May 142008

It looks like the housing trouble across the pond is growing–could it echo the U.S. housing decline in a matter of months?

Maybe. The housing market in the U.K. has been slowing for awhile–and just yesterday, the Royal Institution of Chartered Surveyors
(RICS) released survey results that showed 95.1 percent more surveyors found home prices had fallen, rather than risen in April–a 79.4 percent increase from March.

And today, one of the biggest U.K. builders, Redrow, became the first to cut jobs because of the decline, according to the Telegraph. Redrow to date has axed 15 percent of its staff.

Even the government is beginning to acknowledge the problem–albeit begrudgingly. Prime Minister Gordon Brown promised this week to help first-time homebuyers in Britain by offering 100 million pounds ($190 million) for low-income buyers to purchase homes through shared-ownership

He also pledged that the government would buy 200 million pounds-worth of unsold new homes and rent them to financially troubled residents Bloomberg reported Wednesday.

Yet that offered little hope to a country that heard earlier in the week (courtesy of RICS) that the housing troubles had spread to all regions–and found out the full extent of the government’s concern over the market issues when housing minister Caroline Flint was photographed walking into Downing Street holding papers that read "We can’t
tell how bad it will get."

(A note to Flint: It just got worse. Invest in a folder.)

And many feel the housing decline will, in fact, get very, very bad. A recent Reuters poll of 30 economists, analysts and fund managers found they feel property prices will fall at least 5 percent this year–possibly twice as much.

Like the U.S., the U.K. is suffering a correction of sorts after some areas, like London, saw huge gains in recent years; but the country is also undergoing a widespread property shortage–the government plans to build 2 million new homes by 2016, although it is already behind on its 240,000-a-year goal, according to the Independent–and it’s not clear how its housing decline will play out.

One thing is for sure: The current U.S. housing troubles are on the minds of most U.K. real estate industry members. How could they not be?

The question is, how can the U.K. property market learn from our mistakes–and there were some big ones–to prevent history from repeating itself overseas?

What would you advise U.K housing officials and builders to do in order to ward off a prolonged housing slump?


May 132008

The National Association of Realtors released its quarterly home price survey today–and the trade group says median home prices dropped in two-thirds of the cities it surveyed.

  • Median
    prices for pre-existing single-family homes fell in 100 of 149
    metropolitan areas in the first quarter, NAR said; 48 urban
    areas posted price gains.
  • One lone metropolitan area had no change.
  • The national median home price also fell, dropping 7.7. percent from the January to March 2007 period to $196,300. The former median sales price was $212,600.

NAR has been characteristically optimistic as of late about the housing market improving–let’s face it, the group is always pretty upbeat (it doesn’t really benefit real estate agents to have the media and general public convinced housing is in an unending downturn and it isn’t a good time to either sell or buy a house).

But the first quarter results are anything but cheery. What gives?

According to NAR Chief Economist Lawrence Yun, who always offers a tender word to accompany dour housing news, jumbo loan issues are to blame for the numbers.

As mortgage defaults rose, banks panicked and credit became harder to get; for high-end, expensive properties in costly markets, it became really harder to get.

"These are highly unusual
results because there were very few jumbo loan originations in the
latest quarter, so sales are much slower in high-cost areas, and at the
same time foreclosures related to subprime mortgages rose," Yun said.

Well. OK. We’ll agree, that could be an issue. Congress tried to reinvigorate that very market by raising FHA, Fannie Mae and Freddie Mac loan limits in March. Freddie Mac and Fannie Mae’s shot up from a $417,000 maximum to $729,750.

That meant more people qualified–but it didn’t mean the loans were cheaper.

Jumbo loans
rates used to be about no more than 0.25 percentage point higher than
conforming-loan rates. However, the difference swelled to more than a percentage point as the credit fallout continued because investors were worried about buying nonguaranteed loans.

The government-backed agencies’ new, increased involvement in the jumbo market should have helped–but the San Francisco Chronicle reported today that the rates just now are beginning to come down.

Last week, many lenders cut their jumbo-conforming loans rates by a half a percentage point, which makes the loans as affordable as standard confirming loans below $417,000, according to the Chronicle.

So it’s possible Yun and NAR are right: The jumbo market just didn’t get the shot in the arm it had expected–at least not in the first quarter.

Yun also said that more than half of all mortgage foreclosures involved subprime mortgages, and severe price drops are happening mostly in areas where subprime loans had been frequently issued.

And it’s true, that does describe many jumbo loan markets in the U.S.–California, Las Vegas and more. It’s also true that we know we need to start moving homes in stagnant markets such as those to reduce the national housing supply, reignite demand and kick-start residential building again.

But therein lies our problem: Because although those Fannie- and Freddie-backed jumbo loans with the higher limits can potentially help more people, they’re not necessarily easier to qualify for.

As the Chronicle points out, Fannie Mae and Freddie Mac
generally require better credit scores, more strict income documentation,
larger down payments and lower debt-to-income ratios on loans from
$417,000 to $729,750. Those borrowers who had subprime loans before just may not make the cut.

And if a borrower with good credit owns a few investment properties–which some do because of jumbo market gains during the real estate boom–the person may not get funding at all.

Freddie Mac issued a bulletin on April 22 to lenders that said it planned to restrict financing to second-home and investment real estate buyers who have "individual or joint ownership" interests in more than one property after August 8, the Washington Post said.

Second-home buyers won’t qualify for new Freddie Mac mortgages if they have ownership interest in more than four properties (unless they’re paid off). Freddie Mac used to allow investors to own up to 10 rental properties carrying mortgages.

So we wonder: Will the lower jumbo loan rates really help the second quarter results?

Or will the jumbo market remain sluggish–and as Yun said, affect home prices–because it’s still hard to qualify for a government-backed loan? Having more money available isn’t much help if most people can’t get it.

What do you think?


May 122008

The slowing economy has affected a number of industries in a number of ways–and it’s affected women and men differently, too.

According to new data, women are faring better than men:

  • From November through April, women in the U.S. age 20 and up added nearly 300,000 jobs, according to the Bureau of Labor Statistics. Two female-concentrated fields, education and health care, are growing, which has helped; some analysts have suggested that women also are a better fit for the knowledge economy because of their sensitivity, intuition and ability to act as a team, BusinessWeek says.
  • Men, during the same period, lost almost 700,000 jobs. That’s due in part to the fact the two sectors that are doing extremely poorly–construction (which is about 88 percent male) and manufacturing–are male-dominated fields, Seeking Alpha says.
  • Women are also winning at the higher education game: They’re graduating from college at higher rates than men are, according to BusinessWeek.

However, the extra jobs don’t mean women are making more because the pay levels remain inactive.

Thus, because women and men are often sharing household expenses, the lady-driven economy can’t sustain its strength for long if the men’s side continues to weaken, BusinessWeek says.

That may be true–but it doesn’t mean women will lose their buying power.

And when trying to sell housing (or housing repairs), don’t underestimate the feminine influence. The National Association of Home Builders says a recent Harvard University study found that women handle 91 percent of home buying and remodeling decisions.

The NAHB’s publishing division in January released "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions" to help builders and other housing industry members understand female buyers’ motivations and objectives.

“Builders recognize that women have more buying power than ever—single women, in fact, are the second largest and fastest-growing demographic of home buyers,” said Sandy Dunn, first vice president of NAHB and a builder from Point Present, W.Va.

A few interesting finds from the 2006 "Buying For Themselves: An Analysis of Unmarried Female Home Buyers©" survey by Rachel Bogardus Drew, published by Harvard’s Joint Center for Housing Studies:

  • Don’t focus on marketing new buildings to single women. Single women are less likely to choose newer construction than married couples.
  • The multifamily market is a popular choice. Because they loved the convenience and security, 15 percent of the single female buyers that the survey studied bought a condo–slightly higher than the 12 percent of unmarried men and a whopping three times more than the 5 percent of married couples who bought condos.
  • Women also rely on their agent. Roughly 96.9 percent of single females rated agent communication skills as very important, more than single males or married couples.

The economy’s varying effect on men and women is interesting–but the housing decisions men and women make–and why–should be of interest to every industry member.

Knowing what makes women, for example, buy, revamp, remodel and sell homes can help drive design decisions and marketing programs–for agents, builders, developers and more.

Do you know what your potential buyers are looking for?


May 092008

Yesterday, the House passed a bill to help prevent foreclosures by urging the mortgage industry to write down the loan’s remaining principle in exchange for the Federal Housing Administration offering up a new loan with lower payments.

The plan’s future effect–and really, future–is still really questionable (the program still needs to get through the Senate and the president, who has said he will veto it; plus it would be voluntary–and according to today’s Wall Street Journal, the mortgage industry isn’t exactly doing cartwheels about signing on).

But the current state of the foreclosure market in this country is not–that’s actually quite certain. Just last week, new information from RealtyTrac said that the number of U.S. foreclosure filings had gone up for the seventh quarter in a row–rising to 649,917 at the end of March.

Foreclosures, RealtyTrac said, were up an astounding 112 percent from the first quarter of 2007.

The foreclosure market has become its own entity as its has grown. In areas particularly damaged by the housing slump, some real estate agents have begun to specialize in foreclosures, the way one might focus on a certain neighborhood, according to BusinessWeek; some are even offering bus tours of foreclosed homes for prospective buyers.

Take, for example, the Florida real estate agent who bought a church bus and painted "Foreclosure Tours R Us" on the side after noticing about 40 foreclosed properties a day hit the market.

"I’m taking the product off the market that’s driving our economy
down," Marc Joseph told NPR, "and I’m taking the product that is on the market and
putting it in the hands of people who deserve it — [the buyers] who
couldn’t afford it two and a half years ago."

You can’t really fault the guy–it’s true, he is selling properties that the market needs to be sold in order to recover.

And although you may have read a number of things about what a great value foreclosed properties are, recent research shows they might not be as attractive to buyers as you think.

According to
a study recently released by, nearly 7 in 10 American adults associate "negative
aspects" foreclosed homes, U.S. News and World Report blogger Luke Mullins says.

But it’s not because they feel bad about buying someone else’s abandoned (or repossessed) home. Sixty-nine percent said they feared hidden costs; 35 percent said they felt it was a risky investment.

And 33 percent fretted the foreclosed home might lose value in the future.

Well. If that’s the general feeling, we’ve got some work to do. As we’ve said before, reducing the U.S. housing inventory is crucial to reigniting residential building and turning the housing market around–less supply means more demand, which means higher home prices. Everybody wins!

But if buyers see foreclosed homes as being taboo–and a whopping amount of them are making their way to the market each month–we could be a long way from that happening.

How do you think we can encourage buyers to purchase foreclosed homes? And what about getting credit to fund the purchase–should foreclosed homes come with a financial incentive, or are the price reductions enough?

Would you buy one? Have you?

May 082008

During the housing decline, some markets seemed to be holding steady–avoiding large drops in home value and residential building.

But now, according to some sources, even those resilient markets are feeling the housing slump’s effect.

Seattle, Portland, Ore., Charlotte, N.C. and Salt Lake City all had home price increases last year–while more than half of the 150 markets the National Association of Realtors tracks posted declines, said.

But those housing markets aren’t looking as strong these days.

  • Prices in Charlotte declined about 3.4 percent from August 2007 to February, according to the S&P Case/Shiller Home Price Index. And the area’s future didn’t look too promising: Builders began work on 48 percent fewer new homes in the first quarter of the year, and building permits dropped 45 percent, the Charlotte Observer said.
  • Seattle saw a 6.5 percent loss compared to its July high point. In April, the median house price was $440,000, a 2.4 percent drop
    from March and an 8.3 percent decline from April 2007, according to the Seattle Post-Intelligencer. Condos were especially hard hit: They comprised a smaller percentage of total sales in April.
  • Portland prices fell
    about 5 percent during the same period.

The housing market in areas like Miami had gotten so pricey during the boom that a large drop was almost inevitable.

But in areas like Seattle–where homes remained relatively affordable before and during the slump–it seemed like the national housing decline would have an only minor effect.

For one, the cities are highly desirable to live in. Home to several large companies (Bank of America in Charlotte; Microsoft in Seattle, etc.), the areas offer a strong job market, which encourages new residents to move in.

Most of the cities also offer a positive living experience for the non working, says. They’re similar to other retirement hotspots like Florida, but lack the higher taxes and insurance costs related to the several hurricanes that passed through Florida in recent years.

So many retirees have flooded areas like Charlotte that there’s even a term for it–the halfback phenomenon, which refers to the fact retirees are moving partway back to their original home.

Then why are prices falling?

Well, credit it tough to get, no matter where you live. And it’s getting harder to obtain–according to the Federal Reserve’s recent bank survey, residential mortgages became more difficult to get in the past three
months than at any time in the survey’s 17-year history.

And–even if your market is doing OK–there is no way to avoid the widespread bad press about the housing market, which is likely inciting fear across the country. People are afraid to buy; they’re even more hesitant to sell–all of which can slow down a housing market.

The fact that some previously solid housing markets are hitting hard times is sad news–but chances are, if those markets stayed strong this long, they’ll bounce back early on in the recovery period.

But when that will be … is anybody’s guess.               

May 072008

Over the past year, the real estate industry has become more and more concerned about Web sites that offer buyers and sellers new ways of connecting without an agent.

And that concern should be growing because–according to some sources–those sites are about to step up their game.

A recent article said that soon, value estimates for almost any home in the U.S. will be available online–for free–on sites like, and

The danger, CNN says, is that such sites are free of the financial incentives agents have to push prices up in deals. An agent is working for a commission; a Web site isn’t. The site will give you an unbiased home value–in theory.

In markets like the current one–where money is tight and home values are lower–buyers are becoming more nervous about making a profit off the sale of their home.

In some markets, where values have fallen tremendously, that may not be possible–or the profit may be minor, which gives them even more reason for eliminating the typical 6 percent agent fee.

Yes, real estate Web sites don’t offer a personal touch; they don’t advise you in tricky transactions that involve contingent offers and other stipulations. But they’re cheap–and based on today’s home selling prices, so are buyers.

Which is why such sites are a concern.

"You go to
an agent for information," John
Vogel, who teaches economics and real estate at Dartmouth,told CNN. "Free access to it should be a
major threat to the brokerage business."

Wired Magazine editor in chief Chris Anderson, agrees.

"Increasingly, services are moving from
professional people you pay for to places you go to for free, be it
travel agents or stockbrokers or lawyers or accountants–these are all
turning into software applications, and once anything becomes digital,
it inevitably becomes free," Anderson told the Ottawa Business Journal. "That’s simply what digital economics does."

Yes, but, as the Journal pointed out, once that information is free, brokers–stockbrokers or real estate agents–can’t charge the same amount for their prized information.

Even if the information isn’t as precise as an agent can offer, the perception might be that it is–and that could strike a major blow to the real estate agent industry.

How can the industry fight back? What do you think it should do?


May 062008

Fannie Mae and Freddie Mac have been in the news often lately–and an interesting article in today’s New York Times touches on some of the challenges the agencies face that could make headlines in the future.

The article illustrates why the mortgage market needs both companies, and discusses why it’s in danger of potentially losing them. (Given today’s announcement that Fannie Mae posted a more than $2 billion first quarter loss, that concern is more timely than ever.)

And although the government has relied on both companies to help bail out the mortgage market, its close ties to Fannie and Freddie certainly aren’t making anyone feel very comfortable about the prospect of either collapsing.

As the article says, Fannie Mae and Freddie Mac have benefited from their government backing–both were allowed to borrow money at lower interest rates because of it, and their profits soared as a result. From 1990 to 2000, their stock increased more than 500 percent.

But since then, things haven’t been as rosy:

  • Top executives were replaced; Fannie and Freddie had to pay hundreds of millions in penalties, the Times said.
  • Congress-determined affordable housing goals were met by purchasing large amounts of subprime and Alt-A mortgages; but when the housing market went bust, Freddie and Fannie had a $6 billion loss in the fourth quarter of last year.
  • Executives were granted the right to increase their investment portfolios last year in exchange for their help stabilizing the market by buying subprime mortgages; in March, they both said they would raise more capital this year, and got an extra $200 billion in purchasing power.
  • And in April, because they promised to further assist the housing market, Fannie Mae and Freddie Mac’s mortgage cap was increased to $729,000. 

But Fannie Mae and Freddie Mac are dealing with serious issues. They’ve posted huge losses this year, and may still have as much as $19 billion in additional losses they haven’t dealt with, according to analysts.

And, the Times says, they’re banking on the housing market turning around in the next year and a half. If it doesn’t, and home prices fall further, their losses could increase.

It doesn’t sound like a hugely stable situation–yet we need Fannie Mae and Freddie Mac more than ever.

They are the biggest collective source propping up the ailing mortgage market: The agencies handled more than 80 percent of the mortgages investors purchased in
the first quarter of this year, according to the Times.

Lose Fannie Mae and Freddie Mac, and the already rocky lending situation–just today, a Federal Reserve report said that the number of banks that had tightened lending requirements for corporate,
commercial real estate, home mortgage, credit card and other consumer
loans had risen close to historical highs–could go from bad to worse. Home prices could fall further; lending could become even harder to come by.

Which is why some lawmakers are concerned–but not willing to give up on the companies.

want these companies to help with affordable housing, to help
low-income families get loans and to help clean up this subprime mess," Representative Barney Frank, a Massachusetts Democrat and the
chairman of the House Financial Services Committee. "Otherwise, why
should they exist?"

Good point … but the more pressing question is, can they continue to exist?

May 052008

On Friday, we touched on why some new condos are transforming into rental buildings. Can single-family homes make a similar switch?

Yes–and no. If a new single-family home doesn’t sell, turning it into a rental can be difficult. They’re just not quite as versatile, for a number of reasons:

  • It could be costly, thanks to extra fees. Single-family homeowners don’t want a large number of rental properties on their street because rentals often aren’t maintained as well as owned homes–which can drive property values down for an entire area.

Yet the foreclosure rate has caused that to happen in a number of U.S. neighborhoods.

Some cities are responding to the change. In February, Minneapolis instituted a $1,000 fee when a home is changed into a rental property, the Minneapolis Star-Tribune reports.

  • And renters may not want to live in a single-family home. Phoenix, for example, is suffering from an oversupply of single-family homes, according to MSNBC; the city received roughly twice the amount of new homes it could accommodate between 2005 and 2007, many of which were bought as investment properties.

But home values in the area are down–and those homes aren’t selling.

To cover the monthly mortgage payment, many owners are renting their investment properties out, a practice that has created a "shadow market" that is competing with the city’s apartment rentals, MSNBC said.

Yet the costs for renting a single-family home or an apartment just don’t match up.

Given today’s 5.72 percent average 30-year fixed mortgage rate, for a buyer taking out a $165,000 loan, the monthly payments would be $959.75, Bankrate says.

Or more–the National Association of Realtors’ March median single-family home price was $200,700. Depending on how much of a down payment the buyer put down, the monthly payments easily could be higher than $959.

Rents have risen, too–but they’re still at more affordable levels.

Because of bankruptcies and other issues, U.S renter households grew by almost 1 million last year–four times the pace of renter growth from 2003 to 2006, according to a recent Harvard University’s Joint Center for Housing study.

The higher demand has driven average U.S. rents up to $775 a month, the Wall Street Journal recently reported.

  • Yet condos are a slightly different story. The median existing condo price in March was $219,400, according to NAR, making condo prices more competitive with luxury apartment prices, which in most markets will rent for more than the $775 average.

    Thus renting a brand-new condo–comparable in many cases to a luxury
    rental unit in terms of amenities and appearance–for $100 or $150 more
    than the average apartment rent isn’t so unlikely. It may, in fact,
    actually be the same cost as renting a luxury apartment, depending on
    the area.

In the end, though, price may not even be the deciding factor.

The cost of renting a house in many areas will be higher than renting a condo or apartment; but in some markets where single-family home prices have fallen considerably and/or the market is really overloaded with inventory, the cost of renting a single-family home could possibly be close to the cost of renting a condo.

But that doesn’t mean people will want to. Renters have different needs–and ones looking to live in an apartment may not want the responsibility of renting a home, which involves upkeep. (Getting more space is one thing; having to mow a lawn that isn’t really yours is another.)

A condo, however, is likely to include general maintenance. It is also more likely than a house to provide a location closer to public transportation or an urban setting–which, for work or social needs, renters may prefer.

More units, more versatility: That could be one big reason for the Commerce Department’s March multifamily permit increase.

What do you think? Is the multifamily market be benefiting from its various moneymaking opportunities–ones that extend beyond basic unit sales?

May 022008

As overall residential building declines, the multifamily and single-family housing markets are having two very separate experiences: Although both were down in March, they were down in varying amounts, and for different reasons.

And that’s painting an interesting picture of how each may start to recover as we tentatively try to claw out of the housing slump.

Thursday’s news showed that building in general has slowed considerably: Total housing starts fell 34.5 percent to 1.035 million in the first quarter.

They’ll probably remain under 1 million until the middle of 2009, according to The Wall Street Journal.

But single-family starts fell 5.7 percent in March. Multifamily unit starts declined much more–24.6 percent.

Permits for single-family homes dropped 6.2 percent in the month; but multifamily permits only fell 5 percent, according to government data released in mid-April.

Why the difference?

Consider the new $20 million, 75-unit condo building in Charlotte, N.C.

Condo sales began in November; since home sales have slowed nationally and lending standards have become stricter, risk has risen–which caused the project’s developers to radically alter their plans.

They’ve stopped selling units–and are officially becoming a rental property, according to the Charlotte Observer.

"We are returning deposits and releasing buyers from their contracts," Terrence Llewellyn, whose company is developing the project with Dean Kiriluk of Kirco, told the paper.

In some places, like Miami, luxury real estate helped keep the condo market going during the housing slump–at least for awhile.

As condo prices in the rest of the state fell 25 percent or more, Miami prices grew by 6 percent in 2007, according to the Florida Association of Realtors–but in January, the median condo price dropped by $32,000. Sales fell 30 percent.

That shift is causing some developers, like Llewellyn, to switch gears–and change their for-sale projects into rental ones.

Which may explain why multifamily starts would be down in March, but multifamily permits–indicative of future construction activity–would show an increase that the single-family home market did not.

More profitability options; more faith in the industry–and more funding.

But why? Is changing a multifamily unit into a rental property really more profitable than converting a single-family home into one?

Join us Monday for the answer–and part two of our look at how condos may be able to recover sooner, even if foreclosures continue to rise  …

May 012008

The Commerce Department said today that construction spending dropped in March–but the news was offset by a surprise revision to February’s numbers.

The revision showed an 0.4 percent increase in construction in February–a vast difference from the original 0.3 percent decline that had been reported.

And yet, spending fell 1.1 percent in March from the month before; total construction spending is down 3.4 percent from last year, MarketWatch reports.

Residential spending didn’t do so well in March, either.

  • Private residential construction declined 4.6 percent from February to March–hitting its lowest level since the department began calculating these statistics in 1993, according to Forbes.
  • For the year, residential
    project spending is down 19.9 percent.

However, February’s residential building numbers were revised to show a 0.2 percent increase–not the originally estimated 0.9 percent drop.

We’re used to news of residential project spending declining–and it’s hard to say that a blip on the radar is a sign that the market is improving.

But still, February’s revisions are intriguing.

According to AP, residential construction had declined for 23 straight months before the small increase in February–and yes, construction declined again in March, but could the February growth be a sign that recovery is near?

Private, nonresidential project spending is up–by 1.9 percent, and up 15.4 percent from last year–thanks to communications and lodgings projects.

Yep, that’s right: Lodgings. A sector that includes hotels, motels, resorts and cabins.

If temporary housing can grow, couldn’t residential building be ready for an increase? And could February’s revision be an early indicator that one is coming? Will April’s numbers show residential growth?
It’s a possibility. After all, why should the hotel industry have all the fun?