Home prices drop for fourth straight quarter
But the latest home prices from Realtors show losses seem to be easing.
By Les Christie, CNNMoney.com staff writer
August 15 2007: 3:29 PM EDT


NEW YORK (CNNMoney.com) -- The price of a typical home in the United States continues to drop but at a slower pace, according to a new survey.

During the second quarter, the median single-family home price was $223,800, 1.5 percent less than a year ago, according to the National Association of Realtors (NAR). It was the fourth consecutive quarter of price declines. Condo prices rose 1 percent to a median of $226,800.


Prices are off 1.7 percent from their peak of $227,600, recorded during the third quarter of 2005. The biggest year-over-year decline on record of 2.7 percent came in the fourth quarter of 2006.

Despite the continued drop, NAR's senior economist, Lawrence Yun called the results, "encouraging." 97 of the 149 metro areas surveyed recorded year-over-year price increases.

"Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006," he said. "Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets."

Looking ahead, Yun's forecast is one of the most optimistic among economists. He predicts home prices will turn slightly positive again by spring of 2008 and rise about 2 percent that year. He said prices will pick up more in 2009.

The number of home sales dropped a lot more than prices. The pace of single-family house and condo sales came to 5.91 million units annualized. That was down 10.8 percent compared with the second quarter of 2006 when sales were at a 6.63 million annual rate.

NAR's results were widely expected, coming during a time when most housing market indicators have pointed to negative territory.

Home sales have fallen in many markets, inventories have stretched to a nearly eight-month supply, and new-home builders have been reporting big losses.

Mortgage rates rose from about 6.17 percent at the beginning of April to about 6.67 percent by the end of June for a 30-year, fixed-rate mortgage. The mortgage meltdown, spurred by problems with subprime loans, has led to a liquidity squeeze - many potential buyers can no longer qualify for a loan.

An increase in delinquencies among mortgage borrowers has also resulted in big spikes in foreclosure filings around the nation, unleashing a flood of vacant houses on the market.

Among individual metro areas, prices plunged furthest in Elmira, N.Y., down 17.9 percent to $71,700. Other big losers included Palm Bay, Fla. (down 15 percent to $183,300), Davenport, Iowa (down 11.3 percent to $103,300) and Sarasota, Fla. (down 11.3 percent to $311,400).

Pockets of strength included Salt Lake City, where prices rose 21.9 percent, the most of any metro area, to $233,100. In the Pacific Northwest, Salem, Ore. prices rose 16.7 percent to $227,900, and Spokane, Wash. prices went up 10.4 percent to $197,700.

Several small cities just outside the giant shadow of New York City enjoyed outsized price increases.

Reading, Penn. recorded an 11.2 percent increase to $157,800, and in nearby Allentown, prices jumped 12.8 percent to $274,500. Binghamton, N.Y. homes soared 19.8 percent to $111,200, and Glens Falls, N.Y. prices ramped up 10.7 percent to $175,700.

The New York metro area itself recorded a much more modest increase of 1.7 percent to $482,300.

The most expensive metro area was San Jose, California, where the median single-family house sold for $865,000. The bottom of the list was Elmira, with its $71,700 median.

Strong condo markets were again led by Salt Lake City, up 25.2 percent to $162,200, and included Texas cities Austin (up 14.9 percent to $171,100) and Dallas (up 12.2 percent to $133,200).

Syracuse, N.Y. recorded the largest condo losses of 13.9 percent to $123,000.

Three of the four U.S. regions experienced lower single-family home prices with the lone exception, the Northeast recording a 0.7 percent rise to $298,000.

The Midwest saw the largest regional downturn, 2.2 percent to $163,500. The West has the highest median prices, $349,400, up 0.4 percent. The South's median home is $185,000 and fell 1.6 percent.

Latest housing prices from the National Association of realtors for 149 metro area markets
Houses Condos «Click housing type for details»
Metropolitan Area Median home price % Change
Akron, OH $125,300 1.5%
Albany-Schenectady-Troy, NY $191,600 -0.7%
Albuquerque, NM $199,600 7.7%
Allentown-Bethlehem-Easton, PA-NJ $274,500 12.8%
Amarillo, TX $115,000 -3.0%
Anaheim-Santa Ana, CA (Orange Co.) $727,000 0.1%
Appleton, WI $131,900 0.0%
Atlanta-Sandy Springs-Marietta, GA $175,500 0.9%
Austin-Round Rock, TX $186,600 5.6%
Baltimore-Towson, MD $293,700 3.0%
Barnstable Town, MA $384,600 -5.4%
Baton Rouge, LA $174,700 1.4%
Beaumont-Port Arthur, TX $127,700 11.8%
Binghamton, NY $111,200 19.8%
Birmingham-Hoover, AL $164,900 -2.8%
Bismarck, ND $151,400 9.2%
Bloomington-Normal, IL $161,500 7.0%
Boise City-Nampa, ID $212,800 2.6%
Boston-Cambridge-Quincy, MA-NH** $413,300 -1.9%
Boulder, CO $383,700 2.3%
Bridgeport-Stamford-Norwalk, CT $515,300 3.8%
Buffalo-Niagara Falls, NY $103,300 6.7%
Canton-Massillon, OH $114,600 0.2%
Cape Coral-Fort Myers, FL $266,200 -2.0%
Champaign-Urbana, IL $144,900 1.0%
Charleston-North Charleston, SC $223,200 4.4%
Charleston, WV $127,600 3.7%
Charlotte-Gastonia-Concord, NC-SC $207,300 8.3%
Chattanooga, TN-GA $135,300 -4.9%
Chicago-Naperville-Joliet, IL $283,200 1.7%
Cincinnati-Middletown, OH-KY-IN $146,200 -1.9%
Cleveland-Elyria-Mentor, OH $128,700 -7.1%
Colordo Springs, CO $221,300 1.4%
Columbia, SC $148,300 2.2%
Columbus, OH $153,900 -1.2%
Corpus Christi, TX $136,000 -1.8%
Cumberland, MD-WV $109,300 9.3%
Dallas-Fort Worth-Arlington, TX $156,500 1.7%
Davenport-Moline-Rock Island, IA-IL $103,300 -11.3%
Dayton, OH $120,300 -0.2%
Decatur, IL $88,900 4.2%
Deltona-Daytona Beach-Ormond Beach, FL $193,200 -8.3%
Denver-Aurora, CO $255,200 0.0%
Des Moines, IA $147,700 -0.1%
Detroit-Warren-Livonia, MI $144,600 -7.1%
Dover, DE $209,800 0.3%
Durham, NC $180,100 1.2%
Elmira, NY $71,700 -17.9%
El Paso, TX $132,300 4.4%
Erie, PA $99,900 -2.3%
Eugene-Springfield, OR $240,900 5.8%
Fargo, ND-MN $139,000 1.3%
Farmington, NM $201,900 14.0%
Ft. Wayne, IN $101,600 0.8%
Gainesville, FL $216,200 1.0%
Gary-Hammond, IN $137,800 7.3%
Glens Falls, NY $175,700 10.7%
Grand Rapids, MI $132,300 -3.0%
Green Bay, WI $153,100 0.3%
Greensboro-High Point, NC $156,300 3.8%
Greenville, SC $152,500 0.2%
Gulfport-Biloxi, MS $154,200 6.6%
Hagerstown-Martinsburg, MD-WV $218,700 -4.7%
Hartford-West Hartford-East Hartford, CT $242,700 -5.4%
Honolulu, HI $665,000 3.9%
Houston-Baytown-Sugar Land, TX $154,900 1.4%
Indianapolis, IN $125,300 2.4%
Jackson, MS $145,100 -2.8%
Jacksonville, FL $198,700 0.4%
Kankakee-Bradley, IL $140,400 4.1%
Kansas City, MO-KS $157,700 -0.7%
Kennewick-Richland-Pasco, WA $167,700 6.7%
Kingston, NY $264,900 6.6%
Knoxville, TN $160,200 4.8%
Lansing-E.Lansing, MI $133,900 -5.4%
Las Vegas-Paradise, NV $307,900 -3.6%
Lexington-Fayette,KY $148,300 -1.1%
Lincoln, NE $138,000 -0.5%
Little Rock-N. Little Rock, AR $132,600 3.4%
Los Angeles-Long Beach-Santa Ana, CA $593,000 2.9%
Louisville, KY-IN $139,300 0.9%
Madison, WI $223,500 0.9%
Memphis, TN-MS-AR $144,300 -0.9%
Miami-Fort Lauderdale-Miami Beach, FL $384,400 2.0%
Milwaukee-Waukesha-West Allis, WI $229,300 0.7%
Minneapolis-St. Paul-Bloomington, MN-WI $227,100 -2.5%
Mobile, AL $140,400 1.6%
Montgomery, AL $150,100 -0.4%
Nashville-Davidson--Murfreesboro, TN $186,400 4.8%
New Haven-Milford, CT $296,500 1.3%
New Orleans-Metairie-Kenner, LA $166,000 -6.7%
New York-Northern New Jersey-Long Island, NY-NJ-PA $482,300 1.7%
New York-Wayne-White Plains, NY-NJ $557,500 6.3%
NY: Edison, NJ $385,100 -0.1%
NY: Nassau-Suffolk, NY $479,800 0.2%
NY: Newark-Union, NJ-PA $416,000 -6.4%
Norwich-New London, CT $276,600 1.3%
Ocala, FL $170,900 0.8%
Oklahoma City, OK $129,300 3.1%
Omaha, NE-IA $136,800 -4.3%
Orlando, FL $265,100 -2.4%
Palm Bay-Melbourne-Titusville, FL $183,300 -15.0%
Pensacola-Ferry Pass-Brent, FL $168,700 -0.2%
Peoria, IL $120,300 4.2%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $243,000 3.4%
Phoenix-Mesa-Scottsdale, AZ $264,800 -2.7%
Pittsburgh, PA $123,500 2.7%
Pittsfield, MA $230,900 8.0%
Portland-South Portland-Biddeford, ME $244,900 0.9%
Portland-Vancouver-Beaverton, OR-WA $298,300 5.2%
Providence-New Bedford-Fall River, RI-MA $291,000 -0.1%
Raleigh-Cary, NC $225,100 8.4%
Reading, PA $157,800 11.2%
Reno-Sparks, NV $331,900 -6.2%
Richmond, VA $236,800 4.2%
Riverside-San Bernardino-Ontario, CA $396,800 -0.3%
Rochester, NY $117,200 1.6%
Rockford, IL $122,200 5.4%
Sacramento--Arden-Arcade--Roseville, CA $356,500 -6.3%
Saint Louis, MO-IL $157,200 2.7%
Salem, OR $227,900 16.7%
Salt Lake City, UT $233,100 21.9%
San Antonio, TX $154,300 6.6%
San Diego-Carlsbad-San Marcos, CA $614,100 0.2%
San Francisco-Oakland-Fremont, CA $846,800 7.6%
San Jose-Sunnyvale-Santa Clara, CA $865,000 8.8%
Sarasota-Bradenton-Venice, FL $311,400 -11.3%
Seattle-Tacoma-Bellevue, WA $395,300 8.9%
Shreveport-Bossier City, LA $137,100 0.7%
Sioux Falls, SD $142,300 1.4%
South Bend-Mishawaka, IN $93,600 -7.0%
Spartanburg, SC $133,200 0.7%
Spokane, WA $197,700 10.4%
Springfield, IL $111,200 -0.8%
Springfield, MA $216,800 1.3%
Springfield, MO $123,700 1.3%
Syracuse, NY $122,600 5.0%
Tallahassee, FL $180,900 3.5%
Tampa-St.Petersburg-Clearwater, FL $222,700 -3.8%
Toledo, OH $109,800 -5.2%
Topeka, KS $111,700 6.3%
Trenton-Ewing, NJ $313,900 8.1%
Tucson, AZ $250,100 1.1%
Virginia Beach-Norfolk-Newport News, VA-NC $250,800 5.7%
Washington-Arlington-Alexandria, DC-VA-MD-WV $445,300 0.3%
Waterloo/Cedar Falls, IA $113,500 4.9%
Wichita, KS $110,700 -0.7%
Worcester, MA $278,900 -2.4%
Youngstown-Warren-Boardman, OH-PA $76,700 -2.5%
U.S. $223,800 -1.5%
Northeast $298,000 0.7%
Midwest $163,500 -2.2%
South $185,000 -1.6%
West $349,400 -0.4%

Current Mortgage Rates

30 yr fixed mtg 6.25%
15 yr fixed mtg 5.91%
30 yr fixed jumbo mtg 7.09%
5/1 ARM 6.12%
5/1 jumbo ARM 6.56%

Homebuilders Liquidate Assets in Desperation Sales

By Bob Ivry

Oct. 5 (Bloomberg) -- When D.R. Horton Inc., the second- biggest U.S. homebuilder, couldn't sell the one-bedroom condominium in San Diego it listed for $349,800, the property was auctioned as a last resort for 37 percent less.

D.R. Horton, with annual revenue of about $11 billion, and Hovnanian Enterprises Inc. now face the worst choice in the worst residential real estate slump since the 1930s. They're selling homes at any price they can get.

``It's desperation time and some companies may not make it,'' said Alex Barron, an industry analyst at Agency Trading Group Inc. in Wayzata, Minnesota. ``At this point in the housing cycle, if you have too much debt, it's hard to get out from under it.''

Homebuilder profits depend on the cost of land, said John Burns, president of John Burns Real Estate Consulting in Irvine, California. Companies can still make money building on land purchased before the 2005 peak of the five-year U.S. housing boom, though price declines of as little as 10 percent might wipe out those profits, he said.

``They are all losing money,'' Burns said. ``They'll talk in terms of gross margin and it sounds like they made money, but they actually lost money because they didn't make their costs.''

`Really Stinks'

The average cost to build a 3,340-square-foot home in the U.S. is $403,925, according to the National Association of Home Builders in Washington. That includes $219,015 for construction costs, $45,507 for the price of undeveloped land, $65,969 to prepare the land for building, marketing expenses of $11,258 and a sales commission of $19,499.

During Hovnanian's ``Deal of the Century'' promotion last month, the company sold a 2,900-square foot five-bedroom, three- bathroom house at the Greenwood Manor development in Royal Palm Beach, Florida, for $525,000, said Kathy Bell, who bought a house with the same floor plan down the street for $575,000 in March 2006.

``It really stinks,'' said Bell, 50, a medical billing specialist. ``We were here in the beginning and we didn't get any deals. It's very upsetting.'' [I just love this bit. I overpaid for my home and it's very upsetting that my face is being rubbed in it! The "where's my share" syndrome appears to be universal. Judd]

Construction costs alone for a house that size would be about $435,000, according to the Florida Home Builders Association. That doesn't include the cost of land, or preparing the lot.

Debt Load

Hovnanian's Web site said that model was available ``starting from $530,000s.'' Hovnanian spokesman Jeff O'Keefe said the company offered discounts as high as 30 percent. O'Keefe said he wouldn't comment on the prices paid for properties sold during the promotion, which ran from Sept. 14 to Sept. 16. Chief Executive Officer Ara Hovnanian had said the company sold 2,100 homes in the three days, more than double expectations.

The 15 largest homebuilders are saddled with $7.75 billion in debt due to be repaid through 2009 and the companies' bonds trade as if they were junk, according to credit-default swap data.

Most homebuilders have generated cash from sources they won't be able to sustain, Moody's Investors Service said in a report issued today.

They have sold mortgages that their home-loan units have originated and reduced the amount of land they have purchased, giving their cash flow a bump this year, said Tom Marshella, head of homebuilder research for the New York-based bond-rating company.

Smaller Businesses

``For the near term many of them will have to operate as smaller businesses,'' Marshella said in an interview.

At least five of the top 15 homebuilders by revenue are burdened with too much debt, Agency Trading's Barron said. They are Hovnanian in Red Bank, New Jersey; Irvine, California-based Standard Pacific; WCI Communities Inc. of Bonita Springs, Florida; Atlanta-based Beazer Homes USA Inc.; and TOUSA Inc. in Hollywood, Florida.

WCI will reduce its debt with the completion this year of a luxury condominium tower in Bal Harbour, Florida, said Chief Financial Officer Jim Dietz.

``We might discount a home 20 percent if the profit margin was 30 percent, but we haven't discounted any properties 40 percent, which some homebuilders are doing to raise cash,'' Dietz said.

Officials from Standard Pacific and Beazer didn't return calls seeking comment.

`Focused on Today'

``We're not focused on growth,'' Ian McCarthy, Beazer's chief executive officer, said at a homebuilding conference in New York on Sept. 18. ``We're very much focused on today and getting through this downturn.''

Beazer has conducted three national sales since June, the latest called ``Smart Homes Savings Event.''

TOUSA withdrew its forecasts for 2007 and 2008 on Wednesday, blaming what it called worsening market conditions, the company said in a statement.

The company will focus on generating cash to pay down debt, CEO Antonio Mon said in the statement.

TOUSA Vice President for Investor and Corporate Communications Hunter Blankenbaker, reached by phone, said he had no further comment.

Pulte Homes Inc., the third-largest homebuilder by revenue, ran a newspaper advertisement in September in which the Bloomfield Hills, Michigan-based company offered to pay buyers' mortgages and taxes for six months if they bought homes at its developments in suburban Chicago.

`The Perfect 10'

Pulte's national sale in June, called ``The Perfect 10 Event,'' was a success, according to spokesman Mark Marymee, who wouldn't specify what profit margins were or how many homes the company sold.

``The builders are very hush-hush about the prices they're selling new homes for,'' said Andres Wilken, who writes the South Florida Housing Bubble blog in Tamarack, Florida.

Ryland Group Inc., based in Calabasas, California, offered suburban Chicago buyers a free finished basement and a plasma television in a September newspaper advertisement. Miami-based Lennar Corp., the biggest U.S. homebuilder, put 16 homes in Palm Springs, California, up for auction on the Internet in April, selling 11, according to Tony Isbell, president of RealtyBid.com in Rainbow City, Alabama, which conducted the auction.

``A lot of people see it as desperation,'' Isbell said.

Overcome Qualms

D.R. Horton of Fort Worth, Texas, overcame qualms about its image with the Sept. 29 auction of 56 unsold San Diego condominiums. The 200 bidders who filed into a tent on the grounds of the Doubletree Hotel in Mission Valley, California, needed a $5,000 cashier's check to prove they were serious, said Steven Moran, an agent with Century 21 Award in San Diego, who attended with 11 clients.

``I ran the numbers and the condos sold for between 68 cents and 74 cents on the dollar based on the original asking prices,'' Moran said.

A condo with an enclosed balcony and an indoor parking spot was originally listed at $349,800 and sold for $220,000, Moran said. D.R. Horton also threw in a washer-dryer and $2,500 toward closing costs, Moran said.

``Adding a credit toward closing costs still allows them to show the highest selling price they can,'' Moran said.

D.R. Horton spokeswoman Jessica Hansen did not return calls seeking comment. The company did not allow members of the media into the auction and has not released sales information.

Incentives to Buyers

About 57 percent of builders offered incentives to buyers in August, up from 37 percent in September 2005, the last month of the national housing boom, according to a survey by the National Association of Home Builders.

Fifty-two percent of builders said they cut prices in August, compared with 19 percent in September 2005, the builders group said. The typical incentive was worth about $5,000 and the median price reduction was about 5 percent, said Stephen Melman, director of economic services for the builders association.

``Our company has intensified the focus on generating cash and keeping inventories low,'' Lennar Chief Executive Officer Stuart Miller said in a Sept. 25 conference call. ``We have rigorously pursued this objective by using incentives and price reductions to sell homes and to backfill cancellations.''

Pinched by competitors' discounts, Los Angeles-based KB Home saw gross margins fall to negative 28 percent in the third quarter from 21.1 percent in the same period last year, the company said in a regulatory filing Sept. 27.

`Margin Pressure'

``We anticipate the pricing and margin pressure will continue until the inventory levels of unsold homes is back in balance with demand,'' KB Home Chief Executive Officer Jeffrey Mezger said on a conference call that day.

To achieve a balance between the number of buyers and sellers, homebuilders need to cut current inventories in half, said Michelle Meyer, an economist at New York-based Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm by market value.

Meyer's outlook calls for sales to drop until the third quarter of 2008 and for housing starts to decline until 2009.

It would take 8.2 months to sell off the current inventory of unsold new homes, according to the U.S. Census Bureau. The average over the last six years is 4.9 months.

``We would not be surprised to see one or more of the larger homebuilders become insolvent if current pricing trends persist into 2008,'' Mark A. Morgan, senior equity financial analyst with New York-based Rochdale Securities LLC, wrote in a note to clients on Sept. 27.

More Lenient Terms

At least seven publicly traded homebuilders have asked their banks for more lenient lending terms in the past four months, according to New York-based research firm CreditSights Inc. They are Pulte, on June 29; D.R. Horton, on July 6; Beazer, on July 25; Dallas-based Centex Corp., on July 18; KB Home on Aug. 17; Lennar, on Aug. 21; and Standard Pacific on Sept. 14.

``It's important for any business to have positive cash flow,'' said Calvin Boyd, vice president for investor relations at Pulte. ``In this environment, that need is enhanced a bit.''

The five biggest homebuilders by revenue -- Lennar, D.R. Horton, Pulte, Centex and KB Home -- wrote off a combined $3.3 billion in the third quarter on land they own and will not build on or options to buy land they are choosing not to exercise. Shares of the companies have declined between 46 percent and 53 percent this year.

The ``devastating impact'' of those losses could make banks less inclined to grant builders more lenient lending terms in the future, Frank Lee and Sarah Rowin of CreditSights said in a Sept. 26 report.

``The banks are in the drivers' seat and will determine the future of the homebuilders,'' Lee said in an interview.