A closely watched index released Tuesday showed home prices tumbling by the sharpest annual rate ever in July, but the rate of monthly declines is slowing.

The Standard & Poor’s/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier, the largest drop since its inception in 2000. The 10-city index plunged 17.5%, the biggest decline in its 21-year history.

Prices in the 20-city index have plummeted nearly 20% since peaking in July 2006. The 10-city index has fallen more than 21% since its peak in June 2006.

No city in the Case-Shiller 20-city index saw annual price gains in July, the fourth straight month that has happened.

However, the pace of monthly declines is slowing, a possible silver lining. Between May and July, for example, home prices fell at a cumulative rate of 2.2% - less than half the cumulative rate experienced between February and April.

But there’s “no evidence of a bottom,” said David M. Blitzer, chairman of the index committee at S&P.

The pace of dropping home values slowing down is definitely a good sign for homeowners, yet I’d give the market quite some time to gather its wits. In the major boom cities, like Phoenix and Vegas, you see a drop of up to 30%, that’s harsh. Harsh for homesellers, but definitely an opening for investors who have equity ready to invest.

No evidence of a bottom… Well, let me tell you this much. Whenever a media outlet pushes out a headline that the bottom has finally been reach, trust me, it’s already old news. Greed is what made the economy what it is right now, so I can’t suggest to investors to wait for the market to plunge down even further. In my opinion, I can’t see it getting any worse than now. It seems like Congress will be putting up another bailout for voting, and I’m pretty sure that it’ll happen this time. I just hope that the fine print will be fair for the average American though.

Las Vegas prices plunged the most at nearly 30%, with Phoenix diving 29% and Miami 28%. Prices in the seven cities in the Sunbelt all fell between 20% and 30% from a year ago.

Only seven cities showed positive or flat returns from June to July, down from nine that showed month-over-month gains in June. Atlanta, Boston, Dallas, Denver and Minneapolis all posted positive returns for three months or more.

It’s great to hear that 5 metros have stood strong through this tough year. Yesterday was a real heartbreaker for those in the finance sector, but all I can really tell you is that life goes on, and America will get back on track. Elections aren’t too far away, and I can only urge you to vote. We have already seen how incompetent McCain is. If he’s this incompetent as a presidential candidate, it will only be worse when he’s in the Oval Office. Not only should we be voting for our choice of President, but also for the officials of our city and the city’s propositions.

Credits: CNNMoney.com

The 700 billion dollar bailout has been rejected. A time to rejoice? No, far from it. The economy has been in turmoil for the last week and now it’s going haywire right now. The worst drop in Wall Street history. Oil prices jolting itself up and down. Something has to be done, but more than treat the symptoms, the roots of the problem have to be handled. And the major root of the problem is nosediving property values. Real estate is the largest asset that the United States’ has, and it has to be taken care of immediately.

CNN.com says that we will not see another vote up for the bailout before Wednesday, so stay tuned. Let’s all keep our nation’s well-being in our prayers.

The House, following four hours of heated and emotional debate, started to vote Monday on a sweeping $700 bailout of the nation’s financial system.

Investors were watching the vote closely. The Dow plummeted more than 700 points as votes against the bill mounted.

The debate included impassioned pleas for and against the measure from Democrats and Republicans alike. Even some of those arguing the legislation must be approved were quick to point out problems with it.

But in the end, the vote began with both Democratic and Republican leadership telling their members the only way to protect the economy from a spreading credit crunch was to vote for the difficult to swallow measure.

“Our time has run out,” said Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee. “We’re going make a decision. There are no other choices, no other alternatives.”

It’s already been a little over a week and a half since the worst of the financial crisis happened; free-falling stock values and the major banks going under. The bailout, no matter how you put it, seems way too unfair for the taxpayer; the average citizen is the one who will be funding the bailout at the end of it all, and we’re not going to see any profit from our required investment! After the country’s financial market is taken out of the muck and mire, will homeowners get to see their property values stabilize? Only time will tell…

The vote comes after lawmakers and the Bush administration finalized legislation following a weekend of high-stakes negotiations over the controversial measure, which is designed to get battered U.S. credit markets working normally again.

“Today is the decision day,” said Barney Frank, D-Mass., on the House floor. “If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans.”

The top bankers and top corporate executives… To sum it up for the Tucson market, look at First Magnus Financial Corporation. This is the company that was heavily into doing subprime loans and doing business all for greed’s sake. They filed for bankruptcy leaving 5,000+ employees without jobs. Who became rich? The executives. And what are those executives up to? They’ve set up shop once again with the name StoneWater Mortgage Company. Why aren’t these corrupted individuals barred from doing business again? Why does America reward the crooked only if they happen to be rich? This is something terribly wrong with this big picture…

House Minority Leader John Boehner told his members, many of whom objected the measure, that the had accept something he and many of them found distasteful.

“If I didn’t think we were on the brink of an economic disaster it would be the easiest thing to say no to this,” Boehner said. But he said lawmakers needed to do what was in the best interest of the country.

Leading House Republicans signed on to the proposal on Sunday after expressing earlier reservations. Senate Majority Leader Harry Reid said Sunday he hoped for a vote in that chamber by Wednesday at the latest.

Earlier on Monday, President Bush and Federal Reserve Chairman Ben Bernanke hailed the measure and urged Congress to move quickly to pass it.

Bush, speaking at the White House, called the proposed measure “an extraordinary agreement to deal with an extraordinary problem.” He said he is confident the measure will win bipartisan support.

“With this strong and decisive legislation, we will help restart the flow of credit so American families can meet their daily needs and American businesses can make purchases, ship goods and meet their payrolls,” Bush said.

Bush acknowledged that many voters were opposed to helping out Wall Street with tax dollars, but said there is little choice to move forward with the plan. He said most if not all of the tax money spent to buy distressed mortgage-backed securities should be recouped when the Treasury sells them in the coming years.

Not only do I sell homes, I am a homeowner. I feel the pain from this crisis, but if I’m going to be required to pay for the bailout, will I see the profit “in the coming years”?

“Every member of Congress and every American should keep in mind - a vote for this bill is a vote to prevent economic damage to you and your community,” Bush said.

Bernanke, who had spent hours before Congress last week testifying in favor of the measure, issued a brief statement promising that it would restore the flow of credit to households and businesses. “I look forward to swift passage of the legislation,” he said.
Buying troubled assets

The core of the bill is based on Treasury Secretary Henry Paulson’s request for authority to purchase troubled assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.

But Democrats and Republicans - concerned about the potential cost - have added several conditions and restrictions to protect taxpayers on the down side and give them a chance at some of the potential upside if the companies benefit from the plan.

Key negotiators for the financial rescue plan were e busy trying to line up votes on Capitol Hill on Sunday. House Majority Leader Steny Hoyer, D-Md., told CNN he believes a majority of representatives on both sides of the aisle can and will support the bill.

On Sunday evening, the House Republican working group, which stringently opposed earlier drafts of the plan and offered a counterproposal, indicated it would support the bill, and its members are encouraging other Republicans in the House to do the same.

“Nobody wants to have to support this bill, but it’s a bill that we believe will avert the crisis that’s out there,” House Minority Leader John Boehner, R-Ohio, told reporters.

But the bill did draw some opposition during the morning debate.

Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. “This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions,” he said.

Other conservative Republicans argued the bill would be a blow against economic freedom.

Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. “The choice is stark,” he said.

But there were also Democrats who opposed the bill for not doing enough to help those who taxpayers facing foreclosure or needing unemployment benefits extended, or taxing Wall Street to pay for the rescue package.

“Like the Iraq war and patriot act, this bill is fueled by fear and haste,” said Lloyd Doggett, D-Texas.

The crisis and a proposed fix

Banks and Wall Street firms, worried about both their own needs for cash and the condition of other institutions, essentially stopped loaning money to one another in recent weeks. That choked off the money being made available on Main Street in the form of mortgage loans, business loans and other consumer borrowing.

The crisis stems from problems in mortgage-backed securities, which saw their value plunge as home prices have gone into their worst slide since the Great Depression and foreclosures have soared to record levels. In turn, the market for trillion of dollars worth of those securities held by major firms evaporated, sending them down to fire sale prices and raising the risk of widespread failures among the nation’s major financial firms.

Under the plan, Treasury will buy the mortgage backed securities, either directly from the firms or through an auction process. It may also arrange to provide guarantees for the securities up to their original values in return for premiums they would charge current holders of the securities.

To make the legislation more politically palatable, the bill calls for the government, as an owner of a large number of mortgage securities, to exert influence on loan servicers to modify more troubled loans to help prevent additional foreclosures. It also provides that the government will take equity in the firms that sell the securities to the government, and limits pay packages for top executives.

Limiting pay packages for the top executives. This is the part of the bailout that blows my mind, the part of the bailout that I cannot grasp. Executives are to be the leaders of the organization. When all falls down, they’re the ones ultimately to be responsible. These are the same executives that gave out 100% loans to home buyers. Do you see US Bank going through turmoil right now? No, and it’s because subprime lending was only 3% of their portfolio. Why does the average American citizen have to carry the responsibility? Why are we even discussing pay packages for executives? Those executives are obviously in the wrong profession! We need executives who’ll do banking the right way, banking that looks in the best interest of America’s citizens. The bailout requires stipulations that put in new execs in office.

The legislation comes amid great upheaval in the nation’s financial system. On Monday morning, the Federal Deposit Insurance Corp., which insures deposits at failed banks, arranged for the sale of the banking assets of Wachovia (WB, Fortune 500), the nation’s No. 4 bank holding company, to Citigroup (C, Fortune 500) for $2.2 billion in stock.

That follows three weeks of other shocks: the Treasury Department’s seizure of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500); Wall Street firm Lehman Brothers’ bankruptcy filing; rival Merrill Lynch (MER, Fortune 500) purchase by Bank of America (BAC, Fortune 500).

In addition, the Fed bailed out insurance giant American International Group (AIG, Fortune 500), loaning it $85 billion in return for a nearly 80% stake. while Washington Mutual (WM, Fortune 500), the nation’s largest savings and loan, became the largest bank failure in history.

America… We need a miracle. Not for 700 billion dollars, but for stabilization so that money flows throughout the country again. So that jobs are created and employees getting paid to lead normal lives. So that the world can function again. Let’s hope that Congress takes care of us. Not only the mega-rich, upper class, but ALL of us.

Credits: CNNMoney.com

Maybe you’ve started thinking that now you can finally find a buyer for your house. After all, this summer the National Association of Homebuilders asserted that houses were more affordable than at any time during the previous four years. Prices have slid so far that many homes are now within the reach of people who couldn’t buy during the bubble.

Other faintly cheery facts have emerged too. Sales of existing homes were 3% brisker in July than June, and in several metropolitan areas - among them Boston and Denver - the market seems to be turning around.

When examined closely, however, those glimmers of better times ahead seem to fade. Sure, lower prices can help you sell, but you also have to know whether there are enough people who can afford to pay the price you want.

That, in turn, depends on a mix of factors including the financing that buyers can get, whether there are enough of them who want to live where you do, their other housing options and how they feel about investing so much in an asset whose future appreciation is iffy.

“Price is just one of many variables that go into a decision to buy a house,” says real estate analyst Michael Larson of Weiss Research, a Jupiter, Fla. investment newsletter publisher. “Many other factors are overriding price right now. That’s why the market remains challenged.”
The long fall

Price, though, is still the primary measure of affordability for any buyer. And while the median price for an existing house has tumbled 8% from $230,100 to $212,400 since its peak in 2006, according to the National Association of Realtors, many potential buyers still see asking prices as expensive.

And they’re not wrong. That $212,400 house, after all, costs 39% more than it did back in pre-boom 2001 when it sold for about $153,100. Prices in red-hot markets such as Miami became even more inflated during the boom and are still up about twice as high as they were in 2001.

So while homes are selling at a discount, they’re not on clearance - not yet anyway. Peak to trough, the median-priced home nationwide is projected to fall as much as 20%, bottoming out around $185,000 by late 2009, according to a July report from Wachovia.

“Houses may be more affordable, but they will probably be even more affordable next year,” says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. “So why buy now?”
Crunched credit

The price may be right, but if buyers can’t borrow enough, the house isn’t affordable. Difficulty borrowing is keeping many Americans from buying. “The industry went from little or no credit standards to credit standards on steroids,” says Marc Savitt, president of the National Association of Mortgage Brokers.

According to the Federal Reserve Board, about 85% of lenders, worried about falling prices and rising foreclosures, have stiffened requirements for borrowers in the past three months. Those with a credit score of 600 or lower cannot get loans at all, says Keith Gumbinger of HSH Associates, a mortgage information publisher.

The upshot: 21 million, or 13% of those who have credit records, many of whom would have qualified for mortgages during the bubble, can no longer do so.

Those whose credit scores are high enough to qualify for a mortgage will likely pay more. Fannie Mae and Freddie Mac, which set the lending criteria for most loans, in November will require a 740 score, up from 680 for buyers to escape a surcharge that ultimately increases their interest rate.

As a result, the 33 million Americans whose scores fall between 680 and 740 (roughly 20% of adults with credit histories) may have to pay half a percentage point more to borrow. On a $300,000, 30-year loan, that would add about $100 to a buyer’s monthly payment.
Adios, easy money

Back in the go-go years, lenders fell all over themselves to make no-down-payment loans. Those are gone, and lenders want some skin in the game, at least 5%. But to avoid paying extra, most buyers need the full 20% demanded in days of yore. To buy a $400,000 house, a family would now have to amass $80,000 in cash, up from $20,000 or less a few years ago.

Buyers also face higher interest rates, which allow them to borrow less. In mid-2004 a borrower with good credit could have qualified for a rate of 5.87% on a 30-year fixed $300,000 loan. That translates to a monthly payment of $1,774. Now, with the rate for the same loan at 6.57%, the same monthly payment could support a loan of just $278,500.

Back in the day, option ARMs and other exotic mortgages with low teaser rates helped struggling purchasers stretch to buy houses that they could not otherwise afford. Those deals have largely disappeared.

And while banks once allowed a homeowner’s monthly principal, interest, taxes and insurance (PITI) to make up as much as 45% of a family’s before-tax income, now buyers are restricted to using only 32% for a house payment. If PITI rises beyond that limit, banks consider the loan unaffordable and the family cannot receive a mortgage.

That limit boosts the amount of income a homeowner needs to purchase. Say your house has dropped from $425,000 to about $395,000. A couple of years ago a family needed an income of only $80,000 to buy. Now, even though the house costs less, a prospective buyer must have an income of $92,000.
Less expensive options

Rental prices are looking good in many areas. Christopher Mayer, a Columbia University real estate professor, recently found that in 11 of 16 top cities, renting is a better deal compared to buying than it has been historically.

The extra expense of owning was offset by rising house values - at least a few years ago. Now that new buyers can no longer count on steep appreciation, they have less incentive to buy.

And it’s not as if rents are standing still while your house’s price falls. “Competition from vacant houses or condos that people can’t sell is driving down rental rates,” says Hessam Nadji, managing director of research at Marcus & Millichap Real Estate Investment Services in Encino, Calif.
The big pinch

A house is only affordable if a homeowner can meet its monthly payment and have enough left over to live on. Incomes rose by about 5% in the first half of the year, but few people feel as though they’re better off.

Americans spent an extra $165 billion, or 26% more, on gasoline and oil in the first six months than over the same period last year, and food bills rose by 7%. Without a doubt, most Americans feel pinched.

If you live in an area dominated by financial companies or car makers, two sectors shedding jobs in the current downturn, you may encounter even less appetite to buy.

If the economic turmoil continues, vacation destinations like Las Vegas or Orlando could suffer a drop-off in business that would leave prospective buyers with less in their pockets.

“Not only is the amount of money people have to spend on housing in decline but because a house is a risky asset, the amount they want to spend on it is falling too,” says Michael Englund, chief economist at Action Economics, a forecasting firm.
Buyers being wary

That fear may be the biggest obstacle keeping buyers from knocking on your door. During the boom, people were willing to spend as much as they did on housing because they thought that they were putting away money for retirement or college. And they could draw on their equity for renovations or other goodies.

If homes rose in value faster than stocks, as they did for a few years, homeowners could console themselves that forgoing 401(k) contributions for high mortgage payments was a sensible strategy.

Few these days think of real estate as a safe place to invest, however. According to Gallup, only 27% of the population believe a home is their best long-term investment, down from 50% in 2002.

“Nearly a quarter of potential buyers are on the sidelines waiting for some form of encouragement,” says Walter Molony, spokesman for the National Association of Realtors. Maybe they’re looking for some sign that houses have truly become more affordable. The price declines haven’t done that yet.

Credits: CNNMoney.com

Median home prices in Pima County in August hit a 44-month low and posted their largest single-month fall off in more than a decade, according to data compiled by the Tucson Association of Realtors.

The fall in home values, driven by the subprime home loan foreclosure crisis, could leave 1 in 3 county homeowners over the near term owing more on their home than it’s worth, according to a report delivered to the city last week by the Southwest Fair Housing Council.

All those loans being “upside down” and the overall loss of home equity even for homes that are still worth more than their loan could have implications across all economic lines in the county, local experts say.

Wiped-out equity means no cashing in to pay for a child’s college education, home renovations, retirement or moving into a bigger house, said Richard Rhey, the housing council’s director.

“The home has been a principal reservoir for savings and wealth,” Rhey said. “That will be eliminated for a large number of families.”

The council is a nonprofit organization set up to track housing trends and help local governments enforce federal fair-housing rules.

Its study extrapolated national trends that showed 17 percent of home loans between 2002 and 2007 were subprime and that 30 percent of all mortgages during that time would be upside down. In Pima County over that same period, 38 percent of home loans were subprime.

That and rapidly falling property values lead the council to project that a third of all mortgages in Pima County could be more expensive than the property they back.
A subprime loan is one made to a borrower who doesn’t qualify for a home loan under Fannie Mae or Freddie Mac lending guidelines.

According to TAR, the median price home fell from $199,900 in July to $185,000 in August - its lowest point since January 2005.

For this year through August, 7,084 homes were sold in the Tucson area. In Pima County over that same time, 4,841 homes were foreclosed, according to the council’s report.

There were about 4,500 foreclosure filings in all of 2007, according to data compiled by Realty Trac, an online foreclosure listing service.

The subprime loans made during the housing boom in the first half of the decade were often adjustable rate mortgages, or variations of ARMs, that had very low starting mortgage payments, some interest only.

But shortly after those loans were made, the interest rates began to periodically reset, usually to higher rates, making monthly mortgage payments more expensive. Many of these loans began to reset in 2006, fueling the explosion in foreclosures here and nationally that year as many borrowers became unable to afford their mortgages.

Tucson City Council members Karin Uhlich and Steve Leal asked for the housing report from the housing council so the city could consider taking action by the end of the year to help some homeowners, Uhlich said.

The city should work to help keep people in their homes and provide affordable options for low-income buyers, Uhlich said.

She said solutions include a housing trust fund to help borrowers with down payments or emergency mortgage payments to help keep them in their homes, and encouraging land-trust developments that let buyers build equity in houses but not the land, thereby keeping those homes more affordable.

“We need to create affordable housing and assist those who are in danger of losing their homes,” Uhlich said.

The housing boom here peaked in 2005, when more than 5,300 homes sold between June and August at a median price of more than $220,000.

People who bought then are facing their first bump in mortgage payments now, said John Strobeck, author of The Orange Report and an expert in the Tucson real estate market.

In 2010, the five-year interest rate resets will start on homes bought during the boom years.

“We need to convince people to start refinancing those right now and not wait,” Strobeck said.

If they don’t and Tucson experiences a second wave of foreclosures, homeowners will suffer, even if they own a mortgage they were certain they could repay and have never been late on a payment.

But falling home values could make refinancing many of those loans difficult, if not impossible, because of the lost equity or the home being in an upside-down situation.

“Foreclosures on the market just add to the inventory,” Strobeck said. “Let’s just hope we don’t have as many in two years as we do now.”

The housing market should start to rebound early in 2009 but prices won’t get back to 2005 levels for awhile, he said.

“It’s all supply and demand,” Strobeck said. “If people leave their homes, it will add to the supply. If they can stay in their homes and get some of their loans (refinanced), there will be less inventory.”

Not everyone in the local housing market is preaching gloom and doom.
Mike Harley, president of Bank of Tucson, balks at the assertion that one-third of the mortgages will be upside down.

“I don’t believe that number at all,” he said. “I don’t believe that number is close.”

Most homeowners who bought during the middecade boom will be able to refinance their homes at an extra 2 percent interest rate, Harley said.

On a $200,000 home, under a 30-year mortgage at 5.5 percent interest, the monthly payment would be about $1,130. At 6.5 percent, the payment would be $1,250. That’s only an extra $120 a month to stay in the home, he said.

“The people who will be out of their house shouldn’t have been in their houses in the first place,” he said.

Harley predicted that the people who will get whacked hardest will be the “flippers” who bought their homes hoping to sell it for a fast profit in a hot market with skyrocketing home values.

Steve Saddle, a top Realtor at Coldwell Banker Tucson, bought an investment property in the Catalina Foothills. If he sold it now, he’d lose $40,000.
“If I had to sell it now, I’d be in trouble,” he said.

So, he plans to wait for the market to improve, prices to rally and to get his investment back.

“Nobody thought we’d lose four years of value from the market,” Saddle said.
If the flippers are stuck, the family homeowner is suffering most said Kristy Theilen, chief organizer of the Association of Community Organizations for Reform Now.

“The only investment they have is in their home,” she said.

Everybody suffers when that happens.

“It’s not even about that. It means neighborhoods lack property owners,” Theilen said. “It draws crime and it’s one less homeowner looking out for neighbors.”

Credits: Tucson Citizen