Where Home Prices Are Holding Up

By JEFF D. OPDYKE
May 20, 2008; Page D1

Downtown: It's been among the safest places to hide from the housing downturn.

Much has been made of the way the nation's real-estate bust is affecting some American cities far more than others. But even within a single metro area, changes in housing prices can show wild variations.

And in big cities, prices in the central cores often fare the best. Far-flung suburbs -- where home building exploded in recent years -- have more typically gotten hammered. In between is a patchwork of established suburbs and city neighborhoods peripheral to downtown that can be all over the map in terms of price declines -- or even increases.

Consider the San Francisco Bay area. Overall, prices there slid 17% in the 12 months through February, the most-recent data available, and were down 8% over the first two months of 2008 alone, making it one of the worst-performing metro areas in the country, according to the S&P/Case Shiller Home Price Indices. Yet prices within the city of San Francisco are up 0.3% over the first quarter of 2008, according to DataQuick Information Systems, a San Diego-based real-estate-data firm.

For today's buyers, all this means that shopping for housing bargains is increasingly complicated. The best deals may be where prices have slid the most, but such areas could easily fall a good bit more before hitting bottom. Meanwhile, you'll get few bargains if you buy a home in San Francisco or Manhattan or downtown Boston. Of course, if the housing crisis broadens, the central core areas also could see price drops.

Chicago

It's a mixed picture in Chicago's downtown area. A flurry of condominium building has kept prices down on much new construction. At the same time, some established apartment buildings are still seeing buoyant prices, even as properties spend more time on the market. The Carlyle, a 1960s-era glass-and-concrete tower along the city's prized Gold Coast neighborhood, recorded the highest price ever -- $2.4 million -- for one of its "C"-tier units earlier this year, for example.

Jim Kinney, president of Rubloff Residential Properties in Chicago, says "80% to 90% of the buildings along the Gold Coast achieved a record sales price in the last year." The older buildings are often in blue-chip locations and are generally cheaper, per square foot, than new units.

Bargains abound in Chicago's periphery. Seven miles south of the Carlyle is Bronzeville, a gentrifying community that during the housing boom was a favorite of buyers who couldn't afford Chicago's glitzier core. Just last month, a bank that owns a foreclosed duplex in Bronzeville dropped the asking price to just $85,000, from the January listing price of $129,900. The owners who lost the property originally paid $330,000 in November 2005, about a year before the Chicago market peaked.

But beware: Prices may be stagnant or worse for a long time to come. "Because of the huge inventory, it will take years to recover," says Christina Miller, a Rubloff agent, citing periphery neighborhoods such as Wicker Park, Ukrainian Village and Bucktown.

Chicago's desirable North Shore suburbs are, for the most part, doing well. Median prices in Evanston, Wilmette and Winnetka, all hugging Lake Michigan's shoreline, are up over the past year to varying degrees, though sales volume is down sharply, according to a Zip Code analysis by DataQuick. Sellers are receiving about 89% of the list price, according to March data from the North Shore-Barrington Association of Realtors. That's down from about 95% at the peak of the market.

In upscale Highland Park, about 25 miles north of downtown, prices are down more than 6%. But that average is being skewed by a high number of sales of low-end homes, some forced by foreclosure.

New York

While New York's commuter market -- which includes suburban New York, New Jersey and Connecticut -- is down about 8% from its peak in mid-2006, much of Manhattan continues humming along. Neighborhoods such as SoHo, the Lower East Side, Greenwich Village, Chelsea, Murray Hill, the Upper West Side and Harlem are all up in the past year, according to DataQuick's Zip Code analysis.

Bidding wars still happen. Toni Haber, an executive vice president at Prudential Douglas Elliman, a New York City real-estate firm, says 60 people waited in line recently at an open house to view a three-bedroom apartment in Greenwich Village. The owner had four competing offers within the week, and agreed to sell for about $2.5 million -- $300,000 over the asking price.

Part of the city's strength comes from the fact that few buyers were investing in properties to flip them. Moreover, many apartment buildings in New York aren't condominiums but co-ops, which impose financial demands on potential buyers far more rigorous than banks do -- which helps keep the number of foreclosures down. In addition, foreign investors have been exploiting the weak dollar by grabbing Manhattan real estate.

One area of weakness: the Financial District in Lower Manhattan, where median prices are down, in part because of an abundance of new construction in the area.

Those areas of Brooklyn that are close to Manhattan are also holding up well. On the periphery, places like Jamaica, Queens; parts of the Bronx; and nearby New Jersey towns such as Jersey City and Hoboken are off between 3% and 14%.

Farther out, popular commuter towns like Summit and New Providence, N.J., are down at much as 16%. Pockets of suburban strength do exist, though. High-end suburbs in New York's Westchester County such as Chappaqua are up over the past year.

Boston

Michael DiMella, managing partner at Charlesgate Realty Group, recently sold a one-bedroom condo in Boston's South End district for $365,000, roughly $100,000 more than the owners originally paid in 2000 and about what they could have expected at the peak of the Boston real-estate market in late 2005. But the condo sat on the market for nearly four months before a buyer came along.

That sale typifies many parts of core Boston these days: flat to modestly higher prices but a longer time to sell. Prices in the city's core are off less than 1% over the past year, according to first-quarter data from Listing Information Network, Boston's MLS system. The real difference today is that homes are staying on the market for 111 days on average, up from 85 days in 2005.

Prices in key neighborhoods, such as Back Bay, the South End, Fenway and the Waterfront, are all up between 3% and 10%. Beacon Hill and the North End, however, are down sharply, as much as 33%. That's partly the result of a slew of high-end properties that hit the market in 2006 and 2007 that were priced as high as $1.5 million, skewing the price data upward. Even without those sales, however, the median price would be down by double-digit amounts.

"No one is taking prices higher these days just to see if they can get it, like they used to," Mr. DiMella says of Boston's downtown core. "But you have to come with realistic expectations. This is a highly desirable area, and you're not going to find a steal."

Nearby communities are a mixed bag. Condos in suburban Brookline, one of the most desirable Zip Codes -- 02445 -- are down about 8%, while neighboring 02446 is up nearly 7%, for example. Among city neighborhoods, Dorchester is down across the board by as much as 25%, yet Jamaica Plain and West Roxbury are each up between 7% and 9%.

San Francisco

"I get buyers who come in thinking they're going to get a real bargain these days because prices are down all over the country, and we just laugh," says Caroline Werboff, an agent with San Francisco real-estate firm Hill & Co.

People want to live in San Francisco's urban core. Median prices around the Financial District, North Beach, Telegraph Hill and Russian Hill are up -- in some case strongly.

Ms. Werboff says a Russian Hill home that sold for $7.7 million in April 2004 sold again in February for $10.3 million. A newly listed house in Pacific Heights, another core neighborhood with strong price appreciation, sold three years ago for $6 million. Ms. Werboff says that the owners "will get $10 million now."

Still, some San Francisco neighborhoods are down, particularly along the edges of the city, such as Portola, Bayview, Hunters Point and Sunset. Edward Leamer, director of the UCLA Anderson Forecast, an economic research center at the University of California Los Angeles, warns that "the housing problems won't bypass San Francisco proper. The decline will just take more time."

Meanwhile, both closer-in and distant suburbs are weak, too, often markedly so. On the periphery, San Mateo County and high-end Marin County are doing the best, both down more than 4% between March 2007 and 2008, according to DataQuick. Alameda and Contra Costa, across San Francisco Bay from the city and chockablock with anonymous tract housing, are down 18% and 27%, respectively. Bargains exist, but with so much inventory, prices aren't expected to rebound quickly.

Santa Clara County, home to Silicon Valley, is down more than 9%, though pockets of strength exist in communities such Sunnyvale, Mountain View and Los Altos. Napa County, meanwhile, is one of the weakest in the region, with median prices off more than 20%.

Los Angeles

L.A. is an anomaly. No real urban core exists. The area is just a sprawling string of suburbs that run together.

And most of that sprawl is bathed in red ink. Median prices in communities throughout Riverside and San Bernardino counties -- the distant, inland suburbs that are at the epicenter of the region's subprime and foreclosure crises -- are down, often sharply.

Lower-priced homes in tony Palm Springs have lost about 24%, though more-expensive homes are up slightly. Less-affluent cities such as Ontario, Chino and Rancho Cucamonga are all down between 15% and 31%. Los Angeles County, Orange County to the south and Ventura County to the north are suffering equally.

The only notable area of strength: high-end real estate. L.A.'s Westside, home to affluent neighborhoods such as Brentwood and Westwood, "tends to be more insulated because this is where people with money want to be," says Madison Offenhauser, regional director in Los Angeles for Keller Williams Realty.

Median prices in Brentwood are up 16%. The Hollywood Hills, up 26% to a median price of more than $2.1 million. Rancho Palos Verdes and the Palos Verdes peninsula, up 17%. Parts of Newport Beach, one of Orange County's poshest addresses, are up as much as 67% to $2.75 million. The coastal village of Laguna Beach is up 6%.

Lee Ann Canaday, owner of the Canaday Group, a Laguna Beach real-estate firm, says "almost every deal I've done this year" in Laguna and Newport Beach has had multiple offers.

Write to Jeff D. Opdyke at jeff.opdyke@wsj.com

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Friday, May 16, 2008, at 6:00 p.m. EST.

Stock prices fell after the Consumer Sentiment reading fell to the lowest level since 1980. Stock prices closed well off the lows of the day. At the closing bell, the Dow fell almost 6 points, closing at 12,986, while the Nasdaq fell almost 5 points, closing at 2,528. Oil closed $2.58 higher at $126.70 per barrel, and gold closed $23.40 higher at $903.40 an ounce.

Consumers are reminded daily of rising food and gasoline prices. The last six U.S. presidents and every Congress since 1976 have shown zero interest in reducing our dependence on foreign oil. The oil lobby is making significant campaign contributions to members of Congress. Hence, no interest in changing the status quo. We have the finest Congress money can buy. Congress could at least repeal recent ethanol legislation to address rising corn prices and rising food prices.

The Dow Transportation Index just posted a new high, which tells investors that the economic recovery is already underway. Plus, the yield curve is steep and positive. That is significant because a steep yield curve has ended every recession and every financial crisis. Stay fully invested.

Do not sell any of our food, seed, agriculture or fertilizer stocks and ETFs. One billion people are starving due to the worst global food shortage in history. Be sure to own Potash Corp. of Saskatchewan, Inc. (POT).

Let's continue to avoid the housing sector. I would not purchase residential nor commercial real estate. I still do not expect the housing market to bottom in 2008.

Stay close to our Tuesday/Friday Hotline Updates. I will be adjusting our portfolio of recommendations to capture maximum profits from a stock market rally.

The next Hotline Update will be on Tuesday, May 20, 2008, at 6:00 p.m. EST.

Wall Street Digest Hotline Update

This is The Wall Street Digest Hotline Update for Tuesday, May 13, 2008, at 6:00 p.m. EST.

Stock prices closed well off the lows of the day. At the closing bell, the Dow fell 44 points, closing at 12,832, while the Nasdaq gained 6 points, closing at 2,495. Oil closed $1.62 higher at $125.85 per barrel, and gold closed $18.50 lower at $866.40 an ounce.

Retail sales fell 0.2 percent in April. However, excluding auto sales, retail sales rose 0.5 percent last month. April import prices rose 1.8 percent month-over-month; April export prices rose 0.3 percent.

First quarter home prices fell 7.7 percent year-over-year. Home sales are still falling, with little hope of a bottom in 2008. Meanwhile, corporate profits are above expectations. $7.2 trillion cash is on the sidelines waiting for the stock market to move above the 200-day moving average. The yield curve is steep and bullish for the economy and the stock market. Stay fully invested!

Do not sell any of our food, seed, agriculture or fertilizer stocks and ETFs. One billion people are starving due to the worst global food shortage in history. Be sure to own Potash Corp. of Saskatchewan, Inc. (POT).

Let's continue to avoid the housing sector. I would not purchase residential nor commercial real estate. I still do not expect the housing market to bottom in 2008.

Stay close to our Tuesday/Friday Hotline Updates. I will be adjusting our portfolio of recommendations to capture maximum profits from a stock market rally.

The next Hotline Update will be on Friday, May 16, 2008, at 6:00 p.m. EST.

When the Bank Freezes Your Line of Credit

By JUNE FLETCHER
May 15, 2008

Across the U.S., sellers with good credit who have never been late on a mortgage payment are getting their home equity lines of credit (HELOCs) frozen or downgraded. Major lenders like Bank of America, Citibank, Countrywide Financial Corp., Washington Mutual Bank and USAA have announced that they're cutting back HELOCs in areas where home prices have taken a hit.

But judging by a recent post about HELOCs on WSJ.com's Developments blog and one reader's comments to that blog, lines of credit aren't just being frozen in places where prices have declined. Take Manhattan, where median condo prices jumped 13.2% to $945,276 in the first quarter of this year over the same period a year earlier, according to real estate firm Prudential Douglas Elliman. In response to that blog post, one New York couple wrote in and said that despite their "excellent credit" and a $300,000 household income, their credit line was slashed as the result of a bank appraisal that came in at half the market value for their $1 million apartment. They had to pay for a new appraisal to get their line of credit reinstated.

It gets more bizarre. I own a vacation condo in Naples, Fla., where local real estate broker Glenn Ginsburg of A Delta Realty of Naples reports condo prices have declined 7.7% to $300,000 in the first quarter of 2008 from the same quarter in 2007. Yet my lender, Countrywide, just sent me a letter this week inviting me to cash out some of the equity in my place, which they mysteriously figure at $54,302. (The fine print on the back of the offer says this sum is based on "statistical data," not on an appraisal, and the solicitation isn't a commitment on their part).

I bought my home in 2004 for $220,000, and judging by recent sales of identical models, it would currently sell for around $250,000.

I don't know which lender the New York reader was using. But I was curious why I was being solicited for a new HELOC in a shaky market like Naples. So I contacted Countrywide, and asked to speak to a spokesperson about it. No one returned my call. Instead, I received an e-mailed statement, which said the company was reviewing the loans it's servicing to determine the impact of lower property values, and would write to customers whose accounts they're suspending (so far, 122,000 customers have been affected nationwide). The statement added, "These measures do not impact the company's desire to originate new home equity lines of credit based on current property values and borrower qualifications."

For borrowers, such unpredictability can be maddening. Unfortunately, lenders are within their legal rights to freeze or even withdraw a HELOC for circumstances spelled out in a loan's documents. Worse, if your loan has been sold, the new mortgage holder may require some additional proof that you still meet the original conditions of the loan.

That doesn't mean you can't question a HELOC shutdown. Start by asking the lender to tell you in writing what caused the freeze, what steps you can take to thaw it and when your line of credit will be unfrozen. If the problem is something you can fix — say, an error on your credit report that hurt your credit score — take steps to correct it.

If the lender refuses to tell you the reason for the freeze, or the cause they give you isn't mentioned in your loan documents, it could be time to call in the regulators. Click here to find out which regulator covers your lender.

However, if you don't need the cash, you might want to consider your frozen HELOC a blessing in disguise. For too long, lenders have enticed borrowers to jeopardize the roof over their heads to pay for transient pleasures like vacations or to knock down credit card debt. Now that the housing market has cooled, the folly of that way of thinking is finally as clear as ice.

Write to June Fletcher at june.fletcher@wsj.com

Where home prices are headed next

Want to know what your home will be worth this time next year? Check out these home price forecasts for the 100 largest U.S. markets, from Money Magazine.

Last Updated: May 8, 2008: 10:08 AM EDT

(Money Magazine) -- The housing implosion is nowhere near over. In 75 of the 100 top U.S. cities, prices are expected to fall in the next 12 months according to Fiserv Lending Solutions.

The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.

Meanwhile, foreclosure filings more than doubled in the first three months of 2008, spiking 112%. So far this year 156,463 families have lost their homes to repossessions. Many markets won't hit bottom till late 2009 or even 2010.

Pity the residents of Stockton, Calif., whose homes are likely to lose more than half of their 2006 value. But if you happen to live in Texas, congratulations: The housing tornado passed you by.

First Published: May 7, 2008: 8:30 AM EDT

Metro Area, Home Price (median), Price Change (5 years), Forecast (May '09), % change in foreclosure rate (1 year)
McAllen, TX $109,000 23.3% 4.0% 23%
Rochester, NY $121,000 20.1% 2.7% 5%
Birmingham $156,000 29.4% 2.7% 20%
Syracuse $126,000 29.5% 2.6% 27%
Buffalo/Niagara Falls $105,000 24.5% 2.4% 14%
New Orleans $158,000 43.7% 2.2% 49%
Scranton $128,000 41.1% 2.2% 8%
Baton Rouge $170,000 38.3% 1.9% 14%
Grand Rapids $124,000 8.3% 1.9% 37%
El Paso $134,000 51.9% 1.8% 32%
Wichita $114,000 17.8% 1.5% 9%
Tulsa $128,000 18.8% 1.4% 5%
Fort Worth/Arlington $134,000 17.4% 1.4% 16%
Indianapolis $114,000 12.0% 1.3% 11%
Houston $150,000 25.1% 1.2% 11%
Dallas $161,000 15.8% 1.2% 14%
Gary, IN $125,000 25.6% 1.1% 12%
Albany, NY $200,000 64.1% 0.9% 10%
San Antonio $152,000 39.6% 0.8% 22%
Greensboro, NC $151,000 17.8% 0.6% 256%
Omaha $136,000 17.7% 0.6% 71%
Little Rock $128,000 28.4% 0.5% 405%
Louisville $133,000 20.7% 0.5% 17%
Columbia, SC $145,000 28.1% 0.3% 16%
Oklahoma City $134,000 29.8% 0.3% 16%
Austin $186,000 28.9% -0.1% -6%
Raleigh/Cary, NC $236,000 26.4% -0.2% 62%
Charlotte, NC $205,000 27.8% -0.5% 15%
Kansas City $148,000 19.4% -0.6% 22%
St. Louis $134,000 31.7% -0.8% 22%
Lake County, IL $260,000 30.4% -0.8% N.A.
Pittsburgh $144,000 18.1% -1.3% 1%
Memphis $124,000 8.7% -1.5% 28%
Richmond $226,000 61.4% -1.8% 72%
Milwaukee $220,000 35.7% -1.8% 53%
Atlanta $205,000 16.0% -2.3% 52%
Youngstown, OH $87,000 2.8% -3.0% 3%
Nashville $154,000 34.8% -3.3% 28%
Allentown, PA $247,000 58.9% -3.3% 52%
Akron $143,000 5.2% -3.8% 15%
Toledo $122,000 1.9% -4.0% 12%
Cincinnati $166,000 7.4% -4.2% 9%
Cleveland $145,000 1.2% -4.3% 11%
Columbus, OH $155,000 5.7% -4.4% 17%
Dayton $125,000 7.7% -4.4% 10%
Knoxville $144,000 35.6% -5.2% 39%
Minneapolis/St. Paul $235,000 15.9% -5.6% 71%
Farmington Hills, MI $175,000 -7.5% -5.9% N.A.
Poughkeepsie, NY $260,000 50.8% -6.8% 35%
Chicago $279,000 29.2% -6.8% 9%
Virginia Beach $236,000 90.1% -7.1% 33%
Cambridge, MA $417,000 10.7% -8.5% 57%
Detroit $120,000 -6.3% -8.6% 41%
Peabody, MA $365,000 10.4% -8.8% 9%
Sacramento $330,000 23.3% -8.9% 210%
Seattle $430,000 61.9% -9.0% 58%
Worcester, MA $257,000 13.5% -9.2% 102%
Springfield, MA $195,000 33.6% -9.5% 241%
Jacksonville $197,000 47.7% -9.6% 130%
San Diego $522,000 31.3% -9.7% 175%
Salt Lake City $229,000 59.9% -9.8% 18%
San Francisco $840,000 40.7% -10.1% 175%
Wilmington, DE $259,000 50.9% -10.3% 145%
Boston $363,000 13.4% -10.5% 57%
Albuquerque $174,000 50.7% -10.5% 23%
Denver $254,000 4.5% -10.8% 23%
Philadelphia $200,000 50.0% -11.1% 29%
Providence $275,000 32.0% -11.6% 107%
Oakland $595,000 27.7% -11.7% 266%
Baltimore $264,000 64.7% -12.5% 92%
San Jose $750,000 38.7% -12.5% 347%
Hartford, CT $249,000 29.1% -12.6% 51%
Bethesda, MD $460,000 54.9% -12.9% 118%
Ventura County, CA $577,000 42.7% -13.1% 240%
Tacoma $283,000 64.3% -13.2% 68%
Washington, DC $408,000 49.2% -13.2% 42%
New York City $471,000 43.5% -13.2% 3%
Bakersfield, CA $255,000 73.0% -13.6% 391%
Stamford, CT $562,000 32.8% -13.9% 66%
New Haven $260,000 36.3% -14.2% 83%
Fresno $276,000 62.1% -14.3% 285%
Nassau/Suffolk, NY $465,000 40.2% -14.4% N.A.
Portland, OR $306,000 62.3% -14.7% 100%
Camden, NJ $220,000 50.9% -14.9% 11%
Santa Ana, CA $669,000 52.4% -15.2% 290%
Newark $419,000 38.1% -15.4% -5%
Sarasota $230,000 38.0% -15.5% 458%
Edison, NJ $358,000 36.0% -15.8% 0%
Honolulu $625,000 95.3% -16.2% 129%
Los Angeles $528,000 67.7% -16.8% 261%
Stockton, CA $341,000 17.8% -16.8% 379%
Tucson $217,000 54.5% -16.9% 14%
Riverside, CA $340,000 49.9% -16.9% 299%
Tampa $200,000 52.1% -17.1% 281%
West Palm Beach, FL $305,000 46.1% -17.6% 435%
Las Vegas $277,000 60.8% -18.3% 2%
Phoenix $237,000 60.9% -18.3% 9%
Orlando $245,000 62.5% -21.0% 399%
Fort Lauderdale $309,000 56.1% -22.2% 450%
Miami $329,000 94.8% -24.9% 370%
USA $206,000 32.7% -9.7% 65%

SOURCES: Fiserv Lending Solutions; First American CoreLogic, LoanPerformance data; city and county assessors in McAllen, Texas, Poughkeepsie, N.Y. and Lake County, Ill.; MetroTex Association of Realtors; Scranton Board of Realtors; and Greater Tulsa Association of Realtors.

FOREX-Dollar firms on Fed comments; data drives euro lower

(Recasts with reaction to U.S. data, updates prices, adds comment)

NEW YORK, May 7 (Reuters) - The dollar gained on Wednesday as comments from a Federal Reserve official increased expectations that the U.S. central bank's cycle of aggressive interest rate cuts may be nearing an end.

Kansas City Fed President Thomas Hoenig late on Tuesday said that rates will need to be raised in a timely way as the central bank grapples with a serious threat of inflation. For details, see [ID:nN06528406]

The euro also fell on reports showing euro area retail sales were much weaker than expected, down in monthly as well as annual terms, while German manufacturing orders unexpectedly fell by 0.6 percent in March -- underlining concerns about the slowing economy. [ID:nL07774862]

"Kansas City Fed President Hoenig ... warned that inflation is 'troublesome' and too high," said Benedikt Germanier, senior currency strategist at UBS in Stamford, Connecticut. "He suggested that when the Fed is ready to raise rates, it may do so relatively quickly."

Hoenig is not a voting member of the Fed's policy-setting arm this year.

The euro traded 1 percent lower on the day at $1.5368 , off around 4 percent from the record peak struck on April 22.

The dollar rose 0.6 percent to 105.33 yen . Against a basket of currencies the dollar gained 0.8 percent to 73.609.DXY.

A run of poor economic data has pressured the euro in recent weeks after it hit a record high above $1.60, peeling away perceptions that the euro zone was insulated from the U.S. downturn.


Adding to the bearish picture, data from France, the euro zone's second biggest economy, showed a record trade deficit for March.

Still, the European Central Bank is expected to hold interest rates steady on Thursday at 4 percent, leaving the focus on the post-decision briefing by ECB president Jean Claude Trichet, who is expected to maintain a hawkish line on inflation.

"The euro-zone retail sales were particularly disappointing, it does suggest that European consumers are slowing down. All the data suggest the outlook is deteriorating for Europe and that's consistent with downward pressure on the euro," said Teis Knuthsen, currency strategist at Danske Markets in Copenhagen.

DOLLAR STRENGTH

Sterling fell to an 11-week low against the dollar to trade down 1.1 percent at 1.9518 . Weak consumer morale, output and jobs figures kept investors focused on a sharply slowing UK economy and the prospect of further UK interest rate cuts.

Also boosting the dollar were comments from U.S. Treasury Secretary Henry Paulson, who told The Wall Street Journal in an interview that "the worst is likely to be behind us" from the crisis spawned by surging defaults on U.S. home mortgages. [ID:nN06526869].

Some analysts, however, said that investors may be getting too optimistic about the dollar's outlook as a rate rise by the Fed would be unlikely to help the U.S. economy, given that inflation pressures have been prompted by high oil prices, rather than consumer demand.

"Interest rates at their currently low level are going to be necessary for some time, irrespective of inflation pressures to make sure that a recession or even a depression is avoided in the United States over the next 12 to 18 months,"
The inflationary pressures reflected in oil prices continued, with U.S. crude CLc1 sitting at $121.52 a barrel compared with Tuesday's record high at $122.73. (Reporting by Nick Olivari; Additional reporting by Veronica Brown in London; Editing by Leslie Adler)

San Jose's population growing close - but misses - million mark

By Mike Swift
Mercury News
Article Launched: 05/01/2008 10:47:37 AM PDT

So close . . .

San Jose is within a few subdivisions of being mentioned in the same breath as Mbuji-Mayi, Xinyang, Shiraz, Semarang - cities in the Congo, China, Iran, Indonesia and Costa Rica - on the United Nations' list of 382 urban areas with 1 million people.

The California Department of Finance today reported San Jose's population at 989,496 as of Jan. 1, 2008 - a whisker shy of seven digits. Nine U.S. cities, including only Los Angeles and San Diego in California, have populations of more than 1 million people.

Despite the housing apocalypse and the growing likelihood of a national recession, San Jose had another strong year of population growth, up 1.8 percent, or 17,306 people, since 2007. With the city in the midst of annexing a number of unincorporated "islands" of land, San Jose seemed capable of breaking the 1 million barrier this year . . .

. . .but not quite.

If just slightly more than the graduate student population at Stanford University, or a little over half the fans at a Sharks game, were to relocate to San Jose, we would have made it.

Despite falling just short of the Big M, San Jose still has more breathing souls than the the whole states of Wyoming, Alaska, Vermont, Delaware, Montana and each of the Dakotas. And while drivers who have to endure the crush of rush hour traffic may not be too excited about San Jose passing 1 million inhabitants, the prospect does excite demographers.

"It's a million!" said Hans

Johnson, of with the Public Policy Institute of California, which is based in San Francisco, San Jose's plucky little neighbor (Pop. 824,525) to the north.
"It's just another number, but then again, it's not. All the time you see lists of cities that have a million or more people. San Jose is going to be on that list now."

But um...not til next year.



--------------------------------------------------------------------------------
For more information about the state's census report, see www.dof.ca.gov/research/demographic/reports/estimates/e-1_2006-07/

CENSUS: TEXAS DRAWS MORE NEW HISPANICS

By Mike Swift
Mercury News
Article Launched: 05/01/2008 01:30:38 AM PDT

California may be loosening its grip on two groups that helped define the Golden State during the 20th century: predominantly white baby boomers, who are now approaching retirement age, and Hispanics.

New U.S. Census Bureau data being released today shows the state's white population is shrinking - particularly in the Bay Area. From 2000 to 2006, the San Jose and San Francisco metropolitan areas saw their white population decline by more than 200,000 people, trailing only the New York City metropolitan area.

Meanwhile, Texas has replaced California as the leader in the nation's Hispanic growth surge. California is still adding Hispanics - but the growth of that population in Texas from 2006 to 2007 outstripped California's by more than 40,000.

What's happening with the white population is not classic "white flight," demographers say, but a departure of middle-income people for economic reasons.

"It's kind of an ongoing middle-class flight in an area that's very pricey," said Bill Frey, a Brookings Institution demographer who analyzed the census numbers. "I think the steady state for coastal California, especially the Bay Area, will be people leaving that can't afford to stay, given the housing prices and the cost of living."

Since the Bush vs. Gore election of 2000, whites have lost their status as a majority of the voting-age population in California, with their share of the 18-and-over population slipping from 51.9 percent in 2000 to about
47 percent in 2007.

Top magnet: Texas

For Hispanics, too, the California economy is driving changes in migration patterns.

"California has become less of a magnet overall as Hispanics continue to disperse to other states, including Texas," Frey said. "The Texas economy has been strong during this period, and because housing prices have been lower, . . . (the state) attracted domestic migrants as well as immigrants."

The new census figures show that for the second consecutive year, Texas topped California as the state with the greatest population gain among Hispanics - a distinction California held at least since the 1980s.

As recently as 2000, California was gaining about 100,000 more Hispanics a year than Texas. But Texas overtook California in 2006, as Hispanic growth in Texas accelerated past California's slowing growth.

California gained about 268,000 Hispanic residents from July 1, 2006, to July 1, 2007, the Census Bureau said, while Texas gained about 308,000 Hispanic residents. The census data does not include information on how many people are native-born or immigrants.

California still has the nation's largest Hispanic population, at 13.2
million people, as well as 20 percent of the nation's total minority population, according to the new data. Nationally, the Hispanic population grew by 3.3 percent from 2006 to 2007, reaching 15 percent of the total U.S. population for the first time. The nation's Asian population grew by 2.9 percent, while the white population grew by 0.3 percent.
Boomers' exodus

To demographers, one of the most interesting phenomena in the new numbers is what they say about the place of older, mostly white baby boomers in California.

"The baby boomers and California kind of grew up together," said Dowell Myers, a demographer at the University of Southern California. "The idea of the Beach Boys and the Summer of Love in San Francisco, but also the sprawling of suburbia - all those young families and then all those middle-aged families - and now we're going to have a baby boomer silver tsunami in California."

Nevertheless, the new data suggests that on the cusp of retirement, boomers in their late 50s and early 60s "are definitely moving out of California," said Mark Mather, associate vice president of the Population Reference Bureau, a demographic think tank in Washington, D.C. "People thinking about retirement are still moving out of high-cost states like California in favor of less crowded, less expensive areas."



In the West, Arizona, Nevada and Idaho are the primary destinations for older boomers, where the new census numbers show rapid growth since 2000 in those born from 1946 to 1950.
"I think cost is a big factor," Mather said. But "it goes beyond the cost of living. Once people aren't tied to their jobs anymore, they have a lot more flexibility. A lot of people prefer to live in areas that are less crowded."

Whether boomers and whites will continue to leave is uncertain. Already, say demographers, there are hints in the new census data that the white population loss is slowing, perhaps because the housing slump is locking people in place.

But like a pair of intertwined hula hoops, Myers said California and the baby boomers will always be linked.

"California and the boomers came together and created a lifestyle," he said.

Defaults Rising Rapidly For 'Pick-a-Pay' Option Mortgages

By RUTH SIMON
April 30, 2008; Page B4

As the growth in subprime mortgage delinquencies appears to be slowing, lenders are seeing a rapid rise in defaults on a type of mortgage that gives consumers with good credit several different monthly-payment options.

These mortgages, which are sometimes known as "pick-a-pay" or payment-option mortgages but are generically called option adjustable-rate mortgages, are turning out, in some cases, to be even more caustic than subprime loans, in part because the loan balance and the monthly payments on some loans is growing even as home prices are falling.

These loans have become the focus of investigations and a spate of lawsuits by borrowers who believe they were misinformed about the mortgages' complicated structure. Losses on option ARMs could be "in some cases close to subprime" mortgage levels, according to a recent report by Citigroup.

On Tuesday, Countrywide Financial Corp. said that 9.4% of the option ARMs in its bank portfolio were at least 90 days past due, up from 5.7% at the end of December and 1% a year earlier. Countrywide also reported that it had charged off $125 million of these loans in the first quarter, compared with $35 million a quarter earlier. Bank of America Corp. said last week that it will stop making option ARMs altogether after it completes the acquisition of Countrywide Financial, which in recent years has been the largest originator of these loans.

Washington Mutual Inc. reported earlier this month that option ARMs account for 50% of prime loans in its bank portfolio, but 70% of prime nonperforming loans. At Wachovia Corp., non-performing assets in the company's option ARM portfolio, which was acquired with the company's purchase of Golden West Financial Corp., climbed to $4.6 billion in the first quarter from $924 million a year earlier.

Nationwide, delinquencies on subprime loans -- at about 28% as of February, according to First American CoreLogic -- remain much higher than for option ARMs. But recent reports from mortgage securitizations suggest that subprime delinquencies have started going bad at a lower rate while delinquencies on option ARMs are speeding up.

Unlike subprime loans, which went to people with weak credit, option ARMs were generally given to borrowers considered to be lower-risk. But lending standards weakened in recent years and many borrowers now have little or no equity. Many lenders reduced the teaser rates on these loans as home prices climbed, making them appealing to borrowers looking to make the lowest monthly payment possible.

Now, with home prices dropping in California, Florida and other markets where option ARMs were popular, a growing number of borrowers with these loans now owe more than their homes are worth, one reason delinquencies are climbing, lenders say.

Meanwhile, at FirstFed Financial Corp., 30% of borrowers whose loans recast to this higher level fell behind on their payments in the fourth quarter. Most other lenders won't see large numbers of resets until at least 2009 or 2010.

Many borrowers now say they didn't understand the features of the loan. For example, borrowers who make the minimum payment on a regular basis can see their loan balance grow and their monthly payment more than double when they begin making payments of principal and full interest. This typically happens after five years, but can occur earlier if the amount owed reaches a predetermined level -- typically 110% to 125% of the original loan balance.

"My sense is that many option ARM borrowers are in a worse position than subprime borrowers," says Kevin Stein, associate director of the California Reinvestment Coaliton, which combats predatory lending. "They wind up owing more and the resets are more significant."

Option ARM sales practices have become the subject of investigations by attorneys general in California, Colorado and Illinois and a number of private lawsuits.

Some borrowers say they weren't suited for these loans or that the terms were poorly disclosed. Edward Marini, a 63-year-old disabled Vietnam veteran, took out a $280,000 option ARM from Countrywide Financial when he refinanced the mortgage on his 2,000-square-foot home in Little Egg Harbor, N.J., in 2005, pulling out cash to pay off some debts. "The way I understood it was that I would have a really low payment for five years," says Mr. Marini.

Mr. Marini recently received a note from Countrywide that his payment, now about $1,300 a month, would jump to about $3,800 next year, well above his $3,250 a month in disability payments. Mr. Marini, who owes more than his home is worth, says he was turned down by Countrywide for a refinance and, more recently, for a loan modification. "I didn't think they would even pull this kind of stuff on someone who is on a fixed income," he says.

In a lawsuit seeking class-action status filed in U.S. District Court in Los Angeles, Mr. Marini and other borrowers allege that Countrywide put them into option ARMs that were "inappropriate and unsuitable." Mr. Marini wasn't told that his loan balance would rise if he made the minimum payment, says his attorney, Joe Whatley Jr. A Countrywide spokeswoman said the company's policy doesn't comment on pending litigation.

Other borrowers say they were provided with misleading disclosures. "It was a widespread practice for originators not to be honest about the true terms of the loans [in disclosures] to borrowers," says Jeffrey Berns, an attorney in Tarzana, Calif., who has filed lawsuits seeking class-action status against more than 50 companies that sold option ARMs.

Write to Ruth Simon at ruth.simon@wsj.com