Homeowners in the hardest-hit cities hope for some relief from the Bush administration’s recent foreclosure initiative — but they’ll still have to cope with dramatically declining home-sale prices.

Residents of Sacramento, Calif., where home sale prices for November 2007 fell a startling 18.6% from the year before, are likely breathing a sigh of relief.

That’s because homeowners there stand to benefit from the Bush administration’s initiative, announced Feb. 12, aimed at helping homeowners facing foreclosure. The “Project Lifeline” program — assembled by six of the nation’s largest financial institutions, which service almost half of the country’s mortgages — allows qualified homeowners to suspend proceedings for 30 days while providing them with rewriting and refinancing assistance.

The lenders involved — JPMorgan Chase, Bank of America, Countrywide Financial, Citigroup, Washington Mutual and Wells Fargo — say they will contact homeowners who are 90 days or more overdue on mortgage payments and work with them on ways to make their mortgages more affordable.

”There’ll be homeowners who still take no action, and some will still walk away,” said Treasury Secretary Henry Paulson at a news conference. “But some borrowers facing immediate foreclosures may find solutions.”

Resetting rates on many of these mortgages are causing homeowners to default, but falling prices, which lead to negative equity, are also playing a part. Negative equity occurs when the homeowner owes more on the home than the home is worth, and thus has little incentive to make payments.

Then there are the homeowners who took out “piggyback” loans — getting a second mortgage to pay the down payment on the first — leaving them saddled with mounting debt, yet unable to unload a home that’s dramatically dropping in value.

Behind the numbers

To assess which cities are hardest hit, we used data from Radar Logic, a New York real-estate research firm. Radar Logic differs from the more familiar Case-Shiller index in that it tracks more markets (25); includes data on foreclosures, condos and new construction; and is a spot price, not a running average.

ZipRealty, a San Francisco real-estate tracking firm that aggregates multiple-listing-service data, provided us with the number of homes on the market that have been relisted below their initial asking price.

In Sacramento, 43.6% of homes on the market have been lowered in price. There are 36,097 homes on the market there, with few potential buyers.

Just lagging Sacramento is Las Vegas, where prices plunged 17.2% between November 2006 and November 2007. What’s more, from December 2006 to December 2007, the number of homes on the market surged by 30%, further stalling sales and likely leading to more price depreciation down the road.

A city you might have expected to see higher on the list — Detroit — finished ninth. Simply put, there just isn’t much further for the city’s housing prices to fall; in percentage terms, it doesn’t look as depressed as other (once overinflated) markets. In some areas of Motor City, banks are literally giving homes away if the buyers agree to bring them up to code.

Florida nabbed three spots on the list of 10 fastest-falling markets, with Tampa down 11.7%, Miami depressed by 10.6% and Jacksonville in an 8.7% decline from last year.

The one sign of good news in these markets is that construction has all but stopped, and sellers are starting to get realistic about cutting prices.

For full-year 2007, almost every market experienced an inventory spike, but in the last month of the year, according to ZipRealty’s numbers, inventories started to decline nationwide. Even in Sacramento and Las Vegas, inventory numbers have started to fall, if only marginally.

The housing market will continue its downward spiral, forecasts say, and that means opportunities for buyers. But waiting for the market bottom may not be the smartest strategy. Here are 5 reasons to buy now — and 5 reasons you may want to wait.

By Melinda Fulmer, MSN Real Estate

The latest housing headlines are far from encouraging: Foreclosures are up, home prices are down and new-home sales are at record lows. All this dismal news has many buyers sitting on the sidelines, afraid to make a move. But, economists say, waiting for the bottom may not be the smartest strategy.

Calling the market low is a difficult task, and it’s most often spotted in the rear-view mirror. For one thing, there’s no agreement on when the U.S. real-estate market will officially touch bottom. If you believe the National Association of Realtors, it will happen later this year. Investment bank Merrill Lynch is much more pessimistic, predicting that U.S. home prices will drop another 15% this year and 10% in 2009, with perhaps even more depreciation in 2010.

But for many buyers, there’s no real need to wait for the market as a whole to officially bottom out, says Delores Conway, director of the Casden Forecast at the University of Southern California’s Lusk Center for Real Estate. “Real estate is local,” Conway says, and therefore what constitutes the bottom for the country is meaningless for those looking to buy and sell homes in their own neighborhoods.

Prices in many markets have not yet hit their lowest point, but they aren’t that far off. And in other areas, only the pace of sales has been affected; prices have held firm or gone up.

Waiting for the absolute bottom to hit before buying puts you at risk of missing it and getting caught up in a market on the upswing. Plus, for some first-time home buyers, owning simply makes better economic sense than renting.

Downturn, what downturn?

Of course, in some parts of the country, there’s no real reason to get cold feet about buying. Prices have ticked up slowly and are expected to continue that slow march for the foreseeable future. “We have not seen a downturn in our market,” says Marianne Ackerman, of The Property Shop in Glenwood Springs, Colo.

Indeed, prices in this small community outside Aspen have been nudging up 5% a year unchecked for several years, thanks to a shortage of property suitable for development and a booming tourism market.

This appreciation prompted longtime Glenwood Springs resident Marianne Virgili — who also heads the town’s chamber of commerce — to buy a parcel of land now, without the slightest bit of hesitation. “Prices are rising, so the best time to get in is now,” Virgili says. She plans to start building a home on her lot in the spring.

Other markets that experienced healthy price increases in the annual sales data from the National Association of Realtors are Binghamton, N.Y.; Amarillo, Texas; Springfield, Ill.; Topeka, Kan.; San Jose, Calif.; and Bismarck, N.D.

”Just like the weather, there are large local variations in home prices,” says Lawrence Yun, NAR chief economist. In the NAR’s annual report on metro home prices, almost half of the markets posted price increases.

Realtor Tom Rhodes in Dallas says that he has seen sales slow a bit, but that prices in his market haven’t dropped as they have elsewhere. “Some people read what’s going on around the country and say maybe this is not the best time to buy,” he says. But, “we’ve got a pretty strong market. Those headlines are coming out of Miami and Las Vegas.”

There are plenty of markets in Texas, Kansas, Arkansas and the Midwest that are now starting to tick up. In these areas, this might be a great time to buy, with interest rates historically low, a fairly large inventory of properties to choose from and less chance of getting caught up in a bidding war, analysts say.

Houses and neighborhoods that hold their value

There will always be some people who need to move because of job relocations, expanding families or a need for better schools. In desirable neighborhoods, there’s a price to pay for waiting. You have to ask yourself, “How greedy do I need to be?” says James Gaines, research economist with Texas A&M’s Real Estate Center. “If (the price) goes down much more, you’ve got other people trying to buy it, even if it’s not the absolute bottom.” Then, you might end up in a bidding war, erasing the savings you thought you had achieved by waiting.

Caren Saiet, a Los Angeles agent with Coldwell Banker Residential Brokerage, says that even in a down market, the best houses are at least holding their value. One of her listings — a two-bedroom Craftsman with a large, professionally landscaped lot, in the gentrifying Highland Park section of Los Angeles — has four offers and will likely fetch several thousands more than the $499,000 asking price that the seller paid for it 14 months ago. “We are in a really good position,” she says. And, she notes, the buyer is getting a fair deal too, given the much higher prices in neighboring areas.

For some people, the value of the local public schools will play a large part in their buying decision. A well-designed house in an established area with a good public-school district will hold its value and save you money in the long run. “These places don’t get hurt as much as the whole market, and they recover faster,” Gaines says.

Schools were the biggest consideration for Michael Daniels, who recently purchased a home in Charlotte, N.C. The 34-year-old health-care manager and his family had outgrown their existing home, but wanted to stay in the same school district. After studying the market for months, Daniels and his wife recently decided to act, when the house they were eyeing dropped in price from $425,000 to $379,000.

”(The sellers) had had four contingency offers that had gone bad,” Daniels says. When he agreed to buy the house without the contingency of selling his own house first, the price was whittled down a bit more.

A sound financial move

Often, analysts say, people get so fixated on getting the lowest possible price that they forget just how little difference an extra $10,000 in the home price can mean to their monthly mortgage payment.

Assuming a buyer pays $300,000 rather than $310,000 on a 5.7%, 30-year loan with $30,000 down, he’d be paying $1,575 a month rather than $1,634.

Of course, the costs of the initial $10,000 add up the longer you own the home without paying off the mortgage. But, that additional $10,000 in value might be just the psychological boost some sellers need to part with their homes.

And for first-time home buyers in markets such as Los Angeles, there’s extra incentive in the form of rapidly rising rents. Los Angeles rents have climbed 25% since 2003, to an average $1,617, according to data firm RealFacts.

In areas such as Los Angeles and Philadelphia, rents are getting close to or surpassing a mortgage payment. And the mortgage-interest deduction on your taxes is a huge help for those who need a write-off, Conway says.

Moreover, if you’ve lived in your house for many years and built up some equity, you can weather selling in this kind of market and finding another home. That’s especially true if you are moving from a boom market, such as Los Angeles, that is only now beginning to bust, to another area where prices are lower.

You have to know when to hold ‘em

Of course, there are some people who are better off waiting in this market: people who bought their current home in the past couple of years. In this short period of time, the value of the home hasn’t gone up enough to compensate for the agent’s commission and other selling costs.

These days, Gaines thinks that five is the magic number when it comes to buying and selling: If you’ve been in your house five years and plan to move to a place where you will stay at least another five, you’re probably OK.

However, there are a few notable exceptions. There are some markets around the country where prices are still sliding, jobs are being lost and foreclosures are making it hard for people to sell their homes, such as economically depressed Detroit.

Gaines and Conway say there is still too much uncertainty in boom-and-bust markets such as Phoenix; Las Vegas; San Diego; and Miami and Tampa, Fla. In San Diego, for instance, prices fell 2.6% in October alone, according to Standard & Poor’s Case-Schiller Home Price Index. And agents there are saying those price drops have continued to snowball since that survey was done.

In Phoenix, there is a 10-month supply of houses on the market, making it harder for people to sell their homes without taking a price cut. “The people buying right now are really the people who have an urgent need to move,” says Mike Mendoza of Keller Williams Realty in Phoenix.

And it probably goes without saying that you shouldn’t buy if your job security looks a little uncertain in the near future.

How to get the best deal

If you’re ready to buy, try to make the best deal you can in a neighborhood that is holding its own, analysts say. Check real-estate Web sites such as Realtor.com, Trulia.com and Zillow.com, or go through the real-estate sales data published in your local newspaper to see what houses are going for in your area. When you have zeroed in on a neighborhood, work with an experienced real-estate agent to go over the fundamentals: How much inventory is out there? How many of the listings are foreclosures? How have prices in that neighborhood fared historically and over the past year or two? This will give you a feel for the overall direction of the neighborhood.

If there are a lot of foreclosures continuing to pop up, prices might fall further than you’d like in the short term. That may not be an issue if you plan to stay put for a while, but it could limit your options if you need to sell or refinance your mortgage.

Once you’ve bought, don’t get discouraged if prices don’t begin to jump back up immediately. Many, including Gaines and Conway, are predicting this down market to remain in a trough for a while, rather than bouncing back up.

”I think it will go down, hit bottom and slink along the bottom before it comes back up,” Gaines says.

But ultimately, the market will come back up, he notes, even those markets in California that are taking a beating. “Does anybody really believe that California won’t come back again, and with a vengeance?” he says with a chuckle.

5 REASONS TO BUY

1. Prices in the neighborhood you are interested in are relatively stable. Either they are holding their own or increasing, or the pace of decline is slowing significantly. If you have to move and don’t like apartments, the small penalty you pay for missing the bottom may not mean much.

2. You plan to stay in the home for more than five years. If you can stick it out that long before selling, economists say you’ll probably ride out any downturn and come out ahead on price.

3. Your rent rivals a mortgage payment. If you can afford to buy, it can give you one bonus that renting can’t: the mortgage-interest deduction on your taxes.

4. You’ve found the right house in the right area for you. The schools are great. You love the area and know it would be hard to find another house like the one you have your eye on. In a better market, you would most likely have much more competition for that home.

5. You’ve built equity in your house and are moving to a place where homes are cheaper. In your new market, your money will go a lot further.

5 REASONS TO HOLD OFF

1. You’ve lived in your house less than two years. Chances are you haven’t had enough time to accumulate equity in your home. Indeed, you may have negative equity, if you live in many areas such as California, Florida, Arizona or Nevada.

2. Your job security is uncertain. If your company or business is in distress, it’s probably better to stay put until the smoke clears.

3. You don’t plan to stay in your next house at least five years. While it’s not important to buy at the exact bottom of the market, it is important to stay long enough to ride it out completely.

4. You don’t have good credit or a decent down payment. Do you have a job and income you can document? As a result of the subprime lending crisis, lenders are much more careful about whom they’re giving their money to.

5. You have an existing home to sell in a neighborhood where prices are dropping precipitously or where the number of foreclosures is spiking. In this climate, you’re probably better off waiting out the storm.

This is even more of a reality for those that ended up borrowing 100% for the purchase. Some reason if I purchased a home for $750,000 and still owe close to that amount, and now it’s worth $620,000, why should I keep paying? Many are not. In fact, there is a rise in businesses that are servicing this market. For example http://youwalkaway.com/index.html.

Mortgage lending is based on risk aversion. With the last iteration of mortgage lending investment bankers felt that this “risk” was calculated into the interest rate and diversified by pooling loans and selling them to Wall Street. Sheer competition and greed allowed it to spiral out of control.

With the shake up of mortgage lending we’re back to the basics of assessing borrower’s on credit, collateral and their capacity to pay the loan back. This does make it harder to qualify, however, with falling home prices that may soon alleviate that pressure for some.

What gets me is that the company stated above even advertises that it can remove the foreclosure from your credit. Can this be done? I’ve seen instances of this happening, I am unsure if they can. They also state that you can live in the home for 8 month without paying.

Ultimately, someone ends up paying for this and many times it’s not just the big banks. With legislators facing election years and many looking to blame someone or some group, we’ll continue to see quick legislation trying to give a speedy remedy. An unfortunate consequence maybe that as tax payers we may share the burden of those that just walk away.

Brian Laughlin
www.PremierOcHomes.com

Often you can find the condition of an area by looking at demand and many times unbalanced markets can be an indicator of property value insulation. In the chart below are 4 counties that show total active resells and distressed banked sales.

What I found interesting is that Orange County has the second highest percentage of distressed sales with the highest percentage of bank REOs. Also it is remarkable to see that the total market percentage of bank distressed sales for 4 counties runs over 17% with 20% of those as Bank Owned Properties.