MHN Blog

The Fed Rate Cut May Mark the End of An Era--But Will It Help?

The Fed announced a quarter percentage point reduction of its key interest rate today--which may be the last rate cut for awhile.

The federal funds rate is now 2 percent.

The Fed's statement mentioned--as previous ones had--that rate cuts were meant to invigorate the economy.

However, because the statement did not include the phrase "downside risks to growth remain," which had been present in previous statements, and also said that "uncertainty about the inflation outlook remains high," some sources, including CNNMoney.com, are forecasting the aggressive rate cut era is over.

And maybe that's best, since some sources, including Forbes, reported earlier that the Fed was expected to cut its target overnight interbank loan rate from 2.25 percent to 2 percent--but that more cuts may not be enough to heal the weakened economy.

Since September, the Fed has cut the federal funds target rate by three percentage points--it was 5.25 percent. But the effect has been questionable.

Just today, the Commerce Department said that we're facing a slowing economy.

The economy didn't stop in the first quarter--export sales and inventory helped offset housing and other issues and let the gross domestic product increase at a 0.6 percent annual rate. But concern about its future remains.

A few reasons analysts are questioning the rate cuts:

• Since the Federal Open Market Committee's March meeting, the cost of acquiring funds has risen by 0.33 percentage points. Banks remain nervous to lend to each other, Bloomberg says.

• Adjustable-rate mortgages--more tied to the federal funds rate than fixed-rate loans--have fallen just a half a percentage point since September; according to U.S. News and World Report, investors are still leery about buying into the foreclosure-plagued mortgage market, so rates needed to rise to attract buyers.

Higher rates don't help homeowners struggling to make their payments. But U.S. News and World Report says the Fed's cuts have had some influence.

"The truth is that if [the Fed] hadn't cut [the federal funds rate], adjustable rates would be even higher...and the problems would be much more severe," Gus Faucher, the director of macroeconomics at Moody's Economy.com, said in the article.

Maybe. Maybe not. Do you think that's true?

Tell us what you think by posting below...

Rent This Apartment: No Pets, No Cigarettes

Companies and entire cities--such as Chicago, which banned all indoor smoking, starting on January 1, 2008--are encouraging smokers to put out their cigarettes. Could apartment owners be next?

Maybe. Citywide smoking bans in places like New York and Chicago have been successful--just last week, Chicago Health Commissioner Dr. Terry Mason said the ban, which is not even six months old, had been accepted across the city.

Companies are also trying to get smokers to quit because it reduces their health insurance costs--although for some companies, it's a touchy subject.

Last week, the 16,000-strong Tribune Company recently rescinded on a plan to charge its 600 smokers an additional $100 a month for insurance, according to the Los Angeles Times.

The Tribune Company is now considering a program that would offer employees benefits for stopping smoking. And it's not alone.

More than half of 453 large employers surveyed in a report by the National Business Group on Health and consulting firm Watson Wyatt Worldwide are offering financial incentives to help employees be more healthy; that includes incentives to quit smoking, Newsweek says.

Twenty-four percent more employers say they'll offer health improvement bonuses in 2009.

And now, apartments may be getting in on the anti-smoking action. According to ABC News, California is considering making all its rental housing smoke-free.

• New legislation being considered by a state senate committee that would allow rental housing owners to ban smoking on all or part of their property.

• The bill--proposed by State Senator Alex Padilla--would let renters smoke within their units until the lease they signed prior to the bill's passing expired.

And then: No more puffing.

If renters do, it would be considered a breach of the agreement--and they could be evicted.

Regulating unit use if it affects the unit--i.e., no repainting walls, no knocking them downs--is one thing, but should property owners and managers have the right to regulate what residents do inside the unit with their body?

Perhaps. Smoking can discolor walls, leave an odor and require repainting, which adds an expense for the owner.

But a large part of the restaurant smoking ban opposition has revolved around personal rights--and when a renter is paying to reside in a unit for a given amount of time, do we have the right to limit what they do in that unit (within reason)?

What do you think--would a smoking ban for rental properties be fair, or wouldn't it?

Housing Slump Hasn't Hurt the Gaming Market

Back in March, we reported that the prolonged housing decline hadn't affected the popularity of home improvement shows--in fact, TLC was coming out with six new ones this season.

And now, the Chicago Tribune says that while consumers may not want to buy homes, we still want to play with them.

Take for example, "Build-a-lot," a video game that presents players with home-building challenges including balancing cash flow to meeting the mayor's demands to ordering supplies.

Created for the Windows set by HipSoft, the game was released late last year--when the slump was in full effect. It has since been tweaked for Mac users like myself and has become one of the most downloaded games on Apple's site, according to the Trib.

It's funny. Last week, information from the National Association of Realtors indicated that we sure don't want to buy homes--sales of condos and existing single-family homes fell by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.

According to the Commerce Department, new home sales dropped to their lowest level in 16 years last month.

And we're not building them either: U.S. homebuilder starts fell 11.9 percent to their lowest rate since 1991 in March, the Commerce Department said this month.

But that's the real world. Give us a virtual version, and suddenly we're all about building again. Does that imply we're really land developer-lovers at heart?

Maybe; maybe not. Consider Hasbro, maker of the legendary property sale-and-swap game Monopoly. The company's first-quarter net income increased 14 percent; revenue was up 13 percent to $704.2 million.

But, according to The Wall Street Journal, that's due largely to Hasbro's international market success; like much of the housing market, the company's global operations have helped offset domestic losses.

U.S. and Canadian earnings, in fact, dropped 18 percent. Then again, Monopoly could be considered a commercial real estate-based game: But are high-priced residential property sites like Park Place feeling just a little too realistic for U.S. consumers right now? 

Perhaps that's why they seem to prefer the physical task of constructing a residence, via virtual games like Build-a-lot, to the riskier prospect of snatching up investment property land ...

After the Housing Slump Subsides, State Budget Shortfalls Could Be Here to Stay

Forget concern about the U.S. sliding into a recession. According to a survey of all 50 state fiscal directors, many states are already in a recession--and as the July 1 fiscal year approaches, the situation may get worse, the New York Times says.

The National Conference of State Legislatures report, released Friday, said that "whether or not the national economy is in recession-- a subject of ongoing debate -- is almost beside the point for some states."

The funding shortfalls are so severe in some areas of the country, it looks like--even once the housing slump does noticeably improve--states may be dealing with the housing market fallout for years to come.

Housing has already taken a toll on the economy (which has, in turn, taken a toll on housing): Because home equity is dropping, many homeowners don't want to invest in their home, so furniture and appliance sales are declining.

At the same time, people are spending less in general because higher gas and food costs are eating up their cash. 

And the slowed economy is hurting tax revenue--some states are really suffering, such as:

• Delaware: The state's funding has a $69 million gap this year.

• California: The report predicted California would have a $16 billion budget shortfall over the next two years.

Florida, too, doesn't expect its revenue situation to improve quickly because of how long its housing slump has been going on, the Times says.

And Florida is not alone. Sixteen states reported budget shortages because taxes had come in less than earlier estimates by mid-April; that's twice the number of states that posted a deficit six months prior.

And the upcoming fiscal year may not be much better. Twenty-three states are currently reporting a total of $26 billion in budget shortages, according to the NCSL--more than two-thirds say they're worried about budgets for next year.

With good reason: The Center on Budget and Policy Priorities said last week that 27 states are reporting projected budget shortfalls equaling at least $39 billion next year.

We've been so focused on improving the housing market, it's possible we've lost sight of its far-reaching effects--but make no mistake, dealing with sharply reduced state budgets on the heels of a prolonged housing slump is not going to make life easy.

In fact, as the economy slows and we try to climb out of a housing decline--and potential national recession--we're going to need those state programs and aid more than ever.

No one wants to see education or other necessary programs suffer. But there are even more pressing problems, such as shelter. The rising number of foreclosures in the U.S. alone are going to increase the need for housing--some of it will need to be affordable or aid-based.

So what can we do now to help buffer the housing decline's effect on state funding? Is it time to reconfigure and trim budgets know, anticipating a further decline in tax revenue? Or should the Fed be addressing the problem and increasing state financial allocations?

What do you think?

Less Home Sales--And Less Starbucks

The government's new home sales and price results are in--and they don't seem to indicate that the housing slump might finally be ending.

According to the Commerce Department, new home sales fell in March to their lowest level in 16 years--and median home prices fell by the biggest amount in almost 40 years.

• New home sales declined by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units. That's the slowest new home sales pace since 1991.

• Sales were down last month in all regions--most prominently in the Northeast, where they fell 19.4 percent. In the West, sales dropped by 12.9 percent; in the Midwest, they fell by 12.5 percent. In the South, sales fell by 4.6 percent.

And that wasn't the only dour economic news today:

• In March, big-ticket manufactured goods orders to factories dropped for the third consecutive month--the longest straight period of decline since the 2001 recession, according to the New York Times.

• Yet unemployment benefit applications dropped by 33,000 to 342,000.

The fact that demand for durable goods fell by 0.3 percent last month reinforced the general feeling that the softening economy is starting to really hurt manufacturers.

It also reinforced the belief that the U.S. economy is headed for a recession: Orders haven't declined for three months in a row since early 2001--when the U.S. was entering its last recession, the Times said.

But wait! Another news item today indicated things are far, far worse than any durable goods or housing news might imply: People are starting to forgo their daily Starbucks fix.

The Seattle-based coffee retailer forecast its first decline in annual profits in eight years. And if you don't see a connection between that and housing, Starbucks CEO Howard Schultz does: Calling this economic environment "the weakest in our company's history," Schultz said that Starbucks' California and Florida markets--which account for one third of its revenue in the U.S.--especially suffered, according to BBCNews.

Those are, of course, also two of the states hardest hit in the housing slump--and, thus, Starbucks markets that "have been especially impacted by the effects of the downturn in the housing market," the company said.

The company is trying some new things to correct the situation, which the CEO said will show results in the future--such as the introduction of the new Pike Place Roast coffee. (Which would explain why I was handed a card to get free cups each Wednesday for the next month the last time I was in a Starbucks--along with a card for a friend.)

But seriously, even Starbucks? This is the chain that, in the past year, doubled its number of stores to more than 15,000 in 44 countries, according to the Times?

Starbucks is a lifestyle for some consumers--a daily ritual. Or was.

According to Schultz, ..."our customers are reducing the frequency of their visits to our stores--due to the economic pressures they are feeling."

First we got saddled with a high foreclosure rate; now less cash for creamy lattes? If that's not a sign of a recession, what is?

 

Affordable Housing Grows--With a Little Guidance

Single-family homes may be taking a beating--but multifamily affordable housing isn't.

Just ask Fannie Mae. According to The Wall Street Journal, Fannie Mae and Freddie Mac are working to make up for the lenders who have pulled back from project funding, especially in the multifamily affordable housing market.

A spokesman for Fannie Mae said that the multifamily market's low delinquency rates--a scant one-tenth of 1 percent in January--makes it a good bet for the government-backed agency, according to the Journal.

Fannie and Freddie aren't the only ones working to increase affordable housing. As the subprime housing crisis continues, states--including New York--are spending more money on affordable housing programs.

In fact, most New York housing programs will receive an infusion next year, according to Newsday, including:

• Access to Home, an organization that gives property owners funds to increase disabled residents' accessibility options, is slated to get $14 million. Last year, it received $5 million.

• A public benefit corporation created in 1985 called the Affordable Housing Corporation will receive $45 million to help low- to moderate-income residents get homes--a $20 million increase from what it got last year.

• The Housing Trust Fund Corporation, which last year received $29 million, will get $73 million for programs that sponsor new construction and pre-existing housing rehabilitation for affordable housing. (Developers interested in applying for the funds can here.)

However, not all states are making a push to fund affordable living. It's not that they're against it; but at least one state--Massachusetts--is on the verge of changing the way it's done.

The state could soon pass an amendment that would require large affordable housing builders to pay construction workers higher wages--raising overall construction costs on some projects, the Boston Globe reported recently.

Developers would have to pay workers a "prevailing wage"--which means the Massachusetts Department of Labor determines minimum hourly rates on projects involving 75 or more units or projects with $25 million or more in overall development costs. Those rates can be twice as high as a project's nonunion worker hourly rates.

Government projects already require the prevailing wage. Projects during 2002 to 2006 that paid the wage spent 34 percent more--roughly $60,000--on each unit, according to a 2007 study by the Massachusetts Housing Partnership.

As the economy sinks, higher wages will likely help builders; but it could cost the community by reducing the amount of housing being built.

One wonders if Massachusetts has really thought the wage hike through. Residential construction employment has declined in the past year--so will making higher construction costs mandatory for large affordable housing projects really help workers in the long run?

It's a delicate balance--workers are battling the same higher food and gas costs affordable housing recipients are--but overprice our projects, and they'll be out of work...

Do NAR, OFHEO Reports Mean Housing is Ready to Recover?

New information from the National Association of Realtors and the Office of Federal Housing Enterprise Oversight released today provides a fresh look at the housing crisis--but not necessarily a clear one.

The OFHEO said today that home prices grew 0.6 percent from January to February.

• In the 12-month period ending in February, prices fell 2.4 percent.

• Prices increased 2.2 percent a seasonally adjusted basis in New England, rose 0.3 percent in the Pacific region and fell 0.6 percent In the Mountain region.

NAR found that existing home sales fell slightly in March and prices increased a little compared to the month before--but were still lower than last year's levels.

• The national median existing-home price sunk 7.7 percent from a year ago--the second largest year-to-year drop.

• The average March home sale price increased slightly--to $200,700--from February's $195,600 median price.

• Sales of condominiums and existing single-family homes dropped by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units.

• Compared with 2007, sales were down 19.3 percent.

NAR chief economist Lawrence Yun is still saying sales should rise in the second half of the year--but he isn't sounding quite as confident about how much these results proved that will be the case.

According to NAR's press release, the market is performing "unevenly." 

“Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets,” Yun said.  “At the same time, many buyers continue to bide their time with a large number of homes to choose from, while other potential buyers remain on the sidelines.”

What do you think? Will the housing market really start to turnaround--and remain in a recovery--as early as this summer? Or will it take much longer?

New York: An Owner's Market, Not a Renter's One

It's spring, which according to the New York Times, means thousands of recent college grads will soon be hitting the rental market looking for an apartment ... and many will be in for a shock.

There is no rental market quite like New York City. As a result, there's no landlord like a New York City landlord.

In some markets, rental property owners may be having a hard time filling units as the economy slows. Vacant units have caused foreclosures in some markets, such as Boston, where multifamily foreclosures rose 27 percent from February 2007 to 2008, according to the Boston Herald.

But New York's rental market remains strong.

With $3,000 average monthly rents in some neighborhoods, its market is pricey--and also large. Because home selling prices are so high in New York, 75 percent of the city's housing stock are rental properties.

Perhaps that's why the rental market is so strong: Vacancy rates in New York City hovered around 1 percent for the third consecutive year in 2007, according to real estate broker Citi Habitats.

The tight apartment supply caused rents to rise 5.5 percent on the most expensive residential market in the U.S., Bloomberg said.

With that kind of demand, landlords can call all the shots--and do:

• Qualifying for an apartment can be tricky. New York landlords only want residents who make 40 times the monthly rent amount, according to the Times--which, for a $2,000 apartment, would be an $80,000 annual salary. The average 2006 recent grad salary? According to census data, $35,6000.

• Roommates may not even help. Many renters take on roommates to help buffer the high rent cost--but while some landlords will take the combined incomes of several roommates, some won't.

• Co-signer requirements are even stricter. If a renter doesn't make 40 times their rent, a guarantor--such as a parent--needs to step in. The guarantor must make 80 times the monthly rent amount.
  

Once you qualify, getting into the unit isn't cheap. First, there's a security deposit, which can be the first and last month's rent--which in New York, can be $6,000 for that $3,000-a-month place we mentioned earlier.

Many renters also must pay a broker’s fee; it can cost more than $10,000 just to get inside your new unit.

Some landlords and apartment brokers may find the market is changing due to sites like Craigslist, which offers no-fee and fee-based broker listings. But Alicia Schwartz, director of howtorentinnyc.com, doesn't think the broker system will become obsolete.

“At the height of the rental season, landlord listings change from hour to hour,” she told the Times. “And the only ones who talk to landlords hour to hour are brokers, not listing services.”

New York's housing market has fared better than much of the country; although some of the boroughs recently saw price declines, across the city, home prices rose 28 percent earlier this year, according to the Real Estate Board of New York.

But the city isn't immune to the national credit crisis. As mortgages become harder to get and less residents are able to buy, the city's rental market is likely to strengthen--and space will always be at a premium in Manhattan.

True, New York is a unique rental housing example; but are there things we all could learn from the way its property owners and managers do business?

New Head for HUD, But Questions Linger About Former Chief

The rumors were true: President Bush today nominated the head of the Small Business Administration, Steve Preston, to lead the Department of Housing and Urban Development.

And the media had a ton to say about it: The Associated Press, New York Times and Bloomberg all covered the news almost as soon as it broke.

John Kerry (D-Mass.), chairman of the Committee on Small Business and Entrepreneurship, also reacted quickly to the news.

"I've worked with Steven Preston as the SBA Administrator for almost two years now and I'll be sorry to see him go," Kerry said in a statement. "Mr. Preston inherited an agency in disarray, and he's worked hard to right its course and to improve relationships with Congress. We may have some differences on policy, but he's always been professional, responsive, and dedicated to the mission."

But what about former HUD chief Alphonso R. Jackson?

Jackson stepped down voluntarily in March amid allegations he had used favoritism in his position.

The New York Times reports that an Atlanta developer--whose company has paid Jackson more than $250,000 in fees since 2001 for work, which the company's lawyer says he did before joining the government--received a $127 million contract in 2007 as part of a joint venture to rebuild a New Orleans public housing project.

So Jackson is out; a new chief is in. But what's next?

Jackson is planning "a few months of rest and relaxation," according to a HUD spokesman. The federal government, on the other hand, is planning to investigate Jackson.

And we'll be watching to see what it finds. With the current state of housing--not good--it's more important than ever that answers to questions of possible deal-cutting and favoritism charges be found quickly.

HUD has taken on a bigger role as the slump continued--so we need it to be working up to its fullest potential. And we need it to keep doing more.

Let's hope Preston is up for the challenge...

Economic News Offers Little Hope

Two news items today indicate the economy is in real trouble--and may be approaching an even tougher time in the near future.

• The Fed's Beige Book indicates the economy is getting worse. The Fed said that "economic conditions have weakened since the last report." Nine districts reported a lesser economic pace; the other three said activity was "mixed or steady."

The culprit? Housing: According to Bloomberg, because of the "worst housing contraction in a quarter century," growth declined to a 0.6 annual pace from October to December--a reduction from a 4.9 percent pace during the three prior months.

• Merrill Lynch lost $1.96 billion in the first quarter. Cringe-worthy news from Merrill--one of the firms that has been hardest hit by housing issues--included it posting $1.5 billion in collateralized debt obligation-linked writedowns and $3.1 billion in Alt-A residential mortgage-related writedowns.

That brings Merrill's writedown total to $27.4 billion for three quarters in a row.

And it's causing Merrill to cut about 10 percent of its workforce--which fits right in with the Labor Department's announcement today that it appears unemployment is rising. In the week ended April 12, unemployment benefit claims rose by 17,000.

In all: Not a great snapshot of a healthy economy, is it?

Speculation still exists about whether or not the country is headed toward a recession--some say we're already in one--and things are not looking good.

If firms like Merrill Lynch aren't through with seeing mortgage-related writedowns, unemployment is rising and the overall economy is slowing in more areas than it isn't, can we still pull out of the tailspin to avoid a recession?

Those economic stimulus checks should be on their way soon ... will that provide enough of a burst to consumer spending to save the day?

Or are we doomed to stand by and watch while our economy contracts further--and further--until it is officially declared as being in a recession?

Share your opinion by posting below ...

Do Low Housing Starts Indicate the Slump Won't End This Year?

Disappointing news from the Commerce Department today--housing starts hit their lowest level in 17 years last month.

Let's just take a moment to mull that over: Seventeen years. And that wasn't the report's only low point:

• U.S. homebuilder starts dropped to the lowest rate since 1991, falling 11.9 percent to a seasonally adjusted annual rate of 947,000. That's 36.5 percent less than a year ago.

• Building permits also dropped to 927,000 last month--a 5.8 percent decline and 40.9 percent drop from March 2007.

• Multifamily unit starts also fell in March by 24.6 percent. The future doesn't look much brighter--multifamily permits fell 5 percent.

The fact that new home completions hit their lowest level since December 1995 wasn't a shock; we knew things were rocky in recent months.

However, the building permit news is particularly troubling because it indicates--as the low National Association of Homebuilders/Wells Fargo Housing Market index showed Monday--that the housing slump is far from over. (The NAHB index found that homebuilder confidence in the industry was lingering at a near-record low for the third consecutive month.)

The problem seems to be more widespread than ever, too: Starts declined in all four regions. In two--the Midwest and the South--housing starts reached their lowest level in years (the lowest since 1982 in the Midwest and lowest since 1993 in the South).

Most sources are in agreement: Today's news indicates we're still knee-deep in the housing slump.

But will this month's round of negative reports prompt some sources--such as the National Association of Realtors, whose March existing home sales report is due next Tuesday--to revise their predictions that the slump will turn around in the second half of the year?

On April 8, NAR said in its housing forecast that sales would increase in the second half of the year--the later part of it, but still, the group is sticking to its second-half prediction.

But given today's news, could that really happen? The start of the year's second half, after all, is just a few months away ...

What do you think?

Preparing Your Property--and Renters--for the Risk of Foreclosure

Some renters who thought they'd wait out the housing decline before buying may find the slump is landing at their doorstep anyway--and it could leave them homeless.

That's according to an article today in the New York Times that highlighted some of the problems renters are experiencing as landlords default on their loans.

From declining service to flat-out evictions, renters are feeling the subprime sting--and they often get little notice their living situation is about to change.

Rental properties are now involved in 38 percent of U.S. foreclosures--168,000 households, CBS estimates.

The hardest hit areas are ones that have experienced tough housing times since the decline began, according to CBS--Nevada, New York and the other usual suspects.

• New York has no shortage of rental units: In 2006, they were about 65.6 percent of all New York City; nationally, rental units comprise 32.7 percent of housing.
  

It makes sense that New York would be a concern. The more pricey the real estate market (click here for Forbes' recent list of the most expensive rental cities), the more danger renters are in: Refinancing expensive homes is tougher in today's market, and as money becomes tighter, in many cases, owners with find larger mortgage payments will have a harder time making their monthly obligation than ones who own less expensive properties.

• In Massachusetts, 23 percent of all foreclosure petitions in February involved two- and three-family homes: And those make up just 11 percent of the housing in the state, according to the Warren Group.

As a property owner, avoiding foreclosure is an obvious goal--but in today's tough market, it's important to recognize that things happen, and having a few plans in place can help ease a foreclosure or close-to-foreclosure situation:

• Be ready for vacancies. According to the Greater Lowell Landlords Association, a regional landlord advocacy group in Massachusetts, the main reason landlords in the state are defaulting is because of a lack of funds. "You have to be able to handle a vacancy," Dick Macdonald, president of the association, said. "This is a tough business, and right now there is a shortage of residents. A lot of good ones bought condos."

• Be vigilant about keeping current with utility and other bills. You do not want the country to put a lien on the property because of unpaid taxes, water or other bills. Warning should be given, but be aware that lenders and municipalities are nervous these days because of the hefty amount of defaults and foreclosures.

• Consider moving in. If you own a multifamily property as a business investment, unloading your primary residence (if you can, at a decent price) and filling a vacancy yourself could help your overall budget.

• Wait things out. With home values falling, selling your building now may not be wise--and although the home price market is trending downward, it's creating a number of new renters, which means more business in the future.

• Help out your renters if things sour. If your property does enter into foreclosure, you may have very little negotiating power with the lender, but suggesting they give renters some time to get out doesn't hurt.

In addition, some banks are offering displaced renters a "cash for keys" option, where renters receive a little financial assistance to move.

Stress that it could be worth their while: About half of all foreclosed properties are handed over to the bank with considerable damage, according to a national survey of 1,500 real estate agents by Washington, D.C.-based marketing and research firm Campbell Communications.

And--considering residential properties that aren't damaged are losing value left and right these days--that's a situation nobody wants to happen.

U.S. Housing Disaster--Unfortunately--Likes to Travel

An article in today's New York Times discussed the impact that the U.S. housing crisis has had on the world--and it's not a good one.

In countries like the U.K. and Spain, housing is starting to suffer.

• Much has been written in recent months about British housing woes, and Ireland is experiencing a correction, as well.

Almost a year ago to the day, Bloomberg reported that residential real estate in Northern Ireland--after years or unrest--was finally catching up to the rest of the kingdom, with home prices increasing at one of the fastest rates in Europe.

Not so anymore. Britain's biggest mortgage lender, Halifax, said last week that home prices had dropped by the largest amount since the early 1990s, when Britain experience a property crash, according to the Times Online.

However, the correction isn't limited to Europe.

• China and India are also seeing lower housing prices after a period of steady increases: The Chinese market was growing so fast that the government had to institute lending curbs to cool it off. (That successfully brought home price increases down to 10.9 percent in February from 11.3 percent in January.)

But--as in the U.S.--those astronomical gains were to be followed by big drops. And now, fear is rising that several countries could be in for the same housing market decline as the U.S.--if not worse.

A string of housing market collapses could cause a number of problems. For one, we've seen how devastating a true housing market implosion can be on a country's individual economic growth. It reduces personal wealth, then hurts consumer spending, which in turn slows the economy and could (and may already have) cause a recession.

But a housing market ripple effect could hurt more than just individual economies--it also could damage general global economic growth.

Part of the reason areas like the U.K. and China are experiencing a correction is because prices got just too darn high; but they've also felt the effect of the U.S. housing decline via our financial markets. Other countries had invested in items tied to or backed by our mortgages; and we do the same.

And what about our building material companies? Strong growth overseas has helped them offset the impact of the U.S. housing slump--but that's another industry looking at some serious trouble if the U.K., Spain or other economies fall into housing disarray.

More housing market issues are likely to have a huge effect on all kinds of sectors--including private companies.

Just ask Ikea. The U.K. is its fourth biggest market. Its 17 U.K. stores accounted for almost 10 percent of the largest home-furnishings retailer's euros 19.8 billion of sales in 2007; on Wednesday Chief Executive Officer Anders Dahlvig said that the U.S. housing crisis had reduced Ikea's global growth "quite a lot."

Could it do the same for other economies around the world? We certainly hope not...

Vacant Homes Flame Fears of Neighborhood Fires

In Brockton, Mass.--and in other U.S. areas experiencing foreclosures--vacant homes have caused another concern: Foreclosure fires.

Vacant homes already have been blamed for inviting crime to many neighborhoods.

• According to a report by the Georgia Institute of Technology and Geoff Smith of Woodstock Institute, a one percentage point increase in the foreclosure rate brings neighborhood violent crime up 2.33 percent.

• And the trend isn't limited to urban areas: Even middle-class, new neighborhoods aren't safe, according to a November MSNBC report. Nor is it limited to Massachusetts. With the highest foreclosure rate in the nation, California has had similar fears, according to a recent NPR report.

Vacant homes have also killed property values in areas with a high concentration of them: According to a 2001 Temple University study in Philadelphia, being within just 150 feet of an abandoned home can cut $7,600 from a home's value.

Plus empty homes can cost cities tax revenue--in addition to money to keep the property up. If a lender just walks away from a home after foreclosing, it can take years for the city to gain ownership for unpaid taxes, MSNBC says.

But now, some officials are worried that empty properties will spark arson fires--which were a problem in Massachusetts during the 1990s real estate slump, according to Boston's ABC affiliate.

At least six houses burned down in Brockton, Mass., over the winter; state Fire Marshal Stephen Coan fears there will be more if the foreclosure rate doesn't improve--so he's joining banking regulators with real estate industry members to work on a solution.

Intentional insurance fires aren't the only concern.

Banks aren't watching their foreclosed properties in detail, according to Modesto, Calif., Police Chief Roy Wasden."As it gets colder, (squatters) will start building fires in these structures and it's quite dangerous," he told MSNBC in fall.

Winter may be almost over, but squatters living in empty houses or vacant units need a heat source to cook or warm the electricity-free home until summer fully arrives. (Hey, I turned my heat on twice this week.)

And, for obvious reasons, empty homes on fire--especially in a multifamily setting--are a huge risk to the  surrounding properties.

But how do we police bankrupt homes if banks won't? Given the amount that are falling into foreclosure currently, it would be a taxing task for any local government or agency.

However, the risks of letting vacant homes affect our neighborhoods are high. What would you suggest doing?

Multi-Housing Forum Gives Industry Members an In-Depth Look at Building Challenges, Financing Options

Multi-Housing News' parent company, Nielsen Business Media, sponsored an event in Chicago today called Multi-Housing Forum, featuring sessions on branding, debt and more.

I attended the forum's very compelling 2 p.m. session, "The 2008 Multifamily Debt Update," which was an interesting look at how GSEs are navigating the current market--a hot topic for the multifamily sector.

During the hour-long session, moderator Glenn Housman, Senior Vice President, Richard Ellis Inc., took questions and chatted about financing options and advice along with Freddie Mac Senior Producer Laura Cathlina and Jimmy Mayfield, managing director of Greystone Servicing Corp.

A few highlights:

• 125 on they way: Starting May 1, the new 125 percent regulation goes into effect at Fannie Mae--and Housman advised audience members looking at a refi to get their items in order "lickety-split." (Freddie Mac has yet to confirm its participation, Mayfield said.)

• Rate locks are working "very fast" these days, according to Cathlina. And with Freddie Mac, the deal is a deal when the lock is in place. "Once we rate lock, we're rate locked," she said. "If something comes up in the marketplace, we're not going to come back and change it."

• Price saver tip: Points are negotiable from lender to lender, as are processing fees and all other "nickle-and-dime issues," Housman said, pointing out that with a Freddie Mac loan, "Laura is controlling the deal--but not all costs."

• Shopping around: Housman advised participants to keep in mind that to an extent, you can get different quotes from different lenders. However, he reminded the crowd that there are limitations to that rule. "Once it's in Laura's system, you can't [cancel it] until you write a letter and say 'I want to switch,'" he said.
  

• Looking to get in and out of a deal in a few years? Consider Freddie Mac's ARM program, rolled out five years ago. "If you know you want to purchase a property and be out of it in five years, that's the best program for you," Housman said.

• Know your schedule. A 365 schedule compared to an actual 360 is not "apples to apples," Housman said. One is based on 365 days, the other--which is quoted more often--is based on 12 30-day months. A 360 will include more days, but usually offers a better interest rate, Housman said.

• Size limits? Call Fannie Mae, which is set up to handle them efficiently. "No deal is too big," Housman said. "A billion, $2 billion, they can do it." According to Mayfield, Fannie defines a small loans as "$3 million or less in most markets. In larger markets such as Chicago, $5 million or less."

Aside from helpful tips and GSE news, the session contained one other general theme: Fannie and Freddie are doing just what they're supposed to, according to Cathlina.

"Fannie Mae and Freddie Mac are both publicly held," she said. "Our first obligation is to our investors."

That said, they were formed to add liquidity to the market--and have. "In the past nine months, we have been doing just that," she said. "Exactly what we were created to do."

The agencies have both come under fire in recent month for various reasons--but they've also been given more lending power to help troubled homeowners. And their influence in the multifamily market can't be denied: Last year, both GSEs provided $60 billion collectively just to the apartment market, Housman said.

Their role will undoubtedly grow as the market increases--and lenders continue to tighten restrictions. Have you considered Fannie or Freddie financing options? It may be time to ...

What Cities Offer the Best--and Worst--Rental Markets?

Landlords, rejoice: Mortgage applications dropped to their lowest level in a year last month, and the sketchy real estate market is producing more renters as the housing slump continues.

Home ownership isn't for everybody; and with today's stricter lending standards--not to mention the cash-poor economy we're experiencing--it's really not for everybody.

Just ask New York City and San Francisco landlords. According to Forbes, residents pay the highest rents in the U.S. in those cities. (Not suprisingly, both areas front some of the top U.S. home purchase prices.)

In New York, a resident renting a median-level apartment in one of the five boroughs will pay $2,922 a month in 2008--a 6.6 percent increase from last year.

In San Francisco, it's possible to leave your heart, but not a good a idea to leave your wallet, because rent will cost you 7.8 percent more than it did last year--$1,904 a month, the biggest increase in the U.S., Forbes says.

The magazine recently ranked the top 10 Best and Worst Cities for renters; the deals--which the Midwest dominates--include:

• Columbus, Ohio. With an average rent of $626, fairly hefty vacancy rates and a 300 percent increase in residential rental unit construction should keep the market stable.

• Houston. The median monthly rent--$707--is close to what Houston residents pay for a monthly mortgage payment, but since the city has the highest vacancy rate in the country, renters can get great units--and rents are only forecast to increase 3 percent this year.

Cities with more pricey rental properties include:

• Boston. With an average rent of $1,658, the city will have a 41 percent reduction in construction in 2008, which should cut into its otherwise OK 5.9 percent vacancy rate.

• Chicago. The city of Chicago--where I live--has an average rent of $1,010, according to Forbes; that's due in part to the fact Chicago is second only to New York in financial service jobs and overall rising employment. Last year, the rental market saw almost no new construction, giving it a low vacancy rate--and a price increase prediction of 3.2 percent for the year.

Curious about the other high- and low-rent rollers? Check out Forbes list of the Most Expensive and Least Expensive Cities for Renters.

England's Housing Slump Echoes U.S. Fallout

The American Revolution may have split the U.S. and Britain, but when it comes to housing, both countries are looking lately like they're joined at the hip.

The U.K. housing market of recent years in many ways echoed the U.S. market: Prices skyrocketed, purchases increased, the economy benefited.

And then, the U.S. subprime collapse began. Sales plummeted, prices fell--and talk of a recession started.

One of the few housing strongholds: New York City, our metropolitan hub, whose market actually increased. And what a market that is: According to the Forbes list of the biggest home sales of the year, the top five in 2007 were in New York City.

The U.K.'s housing market rise and fall--although lagging months behind the U.S. decline--has been very similar.

• After months of big increases, in January, the Royal Institute of Chartered Surveyors (RICS) said that British property prices were declining at their fastest rate since the early 1990s.

• Even the typically strong London market--the country's biggest urban area--took a hit, starting in December.

Because the Bank of England closely watches RICS data and considers it a sign of future home prices, the news was met with concern. But it wasn't the last rough housing news for the U.K.

As home prices dipped, the credit crunch rolled its way across the globe--and the U.K. began to experience some of the same problems as the U.S.:

• Soon the subprime market was in doubt: More than half of the foreclosure orders in the U.K. involve subprime borrower-owned homes, a BBC News report said in mid-February.

• And now, British banks are tightening up lending--and requiring borrowers to put some money down. Today, Reuters reports that another British Bank--Abbey--said it will stop giving out 100 percent mortgages this week. Abbey's competitors already have stopped issuing full-finance mortgages.

That's a move U.S. banks have largely already made; more changes may be on the way, depending on how the presidential election goes. If Republican nominee John McCain wins, lending may get even stricter, given that he suggested in late March that lenders not only do away with no down payment programs, but also set a minimum downpayment amount for mortgage loans.

So is the housing slump over yet for either country? Probably not.

Some have said that U.S. prices will still fall further. The National Association of Realtors' data released today--showing sluggish future home sale activity--indicate that could be the case.

It seems home prices in the U.K. have a bit to drop as well.Even though the U.K.'s biggest lender, HBOS, said today that the average home cost in Britain dropped 2.5 percent from February, home prices in the U.K. have still risen 171 percent in the past decade, Bloomberg said.

But will the U.K. housing situation play out exactly as the U.S. one has? That remains to be seen. One thing is certain: We'll be watching to see if it does ...

Keeping Future Financial Issues Close to Home

Blame for the housing bust has been attributed to a number of factors and groups--but former Fed Chairman Alan Greenspan says the Fed isn't at fault.

So who is?

Well, according to the Financial Times, Greenspan points to a global "dramatic fall in real long term interest rates," which he thinks was prompted by abundant worldwide savings.

And he's confused about why the Fed is catching so much heat for its role in the housing crisis.

Greenspan does have a point: The Fed can't fix everything. And other global economies with central banks saw big housing price increases in recent years:

• London, for example, has seen skyrocketing prices in recent years; yet just last week, Bloomberg reported that luxury home prices in the world's most expensive city for prime real estate grew at the slowest rate in four months in March.

• And just recently, the International Monetary Fund said that Irish house prices still may be 30 percent too high.

Plus the U.S. isn't the only country who has had to help out its banks. Both Germany and the U.K. bailed out four U.S. subprime mortgage-crippled domestic banks,  including Northern Rock and IKB Deutsche Industriebank AG.

Looking at the housing situation that way, the U.S. and global perspective seems very similar--except for one big difference: We started the problem.

And then it spread. At least 34 European Union banks have posted more than $77 billion of losses and writedowns in connection with rising U.S. subprime mortgage defaults, according to Bloomberg.

So now, everyone's talking about reform--on a global level.

Bloomberg reported today that the EU approved a new accord to work together in financial crises; there was no decision about who would fund a rescue if a multinational bank needs one, but the accord came out of a general agreement that something was needed to contain massive financial situations before they spread internationally.

The U.K. Treasury already has said that it wants "concrete action" to improve financial market regulation after next week's Group of Seven finance ministers and central bankers meeting; to do its part, Britain has requested regulators meet more often and is encouraging its banks to disclose losses faster than before.

And the U.S. is working to prevent further economic plagues from spreading. According to the Chicago Tribune, the Fed and Treasury Department stepped in to help Bear Stearns from falling apart--an unusual move for the Fed--because its collapse could have hurt financial companies around the world.

The Bear Stearns bailout could be a good start to further methods of prevention--ones that, in moderation, Greenspan might even agree with. He says a lack of regulation isn't even really the issue--how much of the subprime mortgage fallout  we expected regulators to be able to ward off is.

"Doubtless each individual housing bubble has its own idiosyncratic characteristics, and some point to Fed monetary policy complicity in the U.S. bubble," he wrote in a response to the Times' Economists' Forum. "But the U.S. bubble was close to median world experience and the evidence of monetary policy adding to the bubble is statistically very fragile."

Do you agree?

 

Will the Builder Tax Break Go Through?

As the bipartisan tax bill zooms its way to a vote--some estimates have said the decision could come as early as next week--a new focus has fallen on its provisions for homebuilders struggling under the pressure of the housing decline.

Debate on the bill began Thursday--and by day's end, lawmakers had already killed one of the portions, which would have rewritten bankruptcy laws to allow judges more power to alter mortgage terms.

And that wasn't exactly a huge surprise: Republicans had previously expressed dissatisfaction about that provision and said they wouldn't approve it.

But what of the $6 billion in tax breaks being included to help the home building industry? According to today's Los Angeles Times, it's now come under fire.

For one, it's the largest monetary provision in the bill. And the bill is by no means a cheap suggestion: Its cost could eventually exceed $15 billion.

The provision would let builders write off losses this and next year against taxes previously paid in the past four years--an increase from the current allowance of two years.

The National Association of Home Builders encouraged the tax break, according to the Times; but its effect may vary:

• In the 2006 election cycle, the NAHB political action committee ranked third in contributions to federal candidates, donating $2.9 million, according to the Center for Responsive Politics.

• Since the 2000 election, it has contributed $11.3 million to federal candidates and parties.

• However, earlier this year, the NAHB stopped all campaign contributions, saying lawmakers hadn't "adequately addressed the underlying economic issues that would help to stabilize the housing sector and keep the economy moving forward."

Will that affect the builder tax provision? Maybe. But the NAHB is confident it will effect more than just builders.

"Putting stability into the housing markets helps homeowners retain their equity," Jerry Howard, the association's chief executive, told the Times. "Moreover, it will help stabilize the overall capital markets and therefore the economy. That helps everyone."

Good point. Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, had another good point--the tax break provision would let builders avoid selling land and homes at hugely discounted prices, which could help the housing market turnaround-- and save jobs.

That's especially pressing, given today's news that unemployment has risen to its highest level since 2005. A loss of construction jobs helped cause the biggest employment decline in five years, according to the New York Times.

But will the builder tax break make it all the way to the vote? Stay tuned to multi-housingnews.com to find out ...

Housing Bill Could Become a Reality Soon

The bipartisan housing bill is picking up steam in Congress--and it could be voted on this week, possibly as early as tomorrow.

That's amazingly fast, considering how long the housing slump has been going on--and it took just a few days to cobble this proposal together.

However, the bill may have been constructed quickly--but it's more thorough than you might think.

Some highlights of the proposal, courtesy of CNNMoney.com:

• Revamping the FHA. FHA loan limits could increased from 95 percent of an area's median home price to 110 percent, with a limit of $550,000 in high-cost areas. Down payment requirements may also go from 3 percent to 3.5 percent.

• Giving Builders a Boost. Builders would be allowed to extend the time homebuilders can post 2008 and 2009 losses to past tax bills from two to four years, which could help offset the impact of the housing bust.

• Giving Homebuyers a Break. The bill contains a number of provisions to help encourage homebuying, which could be good news for the market, including a $7,000 credit for homebuyers who buy foreclosed homes or homes in default and an additional property tax break.

• Helping out Refis. Homeowners looking to refinance would also get help via the bill, which suggests opening up $10 billion in tax-free municipal bonds, with proceeds going toward paying for mortgage refinancing for troubled subprime borrowers.

• Making the Lending Process Better. In addition to $100 million for homeowner counseling to prevent foreclosures, the bill calls for more mortgage application disclosure to ensure consumers better understand what loan terms they're agreeing to--and what exactly they will owe over time.

Builders are sure to benefit from the bill's allowances, and its tax and buying breaks could help invigorate home sales--a desperately needed change.

There is, of course, no guarantee all the bill's provisions will be accepted. The Bush administration has already focused in on the bill's suggestions to offer $4 billion in state and local government grants to buy and rework foreclosed properties and its suggestion to earmark $100 million for counseling, calling it a bailout for investors--a group which the government has said from the get-go won't be helped by any housing aid plan.

But the bill's attempt to attack multiple prongs of the housing crisis is admirable--the builders do need a break, as do buyers, as do communities with a high number of foreclosed properties.

Is the bipartisan bill the solution that the housing slump needs? Is it missing any necessary help--or does it contain any excessive measures? What do you think?

Tell us what you'd add or subtract from the bill by posting below.

 

Covering Our Bases--And Our Backs

Yesterday, we discussed the effect Housing and Urban Development Secretary Alphonso Jackson's resignation could have on the pending housing legislation being considered by Congress.

Today, many news outlets--including the New York Times--are saying some of those proposals could hit the floor as soon as tomorrow.

For whatever reason, housing is a hot topic now among the nation's changemakers. Maybe it's the sinking economy; maybe it's the recent news that construction spending fell yet again in February.

Or maybe it's just a case of everyone getting fed up--including the Fed, which yesterday released an online map highlighting problem mortgage areas (which, as if reflecting the current housing industry dismay, on Wednesday wasn't really working)--and deciding someone needed to take the ball and run with it.

The changes on the table involve help for homeowners--but they also include a number of safety measures for the future.

Consider, for example, Fannie Mae. Even as Fannie Mae and Freddie Mac work to prevent foreclosures with higher loan limits and an increased role in the industry, Fannie Mae announced yesterday it's tightening its standards.

• Fannie Mae--which previously had no minimum credit score--will now require a minimum score of 580 for most individual loans it buys.

• The government-backed agency also said it will increase the post-foreclosure period needed for borrowers to "re-establish" their credit history from four to five years. However, it will allow shorter recovery times if borrowers can provide "documented extenuating circumstances" that caused the foreclosure.

It's interesting that the agency is trying to halt foreclosures by offering more loans to more borrowers--but at the same time, it's covering its back.

Expect more of that as the slump continues.

Just look at our nation's banks. The way they're reacting to the housing crisis is telling. Not only are they being stricter about lending--gone are the days when you could get a mortgage with little proof of income and little money in the bank--they're also trying to protect their mortgage-based investments very carefully.

Federally chartered banks held more than $12 billion in foreclosed properties across the U.S. at the end of 2007--roughly 100 percent more than a year ago. About $6.6 billion of those are one- to four-unit residential properties, Keith Leggett, senior economist at the American Bankers Association, told the Chicago Tribune.

The banks don't really want those homes, according to the article--the upkeep is an added expense and they're banks, not real estate agents.

So why are the lenders holding on to those foreclosed homes? Because they don't want vacant properties to tank home values in the neighborhoods they lend in, and because they think the market will turn around at some point, allowing them to sell the homes for a profit, the Trib says.

In short: They're trying to deal with the housing slump by reducing the market impact of their foreclosed properties and maximizing their eventual sale price--by playing it as safe as possible.

And that kind of concern isn't limited to the U.S. As the U.K. housing market sinks further, some lenders may halt subprime lending--including New York-based Lehman Brothers, which the Financial Times said Wednesday may no longer issue subprime loans from two of its British units.

Risk got us into this mortgage meltdown; so it makes sense caution would bail us out. But are being protective enough?

HUD Secretary Resignation Leaves FHA's Future Uncertain

Yesterday the top governmental housing official--Housing and Urban Development Secretary Alphonso Jackson--announced his resignation.

And it couldn't have come at a weirder time. As we reported yesterday, the Justice Department is currently investigating whether or not Jackson gave federal housing contacts to his associates; the outcome of that remains to be seen, but he has in the past come under fire for not answering questions about the issue.

But forget the shake-up for a moment and consider that Jackson stepping down may also bring down some of the housing rescue plans currently under debate. He was, after all, the Bush administration's biggest advocate for legislation to increase the Federal Housing Administration's role in refinancing in-trouble mortgages.

As we also reported yesterday, although Jackson's resignation wasn't exactly a shock, it's unfortunately become hard to separate the personal from the professional--and as such, HUD may have suffered permanent damage.

“Regardless of the ethical issues, the operation and survival of HUD’s programs has also been in question in recent months," Sheila Crowley, president of the National Low Income Housing Coalition, told MHN. "There have been questions about whether they have been carried out the way there were intended."

The FHA has already taken on a bigger role in fixing the housing crisis: New, higher loan limits granted by the stimulus act are supposed to be aiding high-cost home areas like Southern California by opening up FHA-backed loans to tons of new homeowners.

And Congress is currently considering increasing the FHA's scope even more. Congress' two banking committee chairmen--Representative Barney Frank, a Massachusetts Democrat, and Senator Christopher J. Dodd, a Connecticut Democrat--are touting a plan to let the FHA guarantee new mortgages instead of purchasing pre-existing ones.

The plan would help homeowners get more affordable mortgages, with the government assuming the default risk. The proposal has a lot of enthusiasm behind it and it expected to get some coverage this week.

But with Jackson gone, will the Bush administration shoot down any FHA growth? Republican senators shot down the proposed Foreclosure Prevention Act in partially because it included a provision to let bankruptcy judges lower interest rates, extend loan terms and forgive part of loan principles.

And is upping the FHA's power a good solution--or at least, a solid start--to correcting the housing crisis? Or is increasing government intervention into the housing market likely to have a negative effect on the already-weak economy by stretching our resources too thin?

What do you think?