MHN Blog

Fed Offers Rate Cut -- But Is It The Last?

The Fed late today announced another quarter-point rate cut, bringing short term rates to 4.5 percent.

It was a move widely expected by the financial community -- but not necessarily among the Fed, who did not vote unanimously for the cut. (For the record, Bernanke supported it.)

Why? Well, for one, growth isn't slowing -- and neither is consumer spending, according to recent Commerce Department data, which, despite the dour housing situation, makes home value, price and sales declines less of a concern for the Fed.

And yet -- there is concern the economy will slow, hence the rate cut.

As mortgage-backed securities continue to threaten U.S. banks, and analysts are saying there could be  500,000 to 2 million foreclosures on subprime loans by the end of 2008, according to the New York Times.

That's something the Fed is well aware of -- as it said in its statement, "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction."

The Fed has said many times it isn't interested in bailing out flippers and those who overinvested in the housing market -- but what it is interested in doing is proactive, preventative policy making. Today's cut indicated that. But will the Fed cut the rate again soon?  We'll have to wait and see ...

Will the Fed Offer Tricks or Treats Today?

The Fed is still meeting and is expected to announce a rate decision later today. Will it be another quarter percent cut, as predicted? Or more? Or nothing at all?

With the recent positive growth news -- but the continued news that housing is still on the decline -- it's hard to say. Stay tuned to MHN Out and About for a later update today!

Report Finds Things Looking Greener Than Ever for Green Building

McGraw-Hill Construction, in conjunction with the National Association of Home Builders, recently released a report on residential green building trends.

And it seems green building may be one of the most successful word-of-mouth marketing campaigns of the past few years, according to the CNNMoney.com article talking points.

The major findings of the report include:

• The green homes market is expected to rise from $2 billion to possibly $20 billion over the next five years(!)

• Pre-existing home remodeling jobs are including 40% green products.

• Green homeowners are recommending their sustainable home offerings much more than other industries are being recommended.

• Operating costs, energy reduction and family health are all driving factors in investing in a green home.

Another key report finding? Education and awareness was ranked more important than any other obstacle to green building. Previous surveys showed cost perception was most important. That's interesting, given the growth the study found would indicate green building is more widely known than it's ever been -- but as previous surveys have found, cost perception is often an issue, with industry experts sometimes overestimating the true cost of building green.

Yet more good green news is on the way: The NAHB is launching a National Green Building Program and green building residential standards, which National Association of Homebuilders CEO Jerry Howard said in a speech this week would be available by year's end.

And the USGBC's residential LEED for Homes standards are still due out this fall, according to its Web site -- in development since 2000, the guidelines are expected to further influence green building in the residential community. (Although it's unclear yet what the associated certification costs may be because they will be based on factors like home size and numbers of homes being built, which may deter some small builders.)

But do we still need to spread the green word? Absolutely. The over-time energy and other savings that can offset initial building expenses are a valid point; more builders, homeowners and developers need to know that.

Green homes are popular with homebuyers -- and are selling: More industry players need to know that, too.

The bottom line: Green is going strong -- but we've still got a lot of room to grow.

ASA Makes Big Changes State-by-State for Subcontractors

Times are a changin' for subcontractors -- and for once, we're not talking about the housing slump.

Even in the midst of the drastic U.S. housing downturn, there's good news from the American Subcontractors Association. Its local chapters have lobbied for a number of public policy reforms, according to Contractormag.com, which should make working conditions, contracts and other building aspects easier.

A few highlights achieved in 2007 through successful lobbying include:

• Colorado: Gov. Bill Ritter signed an indemnity reform bill (S.B. 87) on April 11 that prevents any party in a construction agreement from contractually indemnifying another party for damage or injury caused by its own negligence. It had been previously shot down twice by the former governor. (Hence the joyful clapping in the Rocky Mountain News photo as Ritter signs it.)

• Kansas: The Fairness in Public Construction Contract Act (S.B. 333) was signed by Kansas Gov. Kathleen Sebelius on April 21. Public owners now have to pay contractors undisputed amounts within 30 days of receiving an invoice; contractors must pay subcontractors within seven days of receiving payment. An interest at a rate of 18 percent per year will be applied to late payments.

• Texas: Gov. Rick Perry approved a new law on June 16 that will make contingent payment clauses in construction contracts unenforceable unless a failure to meet contractual obligations by the party seeking payment can be proven. (The law doesn't apply to small residential projects, but larger ones may benefit.)

• Tennessee: H.B. 1003, signed May 22 by Gov. Phil Bredesen, limits all private and public project retainage to 5 percent, which will help with project cash flow issues, according to Designandbuildwithmetal.com. Now millions of dollars in earnings will be available to contractors and subcontractors during the construction.

For information about all ASA-sponsored changes, visit the news section of the American Subcontractors Association's site.

The changes in 2007 were significant. And the new year is just around the corner; what changes do you think still need to made in the construction industry? What should local lobbyists in your area be fighting for?

We want to hear -- post or e-mail us your thoughts.

Which Green Certification is Right for You?

Homebuilders and developers who embrace green building may not be sure how to market it -- but as sustainability becomes more and more popular, there's reason to.

But where do you begin? Is it worth the expense of seeking a seal of approval from an official green building organization? Are there guidelines you can find to follow without having to use any that don't apply to your project?

All valid questions -- which are nicely addressed in a recent article on HGTVpro.com, a Web site for professional homebuilders.

The article offers some focus about what things to consider before building and what different organizations offer guidelines -- it's an Out and About recommended read.

In addition, you might find the following helpful:

• Although the official LEED for Homes guidelines won't be out until later this year, in February, LEED released some guidelines, which can be found here.

• The state of California offers an extensive amount of green building case studies, facts, training info and guidelines for builders for residential and nonresidential building.

• The National Institute of Standards and Technology has developed BEES software (Building for Environmental and Economic Sustainability) to help you select and use green building products.

Have any other great green sites? Let us know!

Big News Day for Housing

We've all received a number of big residential outlooks and predictions this week -- some just today, as industry players like McGraw-Hill Construction and the Commerce Department weighed in on the current and future housing situation.

Commenting on the residential decline is nothing new; but within these takes was hope -- some actual positive findings that indicate improvement to balance out the negative -- making this series of forecasts more encouraging than most from the past six months. And that's newsworthy, indeed.

The picture this week's data painted, in fact, was somewhat rosier than many people -- possibly even the news sources themselves -- anticipated.

Some news, ranging from the least to the most encouraging:

• The bad news: The New York Times reported real estate wealth in the U.S. will likely drop by $2 to $4 trillion, and that the effects of the subprime market issues could cost financial firms more than the savings and loan fallout in the early 1990s. That's more than we all thought.

• The not-so-bad news: The summer housing situation was worse than we thought, too, according to the Commerce Department, who said today revised data from the months preceding August showed housing sales to be much lower than originally calculated. (Good thing it's fall!) However, home sales in September were up 4.8 percent. Are happy home days here -- or near -- again?

• The almost good news: According to the Wall Street Journal, McGraw-Hill Construction said it expects residential construction spending to see less declines than it did this year and that total construction spending will drop just 2 percent in 2008 (as opposed to a projected 8 percent this year.) (That's almost confetti-worthy.)

Are things great? No. Are things getting slightly better? It would seem so. 

The housing slump is going to go on for awhile. Experts keep adding months (and quarters) to their estimates. And big-picture views show a less sunny image: For example home sales, while up last month, are still down for the year.

Which is no huge surprise. No one expects dancing in the streets because construction spending will still go down, but will fall less than this year, in 2008. And no one expects the housing slump to end overnight -- it certainly didn't start that way.

Yet maybe we should focus on the faint circle of tunnel-ending light in this week's news. Enthusiasm and industry confidence declined gradually during the start of the slump; and now it seems optimism is slowly rising the same way.

And that's more than enough to make us focus on the positive today.

Three Ways To Build Green

For communities interested in green building, a little push may be all it takes to incorporate sustainability into future building and expansion plans.

Supporting green building is one thing -- encouraging it, entirely another. Aside from passing an all-construction mandate or instituting a fine, how can towns -- and builders -- inspire sustainability?

Take a look at ways some communities are promoting green building:

• Test-Driving a Green Program. Los Altos, Calif. recently approved a 12-month green building program, which requires require new single-family homes to meet Build It Green's standards, according to the Palo Alto Daily News.

• Increasing Home Sales By Offering Lower Operating Costs. Shea Homes in Arizona is including green options like solar attic fans, electrical car charger-equipped garages and energy-efficient air conditioners in a new subdivision it's building. The additions will tack $5,000 to $8,000 on to each house, but the company is absorbing the cost and not upping home prices. "It's an investment for us," Hal Looney, Shea's area president, told the Arizona Republic. "We're counting on the investment to help increase our sales as well as continuing our commitment in providing a quality product to our customers."

Richard Zimmerman,  a founding member of Scottsdale's green building program, agrees. "The builders can differentiate themselves from their competitors by embracing these programs, at the same time, homeowners are demanding green strategies and are shopping online aggressively," he said.

• Adding Jobs to the Area. The U.S. unemployment rate rose slightly to 4.7 percent in September --  and although employment is looking sunnier, many people are still looking for work, especially in the Midwest, which Reuters reported had the highest regional unemployment rate in September. Looking to create jobs for your local economy? The U.S. Green Building Council has said that the size of the green building market grew from essentially zero to $12 billion from 2001 to 2007, according to the San Jose Mercury News, who noted that its mayor's "green vision" plan, announced in early October, includes plans to create clean-tech jobs, use renewable energy to build green buildings and recycle more wastewater.

Green building starts at the local level -- at least for now -- and requires company and political initiative. There are many reasons to build green: It can reduce energy costs over time, improve the economy through job creation and -- of course -- help the environment.

And really, isn't that reason enough?

Rising Construction Costs and the Residential Sector

We've become accustomed to hearing that home prices are down, housing supply is up and residential construction is sharply slowing down as a result.

But there's another threat looming on the new project horizon -- construction costs -- and developers are directly in its path, according to Financial Week.

The Associated General Contractors of America warned builders that construction costs would increase in 2008 in its Construction Inflation Alert report, issued earlier this month.

Even with the current residential decline? It's possible.

Why overall costs are rising:

• Wages. When the residential market fell this year, many workers switched into the commercial sector to make ends meet. But that doesn't mean the supply of commercial workers is endless.

A residential builder, for example, will likely not be able to switch and become a pipefitter -- which an increasing number of industrial projects, such as power plants and refineries, need. According to Ken Simonson, AGC’s chief economist, specialty trade contractor wages have begun sharply rising, which indicates the amount of residential workers with the skills to transfer into commercial building is "close to exhaustion."

The rate of wage increases is likely to hit 5 to 5.5 percent in the next few months, up from a recent 4.5 percent increase.

• Materials. It seems likely that the residential market's decline would affect sales of building materials as demand for those supplies lessened.

It did, somewhat -- but commercial construction's relatively consistent strength has kept material demand up.

As a result, material costs are up -- slightly more than double the general rate of inflation, according to Financial Week. That will hurt 2008-planned projects that designed a budget based on lower material costs.

What It Means for the Industry

Analysts predict the housing decline will lessen and that home sales and construction will eventually increase in 2008.

The past indicates that construction sector activity does greatly affect material prices: Highway and street construction have boomed in recent years, and so did diesel fuel, asphalt, concrete and steel costs, which more than doubled in 2005 and 2006, according to the AGC.

That's good news for the housing industry, because the AGC predicted that residential construction will put more downward pressure on lumber, plywood and gypsum product prices and affect demand (and therefore, costs) for other materials in the overall construction market.

And the residential sector won't be affected by some increased costs for materials that are not used in home construction.

Wages are less likely to be an issue as more residential jobs become available. The supply of residential workers should be plentiful if housing construction picks up gradually, which it's predicted to do.

However, if construction rises suddenly -- or if a significant number of residential workers have either transferred to commercial and find it more lucrative or have undergone specialty training to fill commercial voids and don't want to return to more general residential building tasks --  the residential workforce may actually see a need for more workers. (That's not highly likely, though.)

All builders will have to deal with higher shipping rates -- unless they opt to purchase locally (which is better for the environment.) Hopefully, that will spur some interest in sustainable building and material reuse and recycling.

In fact, residential construction's biggest threat actually may be from another country -- not another sector. Not only are developing areas like China drawing from the U.S. materials supply as they beef up housing and infrastructure, importing materials won't be easy for the U.S., either. The cost of shipping raw materials has gone way up -- reported this week by the Wall Street Journal -- which will affect some materials' entry into the U.S.

Moving Into a New Community Without Ever Leaving Your Unit

An interesting article in today's New York Times outlined the rising popularity of social networking sites designed for residential buildings -- and the article makes a good case for building-exclusive online communities.

Since March, more than 335 buildings have signed up for the Brooklyn-based LifeAt.com service for the $6,000 start fee, according to the Times. Since, as of now, LifeAt doesn't charge an annual fee, that isn't a bad investment for a building to make, considering the potential payoff with owners.

Who could benefit from a social networking site? A number of residential buildings:

• Small Buildings. Condos with just a few units -- for example, my hometown, Chicago, is ripe with two- and three-flats that have anywhere from two to six units -- often bypass hiring a management company. The residents instead form a condo board, setting up point persons for collecting fees, handling repairs and more.

The only problem? When your building has six residents, things may feel a little too close for comfort.

A couple I know lives in a small building and had to twice deal with personally confronting residents about unpaid assessments (awkward) and deal with a faulty accusation that funds had been mismanaged (even more awkward).

Imagine how easily both situations could have been avoided if the building had set up a community Web site, listing expenditures and sending out e-mail notifications about late payments from an official association address?

• Buildings looking to protect the board's time and streamline processes. Some condos won't give out their board members' phone numbers or e-mails -- and with good reason. Owners have a number of reasons to contact board members: to submit complaints (isn't it easier to call a neighbor who you know is on the board than to look up the formal submission method?); to check on the status of the board approving or not approving requested renovations; even for something as simple as asking for building-related forms. 

However, getting residents to sign up to be on the board can be a difficult task if it means being hounded by owners. Most of the time, the matters in question will likely be things that need to be voted on by the entire board or part of the board anyway -- subverting the proper channels is just a waste of everybody's time.

An online community would allow residents to offer suggestions for the building, submit official complaints, ask questions and more -- contacting each other and the board via a simple, organized format.

It also would provide an easy way for the board to track such input and would remove any personal responsibility busy board members may feel to respond to requests.

• Buildings looking to provide full disclosure. Hand a new resident a four-inch thick packet of condo bylaws, rules and regulations and you're almost guaranteed to be in for some confusion later. Yes, you've done your due diligence by providing the rules; but wouldn't every condo association board and apartment management company like to see fewer rules broken?

Posting guidelines in an easily accessed, public place like a community Web site not only offers unit owners and renters the chance to frequently check them but also gives residents a forum to ask questions about the rules to clear up any misunderstandings or misinterpretations before they happen.

Residential social networking sites aren't the perfect solution for every building -- as the article noted, it would seem to make more sense in large cities, and selling ads to local vendors, which often don't advertise online, could be tricky.

However, it would seem that some advertisers -- like contractors, cleaning services and real estate agents -- could greatly benefit from reaching a condo or apartment building's small, localized audience. A building-owned Web site provides a targeted advertising opportunity a local paper couldn't.

Will condo sites be the next MySpace? It's to hard to say -- but it could make everything from borrowing a cup of sugar to finding a plumber a lot easier for residents.

The Newest Residential Buyers: Sports Cars?

This summer, a New York Times article about parking introduced non-New Yorkers to a shocking concept: the $225,000 parking space.

Think that sounds high? Some New Yorkers don't -- there's a waiting list for those spaces in Manhattan.

If that price tag blows your mind, considering we're in the midst of  a national housing decline in which homes are losing value, the concept of the auto condo -- essentially a purchasing living space for several high-end cars -- likely won't make much more sense.

But some developers are revving up to build them all the same.

• Luxury on Main, opening late next year in Los Angeles, will have 80 "auto condo" units. Most will be 650 square feet, Autoblog reports.

• San Jose's Club Auto Sport will feature up to 70, 660- to 10,000-square-foot car condos in addition to a clubhouse, concierge, electronic security systems owners can access 24 hours a day and a conference facility, the San Jose Mercury News reports. Condos will be priced from $250,000 to $2.8 million.

• And then, there is Dream Garage in Dallas. The $10 million complex will feature 54 units, each a minimum of 1,050 square feet (enough for four cars), priced at $230,000, according to the Dallas Morning News.

Many condos will feature bathrooms, showers and kitchens or bars, and Dream Garage is going to build a club area for socializing. Owners will also be able to use the Dream Garage dual dynamometers, which will tally horsepower as cars drive on to large floor rollers.

Cars, Not Consumers

The housing market news seems worse every day -- new construction has dropped because housing demand has dropped, and reports of condo developments being canceled as a result are rampant. (The Washington Post reported in August that nearly 20,000 condo units in the past 12 months have been removed from the construction schedule in the DC area alone.)

How, then, did former racer Jack Griffin, who owns a Dallas real estate and brokerage company, get funding for a residential structure for cars?

Fairly easily, it seems. Several months ago, Griffin approached Tres Vista Group to garner additional resources for Dream Garage. It signed on as a partner.

Dream Garage, in fact, now has all its financial backing and zoning approvals in place, Tres Vista partner Jerry W. Mooty Jr. told the Dallas Morning News.

That's more than we can say for a number of new residential complexes. Why?

Smart Development, High Demand

One possible reason Dream Garage got support: it's hitting a niche audience. Collectible cars are a $3.5-billion industry, according to American Collectors Insurance. Offering high-end storage space is an untapped market.

Plus, given that owners can easily spend more than $230,000 on their car collection, it stands to reason they'd spend that to store it.

"We think this concept is unique," Griffin said. "Warehouses are just storage. They're dark, they're dusty. People want more than that now."

Another possible reason: Dream Garage will be a mixed-use complex, also housing the American Driver magazine offices, a paintless dent-removal company and an Autoscope, which is a garage specializing in BMW, Audi, Porsche and Mercedes-Benz repairs and high-performance work.

The commercial space use is likely to provide an additional revenue stream and also, because the residents are auto industry-related, give car fanatics an extra purchase push. That's clever planning.

And it's planning some developers may want to consider. Packaging commercial, which has remained stronger through most of the slump, with residential projects may make investors feel more secure, help safeguard against market instability -- and spark that rise in new construction we need.

Likewise, planning highly targeted projects -- addressing the needs of consumers who are still looking to buy despite the slump, from first-time buyers looking for no-frills property at reasonable prices to retirees looking to downsize -- is now more essential than ever to a project's success.

That's a concept Griffin understands.

"We envision [Dream Garage to be] a lot more than just a place to store a car," Griffin said "A lot of us view cars as art, and we want to have a place where we can see these rolling galleries."

Which might explain why his development, unlike so many other new construction projects is rolling along.

Talk to us: Do you think auto condos will be a hit with buyers? Will they have a high resale value? Post your thoughts below.

Who Needs a Commission When You're Getting a Car?

When real estate agents are offered swanky incentives by developers and other agents -- which, as mentioned yesterday, can include gift cards, cars and more -- does it create a conflict of interest?

It's a tricky issue -- and one that's playing out in the industry as declining home sales make developers and agents more and more anxious to sell.

The National Association of Realtors' Code of Ethics and Standards of Practice states that "REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value."

But there isn't a law that prevents agents from getting incentives if it doesn't influence their obligation to get buyers the best price.

And times are tough for real estate agents:

• Some are cutting their commission on certain sales just to push the deal through.

• Agents are now finding they're forced to help perk homes up. One agent in Washington, re-listing  a house that had been on the market for five months, arranged for (instead of merely suggesting) wood floor refinishing, new carpet and staging, which sold the house in 26 days, the Seattle Post-Intelligencer said. Others do menial chores like vacuuming and painting to prepare homes for sale.

• One agent in California even lost a listing after refusing to pick a client up from his colonoscopy, according to the Virginia Gazette.

So it's understandable why a monetary bonus or hefty gift (or for that California agent, a cab) would be enticing.

Buyer (and Agent) Beware

True, buyers make the ultimate decision about whether or not to buy. But an agent hoping for a hefty prize if they do -- even if that agent is careful to try not to influence the buyer's decision -- can't be considered completely impartial.

Which makes the practice somewhat unsafe:

• NAR data from 2000 found that misrepresentation makes up 57 percent of buyer damage claims; true, most claims do revolve around physical property issues, but if buyers discover an incentive was involved in the deal, it could undermine an agent's credibility -- and possibly put that agent in legal risk for misrepresentation, fast.

• One of the most common charges brought against appraisers involves inflated home appraisal, which hurts future resale chances, according to the Indiana Attorney General's office (and the Northwest Times). And if appraisers are being eyed for being impartial, you'd better believe agents are going to be examined, too.

That's no surprise to the Indiana Attorney General. In Northwest Indiana in 2005, local real estate company co-owner Kevin T. Pastrick was sentenced to 3 years and 1 month in prison for persuading a union pension fund to buy 55 acres of land for $10 million.

A large portion of his sentencing hearing revolved around the debate over whether or not the payment was a bribe or a gratuity -- ruling it the latter would have saved him 13 months in prison.

However, the judge determined the money was a bribe because it was offered early in the negotiations to ensure the union contact moved the land purchase to completion, the Northwest Times reported.

Is dangling a hefty gift in front of a real estate agent -- obtainable only if the property sells -- really so different?

Paycheck vs. Paydirt

Everyone appreciates that real estate agents and developers need to make a living -- which is likely getting harder for them to do by the week.

But don't discount the increase of property buy-and-sell Web sites. Last year roughly 20 percent of sellers sold their homes without an agent, up from 12 percent in 2005, according to Real Trends.

If buyers start feeling like using an agent won't get them the best deal because of the agent's interests -- and sellers then start feeling that buyers would rather contact them directly -- what's to stop everyone from buying and selling themselves? In this time of declining home values, I don't think anyone would complain about saving the commission cash.

And yet -- real estate professionals provide a real service. A Web site can't address individual purchase questions, give you a property tour, acquaint you with the perfect neighborhood for your price and space needs.

Why, then, has this dubious gift-giving practice seemed to have gone largely unnoticed? Is it a case of clever developers and agents creatively sparking market interest, or is it bordering on bribery?
And should it be stopped?

Because somehow, a gift certificate -- no matter how much it's made out for -- just doesn't seem like that wonderful a bonus if it threatens the future of the industry.

You Buy the Property, Someone Else Buys Your Agent's Love

With today's waning home sales, reports of real estate agents and developers offering unusual incentives aren't uncommon.

But what is unusual is that, in some cases, they're not offering the incentives to the buyer -- but instead to each other.

Take, for example, a recent Wall Street Journal article that featured examples including a builder offering a $5,000 American Express gift card to agents as a thank-you for selling a Long Island City, N.Y., condominium and a fully paid lease on a BMW for an agent who brought in a buyer for a New York City penthouse.

It may seem surprising given the housing market is in such a downturn and money is tight for developers and agents. (Exactly how much was that condo to warrant a $5,000 bonus gift?)

However, as the desperation to sell has risen, along with a need to lure buyers away from do-it-yourself sites like buyowner.com, the incentives are a way of attracting attention to the advantages professional services offer, the Wall Street Journal says.

Others agree:

• Beverly Hills-based real estate brokerage Incentive Real Estate Inc. announced a program just today that gives buyers 250,000 airline miles if they buy a new construction home valued at more than $500,000, according to Reuters.

• Agents in Seattle, according to the city's local Fox affiliate, have been known to urge homeowners to offer to spring for closing costs pay for home warranties to help sell homes.

The problem: Developers or other real estate agents enticing agents with incentives to a property traps the buyer in a bad situation. It's one thing if the buyer gets an incentive -- but when they're payin', isn't it a conflict of interest if their dealmaker stands to profit over and beyond the typical commission?

Some would say yes -- and it could be threatening the industry itself. Tune in tomorrow for more on the incentive debate.

Is a Rate Cut On the Way? Decoding the Fed Chairman's Speech

Federal Reserve Chairman Ben Bernanke gave a speech Monday on the Fed's recent and future moves -- and current take on the economy.

Some highlights of his talk, given to the New York Economic Club:

• The housing decline isn't over and will likely continue through 2008, dragging down growth.

• The mortgage sector still has room for improvement.

• We're not sure yet if rising credit costs will affect consumer spending.

• Bernanke viewed mid-August as a low point for the financial markets.

• U.S. economic performance so far this year has been "reasonably good."

So what's next?

It's unclear if the Fed will or won't offer another rate cut this year, but Bernanke's comments offered some insight as to what direction the Fed is heading.

The Fed had previously this year, while recognizing the growing housing problem, remained optimistic about it not crippling the economy -- in August, the Fed said it would hold its target for the federal funds rate steady because "although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

However, now the outlook isn't so rosy.

Bernanke said Monday that the financial market turmoil has "significantly affected the Committee's outlook for the broader economy."

Bernanke stressed the importance of using policy as a preventative measure -- the first ah-ha moment in his speech. Could that indicate the Fed is considering another cut?

Consider his comment about the current state of the economy:

"Since the September meeting, the incoming data have borne out the Committee's expectations of further weakening in the housing market, as sales have fallen further and new residential construction has continued to decline rapidly," Bernanke said. "The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year."

We all agree that's not good. But is it bad enough to prompt another cut?

We'll need to watch the following factors to decide -- which is what the Fed says it will be doing, too:

• Household and business spending. The Fed doesn't want either to fall. If either does, it indicates growth is slowing.

Rate cut translation: Maybe we won't offer a rate cut. Bernanke stressed through his speech that growth seemed OK.

• Housing market data. The Fed is concerned about increasingly difficult credit situations that may result from the housing market decline. Despite earlier this year placing more concern on inflation than the slump, the Fed now worried about the housing decline's effect on overall growth.

Rate cut translation: Maybe we will offer a rate cut. As expected, "sales have fallen further and new residential construction has continued to decline rapidly," Bernanke said. But just because the Fed anticipated it doesn't mean they're happy about it.

• Employment and labor income. If labor income rises, it is expected consumer spending will as well.

Rate cut translation: Maybe we won't offer a rate cut. Employment growth may be shaky, but it's too soon to tell -- and income appears to be solid, according to Bernanke.

Bernanke didn't offer any absolutes -- and said the Fed would take all factors into consideration. Yet his growth concerns and the Fed's increased acceptance that housing is still sinking and really is having a huge economic impact would indicate a cut is likely.

But he also said that "one must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises"-- which would imply a rate cut isn't likely.

Will the Fed cut the rate when they meet at the end of this month? Or will a cut come in the last two months of the year -- or not at all? Post your thoughts below.

Is Bankruptcy the New Hot Buy?

A good friend of mine is currently renovating a condo in an up-and-coming (actually, a somewhat-already-here) neighborhood.

The neighborhood has turned out to be a real find, so much so that a relative who works in real estate is thinking about buying down the street.

Now, this family member is a classy lady. I don't see her being interested in a fixer-upper, but rather a home that is ultra-modern, something hip.

New construction condo, I asked? The friend lowered her eyes, sheepishly. "No," she said, somewhat nervously. "She's actually thinking about buying a foreclosed property. It's for the investment. I know that sounds bad."

Does it? Buying a repossessed home doesn't hurt the person who has lost it. You're not taking it from them; the bank already did that.

No, Thank You

In fact, buying a repossessed home is helpful. We have an excess of properties in the U.S. -- yes, that's due largely to new construction continuing as buyer interest slowed down, but as more people default on mortgage payments because of increased mortgage costs, the housing supply is swelling.

To get home prices and value back up -- and to reignite a need for new construction -- we need to create a demand for housing. That's not going to happen unless we get rid of some if the homes sitting on the market -- instead of adding more.

After all, if a bank adds a home to the market instead of a buyer, it doesn't change the fact that there is another home on the market.

But why does considering buying a foreclosed property feel like taking advantage of someone else's disadvantage? Maybe it's the bankruptcy bad karma bug: Even if you're helping the economy out, you still feel like you're doing something wrong.

We Buy; We Wait

Real estate company New Home Experts has created an interesting program to encourage homeowners to put their properties on the market. They secure the sale by offering to buy the property if it doesn't sell in a set time period; it's provided consumer confidence, I'm sure, but it has also provided New Home with a lot of not new homes.

Therefore Holland Home Auctions, a company owned by New Home, recently announced it would hold its first Chicago real estate auction of around 150 Chicago and Wisconsin residential properties on November 10.

It's not a bankruptcy auction -- the company bought the homes last year from owners looking to trade up. But then why did Holland sound slightly on the defense -- in its own press release -- when answering the self-posed question about where the company obtained so many homes?

"Last year my company developed a new home purchase concept, the sure sell program, where my company buys the existing home and the consumer can buy their new dream home," Steve Holland, Holland Home Auctions CEO, said. "Our real estate auction event represents a small fraction of the large number of residential properties currently available in the Chicagoland real estate market."

Still, it's too many properties for Holland, who said the auction was planned because New Home Experts needs to reduce its inventory. (The U.S. economy can relate.)

The sure sell program is a great idea to alleviate homeowner market concern: New Home Experts will market your home at 5 percent above the appraised value for up to the first 30 days. If it doesn't sell, the home gets marketed at the appraised value for up to 60 more days.

Then, if it's still on the market, New Home Experts puts the house out there for 5 percent below the appraised value for up to 90 days.

If the home still hasn't sold after 180 days, the company will then buy your home at 90 percent of the appraised value.

So it seems, then, that New Home Experts had quite a few unsold homes on the market for almost half a year. At that point, it assumed responsibility for them -- for 90 percent of their assessed value.

However, Holland isn't marketing them now as price-reduced properties -- its press release said the auction "is geared to provide the general public with an opportunity to buy a quality home at perhaps a below market value." (Or perhaps a market or above market value.)

If Holland's auction goes well, selling properties at market prices, it could speak volumes for the company's ambitious home sale/purchase plan. If New Home has the capital to hold on to properties for as long as it takes in a slow market, great -- help out homeowners who can't but want to buy additional homes, please.

And more importantly: It could be a plan other large real estate companies test in the coming months to up buying and selling in the residential market.

But if a chunk of New Homes' 150 auction-ready properties don't sell next month, where will those properties go? Likely back on the market to ready for year two. And we're back where they -- and we -- started.

Not All Real Estate Insiders Fear the Worst

Yesterday, we discussed the housing slump's effect on real estate agents -- which, in many areas of the country, isn't looking pretty.

And yet, as the housing slump drags on, the National Association of Realtors remains overwhelmingly positive.

Just this week, the NAR said that mortgage conditions are improving and that while sales are down from their 2005 peak, 2007 will mark the fifth-highest year on record for pre-owned home sales.

That's indicative of NAR's other recent forecasts. In July, the NAR said it expected home prices to increase throughout all of 2008; yet it at the same time decreased its estimate for those increases from 2.6 percent to 2.2 percent.

Buyers, the NAR said, had an " overwhelming advantage" because of the large amounts of homes on the market.

That's the most sunny spin anyone has given the overstocked housing supply in a long time -- and some were quick to question NAR's outlook.

"No one is buying into their Kool-Aid; that's why prices are falling," Paul Kasriel, chief economist with Northern Trust in Chicago, told CNNMoney.com. "It could be that they're going to fall a lot more. The Realtors tend to be overly optimistic. Eventually they'll be right about prices turning around. I don't know when prices are going to stabilize but I suspect they'll fall more than they think this year. It may be a much better time to buy six months or a year from now."

Fast forward to September ...

Tighter credit restrictions had been put into place and pending home sales had dropped, and the group had not only by this time decided 2008 home prices wouldn't be as upwardly inclined but actually revised its existing home sales estimate from a 6.8 percent decline to an 8.6 percent one.

NAR also predicted the decline would continue through next year. However, in that same report, NAR said that existing home sales and prices and new home prices would increase in 2008 -- after hitting a low point early in that year, according to Bloomberg.

Again, NAR cited the excessive amount of housing on the market --“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” NAR economist Lawrence Yun said.

Sunny Sales Days May Be Here Again

With all the recent negative housing news, why would the NAR be so optimistic?

Probably in part because their life -- well, livelihood -- depends on it. Home prices and sales are down, but that doesn't change the fact that Realtors are employed to sell them -- and some homes are still selling in this country, albeit at a much slower pace than before and for less money.

New construction slowed to its lowest point in 12 years in August, and the bloated housing supply would indicate sales will slow further. In addition, stricter lending rules have shrunk the pool of first-time home buyers Realtors could draw from.

But does that mean the NAR's predictions are too positive? Maybe. But then again, no one six months ago thought the housing slump would last this long: It's hard to predict anything in the current market. And its ripple effect just keeps on spreading.

Maybe the correct question isn't do you agree with NAR -- but instead which side do you favor, hope or hopelessness?

Meet the Latest Housing Slump Victim: Your Real Estate Agent

The housing slump has hurt U.S. construction companies, banks and a number of related industries, from home renovation material retailers like Home Depot to power tool companies.

And let's not forget real estate agents.

How are they faring as the market crumbles? Not well, according to a number of recent reports.

For the first time in a decade, the National Association of Realtors expects membership to decline this year, the Associated Press reported this week. Last year, the NAR had almost twice its 1997 membership.

Realtor income has also dropped -- falling on a national level from $49,300 in 2004 to $47,700 in 2006, according to the National Association of Realtors. That may be the result of real estate agents cutting their typical 6 percent rate for a lower commission in order to land a sale.

A brief snapshot of Realtor life around the country:

• Slowdown in S.C. South Carolina is adding about 500 new real estate agents a month, but the rate of new agents is declining, AP says. The number of new real estate licensees grew at an average of 45.3 percent annually from 2002 to 2006, but in the past year has fallen to a 1.4 percent increase.

• Vegas' Top Magic Act: Disappearing Realtors. Las Vegas was one of the hardest hit areas in the slump. That's because it saw one of the biggest booms: And as it did, the overall number of Nevada licensed real estate agents leapt to 36,785 in 2006 from 17,718 in 2000. But now, 21 percent of the 37,000 licensed real estate agents in the state have become inactive has of this month, according to the Nevada Association of Realtors 2006 State of the Industry Report.

• A Market Test in Virginia. The number of real estate exam applicants in Virginia dropped 45 percent in the first six months of 2007, compared to the same period in 2006, according to the Virginia Department of Professional and Occupational Regulation (as reported by the Roanoke Times).

In short: Don't expect to see a plethora of "SOLD" stickers added to those For Sales signs in your neighborhood anytime soon.

Data would imply the real estate industry is struggling -- but the industry's reaction to the recent bad housing news might surprise you.

Curious how Realtors are handling the slump? Tune in tomorrow for part two of our look at the state of real estate.

China's Real Estate Market Giving Developers Deep Pockets

This week's news that property moguls landed three of the four top spots on Forbes Asia's annual list of the 40 richest people in China highlights an interesting trend -- China's real estate tycoons.

That includes 26-year-old Yang Huiyan, who was named the richest person in China this week, with shares of the development company her father founded, Country Garden, valued at about $16 billion.

As the U.S. sinks further into housing despair, China's residential sector is booming. Real estate investment development grew 29 percent in the first eight months of 2007 to 1.4 trillion yuan, or $186.5 billion, the International Herald Tribune reports.

Why All the Excitement?

China's stock market is seeing its value rise along with the country's booming urbanization -- causing, naturally, a need for housing. As such, developers are busier than ever, and many are opting to go public to take advantage of the strong stock market.

That's a treat for international investors who are eager to add a bit of China's economic strength to their portfolio, Forbes.com says.

Some successes:

• Shares of Beijing property developer Soho China soared 15 percent Monday on their first day of trading, the International Herald Tribune reported. It raised nearly $1.7 billion -- as much as Google raised in its 2004 initial stock offering in the U.S.

• Morgan Stanley has helped raise $6 billion over the past three years by taking eight Chinese real estate companies public, including Shimao, Agile and Country Garden.

But Is It Too Much Excitement?

China's real estate market is so strong, in fact, that the government has recently tried to curb it with mortgage interest rates and investment-geared apartment down payments.

That's a smart approach to not only try to control rising housing costs but to also prevent a real estate market bubble similar to the current U.S. situation.

However, it's not clear if it's working. Housing prices are still rising and real estate stocks are still hot, according to the Herald Tribune.

Is China poised for a housing decline? Consider the fact that last year's richest person in China, according to Forbes, was retailing entrepreneur Wong Kwong Yu, said to be worth $2.3 billion.

And now, just a year later, the richest citizen is sitting on $16 billion? That's a big increase, indicative of the big money that's flowing through the real estate market and around China right now.

The U.S. situation may be unique in many ways -- true, our banks' and credit agencies' subsequent credit crunch didn't make the economy better (and may be causing more pain as lenders who found loans several years ago don't qualify for new ones and housing defaults as rates rise).

Some may argue that the U.S. housing boom was fueled by pushing people into homeownership with risky programs before they were financially ready for the responsibility, and not by rapidly growing urban centers and population need, as in China.

But examine how much money real estate could add to a person's holdings in a year in China -- making that person's wealth replace the nation's richest person's seven times over -- and one wonders, no matter what factors are causing the housing boom, if China's economic dependence on it makes China any safer.

Kitchen Supplier Arrives in the U.S. Mixing Style and Green Design

Did you know that October is National Kitchen and Bath Month?

It is, and although we didn't get them a thing, Italian kitchen designer  Ernestomeda last week gave Chicagoans a new kitchen store/showplace to celebrate.

We're the first in the country to host Ernestomeda, currently nestled snug in our Merchandise Mart, which opened in 1930 and has since become the world's largest commercial building and largest wholesale design center.

More than 60 percent of the Mart is showrooms. It was Kennedy-owned (they sold it in 1998) and sees more than 3 million visitors a year.

Some of them stop off at the Mart's 29 LuxeHome boutiques, more than 100,000 square feet of space featuring the finest kitchen and bath products for luxury home building and renovation. It's open to the public, builders, architects -- just about everybody.

As such, many kitchen designers are debuting renovated showrooms or new products this month at the Mart, and likewise, the  Ernestomeda showroom is debuting the company's Barrique and Elektra designs (shown, left), which DuPont Building Innovations, Public Relations and Media Relations Manager (Europe, Middle East, Africa) Claudio Greco says is one of Ernestomeda's most exciting lines.

Barrique is a wine-lover's dream: a designed homage to the tradition of Italian winemaking, its Chicago display features some of Italy¹s finest vintages (which is enough to make me want to buy it, but I think I'm what is considered an "easy sell.").

But what's interesting is Ernestomeda's designs aren't just sleek -- they're sustainable, too.

Take, for example, its Corian surface material, which has a number of green qualities (and is pictured in the Elektra-style kitchen featured above):

• It's good for the air (even if you burn dinner). DuPont(tm) Corian(r) solid surface has been designated by the GREENGUARD Environmental Institute (GEI) as GREENGUARD Indoor Air Quality Certified. (And so have the sealants and adhesives used to install it.)

• It's made close to home -- wherever home is. Corian designs and installations are manufactured locally by a network of 4,000 DuPont Certified Fabricators/Installers, thereby reducing environmental impact from transporting finished products long distances.

• It's environmentally independent. Corian doesn't react readily with other chemicals, so it has a low impact on both indoor and outdoor environments, including ground, vegetation and water resources.

• Corian can be reused. Unlike natural stone, homeowners can buff out stains or scratches easily, minimizing the need to replace or toss it. It can also be removed, re-sized and installed elsewhere or as part of a new design.

In addition, using  Corian for a number of specific installations can help construction projects earn LEED points in several categories, including Materials & Resources and Indoor Environmental Quality.
 
 Chicago has some green building suppliers -- Greenmaker, for one, which offers recycled glass countertops to cork flooring. We also have a mayor who fully supports green building and has said he wants Chicago to be the greenest city in the nation. (Ever since Men's Fitness named us the Fattest City in America in 2006, we've just gotten so competitive!)

But we're not crawling with them -- and the truth is, working with a supplier who understands LEED certification, if that's your goal, or even just one who knows the different sustainable material options  makes building green a whole lot easier.

The industry wants more green material options, more water and heat conservation methods, more ways to reduce construction site waste. As green building continues to catch on, we're seeing a lot of personal innovations in residential design -- wind turbines added to roofs; unlikely materials given a second life as flooring. That's part of the excitement of this field -- no idea seems impossible, and a little trial-and-error may lead any homeowner to discover the Next Big Green Building Thing.

But that process takes time. That's why we're welcoming outlets like Ernestomeda -- as our citizens test out new ways to tap solar energy, our retailers are creating new indoor fixtures that offer style and sustainability.

Hopefully Los Angeles feels the same way: Ernestomeda's second U.S. location will open in LA in late 2007. And if that makes them greener than Chicago well, we already lost the Fattest City title this year to Las Vegas. (We didn't even make the top 10. Shameful.)
   

Lower Home Values Aren't Halting Higher Property Tax Bills

Sinking home sales, lower home prices -- we're all feeling the effects of the housing decline. And many of us are paying for it, thanks to higher loan resets.

But reports indicate that the decline will soon hit homeowners in a new, costly way: Via property taxes.

It seems wrong that property taxes could possibly be rising, when home values and selling prices are dropping across the nation. (Housing prices in the top 20 U.S. cities fell 3.9 percent in July from 2006, according to a recently-released Case-Shiller index.)

However, because many counties assess properties every other year (some take even longer), many properties are being taxed on their value from last year -- during the housing boom high.

The result: A one-two punch of rising mortgage costs and a huge tax bill. Consider the following:

• In Montgomery, Ala., the housing downturn isn’t reflected in this year’s tax notices because property values were calculated for tax purposes as of Oct. 1, 2006, Montgomery revenue officials say. As a result, some areas saw a tax increase of 20 percent, according to the Tuscaloosa News.

Given that area home sale prices showed a median value of $136,900, the tax base for average residences was between $13,695 and $19,556.

• In Massachusetts -- which has seen property taxes rise a massive 50 percent  since 2000 --  more than three-quarters of the cities and towns raised property taxes in 2007 to just under the limit allowed by law, according to the Department of Revenue.

The average tax bill for a single-family home rose 4.2 percent from last year, the Boston Globe reports. The 2007 Massachusetts tax levels are based on a January 2006 assessment -- which is particularly dangerous because the levels really reflect 2005 residential values, when the housing industry was markedly better.

As a result, taxes this year climbed 7 percent or more in 65 communities. (And I am suddenly more clear on why my grandfather used to lovingly call his home state "Taxachusetts.")

With these huge tax bills, homeowners may find themselves in a tough financial situation -- prompting them to try to sell. That's no easy feat and a move that would add more surplus to the housing supply.

The higher taxes could also force some homeowners into default, eventually adding to the country's already ridiculously high foreclosure rate.

The property tax lag is also proving to be a major headache for local governments.  Like Massachusetts, Arizona's Pima County is concerned about what affect the taxes will have on state funding. Arizona's housing valuations are a year to 18 months behind what homeowners see on tax bills, according to the Tucson Citizen. The bills mailed last month reflect spring 2006 property valuations.

The county is now realizing that, although for the past few years it came to expect large amounts of revenue from its residential industry, in the next two to three years, the continued decline will significantly reduce what is added to county resources.

As a result, the County Board of Supervisors is considering raising the county's combined property tax rate; cutting program and service spending or increasing sales tax to offset the decline. (Which would, of course, add to cash-strapped homeowner's financial woes.)

That's a situation more communities are likely to face as the housing decline continues.

Is it too progressive to ask communities to reconsider their property tax system and change it to more closely reflect real values and assist homeowners suffering from the current housing crisis?

What if local banks, which were mentioned as a possible homeowner re-fi funding source in a blog last week, launched aggressive programs to reach out to at-risk homeowners in community areas that have received the biggest property tax hikes?

There are a number of suggestions we can make; but in the end, it's up to the communities to address the issue before they find themselves short on finances. We're all unhappy that our home values are low and our taxes are high -- but nobody wants to see the situation cause funding shortages and teacher lay-offs.

The Housing Slump Won't Cause A Recession

... at least, not according to today's report on the economy.

Data released by the Labor Department today showed that wages and jobs were both up in September. That's good news for the U.S., considering the recent dour housing news -- the National Association of Realtors announced this week that its index of signed purchase agreements fell to lowest level on record, and residential building hit its lowest spending level since 2003 -- had sparked fears we were tumbling into a recession.

And, as it turns out, last month wasn't as bad as we thought. In August, figures indicated the U.S. had experienced its first job loss in four years, causing economists to use the "r" word; however, revised figures show the economy actually added 89,000 jobs in August -- not the 4,000 first estimated by the government.

Some additional good news:

• Employers upped payrolls by 110,000, the most in a single month since last May, the Associated Press reports.

• The new 4.7 percent unemployment rate is the highest since the summer of 2006, but is still low compared to the rate's historical record, according to AP.

• AP also reported that the employment news helped the stock market today -- Dow Jones industrials rose more than 100 points, AP says.

But Before You Break Out the Champagne and Start Dreaming About Investment Properties ...

Unfortunately, the good job news didn't necessarily extend to the housing industry (and related sectors).

The Labor Department said construction firms cut 14,000 jobs last month, residential specialty trade contractors cut 15,000 in September (and 160,000 since February 2006) and financial services companies cut 14,000 jobs.

In addition, despite U.S. wage increases that should have put more money in shoppers' pockets, the retail industry -- long considered a strong economic indicator because it reflects consumer spending -- eliminated more than 5,000 jobs, according to AP.

So what sectors added to the job gains? Education (don't forget -- it's back to school time) and health services, professional services, leisure and hospitality and government.

The Economy -- and Housing Industry -- Still Has Some Work to Do

While we might not be recession-ready, we're not out of the woods yet. A few reasons:

• Job growth may have been up last month, but it has slowed. An average of 97,000 jobs a month were created during the third quarter, down from a 126,000-a-month average in the second quarter, according to IndustryWeek.

• Economic growth is declining, too. Economic growth expanded at 3.8 percent pace this spring; it's now thought to have slowed to a 2.4 percent or less pace in the July-to-September quarter, according to AP. It may slow further before the end of the year.

• Unemployment is expected to rise. It already has --- just last week, there were 16,000 more first-time claims increased than expected (economists had predicted 310,000, according to Forbes.com.). AP reports that some economists think the unemployment rate will hit 5 percent this year.

That's still not considered a dangerous high point -- however, it is higher. And given the recent negative housing market news, the slump is likely to pull the economy down a bit further before it rebounds.

But it's good to know, at least, that the Labor Department -- and the media -- don't think the residential sector's problems will lead to a recession problem. At least not today.

The Homeowner Everybody Loves to Hate

As the mortgage default and, accordingly, the foreclosure rate rises, one party has emerged to take the fall -- the at-risk homeowner.

Some are homeowners who used their home's value to fund other purchases. Others are new homeowners who bought using a loan that, given booming home prices, assumed their property would appreciate significantly before being refinanced or sold. Many are people who took out a subprime mortgages, loans typically made to people with weak credit histories that will rise in a few years.

And rise they did. More than $350 billion adjustable rate mortgages will reset to higher rates in the next 18 months -- and the economy is bracing for the result.

And, while bracing, it's blaming a little, too. Prime homeowners are wondering: How did these at-risk homeowners get in this situation? And why haven't they gotten out of it?

Consider the following possibilities:

• They bought because they needed the money. Joseph Mason, an associate professor of finance at Drexel University and a senior fellow at Wharton, said last week that many subprime borrowers' home payments were less or about the same as renting, and they felt they could use the equity to pay other bills.

• They bought a home on the bubble's peak. The markets that had the biggest housing price and value spikes are the ones most dangerous loan-wise. The harder they rose, it seems, the harder they are falling.

More than a third of all adjustable subprime loans in the U.S. are in California, Nevada, Arizona and Florida, according to the Economist. Given those states are some of the hardest hit in the housing slump, with the largest home value and price drops, it pushed at-risk homeowners right to risky. California alone has 17 percent of the country's subprime ARMs, which is why in Riverside and San Bernardino counties, 1,900 houses were repossessed in August -- compared to 31 in 2006.

• They tried to refinance and couldn't. Homeowners who had signed up -- either knowingly or unknowingly -- for high-reset-prone loans several years ago under programs now deemed too risky may have found their finances didn't lend to more traditional loans.

Roughly 57 percent of mortgage broker customers couldn't refinance their adjustable-rate loans to avoid higher monthly payments in August due to loan programs being discontinued, Reuters reported in September. Half of prime borrowers were turned away from ARM refinancing; 64 percent of borrowers with subprime, or weak, credit couldn't refinance.

In fact, 14 percent of brokers back then said they had no available subprime lender -- not one, according to the poll of 1,744 brokers by Washington-based research firm Campbell Communications. 

• They defaulted because they didn't know. Is it possible that a large percentage of homeowners had no idea the rate change was coming, and once it hit, weren't financially prepared to pay it? Data showed that up to 10 percent of borrowers who didn't refinance but were making payments before the reset defaulted once it hit, says ratings agency Moody's -- who also found that most large servicers sent letters to borrowers warning them their interest rates were about to reset, not phone calls, which would have offered confirmation that the rate change was conveyed, according to the Financial Times.

The possible reasons are varied; but one thing is clear -- much of America doesn't feel too sympathetic.

Just take a look at the comments CNNMoney.com readers are posting: "To all of those people who use their property as an ATM machine or obtained very low initial rates mortages, keep in mind that you always have to pay the piper ... you already enjoyed quite a bit now is time to pay," one New Yorker wrote.

"Nowhere in the constitution does it say that the government has the power to bail out stupid people and greedy corporations," another poster from Utah said.

"People taking out these ridiculous loans during the housing bubble were morons and they deserve to lose their money" -- that one came from Seattle.

The sad truth is, even if they don't deserve to lose it, it's looking more and more like they will.

Three Ways to Fix the Housing Crisis

Yesterday, we touched on the current housing market woes as the National Association of Realtors proclaimed that its index of signed purchase agreements dropped to the lowest level on record.

And today, we're looking for a side of hope to go with that gloom and doom. No one's arguing that the market is bad -- and probably about to get worse -- but good news: Some people and programs are trying to turn it around.

• Help with lending. Homeowners finding their bank isn't giving them a decent rate due to the bank's problems or imperfect credit might benefit from trying one of the country's smaller banks, which are offering more flexibility in some cases than larger lending institutions can. Small banks aren't guaranteed to grant all homeowners a loan, of course, but because their loans are funded with customer deposits, rather than capital markets, they have more security -- and more freedom.

Take, for example, the Annapolis Community Bank, which has closed $9 million in loans since February and assumed loans from mortgage companies whose lines of credit were taken away.

Annapolis says it will take on a degree of risk with some new loans -- which is bringing in a lot of business. "We're so busy it's not even funny," Eric Edstrom, president of Annapolis Community Bank, told The Capital.  "We've stepped up and helped out. It wasn't something that we anticipated, but there are people out there we thought we could certainly help."

Will small banks save the entire residential funding system? Not likely -- because they're financially self-sufficient, their reserves are clearly limited. But redirecting some in-trouble homeowners to community banks could help prevent some foreclosures.

• At-risk homeowner help. The White House is trying to help homeowners with a tax break -- but whether or not it will be a permanent one remains to be seen. The Mortgage Forgiveness Debt Relief Act, approved last month by the House Ways and Means Committee, would allow borrowers to avoid counting cancelled mortgage debt as taxable income as long as the debt is from a primary residence.

However, the Bush administration wants the tax relief to be temporary; the House tomorrow is expected to approve the bill and permanently change the tax code, according to AFX News.

• Educate early and often. Washington Mutual this week announced an ambitious program to make sure homeowners understand all aspects of the lending process before they close on a property. The lender will require all brokers it works with to submit evidence that they have disclosed all mortgage fees early in the application process, so there won't be any surprises. Plus a WaMu representative is going to attempt to call each borrower to go over all loan terms.

Foreclosures reached a new high in the second quarter of this year. Teaser loans and programs that lured homeowners to buy with low rates, little or no money down and, in some cases, essentially fund their new home with its projected equity have been widely blamed for contributing to the foreclosure rate.

True, housing was on a contagious high a few years ago, as home values and new construction boomed. Buying real estate was billed as THE investment to make, with a sense of urgency to make it soon, before the unbelievably low rates increased. That prompted many homebuyers with low cash reserves, spotty credit and other problems not conducive to homeownership to jump into the market, however they could.

Yet if these borrowers understood how risky the programs they agreed to in order to buy a home were -- and exactly what their loans might reset to in 3 to 5 years when the original terms expired -- it's unlikely all would have agreed to the purchase conditions.

But they did, and now we have to find a way to help them -- and everybody else -- crawl out of this housing crisis.

Even if you feel the at-risk types made their own bed and need to lie in it (before the bank comes to repossess it), the truth is, they're greatly adding to the default rate ...

... which is hurting the nation's banks ...
... which, in turn, are tightening lending, causing more defaults and bankruptcies...
... which is adding more housing to the already bloated housing supply ...
... which is dragging down home prices ...
... which is ultimately hurting new construction and home sales -- and your wallet.

Agree? Disagree? Have a totally different take on fixing the housing decline? We want to hear it -- post below or e-mail us for inclusion in a future post.

New Homes, Old Homes, Not Sellin' Homes

More dour housing market news -- The National Association of Realtors announced today that its index of signed purchase agreements fell 6.5 percent to its lowest level on record.

(Now, granted, the NAR has only kept a record since 2001, but it's hard to feel much better when you still consider that means the least amount of people in the U.S. in six years decided to buy previously-owned homes in August.)

Given that the index of signed purchase agreements fell 11 percent in July, it's not exactly a total shock -- but we've read too many "lowest point" and "new low" headlines in the past few months to not shudder a bit at the news.

And take a look back at August 2006? Home sales are down 22 percent. (That's worth at least a shudder, maybe even an upgrade to a loud shriek.)

So now, we can add poor pre-owned home sales to the list of ingredients that have been carefully blended into the recipe for a housing crisis (mix with water, market panic and bake at 350 degrees for about three months), including:

• Stricter lending guidelines. More than 10 percent of signed contracts in August fell through because buyers couldn't secure financing, NAR senior economist Lawrence Yun told Bloomberg.

• Higher borrowing costs. As many as 2.5 million homeowners with ARMs secured when rates were super low are going to see their rates reset this year. Many of them, lured in by enticement rates and mortgage incentive programs now commonly judged too risky to offer, are in for a big cost jump. (And if they have credit issues, the harsher lending guidelines aren't going to help.)

• Sinking home values. Home prices in the top 20 U.S. cities fell 3.9 percent in July compared to 2006. That's a dangerous situation for homeowners who took out home equity-based loans several years ago when the market was solid. The Financial Times declared last week that subprime mortgage homebuyers who thought their equity would increase enough to let them refinance before rates increased may become very familiar soon with three new words: negative home equity.

Higher borrowing costs, stricter lending practices and plummeting home sales and values have led to a string of defaults. Perhaps that's why Morgan Stanley announced today it will be focusing on its mortgage servicing business - which in part handles delinquency payments -- and laying off 600 employees in its residential mortgage business.

It makes sense, as we know consumers aren't buying new homes -- private residential building dropped to its lowest spending level since November 2003 in August.

New home sales are down. Previously-owned home sales are down. Home values are falling. It seems, unfortunately, that the market is due for some more bad news.

How can we dig ourselves out of the housing market hole? Thoughts on reversing the residential decline in tomorrow's MHN Out and About blog.

LEED for Homes: Almost Ready to Move In

In just over a month, the U.S. Green Building Council will roll out its LEED for Homes standards.

Since August 2005, 6,000 home projects have been part of the LEED pilot program, ranging from large -- like the 44-home development in Walker, Mich., to small -- such as the 1960s-era home in Phoenix being remodeled with environmentally-friendly paint, carpet and other materials.

(A complete list of certified projects can be found on the LEED site.) We've been talking about this for ages. But what does LEED for Homes mean for the industry?

What to Expect from LEED for Homes

The final standards will include efficient use of energy, water and natural resources; waste reduction and take into consideration homeowners' health and comfort.

We've gotten glimpses of the program as it progressed in recent months. In late August, LEED published the first comments from its pilot program participants (and responses). Questions varied from expanding the accepted types of forest product certification to more clearly defining certain terms.

And we know the LEED goals: LEED says its new standards will help create living spaces with lower energy and water bills, reduced greenhouse gas emissions and less exposure to indoor toxins like mold and mildew. The net cost of a LEED home will be close to that of owning a conventional home, according to LEED's Web site.

Who Will Use It?

Is there a need for LEED to create residential building green standards? Sure. There are more than 70 local green building standards in the U.S. -- having one national standard and the option for assessment and certification isn't a bad idea.

However, the new LEED for Homes system will (of course) be voluntary -- and it will cost you. Documentation and verification fees will vary based on home size and certification level, but LEED estimates that the initial verification tasks will cost $500 to $2,000 per home.

In today's tough real estate market -- let's not forget that on Friday the Commerce Department announced residential building had hit its lowest spending level since 2003 -- adding $2,000 to new home construction costs may not be something homeowners are too happy about, even if they will see savings down the line.

Challenges the Plan Faces

Cities and developers have accepted and embraced LEED's commercial green standards; it remains to be seen if they will frequently use LEED's residential set.

Will cities offer green building incentives that will help out both large-project developers and homeowners building their own house? Will local and state governments consider legislature requiring developers -- who have a greater overall impact than small builders and contractors -- to include some green practices in their new developments?

Jay Hall, the acting program manager of LEED for Homes, told industry professionals at the West Coast Green conference that smaller projects would be harder to certify, USA Today reports. However, the USGBC is creating guidelines for green home renovations.

We'll see if the residential industry wants to build green -- or if it's more concerned with saving some.