MHN Blog

Seeing the Need for Transparency--and Independence

In recent months, a number of individuals have called for increased regulation of Wall Street--and it looks like we might get it.

After the recent government bailout of Bear Stearns, it appeared regulation was more necessary than ever for the financial industry. And today, the government announced a new plan to do just that. Although it's been criticized for being too lax, it's at least a start.

News also broke today that the U.K. and U.S. are teaming up to better monitor the international banking system, according to the Financial Times.

But why stop there?

Mortgage Mayhem

According to the Times, one major reason for implementing such a group was the growing concern  that the ratings agencies didn't really consider the exposure of mortgage-based products or a housing drop-off.

That helped get us where we are today--in the midst of a financial crunch and a housing crisis, which both have fed off each other as both situations intensified.

Almost all the presidential candidates have called for greater transparency in the mortgage market; so has Treasury Secretary Henry Paulson.

The new financial industry plan proposes getting rid of overlapping state and federal regulators, according to BusinessWeek, and allowing the federal bank more liberties in looking at investment bank and brokerage firms' books.

And yet, as the housing crisis rages on, there is a clear need for regulation in that industry, as well.

Appraisals that Add Risk

Take, for instance, any of the lawsuits in the past year that involve home appraisals. One was just filed in the Los Angeles Superior Court against KB homes in February by Debbie Bolden, her husband and neighbors.

• According to the San Francisco Chronicle, the suit alleges that KB Home (Bolden's builder), Countrywide Financial Corp. (her lender) and affiliated businesses and two appraisers conspired to overstate home prices using fixed appraisals. The plaintiffs are seeking compensatory and punitive damages.

• Bolden feels she may have paid more than $60,000 over the home's market price. And the lawsuit could get much bigger--the plaintiffs are trying to get class-action status for all California KB Home buyers who used Countrywide to finance home purchases from Aug. 1, 2005 to July 31, 2006.

The truth is, buyers who agree to use internal appraisers, lenders and other parties are asking for trouble--and so are companies who offer to provide them. Even those working with the most legitimate appraisers and most well-meaning lenders are opening themselves up to criticism--and potential lawsuits--as the slump deepens.

Yet some still do. Buyers are losing home value as prices slide across the country, and they're not happy about it: Expect them to get more frustrated and more litigious until the market improves.

There have been some positive signs that the market is moving toward better practices--Fannie Mae and Freddie Mac, for instance, agreed earlier this month to only purchase mortgages from lenders that use independent appraisers.

Part of a deal with New York Attorney General Andrew M. Cuomo, the new rules--which go into effect next year--also prevent Fannie Mae and Freddie Mac-friendly mortgage brokers and real estate agents from choosing appraisers.

The agencies also will front $24 million to establish the Independent Valuation Protection Institute to register consumer and appraiser complaints and monitor enforcement of the new rules.

The new agency rules should help the industry--but regulating Fannie Mae and Freddie Mac alone won't fix everything. Maybe it's time for additional lenders, mortgage companies and others to become more independent; it's definitely time for them to employ appraisers with no connection to their business or its success. Even appearing to have influence over an appraisal is a dangerous position to be in these days.

After all, sketchy loans and predatory lenders helped get us into the current housing situation; ignore that problem, and we'll never fully get out of it. 

Multifamily Loan Delinquencies Rise in February

Multifamily property and hotel loans edged the overall commercial mortgage-backed securities delinquency rate up in February, according to Fitch Ratings--and the rise included a number of newly delinquent loans.

Commercial mortgage-backed securities may not have had as bad a year as anything connected to a residential mortgage had--but they've still had a hard time, according to Reuters.

And it's all connected to the housing market: The commercial-backed securities met with concern that less-than-secure underwriting practices in 2007 may have made sketchier loans that wouldn't be able to weather a U.S. recession. As the economy declined further, that fear increased.

And, as a result, $130 million in newly delinquent multifamily loans--which include apartment buildings--really influenced the increase in Fitch's delinquency index, according to Managing Director Susan Merrick.

"Multifamily delinquencies continue to be overrepresented in the index, now comprising 60 percent of all delinquent loans." (Despite the fact they only represent 14.6 percent of the Fitch-rated universe.)

A couple of things to compare that to:

• Office building-secured loans are 30.4 percent of all properties in the Fitch world and represented 11 percent of the overall delinquency index last month (even though office delinquencies were down by 1.1 percent last month).

• Retail loans made up 15.2 percent of the delinquency index.

Fitch's index measures loans that are at least 60 days delinquent in the $562 billion Fitch rated portfolio, a total of approximately 42,000 loans.

Delinquent multifamily loans reached $1 billion at the end of last month, a 14.5 percent increase from January 2008.

As this Las Vegas Review Journal article from two weeks ago illustrates, it's a situation renters are all too familiar with: Across the country, many are being kicked out of their homes with no notice because their landlords failed to keep up with their payments and went into foreclosure.

If that trend continues--more landlords and loans entering into delinquency--it could have a huge affect on the housing market. Could the need for rental multifamily units increase? And should the industry be preparing for that possibility now? Or could that spur home sales, which might offer suddenly displaced renters more security at what is becoming each month a more reasonable cost?

What do you think?

Baby Boomers May Give Us a Housing Crisis--But Also, a Housing Opportunity

The Post-World War II generation is about to become the largest segment of Americans ever to age at one time, according to a recent Chicago Sun-Times article. In fact, 83 million boomers are expected to hit retirement age within the next 11 years.

That's a lot of people hitting a new life stage--and undoubtedly, many of them will seek new living options, which could have a huge effect on the housing market.

Some will seek single-family homes in communities designed to offer seniors social activities; others who are perhaps not in the strongest health may seek out assisted care facilities, which offer a variety of living options from the very independent to the more medically supervised.

Senior retirement communities--which we've written about previously--have been a growing market in recent decades because they offer affordable living with social programming for the post-retirement crowd.

Take, for example, Shea Homes, a large U.S. builder that the Chicago Tribune reports feels Boomers are looking for communities that offer a positive environmental effect. Shea's banking on it with its new Victoria Gardens community, which is announced last month.

The development--located between Orlando and Daytona Beach, Fla.--will feature homes with a carbon footprint 20 to 30 percent less than that of a typical household.

However, not all developers are so confident about the senior market. Although any reports of post-retirement and senior living communities experiencing huge drop-offs are hard to come by-- analysts actually say occupancy rates have been the same and facilities have been able to raise prices because of a high demand for such services--some fear that the housing slump could affect that type of multifamily and single-family housing.

The stock market seems to agree. Shares of assisted-living facility operators have fallen in the past year. Shares of the largest U.S. private-pay senior housing provider--Brookdale Senior Living Inc.--declined sharply in the past year.

The stock troubles, AP reports, are due to concern that future customers will delay moving into facilities until the market improves and they can more easily sell their home.

Seniors may be able to delay moving into that cute retirement home, but for those in need of assisted living, the problem is more immediate.

The Social Security Administration estimates about 10,000 boomers a day--on average--will start collecting benefits for the next 20 years. Yet Social Security is still a mess--its trust fund will be needed to make payments by 2017, but the fund will need to spend its assets in 2027 and will be exhausted by 2041, according to Forbes.

Which makes it all a pressing mess for baby boomers: The Hospital Insurance Trust Fund is projected to need interest payments this year to fund Medicare patient hospital bills. It could be completely insolvent by 2019.

In that case, could assisted living become the only option for some retirees?

That may depend on how well communities prepare now for the baby boomers' mass transition from work to retirement.

It doesn't have to all involve public programs (although they likely will be part of the preparation, too): According to the Sun-Times, Chicago's getting a number of new homes designed by local builders and area nonprofits for the elderly and disabled, who will have difficulty navigating stairs, exiting the shower and reaching high cabinets.

If senior residence prices and occupancy have stayed steady thus far--even during the housing decline--because demand remained high, doesn't it make sense that we should focus on this market in the future?

We know that the number of Baby Boomers moving into retirement is set to grow considerably--which will increase demand for senior housing options. So what are we waiting for?

Serving Up the Housing Inventory, with a Side Order of Financial Markets and the Economy

In this week's continuing festival of new housing data, the Commerce Department released information today that showed new home sales fell last month.

However, the government did offer some good news. And, of course, there also was a bit of bad news in the report:

• Yes, new home sales fell month-to-month: 1.8 percent last month, hitting a low points not seen since 1995.

• And yes, home purchases fell in the past year: A total of 30 percent from February 2007.

But--here's the good news--they didn't fall as far as some had forecasted.

New home sales dropped to a 590,000 annual pace--but that's less than some economists had expected, according to Bloomberg, which said new home sales would decline to a 578,000 annual pace.

And the Commerce Department report held even bigger news: A promising drop in the huge home inventory. It is still large--currently the U.S. has a 9.8 month supply, which is the biggest since 1981--but it's a little less so than last month.

The number of new homes for sale at the end of February dropped to 471,000, which indicated that builder incentives and other programs are starting to chip away at the housing supply.

Which is, of course, also chipping away at housing prices--the median home price fell 2.7 percent last month to $244,100, compared to February 2007. And that, according to some--including Treasury Secretary Henry Paulson--is a good thing.

"A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth," Paulson said in a speech this week. "Having stability in housing markets will in turn contribute to better conditions in credit markets for mortgage-backed securities."

For months, economists have speculated that buyers are waiting for prices to drop lower before splurging on a new home; which would indicate that prices continuing to lower would be great for sales.

But lower prices also means lower home values--which has caused panic among many homeowners, and is causing lower consumer spending and slowing down the economy. Which begs the question: Even if lower home prices move more properties off the market, is it worth the cost to the overall economy?

It's a tricky balance--but one Paulson feels is possible.

"As we work our way through this turbulence, our highest priority is limiting its impact on the real economy," he said. "We must maintain stable, orderly and liquid financial markets and our banks must continue to play their vital role of supporting the economy by making credit available to consumers and businesses. And we must of course focus on housing, which precipitated the turmoil in the capital markets, and is today the biggest downside risk to our economy."

Do you feel lower prices--as part of an overall price correction--will help readjust the housing and the financial markets? Or will lower home prices wreak havoc on the economy?

Tell us what you think by posting your opinion below ...

This Week's Housing Reports Offer Many Views, Even More Questions

On Monday, housing information from the National Association of Realtors offered hope that the housing situation might be turning around. Existing home sales, the organization said, had increased for the first time in seven months.

However, we're always cautiously optimistic at best--and given the housing data released today, that seems like a solid place to stand. The new data provided further insight, such as:

• Single-family home prices were down 11.4 percent in January from 2007 levels in 10 major metropolitan areas, according to the S&P/Case-Shiller home-price indexes released Tuesday by New York-based Standard & Poor's.

• The overall 20-city composite index dropped 10.7 percent from 2007 in January. The January-to-December decrease was 2.4 percent. Miami and Vegas--two areas hardest hit by the housing slump--had the biggest drops.

• The Office of Federal Housing Enterprise Oversight said today that home prices fell 3 percent in January from a year ago. Home prices dropped 1.1 percent from December to January; New England showed the most severe declines.

Both reports painted a fairly bleak picture. Home prices fell year-on-year, and home prices fell from the month prior.

The new information also showed that the problem is still widespread. Note that one source found the deepest declines in the Southwest and in southern Florida; the other found home price problems were biggest in the Northeast.

A number of news outlets today, such as the Chicago Tribune, noted the possibility--based on yesterday's National Association of Realtors data--that the housing slump might finally be turning around.(Although most were also quick to note it was too soon to tell.) Wall Street even got a boost from the news.

However, given today's reports, it doesn't seem like we should be celebrating just yet.

Because--in addition to the weak housing news--the Conference Board said today that the majority of the country doesn't feel very comfortable with the current economy. People also aren't too hopeful about its future. The board's Consumer Confidence Index dropped from a revised 76.4 in February to 64.5 in March.

And that news did not give the markets a boost. In fact, it brought the dollar to new daily lows against other currencies, CNNMoney.com reported this morning.

So we wonder: Did yesterday's news inspire you to hope the housing situation might be about to improve? Did today's news make you think it won't? Tell us what you think...

NAR Offers Housing Slump Hope in Latest Findings

The National Association of Realtors released its latest data today, and although most news reports have focused on the home sale and price information, some missed one of the report's most important findings: The home inventory may have shrunk.

According to NAR, the U.S. home supply dropped 3 percent at the end of last month to 4.03 million. That's a 9.6-month supply, compared to the 10.2-month supply that existed at the end of January.

Which is a really, really big deal.

For months, economists have agonized over the bloated housing supply, wondering when it would shrink, and how. Everyone agrees we need to reduce it to spur sales and residential building--right now, the supply of for-sale homes is throwing off any kind of demand for housing that would motivate sales and raise prices--but the general consensus is that buyers are waiting for prices to drop further to get better deals.

But, we all wondered, when would buyers get motivated to make an offer? When would homes start disappearing from that inventory?

It seems that happened last month--which NAR attributes to local price declines and more favorable market conditions--which could be a positive sign that the turnaround has begun. We'll know more next month.

Multifamily property sales also fared decently in February. NAR also said that existing condo and co-op sales increased 3.7 percent to a seasonally adjusted annual rate of 560,000 units in February from a downwardly revised 540,000 in January. The rate is 29.7 percent below the February 2007 pace. 

The median existing condo price last month was $211,700--4.9 percent lower than a year ago. While that is a decline, it's less of a drop than the median existing single-family home price, which fell 8.7 percent compared to February 2007.

Now, the NAR is known for being sunny: And recent news reports indicate some industry experts don't think the housing slump is at all close to being over--the Freddie Mac CEO recently said he thought prices had only dropped a third of how far they eventually would before the decline is over.

But could the recent housing inventory reduction be a sign that the slump has finally bottomed out?

"The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions,” said Lawrence Yun, NAR chief economist. "Therefore, a notable rise in home sales can be anticipated in the second half of the year."

OK, so NAR thinks so. Do you?

Better Schools, Better Long-Term Home Values?

Kids or no kids, you can "recession-proof" your home by buying one in a high-ranked school district--according to a new report from real estate Web site Trulia.com.

The advantage of a good school system isn't exactly a new thought--it's one of the first thing parents will ask when viewing a property. But the fact it might help a home retain more value is interesting.

We're in what many are calling the worst housing slump in 70--or more--years. If elementary education can actually protect a property over the long-term even for homeowners who don't have any children, well, that's worth noting.

Curious how your community measures up? Trulia.com yesterday released a list of the 9 best burbs for school systems and property values. The high-rankers are as follows:

• Boise--Median home price: $317,756

• Boston--Median home price: $379,000

• Chicago--Median home price: $334,900

• Dallas--Median home price: $235,000

• Los Angeles--Median home price: $559,000

• New York--Median home price: $1,075,000

• Philadelphia--Median home price: $199,900

• San Francisco-Median home price: $799,500

• Washington, D.C.--Median home price: $434,000

The company compiled information on over 2 million homes and newly launched education rankings on 125,000 schools across the country to complete the list; that's a bunch of data.

However, it is a little surprising some high-end housing market choices made the list--like San Francisco, which I'm sure has a wonderful school system, but with a home price of almost $800,000, I feel a little strange about calling a value. (Even if homes in the area do retain their equity better than other areas of the U.S.--I'd suspect the fact that land is limited in San Francisco and the fact it's a highly desirable place to live would also be factors in homes retaining their equity.)

What's interesting is that the list also includes some suburban options. Take, for example, Chicago: the suburb of LaGrange, Ill. is listed as a top value, with a nearly perfect school rating.

Despite the fact the median home price listed for LaGrange--$440,000--is higher than the urban option, it's reasonable for a Chicago suburb. I have a friend who relocated her family there from the city several years ago to make room for her first and, eventually, second child--and she found it to be one of the most affordable areas in the region, with good schools, a quaint downtown--overall, a decent deal.

In today's market of declining equity--the median sales price in 77 of the 150 markets that the National Association of Realtors' monitors dropped during the last three months of 2007, compared to 2006, according to NAR--a school-fueled equity boost is a solid selling point. (And one real estate agents and developers should be stressing in all marketing materials and sales pitches--as well as something appraisers and mortgage brokers should be considering.)

But you tell us: How big a buying factor do you really think a strong school district is? Where would you rank it on your list of property selling points?

Is the Subprime Fallout Over?

Standard & Poor's recently said it thinks the worst of the subprime securities-related writedowns are over.

It's true, many banks and brokerage firms have already announced their year-end results for 2007. But are we really out of the woods?

S&P doesn't think so.

According to an article in BusinessWeek, large banks and investment banks in Europe and North America have so far declared $110 billion in writedowns of collateralized debt obligations (CDOs) of subprime asset-backed securities (ABS). S&P suggests insurers and banks in the Gulf region and Asia will add $40 billion to that amount.

Past, Present--and Future?

The future of subprime lending looks more positive--lenders are being more careful about issuing loans to subprime lenders; that's a big change from a year ago.

But many aren't yet through with subprime lending's past. ABC News reported that the FBI is currently investigating 17 companies in relation to the subprime collapse for mortgage lending practices. That's an increase from January, when it was reported 14 mortgage lenders were under investigation.

So it would appear we're not all quite convinced the subprime collapse is over and done with--or that we're totally safe from something similar happening again.

Plus some companies still appear to be feeling the subprime effect, such as Morgan Stanley, which this week reported a lower fiscal first-quarter net income than last year--$1.56 billion, or $1.45 a share, compared with $2.67 billion, or $2.51 in the year-earlier period. Net revenue fell 17 percent to $8.32 billion.

It's unlikely Morgan Stanley would agree that its industry was free and clear of future subprime issues; but its quarterly data did provide some hope: The company's first-quarter earnings dropped less than had been estimated because record equity sales and trading offset its subprime writedowns, according to the Chicago Tribune.

Home, Sweet, Hard-to-Afford Home

But the biggest argument for not declaring the subprime mess as over involves--surprise--the ongoing housing slump.

As home prices continue to drop, some economists feel it's hard to say that the subprime situation is over when we can't really say the same about the housing decline.

“Looking back on this, it will be difficult to say if the worst part of it is the real estate crisis, or whether it’s that effect in the credit markets," Charles Geisst, a Manhattan College finance professor who has written several books about Wall Street's history, told Fox Business. "It’s natural to ask where a bottom is in the real estate bit, but it’s fruitless."

That's because in financial markets, one bad day will "clear the smoke," according to Geisst, whereas housing  markets just don't work that way.

“This is the problem," says Geisst. "People are looking for a bottom that can’t actually come. People always look to an end for a crisis, but we are stuck in this for 2008.”

It probably doesn't help that while financial results come quarterly, housing reports from the National Association of Realtors, the Mortgage Bankers Association, the Commerce Department and other institutions are released more frequently--in some cases, monthly.

Those watching the housing market get a constant reminder of how bad things are; in the financial market, you at least have a couple of months off in between dour announcements.

But if we're not looking for one bad day to mark the bottom of the housing slump, what are we looking for? A slightly better month? A two-month consecutive rise in home sales? A certain percentage drop in the housing inventory?

It's hard to say--but one thing is certain: We're looking. What do you think would signify the end of the housing slump? What signs are you watching for? Tell us what you think.

Rating the Rate Cut: Was It What We Needed?

The Fed yesterday announced a large rate cut, bringing the rate down to 2.25 percent--and the backlash already has begun.

• From NPR: "Fed officials are hoping that by making money cheaper to borrow, they'll encourage investment and keep the economy from tipping into a recession — if it's not already there."

Yet, as NPR points out, that's easier said than done. In fact, economist Richard Yamarone of Argus Research believes the cuts are a mistake because making money cheaper isn't going to fix the mortgage losses that have crippled the economy, hurt confidence in lenders and reduced consumer spending.

Which would explain why the other cuts--at first lauded as a magical solution--didn't seem to have a huge effect on housing or the economy.

• The Los Angeles Times worries about the rate cut's impact on investments, noting that "as the housing market has crumbled and stock prices have slumped, many individuals and institutions have been hoarding trillions of dollars in safe, short-term accounts such as money market mutual funds and bank savings certificates."

Only the rate cuts just made those investments less profitable. Because the rate was cut from 3 percent to 2.25 percent, many savers will earn less than 2 percent on their accounts soon, according to the Times--the lowest return since 2005.

"Two percent is not going to make anyone very happy," Brian Gendreau, a market strategist at ING Investment Management in New York, told the paper.

However, the Fed's rate cut could possibly give Wall Street a kick, which it desperately needs. The cut could encourage investment into stocks and longer-term bonds--which could all eventually boost the general economy.

• And more criticism, from America's heartland: Wall Street may get a push, according to the Indianapolis Star, from the rate cut--but it could at the same time increase fuel and raw material prices as the dollar's value sinks overseas.

"There's sort of a two-edge sword when it comes to cutting interest rates,'' Patrick Kiely, head of the Indiana Manufacturers Association, told the Star. "Energy prices, natural gas prices and raw material prices have made some pretty astronomical jumps in the last 90 days, and they're driven by the degradation of the dollar based on interest rate cuts.''

That could cause serious problems in Indiana, which has the largest proportion of industrial jobs of any U.S. state.

Rate cuts have become almost standard in the past year; but are they really helping? The economy has sunk continuously in the past year. The housing market is still weak. And just Sunday, the government had to bail out Bear Stearns with a $30 billion credit line.

The problem: If the Fed tries to fix a given sector with a rate cut, that cut is likely to hurt another sector. There is no blanket solution for our current, many-pronged economic situation. One thing didn't cause the slowdown; one thing won't fix it.

So we wonder: Was the cut a good idea? What do you think?

Good News, Bad Mood for Housing Industry

Homebuilders may not be feeling great about the residential industry, but the multifamily sector received some good news this week: Construction of housing with two ore more units rose 14.4 percent, and multifamily home groundbreakings increased 14.5 percent.

Yet overall builder sentiment is low, according to the National Association of Home Builders, who said  that its housing market index for March was the third lowest reading on record. Buyers are either waiting it out to see if prices fall more or just plain can't get financing to buy homes, USA Today says.

And homebuilders are feeling the effect: The index came in at 20 in March for the second month in a row. It's been at 20 or below since September. A reading of more than 50 indicates builder confidence is healthy.

That low confidence was reflected in the Commerce Department data reflected today--which showed future groundbreaking permits reached their lowest level in 16 years. Also:

• Overall construction declined, with starts dropping 0.6 percent after going up 7.1 percent in January.

• That January number was higher than originally thought--the Commerce Department had reported that housing starts were 0.8 percent higher in January. But the increase provided little comfort because of last month's drop in starts. January, it seems, may have just been a blip on the radar--and we didn't even realize it was a decent blip at the time.

• And the annual comparison isn't very hopeful, either: Housing starts last month were 28.4 percent lower than in February 2007.

Homebuilders don't feel the slump is near over. Buyers clearly don't either, if they're still waiting for prices to fall further before they buy.

The same can be said of lending institutions--if they're still being strict about loans, which is preventing home purchases for some buyers, it doesn't seem they're so sure the situation is close to being straightened out, either.

What needs to change first--buyer enthusiasm? Lender availability? Builder confidence? Homebuilder positivity will probably come last; but who most needs to light a fire under themselves to get the housing market moving: Banks or buyers? What do you think?

New York Construction Site Crane Accident Spurs Questions

Sad news this weekend from New York--on Saturday, a tragic construction site accident has claimed at least four lives, possibly more.

And now everybody is asking: What happened?

Newsday has a very informative graphic reflecting how the damage was caused. This morning, the New York Times reported that a large piece of steel meant to secure the crane to the building came loose and fell on top of second support nine stories below, which knocked it loose and sent the crane flying down over a two-block radius.

It was no small crane: Measuring 22 stories high, the crane caused a considerable amount of damage on its way down. A townhouse was demolished; 24 people were injured.

But many of the details are still unclear, and Newsday is reporting that much of the speculation at this point revolves around a city inspection of the crane that fell the day before the accident.

The crane passed the inspection--but the site had 38 complaints in the past 27 months, which prompted the city to issue 14 violations, according to Buildings Commissioner Patricia Lancaster.

We do know that the day the crane fell, workers had added to its height; called “jumping” or “climbing” the crane. According to the Times, the investigation is also focusing on whether or not the crane's supports were strong enough to hold it.

The crane's fall was a terrible accident--mind you, in a neighborhood that last year also saw a building get severely damaged when pitcher Corey Lidel flew his plane into a high rise--but the question on everyone's mind today is, could it have been prevented?

Construction-related injuries are on the rise in New York City, according to the Buildings Department: In 2007, there were 128, compared to 116 in 2006.

Construction permits for new buildings or major renovations issued by the Buildings Department also have risen--23.3 percent over the past five years, from 70,515 in 2002 to 86,915 in 2007.

We all agree that safe work sites are absolutely imperative. No one is questioning that. And since the city inspected and approved the site the day before the crane was added to, it's entirely possibly things were safe and secure at that point--right up until the crane was lengthened. In which case, the city did its job.

And maybe the construction crew did, too. Materials could be defective; weather conditions could be extraordinary; things can happen.

Or maybe--just maybe--is the increase in building permits indicative of a growing trend that we're moving more quickly--maybe too quickly--to approve sites and plans, at the sacrifice of safety?  New York is one of the few markets in the country in which commercial and residential building hasn't slowed considerably. Is there something to be learned here?

Or was the crane disaster a fluke accident--completely unpreventable and impossible to predict? What do you think?

New Rules Limit Roommates, Push Rent Up For Some in Boston

In an unusual move, the Boston Zoning Commission set a limit this week on the amount of college students who can live together in off-campus apartments--and its effect on both the college and multifamily housing community is being questioned.

Just four students per apartment will be allowed. Clearly, the the college kids are upset; less students per apartment will translate into higher rents for them. But they aren't the only ones concerned about the ruling, according to the Boston Globe. Other worried parties include:

• Property owners. "If you reduce my five-bedroom to four, I'll just raise the rent to what I would have gotten," Greg Hummel, a Brighton property owner, told the Globe. "And if students can't afford it, do you think the Starbucks crowd will pay any less?" (Which is fair, because the ruling is going affect 5,000 units in Boston.)

• Area real estate lawyers (at least one). "This is a back-door form of rent control," said Stephen Greenbaum, a real estate and land use lawyer who spoke against the proposal at the hearing. "You can't simply single out a particular group and say they can't live together. This will not only not stand up to a legal test, but is also patently unfair."

Both are valid points. So who wants the change? Mostly residents and their representatives, who claim students packed into high-rent apartments have raised housing costs in the Boston area too high for many working- and middle-class families.

But that doesn't mean college students' housing needs aren't relevant. No one needs to go on record to point out how expensive higher education in general is. But living somewhere while getting it is expensive, too.

Take Northeastern University in Boston. The article says the residential area around the school has become flooded with students; according to the College Board, just under half of all undergraduates live in college housing--so that seems likely.

Why? Well, living on-campus at Northeastern isn't cheap. In Fall 2007, room and board cost $11,420 a year, the College Board said. That would be about $1,100 a month for food and lodging for the school year. Area rents in Boston for four-bedroom apartments can be found for less than $3,000 a month, according to the Globe--giving four roommates a monthly rent of $750.

Unless they eat $350 worth of food a month, that's a considerable savings--and would be more of a savings if the students added a roommate or two.

Are we right to deny students cost-of-living savings? Certainly not for one of the other reasons for the limit given in the article--that college students have loud parties and disrupt the neighborhood. That notion hopefully didn't in any way influence the decision, because it's a little silly: Four students living together in an apartment can throw just as loud a party as five students in the same apartment can.

Is it possible a more realistic limit would have been effective? Yes, 12 students are too many for a five-bedroom apartment; but six, with two or more students sharing a bedroom, isn't. (That's how dorms--their other housing option--are structured, after all.)

Or maybe the student housing quandary is really just part of a larger one: Boston rental housing is just too darn expensive. According to Rent.com, Boston's cost of living is 240 percent of the national average, and apartments are 48 percent more expensive than the national average.

That's tough for anyone--students or families--to be able to afford without downsizing space or increasing the amount of residents in a unit. And who's to say one group should have the right to make adjustments, and the other shouldn't?

Are the New Housing Predictions a Downer, or a Good Guess?

We keep hearing that the worst of the housing crisis may be over. But then again, signs are everywhere that it isn't--and we might actually have much more housing market mayhem to come.

• On Monday, shares of Bear Stearns, Fannie Mae, Freddie Mac and other housing funding sources fell drastically due to growing concerns about the U.S. mortgage market's health, the Financial Times.

• It didn't help that the Freddie Mac CEO also said this week that he thought the decline in home prices was only a third over.

• Countrywide Financial--the nation's No. 1 lender--also had a rough financial week because of a Wall Street Journal article that said the company is  under federal investigation involving what the company knew about its borrowers' income and assets.

True, some this week's news involves activities from years ago--Countrywide is being investigated for previous mortgages, and Freddie Mac and Fannie Mae have had a tough year in general: That's not new.

But (once upon a time), analysts were predicting that the housing slump wouldn't bleed into 2008. Then they said it wouldn't last much past mid-2008.

And now that we've sprung forward, it seems a whole new crop of naysayers are expressing dire forecasts--some of which are even more devoid of hope than the previous predictions. (Really? Have home prices only fallen a third of their total drop? Granted, they haven't fallen as much as they could have, given the slumping market, but that seems extreme.)

So now it's time to ask a question we haven't posed directly for awhile: When do you think the housing slump will end? Or even start to turnaround? Are the recent reports overwhelmingly negative, or realistic?

We want your expert opinion. So tell us all what you think, developers, real estate analysts, agents and other readers: When will the market improve?

Pay Now, Buy Later: The New Way to Sell Condos and Townhomes?

A recent article in the Chicago Tribune touched on an unusual method homeowners are using to sell condos in buildings which some--but not all--units have already sold: They're letting buyers lease to own.

A lease-to-own purchase involves a two-part contract: The seller first agrees to rent a property for a set amount of time (the Trib says that's generally one to three years); after that, the buyer can purchase the home at a preset price.

I live in Chicago, and I noticed starting in about 2003/2004, a number of the condos that had sprung up on the city's North Side were being offered as rental units. As the market boomed, it was a great way for investment properties to make owners some money: They rented the units to residents, who essentially paid the mortgage, and waited for the market to rise even more so they could sell the unit for an even bigger profit.

Renters were OK with paying hefty rents (ones big enough to fund a monthly mortgage payment) because the rental market wasn't cheap; Forbes rated Chicago as the 19th most expensive rental market in 2006.

It was around that time I also noticed that Chicago's North Side rental market--once so competitive you had to come into to apartment showings with a checkbook in hand--suddenly was filled with options.

Prime location apartments that you never saw on the market had rent signs up for months; newspaper listings --which locals knew to check the night they published or forget about even using--were suddenly a useful tool any time of the week. Prices stopped rising; some landlords started offering incentives, like a month's free rent or free parking. Presumably, the extra condo investment properties up for rent had altered the market.

In July 2006, Judith Roettig, executive vice president of the Chicagoland Apartment Association, told Chicago magazine the rental market was on the upswing. "Renting went through a tough time the past four or five years," Roettig says. "A lot of the people who used to rent were inspired to purchase." Rental unit vacancy rates rose to near 20 percent in areas of the city according to Chicago.

However, when the home selling prices first started to dip, some landlords panicked and put their investment units up for sale as soon as their residents' leases ran out. Some sold early and did well. Others held on to their properties, hoping the housing decline would be short and swift. (We all know how that option turned out.)

And, as the rental market had gained more vacant units, it had lost pricing power: So those condo owners are having a harder time than ever finding renters willing to pay the amount that would cover their mortgage.

Which is why lease-to-own deals may help some property owners. Still, the lease-to-own option is a risk; there are no guarantees that the market won't improve, and if you lock a buyer into a two-year lease today with the promise of a selling price based on today's market, you may lose out if the market turns around in 24 months. Which it could.

It's more likely a year-long lease will benefit both parties. The renter gets to avoid that "I'm throwing my money away" feeling; the seller gets a guarantee that the property could sell for around a certain price.

In addition, some of the rent is often applied toward the downpayment, the Trib says. Even if the owner charges an option fee to take the property off the market, the 1 to 2 percent it would be is still much less than a down payment, and may also be applied to the total purchase cost. Plus it gives buyers time to save and beef up their credit, if need be.

But there are some drawbacks--which are similar to the advantages of a lease-to-buy situation. You're locked in. Sellers can't put the home on the market, unless the buyers, at the end of the lease, can't prove the creditworthiness or cash to buy it; and really, they don't have to buy it--they just get first crack at it.

That said, those potential buyers are still helping the seller fund the mortgage--which is huge. Those investment types didn't get much help from the recent foreclosure avoidance plans, such as Hope Now, which said the assistance would only be offered to primary property residents.

So a little extra cash may mean the difference between waiting for the market to turn around, and waiting for the bank to close in...

Housing Is Down; Housing Shows Aren't

The housing decline has wreaked havoc on the U.S. economy, global credit markets, personal wealth--but it's left television untouched, according to a recent Associated Press article.

A&E's new season of "Flip This House" is gearing up for a new season, and TLC has six new home-related shows (!) premiering this year.

And just look at HGTV--the network had its highest-ever evening ratings in January, undoubtedly due in part to its home-intensive line-up, which includes shows like "House Hunters," "My First Place" and "Designed to Sell."

HGTV president Jim Samples says the slump actually has helped ratings.

"What's driving interest right now is that people are worried about it — `what's the value of my home? How can I increase interest in my home?'" Samples told AP. "And then there's the `life goes on' factor. People are still changing jobs, families are still getting bigger. If anything, they tend to nest in this environment."

That's questionable--at least in some parts of the country--but it's interesting to note that Americans are still vastly interested in at least learning about home improvements, buying and selling. Given the low recent consumer confidence ratings, that could be taken as a sign of hope for the industry.

I really don't think we watch A&E's home remodeling and selling shows for the same reasons we watch its "Intervention" or "Millionaire Matchmaker" shows--which, let's face it, maybe contains a bit of "I'm glad I'm in a better place/I can't believe this situation" Schendenfreude. (Because really, does anyone feel like their housing investments are 100 percent safe in this market?) 

Also interesting: The continued success of housing shows may be tied this year to some recent changes to make them more "decline-friendly." Both A&E and HGTV said in the article that they're altering their shows to include more renovators to focus on home improvements. Flipping also isn't shown as an easy market, according to AP.

Of course, there is still a serious lack of TV programs that focus on multi-family housing (ahem, networks)--but we'll still be watching to see HGTV and A&E shows sport a new focus this year. Will you?

Campus Apartments and Dorms: Hotter than the Hotpots They House

The European residential market lately has looked a little like the U.S. market. Housing prices have stumbled in the U.K.; concern has risen about the Spanish residential market.

However, there's one housing type in Europe that's flourishing instead of fading: Student housing.

A recent Wall Street Journal article noted that investors are favoring student housing over office space and other property sectors that haven't been performing at high levels.

Student housing can provide annual returns of between 10 and 15 percent, according to Ralph Winter, chairman of Zurich-based property group Corestate AG--solid numbers in the recently rocky real estate market.

Student housing is doing well in part because education is, too--the number of students in the European Union's 27 member nations rose from 15.9 million in 2000 to 18.5 million in 2005, statistics company Eurostat said. Some countries, like the U.K., have been aggressively pushing higher ed.

All those students need a place to live. And for schools that don't have any large resources to develop living quarters, adding housing can mean private investment partnerships.

Take, for example, Arizona State. Arizona State University President Michael Crow has said he wants every freshman to live in a campus dorm to better experience life--someday he hopes to make it a requirement.

But housing is expensive. So, because the college couldn't pay for all of the new dorm itself, ASU struck a private partnership to construct a $100 million, privately built and operated student living complex, according to the East Valley Tribune.

The privately owned apartments are more pricey than standard dorms; they're nicer, too. Which is raising some questions at ASU: What do you do when you need to enlist developers to help fund new student housing, and those developers need to make a profit?

It makes sense for developers to work with universities to create student housing; land near universities is often hard to come by and pre-existing buildings rarely come on the market, according to the Journal.

But how should that partnership work? Should students be allowed to earmark scholarship or grant dollars toward housing that's more deluxe--and more expensive--than the standard dorms?

Should privately owned buildings offer discounts to students who prove financial need?

Or should schools lease or sell their residential land and completely exit the construction and renting situation? What do you think?

Are We Hurting Homeowners, Or Are We Helping Them?

This week brought us a bunch of economic news--but none of it did much to calm fears that the U.S. may be sliding into a recession.

A brief recap:

• On Wednesday, the Federal Reserve's Beige Book showed that inflation and low consumer confidence are slowing the economy. Big item retail sales fell in the first two months of 2008. Regional banks gave out less loans.

• The number of homes entering into foreclosure reached the highest level on record in the fourth quarter, according to the Mortgage Bankers Association.

• And homeowners' share of home equity dropped to its lowest point since World War II.

However, this week also included some potentially good news--the Federal Housing Administration finally announcing the new regional loan limits that the economic stimulus plan allows.

As we discussed yesterday, the FHA early Thursday posted the new limits for the state of California; by the end of the day, its site included all the new limits for the U.S.

The new maximum is $729,750, which we knew; but we now know what areas--mostly metro areas and much of costly Southern California--will get the highest caps.

The move was made to reinvigorate the high-end housing market, allowing the FHA, Freddie Mac and Fannie Mae to back or buy bigger loans and hopefully spur home sales and refinancings in pricey markets.

The new limits are in effect until Dec. 31 of this year; talk has already begun about extending them longer. With pretty much no one predicting that the housing market is going to turn around until at least halfway through this year, that's not an impossible notion.

But is it a good one? On one hand, we need to get rid of some of the housing inventory, which means somehow making loans easier to get and avoiding more foreclosures, which would add new homes to the market.

So maybe jumbo loans--which are expensive and increasingly difficult to get--are a good place to start. In housing markets like Southern California, the previous FHA limit was too low to really do much for even moderate home buyers.

The Los Angeles-Long Beach-Santa Ana area median single-family home sales price was $593,000 in the fourth quarter of 2007, according to the National Association of Realtors--which is $230,210 greater than the previous FHA high-cost area $362,790 limit.

So a number of people buying average, everyday $593,000 homes in L.A. are likely to benefit from the FHA increase, which now allows the agency to back loans up to the $729,750 maximum.

But, then again, just because the median home price in an area is high, it doesn't mean local buyers can afford to buy a home at the typical price. In places like California, home prices swelled to unbelievable levels during the boom. Cashing out, trading up and taking out major loans kept the market rolling along--until the housing slump hit. Those options have all but disappeared.

Qualifying homeowners for pricey properties they maybe couldn't afford is a big part of what got us into this situation. As home prices swelled during the boom, people bought and borrowed from the equity in their costly homes--and many of them are now facing default or foreclosure.

So focusing on the high-end housing market maybe isn't the best place to first attack in our ongoing attempt to cut the amount of for-sale housing. It's possible the best option is to wait a bit longer for home prices to fall to more reasonable, affordable levels in high-cost areas like Southern California.

Or are troubled homeowners in overpriced markets--despite whether or not that market needs a correction--just getting a helping hand with these new loan limits?

What do you think? Talk to us--post your thoughts below ...

What Places Will Receive the Biggest Loan Limit Boost?

Many taxpayers are focused on the rebate check that will be sent this spring, courtesy of the Economic Stimulus Act--but the provision's cash-back policy isn't the biggest benefit for homeowners living in high-cost areas.

The act also raised loan limits until the end of the year for Freddie Mac, Fannie Mae and the Federal Housing Authority. Freddie Mac and Fannie Mae can now back loans of up to $729,750 until Dec. 31; the FHA can insure loans of up to 125% of an area’s median home price (up to $729,750.)

For places like Northern California--where homes way more expensive than the previous Freddie Mac and Fannie Mae $417,000 limit and the $362,790 FHA limit for high-cost areas--that's likely to make a big difference for homeowners looking to refinance and home shoppers looking to buy.

Which is, of course, what the entire housing market is hoping for--more refis to help save homes facing foreclosure and more sales to pull stock off the bloated housing inventory.

The loan limits will differ across the country; the Department of Housing and Urban Development is supposed to publish a list of median area home prices by March 14 so that the new FHA, Freddie Mac and Fannie Mae caps can be determined.

Yesterday, HUD announced the new regional loan limits for California. The other limits are expected to be announced soon.

Until we know the new limits, everyone is speculating what areas will be most affected. Forbes.com has put together a nifty list. Curious? According to Forbes, the following areas will see the biggest change:

• San Jose, Calif. With a median home price of $720,000, the San Jose limit is expected to rise to the $729,750 maximum. Forbes estimates more than half of the metro area homes will be eligible for the agency-backed loans.
  

• San Francisco. The city should get the highest new limit since its median home price is a whopping $680,000. About 44 percent of the homes will be affected, according to Forbes.

• Los Angeles. More than 32 percent of the homes in the LA area--with a median price of $560,000--should get a new limit of $700,000, which will be a bonus since the area has been subject to a large number of foreclosures.

• San Diego, Calif. About 18.4 percent of the San Diego-area homes should receive higher limits. The area cap should be around $587,000, Forbes says, which is more good news for the region, which saw home sale volume increase in December.

• New York City. The Manhattan market hasn't suffered as much as the rest of the country, but its high prices kept many homebuyers from meeting the FHA, Freddie Mac and Fannie Mae limits. Forbes estimates the new limit will be about $581,250, which should help out more than 17 percent of the area homes--especially in the condo market in the outlying boroughs, Long Island and New Jersey.

• Washington, D.C. D.C.-area homes have an average median price of $409,109; Forbes thinks the new limits will top $511,000 and affect almost 11 percent of the area properties.

• Sacramento, Calif. Just 3.1 percent of the homes in Sacramento will be affected by the new limits, which Forbes says will be about $450,000, because the lower limits weren't much of an issue--but foreclosure rates, excessive building and bad loans have been, which may make it hard to turn this market around.

• Seattle. With a median area home price of $354,950, Seattle may get limits as high of $443,688, affecting 2.6 percent of Seattle residential properties, Forbes says. Seattle sales are expected to still be slow, however, due to the high spikes in home prices in the past few years.

Is a New Group of Borrowers About to Fall Behind?

For months, we've watched the painful subprime loan fallout--and waited for it to end. However, the current mortgage market mayhem may be about to enter its second act.

We've discussed concerns about Alt-A loans before. They're given to borrowers with good credit, who are deemed less of a risk than the subprime set; but there's a bit of sketchiness to Alt-A loans, because they don't require the typical documentation to prove income and assets.

And lately, some Alt-A borrowers have been falling behind on payments, too. So CNNMoney.com is reporting that in the past month, mortgage securities comprised of Alt-A loans have become more worrisome. A few reasons for the growing concern:

• Recent reports indicate lenders are getting nervous about the Alt-A market. Dow Jones reported last week that Countrywide had said it would stop giving high-rise condo buyers its Fast & Easy and Alt-A mortgages. (The company said the next day that it would approve both types loans.)

• Slumping securities are not a good sign. In February, securities backed by Alt-A mortgages and other home loans to borrowers with decent credit declined in value, according to Bloomberg.

• Securities have been put on notice. Thomson Financial reported Monday that Standard & Poor's Ratings Services had placed its ratings on 1,887 classes of residential mortgage-backed securities--which are backed by U.S. Alt-A mortgage loans issued during 2006 and the first half of 2007--on CreditWatch with negative implications.

Because Alt-A loans are gathered into securities and sold to investors, a collapse in the Alt-A market could have a similar effect to the subprime disaster. Only it could be much worse because roughly $950 billion of Alt-A mortgage securities are outstanding; subprime securities only total about $650 billion.

We've all been panicked that upcoming rate resets are going to push more subprime borrowers into default or foreclosure; but the truth is, many subprime borrowers are defaulting before their rates even reset, CNNMoney.com reports.

Can we expect the same reaction from the Alt-A crowd?

 

Appraising the Appraisal Industry

Home appraisals have been a source of confusion and concern for the housing industry--they're important, but they're also fairly open to interpretation.

And lately, as the market continues to dip, accurate appraisals have become more important than ever. To sell, buy or refinance a home, you need to know its market value; but if the appraiser is employed by the company that's giving you a loan, there is always a chance that appraiser may not make a completely impartial judgment.

Sound like a conspiracy theory? Not to some people, who are taking their concerns to court:

• In early Feb., two couples California sued home builder KB Home and its joint venture with Countrywide Financial Corp, alleging they beefed up property appraisals after the local real estate market started to decline three years ago.

• An appraiser in California filed a lawsuit against Washington Mutual in January because she claims to have been let go after refusing to inflate area home prices, according to The Wall Street Journal.

Although a high home appraisal may make lenders suspicious, it won't necessarily keep them from lending. Just this morning, a friend who is in the process of refinancing called to tell me her home had appraised for more than $70,000 above the amount she'd bought it for three years ago--despite the fact her mortgage broker told her not to expect an increase.

He was shocked to hear how much the appraisal was--but he's still willing to move forward with the loan.

However, Fannie Mae and Freddie Mac are taking a stand to inspire new, tougher industry regulations. Both agencies said this week that they would only purchase mortgages from lenders that use independent appraisers, according to The New York Times. That includes any appraisal companies lenders own; mortgage brokers and real estate agents also can't pick the appraiser.

The decision is huge. Not only are the government-backed agencies coming out and saying, hey, the industry does need some regulation, they're putting up $24 million to do it by creating the Independent Valuation Protection Institute. And considering Fannie just announced fourth quarter losses of $3.56 billion, that's a significant investment.

Plus it's likely to be one that is felt throughout the industry. Many of the home loans issued now are being bought by Fannie Mae and Freddie Mac; that's likely to increase when the new higher loan limits for both agencies and the FHA kick in sometime after March 14 (which is HUD's deadline to establish median area home prices).

Because Fannie Mae and Freddie Mac are involved with so many of the mortgages being issued today, a change to their mortgage company and bank policy is likely to influence policies across the industry, according to the Times.

It won't take effect until sometime in 2009; but it's definitely a start. Do you think the new policy will have enough of an effect to curb unrealistic appraisals? Or will it hurt business in the lending, mortgage broker and real estate industries?

Sorry, Condos: Lenders Are Cracking Down on Loan Limits

Remember that list Wells Fargo was reportedly passing around--mentioned in Thursday's blog last week--of new area-specific lending limits? It seems some banks are taking the restrictions to a new level.

According to CNNMoney.com, some lenders are trying a new method to protect themselves against the subprime fallout: And it's bad news for residents in high-risk areas like South Florida and Las Vegas.

BankUnited--a unit of BankUnited Financial Corp.--and Vertice, a wholesale lending unit of Wachovia Corp., are among the lenders CNN.com reports are electing to not lend to certain areas, a decision that is forcing prices down even further in those regions.

Last week, Dow Jones reported that Countrywide also issued a memo saying it would cease giving high-rise condo buyers its Fast & Easy and Alt-A mortgages--which require no proof of income and are given to borrowers with good credit but little documentation, respectively. (However, the company allegedly said the next day that it would approve such loans.)

Why is the practice of issuing loans in certain high-risk areas so scary to lenders? Looking at Florida and Nevada, their fear becomes a bit more understandable:

• Florida fell hard once supply surpassed demand. Back in July, some sources were forecasting the high-rise condo market might fall victim to oversupply if sales slowed (condo sales dropped nearly 50 percent in May 2007, according to the Florida Association of Realtors) and building continued--Bloomberg reported it could cause prices to fall 30 percent.

• Las Vegas experienced a similar situation. When the market was good, it was great: Sin City experienced the most consecutive quarters in the nation of 40 and 50 percent appreciation in 2004; in 2005, it saw a 20 percent increase, which leveled off to 4 percent in 2006, according to the Las Vegas Review Journal. And then the foreclosures began. As a result of its meteoric rise, one county alone in Nevada houses the top seven zip codes with the biggest amount of foreclosed properties in the U.S., the Review Journal says.

In general, things are not looking good for the high-rise market--but not everyone thinks it's over.

Robert Glickman, CEO of Corus Bankshares--the sixth-largest Illinois bank--has given out $7.6 billion worth of commercial real estate loans for condo developments in places like Florida, California and Vegas; the investment paid off during the boom. However, during the bust, weak condo sales have dragged the company's profit further south than any of its Floridian condo investments.

Yet, even with a fourth quarter profit of just $1.9 million--a whopping 96 percent decline from a year ago--Corus is expected to lend up to $1 billion in the first quarter of 2008 to the condo market, which is half of the new loans the bank made last year, BusinessWeek said.

OK. It makes some sense. High-rise condos in retirement- and vacation-friendly areas like Vegas and South Florida are likely to pick up when the market does because, property values aside, they've retained their original market appeal. Even as the economy slumped in 2007, cutting into consumers' vacation budgets, more people visited Vegas than any other year in history, according to In Business Las Vegas.

Which makes you wonder: Is Glickman making a risky move, or is investing in the troubled high-rise condo industry a calculated way of playing the market?