Submitted by Anonymous on Sun, 03/25/2007 - 05:00.
Michigan Real Estate in Woeful State
The deepest national housing decline in 16 years is about to get worse.
As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to Realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage problems.
The national decline is a faint echo of the gloom that's settled over Michigan real estate for the past few years. The state's homeowners have seen home values fall, sales decline and the length of time needed to sell a home expand, and Metro Detroit has led the country in foreclosures and mortgage loan delinquencies.
Now the nation is getting a taste of Michigan's woes, but not for the same reasons. The housing problems here are from fundamental economic weakness, led by the loss of auto-related jobs. The national difficulties, on the other hand, stem from the bursting of the real-estate bubble, the end of housing speculation in overheated markets, and a halt to a rash of irresponsible lending in the booming subprime mortgage industry.
"It really is fundamentally different," said Dana Johnson, senior vice president and chief economist of Comerica Bank in Detroit. "What's been going on in Michigan is what happens when you see an overall weak economy that destroys jobs and pushes down income."
"Yes, home prices are down a bit nationally, but that follows a 40 percent gain for the previous five years," Johnson noted.
End of housing boom
Nationally, the spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.
"The correction will last another year," said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. "Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand."
The forecast sent homebuilders stocks down, with Bloomfield Hills- based Pulte Homes Inc., the nation's fourth largest homebuilder by revenue, dropping $1.38, or 4.8 percent, to $27.38 on Monday.
The five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households.
Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.
If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.
This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available.
And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since 2005
Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, Calif.; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year.
New Century Financial Corp., the second-largest subprime lender, said Monday it ran out of cash to pay back creditors. The company has lost 90 percent of its market value this year and stopped making new subprime loans.
Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, has predicted that more than 100 home lenders may fail this year.
Defaults glut the market
Subprime mortgages are given to people who wouldn't qualify for standard home loans and typically have rates at least 2 or 3?percentage points above safer prime loans.
The portion of subprime loans that financed new mortgages rose to 20 percent last year from 5 percent in 2001, according to the Mortgage Bankers Association.
Subprime loans contributed to a home-ownership rate that reached a record 69.3 percent of U.S. households in the second quarter of 2004, up 5.4 percentage points from 1991, according to the U.S. Census Bureau.
Defaults may dump more than 500,000 homes on a housing market saturated with leftover inventory built during boom times, research firm CreditSights Inc. said.
About 1.5 million U.S. homeowners out of a total of 80 million will lose their homes through foreclosure, University of California-Berkeley economist Ken Rosen said last week.
Source: http://www.detnews.com/apps/pbcs.dll/
article?AID=/20070313/BIZ03/703130348/1001/BIZ
As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to Realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage problems.
The national decline is a faint echo of the gloom that's settled over Michigan real estate for the past few years. The state's homeowners have seen home values fall, sales decline and the length of time needed to sell a home expand, and Metro Detroit has led the country in foreclosures and mortgage loan delinquencies.
Now the nation is getting a taste of Michigan's woes, but not for the same reasons. The housing problems here are from fundamental economic weakness, led by the loss of auto-related jobs. The national difficulties, on the other hand, stem from the bursting of the real-estate bubble, the end of housing speculation in overheated markets, and a halt to a rash of irresponsible lending in the booming subprime mortgage industry.
"It really is fundamentally different," said Dana Johnson, senior vice president and chief economist of Comerica Bank in Detroit. "What's been going on in Michigan is what happens when you see an overall weak economy that destroys jobs and pushes down income."
"Yes, home prices are down a bit nationally, but that follows a 40 percent gain for the previous five years," Johnson noted.
End of housing boom
Nationally, the spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.
"The correction will last another year," said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. "Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand."
The forecast sent homebuilders stocks down, with Bloomfield Hills- based Pulte Homes Inc., the nation's fourth largest homebuilder by revenue, dropping $1.38, or 4.8 percent, to $27.38 on Monday.
The five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households.
Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.
If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.
This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available.
And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since 2005
Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, Calif.; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year.
New Century Financial Corp., the second-largest subprime lender, said Monday it ran out of cash to pay back creditors. The company has lost 90 percent of its market value this year and stopped making new subprime loans.
Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, has predicted that more than 100 home lenders may fail this year.
Defaults glut the market
Subprime mortgages are given to people who wouldn't qualify for standard home loans and typically have rates at least 2 or 3?percentage points above safer prime loans.
The portion of subprime loans that financed new mortgages rose to 20 percent last year from 5 percent in 2001, according to the Mortgage Bankers Association.
Subprime loans contributed to a home-ownership rate that reached a record 69.3 percent of U.S. households in the second quarter of 2004, up 5.4 percentage points from 1991, according to the U.S. Census Bureau.
Defaults may dump more than 500,000 homes on a housing market saturated with leftover inventory built during boom times, research firm CreditSights Inc. said.
About 1.5 million U.S. homeowners out of a total of 80 million will lose their homes through foreclosure, University of California-Berkeley economist Ken Rosen said last week.
Source: http://www.detnews.com/apps/pbcs.dll/
article?AID=/20070313/BIZ03/703130348/1001/BIZ
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