Existing home sales decline in July

There was a larger then expected decline in existing home sales in July. The Tuesday announcement by the National Association of Realtors said sales of previously owned home feel 2.6 percent, but some economists don't see it as a negative outcome as sales are still at the third highest level ever. Inventories of condos increased in July, growing by nearly 24 percent. Home sales fell the hardest in the West by 7.5 percent

Interest Only Loans across the US

MSNBC provides a table from LoanPerformance of interest only mortgages as a share of total mortgages for the 50 largest metro areas in 2004. Apparently many of these loans are both Interest Only (IO) and Adjustable Rate Mortgages (ARMs). As MSNBC cautioned:

"... borrowers may be able to buy a more expensive house than they might otherwise afford.

Trouble is, when borrowers do have to start making principal payments -- after anywhere from 2 years to 10 years -- the monthly payment could jump by up to 50%, or even more if the index for the adjustable rate rises as well."

MSNBC also quoted some recent data from BusinessWeek:

BusinessWeek Online has also obtained new data from Fannie Mae and Freddie Mac that lend credence to the LoanPerformance numbers. They show that, in April, going by dollar volume, interest-only loans accounted for 35% of the adjustable-rate mortgages in securities sold by Fannie Mae and 39% of the adjustable-rate loans in securities sold by Freddie Mac. That represents a sharp increase for both giants, which buy mortgages from lenders and then repackage them as securities for sale to investors.

As recently as January, 2004, only 10% of adjustable-rate mortgages in securities sold by Fannie classified as interest-only.

Yesterday Kash looked at the percentage of ARMs and suggested that it appears
"... people have decided to pay more for their house than they can afford with a fixed-rate mortgage."

And he concluded that "we shouldn't find it surprising if millions of recent home buyers soon find themselves unable to afford to live in their own houses." It is no surprise that a bubble state metro area like San Diego is at the top of the list. But, as a recent story noted, Georgia leads the nation in IOs. That seems unusual.

Interest-Only Loans Across the U.S. Metro Area Interest-Only Mortgages As Share of Total, 2004

San Diego 47.6%
Atlanta 45.5%
San Francisco 45.3%
Denver 43.4%
Oakland 43.1%

See table for next 45 metro areas: MSNBC article.

Existing Home Sales Decline As Rates Rise

Sales of previously owned homes fell in July as some house hunters were put off by galloping prices, but the pace of sales was still the third-highest ever, suggesting the red-hot market isn't cooling much.

The latest snapshot of activity in the housing market released by the National Association of Realtors on Tuesday showed that July sales of existing homes - including single-family, town homes and condominiums - totaled 7.16 million units at a seasonally adjusted annual rate.

That represented a 2.6 percent decline from June's record-high pace of 7.35 million units.

Soaring home prices and to a lesser extent rising mortgage rates played a role in July's drop in sales - making it harder for some house hunters to take the leap into home ownership, analysts said.

"Some people are being turned off by the high house prices and they just can't pull the trigger," said Joel Naroff, president of Naroff Economic Advisors. "Without question that's causing some people to think twice about buying."

The median sales price of an existing home in July climbed to a record $218,000. That was up a sizable 14.1 percent from a year ago. The median price is where half sell for more and half sell for less.

Looking at individual regions, the median house price in July compared with a year ago went up the fastest in the West, by 16 percent. That was followed by a 13.1 percent jump in the Northeast, a 11.9 percent rise in the Midwest and a 7.5 percent pickup in the South.

Federal Reserve Chairman Alan Greenspan has talked about "speculative fervor" in some local housing markets that may be pushing prices up to unsustainable levels.

The Fed chief also has warned people about stretching to buy expensive homes using risky interest-only mortgages and other exotic home loans that are increasing in popularity.

If interest rates jump, some borrowers could have trouble making their mortgage payments.

In addition, a significant drop in the price of a house could leave some home owners with a mortgage that costs more than they could receive by selling their residence. That would leave them owing their mortgage lender money.

The housing report weighed on some Wall Street investors. The Dow Jones industrials lost 50.31 points to close at 10,519.58.

On the sales front, even with the decline in July, the pace of sales still indicated that housing activity was healthy, analysts said.

"I believe that the housing market has moved from a boil to a simmer," said Richard Yamarone, economist at Argus Research. Some economists predict home sales - which have clocked record highs four years in a row - will set another record in 2005.

The overall pace of sales, at 7.16 million units, in July was the third highest ever. The second-best showing came in April with a pace of 7.18 million units.

Economists were predicting that home sales would slow in July, saying the blistering pace of June just couldn't be sustained. Before release of the report, analysts were forecasting sales to drop to a pace of around 7.25 million.

By region, sales were down in all parts of the country, except for the South, where they were flat, holding at a record pace of 2.74 million units.

For the Midwest, sales dipped by 1.8 percent in July from the previous month to an annual rate of 1.61 million units. Sales in the Northeast fell by 3.3 percent to a pace of 1.19 million units. In the West, sales declined by 7.5 percent to a pace of 1.61 million.

"This time of year you start to see some slowing. Kids get ready to go back to school. People are on vacation," said Tom Kunz, president of Century 21 Real Estate Corp. With the economy growing solidly, the job market improving and mortgage rates hanging below 6 percent, "all indicators are still good," he said.

The average rate on 30-year mortgages in July was 5.70 percent, up from 5.58 percent in June. By historical standards, though, mortgage rates are still considered low.

And, mortgage rates have stayed well behaved despite the Federal Reserve's 14-month long campaign to raise interest rates. The Fed is expected to boost short-term rates again at its next meeting on Sept. 20.

The number of homes available for sale rose in July and if that development continues in the months ahead that could take some pressure off prices, said David Lereah, chief economist at the National Association of Realtors. Tight supplies have been a factor in pushing prices higher.

Existing home sales dip to 7.16 million

Sales in June were revised up to a record 7.35 million from 7.33 million reported earlier.

July sales were up 4.7% from July 2004.

"This is a big number any way you slice it," said David Lereah, chief economist for the real estate group.

Economists were expecting sales of about 7.29 million, according to a survey conducted by MarketWatch. See Economic Calendar.

Median sales prices rose 14.1% year-over-year to $218,000, the industry group said. A 14% price appreciation in a year "is not sustainable," Lereah said. Read the full report.

Inventories of homes for sale rose 2.6% in July to 2.751 million, a 4.6-month supply at the current sales pace. It's the largest inventory since May 1988, and the largest months' supply since November 2003.

"We are starting to see some air coming out of these balloons," Lereah said. "Inventories are starting to build," he said, which could put supply in better balance with demand, thus reducing pressure on prices.

Inventories "are still quite lean by historic standards," said Al Mansell, president of the realtors group and a real estate agent in Salt Lake City.

Economic fundamentals, including interest rates and job growth, continue to support the housing market, Lereah said.

Sales were flat in the South, and fell 7.5% in the West, fell 3.3% in the Northeast and fell 1.8% in the Midwest.

"We see a rolling boom moving from one metro area to another over time, as well as a spillover effect into nearby areas with lower home prices," Lereah said. "This is spreading the wealth of housing returns."

Sales of single-family homes fell 2.3% in July to a seasonally adjusted annual rate of 6.24 million. Sales of condos dropped 5% to a seasonal rate of 915,000.

Housing Starts Nearly Unchanged in July

The U.S. Census Bureau announced Tuesday that new residential construction in July remained flat since June, declining 0.1 percent to an annual rate of 2,042,000 units. Single-family starts took a slight turn upward, advancing 0.5 percent in July to a seasonally adjusted annual rate of 1,703,000.

Regionally, starts in the Northeast rose 6.5 percent, the Midwest recorded a 9.1 percent jump, while starts in the West rose 2.1 percent and groundbreaking in the South delclined 5.4 percent.

Building completions in July nosedived 6.3 percent below June's numbers. Single-family completions, likewise dipped 3.6 percent to a 1,669,000 annual rate.

On the brighter side, privately-owned building permits pulled in July rose 1.6 percent, to seasonally adjusted annual rate of 2,167,000. Of those, 1,686,000 were for single family dwellings, a 2.0 percent improvement above June's numbers.

Both housing starts and permits issued showed improvements over July 2004.

Buyers gamble with little down

The meteoric rise in home prices has been accompanied by a sharp shrinkage in the size of down payments made by cash-strapped buyers, a trend that could portend a spike in future foreclosures, new research shows.

Nearly four out of 10 (38.1 percent) homebuyers who bought houses in the first half of 2005 put down less than 5 percent of the purchase price, up from 30.6 percent in 2000, according to a study released Tuesday by SMR Research Corp., a Hackettstown, N.J., firm that tracks mortgage debt. Nearly half (49.9 percent) of buyers put down less than 10 percent, up from 44.8 percent in 2000.

Another potential red flag is the growing use of "piggyback" loans.

Traditionally, homebuyers who did not come up with a 20 percent down payment had to pay an added cost each month for private mortgage insurance. But recently, more strapped borrowers are taking out two loans -- one for 80 percent of the purchase price and a second, or piggyback, loan in the form of a line of credit or home equity loan. So far this year, nearly half (48.2 percent) of buyers used piggybacks, up sharply from 19.9 percent in 2001.

The statistics suggest that many homebuyers are stretching their budgets well beyond their means. The risk is that recent buyers have such minuscule equity in their homes that if prices fall, they could owe more on their mortgages than their homes are worth.

The National Association of Realtors says the median price of an existing home rose 13.6 percent to $208,500 from the second quarter of 2004 to the second quarter of 2005. In Brevard County, the median home price rocketed to $238,800 in June, up from $169,500 a year earlier.

Americans' ability to take on massive mortgage debt has been fueled by the availability of "exotic" mortgages, such as interest-only loans and adjustable-rate mortgages that provide borrowers with a lower monthly payment for a short period of time, says Dean Baker, co-director at the Center for Economic and Policy Research.

"Home prices are going through the roof, forcing people to turn to exotic loans and unorthodox financing," Baker said. "These people have no room for error."

Existing homes sales for July

It's another slow summer week for economic data. Among the sprinkling of economic reports coming out, economists will most likely be keeping an eye on those involving housing and energy.

Mortgage rates have rallied in recent weeks. While 30-year fixed rates are still at historically low levels around 6%, the recent gains may be a precursor to a cooler second half for the housing market. Both new and existing home sales are expected to have slowed a little during the hot and steamy month of July.

To be sure, the demise of the housing market has been forecast many times in the past couple years by economists. However, the risks for a slowing housing market heading into 2006 appear to be rising. If the economy remains strong during the second half, then interest rates are likely to keep moving higher as the Federal Reserve ratchets up the fed funds rate.

The turn in expectations for stronger second-half economic growth and the Fed's reiteration that rates will keep on rising led the 10-year Treasury note to bounce back from 3.9% in late June, to over 4.2% currently. While more jobs and rising income are good for housing, interest rates will be the most important factor.

Debtors in Rush to Bankruptcy as Change Nears

Rushing to beat an October deadline when the biggest overhaul of the bankruptcy law in a quarter century goes into effect, rising numbers of Americans have filed for protection in the four months since the law was changed, seeking to have their debts erased.

Since President Bush signed the new law in April, bankruptcy filings have jumped, particularly in the heartland. Filings in the four months through July are up 17 percent this year over last in Cleveland, 14 percent in Milwaukee and 22 percent in northern Iowa, according to court filings, matching similar patterns in the Midwest and parts of the South and rural West.

Nationwide, bankruptcy filings for April, May and June were up by 12 percent over the same period last year, according to LexisNexis, the data collection service, which tracks filings ahead of the quarterly reporting done by the federal courts. The rise is coming after bankruptcy had leveled off and even started a slight decline last year.

Under the revised law, debtors who earn more than the median income in their state and who can repay at least $6,000 of their debt over five years will no longer be able to have their debts wiped out for a fresh start under the more generous provisions of Chapter 7 of the bankruptcy code. Instead, they will have to seek protection under Chapter 13, which requires a repayment schedule. In addition, under the new provisions, they will have to enroll in a court-supervised financial counseling program.

The rise, which lawyers and bankruptcy experts say is driven in large part by people who say they fear that it will become much more difficult to escape debt and seek a clean slate under the new law, appears to have caught some bankers and lawyers by surprise.

When the new bankruptcy bill was passed by Congress last spring, bankers predicted it would turn many people away from the protection of the courts by making it harder to extinguish debt. That may still turn out to be the case. But thus far, it has been a rush to the courts in many places.

Here in Idaho, the soundless wave of Americans going broke washes up at the clerk's office in bankruptcy court, with nearly 20 fresh declarations of desperation every working day.

There is the Moore family of Boise, Kevin and Linda, listing a $10 cat and a $5 toaster among their meager assets against a medical bill of more than $18,000. There is Delores Hawks, going into debt to learn a skill, and never getting out because of endless credit card interest on the self-loan that once looked so manageable.

"Someday, I think we'll eventually get ahead," said Linda Moore, a 41-year-old part-time school bus driver who said she did not know of her husband's medical bills when she married him. "I don't know when that day will be."

Bankruptcy filings rose eightfold over the last 30 years, from 200,000 in 1978 to 1.6 million last year. Although filings vary from month to month, the pace for this year, if it holds up, projects to about 1.8 million bankruptcies. The overwhelming majority of them are personal, not business.

Economists say bankruptcy has become more likely as household debt has continued to rise while the savings rate has fallen precipitously. The Federal Reserve reported that household debt hit a record high last year, relative to disposable income.

"Bankruptcies historically have risen with debt, and a lot more people are now living near the edge," said Henry J. Sommer, president of the National Association of Consumer Bankruptcy Attorneys. "What we're seeing now is a rush to get in before October. After that, a certain amount of people will be priced out of bankruptcy."

Courts in Indiana, Nebraska, Ohio, Tennessee, Texas and Wisconsin, among other places, report that people are hurrying into bankruptcy in numbers rarely seen.

"I'm probably about four times more busy than normal," said Merv Waage, a bankruptcy lawyer in Denton, Tex. "People are saying, 'Honey, we can't pay our bill. We have no choice. We can't live under the stringent new rules. Let's file now before it's too late.' "

Idaho, a state with an otherwise prosperous sheen to its economy, is among the per capita leaders in a category that no state will brag about. Filings were up 11 percent for July over the same period last year - on a record pace for the year.

Gordon Barry, a bankruptcy lawyer in Toledo, Ohio, where filings are up 21 percent this year, said: "We've been busier than ever. People are running in, trying to beat the deadline."

The new requirements are an incentive to seek protection now, perhaps the last chance for a relatively hassle-free bankruptcy, some of the newly bankrupt say.

Certainly that was case of Ms. Hawks, who is 56, and lives in Ontario, Ore., just over the Idaho state line. After years of odd jobs, she took out loans on credit cards to go to business school and learn office skills. Once out of school, she found she had a rare nerve disease that she said kept her from holding a job. The debts piled up, even after she got rid of her credit cards.

She paid just enough to satisfy the credit card minimum payment, she said, but never advanced out of the loop of perennial debt on the interest.

"I was paying interest on the interest," Ms. Hawks said, "it was $5,000, and I never got ahead of it. Month after month after month. Finally, I just got tired of it. I said, 'I've had enough.' "

She had heard enough about the changes in the bankruptcy law to feel that it was important to file this summer rather than wait until all provisions of the new law took effect in October, she said. "I had to do something," said Ms. Hawks, who now lives on $656 a month in Social Security disability. "I decided to do it now rather than later."

Families with children are three times more likely to file as those without, according to studies done by Elizabeth Warren of Harvard Law School and others, and more than 80 percent of them cite job loss, medical problems or family breakup as the reason.

Ms. Moore, an Air Force veteran of the Persian Gulf war who married a carpenter and inherited his outstanding medical bills, said those old debts forced the couple into bankruptcy. Both Ms. Moore and her husband had been divorced before.

But she admits that they brought on some of the problem themselves.

"My husband, he's the kind of guy who when he gets a bill that he can't pay, he just puts it aside," Ms. Moore said.

The monthly math of the Moore family budget leaves little room for unplanned events. Mr. Moore makes about $1,200 a month as a carpenter. Ms. Moore, a mother of three children, drives a school bus part time, and makes $11 an hour. She also receives $300 a month in alimony. Their rent is $700 a month. Their food costs are $400 a month. Their cars, insurance and upkeep are $200 more.

Most months, they barely break even, she said. But what pushed them into bankruptcy were bills from the past, which kept growing with interest - a mountain that finally turned into an avalanche. They detailed the bills in their court filings.

The biggest was an $18,000 medical bill, for Mr. Moore, from a severe knee injury. He also owed $2,469 to a hospital where he went for care during a bout of depression. There was a $205 bill to DirecTV, and a $600 bill to Money Tree and a $615 debt to Capitol One - both lending services. And he owed child support, for $542.

Ms. Moore said she did not know about most of her new husband's debts until she started getting her wages garnished from her bus-driving job. She has health insurance from her Air Force days, but it has not been enough to keep them out of bankruptcy.

"My husband's old medical bills - that's what killed us," she said. Bankruptcy was a chance to start clean, she said. Bankers say the surge in filings is driven in part by misinformation about how the new law will work. They say it will force only the small percentage of people who abuse the system into regular payment schedules, while keeping an open door of debt forgiveness to the vast majority of bankruptcy filers, who are individuals rather than businesses.

"I would hope that consumers are not getting the rush-rush because they're afraid they won't have the same protection in a few months," said Wayne Abernathy, an executive at the American Bankers Association, which lobbied heavily for the new law.

Consumer groups say the law will only make matters worse for the large number of families who are not abusing the system. They say families will be stuck in "debtor's prison without walls," as the Consumer Federation of America, which fought the new bill, calls it.

Many economists and legal experts say that once all provisions of the law take effect in October, bankruptcies should fall again. And some experts say people will be caught in an endless cycle of debt repayment.

Ms. Hawks, who said that she declared Chapter 7 bankruptcy last month to get out of the endless interest payments on credit cards she had long given up, is puzzled by the financial industry's continued interest in her.

"Couple of times a week, I get a phone call or something in the mail trying to get me to accept a new credit card," she said. "I don't get it - because I'm broke."

20% of recent home buyers spend half of pay on mortgages

More Californians are stretching their finances to afford the state's ever-more-expensive homes, with 20 percent of recent home buyers plowing more than half their monthly income into their mortgages. These "house-poor" Californians have been a significant contributor to the state's housing boom, according to a study by the Public Policy Institute of California, a Bay Area nonprofit think tank.

The study, which is being released today, tries to answer the question of just who is buying homes as prices have soared, pushing affordability rates to 16 percent statewide and 9 percent in San Diego County, according to the California Association of Realtors.

It concludes that many recent buyers aren't rich newcomers but moderate-income thirty-somethings who are accepting hefty mortgage payments to get into the market. The percentage of recent California home buyers spending half their monthly income on housing is twice the national average, said Hans Johnson, who co-authored the study. "For moderate-income Californians – those earning $30,000 to $60,000 – almost a third are spending more than half their income on housing," he added.

A recent home buyer is defined as those who bought homes in the past two years. According to the study, the state's home ownership rate is at its highest level in decades, reaching 59 percent in 2003, the most recent year for which data is available. That's up from 55 percent in 2000.

In San Diego, home ownership increased from 52 percent to 57 percent during the same period. The U.S. Department of Housing and Urban Development generally recommends that no more than 30 percent of monthly household income go to housing, although lenders say that standard is outdated.

"The norm for us today is closer to 40 percent, although we do have products that go up to 45 (percent) or 50 percent," said Lisa Faulk, executive vice president with AmNet Mortgage, a San Diego mortgage originator. AmNet's higher debt-to-income loans require higher credit scores, a history of job stability or other factors that balance out the higher risk of the additional debt, Faulk said.

"There are a wide range of lenders out there with different risk tolerances," she added. "We sell everything we originate, so we tend to be more conservative." Experts worry that some of these these debt-laden home buyers may be vulnerable if the housing market cools. Already, signs of a slowing market are on the horizon. San Diego's median home price in June of $496,000 was up just 5.1 percent from a year earlier – the county's lowest level of appreciation in eight years.

In addition to taking on more debt, some recent buyers have tapped creative mortgages such as interest-only loans to get into a house. In San Diego, 62 percent of home buyers opted for interest-only loans in 2004, according to First American/Loan Performance, a San Francisco mortgage research firm.

But not all Californians are taking on huge mortgage debt to get into the housing market, Johnson said. "People are moving from expensive areas like San Diego to less-expensive areas like inland parts of San Diego or the Inland Empire," he said. "And people are buying smaller housing units. About a third of recent buyers in California bought units that were two or fewer bedrooms."

Home price increase biggest in 25 years

U.S. home prices surged in the second quarter at the fastest pace in more than a quarter of a century, as a decline in interest rates fueled record sales.

The median price of an existing single-family home rose 13.6 percent, to $208,500, from a year earlier, the National Association of Realtors said Monday. It was the biggest jump since a 15.3 percent gain in the third quarter of 1979.

Existing-home sales rose 4.6 percent to an annualized pace of 7.22 million units, the highest ever.

"The continuing shortages of housing inventory are driving the price gains," David Lereah, the group's chief economist, said in the report. "There is no evidence of bubbles popping."

The average U.S. rate for a 30-year fixed mortgage dropped to 5.72 percent in the second quarter from 5.76 percent in the first quarter, according to Freddie Mac. A year ago, the rate was 6.13 percent.

During the quarter the median single-family home price rose in 142 cities and declined in seven, the group said. In the third quarter of 2003, after mortgage rates fell to the lowest level since the 1950s, all the metropolitan areas in the study had price gains for the only time in two decades.

The biggest second-quarter price gain was in the metropolitan areas around Phoenix and Mesa, Ariz., up 47 percent, to $243,400. Ft. Myers, Fla., was No. 2, gaining 45 percent, to $266,800. Palm Bay, Fla., had the third-largest increase, growing 40 percent, to $204,000.

The biggest price decline was in Kalamazoo, Mich., down 3.5 percent, to $122,600, followed by Youngstown, Ohio, where the median price fell 2.7 percent, to $82,900.

In the Midwest, the median existing-home price was $167,800, up 12.1 percent from the same period in 2004. The strongest increase was in the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price jumped 24 percent, to $133,900. Next came Rockford, which showed an 18.6 percent surge, to $122,700.

Regionally, the West showed the strongest increase, with the median price rising 19.5 percent, to $312,600.

Jersey's hot home market a bit cooler

es, it is mid-August -- vacation time -- hardly what real estate agents would describe as the ideal home shopping season.

But in a housing market known for multiple offers, bidding wars and frenzied buyers waiving their rights to property inspections to snatch up homes, all those stale "For Sale" signs are getting a bit hard to ignore.

And yesterday the latest statistics from the National Association of Realtors suggested that despite New Jersey's sizzling temperatures, home sales in the Garden State appear to be cooling down a bit. In its quarterly survey, NAR found existing home sales in New Jersey, which included single-family homes and condos, were little changed from April through June, dipping 0.6 percent compared with the same period a year earlier.

This stands in contrast to the Northeast, which reported the strongest increase in existing home sales in the country, with second quarter activity rising 7.5 percent. Nationally, existing home sales rose 4.6 percent during the second quarter.

While predicting the housing boom's demise is a guessing game, at best, most housing experts said the apparent slowing in New Jersey home sales during the second quarter had more to do with price -- the median price of a home in the state was $322,500 -- and less to do with buyers' appetites.

"I would guess what is going on is an affordability issue," said Celia Chen, the director of housing economics at Economy.com, a research company in West Chester, Pa. "The prices have been rising very fast, curtailing sales."

Indeed, home prices continued to soar across the country in the second quarter. Nationally, the median price of a home rose 13.6 percent to $208,300. Of the 149 metro areas surveyed, 67 showed gains of more than 10 percent.

David Lereah, NAR's chief economist, called the increases unprecedented. "When you look at appreciation of home prices relative to the overall rate of inflation, these are the strongest increases on record," he said.

In the Northeast, the median price of a home -- half sold for more, half sold for less -- rose 13.1 percent for the second quarter to $243,100, the NAR reported.

Meanwhile, some of the biggest increases happened in New Jersey.

In the Atlantic City area, prices jumped 25.7 percent to $244,900 and 22.8 percent to $394,100 in the Edison area, a four-county span that includes Middlesex, Monmouth, Ocean and Somerset counties.

Home prices in the Newark metropolitan region -- a five-county span that includes Essex, Union, Morris, Warren and Sussex -- rose 9.9 percent to $414, 400.

"The houses are definitely staying on the market longer and, in our area, people are asking too much money for them," said Michael Lattimer, president of Lattimer Realty in Fairfield and president of the West Essex Board of Realtors. "I don't think the market has slowed down. I think people are asking too much money."

Consider the case of a small three-bedroom home on Rector Street in Millburn -- an upscale town where expensive homes are sometimes snatched up before they're even listed for sale. The "For Sale" sign planted on the front lawn hasn't budged for months and so far, not a single buyer has made an offer.

Originally, the owner -- an elderly widow who has since moved -- was asking $550,000. Three weeks ago, Joseph Ricci, a real estate agent at Century 21 in Millburn, took over the listing and marked the price down to $495,000.

Still, there have been no bids.

Ricci said the home is small and so is the property. It doesn't have central air conditioning. It needs work and there is no garage.

"It's overpriced," he said. "That's why a lot of homes don't sell, because of the price."

But it isn't just Millburn. Local real estate brokers said they have sensed a shift -- homes are staying on the market longer.

"The market is not wild, crazy like it was before," said Irwin Schrager, the regional manager for RE/MAX Village Square in South Orange, Maplewood, Livingston and Montclair. "It has slowed down a bit, but not dramatically. There is more of a balance between buyers and sellers now."

Still, in the world of real estate, what you think you see isn't necessarily what you're seeing, according to Jeffrey Otteau, founder and president of the Otteau Appraisal Group, an East Brunswick-based research firm that analyzes residential real estate trends. Just because sellers are reducing their prices doesn't mean the housing market is getting soft, he said.

"From a statistical standpoint, the market has not slowed down yet," he said. "But with all the hype we have heard with the real estate market, sellers' expectations are beyond what buyers are willing to pay. When something is offered at a price that makes sense, it still sells."

Indeed, a key indicator of market strength is the Unsold Inventory Index, which measures how many months it would take to sell the existing inventory of active listings at the present sales pace, Otteau said.

That figure in New Jersey stands at 3.3 months as compared with 3.5 months one year ago, he said. Back in the 1980s, when the residential real estate market hit the skids, the figure ranged from 9 months to 24 months, he said.

"This indicates a continued under-supplied market wherein the number of buyers is increasing faster than the inventory of unsold homes," he said.

Still, one troubling area Otteau is keeping a close watch on: the number of homes being offered for sale, which increased by 4 percent between May and June, and stands at its highest level in recent years.

"This is significant (because) any weakening in the residential market will ultimately hinge on an increase in the number of homes offered for sale to the point of exceeding buyer demand," he said.

Second Quarter State Existing-Home Sales Hit Record, NAR Says

Total existing-home sales, which include single-family and condos, were at the highest pace on record in the second quarter, with 42 states showing higher sales in comparison with a year earlier, according to the National Association of Realtors.

NAR’s latest report on total existing-home sales shows that the national seasonally adjusted annual rate was 7.22 million units in the second quarter, up 4.6 percent from the previous record of 6.90 million in the second quarter of 2004.

The strongest increase was in West Virginia, where the second-quarter level of sales activity rose 21.7 percent compared with the second quarter of 2004. Washington existing-home sales increased 19.8 percent from a year earlier, and Vermont was up by 19.6 percent. At the same time, seven other states recorded double-digit increases. Five states and the District of Columbia posted declines but remained historically strong, one was unchanged and complete data was not available for two states.

David Lereah, NAR’s chief economist, said home sales are stimulating the U.S. economy. “Record home sales are creating high demand for related goods and services, and they’re creating new jobs,” he said. “In fact, the overall housing sector accounts for about a quarter of total economic activity. In addition, the growth in housing wealth is feeding into consumer spending, which is helping other segments of the economy.”

NAR President Al Mansell of Salt Lake City said favorable market conditions are supporting a strong underlying demand for homes. “Historically low mortgage interest rates and improving labor markets are giving our growing population the opportunity to make the transition from renting to owning,” he said. “History tells us that housing is the best long-term investment a family can make, with home equity accounting for the largest share of household wealth.”

Regionally, the Northeast reported the strongest annual increase, where the second quarter existing-home sales rate of 1.21 million units rose 7.5 percent from the second quarter of 2004. After Vermont, Connecticut experienced the strongest increase in the region with sales activity 14.7 percent above a year ago, while New York resales increased 6.8 percent.

The South recorded an existing-home sales pace of 2.73 million units in the second quarter, up 6.3 percent from a year earlier. After West Virginia, the strongest increase in the South was in Arkansas, up 15.8 percent from the second quarter of 2004, followed by South Carolina, where existing-home sales rose 14.4 percent, and Alabama, which increased 14.0 percent.

In the West, existing home sales rose 1.8 percent to 1.66 million units in the second quarter from the same period in 2004. After Washington, the next highest increase in the region was in Montana, where total existing-home sales rose 13.9 percent compared with a year earlier; Wyoming sales activity was up by 13.7 percent, while Utah increased 9.7 percent.

In the Midwest, total existing-home sales in the second quarter increased 1.6 percent to a 1.62 million-unit annual pace in comparison with a year ago. North Dakota led the region, up 7.5 percent from the second quarter of last year, followed by Iowa, posting a 6.2 percent gain, and Indiana, with an increase of 6.1 percent.

2nd Quarter 2005 Metro area home prices by % change

Median prices, thousands of dollars	2nd Q 2004	2nd Q 2005	Change
Phoenix-Mesa-Scottsdale, AZ	$165.6	$243.4	47.0%
Cape Coral-Fort Myers, FL	$183.8	$266.8	45.2%
Palm Bay-Melbourne-Titusville, FL	$145.7	$204.0	40.0%
Orlando, FL	$170.1	$232.2	36.5%
Sarasota-Bradenton-Venice, FL	$273.9	$367.8	34.3%
Reno-Sparks, NV	$270.5	$357.4	32.1%
Miami-Fort Lauderdale-Miami Beach, FL	$282.1	$371.6	31.7%
Deltona-Daytona Beach-Ormond Beach, FL	$147.9	$194.0	31.2%
Durham, NC	$151.6	$198.5	30.9%
Tucson, AZ	$175.8	$228.5	30.0%
Hagerstown-Martinsburg, MD-WV	$160.1	$206.0	28.7%
Honolulu, HI	$451.1	$577.8	28.1%
Washington-Arlington-Alexandria, DC-VA-MD-WV	$340.1	$429.2	26.2%
Atlantic City, NJ	$194.8	$244.9	25.7%
Riverside-San Bernardino-Ontario, CA	$294.5	$367.6	24.8%
Spokane, WA	$127.3	$158.6	24.6%
Davenport-Moline-Rock Island, IA-IL	$108.0	$133.9	24.0%
Allentown-Bethlehem-Easton, PA-NJ	$201.1	$249.1	23.9%
Virginia Beach-Norfolk-Newport News, VA-NC	$155.1	$192.0	23.8%
Pensacola-Ferry Pass-Brent, FL	$132.7	$163.6	23.3%
Tampa-St.Petersburg-Clearwater, FL	$158.2	$195.0	23.3%
NY: Edison, NJ	$320.9	$394.1	22.8%
Sacramento--Arden-Arcade--Roseville, CA	$308.2	$377.4	22.5%
Ocala, FL	$112.3	$135.3	20.5%
New York-Wayne-White Plains, NY-NJ	$422.5	$506.8	20.0%
Seattle-Tacoma-Bellevue, WA	$258.8	$310.3	19.9%
Dover, DE	$147.6	$176.3	19.4%
Cumberland, MD-WV	$74.7	$88.6	18.6%
Rockford, IL	$103.5	$122.7	18.6%
New York-Northern New Jersey-Long Island, NY-NJ-PA	$382.8	$452.7	18.3%
Albuquerque, NM	$145.4	$171.7	18.1%
Eugene-Springfield, OR	$163.0	$192.4	18.0%
Baltimore-Towson, MD	$225.2	$264.7	17.5%
Danville, IL	$62.8	$73.4	16.9%
Portland-Vancouver-Beaverton, OR-WA	$204.2	$238.0	16.6%
Reading, PA	$120.5	$140.4	16.5%
Boise City-Nampa, ID	$139.7	$161.8	15.8%
New Haven-Milford, CT	$246.8	$283.8	15.0%
Syracuse, NY	$94.7	$108.7	14.8%
Richmond, VA	$173.0	$198.4	14.7%
Kankakee-Bradley, IL	$115.4	$132.3	14.6%
Montgomery, AL	$116.9	$133.3	14.0%
Hartford-West Hartford-East Hartford, CT	$226.2	$257.7	13.9%
Kingston, NY	$220.3	$250.7	13.8%
Salem, OR	$151.3	$172.0	13.7%
Trenton-Ewing, NJ	$235.9	$267.7	13.5%
El Paso, TX	$96.0	$108.9	13.4%
Colordo Springs, CO	$189.6	$214.2	13.0%
Madison, WI	$194.7	$220.1	13.0%
NY: Nassau-Suffolk, NY	$414.8	$467.7	12.8%
Farmington, NM	$134.8	$151.8	12.6%
Green Bay, WI	$141.7	$159.2	12.4%
Decatur, IL	$77.3	$86.8	12.3%
Peoria, IL	$98.4	$110.5	12.3%
San Francisco-Oakland-Fremont, CA	$647.3	$726.9	12.3%
Shreveport-Bossier City, LA	$111.4	$125.1	12.3%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	$188.0	$211.0	12.2%
Albany-Schenectady-Troy, NY	$157.8	$176.1	11.6%
Amarillo, TX	$96.4	$107.4	11.4%
Springfield, MA	$177.6	$197.9	11.4%
Las Vegas-Paradise, NV	$269.9	$300.1	11.2%
Jackson, MS	$118.6	$131.7	11.0%
New Orleans-Metairie-Kenner, LA	$137.5	$152.6	11.0%
Columbia, SC	$120.7	$133.7	10.8%
Mobile, AL	$116.8	$129.1	10.5%
Corpus Christi, TX	$111.5	$123.0	10.3%
Binghamton, NY	$84.7	$93.3	10.2%
Champaign-Urbana, IL	$125.2	$137.6	9.9%
Milwaukee-Waukesha-West Allis, WI	$197.3	$216.8	9.9%
NY: Newark-Union, NJ-PA	$377.2	$414.4	9.9%
Tallahassee, FL	$148.8	$163.3	9.7%
Gulfport-Biloxi, MS	$113.1	$124.0	9.6%
Knoxville, TN	$131.4	$143.4	9.1%
Minneapolis-St. Paul-Bloomington, MN-WI	$218.0	$237.7	9.0%
Portland-South Portland-Biddeford, ME	$227.2	$247.2	8.8%
South Bend-Mishawaka, IN	$93.8	$102.1	8.8%
Memphis, TN-MS-AR	$138.3	$150.1	8.5%
Los Angeles-Long Beach-Santa Ana, CA	$438.4	$474.8	8.3%
Nashville-Davidson--Murfreesboro, TN	$147.4	$159.7	8.3%
San Diego-Carlsbad-San Marcos, CA	$559.7	$605.6	8.2%
Oklahoma City, OK	$107.0	$115.7	8.1%
Chicago-Naperville-Joliet, IL	$244.1	$263.6	8.0%
Saint Louis, MO-IL	$131.5	$141.9	7.9%
Jacksonville, FL	$154.5	$166.6	7.8%
Little Rock-N. Little Rock, AR	$110.4	$118.9	7.7%
Bridgeport-Stamford-Norwalk, CT	$452.9	$487.3	7.6%
San Antonio, TX	$124.7	$134.0	7.5%
Raleigh-Cary, NC	$172.5	$185.2	7.4%
Barnstable Town, MA	$372.6	$398.6	7.0%
Gainesville, FL	$167.1	$178.8	7.0%
Glens Falls, NY	$132.7	$142.0	7.0%
Fargo, ND-MN	$124.2	$132.6	6.8%
Boston-Cambridge-Quincy, MA-NH	$392.7	$418.5	6.6%
Pittsfield, MA	$198.7	$211.8	6.6%
Providence-New Bedford-Fall River, RI-MA	$274.3	$291.6	6.3%
Anaheim-Santa Ana, CA (Orange Co.)	$655.3	$696.1	6.2%
Atlanta-Sandy Springs-Marietta, GA	$156.8	$166.5	6.2%
Sioux Falls, SD	$129.7	$137.7	6.2%
Charleston, WV	$115.1	$121.7	5.7%
Dallas-Fort Worth-Arlington, TX	$141.0	$149.1	5.7%
Baton Rouge, LA	$128.2	$135.4	5.6%
Waterloo/Cedar Falls, IA	$95.4	$100.7	5.6%
Greensboro-High Point, NC	$140.3	$148.0	5.5%
Rochester, NY	$105.1	$110.7	5.3%
Salt Lake City, UT	$161.5	$169.9	5.2%
Greenville, SC	$136.3	$143.2	5.1%
Austin-Round Rock, TX	$158.8	$166.8	5.0%
Erie, PA	$94.1	$98.5	4.7%
Worcester, MA	$279.2	$292.3	4.7%
Boulder, CO	$331.2	$346.2	4.5%
Birmingham-Hoover, AL	$149.5	$156.1	4.4%
Bloomington-Normal, IL	$149.2	$155.8	4.4%
Ft. Wayne, IN	$98.6	$102.8	4.3%
Norwich-New London, CT	$236.7	$246.8	4.3%
Springfield, IL	$104.5	$109.0	4.3%
Gary-Hammond, IN	$124.6	$129.6	4.0%
Cleveland-Elyria-Mentor, OH	$139.3	$144.7	3.9%
Lexington-Fayette,KY	$139.4	$144.8	3.9%
Columbus, OH	$150.4	$155.9	3.7%
Kennewick-Richland-Pasco, WA	$147.2	$152.7	3.7%
Tulsa, OK	$113.3	$117.4	3.6%
Akron, OH	$116.0	$119.8	3.3%
Grand Rapids, MI	$134.5	$139.0	3.3%
Kansas City, MO-KS	$152.1	$157.1	3.3%
Appleton, WI	$125.6	$129.6	3.2%
Omaha, NE-IA	$133.2	$137.3	3.1%
Spartanburg, SC	$115.2	$118.7	3.0%
Denver-Aurora, CO	$241.8	$248.4	2.7%
Louisville, KY-IN	$133.4	$136.8	2.5%
Houston-Baytown-Sugar Land, TX	$139.2	$142.5	2.4%
Des Moines, IA	$141.8	$145.1	2.3%
Lansing-E.Lansing, MI	$140.4	$143.6	2.3%
Lincoln, NE	$135.3	$138.3	2.2%
Buffalo-Niagara Falls, NY	$96.0	$97.5