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Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs
Down Payment	0% - 20% of purchase price
Home Inspection	$200 - $500
Points	$1,000 and up for 1% - 3%
Adjustments	3% - 8% of purchase price

Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
How has the sub-prime meltdown hit the low-income borrowers your organization works with?

These are the communities that are most impacted by bad and predatory lending that has occurred over the last couple of years especially in California. In the beginning of CRC’s efforts, groups like ours were worried about redlining – the fact that communities and borrowers in traditionally underserved areas didn’t have access to credit. Now in the last couple of years, that paradigm has flipped. So neighborhoods that formerly didn’t have access to credit are now flooded with credit. But its bad credit, high cost credit, confusing, complicated loans that in many cases set up people to fail.

What kind of loans are you talking about?

An example might be a pre-payment penalty. So if you pay your loan off early you might have to pay thousands of dollars. Another kind of loan sold aggressively are option ARM loans or interest-only loans. These are complicated loans devised for very sophisticated borrowers who knew they were going to sell their house in a few years. But with housing prices so high the lending industry started to refer to these products as “affordability products.” Brokers would qualify (borrowers) based on artificially low monthly payments. What that means is every month you are making your payment, you are adding to the money you actually owe. Now we are seeing the effects of people who got high cost loans they couldn’t sustain or option ARM rates that are now adjusting.

I read that 20 percent of people whose homes are being foreclosed don’t speak English. How big of an issue is language?

It’s a huge issue. Spanish speaking borrowers are sold loans by Spanish speaking brokers but the documents are all in English. It’s a bait and switch.

Is it legal?

We say no. But the lending industry seems to think it is legal in certain circumstances. We have a state law provision that speaks to this but possibly not in the clearest way. So there is no agreement about what is required. There was a bill in the legislature this year, AB 512 by Sally Lieber that advocates hoped would be a way of clarifying the obligation. The bill met industry opposition and was held off to next year.

What about communities where language is not the issue for example African Americans who traditionally have had a high rate of home ownership?

At the risk of over-simplifying I would say that Latino borrowers are vulnerable on the front-end because of language issues and they lack of understanding about the home loan process especially when it’s a first home and perhaps several families are pooling resources to buy it. African Americans on the other hand are often long-term homeowners whose accumulated equity made them very vulnerable to predatory lending. Many of them, including many seniors, have refinanced themselves into bad loans.

What’s been the effect on neighborhoods?

Foreclosures are devastating for the homeowner. But they are just as hard on the neighborhood. It drives other property prices down. It becomes a blight on the community. People are complaining about foreclosed properties being badly maintained. We’ve heard reports about tenants living in foreclosed homes who find their utilities shut off.

Will the president’s proposal to help people facing foreclosure help those with bad credit?

The president’s proposals provide some relief for some people in trouble. That’s good. The president’s proposal is carving out a small segment of borrowers who would qualify for an FHA loan through the government. If you didn’t have good credit you wouldn’t be able to take advantage of that kind of a loan product.

What are the options then for someone facing foreclosure?

Practically speaking the best thing borrowers can do is find a qualified housing counseling agency that’s in the business of understanding this stuff. Find a HUD-certified home loan counseling agency that can give them advice and maybe negotiate with the lender. One of our main points of focus at CRC is to advocate with the lenders to modify loan terms. But housing values have gone down in California so dramatically most refinance loans are not available to people who most need the help. A borrower can also contact their lender and say I would like a loan modification. I’ll keep my loan with you but I won’t be able to make the payment as the rates go up. HUD is also talking about expanding its FHA loan program to reach more borrowers.

Are there legal options?

Anybody who believes anything untoward occurred in their loan should find someone to help them. The reality is there are only so many lawyers willing to take these cases, like the Fair Housing Law Project. You can also call the county bar association.

Do you think this is going to change how we view the American Dream with home ownership at its center?

A lot of people are realizing that home ownership is not for everyone, at least not for now. The not-so-great California law says you shouldn’t pay more than 50-55 percent of your income on housing. But the reality in California is it is hard to buy a house. This results in option ARM loans and interest-only loans. The best advice for people, before buying a home, is to find a counseling agency on the front end to help them understand what they are signing.

Is this going to get worse before it gets better?

It is going to get worse. Over the next two years, about two million loans are facing interest rate resets. There’s tightened credit now. Most sub-prime loans were financed by investors. Investors don’t want to touch them now. So people are finding it hard to refinance. It was a Wild West out there – not enough regulations and lots of bad loans. We will need more regulations before investors feel comfortable again. But for now foreclosures will continue, wreaking havoc on borrowers and the neighborhood.

Analysis: White House, Congress, Fed Are Scrambling to Deal With Unfolding Mortgage Crisis

After a slow and stumbling start, official Washington is scrambling to try to prevent the unfolding mortgage crisis from pushing the country into recession during an election year. There is a strong feeling, though, that the government will need to do more to avert a financial disaster.

One former Treasury secretary advocates temporary tax cuts and emergency spending on the order of $50 billion to $75 billion. Such action could help the U.S. from slipping into what Lawrence Summers, who served under President Clinton, fears could become the worst downturn since the steep 1981-82 recession.

Some Republicans are worried, too.

From both Martin Feldstein, who was President Reagan's top economic adviser, and former Federal Reserve Chairman Alan Greenspan have come calls for deeper government intervention to deal with the threat.

Before it is all over, the government may have to resort to measures last used in the savings and loan crisis of the 1990s. Back then, it was a new agency to take over failing thrifts sunk by bad loans. Today, it could mean a government agency to buy up billions of dollars of mortgage-backed securities that investors are shunning.

The Bush administration thus far has opted for less dramatic measures. In fact, the administration came reluctantly to the biggest step taken to date -- the "teaser freezer" announced two weeks ago.

A deal with the mortgage industry will freeze the low introductory "teaser" rates for five years on some subprime mortgages -- loans to people with spotty credit histories. The rates were to climb much higher, making the mortgages unaffordable for many people and putting their homes at risk of foreclosure.

The hope is that this agreement will buy time for the housing market to rebound. That would make it easier for these homeowners to refinance to more affordable fixed-rate loans.

But estimates are that only about 250,000 people will end up getting a rate freeze -- a fraction of the 3.5 million home loans that could go into default over the next 2 1/2 years.

The administration also is working with Congress to increase the $417,000 cap on the size of loans that the big mortgage companies Fannie Mae and Freddie Mac can handle. This step could help in high-cost housing areas such as California.

In addition, the administration is supporting legislation that would boost aid to lower-income homeowners by increasing the scope of mortgage insurance programs handled by the Federal Housing Administration.

These efforts may help at the margins. They do not, however, address one of the biggest threats to the economy: a spreading credit crisis triggered by the soaring defaults on subprime mortgages.

Some of the biggest names in finance have suffered multibillion-dollar losses as a result, and critical segments of the credit markets have frozen up. Banks and investors fear making further loans or buying securities backed by debt because they do not know how many more loans might go into default.

Ben Bernanke, facing his first major test as Fed chairman, is getting mixed reviews. The Fed was embarrassed when the credit crisis hit in August. That happened only two days after the central bank had decided to keep interest rates unchanged and declared that inflation was a bigger risk than weak economic growth.

The Fed has cut interest rates by a full percentage point since that time. But only the September cut -- a bigger-than-expected one-half of a percentage point -- elicited cheers on Wall Street. The two quarter-point moves brought about market declines as investors worried the Fed did not recognize the severity of the problem.

The trouble is that the credit crisis is occurring at the same time that a run-up in energy prices is increasing inflationary pressures.

And that is the dilemma.

If the Fed cuts interest rates to keep the economy out of a recession, it could sow the seeds for higher inflation and perhaps give the country the worst of both worlds, bringing back that 1970s bugaboo, "stagflation," in which growth is stagnant and inflation is getting worse.

In a novel approach, the Fed is auctioning off money to the banks in an attempt to get them to open up their loan spigots. The first two auctions, for a total of $40 billion last week, went well. But the amount of the cash provided to the banks paled in comparison with the $500 billion from the European Central Bank.

Many economists believe the Fed will have to cut its federal funds rate, the interest that banks charge each other, at least three more times and strengthen the wording of its statements. In that way, the markets would know the Fed will do whatever is needed to fight economic weakness in spite of its lingering worries about inflation.

"The difference between a soft economy and a recession is confidence. If the Fed appears reticent to do what is needed, like they did at their last meeting, that does not help confidence," says Mark Zandi, chief economist at Moody's Economy.com.

As for the administration and Congress, a tax cut possibly in the form of a rebate probably will be debated in the coming year. President Bush told reporters at the White House on Thursday that "we're constantly analyzing options available to us." He insisted that the economy's underlying fundamentals remained strong.

Summers, however, in a speech last week, urged bolder action. "For the last year, the economic consensus, and the policy actions that have flowed from it, has been consistently behind the curve," he said.

Gaining some currency is the idea of a government agency modeled after the Resolution Trust Corp. of the S&L days that would buy up mortgage-backed securities as a way of dealing with bad loans. About $100 billion in such loans have surfaced and an additional $200 billion are likely, according to market estimates.

If the government spent $150 billion to $200 billion to purchase mortgage-backed securities, the thinking goes, it would prevent a fire-sale that would drive prices of these securities even lower.

When the housing market stabilizes, the price of the government-held securities would begin to rise, allowing the government to sell them back to investors.

Whatever approach the government decides to take, economists said it will take time for the current problems to resolve themselves. They expect this housing downturn, which followed a five-year boom, to last through most of next year even under a best-case scenario in which the country avoids a full-blown recession.

"We have the fundamental problem that we built too many houses and we charged too high a price for them," says David Wyss, chief economist at Standard & Poor's in New York. "We have to stop building houses for a while and the prices have to come down. We are trying to make sure that process doesn't derail the rest of the economy."

S&P: US Home Prices Fall by a Record in October for 23rd Straight Month of Deceleration

U.S. home prices fell in October for the 10th consecutive month, posting their largest monthly drop since early 1991, a widely watched index showed on Wednesday.

The record 6.7 percent drop in the Standard & Poor's/Case-Shiller home price index also marked the 23rd consecutive month prices either grew more slowly or declined.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, who helped create the index, in a statement.

The previous record decline was 6.3 percent, recorded in April 1991. The S&P/Case-Shiller home price index tracks prices of existing single-family homes in 10 metropolitan areas compared to a year earlier. The index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

The broader Case-Shiller index of 20 metropolitan areas fell 6.1 percent. Among the 20 metropolitan areas used in the broader index, 11 posted record monthly declines and all 20 declined in October compared to September.

Miami posted the largest decline among those 20 markets. Home prices in the Miami metropolitan area fell 12.4 percent in October compared to the same month last year, surpassing Tampa, Fla. as the worst-performing city. Tampa posted a year-over-year loss of 11.8 percent.

Besides those two cities, Detroit, Las Vegas, Phoenix and San Diego also posted double-digit year-over-year declines.

Atlanta and Dallas, which had previously posted price appreciation, fell in October. Prices fell 0.7 percent in Atlanta and 0.1 percent in Dallas compared to a year earlier.

Only three areas -- Charlotte, N.C., Portland, Ore. and Seattle -- posted year-over-year home price appreciation in October. Charlotte posted the largest gains at 4.3 percent.

Bob Morgan, president of the Charlotte Chamber of Commerce, said the area's economy continues to create jobs at record levels. While the numbers are preliminary, more than 14,000 jobs were created in the Charlotte area in 2007, he said, compared with more than 12,000 jobs in 2006.

The job growth is coming from a "pretty healthy" variety of sectors, including the financial industry, Morgan said. Charlotte is home to two of the nation's four largest banks, Bank of America Corp. and Wachovia Corp.

Carole Brake, the sales manager at Bissell Hayes Realtors SouthPark Office in Charlotte, said prices are still up despite an increase in inventory.

"Sellers are not in a mode to reduce their prices. They want a fair market price for their home," Brake said.
Bank of America Corp is in advanced talks to buy struggling Countrywide Financial Corp, the largest U.S. mortgage lender, several people familiar with the matter said on Thursday.

Countrywide shares soared 51.4 percent, recovering losses posted in the prior two days, when investors were speculating the company could go bankrupt, even after the company's specific rejection of that prospect on Tuesday.

Bank of America spokesman Scott Silvestri declined to comment. Countrywide did not immediately return requests for comment, but declined to discuss market activity in its stock, according to the New York Stock Exchange. The Wall Street Journal earlier reported the possible merger.

"From Countrywide's perspective, it is their best chance for salvation," said Sean Egan, managing director of credit rating agency Egan-Jones Ratings Co. "At the end of the chaos that is going to transpire over the next two years, it gives Bank of America a terrific position in mortgage financing."

Countrywide shares closed up $2.63 at $7.75. Bank of America shares closed up 56 cents at $39.30. Both companies' shares trade on the New York Stock Exchange.

Even after Thursday's gains, Countrywide's market value is still only about $4.8 billion. That is far below the roughly $26 billion it was worth last February, just as the housing crisis was about to explode.

LEWIS STRIKES AGAIN

A purchase would constitute another major acquisition for Kenneth Lewis, Bank of America's chief executive.

He has spent more than $100 billion in the last four years on FleetBoston Financial Corp, credit card issuer MBNA Corp, LaSalle Bank Corp and the U.S. Trust wealth management firm.

The purchases helped Charlotte, North Carolina-based Bank of America become the nation's second-largest bank, a direct rival to Citigroup Inc and JPMorgan Chase & Co.

A merger would also end Calabasas, California-based Countrywide's more than 38 years as an independent company, since its founding in 1969.

Angelo Mozilo, its co-founder and chief executive, has been a lightning rod for critics who say he encouraged loose lending practices that contributed heavily to the housing crisis.

Mozilo has also been faulted for collecting hundreds of millions of dollars in compensation this decade from pay, bonuses, awards and stock options, including millions of dollars after it was clear the housing crisis had begun. In July, he called the slump the worst since the Great Depression.

Bank of America in August bought $2 billion of Countrywide preferred shares convertible into a roughly one-sixth stake in the lender.

That investment has lost money on paper, but analysts said it made Bank of America -- whose own profitability is suffering from rising credit losses -- an obvious candidate to buy Countrywide, eventually.

STRUGGLES

Countrywide overhauled its lending practices this summer, essentially ending subprime and other riskier home loans, after being forced to draw down an $11.5 billion credit line because investors would not buy its mortgages or offer credit.

The mounting problems led to a $1.2 billion third-quarter loss, and led to 11,000 job cuts since the end of July. Countrywide now primarily makes smaller home loans considered less likely to default.

Still, credit problems linger. On Wednesday, Countrywide said December foreclosures and late payments among home loans on which it collects payments rose to the highest on record.

While Countrywide has repeatedly said it has sufficient liquidity to operate, investors have not been convinced.

"Obviously a purchase of Countrywide by Bank of America would solve the company's funding and liquidity problems with a stroke of the pen," wrote Kathleen Shanley, an analyst at Gimme Credit, in independent bond research service.

"The big issue is whether Bank of America can get comfortable enough with the credit quality issues to move forward without any commitments of support from bank regulators."

The cost of protecting debt of Countrywide's home loans unit against default plummeted on Thursday.

Investors demanded $600,000 a year for five years to protect $10 million of debt against default, according to Phoenix Partners. They had earlier Thursday been demanding 31 percent up front, plus $500,000 a year, to protect the debt.

Construction of New Homes Falls 24.8 Percent in 2007, the Largest Amount in 27 Years

The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go.

The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. For December, construction fell by a bigger-than-expected 14.2 percent.

In other economic news, the Labor Department said the number of newly laid off workers filing applications for unemployment benefits dropped by 21,000 last week to 301,000. That marked the third consecutive weekly decline and occurred even though the government reported that the unemployment rate increased sharply in December.

Some economists believe the current housing troubles will push the country into another recession as consumers are staggered by the steep drop in housing -- which has pushed home values down in many parts of the country. Consumers also have been faced with rising mortgage defaults and a severe credit crunch which has made loans harder to obtain.

Various recent reports have increased those worries including news that unemployment in December shot up to 5 percent, rising by the largest amount in one months since the country was reeling from the 2001 terrorist attacks. Many large financial institutions have announced billions of dollars of losses due to the meltdown in subprime mortgages.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. The decline in the South was a smaller 3.3 percent.

Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

"Builders have finally thrown in the towel," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "This is a precondition for recovery as it will eventually reduce the inventory overhang. But there is a long way to go."

For December, housing starts totaled 1.006 million units at an annual rate. In an ominous sign for the future, applications for building permits fell by 8.1 percent to an annual rate of 1.068 million units. That marked the seventh consecutive monthly decline and reflected the fact that builders have been slashing production plans in an effort to deal with a glut of unsold homes.

A survey of builder sentiment prepared by the National Association of Home Builders came in at the second-lowest level on record in January at a reading of 19. That was up slightly from the record low of 18 set in December. The index has been below 20 since October as builders struggle to deal with slumping demand, rising housing defaults and tighter lending standards.

Last week, KB Home, one of the nation's largest homebuilders, said losses in the fourth quarter had ballooned to more than $770 million.

Many economists believe the housing sector will remain weak through this year before starting to stage a rebound in 2009.

Sales of Existing Single-Family Homes Drop in 2007 by Largest Amount in 25 Years

Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades.

The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.

For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.

The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.

There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.

For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.

The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market.

While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans.

In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000.

Many economists cautioned that they still expected layoffs to start rising in coming weeks, reflecting the sharp economic slowdown that has taken place.

The economy, after racing ahead at an annual rate of 4.9 percent in the July-September quarter, probably slowed to a weak 1 percent rate in the final three months of 2007 and may even fall into negative territory in the current January-March quarter.

A recession is often defined as two consecutive quarters of falling economic output. Many economists believe the risks of a full-blown downturn are roughly 50-50.

The growing worries about the economy in an election year have captured the attention of President Bush and congressional leaders who are working to put together a $150 billion economic stimulus package that will include tax relief for households and businesses in an effort to bolster economic activity.

The drop in unemployment applications to 301,000 for the week ending Jan. 19 left total claims at the lowest level since 300,000 were recorded during the week of Sept. 22.

For the week of Jan. 19, 36 states and territories had increases in claims while 17 had declines.

The biggest increase occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.

Number of US Homes in Some Stage of Foreclosure Soared 79 Percent in 2007, Data Show

The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year.

About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million.

More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said.

Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.

The filings included notices warning owners that they were in default, or that their home was slated for auction or for repossession by a bank. Some properties may have received more than one notice if the owners had multiple mortgages.

A late-year surge in the number of properties reporting foreclosure filings suggests that many are in the initial stages of the foreclosure process and could end up lost to foreclosure this year unless lenders or the government steps in, RealtyTrac said.

"It does appear that we're seeing a new batch of properties enter the process," said Rick Sharga, RealtyTrac's vice president of marketing.

RealtyTrac is forecasting that the pace of foreclosure filings will remain steady, rather than accelerate during the first half of 2008.

"Assuming nothing else bad happens economically ... we will have exhausted the bulk of the worst-performing loans by the end of June," Sharga said, referring to adjustable-rate mortgage loans made to borrowers with poor credit.

Many of these subprime loans defaulted last year, triggering a credit crisis and saddling major financial institutions with losses.

More than 1.8 million subprime mortgages are scheduled to reset to higher interest rates this year and next.

Last year's explosion in foreclosure activity came amid a worsening housing downturn, as falling home values ate into homeowners' equity, making it harder for many to refinance into more affordable loans or to find buyers. Those options had helped keep troubled homeowners from sliding into foreclosure.

"We went from a sort of buying frenzy to a foreclosure frenzy in the last two years," Sharga said.

Recent efforts by government and mortgage lenders to help homeowners at risk of falling seriously behind on mortgage payments have had a marginal impact on the U.S. foreclosure rate so far, Sharga added.

In December alone, foreclosure filings soared 97 percent from the same month a year earlier to 215,749. It was the fifth consecutive month in which foreclosure filings topped more than 200,000, RealtyTrac said.

In the fourth quarter, filings rose 86 percent from the prior-year quarter but only 1 percent from the third quarter.

Nevada had the highest foreclosure rate in the nation last year, with 3.4 percent of its households receiving foreclosure filings. That was more than three times the national average, RealtyTrac said.

The state had 66,316 filings on 34,417 properties in 2007, up more than 200 percent from 2006's total.

Florida had more than 2 percent of its properties in some stage of foreclosure last year. The state reported 279,325 filings on 165,291 homes, more than twice the previous year's total.

In Michigan, where job losses are pressuring many homeowners, 1.9 percent of all households received a foreclosure filing last year. In all, 136,205 filings were issued on 87,210 properties, up 68 percent versus filings in 2006.

California led the nation in total foreclosure filings and the number of homes in some stage of foreclosure last year.

A total of 481,392 filings were issued on 249,513 properties, more than triple the number of filings in 2006, RealtyTrac said.

In all, 1.9 percent of households in California received foreclosure filings.

Many of the homes receiving foreclosure filings in the state were in the inland markets, where new construction and more affordable prices helped fuel a spike in sales toward the end of the housing boom.

Other states in the 2007 foreclusure top 10 were Colorado, Ohio, Georgia, Arizona, Illinois and Indiana.

Existing Home Sales Fall to Lowest Level in Nearly a Decade

Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month.

The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.

The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago.

The drop in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

Sales were weak in all parts of the country except the Midwest, where sales posted an increase of 3.4 percent. Sales dropped by 3.6 percent in the Northeast, 2.1 percent in the West and 0.5 percent in the West.

Sales of both existing homes and new homes tumbled for a second straight year in 2007 as the housing industry was battered by a severe credit crunch that hit in August as major financial institutions began reporting multibillion-dollar losses on their investments in risky subprime mortgages, loans made to homeowners with weak credit.

The market for subprime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.

Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year.

"Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales," he said.

He said he expected demand to be bolstered in coming months by the action of Congress in the economic stimulus bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.

The slump in housing that began in 2006 followed a boom period in which sales and prices had soared to record levels. Many economists believe that the sharp turnaround has severely depressed economic growth and boosted the odds that the country could fall into a full-blown recession.

Home Sales Rise Unexpectedly but Prices Keep Tumbling

Sales of existing homes increased unexpectedly in February after six months of decline, but private economists said it was too soon to say that the prolonged slide in housing is coming to an end.

The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.

Prices continued to slide. The median sales price for single-family homes homes and condomiums dropped to $195,900, a fall of 8.2 percent from a year ago, the biggest slide in the current housing slump. The median price for just single-family homes was down 8.7 percent from a year ago, the biggest decline in four decades.

Wall Street, which had been expecting another decline in sales, was encouraged by the February increase. But economists said they still believed any sustained rebound was many months away.

"The hemorrhaging has stopped but the recovery will be long, slow and painful," said Bernard Baumohl, managing director of the Economic Outlook Group. "It's unlikely that we will see any sustained jump in home purchases, must less higher prices, until mid 2009 at the earliest."

Brian Bethune, an economist at Global Insight, said, "A quick bounce back in the housing markets is simply not in the cards."

White House press secretary Dana Perino said the increase in sales and a decline in the inventory of unsold homes was encouraging but "we can't put a lot of stock in just one report."

Lawrence Yun, chief economist for the Realtors, said that some formerly hot markets in California and Florida were seeing significant price declines now as sellers are cutting prices to attract buyers.

"We are not expecting a notable gain in existing-home sales until the second half of this year," he said.

He said that sales should be helped in coming months by recent moves to boost the loan limits on mortgages that can be insured by the Federal Housing Administration and purchased by Fannie Mae and Freddie Mac.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a sales decline was the West, where sales dropped by 1.1 percent.

The inventory of unsold homes dipped to 4.03 million units in February. That meant it would take 9.6 months to exhaust the supply of homes for sale at the February sales pace. That was down from January's level of 10.2 months but still about double what the months' supply had been during the peak of the housing boom.

Sales of existing homes fell by 12.8 percent in 2007, the biggest decline in 25 years, following an 8.5 percent drop in 2006. After a five-year boom, the steep downturn in housing over the past two years has been made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession. Democrats are pushing for greater efforts to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination in Pennsylvania on Monday, called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said in a campaign speech. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge

The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.

"Once we're through that batch of loans, the worst will have been worked through the system," said Rick Sharga, RealtyTrac's vice president of marketing.

The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.

The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.

Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.

"In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it's not as embarrassing and it's a little less of a blemish on their credit record compared to a foreclosure," Sharga said.

He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.

Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren't able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher.

Nevada clocked in the worst foreclosure rate for the 15th straight month. Last month, one in every 139 households received a foreclosure-related notice, nearly four times the national rate. The number of properties with a filing increased 24 percent over February and 62 percent over the previous March.

California had the second-highest foreclosure rate in the country. One in every 204 California households received a foreclosure-related notice. The state had 64,711 properties facing foreclosure, the most of any state and more than double last year's total.

In Florida, 30,254 homes reported at least one filing, down nearly 7 percent from February, but up 112 percent from the year before.

Rounding out the states with the highest foreclosure rates were Arizona, Colorado, Georgia, Ohio, Michigan, Massachusetts and Maryland.

Existing home sales decline in March as housing slump continues

Sales of existing homes fell in March as a severe slump in housing showed no signs of abating. The median price of a home fell compared with the price a year ago.

The National Association of Realtors said sales of existing single-family homes and condominiums dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.

The median price of a home sold last month was $200,700, a decline of 7.7 percent from the median price a year ago. That was the second-biggest year-over-year price decline following a record 8.4 percent drop in February. The records go back to 1999.

It marked the seventh consecutive year-over-year drop in prices, although the March sales price was up slightly from a February median price of $195,600. Economists prefer to compare the prices on a year-over-year basis because, unlike sales, the monthly prices are not adjusted for normal seasonal variations.

The March sales decline, which was in line with expectations, followed a 2.9 percent increase in sales in February. The February rise, which followed six straight monthly declines, had raised hopes that the steep housing correction could be hitting bottom.

However, many private analysts said they do not expect a rebound for a number of months, given the problems weighing on housing from a severe glut of unsold homes to tighter credit standards for prospective buyers and a rising tide of mortgage foreclosures.

Sales were down 19.3 percent compared with a year ago, reflecting the depth of the housing bust, which is coming after sales set records for five consecutive years.

For March, sales were down 6.5 percent in the Midwest and 3.5 percent in the South but increased by 2.2 percent in the Northeast and 2.2 percent in the West.

The Northeast was the country's only region to experience a rise in median prices, which were up 4.6 percent compared with a year ago. Prices were down in all other regions of the country, dropping by 14.7 percent in the West, 7.1 percent in the South and 5.3 percent in the Midwest.

Lawrence Yun, chief economist for the Realtors, said he expected sales would begin to show improvements in the second half of this year, helped by an improved availability of mortgage-backed insurance from the Federal Housing Administration and higher limits for jumbo mortgages, loans that are critically important in high-priced areas of the country such as California.

US home prices fall 3.1 percent in first quarter in largest drop on record

U.S. home prices posted their sharpest first-quarter decline since the government began tracking the data 17 years ago.

The Washington-based Office of Federal Housing Enterprise Oversight said Thursday that home prices fell 3.1 percent in the first quarter compared with last year. The index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

"The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation," Patrick Lawler, the agency's chief economist, said in a prepared statement.

Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states.

The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac. Legislation enacted in February temporarily raised the limit to as much as $729,750 in high-cost areas.

The government index focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.

Another reading that includes such properties and focuses on major U.S. cities, the Standard & Poor's/Case-Shiller has shown larger declines.

Home foreclosures and late payments set records over the first three months of the year and are expected to keep rising, stark signs of the housing crisis' mounting damage to homeowners and the economy.

The latest snapshot of the mortgage market, released Thursday, showed that the proportion of mortgages that fell into foreclosure soared to 0.99 percent in the January-through-March period. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report by the Mortgage Bankers Association also found that more homeowners slipped behind on their monthly payments.

The delinquency rate jumped to 6.35 percent in the first quarter, compared with 5.82 percent for the three months earlier. Payments are considered delinquent if they are 30 or more days past due.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

Jay Brinkmann, the association's vice president of research and economics, told The Associated Press that the slump in house prices was the biggest factor for rising foreclosures and late payments.

With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up" in the months ahead, he said.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The association's survey covers just over 45 million home loans.

More problems also cropped up with loans to more creditworthy borrowers.

The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payment rose to 3.71 percent, compared with 3.24 percent.

The numbers were higher for prime borrowers with adjustable rate mortgages. The proportion of those loans falling into foreclosures jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.

"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble — a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."

California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.

After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.

Homeowners with adjustable-rate mortgages were clobbered when their initially low rates reset to much higher ones. That made it difficult, if not impossible, to keep up with monthly mortgage payments.

As foreclosures and late payments climbed, financial companies took multibillion losses when their investments in mortgage-backed securities soured. A credit crisis erupted and spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.

All those troubles have pushed the economy to the brink of a recession, if the country isn't already in one. Consumers and business have tightened their spending. Employers have cut more than a quarter-million jobs in the first four months of this year.

To bolster the economy, the Federal Reserve made aggressive interest rate cuts. That has helped homeowners facing rate resets on their adjustable-rate mortgages. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign started that started in September is coming to an end.

The Bush administration has taken steps to help distressed homeowners. It has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.

A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.

The government would back as much as $300 billion in new loans to help certain borrowers refinance into cheaper, fixed-rate loans. Mortgage holders would have to agree to take a substantial loss on the existing loans; borrowers would have to show they could afford the new mortgage and share future proceeds with the government.

The House passed its version last month. Senate leaders say they want to vote by July.

Groups representing builders and real estate agents want incentives, such as a $7,500 temporary tax credit for first-time home buyers, to support the market.

"Policies that stimulate home purchases in the immediate future can pay huge dividends and a temporary home buyer tax credit provides the most bang for the buck," Joe Robson, a home builder from Tulsa, Okla., said in prepared remarks at a House hearing.

Housing crisis worsens as number of US homes facing foreclosure in May up 48 percent

Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's Economy.com and an adviser to Republican John McCain's presidential campaign, wrote earlier this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.

Sobering statistics like these are leading to more calls for government intervention, especially from lawmakers pushing a plan for the government to guarantee as much as $300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages.

A new government report released Wednesday found that among mortgages held by nine large banks, including Bank of America and Citigroup Inc., foreclosures climbed to 1.23 percent of all loans in March from 0.9 percent in October.

In a speech, Comptroller of the Currency John Dugan said the federal agency conducted its own examination of foreclosures and loan modifications after finding "significant limitations" with data collected by trade groups like Hope Now.

"Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness," Dugan said. "They were typically responses to surveys that produced aggregate, unverified results from individual firms."

The comptroller's report found that 2.7 percent of seriously delinquent mortgages had been modified as of March, up from 1.8 percent in November 2007.

The industry has continued to favor repayment plans, which help borrowers get back on track after missing a few payments, rather than permanent loan modifications, such as lower interest rates.

Faith Schwartz, executive director of Hope Now, said in an e-mailed statement that the group's statistics "encompass more member data and provide a broader view of the range of solutions delivered by a larger number of mortgage servicers."

Rep. Barney Frank, D-Mass., said this week that Dugan' analysis shows that "much more aggressive action is needed."

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's Economy.com.

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

"I think a lot of people are waiting to see if we really have hit the bottom," Sharga said.

Lehman Brothers economist Michelle Meyer said in a report Thursday that U.S. home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be "feeble."

Home prices, sales plunged in May across SoCal compared to last year

Median home prices dropped 26.7 percent in May across Southern California's six most populous counties compared with last year, a real estate research firm said Monday.

DataQuick Information Systems said it marked the steepest annual drop since the firm began keeping records in 1988.

The drop was driven by fewer sales of high-end homes, steeper discounting by home sellers and by lenders trying to unload foreclosed properties, DataQuick said.

Median home prices fell to $370,000 in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties last month. It was the lowest median price reported since March 2004.

Sales volumes for the region climbed about 8 percent from April but were down nearly 15 percent from May 2007.

In all, 16,917 new and preowned homes were sold in May, down from 19,874 in the same month last year, the firm said.

Nearly 38 percent of all the homes sold in the region last month were in foreclosure at some point over the past 12 months.

Sales of existing homes edged up slightly in May although median home prices continued to fall.

The National Association of Realtors reported that sales of existing single-family homes and condominiums rose by 2 percent to 4.99 million units last month

It was only the second sales increase in the past 10 months, but it was not viewed as a sustained rebound. Many economists believe that prices will have to decline more before the housing industry can mount a sustained recovery.

The median price of an existing home sold in May dropped to $208,600, a fall of 6.3 percent from a year go. That was the fifth biggest year-over-year price decline on records that go back to 1999.

The strength in sales reflected gains in all parts of the country except the South, where sales dropped by 0.5 percent. Sales were up 5.5 percent in the Midwest, 4.6 percent in the Northeast and 2 percent in the West.

Paul Bishop, senior economist for the Realtors, said that for the past few months sales have been rebounding in parts of the country that had been hardest-hit by the housing bust, while sales have weakened in some areas that formerly had been immune from the overall downturn.

Distressed areas that now are seeing sales gains included Sacramento, the San Fernando Valley and Monterey in California; Sarasota, Fla.; and Battle Creek, Mich.

The inventory of unsold homes dropped by 1.4 percent to 4.49 million units, which represents a 10.8-month supply at the May sales pace, down from a 11.2-month supply in April. That's still about double the inventory level that existed during the five-year housing boom.

"Stabilization in home prices can only occur with buyers returning to the market, so we are encouraged by rising home sales, particularly in distressed markets," said Lawrence Yun, the Realtors' chief economist.

However, rising mortgage foreclosures are dumping even more homes onto the already glutted housing market.

Many economists predict sales will keep falling through the summer and prices will not start to rebound until the spring of next year.

Nearly a year into the credit crunch, the mortgage and housing markets remain confusing and difficult for many consumers.

Now is a good time to check in with an old hand at home lending.

Jeff Altman, a mortgage broker and partner with WestCal Mortgage Corp. in Orange, Calif., has been in the business for 16 years. He fielded questions on the market, mortgage rates, mortgage bailouts and more.

Q. Mortgage rates have risen over the past month. Where do you see them headed?

A. Depending on what the Federal Reserve does, I see them getting a bit higher and then stabilizing.

Q. Speaking of the Fed, they did nothing at their meeting June 25. What's your best guess for what they will do next and when?

A. I think inevitably they will raise the federal funds rate, and I don't see anything sooner than August.

Q. It sounds like you think anyone waiting for rates to improve could be disappointed ...

A. Yes. I don't foresee rates getting to where they were in early May. Back then, they were in the mid- to high-5s.

Q. Let's talk about mortgage aid. The Senate has been going back and forth on a major home lending overhaul, including the creation of a multibillion-dollar fund to help hundreds of thousands of struggling homeowners refinance into more affordable loans backed by the government.

What do you think of the plan?

A. (The government) needs to work with individual lenders servicing the loans. They need to put stricter guidelines on the servicers. A lot of lenders can't help you until you are late 30, 60, 90 days on your payments.

That's where I think the government needs to intervene. Help them now. I don't think it needs to be all situations. If it's an investor that got greedy, I have a tough time feeling sorry for him, but if you have a legitimate borrower that is having trouble paying, he should be helped. But I am hearing more and more that borrowers need to start missing payments to get help, which is absolutely ridiculous.

Q. Getting back to the issue of government buying up distressed mortgages,

I've heard of several private investment funds buying up troubled mortgages and cutting deals with borrowers to get them paying again on plans they can afford. If the private sector is buying distressed mortgages, why do we need a government program to do the same thing?

A. I am against government intervention, unless it's on a case-by-case basis. The majority of people are against a government bailout at this point.

Q. But how could the large federal government get involved on a case-by-case basis? Or do you mean, the government should lean on loan servicers to do that?

A. The government should lean on servicers to do it on a case-by-case basis but not wait until a consumer's credit is affected.

Q. What's your prediction for a housing market rebound?

A. Personally, I think we will see a rebound in the beginning to mid-2009.

Q. How about a lending market rebound? When will the market to sell home loans, what some experts call the secondary market, come back?

A. I will have to say the same thing. You will not see the market come back for lenders until the beginning or middle of next year. I don't think we are finished with banks in trouble yet.

The number of homes under sales contracts fell more than expected in May after a surprising spike the month before, a real estate trade group said Tuesday.

The report by the National Association of Realtors was another sign that the nation's housing problems are not abating.

The Realtors' Pending Home Sales Index fell to 84.7 in May, down 4.7% from an upwardly revised reading of 88.9 in April. The index was 14% below its level in May 2007.

The recent decline was steeper than the 2.8% fall that economists had forecast, according to a consensus of estimates compiled by Briefing.com.

"The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, NAR chief economist.

Yun said that some pullback had been expected after April's surprise increase. The index jumped more than 7% in April as falling home prices sparked a bout of bargain shopping.

"The housing market had a nice bounce in April - too bad it doesn't appear to have carried through into May and June," said Mike Larson, real estate analyst at Weiss Research.

Larson says the May decline was caused by falling consumer confidence, rising unemployment, tight credit conditions and high energy and food costs straining household budgets.

"Unless and until the economic clouds part, we'll likely see the housing market continue to struggle," Larson said.

In the report, the NAR lowered its existing-home sales outlook for 2008, saying it now expects sales of 5.31 million, down from the 5.39 million forecast in April.

The NAR said existing home prices are also expected to fall. The aggregate median existing-home price is projected to fall 6.2% this year to $205,300, and then rise by 4.3% in 2009 to $214,100, the report indicated.

The outlook for new-home sales was also revised lower to 525,000 from the 529,000 prediction a month ago. And the median new-home price was expected to decline 3.2% to $239,300 this year.

Pending home sales declined in all regions. In the West, they declined 1.3% during May but remain 2% above year-ago levels.

Declines were steepest in the South, where May pending home sales declined 7.1%. They fell 2.9% in the Northeast and 6% in the Midwest.

Still, the NAR found double-digit pending sales gains in May from a year ago in Colorado Springs, Colo.; Sacramento, Calif.; and Spartanburg, S.C.

"Some markets have seen a doubling in home sales from a year ago, while others are seeing contract signings cut in half," said Yun.

In some cases, the differences in home prices, and consequently home sales, can be attributed to the ongoing fallout from the subprime crisis.

"Price conditions vary tremendously, even within a locality, depending upon a neighborhood's exposure to subprime loans," Yun added.

Fed offers to lend to mortgage companies, Treasury plans possible equity investment

Scrambling to bolster eroding investor confidence, the Federal Reserve and the Treasury Department announced unprecedented steps to brace slumping mortgage giants Fannie Mae and Freddie Mac.

The companies' shares, which have plunged as losses from their mortgage holdings threatened their financial survival, opened higher Monday. Fannie Mae rose 27 cents to $10.53, while Freddie Mac climbed 34 cents to $8.08.

The plan, unveiled Sunday, is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds -- the same rate given to commercial banks and big Wall Street firms.

The Fed said this should help the companies' ability to "promote the availability of home mortgage credit during a period of stress in financial markets."

Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and buy shares of the companies -- if needed.

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," Paulson said Sunday. "Their support for the housing market is particularly important as we work through the current housing correction."

The Treasury's plan also seeks a "consultative role" for the Fed in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies.

Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said the House would move by the end of the week to fold "the essence" of Treasury's proposal into a sweeping housing package, with the goal of clearing it for President Bush by the end of next week.

That package includes a foreclosure rescue to help strapped homeowners get new, more affordable government-backed mortgages through the Federal Housing Administration, and creates a new regulator and tighter controls for Fannie Mae and Freddie Mac.

Frank said he expected only minor changes, if any, to Treasury's proposal, and said Congress would not seek to impose monetary limits on the government's line of credit.

Sen. Christopher Dodd, chairman of the Senate Banking Committee, on Monday called the Bush administration's actions Sunday "probably the right steps" and said he will summon Paulson, Fed Chairman Ben Bernanke and Securities and Exchange Commission chairman Christopher Cox to a committee hearing to answer questions.

"What's important here as well is to calm people's fears," Dodd said in an interview on CBS' "The Early Show."

He also drew a distinction between last week's failure of IndyMac -- which engaged in originating riskier mortgages than traditional community and regional banks -- and the two mortgage giants.

"There's a big difference between IndyMac and Fannie and Freddie," Dodd said. "IndyMac engaged in very bad mortgages, luring people into deals they could never afford. That's not the case with Fannie and Freddie." Dodd said that while there may be more bank failures, "I'm more optimistic about Fannie and Freddie than I am about these banks."

The White House, in a statement, said President Bush directed Paulson to "immediately work with Congress" to get the plan enacted. It also said it believed the steps outlined by Paulson "will help add stability during this period."

Investors may not be as sanguine, however, according to Chris Johnson, an investment manager and president of Johnson Research Group in Cleveland. Stocks of financial institutions "are going to get clobbered," he predicted. "It is a situation where regulators and the government are trying to play catch up, and that means everything is not discounted in the stock prices yet."

The Dow Jones industrials on Friday briefly fell below 11,000 for the first time in two years and Johnson said shares of investment banks and regional banks could move even lower as investors react to this weekend's developments.

Fannie Mae and Freddie Mac hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States.

The government denied it, but what has been seen by investors as an implicit guarantee of support has allowed Fannie and Freddie over the years to borrow at rates only slightly higher than the Treasury -- and lower than what their banking competitors had to pay.

"This really blows away the notion of an implicit guarantee," independent banking consultant Bert Ely said of the Treasury's plan to ask Congress to allow it to make equity investments in Fannie Mae and Freddie Mac. "It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity."

A critical test of confidence will come Monday morning, when Freddie Mac is slated to auction a combined $3 billion in three- and six-month securities.

Senate Majority Leader Harry Reid, D-Nev., said "Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institution."

House GOP leader John Boehner, R-Ohio, and Republican Whip Roy Blunt, R-Mo., said they "stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets."

Democratic presidential contender Barack Obama said the government's main concern should be "to make sure that home ownership remains attainable and affordable for American families. Second, any measures should protect taxpayers and not bailout the shareholders and management of Fannie Mae and Freddie Mac."

Republican rival John McCain believes the measures announced Sunday "are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus," said Douglas Holtz-Eakin, senior policy adviser.

7/17/2008 Mortgage rates fell this week with 30-year mortgage rates dropping to the lowest level in six weeks as investors became less worried that the Federal Reserve would soon tighten credit policy to stall inflation.

Freddie Mac, the mortgage company, reported today that 30-year fixed-rate mortgages averaged 6.26 percent this week.

That was down from 6.37 percent last week. It marked only the second weekly decline in the past eight weeks and left the 30-year rate at the lowest point since it averaged 6.09 percent the week of June 5.

Analysts attributed the decline in part to comments made this week by Federal Reserve Chairman Ben Bernanke. He indicated in his mid-year economic report to Congress that the central bank was poised between concerns about rising inflation pressures and the weakening economy.

Many analysts viewed Bernanke's comments as a signal that the central bank will delay tightening rates to give the fragile economy and banking system time to recover. The Fed is hoping that the sluggish economy will help dampen inflation on its own.

"Mortgage rates fell this week amid market speculation that the Federal Reserve may not raise the overnight bank lending rate this year after all," said Frank Nothaft, chief economist for Freddie Mac.

Other rates dropped as well, according to Freddie Mac's nationwide survey.

Rates on 15-year fixed-rate mortgages, a popular option for refinancing, dipped to 5.78 percent, down from 5.91 percent last week.

Rates on five-year adjustable-rate mortgages fell to 5.80 percent, down slightly from 5.82 percent last week, while rates on one-year ARMs dropped to 5.10 percent, down from 5.17 percent last week.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year, 15-year, five-year and one-year mortgages all averaged 0.6 point this week.

A year ago, rates on 30-year mortgages stood at 6.73 percent, 15-year mortgage rates averaged 6.38 percent, five-year adjustable-rate mortgages were at 6.35 percent and one-year adjustable-rate mortgages averaged 5.72 percent.

Home foreclosures have hit record highs as sagging home values have left some borrowers owing more on their mortgages than their homes are worth. With more empty homes being dumped on an already glutted market, prices are being pulled lower. Buyers, however, have become harder to find as credit has gotten harder to secure.

New home sales drop less than expected in June, raising faint hopes for less bleak future

Sales of new homes fell in June for the seventh time in the past eight months, but the decline was less than had been expected, raising faint hopes that the nation's severe housing recession could be approaching a bottom.

The Commerce Department reported Friday that sales of new single-family homes dropped by 0.6 percent last month to a seasonally adjusted annual rate of 530,000 units. That was less than half the decline that had been expected and the May performance was revised up a bit.

Even with the changes, new home sales were down by a sharp 33.2 percent from a year ago, showing how severe the slump in housing has become.

But some analysts said they saw cause for optimism that the worst of the decline could be drawing to a close, especially if a sweeping housing rescue package now pending in Congress can slow a flood of foreclosures and spur sales to first-time home buyers.

Analysts noted that not only was the overall decline in June from May less than expected but sales were up in two of the four regions of the country.

Brian Bethune, chief U.S. financial economist at Global Insight, said the numbers gave a "few positive flickers, but the housing market remains extremely fragile."

The nation is enduring a steep downturn in housing that has pushed the overall economy close to a recession. It has also triggered a severe credit crunch, forcing U.S. financial institutions to cope with billions of dollars of losses from bad mortgage loans.

A separate report Friday showed that the number of households facing the foreclosure process more than doubled in the second quarter compared to a year ago. Nationwide, 739,714 homes received at least one foreclosure-related notice during the quarter, or one in every 171 U.S. households, according to Irvine, Calif.-based RealtyTrac Inc.

Wall Street took a positive view of the housing data with the Dow Jones industrial average up by 7.33 points in afternoon trading.

Investors were also bolstered by some good news about consumers. The Reuters/University of Michigan index of consumer sentiment for the first part of July came in at 61.2, slightly better than the 28-year low of 56.4 hit in June.

The National Association of Realtors reported Thursday that sales of existing homes -- which make up the bulk of the home sales market -- dropped by 2.6 percent in June to a seasonally adjusted annual rate of 4.86 million units, the slowest pace in a decade.

The report on new home sales showed that the median price of a new home sold in June fell by 2 percent compared to a year ago.

Sales were down the most in the South, a drop of 2 percent, with sales falling 0.9 percent in the West. These declines were offset somewhat by sales increases of 5.3 percent in the Northeast and 2.5 percent in the Midwest.

The Commerce Department also reported Friday that orders to factories for big-ticket manufactured goods such as cars, appliances and machinery increased by 0.8 percent in June, the strongest gain in four months and much better than had been expected. But excluding demand for defense equipment, total orders would have been up a much more modest 0.1 percent.

Analysts said that the June performance for durable goods was being propped up by sizable military spending for equipment, reflecting the ongoing wars in Iraq and Afghanistan, and this was offsetting widespread weakness in the rest of the economy. Orders for defense capital goods shot up 15.8 percent in June following a sizable 14.1 percent increase in May.

"With orders excluding defense falling at a 4 percent annualized rate in the second quarter, it is pretty clear manufacturing is hardly thriving," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Private economists believe that sales of both new and existing homes will remain depressed for much of the rest of the year with prices continuing to fall into the spring of next year. The problem is that soaring mortgage defaults are dumping more homes on an already glutted market. That's causing banks to tighten up on lending standards, making it difficult for potential buyers to qualify for homes.

The House on Wednesday passed a sweeping rescue package designed to halt the slide in home prices by helping more homeowners avoid mortgage defaults. It also provides a new tax break for first-time homebuyers and throws a lifeline to mortgage giants Fannie Mae and Freddie Mac.

The report on factory orders showed that orders for motor vehicles and parts had a slight rebound in June, rising by 1.8 percent, the best showing in nearly a year. But the increase was only a fraction of the big declines in previous months and was not seen as signaling any kind of sustained rebound from U.S. automakers. Ford, General Motors and Chrysler are being battered by soaring energy prices that have caused buyers to turn away from formerly hot sellers such as trucks and sport utility vehicles.

Overall, demand for transportation goods fell by 2.6 percent as the slight increase in auto demand was offset by a big 25.1 percent plunge in orders for commercial aircraft. Demand for military aircraft was also down, falling by 8.6 percent.

Excluding the volatile transportation sector, orders for durable goods -- items expected to last at least three years -- shot up by 2 percent, the best showing since last December and much better than the 0.2 percent decline that had been expected.

The manufacturing sector has been hurt by the overall slowdown in the economy with industries related to housing and autos particularly hard hit. This has been offset to some extent by continued strong demand for U.S. exports, which have been helped this year by a falling U.S. dollar against many major currencies. A weaker dollar makes U.S. products cheaper on overseas markets.

A measurement of pending home sales rose in June in a rare piece of positive news for the beleaguered market.

The National Association of Realtors' seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from May's reading, which was revised downward to 84.5 from an earlier reading of 84.7.

The June index was 12 percent below year-ago levels.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.

Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 84.3. The index, which sunk to a record low of 83 in March, stood at 101.4 in June 2007. A reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Last month, the Realtor group said completed sales of existing homes fell more sharply than expected in June, pushing activity down to the lowest level in more than a decade. Many analysts predict home prices will keep falling until at least next spring as tighter credit, a weaker job market and rising foreclosures scare potential buyers away.

Still, the NAR predicts a package of housing legislation signed by President Bush last week — particularly a $7,500 tax credit for first-time homebuyers — will aid a recovery.

"With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," Lawrence Yun, the group's chief economist, said in a statement.

Others are less optimistic about a market embroiled in its worst downturn in decades. Richard Syron, chief executive of mortgage finance company Freddie Mac said Wednesday he expects home prices nationwide to fall 18 percent from peak to trough, according to their measure, and that the market is only halfway through the descent.

House prices edged higher in June in another sign the market is clawing back some ground from its worst downturn in decades, according to an early reading of single-family home sales during the month.

Home prices rose 1.1 percent on a national level in June from May, though they dropped 11.5 percent over the past year, an index published by Integrated Asset Services said on Tuesday.

The IAS360 House Price Index, which was first published in June, shows home prices in the Midwest led the increase with a 4.7 percent rise in June, resulting in a 0.2 percent year-over-year decline. Prices in the West fell 0.5 percent in the month, and were down 16.9 percent from a year ago, IAS said.

The index may be evidence that a bottoming process is underway for the housing market that has been mired in its worst slump since the 1930s. But the index is not "smoothed" or adjusted for seasonal forces, such as the typically stronger spring and summer selling season, according to IAS.

"Strengthening of the market in the summer can occur even when the longer term market trend might be downward," Dave McCarthy, IAS' chief executive officer, said in a statement. Data shows local markets runs from strong and stable to barebones, he said.

IAS last month said home prices nationwide fell a much harsher 20.1 percent year-over-year in May, after a 3.2 percent drop from April.

The IAS360 index appears more volatile than the widely tracked Standard & Poor's/Case Shiller home price indexes, which last month showed U.S. home prices in 20 metropolitan areas fell 0.9 percent in May from April, and 15.8 percent on the year. Prices rose in seven regions in May, S&P said.

Falling home prices have been erasing homeowners' equity, reducing their ability to refinance risky loans and forcing many into foreclosure, which further depresses real estate values. Economists say the impact of sliding home prices has dented U.S. growth to the point where the nation is near, or in, recession.

The second-largest U.S. mortgage finance company, Freddie Mac, widened its forecasts last week for price drops from the market peak to as much as 20 percent, from an earlier estimate of 15 percent, due to an increase in foreclosures.

However, price cuts by banks seeking to unload the glut of unwanted homes on their books has boosted sales in some areas, paving the way for recovery.

An index of U.S. home sales contracts signed in June surprised analysts last week as it rose in June to its highest level since October. The National Association of Realtors said its index of pending home sales was encouraging, and painted a housing market in transition.

Denver-based IAS specializes in residential real estate valuations and the disposition of bank-owned properties.

A record number of homeowners thought their homes depreciated in value in August, according to a Reuters/University of Michigan survey published on Friday.

Among all homeowners surveyed, 46 percent reported declines in their home's value, twice the level recorded in August of last year and above the previous record of 41 percent set in July.

There was a considerable disparity across the regions, however, as 60 percent of Western homeowners reported declines compared with 34 percent of Southern residents. A year ago the difference was just as sharp, but at about half the levels, with 33 percent of Western homeowners reporting declines compared with 15 percent of Southern residents.

While consumers more often expected continued declines rather than increases in their home's value during the year ahead, the extent of the expected decline has continued to narrow. Homeowners expected their home to decline in value by 0.3 percent during the year ahead, down from a peak of 0.9 percent in the second quarter of 2008.

"There were sharp differences in year-ahead home price expectations depending on whether home prices had increased or decreased in the past year," the survey said.

Among the 46 percent who reported past home price declines, an additional decline of 2.4 percent was anticipated. Among the 21 percent that reported an increase in their home's price during the past year, an additional gain of 2.7 percent was expected.

"Importantly, home price expectations over the next five years also improved," the survey said.

Homeowners anticipated an annual gain of 3.1 percent during the next five years, up from 2.3 percent in July, returning to the levels recorded in late 2007.

"Given long-term inflation expectations, however, this implied that consumers expected no real gains in home prices over the next five years," the survey said.

Home purchase plans remain quite negative, which is not because of negative views about buying conditions, but because of the most negative views of home selling conditions ever recorded, the survey said.

Among all homeowners, 93 percent viewed the current selling conditions unfavorably in August, unchanged from July, but up 76 percent from a year ago and well above the low of 18 percent recorded in August of 2005.

These negative views are based on their reluctance to sell their home at reduced prices, with more than three-in-four of all homeowners citing this reason.

Sales of existing homes rose 3.1 percent in July, easily beating Wall Street's expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.

However, the number of unsold properties hit an all-time high, the latest indication that the worst housing market slump in decades is far from over.

The National Association of Realtors reported Monday that sales rose to a seasonally adjusted annual rate of 5 million units. Sales had been expected to rise by only 1.6 percent, according to economists surveyed by Thomson/IFR.

Home sales were 13.2 percent lower than a year ago and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down by 7.1 percent a year ago.

Despite the third monthly sales jump this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.

That represented a 11.2 month supply at the July sales pace, matching the all-time high set in April.

Sales were up in all regions of the country except the South, which posted a 0.5 percent decline. Sales rose by 5.9 percent in the Northeast, 0.9 percent in the Midwest and 9.7 percent in the West.

Analysts say that until the inventory level is reduced to more normal levels, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.

Despite the rise in sales, Lawrence Yun, the Realtors' chief economist, was reluctant to conclude that the U.S. housing market has hit bottom.

While buyers are pouncing on lower prices — especially in places like California, Florida and Nevada — sales are sluggish in formerly stable states like Texas.

"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.

One key unknown is the ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have cut back the availability of mortgages significantly as they cope with mounting losses from foreclosures and officials ponder whether to shore up the two struggling companies.

President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan.

Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's

The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scien

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