U.S. economy:  Consumer confidence, house prices slide

Consumer confidence plunged to a 16-year low in June and home prices fell in April for the twenty-first consecutive month as measured by the Standard & Poor's/Case-Shiller Home Price Index for 20 cities.  Separately, Federal Reserve Chairman Ben Bernanke said Tuesday that recent economic data suggest the U.S. is on the brink of a recession.

MAKING SENSE OF THE STORY FOR CONSUMERS

The Conference Board reported that its confidence index fell from 57.2 in May to 50.4 in June thanks to the housing downturn, higher unemployment and the rising cost of food and fuel.  The last time the index was this low was in February 1992, when the economy was beginning to recover from the 1990-91 economic downturn.

The S&P/Case-Shiller index fell by 15.3 percent in April from the previous April, continuing March's 14.4 percent year-over-year decline.  However, eight of the 20 cities included in the index experienced month-over-month increases in prices.  That shows cities "are beginning to sort themselves into the bad and not-so-bad," said economics professor and index co-founder Karl Case.  "It's not like the whole market is collapsing."

 California cities included in the index continued to experience price declines:  In Los Angeles, the index fell 2.2 percent from March to April and 32.1 percent year over year.  San Diego was down 2.6 percent for the month and 22.4 percent compared with April 2007, and San Francisco declined 2.2 percent in April and was 22.1 percent below last April's index.

To read the full story, please click here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aX6aDvhPpltY&refer=home

       Thomson Reuters

U.S. home slump harder to reverse than usual - Harvard

The nation's two-year-old housing market downturn is as bad as any since World War II and record foreclosures and tighter credit will make it more difficult to reverse, according to a report issued Monday by Harvard University's Joint Center for Housing Studies.  Any housing recovery is unlikely to occur until potential homebuyers believe prices have hit bottom, observers say.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Homebuyers remain on the sidelines as they face the highest mortgage rates in nine months and stricter lending criteria.  The Federal Reserve?s efforts to keep interest rates low with the hope of stimulating buyer activity has largely fallen on deaf ears as potential homebuyers watch prices continue to slide in many areas of the nation courtesy of a large inventory of foreclosed properties for sale.
• Director Nicolas Retsinas observed that housing markets "historically recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability.  It will take longer to rebound given the unusually high levels of foreclosures and constrained credit markets.  The slump in housing markets has not yet run its full course."
• The report concludes:  "...if the economy slips into a recession or job losses keep racking up, household growth and homeownership demand could fall even more."

To read the full story, please click here:

http://www.reuters.com/article/marketsNews/idUSN2347133320080623?sp=true

    Los Angeles Times

California unemployment hits 6.8%

California's unemployment rate hit 6.8 percent in May, 1.5 percent higher than a year ago and its highest level in five years due to continued weakness in construction and real estate, the state's Employment Development Department reported.  The employment outlook is expected to worsen at least through the end of 2008.

MAKING SENSE OF THE STORY FOR CONSUMERS

• California's unemployment rate trails four other states: Michigan, Rhode Island, Alaska and Mississippi. Some 1.26 million Californians were unemployed in May, up 115,000 from April and 300,000 higher than in May 2007.  The state posted a net loss of 10,900 jobs in May, primarily in construction.  However, there were net gains in jobs in education and health services, natural resources and mining, information, leisure, and hospitality.
• The state's employment situation could worsen later this year under the weight of state and local government budget cuts and a threatened actor's strike.
• Economists say an employment recovery may be as long as a year off.   That's when the construction sector is expected to benefit from billions of dollars in public infrastructure projects approved by California voters.

To read the full story, please click here:

http://www.latimes.com/news/printedition/front/la-fi-caljobs21-2008jun21,0,5760427.story

    Bloomberg.com

Fannie, Freddie Fail to Relieve Housing by Shunning Jumbo Loans

Despite being granted the ability to purchase jumbo loans in March, the nation's two government-chartered mortgage finance companies have done little to improve access to mortgages in high-cost markets like California and instead have focused on reversing their own losses by purchasing their own mortgage-backed securities, according to critics who say their actions may have worsened the housing downturn.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Jumbo loans of more than $417,000 accounted for about one-third of the mortgage market last year and represented a fifth of all mortgage applications in May, sources say.  Since March, however, Fannie Mae has packaged only $24 million in jumbo loans into securities while Freddie Mac has packaged about $220 million.  Meanwhile, the two companies invested more than $32.4 billion to buy their own securities, according to regulatory filings.
• The NATIONAL ASSOCIATION of REALTORS® (NAR) had projected the two companies would buy $150 billion in jumbo loans this year.  UBS AG now predicts that total may be less than $74 billion.  Freddie Mac has said it would buy between $10 billion and $15 billion in jumbo loans this year.
• The two companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt.  They experienced record losses totaling $11.8 billion over the last three quarters as mortgage defaults climbed to 30-year highs. 

To read the full story, please click here:
http://www.bloomberg.com/apps/news?pid=20601103&sid=a57eFJtEHSHI&refer=us

In Other News

       Forbes

America's shrinking beach communities

To read the full story, please click here:
http://www.forbes.com/realestate/2008/06/17/beach-property-tips-forbeslife-cx_mw_0617realestate.html

      The New York Times

Fallout from bad loans rocks regional banks

To read the full story, please click here:
http://www.nytimes.com/2008/06/19/business/19bank.html?_r=1&scp=1&sq=regional+banks&st=nyt&oref=slogin

      North County Times

High-end neighborhoods also suffering

To read the full story, please click here:
http://www.nctimes.com/articles/2008/06/21/business/zc2bc04ea3c5290028825746d005839ed.txt

       Sacramento Bee

Home sales up for 2nd month

To read the full story, please click here:
http://www.sacbee.com/103/story/1024693.html

      San Francisco Chronicle

Exodus of SF's middle class

To read the full story, please click here:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/22/MNJJ10NPSK.DTL

      San Jose Mercury-News

Signs of life for real estate?

To read the full story, please click here:
http://www.mercurynews.com/realestatenews/ci_9620792

U.S. housing starts drop to lowest level in 17 years

May building permits fell and housing starts dropped to their lowest level since 1991 in a sign of continued weakness in the housing sector, the U.S. Dept. of Commerce reported on Tuesday.

MAKING SENSE OF THE STORY FOR CONSUMERS

·    Housing starts fell 3.3 percent to 975,000 in May, down from a revised 1.08 million in April.  The May figure was down 32 percent from the same month a year ago and was slightly lower than the 980,000 starts expected by economists.  In the West, which includes California, starts were down by 10 percent.

·    Building permits, a signal of future new construction trends, fell to 969,000 ? a 1.3 percent decline but slightly better than the 960,000 level economists expected. 

·    The growing inventory of foreclosures, higher mortgage rates, tighter qualification criteria and continued declines in home values are behind declining builder confidence, which fell to a record low in May, according to a survey by the National Association of Home Builders and Wells Fargo.

To read the full story, please click here:

http://www.bloomberg.com/apps/news?pid=20601110&sid=aVrx2EuK2NzU

       CNNMoney.com

73,000 homes lost to foreclosure in May

California, Nevada and Florida continue to outpace other states in the number of foreclosures as 73,000 more Americans lost their homes in May a 158 percent increase from May 2007.  Foreclosure filings jumped 7 percent from April and were 48 percent higher than a year ago.  May was the twenty-ninth consecutive month of increases, according to RealtyTrac

MAKING SENSE OF THE STORY FOR CONSUMERS

·    20,000 California homeowners lost their homes in May and 72,000 mortgages were at some stage in the foreclosure process.  That means one of every 183 California households was affected in May, putting California right behind Nevada, with one out of every 118 households affected.

·    Nine of the 10 most affected cities were in Florida or California.  Topping the list was Stockton, with one in 75 households affected by a foreclosure filing.  Merced ranked third, Modesto was fourth and Riverside was fifth.

·    RealtyTrac expects foreclosure rates to continue to rise as Alt-A adjustable rate mortgage (ARM) loans originated during the waning months of the real estate boom begin to adjust upward. 

To read the full story, please click here:

http://money.cnn.com/2008/06/13/real_estate/foreclosures_may/index.htm?postversion=2008061308

     Los Angeles Times

Housing woes hit community banks

Heavy investment in residential real estate development throughout inland California communities during the real estate boom is taking its toll on community-based banks, as noted in a Federal Reserve regional report issued last week.

MAKING SENSE OF THE STORY FOR CONSUMERS

·    Many community banks gave up mass-market products like credit cards and mortgages in recent years in favor of the high fees they earned making loans to residential developers and home builders.  As new home developments sat empty in the wake of the sub-prime mortgage crisis and both land values and home prices plummeted, community banks were left holding a portfolio of loans worth dimes on the dollar.

·    Regulators are acting to require that banks write down the value of troubled loans and generate more capital to cover the write-offs.  These losses are increasingly apparent in regulatory filings and shareholder earnings reports.

To read the full story, please click here: 

http://www.latimes.com/business/la-fi-smallbanks17-2008jun17,0,4723238.story

In Other News

     The Associated Press 

Real estate close-up:  San Francisco

To read the full story, please click here:

http://ap.google.com/article/ALeqM5h-be0d4jS06NJwR2-olYNRf3jeWQD919B9C80

     Los Angeles Times

Gas prices latest worry for real estate market

To read the full story, please click here:

http://www.latimes.com/news/printedition/front/la-fi-homes17-2008jun17,0,7677060.story

     San Francisco Chronicle

  Want to buy foreclosed homes?  Take a tour

To read the full story, please click here:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/15/BUMT116R0D.DTL

     Santa Cruz Sentinel

  Santa CruzMortgage files for bankruptcy

To read the full story, please click here:

http://www.santacruzsentinel.com/ci_9573297

     Sonoma Index-Tribune

A great time to buy a house

To read the full story, please click here:

http://www.sonomanews.com/articles/2008/06/12/news/doc4851cc2bd36f1735506438.txt

For more information contact me at brendan@sonic.net

     Bloomberg.com

Bernanke says rate “well positioned,” watching dollar

Federal Reserve Chairman Ben Bernanke Tuesday signaled he is finished cutting interest rates for now and has turned his attention to concerns about inflation in the world’s foreign exchange markets in the wake of the U.S. dollar’s 16 percent decline against the Euro over the past year.  Speaking to the International Monetary Conference, Bernanke stated that, “For now, policy seems well positioned to promote moderate growth and price stability over time.  We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.”

MAKING SENSE OF THE STORY FOR CONSUMERS

Observers called Bernanke’s statement a “strong defense of the dollar” and a sign that the Fed believes a weaker U.S. dollar would be detrimental.  Declines over the past year against the Euro and more recent oil price surges have increased fears of inflation. These fears are one reason the Fed is not expected to pare interest rates further at least through October.

Bernanke called financial market conditions “strained” and reiterated that U.S. consumers face challenges from declining home prices and stricter mortgage and other lending standards, a weaker job market and higher energy costs.  He added that economic growth will remain limited until home prices and the housing market show clearer signs of stabilization.

To read the full story, please click here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPYwMe5KGlpM&refer=home

     CNNMoney.com

Banks miss an easy housing fix

Mortgage lenders say they are there to help homeowners who are having trouble making their monthly payments but who can’t sell their home for what it is worth in today’s market.  But real estate agents and others say both homeowners and the banks themselves lose out when banks are unable to close so-called “short sale” transactions.

MAKING SENSE OF THE STORY FOR CONSUMERS

In a short sale, homesellers ask their lender to accept a buyer’s offer that is less than the amount needed to pay off the balance of the mortgage.  Lenders who agree to a short sale also typically agree to forgive the remaining debt.

Many call short sales a win-win for lenders and homeowners.  The homeowner avoids foreclosure and banks avoid the cost of carrying the property through the lengthy foreclosure process, not to mention the hassles of selling an empty property in a market saturated with other foreclosures.

On average, lenders lose approximately 19 percent of a mortgage’s value with a short sale but lose an average of 40 percent on mortgages that proceed to foreclosure, according to one source.

The problem with short sales?  Like other foreclosure mitigation efforts, the challenge is in determining which financial entity “owns” the loan and, thus, has the final say on a short sale offer.  Banks also have been slow to ramp up internal processes needed to review and approve short sale packages.  Delays and last-minute dickering often prolong or even derail transaction closings and creates frustration for potential homebuyers and their real estate agents.

To read the full story, please click here:

http://money.cnn.com/2008/05/28/real_estate/short_sales_long_waits/index.htm?postversion=2008052811

     The New York Times    

Lose homes, pay more tax

Investors in second or multiple homes stand to be among the biggest losers from the housing downturn.   That’s because proposed mortgage bailout programs don’t address second homes and investment properties.  Many owners of multiple properties don’t realize that investments they thought would help them build long-term wealth may in fact leave them in bankruptcy and facing a sizeable tax debt.

MAKING SENSE OF THE STORY FOR CONSUMERS

Homeowners who borrowed against the value of their second home, or who financed the purchase of their second home and subsequent homes by pledging their primary home or other properties as security, may be liable for taxes on the difference in value should they sell any of their properties for a price less than the value owed on the mortgage.

Under the Mortgage Forgiveness Debt Relief Act, a homeowner doesn’t have to pay taxes on forgiven debt if the collateral behind the mortgage is owner-occupied.  That provision doesn’t apply to a growing number of homeowners renting out their second home or investment property.  Of some 7.5 million vacation homes, only about 10 percent are considered owner-occupied, according to the NATIONAL ASSOCIATION of REALTORS® (NAR).  Many of these homeowners borrowed against the ever-increasing (or so it seemed) value of these properties to finance improvements or to buy other properties.

There may be a way out for some, one bankruptcy lawyer counsels:  Get a lender to agree that foreclosure “fully satisfies all obligations under the loan.”  That might protect the seller from having to pay taxes on the forgiven debt – although one attorney said, “I sure don’t want to be the one litigating it” in court.

To read the full story, please click here:

http://www.nytimes.com/2008/05/30/business/30tax.html?th&emc=th

In Other News…

     Los Angeles Times

Sales of foreclosures are on the rise

To read the full story, please click here:

http://www.latimes.com/business/la-re-market1-2008jun01,1,7861975.story

The market turns cold in a desert boomtown

First of four in a series

To read the full story, please click here:

http://www.latimes.com/business/la-fi-laquinta2-2008jun02,1,2554781.story?page=2

     The New York Times    

Negotiating for a house?  Start with  “Dear Seller”

To read the full story, please click here:

http://www.nytimes.com/2008/05/31/business/yourmoney/31money.html?_r=1&scp=1&sq=negotiating+for+a+house&st=nyt&oref=slogin

     San Francisco Chronicle

Sellers, their agents suggest one-two punch

Invest in face-lift, they say, and keep your asking price moderate

To read the full story, please click here:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/31/REL01105AJ.DTL

     USA Today

Housing market just gets uglier

To read the full story, please click here:

http://www.usatoday.com/money/economy/housing/2008-05-27-home-prices-case_N.htm?csp=34

     The Wall Street Journal

Foreign buyers flock to U.S. housing market

To read the full story, please click here:

http://online.wsj.com/article/SB121200120766526797.html?mod=googlenews_wsj

     Sacramento Bee

Yuba homebuyers face mounting commuter costs

To read the full story, please click here:

http://www.sacbee.com/103/story/977978.html

     Bloomberg.com

Bernanke says rate “well positioned,” watching dollar

Federal Reserve Chairman Ben Bernanke Tuesday signaled he is finished cutting interest rates for now and has turned his attention to concerns about inflation in the world’s foreign exchange markets in the wake of the U.S. dollar’s 16 percent decline against the Euro over the past year.  Speaking to the International Monetary Conference, Bernanke stated that, “For now, policy seems well positioned to promote moderate growth and price stability over time.  We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.”

MAKING SENSE OF THE STORY FOR CONSUMERS

• Observers called Bernanke’s statement a “strong defense of the dollar” and a sign that the Fed believes a weaker U.S. dollar would be detrimental.  Declines over the past year against the Euro and more recent oil price surges have increased fears of inflation. These fears are one reason the Fed is not expected to pare interest rates further at least through October.
• Bernanke called financial market conditions “strained” and reiterated that U.S. consumers face challenges from declining home prices and stricter mortgage and other lending standards, a weaker job market and higher energy costs.  He added that economic growth will remain limited until home prices and the housing market show clearer signs of stabilization.

To read the full story, please click here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPYwMe5KGlpM&refer=home

     CNNMoney.com

Banks miss an easy housing fix

Mortgage lenders say they are there to help homeowners who are having trouble making their monthly payments but who can’t sell their home for what it is worth in today’s market.  But real estate agents and others say both homeowners and the banks themselves lose out when banks are unable to close so-called “short sale” transactions.

MAKING SENSE OF THE STORY FOR CONSUMERS

• In a short sale, homesellers ask their lender to accept a buyer’s offer that is less than the amount needed to pay off the balance of the mortgage.  Lenders who agree to a short sale also typically agree to forgive the remaining debt.
• Many call short sales a win-win for lenders and homeowners.  The homeowner avoids foreclosure and banks avoid the cost of carrying the property through the lengthy foreclosure process, not to mention the hassles of selling an empty property in a market saturated with other foreclosures.
• On average, lenders lose approximately 19 percent of a mortgage’s value with a short sale but lose an average of 40 percent on mortgages that proceed to foreclosure, according to one source.
• The problem with short sales?  Like other foreclosure mitigation efforts, the challenge is in determining which financial entity “owns” the loan and, thus, has the final say on a short sale offer.  Banks also have been slow to ramp up internal processes needed to review and approve short sale packages.  Delays and last-minute dickering often prolong or even derail transaction closings and creates frustration for potential homebuyers and their real estate agents.

To read the full story, please click here:

http://money.cnn.com/2008/05/28/real_estate/short_sales_long_waits/index.htm?postversion=2008052811

     The New York Times    

Lose homes, pay more tax

Investors in second or multiple homes stand to be among the biggest losers from the housing downturn.   That’s because proposed mortgage bailout programs don’t address second homes and investment properties.  Many owners of multiple properties don’t realize that investments they thought would help them build long-term wealth may in fact leave them in bankruptcy and facing a sizeable tax debt.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Homeowners who borrowed against the value of their second home, or who financed the purchase of their second home and subsequent homes by pledging their primary home or other properties as security, may be liable for taxes on the difference in value should they sell any of their properties for a price less than the value owed on the mortgage.
• Under the Mortgage Forgiveness Debt Relief Act, a homeowner doesn’t have to pay taxes on forgiven debt if the collateral behind the mortgage is owner-occupied.  That provision doesn’t apply to a growing number of homeowners renting out their second home or investment property.  Of some 7.5 million vacation homes, only about 10 percent are considered owner-occupied, according to the NATIONAL ASSOCIATION of REALTORS® (NAR).  Many of these homeowners borrowed against the ever-increasing (or so it seemed) value of these properties to finance improvements or to buy other properties.
• There may be a way out for some, one bankruptcy lawyer counsels:  Get a lender to agree that foreclosure “fully satisfies all obligations under the loan.”  That might protect the seller from having to pay taxes on the forgiven debt – although one attorney said, “I sure don’t want to be the one litigating it” in court.

To read the full story, please click here:

http://www.nytimes.com/2008/05/30/business/30tax.html?th&emc=th

In Other News…

     Los Angeles Times

Sales of foreclosures are on the rise

To read the full story, please click here:

http://www.latimes.com/business/la-re-market1-2008jun01,1,7861975.story

The market turns cold in a desert boomtown

First of four in a series

To read the full story, please click here:

http://www.latimes.com/business/la-fi-laquinta2-2008jun02,1,2554781.story?page=2

     The New York Times    

Negotiating for a house?  Start with  “Dear Seller”

To read the full story, please click here:

http://www.nytimes.com/2008/05/31/business/yourmoney/31money.html?_r=1&scp=1&sq=negotiating+for+a+house&st=nyt&oref=slogin

     San Francisco Chronicle

Sellers, their agents suggest one-two punch

Invest in face-lift, they say, and keep your asking price moderate

To read the full story, please click here:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/31/REL01105AJ.DTL

     USA Today

Housing market just gets uglier

To read the full story, please click here:

http://www.usatoday.com/money/economy/housing/2008-05-27-home-prices-case_N.htm?csp=34

     The Wall Street Journal

Foreign buyers flock to U.S. housing market

To read the full story, please click here:

http://online.wsj.com/article/SB121200120766526797.html?mod=googlenews_wsj

     Sacramento Bee

Yuba homebuyers face mounting commuter costs

To read the full story, please click here:

http://www.sacbee.com/103/story/977978.html