Home prices in USA declined more than expected in October

[Guest guest]

Blame abounds for housing bust

By Patrice Hill

December 26, 2007

 

Of four homes for sale last week on Henry Watts Loop at Rippon

Landing in Woodbridge, Va., two were foreclosures. As house prices

fall, home equity is lost, making it hard for owners to sell or

refinance adjustable loans that reset to reflect higher rates,

rendering owners unable to pay their mortgages. That dilemma has sent

defaults and foreclosures to historic levels.

 

This year's housing bust is shaping up to be one of historic

proportions. Sales and construction have sunk to levels not seen

since the 1990 savings and loan crisis, while foreclosures and price

drops are the largest since the Great Depression — and expected to

get worse next year.

 

Many parallels can be seen with earlier housing debacles. Each

episode had some combination of easy money, loose lending, greed and

fraud that turned a housing boom into a speculative bubble. But few

housing bubbles have ended so badly as the one today, when the nation

is confronting the prospect of mass foreclosures and family

dislocations.

 

John Stumpf, president of Wells Fargo & Co., the second-largest U.S.

mortgage lender and a survivor of the housing busts of the 20th

century, blames today's crisis on unscrupulous lending practices,

which joined in a toxic mix with outright greed and extraordinarily

low interest rates to send house prices soaring 90 percent between

2000 and 2006. When the bubble burst, house prices collapsed by 5

percent to 20 percent in cities nationwide.

 

" We have not seen a nationwide decline in housing like this since the

Great Depression, " Mr. Stumpf told investors in New York last month

as major banks and securities firms reported an accumulated $80

billion of losses on their portfolios of mortgage investments and

widely cut back on lending as a result.

 

Now the country faces a vicious cycle: As house prices fall,

homeowners lose equity in their homes, which makes it more difficult

or impossible for them to sell or refinance. Many are not able to

refinance their adjustable-rate loans when the starter interest rates

expire and reset to reflect higher market rates, and so they are

faced with sharply higher mortgage payments they cannot afford to pay.

 

The dilemma has sent defaults and foreclosures to historic levels —

with potentially millions more in train in the next two years as more

than $1 trillion in mortgages reset nationwide. As homes are sold

under pressure, prices drop further and cast a pall over entire

neighborhoods, driving down the value of homes of even creditworthy

Americans and undermining their biggest source of wealth and security.

 

State and local governments also have been hit hard by the declining

revenues from property taxes and real-estate transactions, and the

housing slump is dragging down the manufacturing and construction

sectors. The whole mess threatens to sink the broader economy the

longer it wreaks havoc on consumer confidence and spending power.

 

While Americans have grappled with ballooning mortgages and

adjustable interest rates in the past, the epidemic of resetting

loans today is unprecedented and is the result of a bewildering array

of mortgage options for consumers that banks and securities firms

developed and mass marketed for the first time this decade.

 

Consumers often were given the option of not paying principal on

their loans and even deferring some interest. Many seemed unaware of

the consequences of postponing their obligations and chose to make

only minimal payments during the first few months or years,

backloading their loans so that the payments increased sharply and

even doubled after the interest rates reset.

 

The complexity of the loans was exceeded only by the complicated

schemes banks developed to package the loans and market them to

sophisticated investors, which involved setting up off-balance-sheet

investment vehicles and slicing mortgage securities into segments

that supposedly allocated the risk of default away from top-rated

tiers to junk-rated bottom tiers. Mr. Stumpf, a 30-year industry

veteran, said even he was surprised when he read newspaper articles

about what some banks were doing.

 

Wells Fargo avoided the riskiest practices and, as a result, is not

suffering the major losses that are crippling top lenders such as

Countrywide and Citigroup, though it, too, made some unwise

investments in home-equity loans, Mr. Stumpf said.

 

" It's interesting that the industry has invented new ways to lose

money when the old ways seemed to work just fine, " he joked.

 

Easy money

While the unprecedented wave of creative and sometimes questionable

loans was a key cause of the housing bubble and ensuing bust, lenders

were aided greatly by the lenient policies set by the Federal Reserve

from 2000 to 2004, economists say.

 

The housing boom started in the wake of the technology-stock bubble

that burst in 2000, which ushered in the 2001 recession and prompted

the Fed to dramatically cut interest rates.

 

Housing was just beginning to emerge from a long slumber in the

1990s, as it took much of the decade to recover slowly from the

preceding housing bust of 1990-91. As the economy slumped and

financial markets sank in the wake of the September 11, 2001,

terrorist attacks, the Fed accelerated its rate cuts, adding fuel to

the budding housing boom.

 

By mid-2003, the Fed had driven interest rates to the lowest in a

generation, with rates on 30-year fixed-rate loans falling to a 40-

year low, around 5 percent. The even lower short-term rates set by

the Fed drastically cut rates on adjustable-rate mortgages as well as

borrowing costs for banks and Wall Street firms, enabling them to

invent an array of new mortgage products with irresistibly low

starter rates, which appealed to home buyers.

 

While the Fed's actions under former Chairman Alan Greenspan were

applauded at the time, many economists now blame the central bank for

nurturing the housing bubble.

 

" The Fed played an important role " by encouraging people to shift

resources to real estate speculation, said Michael D. Larson, analyst

with Weiss Research. " The Fed replaced one bubble, mostly confined to

the technology sector, with another, far-larger bubble, encompassing

most of the housing market. "

 

Mr. Greenspan forcefully rejects such accusations. He contends the

housing bubble and credit bubble that accompanied it were worldwide

phenomena. Moreover, he maintains the only way the Fed could have

stopped the bubble was to have raised interest rates sharply, which

would have not only deflated the bubble, but brought down the economy

with it.

 

Mr. Larson also blames global investors — including many

international banks and hedge funds — for misjudging the risks of the

securities. And Wall Street firms, by setting minimal standards on

the loans and then securitizing them for sale to distant investors,

also " removed, minimized and postponed the consequences of poor

lending decisions, " he said.

 

Global investors were thirsty for the high returns on subprime and

exotic mortgages that were packaged as " collateralized debt

obligations, " and they trusted the high ratings assigned to most of

the debt by Wall Street ratings agencies Moody's Investors Service

and Standard & Poor's Corp.

 

The global market " stressed quantity over quality " on loans, making

it " easier and more profitable " for mortgage brokers and banks to

convince consumers to take inappropriate loans, Mr. Larson said.

 

Loose lending

With their low introductory monthly payments and easy terms, the

loans were easy to sell to the public. In many ways, mortgage brokers

followed the playbook of auto dealers, who swamped their showrooms

with people on car-buying binges in 2002 and 2003 by advertising zero-

interest loans on their cars.

 

As they did with the car loans, many borrowers who acquired subprime

and exotic mortgages with low starter rates rarely looked at the

loan's overall costs or terms other than the initial monthly payments

that were loudly trumpeted in ads and brochures.

 

Loans with introductory rates as low as 1 percent made the

obligations of owning expensive houses appear to be easy or

manageable and had the effect of driving up home prices as buyers

armed with such loans surged into the market and bid up prices.

 

Home sellers found they were able to raise prices by thousands of

dollars from one sale to the next with seemingly no resistance. Even

the highest-priced homes at the height of the boom in 2005 and 2006

sold quickly, sometimes within minutes with multiple bids.

 

The new-found wealth for homeowners was just as intoxicating as the

easy-money loans that transformed millions of former renters, even

those with shaky credit ratings, into proud homeowners. Consumers

didn't need to sell their homes to cash in on the double-digit gains

in their home values; they used home-equity loans and cash-out

refinancings instead.

 

Many people used their homes like ATMs, refinancing once or twice a

year to take out equity and using the cash to buy cars, go on

vacations and make down payments on second homes or investment

properties. By 2005, nearly every homeowner in America had refinanced

at least once.

 

The cash-outs, which typically extracted $20,000 to $30,000 from home

equity, were an elixir for both consumers and the economy, enabling

homeowners to supplement stagnant incomes while stimulating consumer

spending, the biggest source of economic growth.

 

Loans came not only with minimal payments but often required no down

payments or income documentation, enticing millions of people to jump

into the market for second homes and investment properties. Coastal

resorts and Sun Belt cities like Miami and Las Vegas became lucrative

profit centers for " flippers " who weren't interested in owning

properties but only wanted to make quick profits buying and selling

them.

 

Cable television offered 24-hour housing channels and TV shows

demonstrating how anyone could become a " flipper, " putting down as

little as $5,000 on a condominium and then reselling at a profit

before construction was even finished.

 

Greed stokes craze

By the height of the housing boom in late 2005 and early 2006,

millions of people had been pulled into real-estate speculation,

which had become the new " Internet craze, " said Stefan Swanepoel,

author of the Swanepoel Trends Report on housing.

 

Tales of making quick money in housing became a hot topic at cocktail

parties, while cab drivers offered housing tips. " Anything containing

the words 'home or real estate' seemed to be as hot as anything with

a dot-com during the late 1990s, " Mr. Swanepoel said.

 

" The consumers' hunger seemed to have no end, " he said, noting that

the buying frenzy was nurtured not only by " a plate full of new

mortgages, " but " bullish customer confidence " and steady employment

and income gains.

 

Thomas Martin, president of the National Mortgage Complaint Center,

which has heard from hundreds of homeowners stuck with mortgages they

can't afford, said the phenomenon of the housing bubble can be summed

up in one word: " Greed. "

 

" It was a game of musical chairs, " he said. " At some point, the music

would stop, and someone would get left without a chair, " he said,

including the banks, homeowners and pension funds experiencing losses

today.

 

Besides the " greedy mortgage industry " and the " suicidal " loans they

peddled, Mr. Martin blames regulators and legislators in Congress who

were " all asleep at the switch with respect to ridiculous mortgage

products. "

 

Regulators did not seriously clamp down on questionable lending

practices until last week, when the Fed approved tough new rules for

lenders nationwide, cracking down on dangerous practices like

offering loans to subprime borrowers with no income documentation,

often called " liar loans. "

 

Congress until this year was largely uncritical of the wave of

questionable mortgages and sought only to nurture home sales by

heaping more subsidies on the industry. One of the last acts of

Congress before it adjourned in 2006 was to accede to the wishes of

the mortgage industry by enacting a new tax deduction for mortgage

insurance.

 

" The housing boom was good politics, " Mr. Martin said, noting the

housing and lending industries are among the biggest campaign

contributors to legislators. Moreover, Congress since the 1990s has

pushed lenders to offer more credit to blacks, Hispanics and other

minorities — a drive that led to an explosion of subprime mortgages

that went disproportionately to minorities during the housing boom.

 

The " democratization " of mortgage credit appeared to be a shining

success until this year, when the subprime crisis emerged and

precipitated a much broader credit crunch and retrenchment from loose

lending practices.

 

Widespread fraud also fed the crisis, Mr. Martin said, particularly

the inflating of house assessments by appraisers under pressure from

mortgage brokers, developers and real-estate agents eager to make

sales at ever-higher prices.

 

" The combination of blackmailing real-estate appraisers into inflated

valuations, combined with insane mortgage products, creates the

perfect storm for a real-estate disaster that could be our nation's

most costly real-estate meltdown in history, " he said.

 

The Fed moved to ban such coerced appraisals as well as the " liar

loans " that were the most widespread fraud perpetuated by individual

borrowers. The FBI is pursuing 1,000 cases of mortgage fraud and

estimates there were close to 36,000 instances of fraud nationwide.

 

States' attorneys general also are pursuing hundreds of cases. In one

notable case, New York Attorney General Andrew M. Cuomo is

investigating reputed appraisal fraud in deals done by Washington

Mutual, the largest savings and loan in the country and an aggressive

marketer of subprime and exotic loans.

 

Back to basics

As the sordid tales of tainted loans and gigantic losses emerged this

year, borrowers and lenders have returned to the basic practices that

once made the U.S. mortgage market one of the safest investment

havens on earth.

 

Traditional 30-year, fixed-rate mortgages are back in style, with

borrowers now shunning exotic mortgages such as " option ARMs " that

they snapped up during the housing craze. Lenders require higher

credit scores, larger down payments and bigger fees to cover their

losses.

 

To securitize the loans, banks are turning again to the federal

lending agencies — Fannie Mae, Freddie Mac and Ginnie Mae — which had

fallen out of favor and lost market share during the housing boom.

While agency-sponsored loans constituted only 45 percent of the

mortgage market in 2005 and 2006, they surged to 72 percent of the

market this year.

 

Subprime borrowers now are applying for help from the Federal Housing

Administration, the federal home insurer created during the Great

Depression to address that earlier housing crisis.

 

The housing saga is far from over, many analysts say. With millions

more mortgages resetting in the next two years, many more people

could lose their homes. Banks, securities firms and investors could

foot another $300 billion in losses, by some estimates.

 

If consumers are daunted by bleak housing news and their loss of

wealth and spending power, they could capitulate and send the economy

into a recession, economists say. Already, consumer borrowing for

home purchases and cash-out refinancings has plummeted from a $1.2

trillion annual rate in the first quarter of 2007 to $691 billion in

the last quarter, according to Fed figures.

 

David A. Levy of the Levy Forecasting Center said he expects the

economy to muddle through, despite the Ponzi finance schemes that led

to the housing collapse, and despite further drops in housing prices

that could accumulate to 30 percent or more nationwide.

 

" So far, the housing decline has occurred prior to serious weakness

elsewhere in the economy, " and that has prevented the problems from

being even worse, Mr. Levy said.

 

SAMVA , Cosmologer <cosmologer wrote:

>

> Dear friends,

>

> The transits in the SAMVA USA chart remain quite difficult.

>

> The following transits having been in place for some days:

> - 1) transit L8 Saturn in H2 stationary under an aspect from natal

Rahu in H10

> - 2) transit L6 Jupiter in H6 still under the close aspect of

transit Ketu in H2

> - 3) transit L10 Mars still under the aspect of transit Rahu in H8

> - transit L2 Sun is badly placed in H6

>

> Today, the following transits became exact:

> - a) aspect of transit Jupiter to transit Mars in H12 becomes exact

> - b) transit L4 Venus enteres Scorpio and a conjunction with natal

Jupiter in H5

> - c) transit L3 Mercury in H6 under aspect of natal Rahu in H10

>

> These transits, a) in particular, are likely to bring some adverse

development for the market sentiments. Today, just before the close

of the markets, new data on home prices in October was released. The

data shows that home prices declined more than expected. The markets

close on average unchanged from yesterday. This suggest the markets

have already discounted much of the decline. However, given the

transits it is likely this new information about the recent state of

the economy fact will have an effect to undermine the confidence of

investors in the outlook for the US economy.

>

> We will likely see tomorrow a fuller assessment of the market

participants in terms of the market development then.

>

> It is useful to keep in mind that the Venus-Jupiter period is

running in the SAMVA USA chart from June 2006 to February 2009. Venus

is the 4th lord in the chart ruling over fixed assets. It is badly

placed in the 6th house of debt-related financial stability. Jupiter

is 6th lord of financial stability, and the dispositor of Venus.

Finally, natally Ketu afflicts the most effective point of the 4th

house. This natal situation creates scope for significant setbacks

related to the indications of this house when sensitive placements

are transit afflicted. During this time the sub-prime lending crisis

emerged when the transits in early 2007 were highly unfavourable for

Venus and Jupiter. Several other transits have added to the

difficulty this year, including the conjunction of transit Ketu and

transit L8 Saturn in October and November 2007, the entry of L10 Mars

into Gemini H12 and the transit conjunction of Jupiter and natal

Saturn in late November into

> early December. More recently, the transit aspect of Ketu in H2 to

Jupiter in H6 aggravated the situation.

>

> Best wishes,

>

> Thor

>

> U.S. Economy: Home Prices Declined at Faster Pace (Update2)

>

> By Joe Richter and Courtney Schlisserman

> Dec. 26 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas

fell in October by the most in at least six years, raising the risk

that more Americans will walk away from properties that are worth

less than they owe.

> Values fell a greater-than-forecast 6.1 percent from October 2006,

the S & P/Case-Shiller home-price index showed today. The decrease was

the biggest since the group started keeping year-over-year records in

2001.

> Prices will continue falling as record foreclosures put even more

homes on the market while stricter lending rules make financing

tougher to get. Declining values also pose a risk to consumer

spending by making it harder for owners to tap home equity for extra

cash.

> ``You are likely to see more people giving up on their loans as

they end up with little or no equity in their homes,'' said Abiel

Reinhart, an economist at JPMorgan Chase & Co. in New York. ``It's

one more factor that weighs on the path of consumption.''

> Compared with a month earlier, home prices dropped 1.4 percent, the

biggest one-month decline since records began. The figures aren't

seasonally adjusted, so economists prefer to focus on the year-over-

year change.

> The median forecast of 12 economists surveyed by Bloomberg News

projected a 5.7 percent decline after the index dropped 4.9 percent

in the 12 months ended in September.

> Manufacturing Slumps

> A report from the Federal Reserve Bank of Richmond today also

showed manufacturing in its region contracted for the second time in

three months in December. Combined with earlier reports this month

that showed factory activity slowed in New York and also shrank in

the Philadelphia region, the reports suggest the housing slump is

filtering through the economy.

> Seventeen of the 20 cities in the S & P/Case-Shiller index showed a

year-over-year decline in prices, led by 12 percent slumps in Miami

and Tampa, Florida. Three cities, Charlotte, North Carolina, Seattle

and Portland, Oregon, showed an increase from a year earlier.

> All 20 areas covered showed a drop in prices compared with

September.

> ``There is no silver lining'' in the report, said David Blitzer,

chairman of the index committee at Standard & Poor's, in an interview

on Bloomberg Television. ``If you look across the cities, more often

than not, the bigger the run-up, the more it comes down. There is no

clear sign of a bottom in these numbers.''

> Robert Shiller, chief economist at MacroMarkets LLC and a professor

at Yale University, and Karl Case, an economics professor at

Wellesley College, created the home-price index based on research

from the 1980s.

> Prices to Worsen

> The housing market may continue to weaken as an increase in

foreclosures adds to a glut of unsold homes on the market, spurring

sellers to cut prices, economists said.

> ``With supply overhang enormous and mortgage financing tougher to

obtain, home prices are going to decline considerably further in the

quarters ahead,'' said Joshua Shapiro, chief U.S. economist at Maria

Fiorini Ramirez Inc., a New York forecasting firm.

> Lower home prices may also threaten spending. This holiday shopping

season is forecast to be the weakest in five years, according to the

National Retail Federation. A jump in November sales and a rush of

last-minute purchases the weekend before Christmas probably weren't

enough to change that outlook, according to analysts.

> Stocks dropped following the reports and later pared losses. The

S & P 500 index was little changed at 2:25 p.m. in New York and its

supercomposite homebuilder index was down 0.4 percent.

> Fewer Sales

> Figures later this week from the Commerce Department may show new

homes sold at an annual rate of 718,000 in November, down from

October's 728,000 rate, based on the median estimate of economists

surveyed by Bloomberg News.

> Sales of new houses probably will fall 8.9 percent in 2008 after a

25 percent drop this year, according to a Dec. 13 forecast from

Fannie Mae, the largest mortgage buyer.

> ``The market is too challenging to make predictions for fiscal

2008,'' Ara Hovnanian, chief executive officer of Hovnanian

Enterprises Inc., said on a conference call on Dec. 19. ``It will be

a difficult year.'' The Red Bank, New Jersey- based company reported

a net loss of $467 million for the three months ended Oct. 31.

> Residential investment has subtracted from economic growth for the

past seven quarters. Home building dropped at a 20.5 percent annual

pace in the third quarter, the most since 1991.

> The S & P/Case-Shiller index and another by the Office of Federal

Housing Enterprise Oversight track the same home over time and more

accurately reflect price trends, economists said.

> Price gauges from the Commerce Department and the Realtors group

can be influenced by changes in the types of homes sold. Higher sales

of cheaper homes relative to more-expensive properties will bias the

figures down.

>

>

>

____________________

______________

> Looking for last minute shopping deals?

> Find them fast with Search.

http://tools.search./newsearch/category.php?category=shopping

>

[Guest guest]

Dear Thor…

 

Thanks for your post on this matter.

 

Well done.

 

David Hawthorne

 

 

 

SAMVA

[sAMVA ] On Behalf Of Cosmologer

Wednesday, December 26, 2007

4:25 PM

samva

Home prices in

USA declined more than expected in October

 

 

 

 

Dear friends,

 

 

 

 

 

The transits in the SAMVA USA

chart remain quite difficult.

 

 

 

 

 

The following transits having been

in place for some

days:

 

 

- 1) transit L8 Saturn in

H2 stationary under an aspect from natal Rahu in H10

 

 

- 2) transit L6 Jupiter in H6

still under the close aspect of transit Ketu in H2

 

 

- 3) transit L10 Mars still under

the aspect of transit Rahu in H8

 

 

- transit L2 Sun is badly placed

in H6

 

 

 

 

 

Today, the following transits

became exact:

 

 

- a) aspect

of transit Jupiter to transit Mars in H12 becomes exact

 

 

- b) transit L4 Venus enteres

Scorpio and a conjunction with natal Jupiter in H5

 

 

- c) transit L3 Mercury in H6

under aspect of natal Rahu in H10

 

 

 

 

 

These transits, a) in

particular, are likely to bring some adverse development for the market

sentiments. Today, just before the close of the markets, new data on home

prices in October was released. The data shows that home

prices declined more than expected. The markets close on average unchanged

from yesterday. This suggest the markets have already discounted much of

the decline. However, given the transits it is likely this

new information about the recent state of the economy fact will have

an effect to undermine the confidence of investors in the outlook for

the US economy.

 

 

 

 

 

We will likely see

tomorrow a fuller assessment of the market participants in terms of the

market development then.

 

 

 

 

 

It is useful to keep in mind that

the Venus-Jupiter period is running in the SAMVA USA chart from June 2006 to

February 2009. Venus is the 4th lord in the chart ruling over fixed

assets. It is badly placed in the 6th house of debt-related financial

stability. Jupiter is 6th lord of financial stability, and

the dispositor of Venus. Finally, natally Ketu afflicts the most effective

point of the 4th house. This natal situation creates scope for significant

setbacks related to the indications of this house when sensitive placements are

transit afflicted. During this time the sub-prime lending crisis emerged

when the transits in early 2007 were highly unfavourable for Venus and Jupiter.

Several other transits have added to the difficulty this year, including the

conjunction of transit Ketu and transit L8 Saturn in October and November 2007,

the entry of L10 Mars into Gemini H12 and the transit conjunction of Jupiter

and natal Saturn in late November into early December. More recently, the

transit aspect of Ketu in H2 to Jupiter in H6 aggravated the situation.

 

 

 

 

 

Best wishes,

 

 

 

 

 

Thor

 

 

 

 

 

U.S.

Economy: Home Prices Declined at Faster Pace (Update2)

By Joe Richter and Courtney Schlisserman

Dec. 26 (Bloomberg) -- Home prices in 20 U.S.

metropolitan areas fell in October by the most in at least six years, raising

the risk that more Americans will walk away from properties that are worth less

than they owe.

Values fell a greater-than-forecast 6.1 percent

from October 2006, the S & P/Case-Shiller home-price index showed today. The

decrease was the biggest since the group started keeping year-over-year records

in 2001.

Prices will continue falling as record foreclosures

put even more homes on the market while stricter lending rules make financing

tougher to get. Declining values also pose a risk to consumer spending by

making it harder for owners to tap home equity for extra cash.

``You are likely to see more people giving up on

their loans as they end up with little or no equity in their homes,'' said

Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. ``It's

one more factor that weighs on the path of consumption.''

Compared with a month earlier, home prices dropped

1.4 percent, the biggest one-month decline since records began. The figures

aren't seasonally adjusted, so economists prefer to focus on the year-over-year

change.

The median forecast of 12 economists surveyed by

Bloomberg News projected a 5.7 percent decline after the index dropped 4.9

percent in the 12 months ended in September.

Manufacturing Slumps

A report from the Federal Reserve Bank of Richmond

today also showed manufacturing in its region contracted for the second time in

three months in December. Combined with earlier reports this month that showed

factory activity slowed in New York and also shrank in the Philadelphia region,

the reports suggest the housing slump is filtering through the economy.

Seventeen of the 20 cities in the

S & P/Case-Shiller index showed a year-over-year decline in prices, led by 12

percent slumps in Miami and Tampa, Florida. Three cities, Charlotte, North

Carolina, Seattle and Portland, Oregon, showed an increase from a year earlier.

 

All 20 areas covered showed a drop in prices

compared with September.

``There is no silver lining'' in the report, said

David Blitzer, chairman of the index committee at Standard & Poor's, in an

interview on Bloomberg Television. ``If you look across the cities, more often

than not, the bigger the run-up, the more it comes down. There is no clear sign

of a bottom in these numbers.''

Robert Shiller, chief economist at MacroMarkets LLC

and a professor at Yale University, and Karl Case, an economics professor at

Wellesley College, created the home-price index based on research from the

1980s.

Prices to Worsen

The housing market may continue to weaken as an

increase in foreclosures adds to a glut of unsold homes on the market, spurring

sellers to cut prices, economists said.

``With supply overhang enormous and mortgage

financing tougher to obtain, home prices are going to decline considerably

further in the quarters ahead,'' said Joshua Shapiro, chief U.S. economist at

Maria Fiorini Ramirez Inc., a New York forecasting firm.

Lower home prices may also threaten spending. This

holiday shopping season is forecast to be the weakest in five years, according

to the National Retail Federation. A jump in November sales and a rush of

last-minute purchases the weekend before Christmas probably weren't enough to

change that outlook, according to analysts.

Stocks dropped following the reports and later

pared losses. The S & P 500 index was little changed at 2:25 p.m. in New York

and its supercomposite homebuilder index was down 0.4 percent.

Fewer Sales

Figures later this week from the Commerce

Department may show new homes sold at an annual rate of 718,000 in November,

down from October's 728,000 rate, based on the median estimate of economists

surveyed by Bloomberg News.

Sales of new houses probably will fall 8.9 percent

in 2008 after a 25 percent drop this year, according to a Dec. 13 forecast from

Fannie Mae, the largest mortgage buyer.

``The market is too challenging to make predictions

for fiscal 2008,'' Ara Hovnanian, chief executive officer of Hovnanian

Enterprises Inc., said on a conference call on Dec. 19. ``It will be a

difficult year.'' The Red Bank, New Jersey- based company reported a net loss

of $467 million for the three months ended Oct. 31.

Residential investment has subtracted from economic

growth for the past seven quarters. Home building dropped at a 20.5 percent

annual pace in the third quarter, the most since 1991.

The S & P/Case-Shiller index and another by the

Office of Federal Housing Enterprise Oversight track the same home over time

and more accurately reflect price trends, economists said.

Price gauges from the Commerce Department and the

Realtors group can be influenced by changes in the types of homes sold. Higher

sales of cheaper homes relative to more-expensive properties will bias the

figures down.

 

 

 

 

 

 

 

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