 2006. And the National Association of Realtors' erstwhile chief economist David Lereah called the bottom a few times, starting in May 2006.
Plenty of other economists and real estate analysts have attempted to do the same - and of course they've all been wrong.
But a consensus seemed to emerge among experts at a housing forum held by Standard & Poor's and the Chicago Mercantile Exchange on Wednesday in New York. Readers will be forgiven for taking this pronouncement with a large grain of salt.
Several panelists, including Economy.com's chief economist Mark Zandi, Goldman Sachs (GS, Fortune 500) economist Charlie Himmelberg, S&P managing director David Blitzer and S&P senior economist Beth Ann Bovino all agreed that home prices would stabilize sometime during the summer of 2009.
"The bottom of the housing market is coming into view," said Zandi, whose recent book "Financial Shock," examines how the subprime mortgage crisis occurred. "House prices, based on the S&P Case-Shiller index, are down 20% peak-to-trough and I expect them to fall another 5% to 10%."
"The key is housing affordability," Zandi said. "The [price] decline is beginning to restore affordability, which is now near its long-term average. In some places, Boston, Chicago, Denver, Orange County, affordability has been restored and those markets have stabilized."
More declines ahead
One piece of good news noted was home sales volume. The number of homes sold each month has already leveled off nationally, staying within a narrow range nearly every month this year at an annualized rate of about 5.5 million units a year.
Bovino said her forecast for home price decline is slightly more bearish than Zandi's, mostly based on S&P's belief that the country is now in a recession. With the economy struggling, job losses rising and a tough lending environment, she expects prices to fall another 10%.
"We think there will be an overshoot [with prices going beyond their logical bottom]," she said, in part because so many buyers are afraid to get into the market. "Nobody wants to catch a falling knife," she said.
And after prices do bottom out, Himmelberg expects them to remain fairly flat for a year or so.
Everyone on the panel agreed that the government takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) should help the housing market.
"We expect Fannie and Freddie to be more aggressive [in buying loans] over the next few months," said Zandi. "We are at a low point in credit availability right now."
The panelists were careful to couch their optimism with caveats. Zandi, for example, points out that there is a lot of uncertainty about the fate of Fannie and Freddie, in the wake of their government takeover.
There is some speculation that the companies will be downsized by a new administration after the presidential election in November.
"Neither candidate," said S&P managing director David Blitzer, "has decided what they want to say about that."
By Les Christie, CNNMoney.com staff writer
Last Updated: September 18, 2008: 3:34 PM EDT
NEW YORK (CNNMoney.com) -- Alan Greenspan famously declared the worst was over back in November of 2006. And the National Association of Realtors' erstwhile chief economist David Lereah called the bottom a few times, starting in May 2006.
Plenty of other economists and real estate analysts have attempted to do the same - and of course they've all been wrong.
But a consensus seemed to emerge among experts at a housing forum held by Standard & Poor's and the Chicago Mercantile Exchange on Wednesday in New York. Readers will be forgiven for taking this pronouncement with a large grain of salt.
Several panelists, including Economy.com's chief economist Mark Zandi, Goldman Sachs (GS, Fortune 500) economist Charlie Himmelberg, S&P managing director David Blitzer and S&P senior economist Beth Ann Bovino all agreed that home prices would stabilize sometime during the summer of 2009.
"The bottom of the housing market is coming into view," said Zandi, whose recent book "Financial Shock," examines how the subprime mortgage crisis occurred. "House prices, based on the S&P Case-Shiller index, are down 20% peak-to-trough and I expect them to fall another 5% to 10%."
"The key is housing affordability," Zandi said. "The [price] decline is beginning to restore affordability, which is now near its long-term average. In some places, Boston, Chicago, Denver, Orange County, affordability has been restored and those markets have stabilized."
More declines ahead
One piece of good news noted was home sales volume. The number of homes sold each month has already leveled off nationally, staying within a narrow range nearly every month this year at an annualized rate of about 5.5 million units a year.
Bovino said her forecast for home price decline is slightly more bearish than Zandi's, mostly based on S&P's belief that the country is now in a recession. With the economy struggling, job losses rising and a tough lending environment, she expects prices to fall another 10%.
"We think there will be an overshoot [with prices going beyond their logical bottom]," she said, in part because so many buyers are afraid to get into the market. "Nobody wants to catch a falling knife," she said.
And after prices do bottom out, Himmelberg expects them to remain fairly flat for a year or so.
Everyone on the panel agreed that the government takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) should help the housing market.
"We expect Fannie and Freddie to be more aggressive [in buying loans] over the next few months," said Zandi. "We are at a low point in credit availability right now."
The panelists were careful to couch their optimism with caveats. Zandi, for example, points out that there is a lot of uncertainty about the fate of Fannie and Freddie, in the wake of their government takeover.
There is some speculation that the companies will be downsized by a new administration after the presidential election in November.
"Neither candidate," said S&P managing director David Blitzer, "has decided what they want to say about that."
Mortgage rates plummet, but borrowers beware
The takeover of Fannie and Freddie may make mortgage borrowing cheaper - but it won't make getting a loan any easier.
By Les Christie, CNNMoney.com staff writer
Last Updated: September 10, 2008: 1:45 PM EDT
NEW YORK (CNNMoney.com) -- Mortgage rates have plummeted, but that hasn't made getting a home loan any easier for most borrowers.
In the wake of the government's takeover of Fannie Mae and Freddie Mac last weekend, the 30-year fixed rate has dropped from 6.26% last Friday to 5.79%. But only buyers with a credit score of 740 of above - and a 20% down payment - can qualify for such a low rate. During the boom, borrowers only needed scores of 640 to land the lowest rates available. Even a 580 score would get them very close to the best rate.
During the credit crisis, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to lend is crucial to the housing market. To that end, the Treasury will buy mortgage-backed securities from the two firms, and lend them money if necessary, all in an effort to make credit more available to home buyers.
But that doesn't mean that lenders won't continue to subject borrowers to strict criteria, according to Keith Gumbinger of HSH Associates, a tracker of mortgage loan information. The aim is to make mortgages more available, but only to the most qualified borrowers.
"All the emphasis on credit scores is not going to go away," he said.
High score, low rate
As the housing market has imploded, lenders have battened down the hatches on mortgage underwriting, consistently raising the credit scores necessary to qualify for the most favorable terms, and adding to borrowing costs to compensate for any extra risk factors they find. That's not going to change.
"Credit score affects your rate more than they ever have before," said Steve Habetz, a mortgage broker with Threshold Mortgage in Connecticut who has more than 20 years experience in the business.
An individual's credit history is scored between 300 to 850, with 300 very low and 850 perfect. The median score, in which half of the borrowers have a lower score and half have a higher one, is about 720. Only those with very high credit scores are getting the best mortgage deals.
And Fannie and Freddie have raised fees for borrowers with lower credit scores as the housing crisis worsened - they've increased twice this year alone. The lower the score, the larger the fee.
For example, Fannie charges a 1% up-front fee (raised from 0.75% this summer) for borrowers with a credit scores of 680, even when they're paying 20% down on their homes.
Even people with the very favorable scores, between 720 and 740, pay a small fee equal to an up-front charge of a quarter point. That's a big change from the past. Habetz had a client recently with a 735 credit score putting down 20% -a very solid applicant -and the client still didn't qualify for the best rate.
"You tell people with 730 credit scores paying 20% down that you have to charge them a quarter point extra and they look at you like you're crazy," he said. That comes to an extra $30 a month on a $200,000 loan.
Borrowers with scores below 600 may have to pay a fee of a full percentage point or more, adding $120 to the monthly costs of the average loan.
Nervous investors
Investors in mortgage-based securities are simply demanding that they be compensated for any extra risk that a borrower represents, according to Jon Kaempfer, a loan officer with Vitek Mortgage Group in Sacramento, Calif.
Kaempfer had a client with a 635 credit score recently who wanted to do a cash-out refinancing, a deal in which an existing homeowner takes out a loan for more than the mortgage is worth. The homeowner gets a bundle of cash, which this client wanted to use to pay for some home improvements.
The lender wanted to charge 1.5% of the mortgage principal up front simply because it was a cash-out deal, plus 2.5% more because of the home owner's modest credit score. Those fees, folded back into the mortgage, added about a percentage point to the client's interest rate.
"You have to be golden, have at least a 680 score or a 720 if you're making a smaller down payment, to qualify for the best rates," said Kaempfer.
Gumbinger expects lending standards to remain tight for the foreseeable future, as long as home prices continue to fall. The risk of foreclosure is of course much higher in a falling market, and lenders need to shield themselves.
If and when prices do improve, says Gumbinger, borrowers with less than perfect credit scores may get some breathing room.
By Les Christie, CNNMoney.com staff writer
Last Updated: September 10, 2008: 1:45 PM EDT
NEW YORK (CNNMoney.com) -- Mortgage rates have plummeted, but that hasn't made getting a home loan any easier for most borrowers.
In the wake of the government's takeover of Fannie Mae and Freddie Mac last weekend, the 30-year fixed rate has dropped from 6.26% last Friday to 5.79%. But only buyers with a credit score of 740 of above - and a 20% down payment - can qualify for such a low rate. During the boom, borrowers only needed scores of 640 to land the lowest rates available. Even a 580 score would get them very close to the best rate.
During the credit crisis, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to lend is crucial to the housing market. To that end, the Treasury will buy mortgage-backed securities from the two firms, and lend them money if necessary, all in an effort to make credit more available to home buyers.
But that doesn't mean that lenders won't continue to subject borrowers to strict criteria, according to Keith Gumbinger of HSH Associates, a tracker of mortgage loan information. The aim is to make mortgages more available, but only to the most qualified borrowers.
"All the emphasis on credit scores is not going to go away," he said.
High score, low rate
As the housing market has imploded, lenders have battened down the hatches on mortgage underwriting, consistently raising the credit scores necessary to qualify for the most favorable terms, and adding to borrowing costs to compensate for any extra risk factors they find. That's not going to change.
"Credit score affects your rate more than they ever have before," said Steve Habetz, a mortgage broker with Threshold Mortgage in Connecticut who has more than 20 years experience in the business.
An individual's credit history is scored between 300 to 850, with 300 very low and 850 perfect. The median score, in which half of the borrowers have a lower score and half have a higher one, is about 720. Only those with very high credit scores are getting the best mortgage deals.
And Fannie and Freddie have raised fees for borrowers with lower credit scores as the housing crisis worsened - they've increased twice this year alone. The lower the score, the larger the fee.
For example, Fannie charges a 1% up-front fee (raised from 0.75% this summer) for borrowers with a credit scores of 680, even when they're paying 20% down on their homes.
Even people with the very favorable scores, between 720 and 740, pay a small fee equal to an up-front charge of a quarter point. That's a big change from the past. Habetz had a client recently with a 735 credit score putting down 20% -a very solid applicant -and the client still didn't qualify for the best rate.
"You tell people with 730 credit scores paying 20% down that you have to charge them a quarter point extra and they look at you like you're crazy," he said. That comes to an extra $30 a month on a $200,000 loan.
Borrowers with scores below 600 may have to pay a fee of a full percentage point or more, adding $120 to the monthly costs of the average loan.
Nervous investors
Investors in mortgage-based securities are simply demanding that they be compensated for any extra risk that a borrower represents, according to Jon Kaempfer, a loan officer with Vitek Mortgage Group in Sacramento, Calif.
Kaempfer had a client with a 635 credit score recently who wanted to do a cash-out refinancing, a deal in which an existing homeowner takes out a loan for more than the mortgage is worth. The homeowner gets a bundle of cash, which this client wanted to use to pay for some home improvements.
The lender wanted to charge 1.5% of the mortgage principal up front simply because it was a cash-out deal, plus 2.5% more because of the home owner's modest credit score. Those fees, folded back into the mortgage, added about a percentage point to the client's interest rate.
"You have to be golden, have at least a 680 score or a 720 if you're making a smaller down payment, to qualify for the best rates," said Kaempfer.
Gumbinger expects lending standards to remain tight for the foreseeable future, as long as home prices continue to fall. The risk of foreclosure is of course much higher in a falling market, and lenders need to shield themselves.
If and when prices do improve, says Gumbinger, borrowers with less than perfect credit scores may get some breathing room.
Pending home sales retreat
July decline of 3.2%, reversing prior month gain, shows housing market remains in 'malaise.'
By Les Christie, CNNMoney.com staff writer
Last Updated: September 9, 2008: 12:23 PM EDT
NEW YORK (Cinnamon) -- Pending home sales fell 3.2% in July after gaining in June, according to a real estate group's report released Tuesday, in the latest in a series of gloomy housing reports.
The Pending Home Sales Index fell to 86.5, after gaining 5.8% in June, according to the National Association of Realtors (NAR). It now stands 6.7% below July 2007's reading of 92.8.
The index is a forward-looking indicator of housing sales, based on contracts signed during the month.
"This is more evidence that the housing market is still in a malaise," said Michael Larson, a real estate analyst with Weiss Research.
Tighter lending standards have made it hard for buyers to get loans, which is hurting sales.
"Overly stringent lending criteria imposed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in the past month no doubt held back contract signings," said NAR chief economist Lawrence Yuan.
The Midwest was the best performing region in July, with sales contracts up 2.8%. The index fell in the Northeast by 7.5% and in the West by 10.6%, while the South region was unchanged.
The July result was disappointing, according to Richard DeKaser, chief economist for National City Corp. (NCC, Fortune 500), but not unexpected. The index has held in a range between 83 and 89.4 over the past few months, but saw a sharp jump in June to 89.4.
The good news, according to DeKaser, is that the index has plateaued, indicating that a bottom in existing home sales may have been reached. And that bottom may mean that prices could stabilize in some areas, although at lower levels than they once were.
Bargains in areas of the country hard hit by the bust are drawing house hunters back into a few local markets, said Larson.
"We have seen sales pick up in some areas where homes are being basically liquidated for just about any price the sellers can get," he said.
That could provide a boost to sales volume in the coming months.
Sales have been flat despite the fact that home prices are way down. The most recent S&P/Case-Shriller report found that home prices fell 15.4% nationally during the 12 months ended June 30.
"Pricing remains attractive, but the ability of home buyers to obtain financing has been made more difficult," said DeKaser. "Lending standards had gotten increasingly tight."
The weekend takeover of Fannie and Freddie, the two mortgage giants that were created to promote mortgage lending, should help. Funding costs for Fannie and Freddie will be significantly reduced, according to DeKaser, and those savings will be passed on to consumers.
Already interest rates have fallen to 5.88% from 6.26% a week earlier, according to Bankrate.com.
"We want to see if the mortgage rate decline stands," said Larson. "That would help to stabilize things."
By Les Christie, CNNMoney.com staff writer
Last Updated: September 9, 2008: 12:23 PM EDT
NEW YORK (Cinnamon) -- Pending home sales fell 3.2% in July after gaining in June, according to a real estate group's report released Tuesday, in the latest in a series of gloomy housing reports.
The Pending Home Sales Index fell to 86.5, after gaining 5.8% in June, according to the National Association of Realtors (NAR). It now stands 6.7% below July 2007's reading of 92.8.
The index is a forward-looking indicator of housing sales, based on contracts signed during the month.
"This is more evidence that the housing market is still in a malaise," said Michael Larson, a real estate analyst with Weiss Research.
Tighter lending standards have made it hard for buyers to get loans, which is hurting sales.
"Overly stringent lending criteria imposed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in the past month no doubt held back contract signings," said NAR chief economist Lawrence Yuan.
The Midwest was the best performing region in July, with sales contracts up 2.8%. The index fell in the Northeast by 7.5% and in the West by 10.6%, while the South region was unchanged.
The July result was disappointing, according to Richard DeKaser, chief economist for National City Corp. (NCC, Fortune 500), but not unexpected. The index has held in a range between 83 and 89.4 over the past few months, but saw a sharp jump in June to 89.4.
The good news, according to DeKaser, is that the index has plateaued, indicating that a bottom in existing home sales may have been reached. And that bottom may mean that prices could stabilize in some areas, although at lower levels than they once were.
Bargains in areas of the country hard hit by the bust are drawing house hunters back into a few local markets, said Larson.
"We have seen sales pick up in some areas where homes are being basically liquidated for just about any price the sellers can get," he said.
That could provide a boost to sales volume in the coming months.
Sales have been flat despite the fact that home prices are way down. The most recent S&P/Case-Shriller report found that home prices fell 15.4% nationally during the 12 months ended June 30.
"Pricing remains attractive, but the ability of home buyers to obtain financing has been made more difficult," said DeKaser. "Lending standards had gotten increasingly tight."
The weekend takeover of Fannie and Freddie, the two mortgage giants that were created to promote mortgage lending, should help. Funding costs for Fannie and Freddie will be significantly reduced, according to DeKaser, and those savings will be passed on to consumers.
Already interest rates have fallen to 5.88% from 6.26% a week earlier, according to Bankrate.com.
"We want to see if the mortgage rate decline stands," said Larson. "That would help to stabilize things."
Your home: When it's wise to downsize
Many empty-nesters assumed the grass will be greener in a smaller home. Not necessarily.
By Carla Fried, Money Magazine contributing writer
Last Updated: September 9, 2008: 9:35 AM EDT
(Money Magazine) -- Last year Rick and Suzanne Pepin moved from the four-bedroom 3,400-square-foot house in Minneapolis where they lived with their three (now grown) kids to a luxury condo that's a third smaller and offers only a Murphy bed for guests. Still, the couple couldn't be happier.
"The location of our old home dictated that we drive to the grocery store, pharmacy and cleaners," says Suzanne, 57, a retired lawyer. Their new digs are across the street from Whole Foods and within easy walking distance of other stores and restaurants. They love the low-maintenance life.
"We have no worries about upkeep. No worries about lawn care. No worries about snow removal," says Rick, 68, also an attorney.
Maybe you too have caught the bug. After decades of hankering after the most expensive and enormous house you could afford, owning a smaller place is starting to look appealing.
Imagine the possibilities! You could move into a posh new condo with everything from a fitness center to a concierge - or into an energy-efficient little cabin on a lake Your commute could be shorter, giving you time in the evening to do something more than watch TV like a zombie.
And, maybe, just maybe, downsizing could save you some dough. Chuck Petitti, a Boston-area real estate agent, says many of his clients right now are empty-nesters who realize, "Hey, I could be traveling or doing something else with all the money I am paying for utilities and property tax on this big house."
If that's what you're thinking, you're by no means alone. A 2006 survey by Hanley Wood, a market research firm, found that 58% of affluent baby boomers say they are very likely or somewhat likely to move to a smaller home within the next 10 to 15 years.
And therein lies a big fat problem. With millions of boomers competing for smaller homes, you may find it hard to catch a break on price. Even though the downsizing trend is in its infancy, over the past five years smaller homes (under 1,200 square feet) have shown a greater rise in value than larger houses (over 3,000 square feet) - 5.2% a year as opposed to 3.5%, according to Zillow.com.
On top of that, you have to get money out of your old house - not an easy proposition with prices in the 20 largest metropolitan areas down 18.4% from their July 2006 peak, according to the S&P/Case-Shiller index. As of July there was an 11-month backlog of existing homes on the market nationwide. The happily downsized Pepins have yet to receive an offer close to the $1.25 million asking price on their old home.
What's more, smaller isn't necessarily cheaper. Depending on where you move, you may face carrying costs that are as high as or even higher than you pay now.
The trade-offs are complicated. You may cut gasoline costs by moving closer to your job in the city and using public transportation, but those savings could be eaten up by costlier car insurance. You could move to a small condo nearby but be unprepared for the dues and fees that condo living entails.
So you have to plan carefully, sizing up the finances underlying both new and old houses, or the savings you're counting on could be skimpier than you anticipate.
Get the prices right
To start you need a clear-eyed assessment of the two markets that make up your downsizing, the one in which you're selling and the one in which you plan to buy. A real estate agent can give you an idea of your home's value, but you should also check how much houses in your area are selling for on Zillow.com, which lists sales prices of comparable houses.
Hanging on to past high prices only delays a sale. Dodi Christiano, 55, a psychotherapist, and her husband, Paul Waldrop, 56, a producer of TV public-service announcements, put a price of $850,000 on their 4,000-square-foot Fairfax, Va. colonial last year - about what nearby homes had fetched a couple of years earlier.
For six months they received nary a nibble. Finally, after slashing the price by more than $100,000, they were able to sell. "We had to face the fact that not everybody loved our home as much as we did," says Christiano.
You can't assume that a home's price is simply a function of its square footage. The national median sales price for condominiums, which are typically smaller than single-family houses, is now 5% higher than that for houses, according to the National Association of Realtors.
If you hope to reduce costs dramatically, you may have to buy your new place in another town or state. Think Decatur, Ill. or Mishawaka, Ind., where single-family houses cost just $79,400 and $80,900, respectively.
George Pollock, 67, a retired engineer, and his wife Marian, 66, wanted to get rid of the mortgage on their house in suburban San Francisco. Pollock worried that if he died before his wife, she wouldn't be able to meet mortgage payments with the 50% portion of his pension that she would receive.
No matter how much they shopped, however, they couldn't find a place they could afford in the Bay Area (median price: $701,700) without a mortgage. So they moved to much less pricey Sacramento (median price: $258,500), where their two grown children live. There they bought a 1,400-square-foot home for $380,000, leaving them with nearly $250,000 extra.
Says Pollock: "My wife is closer to the kids, and I know she has long-term financial security."
Downsize carrying costs
Buying without taking out a mortgage would certainly reduce expenses. At the very least you should look for a house whose price is low enough to allow you to buy with a mortgage that's smaller than what you have now.
If you're at or near retirement, taking on a new 30-year mortgage is overwhelming. You may be long gone before you can repay. Consider one with a 15-year maturity; the payments may look daunting, but you will save money. The interest rate is only about 0.10% lower than that of a 30-year mortgage, but over the life of the loan, you would save about $141,000 in interest.
Another option: Take out a traditional 30-year fixed-rate loan that does not charge a prepayment penalty. Then just send in extra payments each month as if you were on a 15-year repayment plan. You'll be saving by paying the mortgage off quicker, but if you run into unforeseen financial trouble, you'll be able to make lower payments.
Runzheimer International, a management consulting firm, estimates average annual savings of $1,300 in utility costs and $2,600 in property taxes from down-sizing from a 2,800-square-foot house to one with 1,800 square feet.
But the devil is in the downsizing details: You need to crunch the numbers to calculate your net savings. Start by totting up the annual cost for ongoing expenses such as property tax, utilities, lawn service and snow removal. As you shop for a new place, you should be gathering comparable information.
Other potential cost savings: If you move from suburb to city, you may be able to ditch one of your cars and its trailing expenses - insurance, financing, taxes, maintenance and fuel. If you gave up your 2006 Honda Accord, for example, you'd save nearly $26,000 in the first five years, according to Edmunds.com.
On the other hand, some costs could rise. In a condo or a house that is part of a homeowners association, there are monthly maintenance fees, and every so often you'll be on the hook for assessments to replace the roof or carpet the lobby.
Before buying, ask how much fees have risen over the past five years and whether new assessments are in the offing. If your new place is appreciably smaller, make room in the budget for new purchases to replace an oversize sectional or a king-size bed that won't fit.
Sell before you buy
Tempting as a pristine new condo looks next to your drafty old five-bedroom Victorian, don't plop down earnest money until you have a buyer with solid financing. Otherwise you could get stuck with two mortgages, two property tax bills and - well, you get the idea.
At least have your lawyer include a contingency clause in the sales agreement that obligates you to close only if you manage to sell your home by a set date. In the bubble-licious sales frenzy of yesteryear, sellers could make bidders do somersaults and had no incentive to agree to such a clause. But with so many homes on the market for months, sellers may now show mercy.
What downsizers learned
Don't price your house like it's 2006. Paul Waldrop and Dodi Christiano of Haymarket, Va. asked the same amount that nearby houses had sold for two years earlier. "We had to realize that what had happened during the boom was not the norm. It took six stressful months to sell," says Dodi.
Get the old place sold first. Rick and Suzanne Pepin of Minneapolis moved into their dream condo but now can't sell their house. "Don't wait to put your home on the market if you decide to buy. We waited for renovations on our new condo to be complete, and by then we couldn't sell," says Rick.
Plan for smaller rooms. John and Polly Smart of Houston had the wrong stuff. "Smaller rooms may not accommodate your old things. We spent about $20,000 on new furniture and more on a smaller Silverado because the old one stuck about two feet out of the garage," says John.
Do you (and your spouse) make more than $170,000 annually and worry about tax-efficient retirement planning? If so, send your name, age, occupation, income and questions, along with a recent photo, to makeover@moneymail.com. We will be providing advice to a family in this situation in an upcoming article - and it could be you!
By Carla Fried, Money Magazine contributing writer
Last Updated: September 9, 2008: 9:35 AM EDT
(Money Magazine) -- Last year Rick and Suzanne Pepin moved from the four-bedroom 3,400-square-foot house in Minneapolis where they lived with their three (now grown) kids to a luxury condo that's a third smaller and offers only a Murphy bed for guests. Still, the couple couldn't be happier.
"The location of our old home dictated that we drive to the grocery store, pharmacy and cleaners," says Suzanne, 57, a retired lawyer. Their new digs are across the street from Whole Foods and within easy walking distance of other stores and restaurants. They love the low-maintenance life.
"We have no worries about upkeep. No worries about lawn care. No worries about snow removal," says Rick, 68, also an attorney.
Maybe you too have caught the bug. After decades of hankering after the most expensive and enormous house you could afford, owning a smaller place is starting to look appealing.
Imagine the possibilities! You could move into a posh new condo with everything from a fitness center to a concierge - or into an energy-efficient little cabin on a lake Your commute could be shorter, giving you time in the evening to do something more than watch TV like a zombie.
And, maybe, just maybe, downsizing could save you some dough. Chuck Petitti, a Boston-area real estate agent, says many of his clients right now are empty-nesters who realize, "Hey, I could be traveling or doing something else with all the money I am paying for utilities and property tax on this big house."
If that's what you're thinking, you're by no means alone. A 2006 survey by Hanley Wood, a market research firm, found that 58% of affluent baby boomers say they are very likely or somewhat likely to move to a smaller home within the next 10 to 15 years.
And therein lies a big fat problem. With millions of boomers competing for smaller homes, you may find it hard to catch a break on price. Even though the downsizing trend is in its infancy, over the past five years smaller homes (under 1,200 square feet) have shown a greater rise in value than larger houses (over 3,000 square feet) - 5.2% a year as opposed to 3.5%, according to Zillow.com.
On top of that, you have to get money out of your old house - not an easy proposition with prices in the 20 largest metropolitan areas down 18.4% from their July 2006 peak, according to the S&P/Case-Shiller index. As of July there was an 11-month backlog of existing homes on the market nationwide. The happily downsized Pepins have yet to receive an offer close to the $1.25 million asking price on their old home.
What's more, smaller isn't necessarily cheaper. Depending on where you move, you may face carrying costs that are as high as or even higher than you pay now.
The trade-offs are complicated. You may cut gasoline costs by moving closer to your job in the city and using public transportation, but those savings could be eaten up by costlier car insurance. You could move to a small condo nearby but be unprepared for the dues and fees that condo living entails.
So you have to plan carefully, sizing up the finances underlying both new and old houses, or the savings you're counting on could be skimpier than you anticipate.
Get the prices right
To start you need a clear-eyed assessment of the two markets that make up your downsizing, the one in which you're selling and the one in which you plan to buy. A real estate agent can give you an idea of your home's value, but you should also check how much houses in your area are selling for on Zillow.com, which lists sales prices of comparable houses.
Hanging on to past high prices only delays a sale. Dodi Christiano, 55, a psychotherapist, and her husband, Paul Waldrop, 56, a producer of TV public-service announcements, put a price of $850,000 on their 4,000-square-foot Fairfax, Va. colonial last year - about what nearby homes had fetched a couple of years earlier.
For six months they received nary a nibble. Finally, after slashing the price by more than $100,000, they were able to sell. "We had to face the fact that not everybody loved our home as much as we did," says Christiano.
You can't assume that a home's price is simply a function of its square footage. The national median sales price for condominiums, which are typically smaller than single-family houses, is now 5% higher than that for houses, according to the National Association of Realtors.
If you hope to reduce costs dramatically, you may have to buy your new place in another town or state. Think Decatur, Ill. or Mishawaka, Ind., where single-family houses cost just $79,400 and $80,900, respectively.
George Pollock, 67, a retired engineer, and his wife Marian, 66, wanted to get rid of the mortgage on their house in suburban San Francisco. Pollock worried that if he died before his wife, she wouldn't be able to meet mortgage payments with the 50% portion of his pension that she would receive.
No matter how much they shopped, however, they couldn't find a place they could afford in the Bay Area (median price: $701,700) without a mortgage. So they moved to much less pricey Sacramento (median price: $258,500), where their two grown children live. There they bought a 1,400-square-foot home for $380,000, leaving them with nearly $250,000 extra.
Says Pollock: "My wife is closer to the kids, and I know she has long-term financial security."
Downsize carrying costs
Buying without taking out a mortgage would certainly reduce expenses. At the very least you should look for a house whose price is low enough to allow you to buy with a mortgage that's smaller than what you have now.
If you're at or near retirement, taking on a new 30-year mortgage is overwhelming. You may be long gone before you can repay. Consider one with a 15-year maturity; the payments may look daunting, but you will save money. The interest rate is only about 0.10% lower than that of a 30-year mortgage, but over the life of the loan, you would save about $141,000 in interest.
Another option: Take out a traditional 30-year fixed-rate loan that does not charge a prepayment penalty. Then just send in extra payments each month as if you were on a 15-year repayment plan. You'll be saving by paying the mortgage off quicker, but if you run into unforeseen financial trouble, you'll be able to make lower payments.
Runzheimer International, a management consulting firm, estimates average annual savings of $1,300 in utility costs and $2,600 in property taxes from down-sizing from a 2,800-square-foot house to one with 1,800 square feet.
But the devil is in the downsizing details: You need to crunch the numbers to calculate your net savings. Start by totting up the annual cost for ongoing expenses such as property tax, utilities, lawn service and snow removal. As you shop for a new place, you should be gathering comparable information.
Other potential cost savings: If you move from suburb to city, you may be able to ditch one of your cars and its trailing expenses - insurance, financing, taxes, maintenance and fuel. If you gave up your 2006 Honda Accord, for example, you'd save nearly $26,000 in the first five years, according to Edmunds.com.
On the other hand, some costs could rise. In a condo or a house that is part of a homeowners association, there are monthly maintenance fees, and every so often you'll be on the hook for assessments to replace the roof or carpet the lobby.
Before buying, ask how much fees have risen over the past five years and whether new assessments are in the offing. If your new place is appreciably smaller, make room in the budget for new purchases to replace an oversize sectional or a king-size bed that won't fit.
Sell before you buy
Tempting as a pristine new condo looks next to your drafty old five-bedroom Victorian, don't plop down earnest money until you have a buyer with solid financing. Otherwise you could get stuck with two mortgages, two property tax bills and - well, you get the idea.
At least have your lawyer include a contingency clause in the sales agreement that obligates you to close only if you manage to sell your home by a set date. In the bubble-licious sales frenzy of yesteryear, sellers could make bidders do somersaults and had no incentive to agree to such a clause. But with so many homes on the market for months, sellers may now show mercy.
What downsizers learned
Don't price your house like it's 2006. Paul Waldrop and Dodi Christiano of Haymarket, Va. asked the same amount that nearby houses had sold for two years earlier. "We had to realize that what had happened during the boom was not the norm. It took six stressful months to sell," says Dodi.
Get the old place sold first. Rick and Suzanne Pepin of Minneapolis moved into their dream condo but now can't sell their house. "Don't wait to put your home on the market if you decide to buy. We waited for renovations on our new condo to be complete, and by then we couldn't sell," says Rick.
Plan for smaller rooms. John and Polly Smart of Houston had the wrong stuff. "Smaller rooms may not accommodate your old things. We spent about $20,000 on new furniture and more on a smaller Silverado because the old one stuck about two feet out of the garage," says John.
Do you (and your spouse) make more than $170,000 annually and worry about tax-efficient retirement planning? If so, send your name, age, occupation, income and questions, along with a recent photo, to makeover@moneymail.com. We will be providing advice to a family in this situation in an upcoming article - and it could be you!
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