MHN Blog

Economic News Makes for a Mixed Forecast

News today from the Commerce Department that consumer spending barely increased last month--and, if you consider inflation, didn't at all--along with a higher amount of unemployment claims doesn't indicate our economy is doing all that well.

And yet, some signs exist that the worst of the current growth problems may be over:

• Wall Street Feels Good. CNNMoney.com reported this week that real estate developer- and operation-related stocks have risen from recent low points. (They also rose in the past two days based on the anticipation and announcement of the most recent Fed rate cut.)

• The Stimulus Plan Offers Hope to Some Organizations. The House approved President Bush's stimulus plan Tuesday; the Senate may do so by the end of the week--a move the National Association of Realtors says will start turning the current housing situation around. The NAR isn't so focused on the money Americans are set to receive as part of the plan to increase consumer spending; but the plan's stipulation to increase Fannie Mae and Freddie Mac's loan limits has the NAR excited. An economic impact study conducted by the real estate agents' organization this month said the new government-sponsored enterprise limits could result in as many as 500,000 refinanced loans and help prevent 210,000 foreclosures.

And yet, of course, signs also indicate that we haven't seen the last of the housing decline, economic troubles or recession talk:

• GSEs May Not Be Able to Save the Day. As the Seattle Post-Intelligencer points out, Freddie Mac and Fannie Mae getting larger limits may not have the effect the government hopes: Freddie Mac recently announced a $5.5 billion loss over the next two years related to bad loans, and both have debts or guarantees of about $5 trillion that have been leveraged without much cash. So will giving them the OK to finance larger loans really help much?

• The Unemployment Rate Rose. Recent Labor Department data showed unemployment hit a 27-month high last week; however, it should be noted that adjusting for the Martin Luther King Jr. Day holiday may have thrown those numbers off, according to Bloomberg. (Things may become clearer tomorrow when the Labor Department releases its monthly report.)

• People Stopped Spending. After much speculation, the numbers are in: Consumer spending was less than spectacular during the holiday season. Sales at retailers during the typically golden holiday season increased a paltry 2.2 percent--the smallest rise in five years, the International Council of Shopping Centers said. It also appears the rising amount of personal debt--and economic fear--is taking its toll. Profit at the third-largest U.S. credit card company, American Express Co., sunk 9.9 percent after the company set aside more funds for customer defaults.

And that all leaves us ... just as unsure as we were last week about when the economic downturn will end and what damage it will do.

However, one thing is certain: We're likely to receive mixed reports and conflicting data for several weeks, if not months, until the economic situation visibly--and vastly--improves.

What will that one, clear sign of economic turnaround be? We're not sure--but we'll be looking for it.

Second Fed Rate Cut: Not Too Little, But Maybe Too Late to Ward Off a Recession

While the second Fed rate cut in a month--announced Wednesday afternoon--wasn't a huge surprise to the financial community, the thought process behind it was: The Fed's scared, and that doesn't offer much comfort to those worried about an impending recession.

The new cut brought the benchmark Federal funds rate down by half a point to 3 percent and followed an emergency reduction eight days ago, which lowered the benchmark interest rate by three-quarters of a percentage point.

Wall Street had widely expected the reduction--stocks ended the day Tuesday "sharply higher" because of anticipation that the Fed would offer an interest-rate cut of at least half a percentage point today, according to Forbes.com--but still reacted strongly to the new. Stocks rose within minutes of the announcement.

Why? Well, the economy stinks--according to news this week from Washington that included the lowest new home sales rate since 1995 in December and a ridiculously slow growth rate (which plummeted from a 4.9 percent pace to an annual rate of 0.6 percent in the fourth quarter), thanks in part to a 24 percent drop in homebuilding that was responsible for pulling 1.2 percentage points off growth.

That big building decline was the eighth consecutive one for residential construction--and the biggest drop since 1981, which is, coincidentally, the last decade in which the Fed went on a rate-cutting spree. All summer, the Fed maintained that inflation was much more of a concern than housing for the overall economy--now, it's singing a different tune.

The Fed said today it "expects inflation to moderate in coming quarters," and although it will continue to monitor "inflation developments," cited the "deepening of the housing contraction" as a major concern.

Pick up any newspaper or read an article online and it's clear much of the financial industry agrees. It's never a good sign when reports are comparing current data to data from the Great Depression; and the Fed hasn't cut rates this fast since I had a perm.

The government clearly has had a reality check in the last month: They're proposing all kinds of ways to revive our sagging economy. The House approved President Bush's stimulus plan today--if the Senate follows suit, cash rebates will soon be making their way to our mailboxes and, Bush hopes, will boost consumer spending. The Fed said its back-to-back January cuts were designed to promote steady growth in the coming months.

But the true effect of both measures remains to be seen. Was the Fed a little late to the game in recognizing the harmful effect the housing decline was having on the economy? And will offering two rate cuts in a month really safeguard the U.S. economy against the recession and speed up growth?

Post your opinion and let us know what you think about the Fed's move.

Housing Sites' Success May Push Real Estate Agents Out of the Picture

The housing slump hasn't been easy on real estate agents, but they're now facing a new threat--online listing sites, which are booming despite the continued decline of home sales in the U.S.

According to an article in yesterday's New York Times, companies like Redfin, an online brokerage, Zillow, Terabitz and Trulia have seen sales rise this year as the housing market sank.

Trulia, Zillow and Terabitz execs compared online real estate sources to the Web-based travel agencies that offered an inexpensive alternative to traditional agencies after Sept. 11, when travel wasn't selling.

For Trulia, Zillow and Terabitz, success seems understandable; we've been hearing reports for months that the more-costly print real estate classified ads are down at many of the nation's largest newspapers.

A Classified Intelligence and RealtyTimes.com study late last year showed that almost half the real estate agents surveyed said they had increased their advertising and marketing budgets from 2006--but only 15 percent said they advertise in print.

Which might be why in November Zillow and 11 newspaper publishing companies--representing 282 U.S. newspapers--announced plans to partner and offer for-sale listings and open house information via Zillow.

Agents are looking for cheaper alternatives that can reach more people--and the Internet is a likely candidate.

However, unlike the other sites, Redfin, based in Seattle, doesn't deal with brokers and agents; the site acts as both, arranging deals, home visits and other services for a lower fee than a traditional agent.

Since late September, the share of real estate sales in which Redfin represented the buyer increased by 23 percent in Seattle and swelled by 176 percent in the San Francisco area, according to the Times.

San Francisco, I get: California is one of the states most affected by the housing slump. After seeing astronomical highs during the housing market's peak, its real estate industry is struggling--especially high-priced properties, which are hard to purchase or refinance as more banks become hesitant to make the jumbo loans a pricey property transaction requires. That's an issue in San Francisco, where the median home price was $770,000 in the third quarter of 2007, according to a recently released Center for Housing Policy study comparing home prices to average income.

The national decline of home prices and sales means it's budgeting time for many home sellers--they don't want their homes to sit on the market and they don't want to take too much of a loss (or any) because home values have declined since they purchased the place. And that can mean cutting out agents to save paying a fee.

But Seattle? Redfin's success in the Emerald City is more perplexing. Standard and Poor's Case-Shiller index, released today, said Seattle is one of the only urban areas in the country that had rising home prices in 2007. Which would indicate a healthy market--and no immediate need for cost-cutting sale techniques or new promotional methods to sell homes.

So it's a little bit scary that Redfin's success rate in that city is so high. Redfin bills itself as a "smarter way to buy and sell your home"--could it be the homeowner market is starting to agree? And what can agents do to combat the growth of real estate sites that aim to replace them?

There is one big difference between a sales site and a sales agent--one is in the real world, and the other in a virtual one.

Stress that the benefits an agent can give--assistance, neighborhood expertise, years of market experience--far outweigh any slight savings a real estate Web site might offer. Put that statement in your marketing materials, on your Web site, on your business card.

The same goes for brokers--make sure your clients and potential clients know that a personal touch goes a long way.

Seattle may be one of Redfin's best markets (and, as home to Microsoft, a generally technology-loving town), but it still has a need for agents. When my sister and her husband bought a house about a year after moving to Seattle, they used a real estate agent--who explained to my Midwestern sister why buying a house in their climate made of wood wasn't a bad thing (hailing from Chicago, she thought only bricks or aluminum siding made decent home exterior material--in the same way she thought all pizza was four inches high).

The agent showed them a neighborhood they hadn't really considered and a house they didn't know existed: both of which they now love. When they moved in, she continued to be a source of where to shop, where to dine, where to park: exactly what you'd expect an agent to know; exactly what makes the transition of moving from one place to another so much easier.

And, because my sister and her husband were young and new to the area, the agent and her husband invited them over for dinner--and became their first friends in their brand new neighborhood.

What Web site can do that?

The Part-Time Homeowner, Continued

Baby boomers are embracing fractional ownership of vacation properties; but this isn't your mother's timeshare (even if it is).

Instead of buying a place they'll only use a few weeks a year, an increasing number of homeowners are opting to buy into a destination or resort club, vacation condo or other partial ownership property. And it's created a unique second-home market.

According to the U.S. Federal Trade Commission, there are two basic kinds of vacation ownership: timeshares and vacation interval plans. Both require an initial purchase payment and ongoing maintenance fees.

In a timeshare--a unit which you own for the number of years stipulated in the purchase contract or until you sell it--your interest is considered real property. You can rent, sell, exchange or will your unit. Along with other timeshare owners, you own the resort it exists in.

However, in a vacation interval property, a developer owns the resort. You purchase the right to use its condos or units for a specific time period, such as a number of weeks a year, or for the equivalent of a number of points. Vacation interval plans also can include fractional ownership, in which you purchase a large chunk of vacation ownership time, usually 26 weeks or less, and biennial, which lets you use a resort every other year.

The contracts often don't last forever; usually they're good for between 10 and 50 years. But, perhaps most importantly, the interest you own is legally regarded as personal property.

To the low-maintenance vacationer, that may sound great. However, purchasing a portion of a vacation home has its risks--as well as its rewards.

How do you know if it's right for you? A few questions to ask before you buy:

• How much will you use the property--and when? Fractional ownership deals are great for people who only plan to use a property for a couple of weeks a year; but take note, the spontaneous vacation isn't really an option. Hot locations often require booking way ahead of time; most companies won't guarantee even less-popular spots will be open for last-minute trips.

• What kind of long-term investment are you looking for? When a fractional ownership company sells an item you co-own, you'll get a cut--if any applies--and can still retain ownership, according to Fox Business. But the Federal Trade Commission cautions homeowners to view the properties as vacation destinations,  and not just as investments, because, as in any real estate purchase, the principle of supply and demand applies--and the sheer number of available destination and fractional ownership options can reduce resale price.

• Is the company you're considering buying from legit? Aside from the obvious real estate scam concerns, you want to make sure your fractional or other ownership provider is a smooth operator. New companies don't have proven maintenance records, and you run the risk of finding out scheduling and upkeep aren't as stellar as you'd like.

If the company checks out and the program fits your vacation needs, fractional ownership may be a way to take on a second property without many of the typical homeowner headaches.

And, if not, don't let the market scare you from buying a second home or vacation condo. Hot destinations and beachfront areas are always going to have a limited supply of land.

Thus, even though the market may be dipping now, vacation properties will always retain some value--for you, and for people who might want to buy and rent them. We may be in a slowing economy, but that doesn't mean anyone wants to skip their annual time away.

Vacations may be within the U.S. and possibly more local this year, according to a recent Conference Board consumer survey, but we're still goin' on them. The survey found 45.8 percent of Americans plan to take a vacation within six months--that's only down slightly from last year, which showed 46.4 percent were ready to hit the road.

Given that we're rumored to be sliding into a recession and are facing higher food, gas and energy prices--oh, and a percentage of Americans are so in debt they're losing their homes--that number is surprisingly high.

But it illustrates one key principle to keep in mind when considering buying a vacation home: They can decline economic growth, but they can't take away our Disneyworld. So invest away.

Buying a Piece of Paradise

Today's market is primed for real estate deals--if you're going to buy a second home, it seems now would be the time.

For some, a vacation condo is the perfect second property. And we're not just talking beachfront units:  The New York Times reported a few years ago that second homes near popular colleges, especially in the Southeast, were big sellers because alumni were anxious to buy a piece of their past--and a place to crash after big games.

So why--if buying a condo or townhouse is more popular and potentially less expensive than ever--would someone buy part of a condo?

Because it's easier. And, actually, much cheaper--which is why homeowners are embracing partial ownership.

Earlier this week, when visiting family, I stayed in a destination resort in Daytona Beach with my parents (the lobby, where I posted some of this week's blogs, is pictured, left), who--after owning just one house for 30 years--surprised my sister and I several years ago by announcing they had purchased a membership in a resort-based destination club. For an initial fee and yearly dues, they receive a set number of points, which they can bank or use on a number of condos in the U.S. and abroad.

My mom doesn't like driving on highways; yet suddenly, my parents were international travelers. They went to the Carolinas, northern California, Scotland, the Caribbean. They took friends along with and sent my sister and I postcards from places like London and St. Maarten (whom I believe is the patron saint of taking ridiculously nice vacations without your kids.)

It's not the most luxurious destination club--the nation's wealthy pay tens of thousands to join five-star programs; my parents paid less than $5,000 to join--but it is a simple way to travel. You have maid service weekly; you don't have to clean the unit before leaving, or update it when the paint chips, or pay taxes on it. You can get last-minute deals on rooms if you have a sudden need to travel. Mom and Dad love it.

And apparently, they're not alone. According to Bob Waun, author of "Besting: Better Nesting," the U.S. housing market is trending toward a new type of homeownership as Baby Boomers buy second homes with shared and fractional ownership to vacation in.

The Vancouver Sun says that includes condos, timeshares, destination clubs--all kinds of low-responsibility real estate.

But back to our original question: Why buy part of a condo when you can own a whole one?

• It's cheaper. Compare buying a vacation condo you'll keep for a decade for $187,100--which is the average price for a Daytona Beach condo, according to the Florida Association of Realtors--to joining a resort club, which, including a $5,000 start fee, may cost $25,000 for 10 years for dues. Unless you know you will be using the property for more than a couple of weeks a year, the investment might not be worth it.

• It's easier. You not only spend less on a partial property investment, you save on any extra costs full homeownership can add--maintenance, association fees and special assessments and more. You don't have to worry about respackling, updating bathrooms, dealing with weather damage or anything else. There is no need to clean the unit upon arriving because it has been empty for a year or to scrub it before you leave.

• And, of course, it gives you more options. With a timeshare, you have one vacation spot you're tied to for the length of your ownership. Resort and destination clubs allow members to use properties around the world.

Fractional ownership offers a number of advantages; it is also sometimes considered personal legal property. (As my parents constantly tell me, they can will their membership to my sister and I, presumably so that when we have children, we, too, can send them taunting postcards from around the world.)

However, partial ownership isn't for everybody--and there are some things to consider before you buy a bit of a property instead of the whole thing.

Join us Monday for the second part of our vacation home series, which will discuss what to ask yourself--and what to ask the programs--before determining what degree of homeownership you want in a second home.

Stimulus Plan No Sweet Deal for the Housing Industry

After days of debate, House leaders and the Bush administration announced a pending economic stimulus plan Thursday--but it may not be what the residential industry was hoping for.

Speaker Nancy Pelosi and Treasury Secretary Henry M. Paulson Jr. were two of the parties who announced the plan at a Washington, D.C. news conference today; briefly, some of the high points are:

• The $150 billion package, said to be aimed at the middle class, allows for stipends of $300 to $1,200 per family and provides tax incentives for businesses to encourage spending.

• About two-thirds of the total package would go toward the consumer rebates; one-third would be earmarked for business tax breaks like equipment purchase write-offs, the New York Times says.

• Roughly 117 million families could receive the rebates, according to an estimate from Democrats.

• The plan also includes a little jumbo loan help, thanks to a provision to allow Fannie Mae and Freddie Mac to temporarily buy mortgages of up to $625,000, surpassing a $417,000 federal limit, which will allow Fannie Mae and Freddie Mac to increase financing for homebuyers who want to buy higher-value homes.           

At first glance, the thought of free money is likely to make anyone cheer; but for the troubled housing industry--struggling through its second year of the slump, which the National Association of Realtors said today would continue through the first and possibly second quarter at least of 2008--the package will only provide limited relief.

True, extra cash may translate into extra spending, which could boost the overall economy, which could cause the creation of new jobs, which could prompt relocation and higher incomes, which could increase the need for housing.

But extra cash could also just prompt tapped-out Americans to pay off some of their massive outstanding debt--total consumer credit hit a new high of $2.49 trillion in October, according to the Fed--or treat themselves to a vacation, piece of jewelry, car repair--who knows? It's a long, bumpy road to increasing housing demand, and $300 might just not get us very far along.

That said, the plan does contain one interesting caveat that might offer some relief to the residential building community.

During the debate over the plan's specifics, the Democrats' request to extend unemployment benefits was shot down; which is unfortunate, since, according to Democratic Senator Max Baucus, fewer than 4 in 10 unemployed U.S. workers receive unemployment benefits.

However, in exchange for cutting the extension and vetoing additional food stamp programs, the Bush administration and Republicans brokering the deal agreed to pay the $300 stipend to all workers who earned $3,000 or more in 2007--even those who didn't make enough to pay taxes.

Workers who did pay taxes can earn more and families may get $300 per child (up to $1,200). Individuals earning more than $75,000 wouldn't receive the rebate.

That could provide some much-needed capital for builders who were experiencing their worst year ever due to the housing slump--especially part-timers like contractors and project specialists.

But the tax breaks the plan offers seem less exciting. Giving a tax break for buying new equipment or doing other things to grow a business to an industry that's seen need drastically decrease in the past year (many homebuilders, such as Lennar Homes, who reported a 49 percent fourth quarter drop in home deliveries, are still suffering) is like giving a cat a laptop--sure, gifts are nice, but they really don't have any use for it.

The tax break will probably help other industries and, in turn, flood more money into the economy, but it's disappointing that the plan didn't include any special provisions to help invigorate our industry. (Not counting giving the jumbo loan market a kick. That may help move some homes, but--as the foreclosure rate rises because previous loan programs pushed homebuyers into properties they couldn't afford--the jumbo market doesn't really seem like the best place to focus, does it?)

What do you think about the proposed plan? If it passes next month, will it help your business--or your family? What actions do you wish the government would add? Share your reactions by posting them here on the MHN blog.

The Fed's Rate Cut: What It Means for Consumers

Yesterday's Federal Reserve benchmark interest rate cut wasn't met with quite the enthusiasm the Fed may have hoped--but it likely will inspire a few positive economic outcomes. (And it probably made Reserve Chairman Ben Bernanke feel a little bit better about the recent New York Times article that questioned his aggressiveness).

Wondering what the rate cut means for the average consumer--and for you? Analysts expect the following changes:

• Adjustable-rate mortgages: Borrowers with variable-rate mortgages will see the biggest difference, Keith Gumbinger, vice president of mortgage rate tracker HSH Associates, told USA Today. Home equity loans--which usually are half a percentage point above the prime rate-- should drop to roughly 7 percent. Home equity loans were at 7.74 percent on average in early January.

• Fixed mortgages: These rates--which are tied to the yield on the 10-year Treasury note--were already on their way down before the cut. Last week, the average 30-year, fixed-rate mortgage rate dropped to 5.87 percent from 6.07 percent the first week of the year.

• Cars: Baltimore Sun columnist Eileen Ambrose says auto loan seekers might not see a huge difference because auto loans aren't linked to a specific rate--and even ones tied to the prime rate just won't be too affected by the three-quarter-point drop. The reduction would save a borrower taking out a five-year, $25,000 car loan just $9 a month.

However, General Motors Corp's chief sales analyst said Wednesday that the cut would help offset high gas prices, consumer confidence and other problems facing the auto industry.

"We welcome those actions and feel they can have a positive effect on consumers," Mike DiGiovanni told analysts and reporters on a call following GM's 2007 global sales announcement.

• Credit cards: Variable-rate credit cards may also see a rate drop because they're usually tied to the prime rate, which several large banks reduced to 6.5 percent Tuesday. However, the effect won't show up for about a month, according to the Houston Chronicle.

• Savings: The rate cut will probably mean lower rates on savings accounts and cash investments in the next few weeks, The Wall Street Journal says. Any CD-minded investors are advised to lock in yields--which, on average, are 3.32 percent and 3.56 percent for one- and five-year yields right now--ASAP. Money markets will fall around 3.5 percent in a month, says Peter Crane of Crane Data LLC.

Fed Makes Emergency Rate Cut

In a surprise move today, the Federal Reserve cut the benchmark interest rate by three quarters of a percentage point--the largest single reduction since the Fed began using the rate as the main monetary policy tool about 18 years ago, according to Bloomberg.

The Fed Board of Governors also approved a 75-basis-point decrease in the discount rate today, bringing it to 4 percent. 

The target overnight lending rate dropped to 3.5 percent from 4.25 percent. Although a rate cut was widely anticipated this month, the Fed wasn't scheduled to meet until next week--and hardly anyone expected one this big. The Fed hasn't given an emergency cut since 2001.

What gives? A little bit of panic, for the most part.

"Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,'' the Fed said in a statement in Washington. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

Did it ever.

The subprime fallout continues to affect the U.S. housing market and residential sectors in the U.K. and other companies; building companies (isn't that right, Wolseley) and financial systems around the world. Reports Tuesday indicated China's state-owned banks may announce U.S. mortgage fallout damage soon.

Thus, the Fed was willing to--for now--forget inflation (previously given as the reason the Fed didn't cut rates until September) because of the recent poor retail, unemployment and stock market news.

But the timing--well, that was a surprise.  Coming just a week after President Bush announced plans to create an economic stimulus package--which, still under formation, has been met with questioning from critics who feel it won't help in the long term--the Fed announcement conveyed a sense of urgency the central bank has yet to express about the status of the economy. Sitting tight is a thing of the past for the Fed, it seems.

I got off a plane today to find I had a message from a mortgage broker I'd talked to months ago while pricing refinancing options--excited about the rate cut, he called to see if I'd gone through with the refi with someone else or if I would be interested in talking about my options.

It's been a couple of months since I touched base with him. I'm not sure if his call indicates how truly big the new is (no other brokers called me after previous cuts this year) or if the broker digging out old client leads and calling me after two months indicates that the Fed's right--things really have slowed down enough to warrant a huge cut.

Will the rate cut give our economy the boost it so desperately needs to prevent a recession? Or will it provide an all-too-temporary shot in the arm, as many of the Bush plan opponents fear?

Speak out! What do you think will reinvigorate the economy? Post your thoughts below.

In Some Global Markets, Housing Soars

In the past week, surveyors and a large property sales Web site announced separate findings that showed U.K. home prices had dropped, indicating the country's real estate boom finally may be over--and that British housing could soon echo the painfully prolonged U.S. housing decline.

That news--along with announcements of stumbling in the financial services sector and at housing industry-related companies like Wolseley--caused minor panic. As a result, stocks fell; the U.K.'s benchmark FTSE 100 Index dropped today by the largest amount since the 2001 Sept. 11 terrorist attacks.

Which is why maybe it's time for a little good news about areas around the world that aren't experiencing a real estate bust.

We're not saying they're safe from one ever happening, of course--but, at least for now, the following places are watching residential property value, demand and construction skyrocket:

• Mexico--President Felipe Calderon set a goal of adding a million new mortgages in Mexico a year by 2010; and organizations like the California Public Employees Retirement System--the largest U.S. public pension fund, which has invested more than $300 million in Mexican real estate funds--are buying in, according to AP.

• Canada--Although recent reports have indicated this country's extended real estate boom may be about to falter, certain areas, such as Winnipeg, expect to see double-digit growth and a 10 to 12 percent increase in average home prices this year. In Montreal's urban area, housing sales have increased 94 percent, according to The Financial Post.

• Jordan--Currently 4 billion dinars--$5.6 billion--is invested in Jordan's booming real estate market; that number is expected to shoot up to 20 billion dinars by 2013, a Saudi Arabian-based property developer planning to invest in the area says. Other sectors are feeling the love, too--the increased residential offerings have upped demand for office and other commercial property.

• Kuwait--Planned construction of new, affordable housing, tax breaks for foreign companies and plans to build a new rail and metro system are all factors in Kuwait's projected real estate growth, according to to a report conducted by Faraj Al Khudhari, head of Al Mutakhassis Real Estate. National Bank of Kuwait figures show that in 2007, average real estate sales increased by 31 percent and real estate value rose 59 percent.

Snapshots of the Housing Situation

It's a new year, which always prompts reflection about the year before--which may explain the recent abundance of "state of the housing market" news articles.

While some contain things we've heard before--the industry is down, the end of the slump is unclear--a few articles paint an interesting picture of the housing decline's status--and the echo effect it's having on other parts of the economy.

Two notable picks:

• From Mortgages to Other Meltdowns: The focus on the U.S. mortgage industry's questionable lending standards--which secured loans for many homeowners who couldn't afford them--prompted industry-wide reform last year; and now, according to an article from Reuters, could shine a spotlight on standards used to secure car loans, student loans and  credit cards, which many feel will be the next industry to crumble.

Our take: Credit cards aren't completely unlike mortgages. Without accurate measures to judge factors like income, risk can't be assessed in either industry, Reuters says--and that's a good point. We're an overspending society--the average household had $6,600 in credit card debt in 2007, according to CardTrak.com--but overextending expenses is what nailed many of the defaulting and already foreclosed-upon homeowners after the housing boom.

Both American Express and Capital One last week posted lower-than-expected quarterly profits, but--as the economy weakens--it seems those days are over for credit card companies. The Federal Reserve reported that consumer credit grew at an annual rate of 7.5 percent in November; an Associated Press poll in December showed that credit card delinquencies had jumped 26 percent from 2006, according to NPR. Could Americans be spiraling into irreversible credit card debt? If so, we're likely to be asking later this year why they were given enough credit to do so.

• Who Can Buy Homes, and Who Can Let Them: A separate article in The New York Times discusses the changing identity of the U.S. homeowner--one that favors young first-time buyers with nothing to pay off or unload before trading up.

The article also suggests banks--many of which stumbled in 2007 and already this year due to subprime issues--are in danger as home values drop further, causing them additional losses and eventually reducing the amount of loans that can be offered to potential homebuyers.

Our take: Regional banks had fared well during the slump, offering homebuyers more flexible lending standards because their loans are funded with customer deposits rather than capital markets,  like big banks, who had tightened lending practices.

However, a major regional bank index released Thursday showed that may no longer be the case. The KBW Regional Banking Index, compiled by New York-based financial services company Keefe, Bruyette & Woods, fell 3.1 percent to 66.80.

That's likely to make the lending market even tighter--which means less loans, less home purchases, less need for new housing and, in turn, less construction. Which would imply that the state of the industry is pretty much where it's been--or, given the increased credit card debt we're mixing with housing debt, are we actually worse off?

President, Fed Head Back Plans to Perk Up the Economy

Breaking news: Both President Bush and Federal Reserve Chairman Ben Bernanke today gave support for an economic stimulus plan to prevent the U.S. from sliding into a recession, MSNBC reports.

Embarrassingly old news: The country desperately needs an economic injection--and has for quite some time.

It looks like we'll be getting it--through a rate cut that seems to be almost a done deal and a to-be-determined governmental package. Bernanke "again pledged to aggressively slash a key interest rate as needed to bolster an economy that is weakening under the strains of a severe housing slump and credit crisis," according to MSNBC.

The cut--which will be voted on at the Fed's Jan. 30 meeting--might be a half-percentage point, which is huge. And yet, Bernanke acknowledged today that rate cuts alone just aren't going to do the job. (Agreed.)

A lot of ambiguity surrounds the rate cut and today's announcements--but here's what we do know:

• From Bernanke: Testifying to the House Budget Committee, Bernanke said that although he still doesn't think we're headed for a recession, the plan should get cash to citizens--especially those with low and moderate incomes--fast.

Yes, But Wait: Bernanke feels encouraging spending will help but was firm about the length of the program, suggesting we keep it short and do it soon. Bernanke said packages in the neighborhood of $50 billion to billion to $150 billion were reasonable; and it's important that the government keeps the big picture in mind. Running up the federal government's budget deficits to give spending a temporary rise may not be worth the cost.

• From Bush: White House spokesman Tony Fratto said today that “The president does believe that over the short term, that to deal with this softening in the economy, that some boost is necessary.” Fratto wouldn't give any details, but confirmed that the issue would likely be discussed Friday during a conference call between the president and congressional leaders. Many economists expect the package will include rebates like the $300 to $600 payouts the government provided in 2001.

Yes, But Wait: Rebates seem like a great way to boost consumer spending--hey, it's free money, right?--but will that necessarily lift the overall economy? Consumer spending is a huge economic influencer-- it makes up 70 percent of the economy--but it may not have declined as drastically as many expected it to. December's numbers were low, but as The New York Times reported, many economists felt that was just a fluke.

Sure, consumer debt has increased--The Fed said in December that overall consumer credit rose to hit a new high of $2.49 trillion in October.

But giving people a few hundred dollars may just mean they'll pay down their debt a bit--or won't, in which case one wonders if that cash injection would really be healing the economy. That debt will still be there, growing, after the rebate buys a cash-strapped homeowner a few new outfits. So what permanent help did the money provide?

Housing is still struggling; unemployment has been spotty and spending remains questionable. Bernanke and the president today acknowledged the country needs help.

What that help will be is still being determined. We know that in the past, the current administration felt distributing money would boost the economy; some sources say that practice may even become permanent.

Will it work? Maybe, maybe not. If a rebate isn't the answer to the currently slowing economy, what is? Tell us what you think.

From Fad to Phenomenon: Growing Green Design

Several prominent building organizations are trying to encourage green building and design--but is green building already a big focus for today's builders? Or are the promotional efforts not even close to enough?

The current level of green design chatter is more than we had a year ago, that's for sure. And it's what the industry wanted: Just look at the reaction to the U.S. Green Building Council (USGBC) LEED for Homes  guidelines.

In early December, the USGBC released the final version of its green housing design framework, opening up a whole new sustainable world. For years, LEED procedures have served as the benchmark for large commercial projects and city green building initiatives--but housing was left in the dark. It seemed the  residential industry just needed a little push, a little attention paid to its needs--and then green design would be the biggest thing to hit building since the hammer.

Turns out, the USGBC's efforts were all it took, because housing developments all over the country--which were planned long before the final guidelines came out--have seemed eager to become certified since LEED for Homes' official debut (in a way, retro-certified).

California builder Olson Homes' all-solar, multi-family Depot Walk in Orange, Calif. became California's first attached, new home community to earn LEED Certification (Silver) from the U.S. Green Building Council (USGBC) in late December. Last week, the New York Daily News reported that the Verdesian, a 26-story New York rental building, became the first multi-family, residential high-rise in the U.S. to receive Platinum LEED status. The Albanese Organization, who developed the Verdesian, also created the nation's first-ever green residential high-rise complex five years ago, The Solaire, which is also in New York.

What does it say about the industry that two large projects, designed with green principles in mind, sought LEED certification once it was available? Are they looking for street cred? Excited about the new system? Throwing support to the new guidelines? Hoping the certification will offer new marketing opportunities to woo renters and buyers?

Sustainable Structure

Developers aren't the only ones buying in to green building--and they aren't the only ones who seem unsure about how to encourage it.

True sustainability starts with a building's design, which many U.S. cities have realized in the past year, prompting 92 with a population of more than 50,000 to put citywide green building programs in place. An additional 36 cities are working on programs.

In 1997, just two cities had green planning initiatives, according to a recent American Institute of Architects (AIA) survey.

Of the current 92 city green building programs, architects were directly involved in creating at least 14 of the plans--which the AIA maybe considers too low because this week it announced a new green building education campaign called "Walk the Walk," designed to promote sustainability to consumers, business owners and architects (basically everybody).

In addition to industry promotion and marketing campaigns, the Walk the Walk campaign includes GreenStep, an informational series detailing the benefits of sustainable design, which will debut on the AIA's site at the end of January.

Other than that, the Walk the Walk campaign details seem somewhat vague--the press release just seems to imply the AIA still feels there is a strong need to get the word out there about green design. But to who? And how?

Big Changes; Wider Scope

Kudos to the buildings like the Verdesian who planned their design based on LEED for Homes' pilot program guidelines or using other green principles strong enough to garner LEED certification after it was released.

And much thanks to the AIA for continuing to offer a solid online sustainability resource--with examples, tips, programs and more--on what could just be a standard association Web site.

But we're not done yet. PR is great; but let's really focus on getting people building--and not just talking--green.

Where are the federal incentives to build green, which would encourage developers concerned about the extra upfront costs of using specific materials and design? Last year, home builders were eligible for a $2,000 tax credit for each new energy efficient home that achieved 50 percent energy savings for heating and cooling over the 2004 International Energy Conservation Code (IECC).

Homeowners could deduct up to $500 for adding insulation, replacement windows and certain high efficiency heating and cooling equipment.

But the federal consumer tax credit expired at the end of 2007 and wasn't renewed by Congress, so consumers only can report the credits on their taxes through April. Next year, you're out of luck.

And where are the special architect and builder certification programs that properly prepare industry professionals to tackle--or suggest--green building projects? Some schools, like UCDavis in California, have added green design certification programs to educate professionals about the architecture, civil engineering, landscape architecture, environmental and land use planning and construction management knowledge sustainable building requires.

UCDavis' class is in its extension, or part-time, program, which allows working professionals to participate and is designed for planners, architects, developers, contractors, landscape architects and interior designers.

It's a great start; we need more. How else can the industry promote and encourage green building? Post your thoughts below.

Let's Not Make a Deal: Plummeting Home Prices May Not Be a Bargain

New home sales fell to a 12-year low in November, a statistic that strikes fear in some--and makes others start salivating.

A number of investors and homebuyers have been waiting for prices to bottom out so they can start snatching up deals. But before we all get ready to circle foreclosed and discounted properties like sharks hunting for chum, consider that housing busts don't always bring housing bargains.

Home prices had more than doubled by the end of 2006, The Wall Street Journal reported recently; an eventual correction was likely almost impossible to avoid. And yet, those big bargains some investors are waiting for really haven't appeared.

In fact, home prices haven't really dropped drastically everywhere. They're lower, sure--but aside from certain regions like California, Vegas and south Florida, which have seen price declines of up to 20 percent, drops across the nation mostly have been much smaller, according to The Chicago Sun-Times. The Office of Federal Housing Enterprise Oversight reported that in the third quarter, home prices fell just 0.4 percent nationally.

Until now.

It may seem impossible that the housing decline could be severe enough to drag down the national economy but not strong enough to provide a few housing deals. Well, friends, recent news would indicate that time may be upon us. Some indications:

• Builders are Slashing Prices. The biggest U.S. homebuilder by market value, Fort Worth, Texas-based D.R. Horton Inc., sold 20,000 lots outside Phoenix in November to two Arizona real estate companies for less than the sale price Horton had paid to escrow the same land six months before.

In November, Lennar Corp. sold 11,000 properties in eight states for a price that Bloomberg says may mark the lowest housing market point yet: 40 cents on the dollar. Morgan Stanley Real Estate paid 60 percent less than the price at which the 32 communities for sale were valued just two months earlier.

• The Bargain-Basement Buyers Are Moving In. Bloomberg also reported that some investors, such as "self-described vulture investor" Marcel Arsenault, are calling this period in the housing slump as the time to buy. Arsenault says he's watching Denver, Phoenix, Austin and Tucson and--especially--south Florida. (Basically the hardest hit areas, which logically would offer the biggest deals.)

New York University economics professor Nouriel Roubini, who also is co-founder of economic research and analysis firm RGE Monitor, predicted upcoming top-to-bottom national home price losses of 30 percent at a recent real estate conference in New York, according to CNNMoney.com.

However, although some residential shoppers may get deals in the coming months, it's not good news for the housing slump. Selling homes--even at low prices--in theory should get the market moving again, providing the real estate industry with business and, as less homes are available, increasing demand and eventually giving builders a chance to get back to work.

But some experts--including Roubini--say that isn't necessarily the case. He says that, due to the price drops, "there will be 10 million houses with negative equity" where the owners will owe more on than their properties' value, get frustrated, give up and default.

Which means more homes on the market--and the last thing we need is to add to our bloated 10-month-plus housing supply. If we do, we're right back where we started: A place where Roubini predicts will further depress the real estate market.

Which--even despite any housing deals that will likely be available at the time--is likely to depress us all.

Home, Office, Retail: It's All the Same Slump

Friday's blog touched on commercial real estate and the shopping center conundrum: Too many new stores and too little consumer spending.

But, as it turns out, malls aren't the only commercial buildings suffering from the economic slowdown. Enter: The waning workplace. Yes, that's right, the office has become more than just a clever NBC comedy--it's a commercial real estate crisis, according to some sources.

Retail centers in areas that saw some of the largest housing boom price and property increases--and some of the decline's biggest drops--have fallen on particularly hard times. Office space isn't fairing any better.

California Dreamin' (Of Residesnts)

Take, for example, the Silicon Valley--one of California's most coveted real estate sectors during the housing boom, the area is now in the midst of an office space bust.

At the end of 2007, residents occupied nearly 1.5 million square feet less space in office, research and development buildings than in September, according to brokerage house CB Richard Ellis.

Vacancy rates in all three sectors were also up, the Silicon Valley/San Jose Business Journal reports.

And, like the retail property decline, the U.K. has mirrored the U.S. commercial space decline.

According to prices of derivatives contracts linked to indexes compiled by London-based research firm Investment Property Databank Ltd., building owners could see losses of 11 percent or more in 2008.

In fact, some experts--like Peter Hobbs, London-based head of research at RREEF Real Estate, a Deutsche Bank AG unit that manages about $100 billion--say Britain's 700 billion-pound commercial property market will have a worse year this year than the rest of Europe, Asia and the U.S.

Holding On To Commercial Cash

One reason the commercial sector is having such a hard time: Funding isn't just hard to come by these days in the housing market.

Banks lost $90 billion in the U.S. mortgage mess--and they haven't forgotten it. Lending standards are stricter and banks are more nervous about giving in general. The world's second-largest commercial broker, Jones Lang LaSalle Inc., says U.K. transactions fell 60 percent in the last quarter of 2007, according to Bloomberg.

Then there are the big banks: Morgan Stanley, UBS, Wachovia, Credit Suisse. They ponied up most of the capital for real estate before the credit crash; in its wake, that funding is coming from insurance companies, savings banks and commercial banks.

Some say the lender shift is making larger deals--for example, giant new commercial property projects and big commercial purchases--hard to close.

"The opportunity to finance is available for less than $100 million, but there are no funds at all available for larger deals," a prominent real estate investor, who asked to remain anonymous, told the New York Sun.

And while domestic balance sheet lenders may not be as gunshy as some of the banks who got burned by the residential market, they have the law of supply and demand on their side--and they're using it.

"Loans are at very different terms than from six to nine months ago," Eli Weiss, an associate at Ackman-Ziff Real Estate Group, with offices in New York, Miami, Boston and Los Angeles, told the Sun. "Also, since they have the pick of the litter, domestic balance sheet lenders are being extremely selective as to deals they take on. This boils down to banks and insurance companies 'saving their powder' for their best clients and deals that have lower-risk profiles."

Low Commercial, High Cost

So companies who have any exposure to residential projects: Sorry. That's going to mean less projects, and less building--and a decline.

Considering that commercial real estate has picked up much of the slack for residential as housing cooled, that's a dangerous prospect. Some states, like Colorado, depend on it: Commercial real estate is 10.5 percent of the state's economy, a recent National Association of Industrial and Office Properties report revealed.

The Denver Post reported that commercial real estate had a $23.4 billion impact on Colorado in 2006. $23.4 billion. To put that number in perspective, the state budget for this year is only $18 billion total funds.

Anyone who follows commercial building (and should you want to, please do read Commercial Property News, one of our sister sites) knows the industry still sees activity--more projects are being greenlit in commercial building than in residential these days. And yet, it's a big business industry, and any drop-off should be taken seriously.

Lately, the housing decline may be the hot topic to rehash in the press, but--as the economy slows and spending threatens to send us spiraling into a recession--can we continue to ignore the sad state of commercial building much longer?

Turns Out It's a Small Mall World, After All

For much of the year, commercial real estate held its own as the residential sector slid into despair. However, recent signs indicate commercial might be hitting a rough patch: And it's starting at the epicenter of American excess--the shopping mall.

According to commercial real estate market research firm Reis Inc., the vacancy rate at shopping centers whose main resident was a big-box retailer or supermarket hit its highest level in 2007 in four years, Financial Week reports.

Like so many aspects of the housing decline, the rising commercial vacancies were something we probably should have seen coming. As the housing market boomed, shopping center developers quickly added new retail space--millions of feet worth--in hot housing areas like Phoenix, San Antonio, Texas, Cleveland and Tampa, Fla.

In fact, since 2005, developers have created more retail space than all office, apartment and warehouse space combined, according to The Wall Street Journal.

More residents means more shoppers, right?

Well, it does, if those residents have money to spend. Two years ago, they did--their mortgage payments might have been lower, before the rapid ARM resets set in. The unemployment numbers were lower; more of them were likely working.

And, of course, people had a ready supply of money whenever they needed it--all homeowners had to do was cash out some of their home's rapidly rising equity and then it was off to Gap; Spencer Gifts, here we come.

It's a different economic climate today. Homes have less value and equity and foreclosures are soaring. Consumer credit use is up--credit card debt soared to a six-month high in November--indicating cash is tight.

Even the usually lucrative holiday season was a bust this year--sales fell short of the retail industry's already low expectations, indicating the much-feared drop-off in consumer spending had arrived.

As it turns out, we didn't need all those new stores. Someone just forgot to tell the commercial construction industry.

Even as things began to slow, as in the housing decline, there was a disconnect between the finished retail projects that were finding it hard to fill space with renters and planned projects--so builders just kept on buildin'. In Phoenix, 9.3 million square feet of new retail space was built in 2007. Another seven million is on its way.

But the city has experienced some of the worst home sales and price declines in the country--so its retail vacancy rate is expected to double by mid-2008, according to Property & Portfolio Research.

Retail property values--which, like housing values, rose by a double-digit amount in 2005--are also expected to drop over the next three years.

If this all sounds really familiar, it is. And, exactly like the housing decline, the U.K. now is starting to feel the squeeze.

The world's biggest shopping center owner, Westfield Group, called off plans to sell A$700 million ($611 million) of U.K. and New Zealand assets, which included the remaining third of the U.K. Shopping Centre Fund and the sale of two New Zealand shopping centers.

The reason: No one wanted to buy any of it.

Westfield sold stake in six of its 120 malls in 2007. One large buyer--Centro Properties Group, who snapped up $500 million of assets--said in late December that it might need to offload properties to fund debt, Bloomberg reported.

U.S. home mortgage loan defaults have increased all borrowing costs and prompted 70--or more--U.S. mortgage companies to falter, according to Bloomberg.

The subprime market is a scary place, and even though commercial property was long thought to be more secure than residential, it seems investors are questioning if anything is safe anymore.

Unfortunately, malls aren't the only victims. Join us Monday for a look at other types of commercial properties that are facing high vacancy rates and decreased construction rates--and find out what's scaring investors away from these previously hot projects.

The Fed Speaks Softly, Carries a Big Economic Responsibility

Speaking today for the first time since the Fed's last meeting, Federal Reserve Chairman Ben Bernanke implied a further rate cut might be en route.

U.S. stocks bounced up midday Thursday on anticipation Bernanke's comments would suggest more rate cuts--but stocks faltered after the actual remarks were made as investors struggled to interpret what they meant, according to MarketWatch.

To be fair, Bernanke's comments were--as usual--a little vague. In a speech to the Women in Housing and Finance and Exchequer Club in Washington, D.C., he basically said the Fed was concerned about oil prices, housing issues and other threats to the economy--and would be carefully watching and ready to act quickly.

But at what point would a Fed "action" happen? And what exactly would that action be?

Concrete statements aren't really Bernanke's strong suit, as The New York Times pointed out today in an article debating Bernanke's assertiveness.

Bernanke is known for making somewhat vague statements, such as "incoming information on the performance of mortgage-related assets has intensified investors' concerns" (Nov. 8, speaking to Congress' Joint Economic Committee) and "a full recovery of market functioning is likely to take time and we may well see some setbacks" (giving remarks to the New York Economic Club on Oct 15).

The Times article questioned whether Bernanke needed to be more like former chairmen Alan Greenspan and Paul A. Volcker, who heavily influenced their colleagues, or whether he was just too nice for the job.

He certainly has the know-how--Bernanke is a former presidential chief economic adviser, Princeton University economics professor and policy failures expert. It's possible he just needs a bit more time. He has, after all, only been the Fed Chairman for two years; and--at least considering the national housing situation--what a two years that has been.

The main criticism of Bernanke involves his--and the Fed's--hesitation to cut rates. They waited out the summer, finally chopping the benchmark interest rate by a half point to correct for the housing and credit crunches in September. The reduction was the Fed's first cut in four years--way past when many had expected one would come.

But if that's the main beef about Bernanke, critics might want to consider the fact the Fed has since made up for lost rate cut time, trimming the federal funds rate in October and December--and it's had little effect.

The economy has been on edge for months, fearing an impending recession. Well, sadly, the worrying may be over: Several sources say we may already be in one. Merrill Lynch & Co. economist David Rosenberg said Monday that "Friday's employment report confirmed our suspicions that the economy was transitioning into an official recession towards the end of last year."

Goldman Sachs said Wednesday that it expects gross domestic product to drop, indicating a recession, in the second and third quarters of 2007, The Financial Times reported today.

Some experts, the Times reports, are suggesting other methods of economic help--low-income family tax rebates, longer unemployment insurance or other ways to boost consumer spending, which was down this holiday season.

Previously owned home sales fell more than forecast in November, according to the National Association of Realtors, indicating that cutting rates also has failed to consistently ignite home purchases.

So should we really be all that upset Bernanke waited to do it?

And what should the Fed do next to offset the factors dragging the economy down? Tell us what you think.

Are Future Sin City Housing Needs a Safe Bet?

Las Vegas may still be reeling from the housing slump, but its economy is growing--and so is its pool of renters, according to the Las Vegas Business Press.

The Business Press' recent article about the rental market indicates the tighter mortgage atmosphere, which has made buying less of an option for many residents, is giving multifamily rental properties a push.

The Bentley Group, a Vegas-based real estate advisory firm, says the city can thank its healthy tourism trade.

"Nearly 40,000 hotel rooms are coming on line over the next four years, creating more than 285,000 new jobs," Bentley Group President Christopher Bentley told the Business Press. "Demand for multifamily product will increase to meet the housing needs of new employees."

Fantastic. Or is it?

Multifamily builders are only scheduled to deliver 1,500 new units this year--roughly 1,000 fewer than in 2006, according to real estate brokerage Marcus & Millichap.

What's going on?

• Renters have other options.

As Vegas is finding, in today's housing market, an increase in renters doesn't necessarily translate to an increased need for apartment properties.

People may not be able to afford to buy a home--and rightfully so, the area's cost of living ranks among the highest in the Southwest, according to the Council for Community and Economic Research--but they're more than happy to rent one of the city's vacant houses.

Roughly 25 percent or more of the 23,494 homes listed for sale in December in Vegas are on the rental market.

Not enough to cancel out the multifamily market, but the city's vacant home options could be making a noticeable dent in it.

• Everyone's gun shy.

Multifamily property need is likely to increase once some of the area's new hotels are finished and start hiring. Website VegasTodayandTomorrow.com said today that more than 110 high-rise, condo, hotel, mixed-use and other projects are in stages of planning, development and construction in the Las Vegas area.

Those 1,500 units planned for 2008 had better be roomy.

Las Vegas was particularly hard hit by the housing decline. Property values were big during the boom and crashed hard when the slump started.

Are builders just hesitant to start multi-family projects until the residents have physically arrived because they've been burned before as residential building declined and projects got called off?

Or are they just having a hard time nailing down funding and support--despite a clear need for housing--because residential building is not considered a popular investment these days?

What do you think?

Will Canada Have a Housing Slump?

For the past year, Canada's housing market has been steadily rising.

Prices for condos, two-story properties and detached bungalows all rose more than 11 percent last quarter from 2006, according to a Royal LePage Real Estate Services report released this week. The Canadian real estate company, which has more than 600 locations in the country, said the fourth quarter saw large housing gains, The National Post reports.

"The fourth quarter 2007 was surprisingly strong with unseasonably high price increases and unwavering demand," Royal LePage CEO Phil Soper said.

In addition, the Toronto Real Estate Board said 2007 was its best year ever, with the average sale price increasing by 7 percent to $394,931 last month from a year ago, The Financial Post reported Tuesday.

Basically, pretty much the opposite of what's going on in the U.S. And yet, our housing slump has undoubtedly affected Canada; the U.S. and Canada have the world's largest trading relationship, according to the BBC.

Canada's housing situation eerily echoes the U.S. market of years past. Could Canada suffer the same fate?

Things were rosy for the U.S., too--until the residential industry began to collapse under the pressure of mortgage defaults, property value decreases and a national home sales slowdown.

Which has left us with an awful lot of property: Although the NAR said in December that the housing supply had dwindled slightly, we still have enough to last for more than 10 months at the current rate.

For now, Canada's residential rise continues. However, the nation would be well advised to consider the U.S. housing decline a valid learning experience--and to carefully monitor and control its own housing expansion. Some thoughts for our neighbor to the north:

• Watch regional growth. Areas like Orange County, Calif. and Las Vegas saw some of the largest home value increases during the boom and some of the biggest drops after. They're now seeing high office vacancy rates, indicating the slump is continuing to spread, according to The Wall Street Journal. Keeping an eye on areas with rapidly rising home prices and values may help identify an oncoming bust once those prices begin to waver.

• Lend carefully. It's hard to say if home prices could have continued rising if risky lending practices going on at the same time hadn't prompted so many defaults and foreclosures; the lending frenzy was undoubtedly influenced by the rush to buy housing as residents across the country began to view it as a sure-fire investment.

However, the U.S. now is encouraging lenders to more carefully do their homework. The recent Fed guidelines offered what may seem like simple logic--requiring proof of resources and ability to pay, among other things--but it isn't always.

Thanks to the current U.S. foreclosure situation, we've all learned that getting someone into a house they can't afford isn't helping them--or the economy. (What are we going to do with 10 months of homes to sell if we keep adding repossessed properties to the pile? It's certainly not going to spark residential building.)

• Hold on to equity. Homeowners are more easily able to weather market fluctuations if they haven't cashed out some of their home's equity. Consider homes an investment; not a way to fund a lifestyle.

Will Canada see a housing bust after its boom? It's hard to say.

However, consider the U.K.'s current situation. Average home prices soared by 182 percent over the past decade, according to Halifax, a U.K bank. The country now seems poised to get a severe housing correction along with its daily tea and crumpets. (Or whatever they're serving with tea these days.)

The situation is so dicey that the Bank of England recently cut interest rates for the first time in two years. Lenders gave out the fewest mortgages in three years in November. Home prices just rose in December for the first time in four months--and by only 1.3 percent, according to Bloomberg.

Home prices could fall up to 10 percent in 2009, according to Morgan Stanley economist David Miles, who advised the Treasury on the British property market.

Commercial property values are even suffering in the U.K., falling at a record rate in November.

As a result, lending options have tightened. Consumer spending has started to drop off.

Phil Soper, chief executive of Canada's Royal LePage Real Estate Services, recently said prices are expected to rise more modestly in 2008, leading to a strong, stable market. Hopefully, he's right.

But just in case he isn't, keep a close eye on your neighbors and friends, Canada: It could save your economy some serious distress.

You Built It Green; They'll Buy It

We all know green building is hot--according to a McGraw Hill Construction study, the volume of green real estate is going to quintuple by 2010. It's predicted to then be 10 percent of the U.S. building stock.

But just saying your multifamily complex or community of homes is green isn't enough. Today's consumers are looking for highly-efficient, economical homes, and they're more educated than ever about what that entails.

So to sell a green home, you need to think green: And that means involving the homes' ecological aspects in all your marketing and promotional materials and events.

A recent article in The Atlanta Journal Constitution offered some basic points for homeowners to ask about green homes. They're also things homebuilders should stress, via a handout or conversation, including:

• How you developed the site and how construction waste was removed.

• The air-conditioning system's SEER (seasonal energy efficiency ratio). Let potential owners know why you selected the unit size you used because systems that are too large won't correctly dehumidify and will short cycle, causing more wear and shortening the life of the unit.

• What the furnace's AFUE (annual fuel utilization efficiency) rating is. Reduced energy costs are a major reasons homeowners are looking at green homes.

• Which items in the home--WaterSense  high-efficiency toilets, Energy Star appliances--conserve energy and water. Don't make prospective buyers hunt for a brand name that they could easily miss.

Be ready to answer general green building questions, and make sure all your reps, employees and any affiliated real estate agents are, too. Consider adding a green logo or verbiage to all marketing guides, direct mailing pieces, ads and signs. Have materials ready to prove what you've promised--documentation from the appliances, recommendations for the materials you used, etc.

Homeowners, just like everybody else, have been reading about the rise of green building for more than a year now. They know about water drainage, solar energy--and in today's tough market, they know they want a home that's going to give them the most ecological bang for their buck.

And real estate companies like West Palm Beach, Fla.-based Kitson & Partners, which is currently building a 17,000-acre green city for up to 45,000 residents, say savvy homeowners aren't hesitating to ask for it.

"We're finding homebuyers want green homes, are looking for them," Kitson CEO Syd Kitson told the Charlotte Sun. "From a marketing perspective, the market is already there. Price is still a driving force, but people today truly have a changing attitude--they want green."

Housing Market's Loss Helps Affordable Housing Providers

The nation's high foreclosure rate--Irvine, Calif-based Realty Trac said in November that foreclosures were up nearly 68 percent from the same month in 2006--has led to an interesting phenomenon: Banks who are anxious to unload many of their foreclosed upon items.

Some likely don't want to invest in the properties' upkeep; other banks possibly are acting out of fear the housing market will in fact continue downward next year, further reducing the homes' value.

That's good news for investors who are eager to buy foreclosed properties and land and reduced homes.

However, those deals might not be as much of a steal as investors had hoped. "Many markets are still overvalued," David Stiff, chief economist at Fiserv, told BusinessWeek. "The [previous housing price] increases were just so meteoric they need a larger correction."

So many are waiting the slump out--holding off on buying a new home because they are certain the next six months will bring unbelievable bargains.

And yet, an unlikely investor--one not looking to make money off the low market--has emerged: Habitat for Humanity, the nonprofit homebuilder.

• Dallas Habitat President Philip Wise has created the Texas Habitat Land & Development Fund to finance, purchase and develop property because the market is low. The fund will work with Habitat's 15 metro affiliates in Texas and Oklahoma. It's already secured 500 lots in Texas, which the fund will close on in the next three months.

"We can now acquire raw land, prepared lots and possibly finished homes from builders, investors and lenders cheaper than any time in the previous seven or eight years," Wise told The Dallas Morning News. "We'd like to double Habitat production in the big cities in the next four years."

• Sarasota County in Florida recently gave $10 million to revamp three of the area's six public housing sites throughout 2014, according to the Sarasota Herald-Tribune. But those requiring public aid aren't the area's only problem anymore. Forget that we have a 10-plus month supply of new homes still to sell in this country. Forget that building has slowed because housing demand has decreased. As prices stay stubbornly higher than many can afford and financing becomes harder to get, there is still a strong need for housing--as long as it's reasonably priced.

As such, Sarasota's Habitat for Humanity chapter won preliminary approval in December for a 200-home program in Newtown, Fla., which will contain homes for people making just 30 percent below the county median income--a far cry from public aid, but a growing sector that is being pushed out of homeownership by high costs and flat employment growth.

In 2004, during the real estate boom, the county created a trust to help provide middle-income families with affordable housing; that's now more needed than ever. The county voted in December to continue funding the trust.

Cheaper options for affordable housing creators: It makes sense. And it's one piece of positive news to come out of the housing decline--which is something we all can benefit from.

Forecasting the Fed

Will the Fed cut rates at its January meeting? There is reason to think so.

Yesterday, we analyzed new data about a decline in manufacturing last month--and today, we're bringing it into focus along with the rest of the foggy economic factors.

• Yes, manufacturing dropped. But it's important to remember yesterday's news came from a private source--the Institute for Supply Management--and the government tends to favor its own data much more. And, luckily, there is some fresh government information, released today, that said new orders for manufactured goods increased unexpectedly in November, which bodes well for the economy.

• We're not sure yet how employment is faring. The Labor Department jobs data is due out Friday and is likely to heavily influence the Fed. Jobs and consumer spending are codependent factors; less employment, after all, means less money. Yet findings this week from payroll company Automatic Data Processing--showing the economy added 40,000 private sector jobs in December--indicate the jobs data may not be so bad.

• But housing is still weak. The U.S. is still waiting to hit rock bottom, which one might think we'd done because the Commerce Department said on Friday that new home sales hit their lowest point in 12 years in December.

However, signs exist the slump will be ongoing through mid-2008 at least, such as U.S. mortgage applications hitting their lowest level in 2007 in December, according to the Washington-based Mortgage Bankers Association.

• And don't forget holiday consumer spending. Last week, the National Retail Federation seemed unimpressed with the early holiday season returns; however, online sales grew by 19 percent from last year, The Washington Times reported Wednesday, with a boost on Dec. 26 as shoppers took advantage of post-Christmas sales. Yet that still wasn't enough to save the season--the NRF has predicted sales will likely increase by the smallest margin in five years.

A drop in consumer spending could indicate the economy is slowing down more than expected--which is why the always-bustling holiday season has been watched so carefully. Although we're still waiting for the final results, it does look like spending is finally feeling the sting of the country's money woes.

There is, of course, no way to predict with certain accuracy what the Fed will do. It spent the first half of last year being fairly fickle about rate cuts; but once they started, the Fed seemed to catch on to the idea.

And yet, it has been historically concerned about inflation--which currently poses a real threat. That said, Americans' homes being worth less means less money for them to use, and since spending looks like it dropped over Christmas, it would seem that sad reality is beginning to sink in.

Which would make a rate cut--even with decent national job gains and a slight increase in production of goods--a strong possibility. We'll see what the other economic data set to be released this month reveals. And we'll be watching on Jan. 29.

Will Wednesday's Manufacturing News Induce Another Rate Cut?

The New Year kicked off to a bleak start with news that U.S. manufacturing fell for the first time in 10 months in December, hitting its lowest point since 2003, according to a report released today by the Institute for Supply Management.

The private research group’s manufacturing index--which The New York Times says is considered a leading indicator of recession-- fell from 50.8 in October to 47.7 in November. Readings over 50 indicate growth.

Stocks fell almost immediately when the report was released.

The good news: For once, the disappointing report isn't about housing! The bad news: Well, it actually really is about housing.

Manufacturing, thanks to foreign investment (lucky for us, other economies around the world, unlike ours, are on the rise), helped the U.S. economy weather its many strains in 2007--inflation risk, declining job growth, sinking home values and more.

If manufacturing drops, we're likely to feel the impact of those economic stresses more acutely. At a time when oil prices are at their highest level in two months and the dollar just keeps getting weaker, a decline in export demand is the last thing we need.

The notion that U.S. business may be weakening just adds fuel to the recession fire--and, sadly, cancels out any strains of hope the industry felt this morning when the Commerce Department announced that construction spending (despite declining residential building, of course) had increased slightly in November.

The Fed released the notes from its last meeting--held on Dec. 11--today. The notes reveal that the Fed, too, has lowered its expectations for growth in 2008, saying its outlook was for a "somewhat more sluggish'' economy than the bank had thought in October.

The quarter-point cut announced after that meeting was a disappointment to many investors who had hoped for a larger cut--prompting the largest post-Fed decision stock sale since Chairman Ben Bernanke took office in 2006, according to Bloomberg.

The Fed's next meeting is scheduled for just a few weeks from now on Jan. 29. Many economists had predicted a rate cut would be announced; the Times says that, given recent news, it's now even more likely.

But will the Fed offer a rate cut--and if so, how much? Post and share your theories below. We'll share ours tomorrow...