Home prices in metro areas soar

Home prices keep going up.

A record number of metro areas showed double-digit appreciation in median existing-home prices from the first quarter of 2004 to the first quarter of 2005, according to the National Association of Realtors. The group's list shows 65 of 136 cities had double-digit price increases; six had modest price declines.

Florida was the most frenzied market, with Bradenton, Sarasota and West Palm Beach-Boca Raton leading the nation in price growth. In line with recent trends, the strongest price gains were on the East and West coasts. Overall, the median existing single-family home price rose 9.7% to $188,800 in the first quarter, from $172,100 in the first quarter of 2004.

David Lereah, chief economist for the NAR says that the price gains were driven in part by tight supplies in some markets, adding that the price situation could improve next year if interest rates rise. But several economists, including members of the Federal Reserve, say the record housing market can't be explained by such factors as a growing economy, tight supply or low interest rates. They're warning that some markets are ripe for a price slowdown or fall.

"I thought the housing market was overdone two years ago, but I think it's through the roof now in many places," says Mark Zandi of Economy.com. "I said it with lots of caveats and I wasn't screaming very loudly, but now I scream loudly. Our clients are very concerned; they're looking carefully."

There is evidence of speculative buying in hot markets. Real estate firm DataQuick Information Systems at the request of USA TODAY analyzed how often buyers are flipping houses — reselling after owning for less than six months.

Flipping now makes up 11.5% of current home sales in Las Vegas, compared with 2.4% five years ago. In red-hot Phoenix, quick resales are 5.2% of sales, from 2.9% five years ago. In Los Angeles, however, such activity has decreased to 4.1% from 4.3%. For the nation as a whole, the flipping figure is 3.7%, compared with 2.4% five years ago, DataQuick says.

While the NAR report covered existing home sales, home builders also see rising sales and prices. They expect the trend to continue, given the difficulty of buying land and clearing zoning hurdles on the coasts.

"Business is just as good as it's ever been. I expect it to moderate over time, but I don't expect it to come crashing down," says Steve Hilton, co-CEO of Scottsdale, Ariz.-based Meritage Homes. "Housing is a basic need; its not necessarily an elective."

April existing home sales are U.S. record

Sales of existing U.S. homes rose 4.5% in April to a record seasonally adjusted annual rate of 7.18 million, the National Association of Realtors said Tuesday.

Economists had expected sales to be about flat at 6.88 million. March sales were revised lower, to 6.87 million from 6.89 million.

The inventory of unsold homes rose 8.1% to 2.48 million, a 4.2-month supply.

The median sales price rose 15.1% from April 2004, reaching $206,000 -- the fastest year-over-year price gain in 25 years.

The Commerce Department will report on new home sales for April on Wednesday. Economists are looking for a decline to 1.33 million sales on an annualized basis from 1.42 million in March.

In April, sales of existing single-family homes rose 4.5% to a seasonally adjusted annual rate of 6.28 million from 6.01 million in March. Sales of condos rose 4.8% to 899,000 from 858,000.

"A new record is a bit unexpected, but so is the performance of mortgage interest rates, which have been lower than forecast," said David Lereah, chief economist for the realtors trade group. "We can expect low rates for some time."

Mortgage rates have fallen to 5.71% in the latest week from 5.83% in April and 5.93% in March.

Lereah said that he agreed with Federal Reserve Chairman Alan Greenspan that the housing market looks "frothy" in some regions but that there is no national problem.

"We all need to monitor" developments that encourage speculative activity, such as interest-only payment plans, Lereah said.

Greenspan Says Housing Market `Speculation' Is Unsustainable

Some regions of the U.S. housing market are showing signs of unsustainable ``speculation'' and ``froth'' based on fast turnover of existing homes, Federal Reserve Chairman Alan Greenspan said. The price surge may ``simmer down'' as housing becomes less affordable, he said.

``It's pretty clear that it's an unsustainable underlying pattern,'' Greenspan said in response to a question after a speech on markets to the New York Economic Club. ``People are reaching to be able to pay the prices to be able to move into a home.''

``There are a few things that suggest, at a minimum, there's a little froth in this market,'' Greenspan said. While ``we don't perceive that there is a national bubble,'' he said that ``it's hard not to see that there are a lot of local bubbles.''

Combined sales of new and existing homes, townhouses and condominiums have set four straight annual records, aided by low mortgage rates. The median existing home selling price will rise 7.1 percent this year to $198,400, according to the National Association of Realtors' latest forecast. Sales of new and previously owned homes are expected to total 7.87 million this year, trailing only last year's record.

There is no national bubble because homes purchases are too expensive and complicated to foster that kind of investment, Greenspan said. Because the U.S. real estate market is composed of individual regions with different pricing trends, a collapse that damages the overall economy is unlikely, he said.

Shares of homebuilders fell or extended losses after the remarks, including Toll Brothers Inc. of Horsham, Pennsylvania, and Pulte Homes Inc. of Bloomfield Hills, Michigan. The Standard & Poor's Supercomposite Homebuidling Index declined 1.1 percent as of 2:30 p.m.

Investors

Fed economists have determined that second home purchases are partly responsible for driving up the ratio of sales to the existing housing stock, Greenspan said. Because buyers wouldn't face relocation costs, the Fed chairman said the more rapid pace of second home purchases may reflect speculation in some markets.

A survey the Realtors group released March 1 found that 23 percent of homes sold in 2004 were purchased by investors.

``When you get speculation, there are only a couple of ways for it to end, and they are not good,'' said Jay Mueller, senior portfolio manager at Wells Capital Management, a Menomonee Falls, Wisconsin-based division of Wells Fargo & Co. ``We are nowhere close to income growth matching house price appreciation.''

There's a risk that consumer consumption may decline if the housing market slows, Greenspan said. ``If it occurs, and eventually it will, it will reduce the fairly large and still accelerating degree of extraction of equity from existing homes,'' he said. ``This has been a major force in financing consumption expenditures.''

`Simmer Down'

While Greenspan didn't explain why he expected the surge in home prices to ``simmer down,'' he noted that buyers have to resort to unusual financing techniques, such as interest-only loans, to afford homes now.

Earlier this week the Fed and other banking regulators warned banks that they should tighten controls on home equity loans that they said are too often offered with no documentation of a borrowers assets.

Long-term interest rates have added fuel to the home price surge. Yields on U.S. government 10-year notes stand at about 4.12 percent, down from about 4.7 percent a year ago.

David Berson, chief economist at Fannie Mae, said in a report this week that the affordability of homes in some regions is at its lowest level since the mid-1980s because of huge prices increases. Nationally, housing affordability, a function of prices, mortgage rates and income growth, is in the middle of its 10-year range.

Median Prices

The median selling price of a previously owned home rose to a record $195,000 in March, the latest statistics from the Realtors group showed. Compared with the same month in 2004, which was a record year for home sales, the median price has increased more than 11 percent. Previously owned homes account for 85 percent of the residential real estate market.

Three metropolitan regions in Florida led the nation in price growth, according to the group. The strongest price increase was in Bradenton, where the first-quarter median price of $275,000 was 46 percent higher than the same period in 2004.

In the San Francisco Bay area, the nation's most expensive region for homes, the median price was $689,200.

``Low mortgage interest rates are drawing new households into the market, but some are disappointed by their inability to find a home that meets their needs,'' said David Lereah, the Realtors group's chief economist, in a May 12 statement.

The average rate on a 30-year fixed mortgage this year has averaged 5.78 percent, close to the four-decade low of 5.21 percent that was reached in 2003, according to mortgage purchaser Freddie Mac.

``Continuing low rates will keep the housing industry abuzz,'' Frank Nothaft, chief economist at Freddie Mac, said yesterday. ``It is remarkable how mortgage rates have remained so low for so long.''

U.S. April Housing Starts Rise 11% to 2.038 Million-Unit Pace

U.S. housing starts rebounded more than expected in April as mortgage rates near historic lows and rising job growth spurred home sales.

The 11 percent increase brought the annual pace of new construction to 2.038 million, the Commerce Department said today in Washington. Starts fell almost 18 percent to 1.836 million in March, the biggest drop in 14 years, after wet weather and the Easter holiday curbed building. The median forecast called for 2 million starts in April.

Last month's figures are consistent with forecasts that this year may be the best for new-home construction since 1978. The bounceback also reinforces data on jobs and retail sales that the economy was off to a strong start in the second quarter.

``We expect early 2005 to mark the peak in the housing sector, as the mix of underlying fundamentals remain supportive,'' said Mike Englund, chief U.S. economist at Action Economics LLC in Boulder, Colorado, ahead of the report.

The forecast of 2 million was the median from 63 economists surveyed by Bloomberg News. Starts in March were previously reported at 1.837 million.

Building permits, an indicator of future construction, rose 5.3 percent to 2.129 million at an annual rate from 2.021 million.

Housing starts this year may rise to 1.969 million from last year's 1.956 million, the National Association of Realtors said in a May survey. Combined sales of new and existing homes are expected to be 7.874 million after last year's 7.99 million record.

Starts of single-family and multi-family dwellings rose. Starts of single-family homes increased 6.3 percent to 1.635 million units at an annual rate from a four-month low of 1.538 million. Starts of multi-family housing rose 35 percent to an annual rate of 403,000, the highest in two months.

Rising Demand

Starts for all types of housing rose in three of four regions. They increased 25 percent in the South to 1.045 million, the biggest percentage increase since July 1995. Starts rose 6.2 percent in the Midwest to 326,000 and 2.5 percent in the West to 492,000. Starts fell 18 percent in the Northeast to 175,000.

Homebuilders became more optimistic in May, with the National Association of Home Builders/Wells Fargo index rising to 70 from a seven-month low of 67 in April.

The pace of construction and sales isn't keeping up with demand, at least in the South and West where Meritage Homes Corp. operates, John R. Landon, co-chief executive of the Scottsdale, Arizona, homebuilder, said May 10.

``Demand for housing in those markets is extremely strong,'' he said. ``We expect the market to stay very strong.''

Completions

Builders may be having to work off backlogs. Housing units authorized but not started rose to a 19-year high of 224,100 in April, up 22 percent from a year earlier, today's report showed. The figures aren't seasonally adjusted, meaning the most reliable comparisons are with a year earlier.

Housing completions, with are seasonally adjusted, rose 7 percent in April to 1.89 million. Compared with a year earlier, completions were down 3.4 percent.

Homebuilding is helping drive the economy. Construction accounted for 47,000 of the 274,000 jobs that were added in the U.S. last month and 29,000 of the 146,000 jobs added in March.

The April increase in payrolls was higher than expected, and retail sales rose last month by the most in seven months.

The construction industry is also boosting sales at homebuilders and related industries. The Standard & Poor's 500 Homebuilding Index is up 50 percent from a year ago.

Falling Rates

Rinker Group Ltd., an Australian company that is the world's fifth-largest cement maker, said U.S. earnings may surge as much as 25 percent this year as the company raises prices and benefits from building in Florida and Arizona.

``We expect for the next year or two fairly buoyant conditions to continue'' in the U.S. construction market, David Clarke, chief executive of Sydney-based Rinker, which makes 80 percent of its profit in the U.S., said in an interview on May 12.

Mortgage rates are also favoring the industry. The average rate on a 30-year mortgage fell to 5.75 percent in the first week of May from 6.04 percent a month earlier, according to U.S. mortgage purchaser Freddie Mac. The rate, which reached a four- decade low of 5.2 percent in June 2003, rose to 5.77 percent last week.

The median price of previously owned homes in metropolitan areas rose 9.7 percent in the first quarter from a year ago, the Realtors' group said May 12. Gains were greatest in the West, at 16.9 percent, and the Northeast, at 14 percent. Growth was slowest in the South, at 6.6 percent. The median home price rose to $188,800 from $172,100 a year ago.

Sales show older homes are gaining value faster

Surrounded by luxurious neighborhoods of large new homes, Stuart and Lisa Carson's 30-year-old rambler was nowhere near the handsomest home in its Sammamish neighborhood.

Still, there were frequent hints that the three-bedroom house, all of 1,560 square feet, might not be the wallflower it seemed.

"We had a note, probably every three months, on our door saying, 'Call me if you're interested in selling,' " Lisa Carson recalled. When that time came early last year, it sold immediately, delivering 9 percent annual appreciation on the home the couple had owned five years.

Meanwhile, 5-year-old homes nearby — bigger homes with fancy new amenities that the Carsons' home didn't have, on streets with sidewalks, which the Carsons' street lacked — also were selling. And predictably, they were going for many thousands more than Stuart and Lisa Carson got.

But the profit their owners realized told a different story. In case after case, these newer homes dotting the Sammamish Plateau realized significantly less annual appreciation — usually 2 to 4 percent — than the Carsons' nearby rambler did.

New vs. resale


Appreciation for new homes in King County lags behind older homes' appreciation. For example, the square-foot price of a new home bought in 1999 and sold in 2004 increased by 27 percent on average, while an older home's square-foot price increased by 40 percent, a Times analysis shows. The information below compares all old and all new homes bought in 1999 and sold again in 2004 in King County. The appreciation is calculated based on square footage, which is different from median-price appreciation.

New homes

Year built: 1999

Square footage: 2,430

1999 price: $312,990

2004 price: $379,900

1999 price per square foot: $133

2004 price per square foot: $168

Total appreciation: 27 percent

Annual appreciation: 4.8 percent

Older homes

Year built: 1964

Square footage: 1,590

1999 price: $209,250

2004 price: $304,209

1999 price per square foot: $137

2004 price per square foot: $192

Total appreciation: 40 percent

Annual appreciation: 7 percent

Source: King, Snohomish county assessor's records

— Justin Mayo

A Seattle Times analysis of last year's home sales shows that this was no fluke. New homes may have the latest of everything, but as an investment, a new house simply does not bring the returns that an older home does. Countywide over the past five years, new houses have posted 4.8 percent annual appreciation, while older homes saw about 7 percent.

In the past year, new houses appreciated 7.5 percent compared with old houses' 10.4 percent.

Based on cost per square foot, the most accurate measure of home appreciation, King County's new houses are actually 20 percent cheaper than older resales.

So if you want more house for your money, buy new. If you want something that will appreciate faster, buy a resale.

This apparent "old house premium" is contrary to what the National Association of Realtors considers customary. It calculated that existing-home prices throughout the country rose 9.3 percent last year, while new-home prices rose 12.6 percent.

The question is why King County is different, particularly when new houses are scarce and logically should be more valuable.

Last year, builders added 3,577 new houses in the county, according to Hanley Wood Market Intelligence, a California-based housing research firm. If all sold during the year, they would comprise 1 percent of single-family home transactions.

Last year, the median price of a new house was $383,010, and that house measured 2,590 square feet, The Times analysis found. ("New" is defined as any single-family home that was sold either the year it was built or the year after.)

Resale houses were smaller — 1,720 square feet — and cost less — $314,900. All numbers are median, meaning half are higher, half lower.

But here's the surprise:

Old houses had a median square-foot price of $186.59, significantly above new construction's $156.11.

It didn't used to be that way. A decade earlier, both were slightly less than $100 a square foot and less than a dollar apart. Starting in 2000, resales' square-foot price began pulling ahead, and the gap has been growing since.

Gopal Ahluwalia, research director for the National Association of Home Builders, knows of no national research into the relationship between new and resale house prices. But he was surprised to hear what The Times analysis found.

"I would think new would appreciate better than old because you don't need to replace the floor or the roof, and the design is better," Ahluwalia said. "There's more openness in those homes, and you pay for that."

Still, he and others said there are plausible explanations for the disparities between new and resale.

The reasons range from the size of new-home lots — as small as 3,000 square feet — to the charm of vintage, detail-rich houses. (Another Times analysis revealed that homes built between 1900 and 1930 cost the most per square foot.) Others point to builders' efforts to keep new homes' costs down.

But the two reasons mentioned most often are location and demand.

Redmond-based real-estate appraiser Alan Pope said neighborhoods within the urban core, which he defines as downtown Seattle, Bellevue and West Redmond, "have a greater number of buyers vying for houses than in outlying areas, whether it's Kent, the Sammamish Plateau, Marysville or Monroe."

There's a practical reason for that. Urban cores, which have the most houses to choose from, are where jobs and major highways meet, meaning shorter commute times.

Also found in urban cores are old homes that, thanks to updating, are old in name only. Remodeling is a $200 billion-a-year industry and so prevalent here that it can easily skew old-house values upward. Just ask John Gaynard.

Last year, Gaynard sold his 25-year-old South Bellevue home. Judging by the sales price, the house registered 12 percent annual appreciation in the five years he'd owned it. Meanwhile, nearby new houses appreciated from 2 to 6 percent annually.

But Gaynard believes that 12 percent is misleading "because we put $150,000 into it," replacing the windows, roof, siding, cabinets and doors.

"It was all name-brand stuff, too," Gaynard said.

The other thing about urban-core neighborhoods, Pope said, is that many are 100 percent built out. Indeed, last year only a small fraction of King County's 3,577 new homes were built within Seattle or Bellevue. Most were in outlying areas, particularly South King County and areas east of Lake Sammamish.

"Where they are building new homes, they can add more supply, and that can keep prices down," said Matt Deasy, general manager of Windermere Real Estate East. "But they're not adding any more houses in the Central Area by Garfield High School, where you have huge appreciation."

According to The Times analysis, areas with plentiful new houses have seen the lowest five-year appreciation rate. In the Preston-Fall City area, for example, 42 percent of the homes are new; in the Novelty, Ring and Union Hill areas on the Eastside, 32 percent are new. Their appreciation rates are on the lower end: 3.9 percent over five years on a square-foot basis, compared with the county average of 6 percent.

Finally, appraiser Bob Chamberlain, a senior associate with Bruce C. Allen & Associates, thinks the difference in new and resale appreciation can be explained partially by the sales prices of each and the number of buyers vying for them.

New homes tend to attract repeat buyers who have the equity to swing big down payments. Renate Gordon, a sales agent in the new Talus community near Issaquah, where new $600,000-plus homes are going up, said all the buyers she sees previously have owned one or more homes.

This 1,560-square-foot Sammamish Plateau rambler was built in 1972. It sold in 1999 for $225,000 and again in 2004 for $350,000. The square-foot price was $144 in 1999 and $224 in 2004. Annual appreciation: 9 percent.

Older houses tend to be priced lower, in part because they average 870 square feet smaller than new ones. This makes them affordable to more buyers, particularly first-timers struggling to gain a toehold in an expensive market. Lured by low interest rates, they're buying homes in record numbers.

"Starting five years ago, we've had ongoing pressure on entry-level housing," Chamberlain said.

Lisa Carson thinks that pressure is exactly why her 1,560-square-foot Sammamish rambler appreciated so much and sold so quickly.

"It was a good layout, and it was small, so it appealed to first-time buyers and empty-nesters," Carson said. "There aren't many homes that size and on half an acre of property in that area."

1st Quarter Existing-Home Sales in Record Territory

Total existing-home sales, which include single-family and condos, were at the third- highest pace on record in the first quarter. In addition, 44 states and the District of Columbia showed higher sales in comparison with a year earlier, according to the National Association of Realtors(r).

NAR's latest report on total existing-home sales shows that nationwide the seasonally adjusted annual rate (1) was 6.84 million units in the first quarter, up 8.3 percent from a 6.32 million-unit level in the first quarter of 2004. The record was a pace of 6.90 million units in the second quarter of 2004, followed by 6.88 million in the fourth quarter of last year.

The strongest increase was in Alaska, where the first-quarter resale pace rose 21.4 percent compared with the first quarter of 2004. Wyoming existing-home sales rose 17.5 percent from a year earlier, while Oregon posted the third highest increase, up 17.3 percent. Thirteen other states also recorded double-digit sales gains from a year ago. Four states posted declines; complete data was not available for three states.

David Lereah, NAR's chief economist, attributes the market strength to historically low interest rates. "The movement in mortgage interest rates has been both up and down, and they're not trending-up as steadily as expected earlier this year," he said. "This is preserving favorable housing affordability conditions in most of the country, so when you consider the growing population and improvements in the job market, it's no surprise that home sales are near record levels."

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 5.76 percent in the first quarter, up marginally from 5.73 percent in the fourth quarter; it was 5.60 percent in the first quarter of 2004.

NAR President Al Mansell, CEO of Coldwell Banker Residential Brokerage in Salt Lake City, said much attention is focused on first-time buyers. "Without such strong activity by entry level buyers, the market would be much slower," he said. "The demand for starter homes is freeing owners to make a trade and is sustaining all sectors of the housing market, but the supply of affordable housing is very tight -- making it important to preserve and expand housing opportunity programs such as the Low- Income Housing Tax Credit and the American Dream Downpayment Initiative."

Regionally, the West reported the strongest annual increase -- up 9.8 percent to 1.61 million units in comparison the first quarter of 2004. After Alaska, Wyoming and Oregon, the next highest increase in the region was in Hawaii, where total existing-home sales rose 14.7 percent compared with a year earlier; Utah sales activity rose 14.0 percent in the same time frame, while Washington increased 13.9 percent. Arizona and New Mexico also posted double-digit sales gains.

The South recorded an existing-home sales pace of 2.59 million units in the first quarter, up 8.9 percent from a year earlier. The strongest increase in the South was in Alabama, up 15.5 percent from the first quarter of 2004; Arkansas existing-home sales jumped 15.3 percent, while West Virginia rose 14.9 percent. Georgia, North Carolina and South Carolina also posted double- digit sales increases.

In the Northeast, the first quarter existing-home sales rate of 1.12 million units rose 7.0 percent from the first quarter of 2004. Massachusetts experienced the strongest increase in the region with sales activity 9.9 percent above a year ago; Maine was up 6.9 percent while Pennsylvania existing-home sales increased 3.4 percent.

In the Midwest, total existing-home sales increased 6.3 percent to a 1.51 million-unit annual sales rate compared with the same period in 2004. North Dakota led the region, up 16.2 percent from the first quarter a year earlier. Nebraska ranked second, posting an 11.2 percent increase, followed by South Dakota, with a gain of 8.1 percent.

The National Association of Realtors(r), "The Voice for Real Estate," is America's largest trade association, representing more than 1 million members involved in all aspects of the residential and commercial real estate industries.

U.S. real estate agents see slight sales 2005 dip

A U.S. real estate agents' trade group on Monday forecast sales of existing homes this year to ease only slightly from the 2004 record high 6.784 million units.

The National Association of Realtors said higher oil prices are having a dampening effect on economic growth, and as a result long-term interest rates will only rise modestly.

The Realtors said it expects 6.700 million existing home sales this year, down 1.2 percent from the year before. New home sales should decline by 2.5 percent to 1.17 million, also just under the record high set in 2004, the Realtors said.

"The essentially sideways movement in mortgage interest rates recently has defied the consensus of earlier forecasts, with only a modest uptrend detectable over time," said NAR Chief Economist David Lereah. "The simple effect, in an economy with an improved labor market, is a higher demand for homes."

The Realtors do not expect rates for the popular 30-year fixed-rate mortgage to go higher than 6.4 percent in 2005 from the current level of 5.75 percent. Mortgage interest rates have been falling over the last five weeks.

The real estate agents expect median existing-home prices to rise 7.1 percent this year to $198,400 from the 2004 median of $185,200.

The group forecast the new home median price to climb 5.1 percent to $232,200.

U.S. gov’t curbs personal bankruptcy protection

In the name of “restoring integrity to the bankruptcy system,” U.S. president George Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into law April 20. The measure further restricts the ability of working people and many in the middle class to get out from under crushing debts. At the same time, the law maintains safeguards for bankruptcy filers who own capital or have enough wealth to shield it in trust funds or expensive properties.

The move comes as millions of working people in the United States are facing an ever-increasing personal debt burden fed by stagnating wages and benefits, the ballooning cost of health insurance, and rising housing and other basic costs of living.

The bill is the largest rewrite of the U.S. bankruptcy laws since 1978. Its passage signifies a victory for the banks and credit card and auto financing companies that drafted the legislation and have been pushing for passage of some version of it over the past decade. The bill won bipartisan support, passing by a 302-126 vote in the House of Representatives and a 74-25 margin in the Senate.

The new law is aimed at preventing many who file personal bankruptcy from making use of Chapter 7 of the bankruptcy code, which allows individuals to forfeit some assets in exchange for wiping out much of their debt based on a decision of a bankruptcy judge. Instead, a means-testing system is being instituted that will force those who are found to earn above the median annual income in their state to file under Chapter 13, which requires a regular repayment schedule to creditors.

For example, a person in this category who is judged able to pay at least $6,000 over five years—$100 a month—would be forced into a Chapter 13 bankruptcy. Further, those who are required to file under Chapter 13 would have to make repayments for five years. Under current law, those payments cease after three years, even if the debt is not fully repaid.

The new law also puts auto finance companies ahead of most other creditors in line for repayment—the fruit of intense lobbying by General Motors and other auto monopolies. In addition, the new means-testing system will increase the paperwork and along with it the legal expense of preparing a bankruptcy filing, further restricting the accessibility of debt relief for working people.

According to the American Bankruptcy Institute, up to 20 percent of those who file under Chapter 7 bankruptcy each year will be disqualified from doing so under the new law.

Ballooning personal debts
Bankruptcy filings have been soaring in the United States as personal debts from credit card purchases and car loans have mushroomed. Some 1.6 million individuals in the United States filed for bankruptcy in 2003, nearly twice the number a decade earlier.

Debt from credit cards and car loans in the United States stood at a record $2.05 trillion as of last September, and has continued to rise since then. That’s an average of $7,296 per U.S. resident. Between 1999 and 2003, household debt rose from 70 percent of the U.S. gross domestic product to 83 percent. More than 13 percent of household income went toward paying interest and principal on those debts.

In fact, household debt in the United States as a percentage of disposable income—which the U.S. government defines as personal income minus taxes, fees, and fines—has risen from 60 percent in 1984 to about 115 percent in 2004.

Some 27 percent of households that earn less than $20,000 in annual income pay 40 percent of it to creditors.“Too many people have abused bankruptcy laws,” Bush said in a press conference following the signing. “They’ve walked away from debts even when the had the ability to repay them.”

A study conducted by Harvard University in 2001, however, suggests that most people who file do so because of crushing debt brought on by unforeseen events. Of the 1,771 personal bankruptcy cases studied, about half were the product of rising medical expenses. “Nearly 95 percent of those who declare personal bankruptcy are swamped by job loss, family breakup, medical problems or some combination,” reported Newsweek columnist Jonathan Alter about this study. “About 10 percent have the pleasure of getting cancer and going bankrupt at the same time.”

Alter further noted, “By the time a debtor has filed for bankruptcy, he or she has often repaid the original credit-card debt plus some interest but still owes thousands in interest on the interest and other fees.” The drive by the bosses to cut health benefits has been a key factor in the debt squeeze. The out-of-pocket costs for health care have increased steadily over the past two decades. Between 1995 and 2002 the costs went from an average of $547 per person annually to $744. That doesn’t tell the whole story, however, as more and more workers face the prospect of one serious illness or expensive treatment that could wipe out their savings and put them into long-term debt.

Millionaire’s loophole
Under the new law the wealthiest bankruptcy filers remain shielded from creditors through a variety of devices.

The law does not touch, for example, the so-called millionaire’s loophole. Five U.S. states—Alaska, Delaware, Nevada, Rhode Island, and Utah—allow trust accounts set up in institutions in those states to be exempt from the federal bankruptcy code. People who have the means—read millions of dollars—to set up such a trust don’t need to live in the five states, simply set the trust up there.

That’s not even to mention the swath of offshore accounts, or the “spendthrift trust” that allows the wealthy to create a protected account for their relatives’ use.

These hidey-holes don’t merit so much as a mention in the bill.

Bankruptcy court has never been the terrain of the working class. It has always been designed for those who own capital and the banks they are indebted to. A large section of the code—Chapter 11—is devoted to the mechanisms through which capitalists can use bankruptcy protection to shield themselves from creditors while they restructure their businesses. This section includes subheadings like “Aircraft equipment and vessels”; “rejection of collective bargaining agreements”; “Abandonment of railroad line”; or “payment of insurance benefits to retired employees,” which provide mechanisms for the bosses to escape obligations and shield their capital while they reorganize.

In times of economic crisis, bankruptcy serves as an important safety valve for the capitalist class to maintain stability and defend the monopolists. In the recent period, large corporations like U.S. Airways and Horizon Natural Resources, a large coal company, have used the fig leaf of bankruptcy court to tear up union contracts and slash pensions and health benefits. The recent bankruptcy “reform” does nothing to challenge the prerogatives of these bankruptcy filers.

Existing home sales rise 1%

Sales of existing homes and condominiums rose by 1 percent in March to the third-highest sales pace on record while the nationwide median price jumped by the largest amount in more than 14 years, a real estate trade group reported Monday.

The National Association of Realtors reported that existing home sales rose to a seasonally adjusted annual rate of 6.89 million units last month, up from a February sales pace of 6.82 million units.

The increase was far above the tiny 0.1 percent gain that economists had been expecting, indicating that the modest increase in mortgage rates so far this year has not put a damper on home sales.

In Metro Detroit, sales were up 18.3 percent over a year ago with 4,214 units sold compared to 3,561 in March 2004 with a median sale price of $160,000, according to Realcomp II Ltd., a Farmington Hills-based computer service. The number of local listings were up 4.7 percent with 12,743 units on the market last month.

Nationally, the median price for a home sold in March rose to $195,000, a gain of 11.4 percent from the sales price a year ago. That was the biggest year-over-year gain since December 1980, a period when surging inflation was pushing home prices upward.

It marked the third consecutive monthly double-digit gain in prices from a year ago, and industry experts said it indicated in part a lack of available supply to meet demand.

"We'd really like to see a bigger supply of homes so people don't feel pressured when making purchase decisions or contract offers," said Al Mansell, president of the Realtors group and head of Coldwell Banker Residential Brokerage in Salt Lake City.

While mortgage rates were rising modestly last month, going from 5.69 percent for a 30-year mortgage at the end of February to 6.04 percent at the end of March, they have since slipped back, standing at 5.80 percent last week, according to a nationwide survey by Freddie Mac.

"It appears that it will take much higher rates to dampen the spirits of home buyers," said Joel Naroff, head of an economic consulting firm in Holland, Pa.

The 1 percent increase in sales followed no change in February and a tiny 0.1 percent increase in January. The seasonally adjusted annual sales rate of 6.89 million units was the third-highest on record, trailing only a 7.02 million pace of home sales last June and a 6.98 million sales pace last November.

The 1 percent increase stemmed from a 1.2 percent gain in sales of single-family homes, which rose to an annual rate of 6.04 million units. Sales of condominiums and co-ops edged down 0.1 percent to 845,000 units in March.