Chicago home prices show first monthly rise since 2006

An index of Chicago-area home prices posted its first monthly increase in almost three years, a sign that the battered residential market may be in the early stages of recovery.

Home prices in the Chicago area rose 1.1 percent in May compared with the previous month, according to the Standard & Poor's/Case-Shiller Home Price Indices.

The Standard & Poor's/Case-Shiller index of 20 major cities rose 0.5 percent from April, but was still 17.1 percent below May a year ago. Thirteen cities showed monthly increases, with the best results in Cleveland, Dallas and Boston.

The 10-city index rose 0.4 percent from April, but was off 16.8 percent from May last year. It was the fourth consecutive month both indexes showed slowing price declines.

The monthly increases for the national indexes were the first since the summer of 2006, indicating prices are finally stabilizing.

Chicago showed its first monthly increase since September 2006, when it rose from August. Chicago-area prices were down 17.5 percent compared with May 2008, more than the yearly decreases in the two national indexes.

The 20-city index has lost more than 32 percent since its peak three years ago, putting home prices back to mid-2003 levels.

"We likely do have a way to go before we see sustained home price appreciation," said David M. Blitzer, chairman of the S&P index committee.

The Case-Shiller index tracks repeat sales on a specific group of homes in each city. Sales between related parties, such as family members, are excluded.

New US home sales surge in June

New house sales in the US jumped by 11 per cent in June, providing some of the strongest evidence yet that the market has bottomed out after being savaged for three years.

There are increasing signs that the combined impact of falling prices and low mortgage rates, along with aggressive government incentives, is driving people back to the market and stirring sales.

The monthly rise was the sharpest in nearly nine years, far exceeding economists’ expectations, and followed a revised increase of 2.4 per cent in the previous month. House sales rose to an adjusted annual rate of 384,000, the department of commerce said.

“[This is] more evidence that a bottom is forming in the housing market, with new home sales confirming the signal provided by other housing data,” said Alan Ruskin, a strategist at RBS Greenwich Capital.

Last week saw a rise in existing home sales and prices, while housing starts jumped by 3.6 per cent in June and housebuilder sentiment hit a 10-month high in July.

Economists at Goldman Sachs said: “At long last, the downturn in the US residential real estate market may be drawing to a close.”

Renewed interest in the US housing market follows months of pain, as rising unemployment has fuelled soaring rates of foreclosure and put severe pressure on prices. Economists have blamed this “negative feedback loop” for dragging the US economy into the worst recession of the past 50 years.

Housing Affordability Being Restored In Many Markets

Fiserv, Inc (NASDAQ: FISV), today released an analysis of home price trends in more than 375 U.S. markets based on the Fiserv Case-Shiller Home Price Index, which is owned and generated by Fiserv, and data from FHFA, the Federal Housing Finance Agency.

The U.S. housing market continues its price correction, with single-family home prices across the U.S. falling 19 percent over the 12-month period ending March 31, 2009. On average, compared to family income, U.S. home prices at the end of the 2009 first quarter were just 7 percent above the levels of early 2000, at the start of the real estate bubble. In about 10 percent of U.S. metro markets, home prices, relative to income, are now lower than they were prior to the bubble. In Los Angeles, for example, home prices more than doubled relative to income between 2000 and 2006. Currently, homes in the Los Angeles market are only 25% more expensive than they were in 2000, representing a closer return to pre-bubble levels and a substantial improvement in affordability.

"The Fiserv Case-Shiller Home Price Index numbers continued to show falling home values in sand states such as California and Florida," said David Stiff, chief economist, Fiserv. "But there is a silver lining in the cloud of rapidly falling prices. Housing affordability is quickly being restored in many markets and the pool of buyers who can afford to purchase homes is increasing at a rate not seen in recent years, setting the stage for home price stabilization."

"Over the next year, Fiserv forecasts that national home prices will drop another 11 percent, and bottom out in early 2010," Stiff continued. "While affordability has been or will shortly be restored in most markets, it must be noted that the recovery in home prices will be tentative and weak. Even with lower prices, potential home buyers who have not lost their jobs may lack the confidence to buy a home when the economy is performing so badly. Even those who are confident their jobs are secure may not have access to mortgage credit. Further, even as housing demand improves there will be a large overhang of foreclosed properties that will continue to be a drag on prices."

Home price declines remained sharp across California, Arizona and Florida, while other metro areas showed smaller declines and are better positioned for recovery.

Observations from the data include:
- One-time bubble markets in Florida, California and Arizona, which have already seen home values fall 40 percent to 50 percent since prices peaked in 2006, are showing no sign of moderation in declining prices. In San Jose, for example, average home prices declined 31 percent over the past year, and are projected to fall another 12 percent over the next year. In Tucson, Arizona, average home prices declined almost 20 percent over the past year. Similarly, the Orlando, Florida market saw a decline of just over 29 percent in home values over the past year, with a projected decline of another 26 percent over the next year.

The Fiserv Case-Shiller Home Price Indexes, which include data covering thousands of zip codes, counties, metro areas and state markets, are owned and generated by Fiserv. The historical and forecast home price trend information in this report is calculated with Fiserv's proprietary Case-Shiller indexes, supplemented with data from the FHFA. The historical home price trends highlighted in this release are for the 12-month period that ended March 31, 2009. One-year forecasts are for the 12 months ending on March 31, 2010.

Nationally, home prices have fallen just over 19 percent over the past year, leaving the median price at $167,300. The median monthly mortgage payment in the 2009 first-quarter dropped to 14%.

U.S. existing home sales rise, fueling recovery hopes

U.S. existing home sales notched their third monthly rise in June and prices hit the highest level since October, fueling hopes that the housing sector is finally on the mend and will help propel a broader economic recovery.

The National Association of Realtors (NAR) said sales of existing homes in June rose 3.6 percent to an annual rate of 4.89 million units, compared with a downwardly revised 4.72 million pace in May.

The June reading was the fastest sales pace since October, and topped forecasts for a 4.84 million unit annual pace.

"This is a very good report, as it suggests that the recent momentum in U.S. housing activity may be gathering some traction as U.S. homebuyers take advantage of the very favorable mortgage rates and home prices," said Millan Mulraine, economics strategist at TD Securities in Toronto.

The NAR said it was the first time the industry had experienced three straight months of gains in existing home sales since early 2004.

"Overall, the news is positive. We have increasing home sales for the third straight month, declining inventory and although prices fell, they declined at a less steep pace," NAR chief economist Lawrence Yun told a press conference. "The housing market is healing after four years of recession."

INVENTORIES DOWN

The inventory of existing homes for sale declined 0.7 percent to 3.82 million in June. The median national home price came in at $181,800, down 15.4 percent from the same period a year ago. But the median price was up 4.0 percent compared with May and was at the highest level since October.

"The months supply of home for resale is coming down and home prices are falling at a slower pace overall, providing more evidence that the housing market is stabilizing," said Torsten Slok, a senior economist at Deutsche Bank in New York.

NAR's Yun said that the inventory of previously owned homes for sale represented 9.4 months' supply at the current pace of sales, down from 9.8 months' in May.

5 mistakes buyers make when purchasing a home

Buying a home is an expensive undertaking. While it can be stressful, the dream of buying a home does not have to turn into a nightmare if you avoid the 10 deadly mistakes homebuyers often make when purchasing a home.

1. Making an offer on a home without being prequalified. Most sellers in this market do not want to waste their time accepting an offer and then risk the buyers not being qualified to buy the home. Talk to a lender before you go househunting to determine what, realistically, you can afford. Don't waste your time or the Realtor's time by looking at houses you know you can not afford.

2. Thinking there is one perfect house for you. Buying a home is a 'process.' You can tell very little from a collection of photos and text often supplied by real estate web sites. While it helps narrow down your choices, it is imperative to physically visit these homes. Some that sound 'ideal' at first glance, may lack that 'wow' factor when seen in the light of day.

3. Not having a home inspection. Okay, now you found the home you want. You make an offer and it is accepted. Somewhere between falling in love with the home and taking the step to make an offer, make sure you include a home inspection as part of the offer. It is generally included as part of the contract packet, but some people decide they don't want to pay the few hundred dollars to get a home inspection when the home "'ooks like new.' While some lenders do not require a home inspection on newly constructed homes, homes that are even a couple of years old should have a going over by a licensed home inspector. For your protection and peace of mind, if nothing else. At least you have recourse if there are problems that pop up afterwards.

4. Limiting your search to open houses, ads, or the internet. While the internet real estate web sites are available to the public, not all properties are listed on those sites. For example, a common website, www.realtor.com, only lists houses that real estate agents have paid to have listed on that site. At a cost per listing to real estate agents, many opt out of listing on that website. Your best bet for finding all the homes that are listed for sale (except for sale by owners, or FSBOs), is by contacting a real estate broker, or real estate agent you may know. There is no obligation to use that agent or broker, unless you sign a buyer agency agreement. Often real estate agent are more than willing to give you information, without obligation. Of course, they are hoping that, if they provide you with good service, you will eventually use them when it comes time to look at houses.

5. Not knowing total costs involved. Early in the buying process, ask your lender or real estate agent for an estimate of closing costs. A 'good faith estimate', while just an estimate, should give you a pretty good idea of what it's going to cost you to 'go to the table' when you find the home of your choice. Title company fees, lender fees, homeowners association fees, taxes, prepaids, and other settlement costs should be itemized. And, it is a good idea to take that good faith estimate to a couple of different title companies (settlement companies) to see how they compare. Just be wary of unknown companies who promise you the moon. Always go with a reputable company that you have researched, either through real estate brokers, friends, real estate agents, and the Better Business Bureau, to name just a few. Real estate agents have a lot of experience with settlement companies in closing deals. Tap into their experience.

1.5 million homes in foreclosure

Homeowners fell behind on mortgage payments in record numbers during the first six months of 2009. The future doesn't look much better.

NEW YORK (CNNMoney.com) -- The foreclosure plague is not going away -- it's only getting worse.

A record 1.53 million properties were in the foreclosure process -- default notices, auction sale notices and bank repossessions -- during the first six months of 2009. That was 9% more than the previous six months and 15% more than the same period of 2008, according to a report released Thursday by RealtyTrac.

There were a total of 1.91 million filings resulting in 1 out of every 84 U.S. properties receiving at least filing in the first half of the year. Banks repossessed 386,800 properties.

"What this means is, despite the intensity of the efforts on the part of government and lenders we don't have a handle on foreclosures yet," said Rick Sharga, a spokesman for RealtyTrac.

And, in a bad sign for a housing recovery, there was no recorded improvement in June, the last month of the cycle. More than 336,000 homes reported foreclosure filings, the fourth straight 300,000-plus month. Filings were up 33% over last June and nearly 5% compared with May.

"Foreclosure activity continues to increase to record levels," said James J. Saccacio, chief executive officer of RealtyTrac in a prepared statement. "Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes' are now worth represent a potentially significant future risk."

It's the economy

The biggest problem affecting foreclosure figures is the recession. As job losses mount, more out-of-work borrowers are falling behind on payments. And home prices are still falling, albeit at a slower rate, which by itself is enough to drive more homeowners into default.

The home-price drop means more homeowners are underwater on their mortgages, owing more than their home is worth. That discourages some borrowers from repaying loans because they see it as a poor financial decision to keep paying on a declining asset.

Homeowners are apt to walk away from their mortgages once their home values fall 15% below their mortgage balances, according to recent research reported by Paola Sapienza of the Kellogg School of Management at Northwestern University, and Luigi Zingales of the University of Chicago Booth School of Business.

They claim that at least 25% of all mortgage defaults may be "strategic," borrowers walking away from their homes because they've lost so much value. And in many of the areas hardest hit by foreclosure, home prices have fallen by 40% or more.

Others, however, are working with their lenders, trying to get the terms of their loans modified so they can stay in their homes. But that process has been slow and infuriating to many borrowers and community activists.

The Federal Housing Finance Agency, the government watchdog created to manage Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), reported Wednesday that only 13,800 mortgages had been modified by Fannie/Freddie lenders in April. That is down 12% from March.

The stats did not include workouts arranged through the Home Affordable Modification Program, the administration's foreclosure prevention effort that seems to be making very slow progress. One reason for the delay is that the workouts just started happening in the past 90 days, and a borrower must make three months of on-time payments before their restructuring can be recorded as a final modification.

Another reason for the slow progress, according to a research paper released by the Federal Reserve of Boston, is that banks may expect many homeowners to "self-cure," that is, start paying again without assistance. In a report issued last week, the Fed found that an estimated 30% of all borrowers who miss two payments start repaying on their own.

If the lenders had modified these loans, the would have lost money unnecessarily.

A second reason, according to the report, is that so many modified loans re-default, with up to 50% of all modified mortgages succumbing.That costs the banks twice: They bear the expenses of the initial workouts and they pay again to finish the foreclosures, including any additional missed payments.

And by postponing foreclosures, lenders absorb any subsequent housing value losses. If the final repossessions are delayed a year, the lenders could be getting houses worth 10%, 20% or even 50% less than they were at the point of the original default. The banks would have been better off foreclosing then.

"We think these are very powerful forces [acting against modification]," said Manuel Adelino, one of the authors of the report.

Where the pain is

The Sun Belt suffered more foreclosures than other region during the last six months.

California, with 391,611 filings, one for every 34 households, recorded more than any other state. Nevada had the highest foreclosure rate with one for every 16 households. Arizona, one for every 30, and Florida, one for every 33, were next. Utah had the fifth highest rate at one for every 69.

Midwestern industrial states did little better with Michigan recording one foreclosure for every 74 households, seventh among the states. Illinois came in eighth with one for every 76; and Ohio, with one for every 86, was twelfth.

Georgia, at one for every 70 households, and Idaho, one for every 79, were sixth and ninth respectively. Colorado, with one for every 80, rounded out the top 10.

U.S. home prices likely to decline for another year according to the futures market

The Case-Schiller Composite-10 index of home prices in 10 cities fell by 18.0% y/y in April, which was not as bad as the maximum year-on-year decline of 19.4% seen in January 2009. There was some further potentially good news in the latest Case-Schiller report on June 30, which showed that home prices in eight of the 20 cities in the Case-Schiller Composite- 20 index actually showed an increase on a month-on-month basis. The cities showing an increase included Dallas (+1.7% m/m), Denver, Cleveland, Washington DC, San Francisco, Boston, Atlanta and Seattle. Nevertheless, the other 12 cities showed declines in home prices, thus pushing the overall index lower for the 34th consecutive month.

The Case-Schiller Composite-10 Home Index peaked at 226.29 in June 2006 and has so far fallen by a total of 33.6% from that high. The CME futures market for the Case-Schiller index is discounting a continued decline in the index to a low of 133.60 in May 2010, where the index would be down by a total of 41.0% from the peak and by another 11% from the current level. The Case-Schiller index is showing much larger declines than broader housing indexes (such as those compiled by the Federal Housing Finance Agency and National Association of Realtors) because the broader indexes include homes in rural and less populated areas of the country, which saw a smaller housing price bubble than the cities and thus do not have as far to fall as the bubble deflates.

The downward pressure on U.S. home prices is likely to continue over the next year because of the huge inventory of homes that are already on the market and because more homes will be coming onto the market from the rising foreclosure rate. Up to 40% of recent existing home sales have been at distressed prices involving either a foreclosure or a short sale. The Mortgage Bankers Association reported that mortgage delinquencies as a percentage of total loans rose to 9.12% in Q1-2009, which was by far a record high for the series that has history back to 1979. A large proportion of those delinquencies are likely to move into foreclosure as the recession drags on, thus putting additional downward pressure on home prices.

Strict guidelines govern use of IRA to buy property

The rules for purchasing real estate with an Individual Retirement Account are specific and differ greatly from those that govern conventional rentals and second homes. For example, you cannot buy a second home with an IRA and use it partly for personal use, even though you might rent it to unrelated persons the rest of the year. And, your IRA cannot purchase a real estate asset and then have a "disqualified" person (family member) use it while it is in the IRA. The purchase must be investment property only.

For investors, the biggest mistake made with an IRA-purchased property is the misapplication of the 14-10 rule. Under current federal tax laws, the owner of a rental vacation home can use it for 14 days or 10 percent of the amount of time the house is rented, whichever is greater, without jeopardizing its status as a rental property and tax shelter. This is not so with a property purchased with an IRA.

Here are the four basic "no-nos" of real estate IRAs:

Personal use (unlike rental property)

Renting IRA property to family, or a partner

Paying yourself with its income

Personally guaranteeing a loan

To prepare for your real estate IRA, designate the amount of your retirement funds that you wish to use in the property deal and open a new IRA account with an independent administrator. The best place to start is an independent community bank. Many banks will not service real estate IRAs (some will say "never heard of it") because it must act as owner -- pay the taxes, collect servicing fees -- paperwork that many lenders don't want or need.

The only exception to IRA funds being used for a personal residence is reserved for first-time homebuyers. A provision in the 1997 Taxpayer Relief Act that allows penalty-free withdrawals of up to $10,000 for the down payment and closing costs. Withdrawals can be made from established IRAs of spouses, parents, children, grandchildren or ancestors as long as they total no more than $10,000. While not subject to the Internal Revenue Service's 10 percent early withdrawal penalty, normal income taxes will still apply.

Misinformation given by local IRS offices has added to the IRA confusion. According to a federal tax-court case, a couple was charged income tax for withdrawing their IRAs to buy a home even though their local IRS public-assistance representative said the funds would not be taxable.

Emma and James Clarke each withdrew $16,000 from their IRAs. They wanted to be certain the amounts were not taxable because the Clarkes said they would not be able to purchase the house and pay taxes on the $32,000 withdrawal. According to the Clarkes, they were told no penalty would be assessed. The court ruled that when IRS employees give incorrect interpretations of the law, the IRS is not bound by that advice.

In fact, the IRS is not generally bound by the language of its own publications. The court ruled the Clarkes' withdrawals were taxable under the rules that generally apply to IRA distributions.

Owning a home is a "forced savings plan." The money that you put in to home ownership is usually returned -- with appreciation -- when it's time to sell. Sometimes the appreciation can offset the amount of interest the borrower has paid on the home loan.

If you are a first-time home buyer, however, and using your IRA funds is the only way you can afford the down payment, check with a tax professional before making the move. He might tell you the "R" in IRA is to be used in retirement and not before.

And, he absolutely will tell you that you cannot use your IRA funds to buy a second home.

Using IRAs, 401(k)s to buy a house

Question: There's a topic I'm very interested in learning about, and not sure if you've covered it in the past. But I am wondering about borrowing from 401Ks and IRAs to buy a home. What are the options? The pros and cons? Does it apply to new homes only? When do you have to pay them back?

Answer: My first thought about using retirement funds to purchase a house is don't. If this is the only way you can scrape up enough dough to cover your closing costs and a minimal down payment, you probably shouldn't be buying a house. But after talking to Austin, Texas, mortgage banker David Reed, I'm not so sure.

Reed's not a financial planner or retirement expert, by any means. But he once borrowed from his 401(k) to buy his present home and he told me it couldn't have worked out better.

"Worked great for me," he said. "We were house hunting and a home came up quicker than we thought. We didn't have 20% down, so I borrowed 10% from my 401(k) and got an 80/10/10." That's an 80% mortgage with 10% down and a 10 percent second mortgage or home-equity loan; in Reed's case, from his retirement money.

Now you certainly don't need to make a 20% down payment. Reed was doing it to avoid private mortgage insurance, which borrowers pay for, even though it protects lenders in case the borrower doesn't make payments. All kinds of loans are available today for as little as 3% down, or even less. But you have to pay PMI, which can add $100 or more to your payment each month.

Most financial planners have apoplexy when anyone talks about disturbing their retirement money. But let's look at this a little deeper, first the 401(k) and then an IRA.

Generally, 401(k) loans are limited to 50% of your vested balance. And the amount must be paid back each and every paycheck, usually over a four-year term. Reed, who covers this stuff in a chapter in his new book, "Who Says You Can't Buy a House?" (AMACOM), says the typical 401(k) loan -- it's not really a loan per se but rather a transfer of assets -- is at a rate of prime plus one percentage point. So if the prime rate is 6% you'd pay 7%.

Most anyone who is fully vested and a full-time employee can draw money from a 401(k). After all, it's your money. No credit report, no debt-to-income rations, no tax, no penalty for early withdrawal, no nothing. But the drawback, of course, is that once the money is removed from your account, you no longer are earning a return on it.

You can't borrow from your IRA account. You can only withdraw from it, and there are stiff penalties if you pull out money before you are 591/2 years old. The law allows you to withdraw money without penalty if you yourself are a first-time buyer -- how many first-timers have an IRA brimming with enough cash for a down payment? -- or if you want to help your child, grandchild or other direct relative buy their first place.

However, the law limits the maximum withdrawal to $10,000 for an individual taxpayer and $20,000 for a husband and wife withdrawing together. And of course, unless the money is put back into the account, and there is no requirement that it must be, it's earning power is lost forever, at least in the form of a retirement asset, unless you put it back.

Homeownership isn't a bad form of retirement asset. It may even turn out to be a better one than an IRA. But unless you are the first-time buyer, it's an asset for someone else, not you.

All in all, though, I wouldn't touch your retirement funds in any way, shape or form until you have a sit-down with a financial planner of certified public accountant.

And no, you are not limited to just new construction when you tap into your retirement nest-egg for the down payment. You can buy an existing house, too.

S&P expects substantial increase in risky mortgage losses

A more dismal assessment from Standard & Poor's of expected losses on loans backing mortgage securities will likely hit bonds that originally carried AAA ratings, the credit rating agency said. S&P is expecting such losses to reach as much as 40%. The company's assessment is another blow to investors in the housing market.

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Builders Seek Extension on $8,000 Homebuyer Tax Credit

Some of the nation’s home builders aim to stretch the deadline–and possibly the amount–of a federal tax credit of up to $8,000 for first-time buyers closing before Dec. 1, according to Jeffrey T. Mezger, KB Home’s president and chief executive.

Builders are pointing to success in California, which is offering buyers of new homes an up-to $10,000 credit. The industry aims to expand that first-come, first-served program beyond the $100 million cap expected to be exhausted soon, but the Golden State’s financial situation could stymie that.

“We are using our California success as an industry as reinforcement at the federal level,” Mr. Mezger said recently at a conference. “Maybe they should go higher than ($)8,000 because it is creating jobs and creating demand.”

more at

http://blogs.wsj.com/developments/2009/05/20/builders-seek-extension-on-8000-homebuyer-tax-credit/

Manhattan home prices plunge

Huge downturn for co-op and condo owners in pricey housing market. Number of sales ticks up as buyers with money take an opportunity.

NEW YORK (CNNMoney.com) -- The housing bust has finally clobbered super-pricey Manhattan home prices.

Reports released Thursday by four major New York brokers show that prices cratered during the three months that ended June 30.

Prices fell between 13% and 19% compared with the same quarter last year. The brokers found median prices that ranged from $795,000 to $849,000.

The decline shows a marked turn from the first quarter of 2009, when the year-over-year change in median home prices ranged from a loss of 2% to a gain of 6%.

Another change in the recent period: More people are buying.

The number of sales picked up by more than 28% in the second quarter, according to Prudential Douglas Elliman.

Driving the increase were sales of studio apartments and one-bedrooms, both of which gained market share, according to Jonathan Miller, president ofappraisal company, Miller Samuel, which compiles data for Prudential Douglas Elliman.

"It's value-based shopping," said Pam Liebman, chief executive of the brokerage Corcoran Group. "People are coming back into the market, but nobody is going to overpay."

Of course, in Manhattan "value" means studio prices that go for a median of $400,000 and one-bedrooms that fetch $650,000.

Long rebound

Despite the bleak report, the ingredients for a recovery are already in place, according to Greg Heym, chief economist for both Halstead Property and Brown Harris Stevens. But it will be very slow coming.

"There are still risks to the economy, both national and local," Greg Heym said. "But job losses have slowed, consumer confidence is higher and the stock market returned more than 30% during the quarter."

Furthermore, the impact of the Wall Street meltdown on the New York economy has been less catastrophic than first predicted. The city has held up well, according to Heym, and now the financial system has started stabilizing.

Heym also pointed out that the foreclosure plague, so damaging to many markets, has never been a major problem in Manhattan. Co-ops have, if anything, stricter financial requirements than the lenders, requiring buyers to show their assets and come up with 20% down. That has meant that few co-op owners are in trouble with their mortgages.

And now, the national housing market may be improving with sales at steady, albeit, lower volumes and home price declines flattening out. Those are all positive signs for Manhattan. The housing market may may be at or near the bottom of the cycle, according to Heym.

"But people shouldn't think that a bottoming out means a quick rebound," he said.

The high-low

How quick any recovery will be depends a lot on the availability of jumbo mortgages, those exceeding $729,750. The difficulty in obtaining such loans has hurt sales in Manhattan. It has caused the strength of the market to switch from the sales of big, expensive homes to sales of smaller, cheaper ones.

"The entry level market did not fall as far as the high end," Miller said. "The difference was a jumbo versus a conforming mortgage."

Conforming loans, the ones bought or backed by Fannie Mae and Freddie Mac, are still available at very favorable rates. But jumbos, which exceed the loan limits imposed by Fannie and Freddie, have not been.

Manhattan buyers are heavily reliant on jumbo loans because many homes are priced at well over the conforming loan limit. And it ain't easy getting such mortgages right now.

"Most banks are requiring jumbo borrowers to put at least 30% to 40% down -- some need 50%," said Miller. "Someone buying, say, a $4 million home, even with perfect credit and a raise this year, might not have the $1.2 million to $2 million to put down."

But there are a couple of positive factors prompting many entry-level buyers to get into the market, according to Bill Staniford, CEO of PropertyShark.com, which compiled Corcoran's statistics.

One is the first time homebuyers tax credit, the federal tax refund program available to anyone who hasn't owned a home during the past three years.

"People say that's making a difference," said Staniford. "And if interest rates continue to climb, that will introduce some urgency."

Once the economy recovers, the prospects for the Manhattan housing market are good. The market could quickly tighten again. There's little new building going on. As a matter of fact, not a single building permit was filed in all of February, according to Heym.

Plus, glamorous Manhattan is still drawing residents from all over. The population of New York, unlike many other old U.S. cities, is still growing.

"In a couple of years, there'll be a housing shortage again," said Heym.

Housing rescue expanded to include more borrowers

The Obama administration said it is expanding its housing rescue to include borrowers with mortgages worth as much as 125% of the value of their home. The program originally covered homeowners whose mortgages are worth 105% of their home's value. The move is an acknowledgment that housing programs have not done enough to help struggling homeowners. The change "will make a critical difference in our ability to help many more Americans ... to stay in their homes," said Shaun Donovan, secretary of Housing and Urban Development.

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http://online.wsj.com/article/SB124646753743381225.html