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Northern Trust’s Paul Kasriel writes: Housing Recession Isn’t Spreading? Kasriel argues that we may already be seeing spillover from the housing recession into the general economy. A few excerpts:

Click on graph for larger image.
Graphs and text from Northern Trust.

“For Q3:2006, the year-over-year change in real consumption was 2.8%, down a full percentage point from its reading of Q3:2005 and the lowest year-over-year growth since the first half of 2003. Perhaps it has nothing to do with the housing recession, but the data say that growth in consumer spending, although not yet collapsing, certainly is decelerating.”

“Now, direct your eyes to Chart 2, which shows the year-over-year percent change in real expenditures of business equipment and software. In Q3:2006, the year-over-year change was 5.7%, down from 9.3% in Q3:2005 and the slowest year-over-year growth since Q3:2003. Again, although there is no recession in business capital spending, yet, the data show very clearly that the growth in spending on business equipment and software is decidedly moderating.”

Homeowners with adjustable-rate mortgages worry about rising interest rates, but many believe they will be able to refinance their loans if necessary, according to a study released Monday.

An survey of homeowners conducted for Wells Fargo & Co., the San Francisco-based bank, found that about one in seven respondents had an adjustable-rate mortgage, or ARM.

With an ARM, the interest rate rises or falls, often in lockstep with an underlying security such as a Treasury bond.

CNN Money reports on California. “Five of the cities on the Bottom 10 list are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. ‘A market where housing has increased by so much so fast when unemployment is that high is unsustainable,’ says Frank Owens, who sits on the board of Fresno’s builders association. ‘This market is going south.’”

The Fresno Bee. “Real estate agent Twyla Smith is trying to promote herself in what has become a sluggish real estate market. It’s her way of trying to stand out from the throngs of agents who got into the field when the market was red hot and who now find themselves scrambling for business as home sales decline.”

“She got into the real estate business four years ago. So did hundreds of thousands of others looking for sure money. There are plenty of homes for sale and potential home buyers, but properties aren’t moving as fast. For Smith, that means her income is more uncertain now. ‘I have only been used to the booming market,’ she said. Now, she said, ‘you have to work harder.’”

“Now, her name and telephone number is on the sign outside the north Fresno home of Mike Kadrie, who had been trying to sell his home on his own since June with no solid offers.”

From Inman News. “Prudential California Realty is ‘rightsizing’ in recognition of the market realities of slower sales, said Sherry Chris, the company’s COO. ‘All companies are looking at what the right things to do right now are. We’re rightsizing our company, looking at cost-containment opportunities and growth opportunities,’ said Chris.”

“Chris said that the market conditions will present special challenges for the huge group of agents who are relatively new to the industry, and there likely will be a decrease in the agent population over the next 18 to 24 months. ‘This to me is a market correction. It’s just a leveling out of the market. It’s not a downturn that is going to be going on for an extended period of time,’ Chris said.”

The Journal News reports from New York. “The chill in the national housing market is sending a shiver through the Lower Hudson Valley. Inventories for housing of all types rose by double-digit percentages in both counties, while the number of sales fell sharply. Sales of houses in Westchester fell by 20.5 percent, the largest increase for the third quarter over the past 17 years for which records were kept. Putnam house sales fell 37 percent.”

“Therese Fokine has been trying since January to sell an investment house she owns adjacent to her own in Mohegan Lake. Originally listed at $315,000, it now is being offered for $269,900. ‘Interest rates went up, and that’s a real killer,’ Fokine said.”

“Greg and Joan Patterson lowered the price on their house at Valeria in Cortlandt after they put it on the market in the spring for $610,000. ‘People are waiting. There’s a perception that there’s going to be better deals,’ Joan Patterson said.”

“Some brokers said part of the problem is the reluctance of sellers to take less for their houses than they could have gotten in the recent past. ‘That’s hard,’ said Carlton Gillman. ‘They don’t want to know theirs is worth less than it was six months ago.’”

“Greg Rand, managing partner of Prudential Rand Realty, agreed. ‘The interest is there. What you’ve got is a standoff. I don’t see the buyers buckling,’ he said.”

“Realtor Ilene Goodman in Croton-on-Hudson said ‘quite a few’ of her listings were marked down this year. ‘One of the first things you have to tell people (who sell) is, you can’t set the price and I can’t set the price. It’s the market that sets the price,’ Goodman said.”

“(Broker) Ross Keating in Putnam Valley sees a different dynamic. ‘People hear things are slowing down, so they start waiting, and it’s a self-fulfilling prophecy,’ he said.”

“Inventories for housing of all types rosing by double-digit percentages in both counties, while the number of sales fell sharply. ‘Considering that third quarter closings normally reflect peak market activity in the spring selling season and that this year’s performance was lackluster, there is little reason to expect a turnaround with the fourth quarter results,’ the MLS said in its report.”

The St Petersburg Times reports from Florida. “As Florida’s real estate boom winds down to its apparent end, Dade City has realized only a tiny fraction of the development seen in areas like Wesley Chapel and Land O’Lakes. At one time, city officials talked of plans to control the growth they saw ahead. Turns out they don’t quite need them.”

“Even the ever-expanding Wal-Mart noticed. This month, company officials announced that they would delay building the city’s first Wal-Mart Supercenter. They want to see more ‘maturation’ in the local market before building the new store.”

“In Dade City, it seems, the development wave has receded before it ever began. When officials for Wal-Mart, the nation’s largest retailer, scope out sites for new stores, they look at several factors. That last factor is based not on projected housing starts but on actual new construction.”

“‘We’re only going to build stores once the homes already exist,’ said Eric Brewer, Wal-Mart’s senior manager for public affairs. ‘Certainly in a place like Florida, you don’t want to be getting in a position where retail construction gets ahead of residential construction.’”

“Earlier this year, Dade City officials approved 2,000 new homes and received applications for 2,500 more. Ten months later, developers still have approval to build the same number of homes but are apparently electing to do so on a more conservative time line. ‘Instead of having 2,500 in two years, because of the slowdown in the real estate market, it will probably be over a period of five years,’ said Karla Owens, the city attorney and planner.”

“She’s confident the neighborhoods will be built, eventually. Why? Because the property has changed hands. ‘I just find it hard to believe that large tracts are going to stay vacant forever,’ she said.”

“The housing slowdown put a lid on more than home prices. Hotel prices, which had been driven by swarms of beach luxury condo/hotel developers, have stabilized at about $79,000 a room across the Tampa Bay market. That’s the same as a year ago, according to Marcus & Millichap.”

What do you see in your housing market this weekend? Builder incentives? How about a related television program? “Real estate brokers and others looking for a deal gathered outside the Fresno County Courthouse for this home foreclosure auction. The number of foreclosed homes in the Valley has risen dramatically these past few months.”

“Foreclosure specialist Billy Richardson said, ‘Families got into these adjustable rates about 1-2 years ago. These interest rates are going up and now their mortgage rates are sometimes doubling. They’re not able to make these payments, so a lot more homes go over here to the auction downtown.’”

“California’s housing production plunged 47% last month as builders curtailed construction while working to whittle down their existing supplies of unsold homes, data released Friday showed.”

“Now they are trying to unload their so-called standing inventory of homes that are under construction or completed. ‘Last year we had a waiting list of buyers interested in our homes before they were even built,’ said Wes Keusder, a builder and chairman of the California Building Industry Assn. ‘This year, however, it seems as though we’re the ones who are waiting.’”

“The home builders’ association reported that 45 percent of builders and developers said they cut prices in September to maintain sales volume. The cost of incentives was not reflected in the new-home price data, which suggested that builders were making even less money from each sale than the shrinking official prices would indicate.”

“Cancellations were also left out of the new-home statistics. The Commerce Department records a new home as sold when the buyer and builder sign a contract. The home builders association said that cancellations had jumped by 50 percent in the last year.”

“‘The cancellation rate is really big,’ said Dave Seiders, chief economist of the association. ‘It’s exploded over the last year.’”

The Denver Post from Colorado. “Two years ago, Colorado issued a warrant to arrest Taiwan Lee, a state prisoner who had vanished on parole. He hadn’t gone far. While police looked for him, he bought three houses at inflated prices in Arapahoe County with the help of lenders who put up the entire $1.9 million.”

“After he was caught and jailed, he managed to buy two more. Until the foreclosures commenced, Lee owned five villas in an affluent gated community while living behind prison bars 150 miles away.”

“In the Denver metro area alone, more than 1,000 homes sold for at least 110 percent of the original asking price in the 18 months ending in June, according to research.”

“The Denver Post searched foreclosure records on 739 of these homes sold between January 2005 and April 2006. Already, 55 have been foreclosed, or one of every 13 homes, an extraordinary number even in a state where one of every 408 homes is in foreclosure.”

“‘It clearly is a problem,’ said Colorado Attorney General John Suthers. ‘We have been looking at house purchases over cost and money going back to the buyers.’ Suthers’ consumer protection chief, Jan Zavislan, said the office is investigating various participants in inflated sales, including buyers, sellers, appraisers, mortgage brokers, real estate agents and title companies.”‘

“We’re looking at potentially every participant in these transactions,’ Zavislan said. ‘We’re just seeing way too many of these things.’”

“Critics say mortgage companies have little incentive to ferret out inflated sales because they bundle and resell their home loans to Wall Street investors, taking their profits and diluting fraud losses in large pools of mortgage-backed bonds.”

“These securities get ’sold in little pieces all over the world,’ said Lou Barnes, a Colorado mortgage bank owner. ‘It makes it very difficult to figure out who, if anyone, bears any responsibility for the flow of Colorado’s foreclosures.’”

The US News and World report looks at Arizona. “Roger Maehler has good reason to feel smug about the panoramic mountain views from his new backyard. ‘I think I got a good deal,’ the Scottsdale, Ariz., resident says of the acre-plus adobe ranchette he snagged last week for $655,000-a 23 percent discount from the original $850,000 asking price.”

“Complete with swimming pool, spa, and a big-screen TV in the great room, the sprawling five-bedroom property was high on his list when he began shopping for a new home in May. But like many buyers these days, Maehler decided to hold off and see how the weakening market shook out over the summer. ‘I guess it was worth the wait,’ he says.”

“(In) the Phoenix area, the number of homes on the market has more than doubled to 45,000 since last October. ‘I literally could have spent eight hours a day, five days a week looking at houses,’ says Maehler, who toured more than 30 properties before making a bid.”

“Economist Mark Zandi says it could take a ‘Roto-Rooter’ to finally flush stubborn sellers-and their market-clogging inventory-from real-estate listings.”

“In the short run, he expects the market could stabilize somewhat. ‘But it could very well be a dead-cat bounce,’ the economist says of the chance that a strong economy and persistent inflation will push up mortgage interest rates-just as sellers move to relist their houses in the spring. If that happens, ‘it’ll come right out of housing prices again.’”

The Gazette Journal from Nevada. “New condominium projects for downtown Reno are sprouting up like Starbucks in downtown Seattle. But for all the proposed condo projects, including eight major condo towers planned to be built through 2009, there is a critical question; is there a large enough market for condos in downtown Reno?”

“According to the assessor’s data, 72 condos, or 58 percent, have been sold to

The Sacramento Bee reports from California. “Just as when the market was rising spectacularly and sellers simply priced their houses thousands of dollars higher than their neighbors’ sales prices, homeowners, real estate agents, builders and even appraisers confess to some sense of winging it on the down side these days.”

“The old standby of measuring comparable neighborhood sales is proving undependable amid falling prices, excess inventory of resale and new homes and reluctant buyers who firmly believe prices will fall further still.”

“‘It used to be a mathematical equation,’ says Placer County real estate agent Kate Tustin. Now with a record inventory of houses for sale, she says the old math has given way to quantifying a house’s ‘emotional component.’ On such vague notions of the heart does pricing now rest.”

“Real estate agents have spent much of the year complaining that homeowners were in denial and refusing to cut their price despite daily evidence to the contrary. Many are still resisting. (Broker) Mike Lyon says the market may decline another 10 percent, and still sellers aren’t convinced.”

“‘About half the sellers are out in la-la land,’ he says. ‘That’s better than before. Half are serious and are starting to reduce their price. I still think only 10 to 20 percent of the market is priced to sell.’”

“That doesn’t surprise Barry Schwartz, professor of psychology and economics at Pennsylvania’s Swarthmore College, who has studied the issue. For most people, he says, the joy felt when investments such as housing gain in value is greatly outweighed by the pain felt when those same investments lose money, even when the loss isn’t real at all.”