Appraisal Podcasts

10 cities where housing prices will slump the most

Reasons for pessimism
Zandi’s predictions for specific markets are sobering. The worst-hit metro areas, he asserts, will be Cape Coral, Fla., with an 18.6% decline in housing prices; Reno, Nev., with a 17.2% drop; and Stockton, Calif., with a 15.7% fall. To conduct his analysis, Zandi looked at the supply and demand of housing, changes in mortgage rates, demographic trends, the job market and new housing (see “Can Wall Street Withstand Weak Housing?“).   

The CME covers just 10 housing markets, rather than the 379 examined by Zandi. The exchange launched the trading in housing prices in May, and volumes are still modest, which may affect accuracy. Investors are predicting declines in all 10 cities over the next 12 months. In fact, by August 2007, when the one-year contract expires, futures traders expect the San Diego real estate prices will have declined 8.2%, Las Vegas 7.9% and Los Angeles 6.9%. The composite index is expected to fall 6.8%. “The markets are clearly concerned that home prices are going to fall,” says Robert Shiller, an economics professor at Yale University. Shiller helped develop the contracts with professor Karl Case and Standard & Poor’s (which, like BusinessWeek, is a unit of McGraw-Hill).

In the cases where they cover the same ground, Zandi and the CME traders have some uncanny similarities. For instance, Zandi expects San Diego to drop 8.4% through the second quarter of 2008, while the futures market is expecting a drop of 8.2% by August 2007. In Washington, D.C., Zandi expects prices to drop 12% through the second quarter of 2008, and the futures market expects a 7.7% decline by August 2007 (see “Hopeful Glimmers in the Housing Slump“). 

Anybody’s guess
But in Boston, there’s a sharp contrast. Zandi thinks that the worst is over. He estimates that prices declined 2.2% in the second and third quarter of 2006, and that should be the end of the meaningful declines. “Boston’s jobs market is coming back, and the city didn’t see much froth anyway,” says Zandi. But the CME futures markets expect Boston to continue to drop, at least 7% by August 2007. Similarly, Zandi expects New York to drop 3.5% through the fourth quarter of 2008, while the futures traders are betting that New York’s real estate will drop a sharper 6% by next year.

Who would you put your money on? Zandi is certainly a smart, resourceful economist. But “predictive markets” like those used at the CME have proved surprisingly accurate in forecasting everything from the weather to political races. They’re particularly accurate when money is on the line, as it is in Chicago.

As Rick Redding, CME managing director for products and services says: “These products create a liquid and transparent market that can be used … to help reduce risks associated with holding real estate assets.” This is no academic experiment. The results of these predictions will be made all too public in the months and years ahead.

10 markets headed for trouble

*Based on Chicago Mercantile Exchange trading

 

 

The rate of single-family housing starts dropped 20.3 percent in September compared to September 2005, the U.S. Census Bureau and the Department of Housing and Urban Development announced today, while total housing starts dropped 17.9 percent.Privately owned housing starts reached a seasonally adjusted annual rate of 1.77 million in September, which is about 5.9 percent above the revised August estimate. The seasonally adjusted annual rate is a projection of a monthly total over a 12-month period, adjusted for seasonal fluctuations in construction activity.

Single-family housing starts in September were at a rate of 1.43 million, which is about 4.3 percent above the August figure. The September rate for units in buildings with five units or more was 314,000.

Meanwhile, privately owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1.62 million, which is about 6.3 percent below the revised August rate and about 27.7 percent below the September 2005 estimate.

Single-family building permit authorizations in September were at a rate of 1.21 million, which is about 6 percent below the August figure. Authorizations of units in buildings with five units or more were at a rate of 342,000 in September.

Privately owned housing completions in September were at a seasonally adjusted annual rate of 2.08 million, which is about 11.1 percent above the revised August estimate and about 7.2 percent above the September 2005 rate.

Single-family housing completions in September were at a rate of 1.73 million, which is about 7.1 percent above the August figure of 1.62 million. The September rate for units in buildings with five units or more was 316,000.

The Census Bureau and HUD noted that month-to-month changes in seasonally adjusted statistics can show irregular movements. It may take four months to establish an underlying trend for building permit authorizations, five months for total starts, and six months for total completions, the agencies noted.

Statistics in the report are estimated from sample surveys and are subject to sampling variability and nonsampling error including bias and variance from response, nonreporting, and undercoverage.

On average, the preliminary seasonally adjusted estimates of total building permits, housing starts and housing completions are revised about 1 percent, according to the report.

I usually get off-track on Wired’s website and find a new gadget I must have. But in this case there was a great article related to a new phenomenon called “crowdsourcing”. Kind of a take off on the Wisdom of Crowds.

From Wikipedia, crowdsourcing is defined as … “Crowdsourcing” is a term coined by Wired magazine writer Jeff Howe and editor Mark Robinson in June 2006. It describes a business model akin to outsourcing, but relying upon unpaid or low-paid amateurs who use their spare time to create content, solve problems, or even do corporate R&D. Crowds targeted for crowdsourcing include garage scientists, amateur videographers, freelancers, photo enthusiasts, data companies, writers, smart mobs and the electronic herd.”

Crowdsourcing attempts to replace selectively hired, trained and managed workforces with mass volunteer participation and self-organization. While not a new idea, it is becoming mainstream.

Types of crowdsourced work

• Procter & Gamble employs more than 9000 scientists and researchers in corporate R&D and still have many problems they can’t solve. They now post these on a website called InnoCentive, offering large cash rewards to more than 90,000 ’solvers’ who make up this network of backyard scientists. P&G also works with NineSigma, YourEncore and Yet2.
• Amazon Mechanical Turk co-ordinates the use of human intelligence to perform tasks which computers are unable to do.
• YRUHRN used Amazon Mechanical Turk and other means of crowdsourcing to compile content for a book published just 30 days after the project was started.
• iStockphoto is a website with over 22,000 amateur photographers who upload and distribute stock photographs. Because it does not have the same margins as a professional outfit like Getty Images it is able to sell photos for a low price. It was recently purchased by Getty Images.
• A Swarm of Angels is a Cinema 2.0 project to utilize a swarm of subscribers (Angels) to help fund, make, contribute, and distribute, a £1 million feature film using the Internet and all digital technologies. It aims to recruit earlier development community members with the right expertise into paid project members, film crew, and production staff.

All of this got me thinking..how does this impact appraisers? Take a look at the first portion of the full article and see what lies behind Door Number 3 for us.

Wired 14.06: The Rise of Crowdsourcing

Remember outsourcing? Sending jobs to India and China is so 2003. The new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, even do corporate R & D.

“Claudia Menashe needed pictures of sick people. A project director at the National Health Museum in Washington, DC, Menashe was putting together a series of interactive kiosks devoted to potential pandemics like the avian flu. An exhibition designer had created a plan for the kiosk itself, but now Menashe was looking for images to accompany the text. Rather than hire a photographer to take shots of people suffering from the flu, Menashe decided to use preexisting images – stock photography, as it’s known in the publishing industry.

In October 2004, she ran across a stock photo collection by Mark Harmel, a freelance photographer living in Manhattan Beach, California. Harmel, whose wife is a doctor, specializes in images related to the health care industry. “Claudia wanted people sneezing, getting immunized, that sort of thing,” recalls Harmel, a slight, soft-spoken 52-year-old.

The National Health Museum has grand plans to occupy a spot on the National Mall in Washington by 2012, but for now it’s a fledgling institution with little money. “They were on a tight budget, so I charged them my nonprofit rate,” says Harmel, who works out of a cozy but crowded office in the back of the house he shares with his wife and stepson. He offered the museum a generous discount: $100 to $150 per photograph. “That’s about half of what a corporate client would pay,” he says. Menashe was interested in about four shots, so for Harmel, this could be a sale worth $600.

After several weeks of back-and-forth, Menashe emailed Harmel to say that, regretfully, the deal was off. “I discovered a stock photo site called iStockphoto,” she wrote, “which has images at very affordable prices.” That was an understatement. The same day, Menashe licensed 56 pictures through iStockphoto – for about $1 each.

iStockphoto, which grew out of a free image-sharing exchange used by a group of graphic designers, had undercut Harmel by more than 99 percent. How? By creating a marketplace for the work of amateur photographers – homemakers, students, engineers, dancers. There are now about 22,000 contributors to the site, which charges between $1 and $5 per basic image. (Very large, high-resolution pictures can cost up to $40.) Unlike professionals, iStockers don’t need to clear $130,000 a year from their photos just to break even; an extra $130 does just fine. “I negotiate my rate all the time,” Harmel says. “But how can I compete with a dollar?”

He can’t, of course. For Harmel, the harsh economics lesson was clear: The product Harmel offers is no longer scarce. Professional-grade cameras now cost less than $1,000. With a computer and a copy of Photoshop, even entry-level enthusiasts can create photographs rivaling those by professionals like Harmel. Add the Internet and powerful search technology, and sharing these images with the world becomes simple.

At first, the stock industry aligned itself against iStockphoto and other so-called microstock agencies like ShutterStock and Dreamstime. Then, in February, Getty Images, the largest agency by far with more than 30 percent of the global market, purchased iStockphoto for $50 million. “If someone’s going to cannibalize your business, better it be one of your other businesses,” says Getty CEO Jonathan Klein. iStockphoto’s revenue is growing by about 14 percent a month and the service is on track to license about 10 million images in 2006 – several times what Getty’s more expensive stock agencies will sell. iStockphoto’s clients now include bulk photo purchasers like IBM and United Way, as well as the small design firms once forced to go to big stock houses. “I was using Corbis and Getty, and the image fees came out of my design fees, which kept my margin low,” notes one UK designer in an email to the company. “iStockphoto’s micro-payment system has allowed me to increase my profit margin.” Welcome to the age of the crowd. Just as distributed computing projects like UC Berkeley’s SETI@home have tapped the unused processing power of millions of individual computers, so distributed labor networks are using the Internet to exploit the spare processing power of millions of human brains. The open source software movement proved that a network of passionate, geeky volunteers could write code just as well as the highly paid developers at Microsoft or Sun Microsystems. Wikipedia showed that the model could be used to create a sprawling and surprisingly comprehensive online encyclopedia. And companies like eBay and MySpace have built profitable businesses that couldn’t exist without the contributions of users.

All these companies grew up in the Internet age and were designed to take advantage of the networked world. But now the productive potential of millions of plugged-in enthusiasts is attracting the attention of old-line businesses, too. For the last decade or so, companies have been looking overseas, to India or China, for cheap labor. But now it doesn’t matter where the laborers are – they might be down the block, they might be in Indonesia – as long as they are connected to the network.

Technological advances in everything from product design software to digital video cameras are breaking down the cost barriers that once separated amateurs from professionals. Hobbyists, part-timers, and dabblers suddenly have a market for their efforts, as smart companies in industries as disparate as pharmaceuticals and television discover ways to tap the latent talent of the crowd. The labor isn’t always free, but it costs a lot less than paying traditional employees. It’s not outsourcing; it’s crowdsourcing.

It took a while for Harmel to recognize what was happening. “When the National Health Museum called, I’d never heard of iStockphoto,” he says. “But now, I see it as the first hole in the dike.” In 2000, Harmel made roughly $69,000 from a portfolio of 100 stock photographs, a tidy addition to what he earned from commissioned work. Last year his stock business generated less money – $59,000 – from more than 1,000 photos. That’s quite a bit more work for less money.

Harmel isn’t the only photographer feeling the pinch. Last summer, there was a flurry of complaints on the Stock Artists Alliance online forum. “People were noticing a significant decline in returns on their stock portfolios,” Harmel says. “I can’t point to iStockphoto and say it’s the culprit, but it has definitely put downward pressure on prices.” As a result, he has decided to shift the focus of his business to assignment work. “I just don’t see much of a future for professional stock photography,” he says.”

How does this example play into the appraisal world? Zillow and the many other free “appraisal” sites come to mind. Are we far off? Is there a moral in here about specialization leaving the cookie cutter assignments to the AVM’s?

From another article linked on the Wired site. Far-flung laborers do everything from grunt work to lab work, but some common principles apply to all of them:

1. The crowd is dispersed
People spread around the world can perform a range of tasks – from the most rote to the highly specialized – but this would-be workforce needs to be able to complete the job remotely.

2. The crowd has a short attention span
These new workers find time after dinner and on weekends. So jobs need to be broken into “micro-chunks.” Most tasks on Amazon Mechanical Turk, for example, take less than 30 minutes to complete.

3. The crowd is full of specialists
For Procter & Gamble, the crowd is the world’s scientific community; for VH1 it’s any ham with a camcorder; for iConclude it’s the handful of professionals with experience troubleshooting Microsoft’s server software.

4. The crowd produces mostly crap
Networks like InnoCentive, Mechanical Turk, and iStockphoto don’t increase the amount of talent – they make it possible to find and leverage that talent. Any open call for submissions – whether for scientific solutions, new product designs, or funny home videos – will elicit mostly junk. Smart companies install cheap, effective filters to separate the wheat from the chaff.

5. The crowd finds the best stuff
Even as a networked community produces tons of crap, it ferrets out the best material and corrects errors. Wikipedia enthusiasts quickly fix inaccuracies in the online encyclopedia. Viewers of Web site YouTube find the one tastelessly funny amateur video from the 10 that are merely tasteless.

The Mortgage Bankers Assocaiton just released a report that address mortgage delinquency rates and heating costs.

From the report:

“The continued high levels of energy prices are one of several factors that are applying upward pressure on mortgage delinquency rates. MBA’s National Delinquency Survey as well as data on energy price trends, and reviews factors that influence this relationship.

Why should energy prices impact mortgage delinquencies? In the wintertime, conventional wisdom indicates that homeowners are more likely to skip their mortgage payment if they have to in order to pay the heating bill. Recognizing that the winter of 2005–2006 was quite mild, spending for fuels for transportation and for home heating has represented a diminishing but still significant share of consumer expenditures over time.”

Conclusions from the report:

• The primary factors impacting delinquency rates are the state of the labor market, interest rates, and other factors reflecting the national and regional economies.
• Higher energy prices typically result in upward pressure on delinquency rates, but the impact varies considerably across regions, as the relative usage of different types of heating fuels varies by region.
• There is some evidence that spikes in natural gas prices have a non-linear effect on delinquency rates.

FRB: Beige Book–Full report–October 12, 2006
Summary of Commentary on Current Economic Conditions
by Federal Reserve District

Summary
Prepared at the Federal Reserve Bank of Richmond and based on information collected before October 2, 2006. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary of the views of Federal Reserve officials.

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand since the last report. Four Districts reported that economic growth firmed while a couple of Districts noted that growth cooled. Other reports generally characterized growth as moderate or mixed.

Consumer spending increased more quickly in a number of Districts, although several reports continued to note that automobile and home-related sales were sluggish. Tourism was generally strong and added some momentum in the New York and Kansas City Districts. Activity in the service sector expanded in most Districts, but Boston described activity as flat and Cleveland and Dallas identified pockets of softness in some industries. Manufacturing conditions generally held up well, with several Districts indicating that growth increased, though Philadelphia reported that activity edged down. Commercial construction gained strength in most of the country. Reports on residential real estate, however, indicated widespread cooling with the majority of Districts citing lower asking prices, rising inventories of homes on the market and softening sales. A number of reports, however, indicated that residential activity increased in some markets. Financial institutions continued to report that residential mortgage lending had tapered off, but commercial lending activity picked up in several Districts. Agricultural conditions generally improved as rainfall brought relief to drought-stricken areas.

A number of Districts reported that labor markets were tight with some noting shortages of skilled workers. Wage pressures were associated with tightening conditions in a few Districts, though other reports noted that wage pressures were in check. While the majority of Districts characterized price pressures as contained, input prices increased in several Districts and a few reports mentioned increased pass throughs by businesses.

Consumer Spending and Tourism
Most Districts reported stronger growth in consumer spending, although automobile and housing-related sales generally weakened. Solid back-to-school sales helped boost retail revenues in the Philadelphia, Atlanta and Minneapolis Districts. Chicago said back-to-school sales were within expectations, though “nothing stellar.” Sales of upscale merchandise picked up in the New York District, while apparel sales grew more quickly in the Boston, Cleveland and San Francisco Districts. Chain department store sales were stronger in the Richmond District and same-store sales increased in the New York District. Softer residential real estate conditions damped home improvement and furniture sales in the New York, Richmond, Kansas City and San Francisco Districts.

Vehicle sales weakened in several Districts–particularly sales of domestic automobiles, SUVs and light trucks. However, a few Districts reported increased sales of foreign cars and fuel-efficient automobiles. Philadelphia noted that a growing number of smaller automobile dealerships had closed and dealers in the Atlanta District added incentives to move inventory. In the Dallas District, sales of luxury vehicles increased.

Tourist activity strengthened since our last report. New York said that tourism remained robust in New York City. Kansas City reported solid gains in hotel occupancy rates, while tourist activity in the San Francisco District remained at a high level despite some moderation. Tourism in the Richmond District was temporarily dented by Hurricane Ernesto in early September, but rebounded later in the month.

Services
Activity in the service sector generally strengthened across Districts since the last report. The Philadelphia, Richmond, St. Louis and San Francisco Districts reported increased demand for professional and technical services. Boston reported increased demand for consulting and financial services, and along with San Francisco, for healthcare services. Richmond indicated that demand for computer and web-based services firmed and San Francisco noted that demand for media services was stronger. Assessments of transportation services were mixed. Trucking firms reported declining volume in the Philadelphia, Cleveland, Atlanta and Dallas Districts, and in Cleveland, shipping services continued to soften. Chicago said trucking volume was up slightly and cargo shipping increased in the Dallas District. St. Louis reported that freight transportation companies planned expansions. Atlanta indicated that rail companies experienced steady growth in inter-modal shipment volume, and Dallas said that rail demand was strong.

Manufacturing
Manufacturing activity remained generally strong in most Districts. Eight of the twelve Districts indicated that factory output increased, while Chicago and Kansas City noted that the pace of expansion slowed. Minneapolis described factory activity as mixed and Philadelphia reported that factory production edged down. The output of energy-related equipment increased in the Boston, Atlanta and Dallas Districts, while Chicago and San Francisco indicated that orders for machine tools increased. San Francisco reported that semiconductor sales were solid. The demand for steel was especially strong according to Atlanta and Chicago, while Cleveland and Chicago noted that heavy equipment sales continued to be robust. Chicago also reported strength in heavy-duty truck production. In contrast, St. Louis said that producers of motor vehicle parts announced plans to lay off workers and Cleveland reported weakness in the auto industry. Reports of softer demand for housing-related products continued to be widespread, but Dallas noted that strong demand from the commercial construction industry helped offset softer residential demand. Cleveland, Minneapolis, Dallas and San Francisco said that sales of food products had accelerated since our last report.

Construction and Real Estate
Nearly all Districts reported that housing market conditions continued to soften, though several noted that activity increased in some markets. Most Districts reported higher home inventories, and several said that homebuilders and sellers continued to offer incentives to attract buyers. Softer home demand in San Francisco led to layoffs for mortgage brokers and real estate agents. Residential construction remained weak in the St. Louis and Minneapolis Districts except in western North Dakota where residential construction was described as “robust.” New home inventories inched up in the Dallas District despite strong demand in some of its markets and inventories of single family homes and condominiums rose sharply in the Boston District.

New York and St. Louis reported mixed housing activity. On the upside, Manhattan condominium sales showed signs of resilience, and housing sales rose in Memphis, but both Districts noted weakness in most markets. Richmond reported generally weaker housing activity, but also noted increases in some markets. Atlanta said that housing activity rose in its Mississippi Gulf market, and Minneapolis’ Sioux Falls market remained on pace with last year’s record-breaking level. Dallas reported particularly robust home sales in its Houston, Austin and El Paso markets.

Commercial real estate markets were strong in most Districts, and activity increased at a faster pace in a number. Leasing activity increased in New York, Minneapolis, Kansas City, Dallas and San Francisco, and held steady in Richmond. Chicago and St. Louis, however, said leasing activity was mixed. Rent increases were reported by New York, Minneapolis and San Francisco, with Dallas indicating that pricing power was shifting to landlords.

Nonresidential construction was generally strong. Construction activity was steady in the Cleveland, Richmond, Atlanta, Minneapolis and Kansas City Districts and increased in the Chicago and Dallas Districts. Material costs and budget concerns scaled back some projects in the Atlanta and Chicago Districts. The Chicago and Minneapolis reports noted concerns among some contacts that commercial construction may slow in the coming months.

Banking and Finance
Lending activity was mixed as increases in commercial lending were offset by further weakness in residential mortgage lending. The New York, Richmond and Chicago Districts reported declines in overall loan demand, while Philadelphia, St. Louis and Kansas City reported modest increases. Demand for residential mortgages slowed in the New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Dallas and San Francisco Districts. Demand for commercial and industrial loans rose in the Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis and San Francisco Districts; held steady in the Richmond and Dallas Districts; and declined in the New York District. The commercial lending market was characterized as very competitive by Richmond, Chicago and Dallas. Overall credit quality remained generally good, although increases in mortgage delinquency rates were noted by Philadelphia, Cleveland and Atlanta. Tighter standards for commercial loans were reported by New York and Chicago.

Agriculture and Natural Resources
Agriculture conditions generally improved as late summer rainfall brought relief to drought-stricken Districts, although some rains hindered field work in some areas and damaged crops in others. Richmond indicated that tropical storm Ernesto severely damaged crops along some coastal areas. Chicago and St. Louis reported that recent precipitation and unseasonably cool weather delayed corn and soybean harvests. Crop yields in the Minneapolis District improved with the rainfall, though Chicago reported that yield prospects were mixed. In the Kansas City District, cooler weather and scattered rainfall restored soil moisture and pastures conditions, though cattle producers continued to draw down herds. Dallas, however, said that while September rains assisted wheat producers and eased pressure on livestock producers to liquidate herds, many parts of the District still needed rain. San Francisco reported strong sales for livestock and most crops but indicated that spinach producers put planting on hold.

Activity in the energy industry remained strong according to reports from the Minneapolis, Kansas City and San Francisco Districts. Minneapolis indicated that alternative energy industries continued to expand at a rapid pace and that mining production was at near-capacity across the District. Kansas City noted that oil and gas drilling rig counts remained above year-ago levels, while San Francisco said that oil and natural gas extraction continued at a rapid pace. In contrast, Dallas reported that activity in the oil and energy producing sector was virtually unchanged although demand for oil-field equipment and energy services remained strong.

Employment, Wages, Prices
Labor market conditions remained taut since our last report. The Boston, Philadelphia, Richmond, Minneapolis and Dallas reports characterized labor markets as generally tight, particularly for skilled workers, while the remaining Districts noted that job growth was steady to stronger. Six Districts mentioned labor shortages, particularly for professional, scientific, and other technical workers. In addition, Kansas City said retailers faced shortages of experienced sales workers and Atlanta indicated that residential construction firms were having difficulty obtaining qualified construction workers, despite the slowdown in building activity. In contrast, Cleveland reported that roughly half of the homebuilders they contacted had reduced their labor force.

Wage growth around the nation was generally modest, although faster wage growth for skilled services workers was cited by a number of Districts. The San Francisco District noted that a short supply of healthcare, finance and construction workers pushed wages higher. In addition, Richmond noted a sharp uptick in retail wages and Atlanta reported that some manufacturers had raised entry-level wages in an effort to attract workers.

Most Districts reported few signs of increased price pressures in recent weeks. A number of Districts said that energy prices moderated, but increases in raw materials prices were noted by Philadelphia, Richmond and Atlanta, and a rise in building materials prices was reported by Minneapolis. Instances of businesses passing on higher costs were scattered across Districts; Cleveland and Atlanta said some manufacturers attempted to raise output prices while Boston reported increases in retail prices. Boston also reported that costs for some businesses had increased–especially for airfare and hotel accommodations. Likewise, the New York District noted that accommodation and theatre ticket prices had risen sharply compared to a year ago.

Forecast sees housing prices falling - Yahoo! News
Housing prices, slumping after a five-year boom, are projected to decline in more than 100 of the nation’s metropolitan areas, with the Northeast, Florida and California among the areas hardest hit.
The forecast by Moody’s Economy.com, a private research firm, presents one of the starkest views yet of the housing slowdown that has been gathering force in recent months.

The West Chester, Pa., forecasting firm projects that the median sales price for an existing home will decline in 2007 by 3.6 percent, which would be the first decline for an entire year in home prices since the Great Depression of the 1930s.

The forecast is included in a 195-page report, “Housing at the Tipping Point,” which The Associated Press obtained before its general release on Wednesday.

The report projected that 133 of the nation’s 379 metropolitan areas would suffer price declines. Those metropolitan areas with declining prices account for nearly one-half of the value of the nation’s stock of single-family homes.

The price declines represent quite a contrast from the past five years when low mortgage rates pushed sales to five consecutive annual records and prices in the hottest sales areas skyrocketed.

But this year, the once red-hot housing market has cooled significantly. Some analysts are worried that the slowdown could become so severe that it could drag the entire country into a recession, much as the bursting of the stock market bubble in 2000 led to the 2001 slump.

The housing report said the biggest percentage price decline will be in Danville, Ill., where prices have already fallen by 18.7 percent from the peak in the second quarter of 2005 to a low-point in the first three months of this year. That setback occurred because of layoffs in autos and other manufacturing industries, which depressed the local economy.

The second biggest decline is projected to occur in the Fort Myers, Fla., area, a fall of 18.6 percent from the peak in the final three months of last year to a low-point for prices that is projected to occur in the second quarter of 2007.

The 133 areas with slumping prices are concentrated in the states of California and Florida and the Northeast corridor from southern Maine to just south of Washington, D.C., as well as boom areas of Nevada and Arizona and some depressed sections of the Midwest such as Detroit.

Of the areas with falling prices, 73 were forecast to hit their low point by the end of this year with the rest seeing a trough for prices in 2007 or later.

But even in areas which have already hit a low point, the rebound in prices is not expected to occur quickly.

“Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade,” said Mark Zandi, chief economist at Moody’s Economy.com and the principal author of the report.

Not all parts of the country will experience price declines. The report said Texas, the Southeastern states other than Florida and much of the Midwest Farm Belt should be immune from price declines.

It projected that annual price gains over the next two years would average 4.2 percent in the Dallas area, 3.3 percent in the Charlotte, N.C., area and 3 percent in the Columbus, Ohio, area.

The report said the most vulnerable areas for price declines were those regions where red-hot markets attracted speculators known as “flippers” who purchased homes in hopes of selling them fast for a quick profit.

“Housing’s downturn has turned even more dramatic with the rapid flight of the flipper from the market,” the report said. “These investors have gone from sending home sales and prices shooting higher to driving sales and prices lower.”

The report described the current environment as a “correction” and not a “crash,” but it cautioned that there were downside risks that could make the slowdown more serious.

A big threat is that the fall in home prices could have a significant impact on consumer spending patterns. The so-called wealth effect pushed consumer spending higher during the housing boom as soaring home prices made homeowners feel more wealthy and thus more inclined to spend money. But falling home prices could have the reverse effect and depress consumer spending.

“We believe the housing downturn will weigh on the economic expansion but will not break it. But there are risks,” Zandi said.

The slowdown in housing occurred as a result of a two-year campaign by the
Federal Reserve to push interest rates higher as a way of slowing the economy enough to keep inflation under control.

The Fed has kept rates unchanged for the past two months and many economists believe the central bank has finished its rate hikes as long as inflation pressures keep falling.

The belief that the current economic slowdown is restraining inflation has helped push mortgage rates lower with the 30-year mortgage now at a six-month low of 6.31 percent, an improvement that is expected to help put a floor on housing’s fall.

___

On the Net:

Moody’s Economy.com: http://www.economy.com

Moving to a Cheaper Neighborhood Doesn’t Always Pay
From Business Week Online:

Interesting report out today from the Center for Housing Policy, which concludes that most of the savings that moderate-income families get from moving to a neighborhood with cheaper housing are eaten up by higher transportation expenses. And the problem seems to be getting worse: 15 of the 20 fastest-growing counties in the U.S. are 30 or more miles from the nearest central business district (where a lot of the jobs are). The center defines “working families” as ones with incomes of $20,000 to $50,000 a year.

San Francisco comes out worst in the study, with working families spending about 35% of their income on housing and another 27% on transportation, which rounds up to 63% combined. Pittsburgh comes out best, but not a whole lot better, at 22% for housing and 33% for transportation, which rounds down to 54%.

There is a very interesting discussion about demand for housing at the Calculated Risk Blog. The most recent posting can be found here. This blog began this discussion with a basic primer on the national housing market. The initial post can be found here. For those of you into this type of stuff, this is a good series of articles to give you basic understanding of the housing markets.

I intend to post more on this topic soon.

Offbeat Homes

I recently came across this blog dedicated to the unique, odd and downright weird homes of yesterday, today and tomorrow!  Go take a look for some really great homes??!!