Wall Street Journal Article

Wall Street Journal Opinion - “Housing Crisis Is Over” Wall Street Journal Opinion - Housing Crisis Is Over

Opinion from today’s Wall Street Journal”

The Housing Crisis Is Over By CYRIL MOULLEBERTEAUX

May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high - but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

Posted on Monday, June 2, 2008 at 12:53PM by

The Sheri Fejeran Real Estate Group |

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Good news about the Southern California Market

Home sales hit 8-month high

Analysts mixed on whether numbers indicate worst may be over

By Gregory J. Wilcox, Staff Writer

Article Launched: 05/20/2008 12:00:00 AM PDT

Southern California's thawing real estate market heated up in April when home sales hit their highest level in eight months as bargain hunters snapped up foreclosed properties, an industry tracker said Monday.

Last month, 15,615 new and previously owned houses and condominiums sold in the six-county region, up 22 percent from 12,808 sales in March, said La Jolla-based DataQuick Information Systems.

"It's looking as if the worst is behind us," said DataQuick analyst John Karevoll of the sales slide that began three years ago. "That's the likely scenario."

April's sales spike marks the fourth consecutive monthly increase. But sales in April fell 19 percent from a year ago.

Karevoll is optimistic because the March-to-April sales increase was abnormally large. DataQuick began record-keeping in 1988 and the March to April increase has averaged 1.2 percent, the company said.

"We're hearing that escrows that have been stacking up for the past half-year are starting to close," Karevoll said. "And that's got a lot to do with the fact that lenders are making some loans."

DataQuick said April's sales increase was most pronounced for homes priced under $500,000 and accounted for 66percent of the monthly gain. Most of that activity was in areas hard hit by foreclosures, most notably the Antelope Valley and Inland Empire.

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Posted on Wednesday, May 21, 2008 at 02:23PM by

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Stop Junk Mail and Save A Tree

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How GreenDimes Works

It's a fact of life these days. Almost every time we buy something, subscribe to a magazine, or newsletter, or even enter our name in a drawing for a spiffy new car, we get someone's mailing list. Thankfully, there is something we can do about it. GreenDimes was created to give you a choice about what gets into your home's mail box, and what doesn't. As the trusted leader in stopping unwanted junk mail, we've worked hard to develop effective, long-lasting processes and procedures that really can cut junk mail by up to 90%.

Posted on Monday, May 5, 2008 at 10:50AM by

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Property Tax Information visit http://lacountypropertytax.com

Decline-in-Value Reassessments

Proposition 8 – What is It?

In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a “decline-in-value.” A decline-in-value occurs when the current market value of your property is less than the current assessed value as of January 1.¹

Eligibility Requirements

You must demonstrate that on January 1, the market value of your property was less than its current assessed value.
You must file a claim form for a Decline-in-Value Reassessment Application (Prop.8) with the Assessor between January 1 and December 31 for the fiscal year beginning on July 1. If December 31 falls on a Saturday, Sunday, or a legal holiday, an application is valid if either filed or mailed and postmarked by the next business day.

The Process

On your claim form, provide the Assessor with information that supports your opinion that the market value for your property is less than the assessed value. The best supporting documentation is information on sales of comparable properties. You should select two comparable sales that sold as close to January 1 as possible, but no later than March 31. You may query the Assessor’s database for sales in your neighborhood by clicking here. While the submission of comparable sales is helpful for the Assessor in determining the market value of your property, applications submitted without comparable sales will be accepted and processed.
An appraiser will review your claim form and the information you provide. Other sales information available to the Assessor may also be considered. If the market value as of January 1 is less than the trended base value², your assessed value will be lowered to the market value for the fiscal year beginning on July 1. The adjusted value will be reflected on your annual tax bill.
If the current market value is higher than the trended base value, no change in assessed value will be made.

If you disagree with the Assessor’s findings, you may file an appeal with the Assessment Appeals Board. You must file your appeal between July 2 and November 30 for your annual tax bill.

Example

A property was purchased for $500,000. During a three-year period, the real estate market declined and recovered. The property owner filed for a decline-in-value reassessment. The following table shows the trended base value of the property, the market value of the property, and the assessed value of the property. Assumimg a 2% Annual C.P.I.:

	Base Value Trended	Market Value	Assessed Value
Year 1	$500,000	$500,000	$500,000
Year 2	$510,000	$480,000	$480,000
Year 3	$520,200	$510,000	$510,000
Year 4	$530,604	$550,000	$530,604

Frequently Asked Questions

Q.	Do properties other than single family residences qualify?
A.	Yes. All real property qualifies.
Q.	What is a comparable sale?
A.	A property sold with features that are similar to your property is a comparable sale. Comparable sales information helps you analyze the value of your home. For example, a property similar in location, zoning, size, number of bedrooms and bathrooms, age, quality and condition to yours that sold in the open market is a comparable sale.
Q.	Where can I find comparable sales information?
A.	A good place to start is online. The Assessor’s website offers sales information for properties that have sold within the last two years. The same information is available from any Assessor District Office. Also, many websites offer sales information free of charge. A local real estate agent or title agent can also be a valuable source of information.
Q.	I filed my Proposition 8 Application by December 31. When and how will I know if my value will be reduced?
A.	You will receive notification by mail before July 1.
Q.	If my assessed value is reduced, how long will it last?
A.	Proposition 8 reassessments are not permanent, but last at least one year. The assessed value may decrease or increase depending on the market value of your property on January 1 of each subsequent year. Your assessed value will never increase more than the trended base value. It is important to remember, however, that base year values suspended by Proposition 8 reassessment values continue to increase by an annual inflation factor of no more than 2% per year.

How Do I File for Proposition 8 Tax Relief?

A claim form is available from several sources. Choose what is most convenient for you.

Online: Forms are available at the Assessor’s website: assessor.lacounty.gov

Email: Send us an email at helpdesk@assessor.lacounty.gov

Phone: Call (213)974-3211

Claim forms may also be requested by mail or in person at any of our offices listed in this brochure.

What Form Do I Need?

Decline-in-Value Reassessment Application (Proposition 8) (RP-87)

¹To read the law associated with Proposition 8, see Revenue and Taxation Code, Section 51. It is available online at www.leginfo.ca.gov.

²Property is assessed at the time of sale or transfer (base value) or new construction. That base value increases a maximum of 2% (trend) each year (i.e. trended base value).

Posted on Monday, May 5, 2008 at 10:47AM by

The Sheri Fejeran Real Estate Group |

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Mortgage Update

Bond and home loan rates showed improvement with the early part of the week.

The Fed Announcement on Wednesday cut the Fed Funds rate by .25%

Typically bonds and home rate react poorly to Fed cuts due to inflation concerns but the Fed's statement hinted that the rate cutting cycle may be nearing an end and Bond and loan rate reacted favorably.

Thursday - The Core Personal Consumption Index (CPE) showed core inflation at 2.1% and just a whisker above the desired 1-2% for inflation. No market movement resulted from this report.

Friday - The Jobs report brought word of 20,000 lost jobs in April and better than the expected 75,000 lost jobs. This caused bond and home rate to worsen dramatically but after the details of the report were released with worsening prior months revisions, bond and home rates improved.

Overall, after another volatile week and when the dust settled, we saw slightly better rates.

Mortgage Market View

Don't over pay... File a property tax appeal

The National Taxpayers Union estimated 60% of home values were assessed too high resulting in higher taxes.
Contact your local tax assessors office and ask for someone in the reassessment area to inquire of starting an appeal.
Ask for a copy of your property card and review all information for accuracy.
About 33% of property tax appeals succeed.

Posted on Monday, May 5, 2008 at 10:15AM by

The Sheri Fejeran Real Estate Group |

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IN A REAL eSTATE OF MIND

Wall Street Journal Article

Good news about the Southern California Market

Home sales hit 8-month high

Stop Junk Mail and Save A Tree

www.GreenDimes.com

How GreenDimes Works

Property Tax Information visit http://lacountypropertytax.com

Mortgage Update