William Shaw Real Estate Services

Recession Officially Over - U.S. Incomes Kept Falling

2011-10-12T06:01:24Z

October 9, 2011
By Robert Pear

WASHINGTON — In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

The finding helps explain why Americans’ attitudes toward the economy, the country’s direction and its political leaders have continued to sour even as the economy has been growing. Unhappiness and anger have come to dominate the political scene, including the early stages of the 2012 presidential campaign.

President Obama recently called the economic situation “an emergency,” and over the weekend he assailed Congressional Republicans for opposing his jobs bill, which includes tax cuts that would raise take-home pay. Republicans blame Mr. Obama for the slump, saying he has issued a blizzard of regulations and promised future tax increases that have hurt business and consumer confidence.

Those arguments may be heard repeatedly this week, as the Senate begins debating the jobs bill. The full bill — a mix of tax cuts, public works, unemployment benefits and other items, costing $447 billion — is unlikely to pass, but individual parts seem to have a significant chance.

The full 9.8 percent drop in income from the start of the recession to this June — the most recent month in the study — appears to be the largest in several decades, according to other Census Bureau data. Gordon W. Green Jr., who wrote the report with John F. Coder, called the decline “a significant reduction in the American standard of living.”

That reduction occurred even though the unemployment rate fell slightly, to 9.2 percent in June compared with 9.5 percent two years earlier. Two main forces appear to have held down pay: the number of people outside the labor force — neither working nor looking for work — has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

During the recession itself, by contrast, wage gains outpaced inflation.

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

“As a labor economist, I do not think the recession has ended,” Mr. Farber said. “Job losers are having more trouble than ever before finding full-time jobs.”

Mr. Farber added that this downturn was “fundamentally different” from most previous ones. Historically, other economists say, financial crises and debt-caused bubbles have led to deeper, more protracted downturns.

Mr. Green and Mr. Coder said the persistently high rate of unemployment and the long duration of unemployment helped explain the decline in income during the recovery.

In the recession, the average length of time a person who lost a job was unemployed increased to 24.1 weeks in June 2009, from 16.6 weeks in December 2007, according to the federal Bureau of Labor Statistics. Since the end of the recession, that figure has continued to increase, reaching 40.5 weeks in September, the longest in more than 60 years.

The new study by Mr. Green and Mr. Coder is based on monthly census surveys, rather than the annual data that appeared in last month’s census report on income. The monthly figures allow researchers to measure income changes more precisely during a recession or a recovery and provide more current information. The annual report is based on surveys conducted early in the following year, and people sometimes confuse how much money they are making at the time of the survey with how much they made the previous year. Additionally, recessions usually do not line up with a calendar year.

A committee of academic economists at the National Bureau of Economic Research, a private group widely considered the arbiter of the business cycle, judged that the most recent recession began in December 2007. The bureau defines a recession as a significant, broad-based decline in economic activity.

The economists said the recession ended in June 2009. In every quarter since then, the economy has grown.

Some economists see signs that the United States may be in or about to enter another recession, though the evidence is mixed.

In their new study, Mr. Green and Mr. Coder found that income dropped more, in percentage terms, for some groups already making less, a factor that they say may have contributed to rising income inequality.

From June 2007 to June of this year, they said, median annual household income declined by 7.8 percent for non-Hispanic whites, to $56,320, and by 6.8 percent for Hispanics, to $39,901. For blacks, household income declined 9.2 percent, to $31,784.

Mr. Green and Mr. Coder, who both worked at the Census Bureau for more than 25 years, found other income changes over the four-year period examined.

For example, income, after adjustment for inflation, declined fairly substantially for households headed by people under age 62, but it rose 4.7 percent for those headed by people 65 to 74, many of whom are not in the labor force. The change was negligible for those 62 to 64.

The type of employment also made a difference. Real median annual income declined to a similar degree for households headed by private-sector wage workers (4.3 percent) and government-sector workers (3.9 percent), but fell much more for the self-employed (12.3 percent).

Family households generally had larger declines in real income than other households. Men living alone showed a bigger decline than women living alone.

Education levels were also a factor. Median annual income declined most for households headed by someone with an associate’s degree, dropping 14 percent, to $53,195, in the four-year period that ended in June 2011, the report said.

For households headed by people who had not completed high school, median income declined by 7.9 percent, to $25,157. For those with a bachelor’s degree or more, income declined by 6.8 percent, to $82,846.

Manhattan Beach School District Ranks 6th in the Nation

2011-10-12T05:53:02Z

May 5th, 2011
By Andrea Ruse

Forbes magazine last week ranked the Manhattan Beach Unified School District sixth in the nation on its second annual “Best Schools for Your Real Estate Buck” list.

Results were published in Forbes’ April 26 online issue, in a list described as “a look at the places in America where your housing dollar will go the furthest in getting your children a great education.”

“That came out of nowhere,” said MBUSD Superintendent Michael Matthews. “It was one of those unbelievably delightful surprises.”

The publication scored districts in 17,589 towns in 49 states based on standardized test scores and the progress of randomly selected students, ranking MBUSD the highest among districts in areas where median home prices exceed $800,000. The school district in the affluent town of Falmouth, Maine, with a median home price of $351,550, took first place on the Forbes list.

“The resulting lists once again demolish the idea that more money equals better schools,” reads the Forbes article. “Falmouth’s performance outshone that of big-dollar school districts like Manhattan Beach, Calif., and New Canaan, Conn., both of which have median house prices above $1.1 million yet scored sixth and 19th, respectively, on an absolute scale. In fact, towns with homes costing between $200,000 to $399,000 represented a sweet spot in the list, grabbing more schools in the Top Ten than any other grouping.”

“That shows that if you’re from an area of high housing prices, it’s harder to get on that list,” Matthews said.

New Canaan came in second among districts in areas where median home prices exceed $800,000, though Nick Williams, chairman of the New Canaan Board of Education, still can’t seem to let go of reaching number one.

“[Manhattan Beach] may have better surfing, but if I read the break correctly, we have a better school system,” Williams humorously remarked to The Daily New Canaan last week.

The honor came two weeks after State Superintendent of Public Instruction Tom Torlakson named Mira Costa High School one of 97 public middle and high schools selected as a 2011 California Distinguished School.

The recognition program, in its 25th year, honors the state’s most outstanding and inspiring public schools with the award; Costa joins more than 5,300 public schools that have been awarded the honor since the program began.

“It’s more and more of a big deal,” Matthews said of Costa’s recognition. “It relies on test scores and every group must continue to improve. When you’ve been improving for seven years, it’s hard to keep improving. We were fortunate [Costa] made a big rise last year.”

Costa principal Ben Dale praised the community’s connection to the school for contributing to its success.

“We constantly and continually feel love and support from parent, business, and civic organizations,” Dale said.

Both distinctions were based in part on the Academic Performance Index (API), a composite measure of student testing results. The district as a whole ranked third in the state on API scores last school year, with Mira Costa showing the biggest increase in scores of all schools in the district. ER

U.S. to Lower the Size of Mortgage it Will Guarantee

2011-10-06T16:27:00Z

By Alejandro Lazo, Los Angeles Times
September 26, 2011, 6:02 p.m.

Uncle Sam is about to take a first tentative step out of the mortgage business by lowering the size of home loans that the federal government will guarantee, and it's already hitting California neighborhoods with higher costs and bigger down payments.

The downward adjustments have ignited outcries from California politicians and sparked a campaign by the state's largest real estate group and its national partner to extend the higher limits; they argue that the Golden State's housing market and economy can ill-afford another setback to recovery.

"This is just going to kill us," said Beth L. Peerce, president of the California Assn. of Realtors. "You don't want the real estate market to get any worse than it is, and it surprises me that our congressmen and senators don't understand that."

But with Washington focused on slashing deficits, few observers predict any further extension of the 3-year-old policy that was intended to throw a lifeline to higher-priced housing markets. Most of the nation's biggest mortgage lenders have already stopped making loans at the old limits, concerned that they will not be able to get them off their books before the official Saturday deadline.

The move to lower loan limits is the first major effort by the federal government to reduce its footprint in the mortgage market. The government currently supports about 90% of new mortgages — essentially propping up the home loan market after credit dried up and home sales plunged in the wake of the subprime mortgage crisis.

The loan limit determines the maximum size of a mortgage that the Federal Housing Administration, Fannie Mae and Freddie Mac can buy or guarantee. So-called nonconforming jumbo loans that are offered by the private mortgage market typically require bigger down payments and carry a higher interest rate, driving up monthly payments for borrowers.

In February 2008, with the housing market and economy reeling, Congress raised the limits for the types of mortgages eligible to be insured or bought by the FHA, Fannie Mae and Freddie Mac. The limits, which are based on a county-by-county analysis of home values, have been extended by Congress every year since to give housing a boost.

FHA borrowers in Los Angeles and Orange counties will see loan limits drop to $625,500 from $729,750, a decline of $104,250. Other pricey areas facing the same change include San Francisco, New York and Washington.

Under the new FHA loan limits, Monterey County would see the biggest drop in the limit, falling $246,750; followed by Merced, down $201,450; Riverside, falling $164,650; San Bernardino, declining $164,650; Solano, dropping $157,300; and San Diego, down $151,250.

Fannie Mae and Freddie Mac loan limits will also follow those changes except when they call for dropping the limit below $417,000, which was the old jumbo limit for Fannie and Freddie loans. When that happens, the limits will drop to no lower than $417,000.

Real estate professionals are bracing for the policy change to hit California hard, as buyers begin learning that they may no longer be able to afford the higher-priced homes they had been considering. The California Assn. of Realtors estimates that more than 30,000 California buyers statewide will face bigger down payments, higher mortgage rates and stricter requirements under the adjustment.

Syd Leibovitch, president of Rodeo Realty in Beverly Hills, said many deals by his brokers involve loans done at the highest amount allowed under the old limits.

"It is not going to be good," Leibovitch said. "The majority of our deals are 729-FHA loans because they are the easiest to qualify."

Sen. Dianne Feinstein (D-Calif.) co-sponsored a bill in early August that would allow the higher limits to stay in place for an additional two years. The real estate and mortgage industries also have been lobbying hard to keep those limits.

With the nation still recovering from the credit crisis, there is virtually no mortgage market outside the loans eligible for government guarantees. Still burned from the subprime mortgage meltdown, very few investors want to buy a mortgage unless it carries government backing, said Guy Cecala, publisher of Inside Mortgage Finance.

But as time runs out, pleas by industry groups appear to be going nowhere. The government is arguing that taxpayers can no longer afford the cost and risk of subsidizing home loans on a grand scale.

"Everybody is asking California to take one for the team," Cecala said. "It is the largest mortgage market in the country, it is the largest state in terms of mortgage activity and it is also the highest cost, where more mortgages are made at the limit than in any other state. It is basically ground zero to a downward adjustment in the loan limits."

The lower limits arrive at a time when lenders are eyeing borrowers more closely than ever to make sure they can make their loan payments.

Major banks are concerned about being forced to buy back loans that don't adhere to certain standards, so qualifying for mortgages has become an increasingly onerous task, with banks demanding more paperwork and higher credit scores.

"The bottom line is Fannie and Freddie will scrutinize any loan that has any performance issue," Cecala said, "so the way to avoid that as a lender is make sure that they are pristine."

NYC Leads Way in Recovery Race

2011-10-06T16:20:43Z

Manhattan market stabilizes, while rest of country plays catch-up
August 01, 2011 07:00AM

By Peter Kiefer

The gulf between New York City's real estate market and the rest of the country has always been wide. But that disconnect appears to be growing.

"Manhattan seems to be one of the lucky ones," said Jonathan Miller, president and CEO of Miller Samuel, who called the Big Apple one of "the best housing markets in the country, relatively."

For example, Manhattan's median residential sale price in the second quarter was only 17 percent below the market peak in 2008, according to the most recent report from brokerage Prudential Douglas Elliman, which is prepared by Miller. That's an improvement from the worst depths of the downturn, when Manhattan prices were 25 to 30 percent below the high, said Miller, who also does market research for Las Vegas, Washington, D.C., Baltimore and Miami.

By contrast, homes in Las Vegas, one of the hardest-hit markets in the country, have lost around 60 percent of their value over the past few years, Miller said. And, the nationwide average decline from the peak of the market is currently around 30 percent.

Unpleasant housing statistics have also abounded elsewhere outside New York City, leading many experts to conclude that a "double dip" in house prices has already begun nationally. According to the Standard & Poor's Case-Shiller Index, national housing prices dropped to a "new crisis low" in March, though they did bounce back slightly in April -- jumping 0.7 percent for the 20-city data set that was studied. Meanwhile, the index found that the number of existing home sales rose in May nationally, but is still roughly 15 percent below last year's volume.

Here in Gotham, by comparison, residential prices have remained stable.

In the second quarter, the Manhattan median sale price dropped 5.5 percent to $850,000 from $899,000 in the same period last year, but rose 8.7 percent from the previous quarter. And, sales volume, while down 3.8 percent from last year's second quarter, jumped 10.7 percent between the first and second quarters of 2011.

In the commercial sphere, Manhattan is also rebounding faster than the rest of the country.

According to data from the CoStar Group, the price per square foot for commercial office rents has been increasing here since the second quarter of 2010, while the average price per square foot nationally for urban markets declined over the same period (with the exception of 2010's fourth quarter, when there was a slight uptick).

Indeed, the average asking rent peaked in the Big Apple in the second quarter of 2008 at $63.82 per square foot. While rents dropped to a low of $42.63 last year, they've since risen 8 percent to $46.05, according to the CoStar data, which includes all building types.

Nationally, however, office rents are moving in the opposite direction.

While asking office rents for urban markets peaked nationally at an average of $24 a square foot in the first quarter of 2008, they dropped to a new low in 2011's second quarter, to $21.34.

CoStar's senior real estate strategist, Chris Macke, said when compared solely to the country's 10 "major" office markets, Manhattan also outpaces its counterparts. While some of those cities, such as San Francisco, are performing strongly and seeing rent increases, others, like Phoenix and Philadelphia, are clearly struggling.

But on the bright side for the nation overall, Macke noted that the rate of decline is slowing down and the amount of office space being taken by tenants (also known as the net absorption) saw a big boost in the second quarter.

Plus, Macke noted that while Manhattan is rebounding faster than the nation as a whole, it also fell harder because there was a much bigger run-up here during the boom.

Indeed, that seemed to bear out on the investment sales side, too, where the most recent figures show that Manhattan saw three times as much growth as the rest of the country.

According to preliminary numbers, Macke said Manhattan saw about $8.4 billion in building sales for the second quarter of 2011 -- a 189 percent increase from the $2.9 billion it logged during the same time in 2010. By comparison, nationally there was $73 billion in building sales for the second quarter -- only a 65 percent increase from the $44.5 billion registered during the same quarter in 2010.

Defying history
Explanations for New York's relative strength range from the obvious (ties between the Manhattan economy and Wall Street) to the more esoteric (the condo and co-op conversions of the 1990s strengthened lending standards and decreased financial exposure here).

"We have been buoyed by foreign buyers, and the weak dollar is certainly helping, and Manhattan employment is better than the national average and the region," Miller added. "And then you have total Wall Street compensation, which is up, and a much lower market share of distressed sales in foreclosure activity."

Manhattan obviously has not been immune to this downturn (during the darkest days of 2009, residential sales volume dropped almost 50 percent). Still, Robert Sammons, vice president of research services at Cassidy Turley, agreed that employment is one of the key reasons Manhattan hasn't been hit as hard as the rest of the country.

"The key to this has been job growth, and in New York we have had incredibly good job growth in 2010 and year-to-date in 2011, and that really surprised a lot of people," he said. "We gained jobs, and [more] important for commercial real estate, we gained office jobs."

In May 2010, the unemployment rate in Manhattan stood at 8 percent. A year later, that figure dropped to 7.1 percent, significantly below the national average of 8.7 percent, according to the New York State Department of Labor. Some of that has to do with the fact that Wall Street firms were bailed out during the recession, insiders said. But it's also is a testament to Manhattan's diversified economy, which includes tourism, media, fashion and technology.

Another factor is that the early 1990s crash prompted changes that still "reverberate today" in New York, according to Steve Malanga, a senior fellow at the Manhattan Institute.

That downturn resulted in bankruptcies for entire residential co-ops buildings, he said, which in turn caused many boards to institute new restrictions on sales and financing, which, 12 years later, ended up limiting Manhattan's exposure to subprime lending.

Similarly for the commercial market, Malanga said a speculative building boom in the 1980s made speculative financing much harder to secure in the city, thus limiting over-development and the creation of a glut of new, tenant-less buildings.

This is not to say brokers, buyers and sellers in Manhattan should break out the bubbly. While Manhattan is doing better than the rest of the nation, insecurities abound in both the commercial and residential markets.

"It is not that we are booming again, it's that we appear to be stabilizing while a large portion of the county is looking at more declines over the next couple of years," said Miller. "I still think New York City metro is looking at general price declines over the next couple of years which will be under the rate that we will see nationally, and I see Manhattan in the best case scenario as remaining flat."

Other skeptics, like CoStar's Macke, noted that recent high-profile building sales in Manhattan are somewhat misleading, and there is more demand for "trophy" properties than other market segments. "When you drill down into sales, there is a real split between properties in high demand and everything else," he said. "It is not as if the overall market is doing as well as the trophy ones, which are leading this charge."

Macke added that some of the prices being paid for trophy properties are highly dependant on strong rental rate growth -- which is clearly not a guarantee.

In addition, Miller warned against thinking that the city is completely protected from the market forces that impact the rest of the country, noting that viewing Manhattan in a vacuum could provide a false sense of security.

"The brokerage sales pitch often is that this is an island and they don't make land here. Come on," he said. "Technically we are an island, but that is a geographic fact, not an economic fact."

Massive Lawsuit Fights Bank's Yanking of Home Equity Lines

2011-10-06T15:39:04Z

August 01, 2011
By Kenneth R Harney

Picture this nightmare financial scenario: You've taken out a $150,000 home-equity credit line to remodel your house, you've already pulled out thousands to pay contractors and owe thousands more, when suddenly you get a curt letter from the bank.

Effective yesterday, it says, we've shut down access to your credit line. Although we haven't physically appraised your property, an automated valuation indicates it is now worth significantly less than when we approved your application. If you wish to hire an appraiser, chosen by us but at your own expense, you can appeal our decision.

You're in shock. You can't pay bills you've already contracted for, you can't touch the money you confidently believed you had. Plus, you know that house prices in your area have been relatively stable since you took out the credit line. How could a bank effectively devalue your real estate using nothing more than a computer program?

Welcome to the world of what class-action attorneys estimate to be massive numbers of homeowners -- 1 million customers at one national bank alone -- who had their credit lines reduced, frozen or canceled without appraisals during 2009 in the tense months following the near-collapse of the capital marketplace.

Now a federal district court in Chicago has given the green light to clients of JPMorgan Chase Bank to proceed with a consolidated suit alleging that their equity lines were yanked or reduced illegally, costing them billions of dollars in lost borrowing power. Judge Rebecca Pallmeyer rejected the bank's motion to dismiss the case, clearing the way for a possible giant class action.

The litigation pulls together eight separate suits seeking class certification filed by homeowners in California, Minnesota, Illinois, Texas, Arizona and Ohio. It is considered a bellwether test of the rights homeowners enjoy under the Truth in Lending Act and state consumer protection statutes when they take out equity lines of credit.

But it also shines light on the controversial computerized tools many lenders use to make quick, inexpensive assessments of property values in lieu of more costly professional appraisals. Suits on similar grounds are pending against other major lenders, including Wells Fargo, GMAC Mortgage and Citibank, according to attorneys.

The plaintiffs' lawyers not only are challenging JPMorgan Chase's legal right to rescind or limit credit lines without adequate documentation that property values have dropped "significantly" -- as required by the Truth in Lending law -- but are also mounting a side attack against automated valuation models (AVMs) that they claim are frequently inaccurate and unreliable.

Steven Lezell Woodrow, a partner with Edelson McGuire LLC, the Chicago law firm representing the plaintiffs, said in an interview that the computer valuations used by JPMorgan Chase were found to be "grossly in error," based on subsequent physical appraisals.

A spokesman for JPMorgan Chase, Tom Kelly, said the bank does not comment on ongoing litigation. However, the bank's filings in court argued that federal law does not specify the type of valuation technique lenders may use in reviewing equity line collateral, and that the homeowners did not demonstrate that the AVM values were incorrect.

The allegations in the consolidated suit include a credit line suspension on a house in Mountain View, Calif. Originally valued at $1 million and devalued to $826,000, a subsequent physical appraisal found that the house had actually increased in value to $1.07 million. The bank later reinstated the owner's credit line. On a house in Arlington, Tex., originally valued at $172,000, an AVM lowered that to $151,000. On appeal, the owner presented a physical appraisal completed 10 days before the bank's action that put its market value at $165,000. Nonetheless, the bank refused to reinstate the credit line, based on a revised requirement lowering maximum loan-to-value ratios on total debt to 70 percent from the previous 80 percent.

Though the litigation will be contested primarily on the grounds of alleged violations of Truth in Lending procedures and state consumer protection laws, the accuracy and use of automated valuations will be hovering in the background. Leaders in the AVM field such as Tim Grace, senior vice president of CoreLogic, say "commercial-grade AVMs have proven over decades of testing to provide accurate, independent and consistently reliable estimations of property value."

But lawyers for the homeowners say nothing should distract attention from the context surrounding JPMorgan Chase's mass freezing of credit lines shortly after accepting $25 billion in emergency liquidity funds from the Treasury, which the bank has since repaid.

"They took the government's money, which was supposed to help them to lend to people who needed credit," said Woodrow, "but instead they cut them back."

Relapse May Cause Lasting Harm To U.S.

2011-09-28T03:15:03Z

August 26, 2011
Reporting from Washington By Don Lee, Los Angeles Times

Mortgage rates tumbled to the lowest level in the history of Freddie Mac's weekly survey, with 30-year fixed-rate home loans being offered this week at an average 4.15%, down from last week's 4.32%.

Freddie Mac said in its weekly report that loans with variable interest rates also hit record lows, as did shorter-term fixed-rate loans. The 15-year fixed-rate loan, a popular choice with people refinancing their homes, was being offered at an average rate of 3.36%, down from 3.50% last week, Freddie Mac said.

Even if the U.S. economy avoids sliding back into recession, the continuing weakness is beginning to inflict long-term damage on many families and businesses that will make a full-blown recovery much harder to achieve.

The devastating recession that started four years ago hit a nation flying high on a housing boom and helium-inflated clouds of consumer spending. But the current slowdown is striking a nation already on its economic knees.

"That's the danger right now: You've got an economy that didn't recover," said Ethan Harris, Bank of America's chief economist for North America.

"We've had some healing," he said, noting that banks are in better financial shape, as are some households. "But the rehabilitation hasn't been completed," and a relapse would be like "hitting an already sick patient."

On Friday, Federal Reserve Chairman Ben S. Bernanke is expected to discuss the economic outlook and the central bank's role in the months ahead, but he is unlikely to announce any immediate policy changes despite widespread anticipation of new action.

Also, new numbers scheduled to be released Friday on overall economic growth are not expected to brighten prospects.

What worries economists such as Harris is that an economy that shows little or no growth does more than cause immediate pain. It inflicts damages and costs that have lasting effects.

The last recession, which technically ended in June 2009, was the worst in six decades. It cost the country about $2.5 trillion, including the government's stimulus spending, losses at mortgage lenders Fannie Mae and Freddie Mac, and additional funds for unemployment benefits, according to Moody's Analytics.

As the weak economy lingers, the tab to taxpayers will keep growing and put additional pressure on the already strained fiscal budget. Additionally, the lost income, lost business opportunities and other private-sector costs were far higher.

Economists worry about the possibility that the growing disparity between the rich and everybody else will widen, that the nation's entrepreneurial energy will be sapped and that a generation of young workers whose earning power and confidence have already suffered will decline even more.

"These are things slowly undercutting the underlying resilience of the economy," Harris said.

The likelihood of another recession has risen sharply since spring amid signs of deteriorating employment, manufacturing and business and consumer confidence — accompanied by wild swings on Wall Street.

Many analysts see at least a 1 in 3 chance of a fallback into outright economic decline in the next six months or so.

U.S. gross domestic product in the first half of this year is now seen as having grown by even less than the tiny 0.8% rate previously estimated. A negative GDP rate, which measures the change in goods and services produced, would be one sign that the nation is in recession. Another sign would be declining employment.

GDP expanded 3% in 2010, but the size of the U.S. economy still hasn't caught up to where it was at the fourth quarter of 2007 when the Great Recession hit. And total payroll employment remains nearly 7 million jobs shy of where it was at the end of 2007.

By comparison, China's GDP has surged more than 40% between 2007 and 2011, and economists at IHS now see the Chinese economy overtaking the U.S. in 2019 — much faster than what analysts were predicting only a few years ago.

The GDP comparisons are more than just academic. They also speak to economic clout and people's living standards, which for many in the U.S. have been further eroded in the last few years.

Little by little, economists have been ratcheting down their forecasts for the rest of this year. Layoffs and new jobless claims have been climbing again. And with the housing market still depressed, state and local governments cutting back and industrial production wavering, it's hard to see from where the U.S. economy could get a big lift.

Paul Dales, an economist at Capital Economics, said a second recession probably would be mild and short, if for no other reason than that the "fat-purging process" has already taken place.

Mortgage Rates Drop Again

2011-09-28T02:52:15Z

August 19th, 2011 by Scott Reckard

Mortgage rates tumbled to the lowest level in the history of Freddie Mac's weekly survey, with 30-year fixed-rate home loans being offered this week at an average 4.15%, down from last week's 4.32%.

The survey includes loans made with minimal payments of fees and points to lenders. The borrowers getting 30-year loans this week would have paid 0.7% of the loan amount in upfront fees and discount points, and borrowers would have paid 0.6% of the loan amount for the 15-year fixed loans, Freddie Mac said.

The rates, available to the lucky folks who have weathered the recession and housing debacle in solid financial shape, are the lowest since Freddie Mac's survey began in 1971 -- and almost as low as anyone can recall.

Long-term fixed-rate mortgages backed by the Federal Housing Administration averaged 4.08% for a several months in 1950-51, according to the National Bureau of Economic Research. FHA loans, which have additional costs, are available to people who are greater credit risks than those in the Freddie Mac survey.

Long-term mortgage rates tend to track the yield on the 10-year Treasury note, which has tumbled in recent weeks as investors bailed out of the stock market and loaded up on Treasuries, seeing them as a less-scary investment option.

The Freddie Mac survey's previous low for the 30-year loan was 4.17%, recorded last November after the Fed said it would buy $600 billion in Treasury securities, creating demand that drove down the 10-year T-note's yield.

This week's drop in loan rates came on the heels of the Federal Reserve's announcement last week that it expected to keep short-term interest rates low for at least two more years because of the economy's faltering recovery.

Despite the low rates, the housing market remains sluggish. About 70% of all home-loan applications in the first half of this year were for refinancings, not home purchases, Freddie Mac economist Frank Nothaft said.

Freddie Mac surveys lenders across the nation each week from Monday through Wednesday, asking them for the combination of rates and fees they are providing on popular mortgages.

The rates are available only to borrowers with solid credit, enough verifiable income to support payments and a 20% down payment for a purchase or 20% home equity for a refinancing.

Well-qualified borrowers who shop around often obtain slightly better rates, and it's possible to lower the rates further by paying additional upfront fees known as discount points.

California Home Prices Drop 6%

2011-09-28T02:39:50Z

August 16th, 2011 by Roger Vincent

Prices paid for California homes dipped last month as distressed properties continued to make up more than half of the market.

The median price paid for new and resale houses and condominiums statewide last month was $252,000, down 0.4% from June, and down 6% from July a year ago, real estate data provider DataQuick said.

The state’s median — the point at which half the homes sold for more and half for less — has fallen year-over-year for 10 consecutive months. The median’s bottom for the current real estate cycle was $221,000 in April 2009, and the peak was $484,000 in early 2007.

An estimated 34,695 houses and condos were sold last month. That was down 11% from June, and down 1.4% from July 2010. A decline from June to July is normal for the season

Of the existing homes sold last month, 34.6% had been foreclosed on during the past year. That was down from a revised 35.1% in June and down from 35.2% in July a year ago. The all-time high was in February 2009 at 58.5%.

Short sales –- transactions in which the sale price fell short of what was owed on the property -– made up an estimated 17.3% of resales last month. That was down from 17.4% in June and down from 18.6% a year earlier.

Indicators of market distress continue to move in different directions, San Diego-based DataQuick said. Foreclosures have declined sharply, but remain high by historical standards. Financing with multiple mortgages is low, down payment sizes are stable, and cash and non-owner occupied buying has eased a bit in recent months but remains relatively high.

The July median price in Southern California fell 4% from a year earlier to $283,000. A total of 18,090 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in July, down 4.5% percent from July 2010.

The median price in the Bay Area was $374,000, down 7% from July 2010. A total of 6,887 new and resale houses and condos sold in the nine-county area including San Francisco, up 1.7% from July 2010.

Scores Rank MBUSD Third In State

2011-09-28T02:20:32Z

September 7th, 2011 by Alene Tchekmedyian filed in Manhattan Beach

Manhattan Beach Unified School District maintains its ranking as third in the state for kindergarten through 12th grade districts, right behind San Marino Unified and La Canada Unified, according to the district’s analysis of the Academic Performance Index scores released by the California Department of Education last week.

The district scores are at an all time high of 932 out of 1,000, up 5 points from last year. The scores are calculated based on the results of the STAR tests, which cover English and language arts, different levels of math, history and science for grades two through 11, and the California High School Exit Exam. The state set a target score of 800 for every school.

As schools in the district get closer to the score ceiling of 1,000, it’s difficult for them to maintain significant levels of growth each year, said Carolyn Seaton, executive director of educational services for Manhattan Beach Unified School District. However, there’s always room for improvement in the classroom, she said. “Regardless of how high our scores may be in certain areas,” she said, “we always look for ways to improve.”

For example, during the 2007-2008 academic year, the district was able to hire a science specialist for each elementary school to teach a hands-on lab class, an initiative funded by the Manhattan Beach Education Foundation.

That year, Meadows Elementary School students increased their standardized science test scores to 91.7 percent, up from 75.4 percent the year before.

This year, 91.4 percent of students – those from grades five, eight and ten were tested – performed proficient or advanced on the science STAR tests, up 3.9 percent from the year before. “It’s no surprise that students comprehend and retain scientific concepts at a deeper level when they have multiple opportunities to interact in a lab setting,” Seaton said in a press release, adding, “Hands-on science transforms abstract scientific theories into relevant concepts.”

Professional Flipping...

2010-09-09T23:39:00Z

Professional investors move into flipping foreclosed homes

Squeezing out amateurs, private equity funds and wealthy individuals are buying distressed properties at public auctions, refurbishing them and selling them for quick profits.

By Walter Hamilton and Alejandro Lazo

Los Angeles Times

August 20, 2010

Hoping there are big profits to be made in the aftermath of California's housing collapse, professional investors are flocking to the business of buying foreclosed homes at distressed prices.

The investors, primarily private equity funds and groups of wealthy individuals, purchase the homes at public auctions, which are held daily on the steps of local courthouses. They refurbish the properties and try to sell them for quick profits.

Not long ago, the typical home flipper was an amateur tapping a home equity line or savings for an investment property. But professionals have rushed in, partly because of sparse investment opportunities elsewhere.

"In crisis there's opportunity," said Rick Hudson, president of investment firm Prosperity Group Real Estate in Irvine. "Right now there's huge opportunity with flipping houses."

Closely watched gauges of professional buying have surged over the last two years.

The number of homes sold at foreclosure auctions statewide increased to 4,336 in April, from 884 in January 2009, according to research firm ForeclosureRadar. It eased back to 3,483 in July as banks offered fewer properties for sale. The auctions are dominated by professional investors who shop with cash (although not usually with actual greenbacks, for practical reasons).

Another measure, the percentage of all homes sold to absentee buyers, paints a similar picture. In the hard-hit Inland Empire, for instance, 30% of all homes sold in April went to absentee buyers -- up from 19% at the end of 2008 and the highest level in at least seven years, according to San Diego research firm MDA DataQuick. It was at 28.2% in July.

The binge of professional buying has helped spark a nascent housing recovery in Southern California because investors have cut significantly into the glut of foreclosed properties after the subprime mortgage meltdown.

Home sales in the six-county region rose 7.2% in June from May and 2.6% from a year earlier, according to MDA DataQuick. In July, overall sales tumbled primarily because of the expiration of federal tax credits, falling 20.6% from the month before in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties. But the region's median home price of $295,000 was off only 1.7% from June.

The fragile rebound in the broader market contrasts with the behind-the-scenes scramble at foreclosure auctions.

"There's a tremendous amount of capital that is desperate to just buy anything right now," said Gil Priel, principal of a real estate investment firm in Woodland Hills.

In some cases, well-financed newcomers are elbowing out smaller investors at auction sales.

"The people who want to go and buy a house to flip, and do one or two, are already exiting the market," said Jan Brzeski, who manages a residential investment fund at Standard Capital in Los Angeles.

The swarm of new investors, however, is making a treacherous and labor-intensive business even tougher.

Investors must do their homework on dozens of homes for every one they buy. Legal and other impediments usually prevent them from going into homes prior to buying them, leaving no way to gauge repair costs. And despite being foreclosed on, the original owners often still live in the houses. That forces buyers to pay them to leave, a dynamic known as cash-for-keys.

The influx of new players is pushing up auction prices and squeezing profits. The average discount at auctions -- the difference between a home's sale price and its actual value -- is 21.6%, down from 28% in January 2009, according to ForeclosureRadar.

Last year, Chase Merritt, a Newport Beach private equity fund management firm, notched strong returns from auction sales, said Chad Horning, its chief executive. Chase Merritt bought a property in Costa Mesa in June 2009 for $315,500 and sold it 21/2 months later for $470,000. It bought a Mission Viejo home for $305,371 and sold it within two months for $375,000.

Chase Merritt launched its first foreclosure fund in May 2009 and has started two more funds since then. But "it's literally gone from a business that's very attractive, even lucrative, 12 to 18 months ago to something that almost doesn't make sense," Horning said.

"It's just like the housing bubble," he said. "It's almost like we're in a bubble at the courthouse steps."

The scramble was on display recently at an auction at the Norwalk courthouse.

A semicircle of people crowded around auctioneer Elwood Brown. Most were clad in cargo shorts and flip-flops. A few sat in lawn chairs. But their laptops and cellphones, as well as the thousands of dollars' worth of cashier's checks they clutched, marked them as professional investors girding for battle.

Brown took a swig from his oversized water bottle and announced that bidding for a four-bedroom duplex in Hawthorne would start at $179,598.60.

The price shot up within seconds as two men and a woman raised one another's bids in $1,000 increments.

"It's at 229, Daryl," a man in a polo shirt and sunglasses whispered intently into his cellphone. "About to close. Do you want it?"

He increased his offer, but a rival bidder claimed the home a few seconds later for $237,000.

Competition at the auctions is brutal, said Bruce Norris of Norris Group, a real estate investment firm in Riverside.

Norris unwittingly bought a house that was the site of a gruesome double murder. No one else bid -- a rare occurrence that showed others knew the history -- leaving Norris with less cash to bid for other houses.

"It's a very lonely place out there," Norris said.

That's only one of many risks in the foreclosure business. People who've lost their homes through foreclosure sometimes vent their anger by smashing walls, knocking over water heaters or ripping out toilets.

"We've literally had people take $20,000 of cabinetry out and feel perfectly justified doing it," Norris said.

The daily auction ritual begins each morning when banks signal which homes they are likely to dispose of that day. That sets off an early-hours scramble as would-be buyers speed through suburban neighborhoods to investigate the homes.

On a recent day, Norris steered his sport utility vehicle into the driveway of a 3,300-square-foot McMansion on a corner lot in Moreno Valley. The front lawn was brown and the backyard was littered with garbage. But the windows were intact and there was no visible damage -- far better than many foreclosures.

Aiming for an all-important look inside, Norris rang the doorbell and delivered the bad news to the teenage boy who answered the door that the home was scheduled to be sold that day.

"Do you mind if I poke around a little bit to see what kind of condition it's in?" Norris asked, angling his body to get a glimpse of the living room.

Then another car sped up and a rival buyer hurried up the driveway. She studied the house for a few seconds and craned her neck over the wooden fence protecting the backyard.

"This is a dream compared to a lot of them," she said in a satisfied tone as she rushed back to her car.

In the end, no one bought the home. The sale was delayed after the owner filed for bankruptcy protection.

Norris was philosophical, knowing that there were plenty more foreclosures.

"If you miss one," he said, "oh well, tomorrow's another pile."

Values Slide 1.8 percent

2010-09-09T23:16:09Z

Value of California's properties falls 1.8% to $4.4 trillion

Forty-eight of California's 58 counties saw totals fall this year — nine by more than 5%, the state Board of Equalization reported. The total value fell 2.4% in 2009.

By Marc Lifsher, Los Angeles Times

9:27 PM PDT, September 2, 2010

Reporting from Sacramento

Advertisement

The Golden State's real estate market lost a bit more of its luster as the total value of California's properties fell for the second year in a row — and for the second time since records were first kept in 1933 at the depths of the Great Depression.

The value of all types of properties fell 1.8% this year to $4.4 trillion, the California Board of Equalization reported Thursday. The total value fell 2.4% last year.

Forty-eight of California's 58 counties saw totals fall — nine by more than 5%. Only two counties, oil-rich Kern and tourist-destination San Francisco, posted expansions of their property tax rolls of 2% or more.

The negative numbers make for more bad news for county governments. They've had to curtail spending on basic municipal services because falling values have resulted in lower property tax revenues.

"It's a decline that's outside of their control" and unlikely to reverse itself until California starts creating tens of thousands of new jobs, said Board of Equalization Vice Chairman Jerome Horton.

The contraction of the last two years contrasts with California's historic growth in its real estate value, Horton said, with "constant increases of 5% to 15% per year" for the last 77 years.

"Those numbers tell us we have a ways to go, and we have some work to do to bring balance back in our economy," he said.

Some experts suggest that things could get even worse before they get better.

Many homeowners purchased or refinanced residences in 2005 or 2006 and could face interest rate hikes from the variable-rate mortgages, said Tracey Seslen, a real estate professor at USC's Marshall School of Business. Tight financial markets and underwriting standards could make it hard for them to refinance at lower rates, she said.

"With the stricter lending measures in place, removal of the home-buyer's tax credit and with uncertainty in the economy and the jobs picture, we have a large confluence of factors that are all going to be putting downward pressure on the housing market," she said.

Other housing specialists, though, think that the board's data, based on Jan. 1 figures, already may be out of date.

"In many areas of California, prices have found a floor and have even recorded three or four months of guarded recovery," said Stuart A. Gabriel, director of the Ziman Center for Real Estate at UCLA's Anderson School of Management.

"Hopefully, we have found or are close to a bottom" of the market," Gabriel said, "and, we'll be able to see some recovery of prices."

The board's data found that Los Angeles County, which accounted for about a quarter of the value of all property statewide, lost 1.8% of its property value. The steepest drops were in the high-desert cities of Lancaster and Palmdale, local officials said.

Plummeting commercial property values also are contributing to the reduction in the size of tax rolls, Los Angeles County Assessor Robert Quon said.

The county got hit with a one-two punch of "fewer changes of ownership and less new construction," he said.

The weak market spurred Los Angeles assessors to review about 600,000 homes and condominiums. They lowered annual property tax bills on 400,000 properties purchased between July 1, 2003, and June 30, 2009, Quon said.

By getting their properties reassessed to reduce taxes, homeowners were able to save an average of $1,800 on a single-family home and $1,500 on a condominium, according to the county.

Across Southern California, property values fell 4.4% in Riverside County, 4.3% in San Bernardino County, 1.5% in San Diego County, 0.5% in Orange County and 0.3% in Ventura County.

Inland areas lost about twice as much of their property value as coastal areas did. The state's hardest-hit counties were in the Sacramento and Northern San Joaquin valleys and the Inland Empire, the board said.

Drop New Home Sales

2010-02-26T16:16:00Z

New home sales tumble 11.2%

The drop from December renews fears of another decline in housing prices and indicates that a home buyer's tax credit is having little effect.

By Alejandro Lazo

February 25, 2010

An unexpected drop in new home sales for the month of January, plus a plunge in mortgage applications to the lowest level in nearly 13 years, have renewed fears of another decline in housing prices.

Economists said the 11.2% tumble from December in new home sales -- the third consecutive monthly drop announced by the Commerce Department -- indicates that Congress' extension of a home buyer's tax credit late last year appears to be having little or no effect on consumer sentiment.

Economists surveyed by Bloomberg News had expected January new home sales to climb.

New home sales make up a much smaller share of the buying activity than sales of previously occupied homes. But the data are carefully watched by economists because construction can give a boost to an economy heading out of recession.

Analysts said the January numbers indicated that residential builders were probably in for a tough year as they continue to compete with steeply discounted bank-owned properties and consumers face depleted household incomes and heavy debt loads.

"The housing market is still flat on its back and it is only being held together -- as well as it's being held together -- by very aggressive actions by the federal government," said Mark Zandi, chief economist at Moody's Economy.com.

"The new home builders are going to have trouble competing."

The drop put the seasonally adjusted estimate of new home sales for 2010 at 309,000 units. That's the lowest estimate by the Commerce Department, which adjusts the rate monthly, since record-keeping began in 1963.

Comparing the new home sales rate year over year, there was a 6.1% drop from January 2009, when prices nationally were still sinking, financial markets were falling.

"So much for the trend of decent housing news!" Michael D. Larson, an interest rate and housing analyst at Weiss Research, wrote in a note to clients. "January's new home sales figures were awful across the board. Fewer new homes were sold in this country than at any time since the Kennedy administration."

David Crowe, chief economist for the National Assn. of Homebuilders in Washington, said he still expected builders to post stronger sales this year than in 2009.

"I do believe in the spring season we will see a pickup because of the good, affordable mortgage rates and very competitive prices and a significant pent-up demand," Crowe said.

The sales data came as the Mortgage Bankers Assn. in Washington reported separately that applications for mortgages to purchase houses -- new or existing -- fell 7.3% last week.

The group's purchase applications index has been declining for the last few months and is now at its lowest level since May 1997.

"As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak," said Michael Fratantoni, a vice president at the mortgage group.

The drops in new home sales and purchase applications follow news Tuesday that home prices in 20 metropolitan areas scored a modest 0.3% gain in December -- the seventh consecutive increase, according to the Standard & Poor's/Case-Shiller index.

Washington policymakers have taken several measures to support the housing market. They have kept interest rates at rock-bottom levels and offered a plentiful supply of mortgages through the Federal Housing Administration.

In November, Congress extended a popular tax credit of as much as $8,000 for first-time buyers through April and expanded it to include a credit of as much as $6,500 for some current homeowners.

"That credit is apparently having no impact whatsoever," said Patrick Newport, U.S. economist with IHS Global Insight.

Jumbo Loans Improving

2010-02-26T15:59:00Z

Jumbo mortgage market is beginning to thaw

The meltdown sent interest rates soaring and availability shrinking, but rates are declining and lenders are more willing to make loans that top the limits for Freddie Mac, Fannie Mae and the FHA.

By E. Scott Reckard

February 24, 2010

Phil Kelly had 18 more months to go before the fixed rate on his $2.5-million mortgage became adjustable.

But when Kelly, a former computer executive living in Rancho Santa Fe, learned he could knock his interest rate down by a full percentage point by refinancing, he went for it.

"It's always tough to pick the exact bottom or top of anything," Kelly said. "But I think this rate is about as low as you're going to get."

Rates on jumbo mortgages -- loans of more than $729,750 in counties with the highest-cost housing -- shot up during the financial crisis as lenders and loan investors shunned anything tainted with even a whiff of higher risk. Rates on big mortgages were especially high relative to those on smaller loans.

But in a boon for borrowers in California's expensive housing markets, the jumbo-loan market is starting to return to normal.

Two weeks ago, the average interest rate on 30-year fixed-rate jumbos dropped to 5.79%, a nearly five-year low, according to rate tracker Informa Research Services of Calabasas. It edged up to 5.88% on Tuesday, still very attractive by historical standards. The average is down from well above 7% in late 2008.

Rates are even lower on so-called hybrid adjustable mortgages, on which the rate is fixed for, say, five years and then adjusts annually. Kelly's new loan is a five-year hybrid adjustable identical to his old one, except that he's paying about 5%, down from 6%.

Banks are also relaxing slightly some of their requirements for jumbo loans. That's an encouraging sign because the market for jumbos, in contrast with the rest of the mortgage business, isn't being propped up by Uncle Sam.

The lower rates and somewhat easier terms reflect newfound confidence among banks in the housing market. That's because, by definition, jumbos are too big to be bought by Freddie Mac and Fannie Mae or to be insured by the Federal Housing Administration. Plus, the private market for mortgage-backed bonds dried up when the meltdown hit. So lenders making jumbo loans these days must be willing to take the risk of keeping them in their portfolios.

The maximum amounts for Freddie Mac and Fannie Mae "conforming" mortgages, and for FHA mortgages, are set by Congress. The cutoff for single-family homes was $417,000 from 2006 until February 2008, when lawmakers increased it temporarily to $729,750 in certain high-cost areas, including Los Angeles, Orange and Ventura counties. Conforming loans top out at $500,000 in Riverside and San Bernardino counties and $697,500 in San Diego County.

The increased upper limits, which have been extended until the end of this year, have created a three-tier system in expensive areas, mortgage professionals say: loans of up to $417,000, which are the easiest to obtain and carry the lowest rates; "conforming jumbos" from $417,000 to $729,750, which are somewhat harder to get and have slightly higher rates; and true jumbos, with the toughest standards and highest rates.

In the boom years of 2005 and 2006, interest rates were typically no more than a quarter of a percentage point higher on jumbo loans than on conforming loans, according to Informa Research. That widened as the mortgage meltdown intensified and home prices dropped in late 2007. The spread ballooned to nearly 1.7 percentage points in early 2009 after the entire credit system froze.

But this year the rate spread has narrowed to less than a percentage point. It could shrink more if conforming-loan rates rise as expected after the Federal Reserve wraps up a $1-trillion-plus program to support the market for conforming loans next month.

In addition to lower rates, down-payment requirements are being relaxed in some cases. For example, to write a jumbo loan in coastal areas of Los Angeles and Orange counties, Wells Fargo Home Mortgage looks for a 20% down payment or that percentage of equity, down from 25% last year, said Brad Blackwell, a national mortgage sales manager at the lender.

The reason: Wells believes high-end home prices are stabilizing in those coastal counties. But the bank still requires higher down payments in the Inland Empire and other battered housing markets such as Florida, Nevada and Arizona, where prices for jumbo-size homes don't appear to be stabilizing, he said.

Jumbo loans remain much harder to get than before the credit crunch and recession. Borrowers typically must have a credit score of at least 700, compared with boom-era minimums in the 600s, though Laguna Niguel mortgage broker Jeff Lazerson said at least one lender was again making sub-700 jumbos available.

What's more, unless their down payments are very large, borrowers must provide evidence of high income, have sizable bank accounts as a cushion against the unforeseen and occupy the houses themselves.

But there are clear signs that the jumbo market has loosened. One is an increasing availability of "stated income" loans -- those that don't require proof of income -- of as much as $2 million to borrowers with at least a 40% down payment, said mortgage broker Gary Bluman, owner of Real Estate Resources in Brentwood.

Also, instead of a true jumbo loan, some "piggyback" second loans are available again to help certain borrowers with 25% down payments pay for high-priced homes, Lazerson said.

Of course, adjustable, stated-income and piggyback loans were big contributors to the mortgage meltdown. But such provisions are less risky if a borrower has 25% to 40% equity.

Despite the confidence in the market that such terms imply, lenders and mortgage investors are still dealing with piles of bad jumbos made during the boom.

Delinquencies of 60 days or more on prime jumbo loans that were packaged into securities jumped to 9.6% in January, up from 3.7% a year earlier, Fitch Ratings reported this month.

The jumbo delinquency rate in California climbed to 11.3% from 4.1% a year earlier.

For now, the jumbo market remains limited to the volume of loans that banks are willing and able to keep on their books. But there is hope for a return to private outside funding.

Although no jumbos have been turned into securities for at least two years, packages of delinquent jumbos have begun to be sold again to "vulture" investors, a sign that the secondary market for the loans may revive, said Michael Fratantoni, vice president of research at the Mortgage Bankers Assn.

"The ice sheet," he said, "is starting to crack here and there."

Long Wait to Recover

2010-01-24T17:20:00Z

HOUSING SCENE

Forecast says home values won't regain bubble heights for at least a decade

A New Jersey financial publishing house assumes conservative rates of growth in its formulas but acknowledges that its conclusions take a 'real leap of faith.'

By Lew Sichelman

January 24, 2010

Reporting from Washington

Many people would like to know when the housing market is going to hit bottom. But those who plan to stay put don't care as much about the bottom as they do about when their home values will return to where they were before the bubble burst.

HSH Associates, a Pompton Plains, N.J.-based financial publishing house, ran some numbers to address that question recently, and the findings aren't terribly encouraging.

"It's going to be a long time coming," HSH Vice President Keith Gumbinger said of the prospects of rebuilding equity. "Even in a reasonable interest-rate environment, even with reasonable appreciation."

According to the Standard & Poor's/Case-Shiller index, which tracks changes in the value of residential real estate in 20 metropolitan regions, prices have fallen 32.6%, peak to trough, between 2006 and the third quarter of 2009.

HSH is predicting a flat real estate market with no increase in value through June 2010. Then, from July 2010 through August 2011, a period of 14 months, prices are projected to increase at a rate of about 2.5% a year. And from then on out, the company is figuring on a yearly gain of 3%.

With these percentages in mind, let's look at what would happen to the value of a $200,000 house purchased at the top of the market in July 2006.

By the time the market hit bottom -- at least the bottom according to Case-Shiller's 32.6% figure -- that property was worth $134,800. Using HSH's assumptions, the value of the imaginary house won't get back to the $200,000 paid for it until July 2022 -- 12 1/2 years from now.

Even Gumbinger concedes this educated guess takes a "real leap of faith" in projecting this far out into the future.

"We could end up running through a whole other recession cycle," he says, noting that the U.S. economy tends to fall into a business-cycle contraction every 10 years or so. "And house value[s] could move up more strongly or more weakly, depending on any number of circumstances."

Following the value line, look at a house that was purchased for $200,000 in January 2000. Based on the Case-Shiller index, this property reached its top value in July 2006, when it was worth $413,040. If the buyer sold at that time, he would have netted a gain of 106% and change.

Using HSH's projections, this $200,000 house purchased at the turn of the century won't be worth $413,000 again until December 2021.

That's not quite as long as it will take the house bought at the top of the market to regain its value, but it's still going to be 11 years and 11 months.

lsichelman@aol.com

Distributed by United Feature Syndicate.

Trade Up Buyers

2010-01-21T18:06:00Z

Trade-up buyers settle for less to get more from residential properties

Sellers accept off-peak pricing to upgrade to bigger, better properties

November 01, 2009 12:00AM

By Gabby Warshawer

101 Warren Street With third-quarter market reports showing an increase in activity and brokers reporting more deals getting hammered out, the question is: Who has come off the sidelines?

The answer may be "trade-up" buyers, or New York homeowners willing to sell for much less than what they would have gotten at the height of the market -- so long as they can then buy better property at reduced prices.

The thinking behind selling low and upgrading is simple: "It's a logical step because if you take 20 percent off a $1 million home, and 20 percent off a $2 million home, if you can afford the upgrade, you're getting a better value" with the more expensive property, said Leah Blesoff, a sales associate with Halstead Property.

Brokers say they are seeing the increasing trend of selling and buying low among a select group that share a few key characteristics. First, these are buyers who have obviously not been hit hard by the recession, and thus can afford to shell out for a pricier home than they now own. They are also generally a less risk-averse group since, as sellers, they have to be willing to accept less for their property than it was valued at just a short while ago. And finally, brokers say many of those who have already inked deals that fit the sell-low/buy-low formula are unloading properties in New York and buying new ones in the suburbs or other markets across the country, where the real estate bust has been much more pronounced.

Darren Sukenik, a managing director with Prudential Douglas Elliman, points to a listing he is handling in Tribeca at 101 Warren Street as an example of buying and selling low. He said the sellers bought their condo four years ago, "right before the huge run-up," and have listed the unit "at an incredibly competitive price" that's far less than what they likely would have asked a couple of years ago.

They are selling, he said, because they're buying "the estate of their dreams" in Florida for 60 percent off its peak value.

"It's all relative," said Sukenik. "What's exciting is that even though the New York market has come down 30 to 40 percent, other markets have come down much more."

Still, Sukenik argued that "if you bought before '06, you're not really selling low, because you're not necessarily selling at a loss."

For many, there's often a lemons-to-lemonade philosophy underlying sell-low/buy-low transactions.

Luigi Rosabianca, the principal attorney at the real estate firm Rosabianca & Associates, is working with a couple selling their Battery Park City condo at a loss, but upgrading to a larger, more expensive condo on the Upper East Side.

"They're moving to a bigger place in a nicer building and neighborhood," he said. But, he noted, "the underlying notion" that they could have sold their condo for more a year or two ago has been difficult to shake.

Blesoff, meanwhile, cited sellers she's representing in Kips Bay who are considering upgrading to a more expensive home. They had to come to terms with pricing their apartment realistically for today's market in order to get their unit in contract.

They initially tried to sell it themselves in February with an asking price of $850,000. When Blesoff took over the listing in March, she priced it at $799,000. By May, the co-op's price was reduced to $749,000, and it went into contract in July for $675,000.

While some sell-low/buy-low sellers are simply looking to make a smart upgrade in a down market, others are jumping into the market for a host of reasons.

"It's often people who are having a second kid and [are even] feeling good about their jobs," said Gregg Goldsholl, an agent with Houlihan Lawrence. He has worked with a couple of sellers who wanted to upgrade but have had to cut prices on the properties they're selling in order to trade up.

"They realize that even if they're not getting what they wanted for the house they're selling, they're making it up on the buying end," Goldsholl said.

Homes Sales Rise December

2010-01-21T05:29:00Z

Southern California housing market strengthens in December

In a typically sluggish month, the median sale price rises 4% over the same period a year earlier, and sales jump 12.1%. The pace of sales is the best since 2006, aided by tax credits that end soon.

By Alejandro Lazo

January 20, 2010

Rock-bottom interest rates and stronger sales in higher-priced neighborhoods helped Southern California's housing market post robust gains in the typically sleepy month of December, new data show, and experts say the momentum is continuing -- ushering in an early start to the spring home-buying season.

The median price paid for a Southland home rose 4% to $289,000 last month from December 2008, the first time the closely watched figure has posted a year-over-year gain since the region's real estate market took a nose dive 2 1/2 years ago, according to data released Tuesday by MDA DataQuick, a San Diego real estate research firm.

Rebounding home prices could help the Southern California economy recover from its slump, as a stronger housing market could lead to hiring on construction sites and in real estate sales, title and escrow offices, said Esmael Adibi, director of Chapman University's A. Gary Anderson Center for Economic Research.

"The worst is behind us for sure," he said. "For the economy, the implication is, at least on the residential side, we don't expect more layoffs, and you might actually see some pickup in employment."

But Adibi noted that those gains could be tempered by continued weakness in the commercial real estate market, which includes office buildings, retail centers and hotels.

The increase in December home prices follows a dismal 2008. Even with the rise, the median price was still 42.8% lower than its $505,000 peak during several months in 2007, underscoring the steep decline in the latter part of the last decade. The median is the point at which half the homes sold for more and half for less.

Still, December's sales pace was the best since 2006, capping a year in which strong government support of the housing market helped stabilize prices for most of the last year and brought more buyers back into the market.

"It's time for me to move," said Soosan Saedi, 43, who is looking to sell her three-bedroom, 1,300-square-foot Woodland Hills house and trade up to something bigger. "I need the space, the mortgage rates are low, and fortunately I am not having trouble with loans, so it is time for me to buy."

The housing market's recovery began last year as first-time buyers and investors competed for steeply discounted foreclosed homes. Now foreclosure properties are making up a smaller part of the mix. The gains in December also reflect a more diverse market, experts said, as prices were bolstered by increased sales in many mid- to high-priced communities.

Part of that trend shows the increased affordability of high-end properties as more are taken back by banks or are sold "short," for less than what is owed on their mortgages, real estate professionals said.

"They have come down a lot," said Syd Leibovitch, president of Rodeo Realty in Bel-Air. "I think the sellers dug in for a while, and now they are accepting the reality that prices have dropped, and they are being a lot more flexible."

Beverly Hills, Santa Monica and Newport Beach were among the affluent areas notching healthy sales gains, according to DataQuick. Conversely, areas hard hit by foreclosures -- including Moreno Valley, Lake Elsinore and Palmdale -- saw a drop-off.

Christopher Cortazzo, a Coldwell Banker agent in Malibu, said he sold a home for $12 million in December, roughly $3 million below its listing price, and closed out the month with $26.5 million in sales, one of his best months of the year. Cash-rich buyers looking to capitalize on lower prices have rushed into the market in recent weeks, he said, and the sales pace has continued through January.

"Spring season is going to start early," Cortazzo said. "We are having a lot of cash deals, so there is a lot of money out there, and there is amazing opportunity and great deals to be had."

One thing driving sales is the April 30 expiration of tax credits for home buyers. First-time home buyers can get up to $8,000 in credit on their federal income taxes, and current homeowners can qualify for up to $6,500.

Low mortgage rates are also a factor. Thirty-year fixed-rate loans were below 5% through most of December and haven't risen much.

The role of the federal government in the housing market remains key. Some experts worry that once certain policies and programs wind down -- among them low interest rates, tax incentives for buyers and an increased accessibility of mortgages backed by the Federal Housing Administration -- the housing market could falter.

Christopher Thornberg, principal of Beacon Economics, predicts home prices will drop once those policies and programs expire.

"The bounce in the housing market is due to government policy, not due to fundamentals," he said. "None of these programs fix the underlying problem. They only delay the solution -- they only delay the healing process."

The percentage of Southern California homes that sold for more than $500,000 rose to 20.2% of all sales in December from 16.5% a year earlier, DataQuick said. That is well off the 52% level reached before the credit crunch hit in 2007, which made large mortgages difficult to obtain.

Richard Green, director of the USC Lusk Center for Real Estate, said buyers have sensed more security in Southern California's real estate market in recent months and have begun to get off the fence.

"We are getting a little bit of what we had six or seven years ago, where people are worried if they don't get in now they are going to miss out on an opportunity," Green said. "In a decent neighborhood, in the half-a-million-dollar range, we are back to lots of offers."

A total of 22,328 new and resale homes sold last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, up 16.4% from November and 12.1% from December 2008, DataQuick said.

Still, uncertainty lingers. Unemployment and a potential wave of homes headed for sale because of foreclosure or delinquency loom over the U.S. housing market. Both could slow Southern California's progress toward recovery should the Obama administration fail in its efforts to aid struggling borrowers. California's budget woes could also bode poorly for the state.

"The fiscal picture is still really bleak, and that makes me worry," Green said.

The home-buyer tax credit motivated Jennifer Scholte, 31, to close on a Lakewood home in December. The teacher said she and husband Eric, 34, saved up for a 20% deposit on the $361,000 property.

"We are first-time home buyers, and with that credit, that was a big push," she said.

To take advantage of similarly minded buyers, Leibovitch of Rodeo Realty said he has hired 40 to 50 people in the last three months, including secretarial, marketing and administrative staff, to prepare for what he predicts will be one of the strongest sales years on record. Escrow of the West, a Beverly Hills company, said it would open a Sherman Oaks branch Thursday, creating 25 jobs.

alejandro.lazo@latimes.com

Sales Fall in November

2010-01-21T05:08:00Z

November pending home sales index tumbles

The number of new deals under contract that month fell from October, a sign of vulnerability in the housing recovery.
By Alejandro Lazo

January 6, 2010

The number of homes placed under sales contracts tumbled in November from the previous month, presenting fresh evidence that the nascent housing recovery could be poised for a dip in the new year.

The National Assn. of Realtors said Tuesday that its pending home sales index -- a forward-looking indicator based on contracts signed in November -- fell 16% to 96 from an upwardly revised 114.3 in October. But the index still was 15.5% higher than for November 2008, when it was 83.1.

The housing market picked up steam last year as the federal government pushed to lower interest rates, increase loans to first-time buyers from the Federal Housing Administration and provide an $8,000 tax credit for first-time buyers.

But experts fear that a slowdown in buying activity coupled with a possible wave of foreclosures this year could cause the values of homes to drop again.

The data on contracts follow a recent government report that new home sales plunged 11.3% in November.

Experts said the November drop in home contracts and in new home sales reflected a falloff after a surge in activity as buyers rushed into the market to take advantage of the tax credit before its initial expiration Nov. 30.

Congress in November extended that credit through April and expanded it to include a $6,500 incentive for some buyers who already own a home.

But many experts, such as Lawrence Yun, chief economist for the Realtors group, predict the effects of the expansion will be muted or, at best, will not lead to a pickup in sales until spring.

"It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit," he said. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own."

Michael Larson, a housing analyst with Weiss Research, was also upbeat.

"Since the period covered in this report, the first-time buyer credit has been expanded and extended," he wrote in a note to clients Tuesday. "We've also seen indicators of unemployment and economic growth stabilize over the past few months. So after we work through this period of housing indigestion, we'll likely see sales rates gradually pick up again and home inventories gradually decline."

alejandro.lazo@latimes.com

Modified Mortgages Behind on Payments

2009-12-08T04:58:00Z

Many homeowners with modified mortgages are behind on payments

About 25% of borrowers helped under the administration's massive foreclosure prevention program are delinquent, the Treasury Department says.

By Renae Merle

December 5, 2009

Reporting from Washington

About 25% of borrowers helped under the administration's massive foreclosure prevention plan have already fallen behind on their new mortgage payments, according to government data that raise new questions about the program's effectiveness.

The delinquency figures reflect the latest troubles of the program, known as Making Home Affordable. Treasury Department officials this week announced a campaign to put new pressure on lenders to do more to move struggling homeowners into loans with easier terms.

So far, more than 650,000 borrowers have been enrolled into the initial or trial phase of the program and have seen their payments lowered by an average of $640 a month, or 40%. But a recent survey of large mortgage servicers published by the Treasury Department found that more than 25% of borrowers in the program were not current on their trial payments.

Moving homeowners from the trial phase into a permanent modification has become the program's latest stumbling block. Borrowers must make three payments and submit documents proving that they qualify for the program to move forward, but a bottleneck has emerged, with few homeowners making it through. JPMorgan Chase & Co., which signed up more than 178,000 homeowners, noted last month that 22% of borrowers helped didn't make their first payment.

If borrowers struggle to keep up with their modified mortgage payments, housing experts said, it could diminish the effectiveness of the program, which the administration hopes will help as many as 4 million borrowers.

"I remain disappointed," said Richard H. Neiman, New York's superintendent of banks and a member of the Congressional Oversight Panel, which is monitoring the government's bailout programs. "I am concerned that a quarter of trial mods are not current."

Some borrowers have reported being confused about the trial modification process, including how their new payment was determined and when they need to begin paying, Neiman said. But the delinquency rate also reflects that some borrowers' financial conditions have eroded since they received the initial loan modification, he said.

"If the borrower qualified under that reduced income but then subsequently lost the job entirely, they are more likely to fall behind on the payments," said Andrew Jakabovics, associate director for housing and economics at the Center for American Progress. "Unfortunately, the program doesn't allow for a second bite at the apple."

But some government and industry officials say it is too early to judge the program and unrealistic to expect all borrowers to keep up even after receiving help.

The purpose of the trial phase of the modification process is to give homeowners immediate relief while they submit proof that they qualify for the program and determine whether the reduced monthly payment is sustainable for them, said Meg Reilly, a Treasury spokeswoman.

"Modifications may not be the right option for every homeowner," she said.

In a written response to questions from the Congressional Oversight Panel, Herbert M. Allison Jr., Treasury's assistant secretary for financial stability, noted that "over 73% of borrowers are current," leaving more than 25% of them delinquent.

He also said Treasury has forecast an initial re-default rate of 40% on the foreclosure prevention program. That would be an improvement from the industry track record so far, which has seen more than half of borrowers become delinquent a year after their loans were modified, according to government data.

It may be that some modifications were given to borrowers who had no realistic expectation of keeping their home, said Mark A. Calabria, director of financial regulation studies at the Cato Institute. A few borrowers may be using the program to delay foreclosure and to find another way to save their home or just stay for free, he said.

"There is some positive amount of that," Calabria said. And some borrowers should be going "straight to foreclosure -- they aren't sustainable under any reasonable circumstances."

Many initial modifications were given to borrowers after a phone conversation with lenders but without written confirmation of their income or expenses, said Josh Denney, associate vice president of public policy at the Mortgage Bankers Assn. The borrower "may have had a more optimistic outlook about how their finances were likely to go, how much income they would have available to make their payment on time," he said.

The Treasury Department is expected to release data next week showing that the vast majority of borrowers remain stuck in the initial phase of the program.

More than half of the borrowers eligible for a permanent modification by the end of the year have not submitted all of the required documents, such as pay stubs and tax returns, including some who have provided nothing, government officials have said.

Housing advocates say that in many cases borrowers have submitted the documents but remain in limbo as they await a decision by the lender.

Merle writes for the Washington Post..

Why Homeowners Walk Away

2009-12-08T01:35:00Z

HOUSING SCENE

Owners' 'strategic defaults' on mortgages depend largely on how far underwater they are
Research shows that the bigger the difference between what people owe and their home's value, the more likely they are to walk away, even if they can still afford to make mortgage payments.

By Lew Sichelman

Reporting from Washington

That some underwater owners -- whose houses are worth less than what they owe -- are walking away from their homes even though they can still afford to make their mortgage payments has been well reported, if not well documented.

But just how prevalent are these "strategic defaults"? And what are the social and moral ramifications of jumping ship?

The answer to that first question is difficult to measure, if only because people who do make a conscious decision to ditch their mortgages, although they can still pay them, have every reason to disguise themselves as people who can no longer afford their loans. After all, if they can't make their payments, maybe Uncle Sam will ride to their rescue.

But research by three academics suggests that the willingness of people to default depends largely on just how far underwater they are. Or, as the study's authors put it, "People default because of the size of their negative equity, not just because they cannot afford to pay."

When the difference between what they owe and what their homes are worth is less than 10%, the researchers found that not one of the 1,000 U.S. households sampled said they would walk away.

And when the shortfall is between 10% and 20% of their home's value, Luigi Zingales of the University of Chicago, Paola Sapienza of Northwestern University and Luigi Guiso of the European University Institute found that just 5% of the owners they sampled would quit. Even when the difference reaches 50%, only 17% said they would throw in the towel.

There are some interesting variables. For example, although the biggest determinant is equity shortfall, another major consideration is people's attachment to their homes, with folks who bought more than five years ago far less likely to default.

Another economic driver is the cost to relocate, which increases with the number of years at the current location and the number of children in the family.

But no matter how the researchers sliced it, their findings indicate that there's hardly a stampede of underwater borrowers tossing their keys over to their lenders and moving on.

Indeed, the survey also discovered that moral and social variables tend to play a significant role in predicting strategic default. Zingales, who with Sapienza is coauthor of the quarterly Financial Trust Index, said "the most important barriers" to walking away might be both moral and social.

For example, people surveyed who believe it is immoral to default are 77% less likely to declare their intention to do so. At the same time, people who know others who already have defaulted are more likely to say they themselves would default.

Then there is something the study's authors call a "multiplication effect," meaning that the social pressure not to default is weakened when the borrower lives in an area with a large number of foreclosures. The predisposition to run away increases with the number of foreclosures in the same ZIP Code, the study found.

Factors such as age, education and political affiliation also play a role in the responses. Younger and older people are less likely to say it is morally reprehensible to default than middle-aged folk. People with a higher education are less likely to think defaulting is immoral, while people with higher incomes are more likely to say defaulting is immoral. There is little difference in the moral views among Democrats or Republicans, but independents are less inclined to say defaulting is immoral.

All of this is pure supposition, of course, because the findings are based only on declared intentions, not actual decisions. But the question of morality has generated quite a bit of discussion in the media, at cocktail parties and even in the real estate community.

Realty pros who responded to a question put forth by this column on RealTalk, an online community in which 30,000-plus members seek advice, voice their opinions and sometimes just vent, declared almost universally that walking away is unprincipled -- at least up to a point.

Nellie Arrington of Long & Foster Real Estate in Columbia, Md., says it is "morally wrong, legally wrong and just plain wrong" for an owner to walk away from a mortgage he can afford simply because the balance exceeds the value of the underlying property.

"Life doesn't come with guarantees," Arrington said.

Eileen Landau of Realty Executives in Naperville, Ill., says that while walking away may be smart from a financial perspective, "from an ethical perspective, I think it's dancing with the devil."

Although many agents sided with lenders, several say that banks in some cases are simply on the receiving end of their poor decisions not to work with borrowers.

Deede Wockenfuss of CybrSold Concepts in Chandler, Ariz., has had several clients who tried to no avail to work with lenders to get their loans modified. "The bank is asking the borrower to default," she said.

When push comes to shoving your loved ones out the door, Bob Hunt of Keller Williams O.C. Coastal Realty in San Clemente says the moral duty to protect your family outweighs the moral duty to repay the loan.

"Promise keeping is not the highest moral value," said Hunt, who before his real estate career taught ethics and logic at the University of Redlands. "If I promised to lend you my gun and you are now in a clearly dangerous psychotic stage, breaking my promise would be the right thing to do, not the wrong thing."

Hunt also believes that when it comes to mortgages, moral considerations carry more weight than they should.

"Mortgages are secured notes," Hunt said. "They are not like borrowing from your grandmother. If you willingly default on her, shame on you; she has no recourse. But if you default to the bank, it can take your property. That is the deal they made.

"The property may not be worth what they lent you, but whose fault is that? They are big boys and girls. They made a business decision, and in today's market, they lost. A deal is a deal."

Maybe so, but doesn't that work both ways?

lsichelman@aol.com

Recovery is Weak

2009-12-08T01:23:00Z

THE ECONOMY

Hope for a strong economic rebound is fading

Growth last quarter was less than initially estimated. The Federal Reserve doesn't expect the economy to pick up steam until 2011, despite huge stimulus spending and low interest rates.
By Jim Puzzanghera and Don Lee

November 25, 2009

Reporting from Washington

The economy is improving according to most yardsticks, but fresh evidence emerged Tuesday that the path to revival could resemble a Thanksgiving holiday road trip -- long, slow and stressful.

Hopes for a strong rebound from the recession are fading as the government Tuesday downsized its estimate of economic growth in the third quarter to 2.8% from its earlier calculation of 3.5%.

And despite huge stimulus spending from Washington and historically low interest rates, the Federal Reserve expects the economic recovery to remain weak into next year, with the economy unable to gather steam until 2011, according to minutes released Tuesday of its latest meeting.

"The recession is over largely due to" the government's efforts to stimulate the economy, said Mark Zandi, chief economist at Moody's Economy.com, "but the recovery remains very fragile."

Troubles persist in the real estate market, where a budding recovery in home prices shows signs of stalling and a surge in foreclosures of commercial properties looms. Consumers remain unusually downbeat, holding back their spending. And the unemployment rate, which hit 10.2% last month, is such a concern that President Obama will convene a White House summit next week to find new ways to create jobs.

Nowhere is the sluggish recovery more evident than in the woes of the nation's banks.

Although the industry's bottom line improved slightly in the third quarter, the sector's condition remains delicate. The Federal Deposit Insurance Corp. said Tuesday that the number of banks in danger of failing jumped to 552 at the end of September, the highest level in 16 years. And the federal fund that makes good on deposits at banks that go under is officially in the red for the first time since 1992.

Banks continued to set aside more money to cover potential loan losses, limiting the amount they can lend. As a result, the dollar amount of loans on the books of U.S. banks fell in the latest quarter by the largest percentage since at least 1984, making a strong economic recovery more difficult.

"There are no quick fixes here," warned FDIC chief Sheila Bair.

Federal Reserve policymakers don't expect rapid improvement either.

Although slightly raising its projections of economic growth for the rest of this year, the Fed's interest-rate committee remains highly cautious about the pace of the recovery, in large part because of the labor market's persistent weakness.

In their latest forecasts, most Fed officials predicted that the unemployment rate would stay well above 9% next year and that it would be five or six years before the jobless rate got close to 5%. Even those projections may be a bit optimistic, given that they were made during the Fed's monetary-policy meeting in early November.

Fed Chairman Ben S. Bernanke and others at the central bank worry that prolonged high unemployment will weigh further on consumer spending, which accounts for about 70% of the American economy. Although job losses are easing, the Fed report cited the large number of people working part-time involuntarily.

In that environment, the Fed report says, "businesses would be able to meet any increases in demand in the near term" by giving their current employees more hours -- without bringing on new workers.

In a separate report Tuesday, the Commerce Department lowered its estimate of the gross domestic product -- the total value of goods and services produced in the country -- in the third quarter. The revised numbers still indicate that the economy grew for the first time after a year of contraction. But the new annualized growth rate of 2.8%, reduced from 3.5%, reinforced fears that the recovery will be slower than what has followed past recessions.

The adjustment, however, didn't affect Zandi's prediction that the economy will grow at an annual rate near 3% in the last three months of 2009.

"The best news in the report was a sturdy increase in corporate profits, as businesses have succeeded in getting their costs down," Zandi said. "Historically, profit gains lead a better job market."

As for the nation's banks, Bair of the FDIC said she didn't expect to see significant improvement until sometime next year.

In the third quarter, the country's commercial banks and savings and loans posted net income of $2.8 billion. The performance reversed a $4.3-billion collective loss in the second quarter and more than tripled the industry's $879 million in profits recorded in last year's third quarter.

But earnings at banks could drop in the current quarter as they undergo their traditional end-of-the-year write-down of bad assets, the FDIC said.

"The recession ended midyear . . . but it's still going to take a period of time until banks can put all these losses behind them and move on to make better, more secure loans," said James Chessen, chief economist for the American Bankers Assn. "We're in the middle, and it's a tough place to be."

So far this year, 124 banks have failed -- 50 in the third quarter alone, the most in a three-month span since 1992, according to the FDIC. With more failures expected, the FDIC has set aside $38.9 billion from the fund to cover losses through next year. That has left the industry-financed Deposit Insurance Fund with a negative balance of $8.2 billion as of Sept. 30, the FDIC said. The agency is rebuilding the fund by forcing banks to prepay three years of premiums -- about $45 billion -- by the end of the year. In the meantime, the FDIC said, it has sufficient cash to deal with fresh bank failures.

"The industry is slogging through -- and it is a slog," said Bert Ely, an independent banking analyst. "2010 is not going to be a great year for the banking industry in terms of bottom-line results."

Even with the economy's continued troubles, a widely followed index of consumer confidence managed to rise slightly in November. But it remains at historically low levels, according to the Conference Board, the research firm that puts out the index.

The increase reflected a decline in the number of people expecting the economy to worsen rather than a greater expectation that conditions would improve, the Conference Board said.

jim.puzzanghera@ latimes.com

don.lee@latimes.com