New Home Sales Froze Over In February

It is getting tougher and tougher to say that the worst has come in the housing market as every time we do...another part of the floor gives out. But there are signs of a very light thaw starting.

In February, new home sales were down 29.8% year over year. While this is better then expected, home sales still hit a 13-year low as no one wants to buy while things continue to slide. Home inventory is now at a 9.8 month supply and while the median price tick up a little month over month it is still down 2.7% vs last year.

Here in our little mecca in the woods the home values have been hit hard..of course that is directly proportional to the crazy rise in values here for the last 6-years as well. Frankly in you bought 5+ years ago here, you are in good shape even with the slide. But if you just moved back a year ago like I did you are down.

On the upside, open lots in our neighborhood (its about 2-years old) are now all sold out and a bunch of houses are being built. It feel a bit like Field of Dreams as I think the are trying to build their way out of this mess. That being said the other house we looked at in our neighborhood when we bought this one is still on the market 15 months later.

Things are tough all over brother!

How's your area doing?

Personal Finance QuickTake: To Hell with Homeowner's

Treasury Secretary Paulson said today the housing prices should be allowed to continue to fall in order to allow markets to stabilize and allow buyers to come back into the market.

In other words...That $1.2 Trillion worth of Home Owner equity at stake in the crisis should evaporate. That $1.2T is from a seperate report looking at the write-offs that may happen in regards to loans. It doesn't take into account the lower values of homes that people will hold onto. Regardless $1.2 Trillion equals $4800 for every man women and child in the US, or $24,0000 for my family alone.

The problem with that statement is that it does forget families, which is whose skin this is peeled from. Imagine...they believe the sending my family $2100 is going to be a big stimulus to the economy...what do you think asking me to pay back that $24,000 is gonna do to the economy?

Unless a stabilization plan is put into place, people en masse are going to walk away from their homes. It is already happening. Then the next ripple is to those like me that hold our home and make our payments is that the value further erodes.

Hey...it is my debt, I signed for it. But if you are the government, make sure to see who your are flipping off before you raise the bird!

Homeowner Equity Lowest Since End of WWII

The amount of equity Americans have in their homes fell below 50% for the first time since 1945, according to an AP Report on Yahoo. That was the first year the Fed began to track that data.

Per the report:

Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing. Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset.

The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this. On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners.

While I'll be happy to take a reduction on the principle owed on my house, it feels like we are setting ourselves up for more issues in the future. "If I can't pay in the future, why can't I get help then too?" will be the call. The process that the government worked with lenders on to get people over to fixed rate loans was byzantine at best. A real system like that, but works makes more sense to me. If you cut the amount I owe and then the rate flips and I still can't afford it, all it did was to catch a write-off.

At the same time this is really starting to punish those that do want to pay. As all of the houses hit the market, on foreclosure, the overall property value goes down. So even if some one bought a house with 20% down and a 15-year loan, now the house is below the 80% threshold. Does he need PMI now?

A big mess, we need a cleanup on aisle two...stat.

(Photo from AP)

Personal Finance QuickTake: 10% of Homes Underwater

According to a new report from Reuters, 10% of homes are underwater. No, this is not a global warming post we are talking about the loans being underwater, or the Homes being worth less (often much less) then the loan is currently valued.

According to Mark Zandi, Chief Economist at Moody's Economy.com, 8.8 Million Homeowners, or 10.3% of the total, are in over their heads. as a result millions of home owners have incentive to abandon their homes.

This ties to an earlier post as well as an article on msnMoneyBlog that quotes me in it (plug!). The issue is not just those people and the bad bank loans. It is also that underpriced homes are hitting the market at the worst possible time, when sales are abnormally low. The homes are underpriced because the banks want to get the houses off of their books, they have no reasons to hold them it is only tying up cash flow.

According to Mark Zandi, each foreclosure on a neighborhood block reduces the value of all homes on that block by almost 1.5 percent. That is a hefty hit! on a $500,000 house that $7500 gone. In many neighborhoods, especially in California's Bay Area and Detroit, you can have 20% being for sale! I don't believe that this is a cumulative affect, but more like a logarithmic one. In other words, one house in default would cost you $7500, two would cost $20-25K!

So when do they see it turning around? Zandi expects home sales to hit bottom this spring, housing starts to reach a nadir this summer and house prices to trough in the spring of 2009! Nice...

Personal Finance QuickTake: Countrywide

Yahoo via the AP is reporting the Countrywide's Stock is getting hammered on rumors that it will declare bancrupcy. This is a stunning reversal for a once booming company that was growing by leaps and bounds only 18-months ago. While companies make their own bed, I do feel for the remaining employees at the company if it happens.

My mortgage isn't at Countrywide, and even if they go under someone will buy the owned Mortgages from them, but it shows how deep this mess is...and I hate to say it, but I was part of the problem.

I bought too big of a house since we really loved it. We were given a big Jumbo ARM loan that was no problem since the property rate were shooting up here in Southern Oregon (not like California, but quick). This is really before we as a family had our heads on right regarding Finance. Wouldn't do it now.

That being said, we are lucky. We can pay our payments and could even if the ARM jumped. We will refinance next year before the ARM is up (hense my FICO goal for the year). But we will not realize the debt reduction we could have if we had stayed more within our means. It really isn't the time to sell given the depressed market, as we could take a bath to get out from it so we will stay and enjoy it, but we will be wiser for it.

So if someone tells you you can live well beyond your means due to 100 years of credit management practices being thrown out of the window, think twice...

Personal Finance QuickTake: What $1 Million Buys in Homes

There is an interesting story on abcnews.com this morning regarding what sort of home you get for $1 Million today around the world and it was shocking, at least to me.

I knew how expensive New York and London are, but it seems every major city, even now in Central or Eastern Europe, it is getting tougher and tougher to live in the close to the heart of these major cities.

I looking at any issue it is important to look at the ripple-effect of what these prices can mean. A couple thoughts:

• Salaries - In order to even afford basic housing you are going to have to make a lot more. I don't see salaries (especially mine!) growing fast enough to keep up. Which means...
• Longer Time at Home - Kids will need to stay longer with their parents to get a real start. This can really hurt retirement planning for the parents though. In many parts of the world multi-generational homes are the norm, we may be headed there as well.
• Telecommuting Gets More Important - IF you can't afford to live near the office, you can either commute a really long way and time (the norm for a lot of Californians) or telecommute. As a country we are behind Korea and other countries with 3G or even 4G bandwidth. We'll need it if more start working from home.
• Financial Planning - It is more important than ever to instill the skills and desire to be careful with money as it seems logical that with higher expenses and salaries not keeping up that everyone is going to need every dollar!

In 1977 my parents paid $45,000 for a 3 bedroom, 2 bath home in Omaha. It is probable that my kids could pay $1 Million for the same thing here is Oregon when it comes time! I wonder if the time is coming where more parents try to save for the kids home down payment instead of or in addition to college...