MetroIntelligence adds management consulting to its roster of services

I'm very pleased to announce that MetroIntelligence Real Estate Advisors has added Simmons Group Consulting to our growing roster of services for the real estate industry, in this case development management consulting. Established in 1992, The Simmons Group mission is to increase client productivity and profitability by offering cost-effective senior development management services best applied through a trusted outsourced relationship.

Founder Phil Simmons certainly knows what he's talking about -- most recently, he launched the Urban Division as Division President for John Laing Homes -- the second-largest private builder in the U.S. -- and before that was Development Officer for Archstone-Smith, AvalonBay Communities, and Watt Industries. David Gaulton, who also serves as President of the highly regarded firm of Pacific Development Services, heads up The Simmons Group's construction management operations.

I first met Phil when he was a panelist for a session I moderated at a Big Builder conference in Las Vegas, and afterwards interviewed him for an article I wrote for California Builder magazine on product development strategy. We were so impressed at MetroIntelligence with Phil's honesty, development acumen and insight that it seemed a natural fit to add development management consulting to our increasing roster of services, and look forward to working with Simmons Consulting Group on a variety of projects, both now and as the market rebounds.

Homebuilders still see recovery a long way off

According to the regular NAHB/Wells Fargo poll, U.S. homebuilders are finding a market continuing to deteriorate and not expected to rebound anytime soon. From a CNNMoney.com story:

Homebuilders' confidence fell once again in May and their view of the state of the battered market hit a record low.

The National Association of Home Builders/Wells Fargo monthly index fell to its second lowest reading on record, ahead of only last December's reading.

Builders were asked for their view of the current market, the amount of the buyers looking at homes and expectations for six months from now.

Only 6% of the builders surveyed believe the current market is good while 69% view it as poor. Builders also reported a lower level of people looking to buy new homes.

And 51% of the builders said they now expect conditions to remain poor six months from now, up from 47% who were expecting a poor outlook in the previous reading...

The report comes a day ahead of the government's latest report on housing starts and building permits. Economists surveyed by Briefing.com forecast that starts fell to an annual rate of 940,000 April, which would mark a 17-year low. Permits, also viewed as a reading on builder's confidence in the market, are forecast to slip to 912,000, which would also be a 17-year low.

Earlier this week, luxury homebuilder Toll Brothers (TOL, Fortune 500) reported sharp drops in both revenue and new orders when it released preliminary results, saying that even many buyers who put down a deposit aren't taking the next step of signing a contract due to lack of confidence in the market.

An update on the "Is Standard Pacific for Sale?" Post

I blogged earlier this week about a story in the L.A. Times theorizing that builder Standard Pacific might be for sale. Last night at a networking event, I got an update: there was a conference call on the company's most recent earnings, and as part of that call, management discussed that a sale was one of many possibilities available to the company, but that there were no plans to do so. The Times article made it seem like they were moving in that direction, but my source said it was stated simply because public companies are obligated to divulge all possibilities to their shareholders.

Delinquent HOA fees another consequence of the housing bust

Chalk up another reason that a disorderly reduction in home prices and sales isn't the best thing for the housing market, as many angry renters (and bloggers) would believe. There's a story in the Wall Street Journal about what happens to condo (and master-planned) communities running deficits because of delinquent HOA fees (I saw a similar story last weekend on CNN which featured an existing resident running around the community with weed killer to help protect her investment):

Here's another consequence of the troubled housing market: Some homeowners associations are running low on cash...a growing number of homeowner and condominium associations across the country are raising their fees or putting the brakes on clubhouse improvements, new landscaping and other shared neighborhood amenities. The kitty is so low for some that essential services, such as building maintenance, electricity, trash removal and repairs have been cut.

As community residents lose their homes to foreclosure and new home building has slowed considerably, many of the roughly 300,000 neighborhood associations in the U.S. are grappling with shrunken budgets. One estimate puts the delinquency rate on dues at less than 5% in many markets -- higher than normal, though still not enough to threaten basic services, says John Carona, president of Associa, a Dallas-based company that represents 7,000 community associations in 26 states. Normally, the delinquency rate is about 2%, he says.

Elsewhere, the rate is much higher. At Spanos Park East in Stockton, Calif., owners of about 25% of the development's 1,500 single-family homes have been delinquent in paying their quarterly dues, according to Adrianne Bretao, a manager at M&C Associations Management Services, which helps to manage the community association. As a result, the association has put off expanding a patio area in the clubhouse and swimming pool this year, says Denise Laven, the association's president...

Rules on fees and services are outlined in association bylaws, and some states have laws that cover governance of the associations. So individual homeowners often have little power to fight increases in dues and cuts in services -- as long as the board is following the rules. They also have little recourse against delinquent neighbors other than filing lawsuits, which can be costly and time-consuming.

That's why housing experts advise homeowners to read the bylaws thoroughly, asking what services are guaranteed and whether annual fees are capped. Still, since bylaws were drafted when the community was first built, few outline contingencies in the event of a wave of foreclosures...

housing experts say a growing number of banks aren't paying association dues on properties on which they have foreclosed and now own.

Colin Hendrick, president of the Carlisle on the Ocean Condominium Units Association Inc. in Surfside, Fla., has filed six lawsuits since December against banks that failed to pay dues on foreclosed units.

One of those banks, Minneapolis-based U.S. Bancorp, says it isn't responsible for the assessment fees, saying that they are merely the trustees of the property and that the service agent is responsible for the payments. But Florida lawyers say that since the bank is the ultimate owner, it should have to pay.

So far, no overdue fees have been recovered as a result of the lawsuits. With 20 of the development's 115 luxury condominium units in foreclosure and an additional 35 units either behind on their fees or not paying them at all, the association says, it had no choice but to jack up fees 10% to $470 a month...

The tough economy is hurting associations even in areas where the housing market has been relatively stable. Rob Rosenberg, president of Massingham & Associates Management Inc. in Hayward, Calif., says 90% of the 350 home associations managed by his company in the Bay area of California are seeing a rise in the number of residents who pay their dues late or not at all. Some of the associations are toughening their payment policies by sending out more reminder letters, and many will have to start cutting amenities or services after another six months if they don't start collecting more fees, Mr. Rosenberg says.

Craig Koss, president of Kramer-Triad Management Group LLC in Ann Arbor, Mich., says he advised his 300 local homeowner associations to cushion their budgets with additional dollars in anticipation of the heavy foreclosures last year, but only about 25% of the associations did so. He says fiscally responsible associations will keep reserve funds, but in most states, there is not a state agency to oversee the associations to ensure that reserve funds are set up. "A lot of people won't plan until they have to," he says. "They won't have a rainy day fund until it's pouring."

While furniture retailers struggle, one builder finds a unique incentive: a furnished house

Furniture retailers, which certainly boomed along with housing, are starting to go bust along with fewer housing sales, with some long-time names such as Wickes and Levitz closing their doors after decades in business. From a story in the L.A. Times:

As the housing market goes, so goes the furniture business. Such well-known brands as Levitz and Wickes Furniture have called it quits in recent months, liquidating their inventories. Others are struggling to hang on.

"This is one of the toughest periods we have seen in the last 30 or 40 years," Farooq Kathwari, chief executive of Ethan Allen Interiors Inc., told Wall Street analysts in a conference call a few weeks ago. "A lot of our business has been diverted to these going-out-of-business sales."

Analysts note that furniture is usually a discretionary purchase -- something that consumers can easily put off if they're feeling the effects of the economic slowdown and the pinch of higher food and gas prices.

"If your refrigerator or car breaks, you have to replace it. If your furniture has a scratch, you can live with it for a while and replace it when times are better," said Stefan Wille, president of Aktrin Furniture Information Center, a consulting firm.

Rising oil prices, which drive up the cost of gasoline for delivery trucks, foam for sofa cushions and other expenses, are also cutting into profits. Most of the industry's trouble, however, is rooted in the sour housing market.

"As prices come down, people see their house less as a place they'd like to invest thousands of dollars," said Laura Champine, who follows the furniture business for investment firm Morgan Keegan. "It seems like this is the deepest downturn since the early 1980s, maybe longer."...

Nationwide, consumer spending on furniture and bedding is projected to basically stall this year, gaining only 0.4%, according to a panel of industry analysts surveyed by the industry publication Furniture Today.

Those analysts predict furniture store sales will also be essentially flat this year, inching up to $65.7 billion from $65.2 billion last year.

By comparison, furniture store sales gained 2.1% in 2007 from 2006, with most of that increase coming in the first half of last year, analysts say.

Two of the industry's biggest names are among the early casualties. In March, the 37-year-old Wickes chain began liquidating its inventory and closing its 43 stores.

Levitz, which was founded in 1953, began liquidating its 76 stores in December. The company had 21 locations in Southern California.

Analyst Champine believes other failures are ahead. Most vulnerable, she said, are small, privately owned firms in states such as California and Florida, where home price drops have been among the steepest in the nation...

In New Jersey, however, homebuilder Kaplan Communities has found a solution: partner with a local furniture retailer and offer new couches, dining room tables and bedroom sets as a unique incentive program for buyers. From a BuilderOnline.com story:

Week after week, the marketing team at Kaplan Communities in Highland Park, N.J., would look at the new-home ads in the real estate section to see what kind of incentives were being offered...

The result was a "Housefull of Free Furniture" cross-promotion with Ashley Furniture that offered buyers a gift certificate to the furniture store to furnish their new home. It was available at all Kaplan Communities neighborhoods of condos, townhomes, and single-family homes from the low $400,000s to the mid-$600,000s. The result: an 18 percent increase in traffic and a 14 percent increase in sales...The dollar amount of the gift certificate was coordinated with the furniture needs of the largest unit in each community...

Buyers had an option of picking out basic furniture for the whole house or spending the allowance on one premium piece. The choice was theirs....

The day before the promotion was launched, a meeting was held to thoroughly explain it to the sales staff. The builder's attorney and accountant, and a representative from Ashley Furniture attended so that every possible question could be addressed...

It cost about the same as paying someone's closing costs. With free furniture, they can touch it, pick it out together, and show it off. You can't show off your closing costs."

Has the U.S. avoided a recession?

According to a story in the Wall Street Journal, the recession that many economists said was inevitable has either taken a detour or been postponed:

A funny thing happened to the economy on its way to recession: It's taken a detour.

That, at least, is the view of a growing number of economists -- including some who not long ago were saying a recession was all but inevitable. They note that stock and credit markets have steadily improved since the Federal Reserve intervened to keep Bear Stearns Cos. from bankruptcy in early March, while a series of economic reports have been stronger than expected.

Economists also cite swift policy responses, including a sharp reduction in interest rates by the Fed -- to 2% from 5.25% last September -- and the distribution of fiscal-stimulus checks to millions of Americans, as factors possibly easing the downturn...

Wachovia now puts the odds of recession at 45%, down from 90% in April, and expects growth in gross domestic product of 0.6% at an annual rate in the first and second quarters of this year, followed by 1.2% growth in the third and fourth quarters. While he doesn't expect a recession, he says growth will be very weak through next year.

Indeed, plenty of economic warning signs remain, as reflected in plunging consumer confidence data and polls reflecting deep unease among voters. Rising prices for food and other commodities are prompting Americans to trim some spending and stoking concerns about inflation. The ongoing run-up in oil prices has pushed the average price of a gallon of gasoline to $3.73 as of Tuesday, according to AAA, the automobile group. Home prices continue to decline and many economists expect that to depress spending in the months ahead...

Job losses, meanwhile, have been less severe than they usually are in recessions. And many economists think the government's earliest estimate of first-quarter GDP growth -- 0.6% -- will be revised upward. After reviewing the retail-sales data, economists at Global Insight, a Waltham, Mass.-based forecasting firm, predicted the government would increase its assessment of GDP growth in the first quarter to 1% at an annual rate. They forecast continued growth in consumer spending, partly because of tax rebates and stimulus checks...

The question remains open, since recessions typically aren't officially diagnosed until some time after pain hits consumers. A common definition of a recession is at least two consecutive quarters of negative GDP. But the National Bureau of Economic Research -- the nonprofit group that is the official arbiter of when recessions begin and end -- defines a recession as a period of significant decline in economic activity across GDP, income, employment and retail sales that lasts more than a few months.

John Lonski, Moody's chief economist, said recent labor market data and signs the credit crunch is easing on Wall Street have made him less gloomy than he was a few months ago. In the latest WSJ.com survey of economists, conducted in May, he said the likelihood of a recession was 60% -- down from the 90% he predicted in the April survey...

Claims for unemployment benefits -- which typically rise well above 400,000 a week during recessions -- have stayed well below that level, and fell last week. In addition, the economy isn't shedding hundreds of thousands of jobs a month, as it usually does in an economic contraction. In April, employers cut just 20,000 jobs, and the unemployment rate fell.

Even Alan Greenspan, who in early April said the U.S. was in the "throes of recession" and is going through the "most wrenching" crisis since World War II, has more recently toned down the warnings, saying the U.S. is in an "awfully pale recession." George Soros, who has long argued the U.S. is headed for a major crisis, also recently remarked that the "acute phase" of the crisis has now passed.

To be sure, even economists who are becoming more upbeat say the U.S. may be in for a period of protracted sluggish growth...

"I think the problems are just starting," said Lehman Brothers economist Drew Matus, citing high gasoline prices and tightening lending standards, saying that prolonged stagnation can be worse than a recession.

Homebuilder Standard Pacific for sale?

According to Peter Hong in the L.A. Times, Irvine-based homebuilder Standard Pacific may be considering putting itself up for sale after a sixth straight quarterly loss. I personally have always liked Standard Pacific's designs and quality (my cousins have owned an SP home in Corona for over 10 years and seem very happy with it), so it'd be interesting to see which builders have the financial strength to make such a purchase, and even if such a match would make sense:

Irvine home builder Standard Pacific Corp. raised the prospect of selling itself Monday as it reported its sixth straight quarterly loss. Its shares plunged 21%.

Standard Pacific Chief Executive Jeffrey V. Peterson told analysts in a conference call that falling house prices accounted for much of the company's losses and will continue to dog the builder for the rest of the year.

In a regulatory filing, the firm said a sale of the company was among six options it was considering, including a merger or sales of non-core assets...

The company delivered 42% fewer new homes in Southern California in the three months ended March 31 than it did in the same period last year. In all of California, new-home deliveries for the quarter were down 30% from a year earlier.

The company's average home price for California was down 19% in the first quarter of 2008 from a year earlier. In Southern California, the average home price fell 10% for the quarter compared with a year earlier.

"The Post-American World" by Fareed Zakaria

Over the past several years, I've become a big fan of Fareed Zakaria, who currently serves as Editor for Newsweek International and has recently released a new book entitled "The Post-American World."

Fareed was a keynote speaker at last year's Pacific Coast Builder's Conference, and I was fortunate enough to speak to him before his speech and also to grab a quick photo op (my employer at the time, Hanley Wood Market Intelligence, was a primary sponsor of this event). While it's a terrible picture of me, it's the only one I have with him!

What I like about Fareed is his courage in telling unpleasant truths to a country which often prefers to distract itself with more temporary pleasures such as obsessing over American Idol's final 3, buying more home than can reasonably be afforded or running up other debt with the hope that the future will somehow make everything work out. These various distractions have come at a cost: whether we like it or not, other countries are rising up and challenging the United States' ability to dictate to the rest of the world -- but Fareed argues that not only is that a natural consequence of a growth of other countries' economies, but can also greatly benefit Americans and the values that make our society unlike any other in the world.

But first, here's a video clip from Fareed's interview with PBS' Charlie Rose earlier in the month:

So what does that have to do with housing? Quite possibly, a different standard of living and a change in what we expect from our homes and our communities.

Following are portions of an an excerpt published in the May 12th edition of Newsweek (the link also includes another video with Mr. Zakaria on the Newsweek website). And yes, while long, it's a very interesting read:

Americans are glum at the moment. No, I mean really glum. In April, a new poll revealed that 81 percent of the American people believe that the country is on the "wrong track."... There are reasons to be pessimistic—a financial panic and looming recession, a seemingly endless war in Iraq, and the ongoing threat of terrorism. But the facts on the ground—unemployment numbers, foreclosure rates, deaths from terror attacks—are simply not dire enough to explain the present atmosphere of malaise...

In America, we are still debating the nature and extent of anti-Americanism. One side says that the problem is real and worrying and that we must woo the world back. The other says this is the inevitable price of power and that many of these countries are envious—and vaguely French—so we can safely ignore their griping. But while we argue over why they hate us, "they" have moved on, and are now far more interested in other, more dynamic parts of the globe. The world has shifted from anti-Americanism to post-Americanism...

Well, consider this fact. In 2006 and 2007, 124 countries grew their economies at over 4 percent a year. That includes more than 30 countries in Africa. Over the last two decades, lands outside the industrialized West have been growing at rates that were once unthinkable. While there have been booms and busts, the overall trend has been unambiguously upward...

We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America's superpower status in every realm has been largely unchallenged—something that's never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest...

The post-American world is naturally an unsettling prospect for Americans, but it should not be. This will not be a world defined by the decline of America but rather the rise of everyone else. It is the result of a series of positive trends that have been progressing over the last 20 years, trends that have created an international climate of unprecedented peace and prosperity...

A team of scholars at the University of Maryland has been tracking deaths caused by organized violence. Their data show that wars of all kinds have been declining since the mid-1980s and that we are now at the lowest levels of global violence since the 1950s. Deaths from terrorism are reported to have risen in recent years. But on closer examination, 80 percent of those casualties come from Afghanistan and Iraq, which are really war zones with ongoing insurgencies—and the overall numbers remain small. Looking at the evidence, Harvard's polymath professor Steven Pinker has ventured to speculate that we are probably living "in the most peaceful time of our species' existence."...

Part of the problem is that as violence has been ebbing, information has been exploding. The last 20 years have produced an information revolution that brings us news and, most crucially, images from around the world all the time. The immediacy of the images and the intensity of the 24-hour news cycle combine to produce constant hype...

The threats we face are real. Islamic jihadists are a nasty bunch—they do want to attack civilians everywhere. But it is increasingly clear that militants and suicide bombers make up a tiny portion of the world's 1.3 billion Muslims. They can do real damage, especially if they get their hands on nuclear weapons. But the combined efforts of the world's governments have effectively put them on the run and continue to track them and their money...

Some point to the dangers posed by countries like Iran. These rogue states present real problems, but look at them in context. The American economy is 68 times the size of Iran's. Its military budget is 110 times that of the mullahs. Were Iran to attain a nuclear capacity, it would complicate the geopolitics of the Middle East. But none of the problems we face compare with the dangers posed by a rising Germany in the first half of the 20th century or an expansionist Soviet Union in the second half. Those were great global powers bent on world domination. If this is 1938, as some neoconservatives tell us, then Iran is Romania, not Germany...

Today's rising great powers are relatively benign by historical measure. In the past, when countries grew rich they've wanted to become great military powers, overturn the existing order, and create their own empires or spheres of influence. But since the rise of Japan and Germany in the 1960s and 1970s, none have done this, choosing instead to get rich within the existing international order. China and India are clearly moving in this direction. Even Russia, the most aggressive and revanchist great power today, has done little that compares with past aggressors...

The underlying reality across the globe is of enormous vitality. For the first time ever, most countries around the world are practicing sensible economics. Consider inflation. Over the past 20 years hyperinflation, a problem that used to bedevil large swaths of the world from Turkey to Brazil to Indonesia, has largely vanished, tamed by successful fiscal and monetary policies. The results are clear and stunning. The share of people living on $1 a day has plummeted from 40 percent in 1981 to 18 percent in 2004 and is estimated to drop to 12 percent by 2015. Poverty is falling in countries that house 80 percent of the world's population...

The global economy has more than doubled in size over the last 15 years and is now approaching $54 trillion! Global trade has grown by 133 percent in the same period. The expansion of the global economic pie has been so large, with so many countries participating, that it has become the dominating force of the current era. Wars, terrorism, and civil strife cause disruptions temporarily but eventually they are overwhelmed by the waves of globalization...

The combination of low inflation and lots of cash has meant low interest rates, which in turn have made people act greedily and/or stupidly. So we have witnessed over the last two decades a series of bubbles—in East Asian countries, technology stocks, housing, subprime mortgages, and emerging market equities. Growth also explains one of the signature events of our times—soaring commodity prices. $100 oil is just the tip of the barrel. Almost all commodities are at 200-year highs. Food, only a few decades ago in danger of price collapse, is now in the midst of a scary rise. None of this is due to dramatic fall-offs in supply. It is demand, growing global demand, that is fueling these prices...

It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future. Even if people in these countries remain relatively poor, as nations their total wealth will be massive. Or to put it another way, any number, no matter how small, when multiplied by 2.5 billion becomes a very big number. (2.5 billion is the population of China plus India.)...

As economic fortunes rise, so inevitably does nationalism. Imagine that your country has been poor and marginal for centuries. Finally, things turn around and it becomes a symbol of economic progress and success. You would be proud, and anxious that your people win recognition and respect throughout the world...

Such divergent national perspectives always existed. But today, thanks to the information revolution, they are amplified, echoed, and disseminated...

The fact that newly rising nations are more strongly asserting their ideas and interests is inevitable in a post-American world. This raises a conundrum—how to get a world of many actors to work together. The traditional mechanisms of international cooperation are fraying. The U.N. Security Council has as its permanent members the victors of a war that ended more than 60 years ago. The G8 does not include China, India or Brazil—the three fastest-growing large economies in the world—and yet claims to represent the movers and shakers of the world economy. By tradition, the IMF is always headed by a European and the World Bank by an American. This "tradition," like the segregated customs of an old country club, might be charming to an insider. But to the majority who live outside the West, it seems bigoted...

Over the last 20 years, globalization has been gaining depth and breadth. America has benefited massively from these trends. It has enjoyed unusually robust growth, low unemployment and inflation, and received hundreds of billions of dollars in investment. These are not signs of economic collapse. Its companies have entered new countries and industries with great success, using global supply chains and technology to stay in the vanguard of efficiency. U.S. exports and manufacturing have actually held their ground and services have boomed.

The United States is currently ranked as the globe's most competitive economy by the World Economic Forum. It remains dominant in many industries of the future like nanotechnology, biotechnology, and dozens of smaller high-tech fields. Its universities are the finest in the world, making up 8 of the top ten and 37 of the top fifty, according to a prominent ranking produced by Shanghai Jiao Tong University.

A few years ago the National Science Foundation put out a scary and much-discussed statistic. In 2004, the group said, 950,000 engineers graduated from China and India, while only 70,000 graduated from the United States. But those numbers are wildly off the mark. If you exclude the car mechanics and repairmen—who are all counted as engineers in Chinese and Indian statistics—the numbers look quite different. Per capita, it turns out, the United States trains more engineers than either of the Asian giants...

But America's hidden secret is that most of these engineers are immigrants...Half of all Silicon Valley start-ups have one founder who is an immigrant or first generation American. The potential for a new burst of American productivity depends not on our education system or R&D spending, but on our immigration policies. If these people are allowed and encouraged to stay, then innovation will happen here. If they leave, they'll take it with them...

American society can adapt to this new world. But can the American government? Washington has gotten used to a world in which all roads led to its doorstep. America has rarely had to worry about benchmarking to the rest of the world—it was always so far ahead. But the natives have gotten good at capitalism and the gap is narrowing. Look at the rise of London. It's now the world's leading financial center—less because of things that the United States did badly than those London did well, like improving regulation and becoming friendlier to foreign capital...Twenty years ago, the United States had the lowest corporate taxes in the world. Today they are the second-highest. It's not that ours went up. Those of others went down...

American parochialism is particularly evident in foreign policy...Rather than narrowly obsessing about our own short-term interests and interest groups, our chief priority should be to bring these rising forces into the global system, to integrate them so that they in turn broaden and deepen global economic, political, and cultural ties. If China, India, Russia, Brazil all feel that they have a stake in the existing global order, there will be less danger of war, depression, panics, and breakdowns. There will be lots of problems, crisis, and tensions, but they will occur against a backdrop of systemic stability...

To bring others into this world, the United States needs to make its own commitment to the system clear. So far, America has been able to have it both ways. It is the global rule-maker but doesn't always play by the rules. And forget about standards created by others. Only three countries in the world don't use the metric system—Liberia, Myanmar, and the United States. For America to continue to lead the world, we will have to first join it...

Americans—particularly the American government—have not really understood the rise of the rest. This is one of the most thrilling stories in history. Billions of people are escaping from abject poverty. The world will be enriched and ennobled as they become consumers, producers, inventors, thinkers, dreamers, and doers. This is all happening because of American ideas and actions. For 60 years, the United States has pushed countries to open their markets, free up their politics, and embrace trade and technology...Yet just as they are beginning to do so, we are losing faith in such ideas. We have become suspicious of trade, openness, immigration, and investment because now it's not Americans going abroad but foreigners coming to America. Just as the world is opening up, we are closing down...

Generations from now, when historians write about these times, they might note that by the turn of the 21st century, the United States had succeeded in its great, historical mission—globalizing the world. We don't want them to write that along the way, we forgot to globalize ourselves.

Bush Admin. broadens its own housing rescue program

Following great criticism that it was offering no alternative other than to veto the housing rescue bill which passed the House of Representatives last week, the Bush Administration has expanded its own program which relies on the FHA. From a CNNMoney.com story:

While Congress grapples with how to help troubled homeowners, the Bush administration is expanding a more modest effort to help at-risk borrowers.

The Federal Housing Administration announced changes last week to FHASecure, a program launched in August in response to a housing crisis that threatened as many as 2.2 million borrowers of adjustable rate mortgages (ARMs) with foreclosure.

The changes - the agency's second attempt since April to broaden the scope of FHASecure - underline a debate that is front and center in Washington: What's the best way to rescue borrowers at risk of losing their homes as the nation faces one of the worst housing crises in decades?

The House - led by Democrats and Republicans in states hit hard by foreclosures - passed a contentious foreclosure-prevention package last Thursday that would back as much as $300 billion in mortgages. A key Senate panel could consider the bill as soon as this week, but it faces resistance from Republican lawmakers and a veto threat by President Bush.

At the same time, the FHA on Thursday loosened its rules setting out the criteria that borrowers must meet to obtain an FHA-insured mortgage...

In August, FHA originally said it hoped that FHASecure would refinance 80,000 ARMs for delinquent borrowers who would otherwise likely lose their homes.

But the FHA's own data shows that the program has so far helped fewer than 2,000 of those homeowners.

"The current FHASecure numbers are woefully inadequate," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a community advocacy group. "It's not having an impact on the crisis."

The FHA, while acknowledging that it has helped fewer borrowers than it originally intended, says nearly 200,000 have gotten refinanced mortgages under FHASecure...

Until recently, FHASecure was available only to borrowers who fell into delinquency after low, teaser interest rates on their ARMs reset to much higher rates.

In April, the agency announced that it would no longer restrict the program to those borrowers. Instead, all subprime ARM borrowers who were no more than 60 days late - or 30 days late twice in a 12-month period - would be eligible for an FHA-insured loan, as long as the borrower had home equity, or cash, equaling 3% of the mortgage principal.

Also as part of this expansion, borrowers who were three months delinquent or late three times in a 12-month period qualified for FHASecure, but these borrowers needed to have 10% home equity or the cash equivalent. To enable borrowers to reach those loan-to-value ratios, lenders could voluntarily write down balances.

"The changes we have made with FHASecure will help us reach about 500,000 homeowners in total by the end of this year," said Roy Bernardi, the deputy secretary of the Department of Housing and Urban Development, which runs FHA, told the Federal Home Loan Banks Annual Directors Conference on April 29.

In the latest change, the FHA announced on Thursday that it would cover more people by pricing in the risk of default when screening potential borrowers.

Since its birth during the Great Depression, the FHA has charged all borrowers the same rate. Starting in July, the agency would initiate higher insurance premiums for borrowers with riskier credit profiles...

FHA-insured loans, even with insurance premiums, tend to be more reasonably priced than what borrowers would pay otherwise...After the added premiums are folded into the mortgage payment, the difference comes to only about $12 a month for that $150,000 loan...

The timing of the announcement coincided with the House passage of a bill sponsored by Barney Frank, one that takes a much more comprehensive approach to meeting the foreclosure crisis. Critics of the bill, including Bernardi of HUD, charge that it could cost taxpayers billions while the FHASecure program is relatively risk-free...

According to Frank's office, a stronger response to the foreclosure crisis is needed.

"We already acknowledged that there will be increased risk," said Steve Adamske, a Frank spokesman. "But the housing crisis is affecting the entire economy and will prolong any recession. FHASecure has not helped as many people as it needs to."

But will the expansion of FHASecure improve that record?

"It might save a few more borrowers," said Carr. "But in the context of reports of foreclosure filings up 112% this year, representing 600,000 homeowners, it's not nearly as robust as it has to be."

The Giant 400: Credit crunch helping manufactured home sales

According to Professional Builder magazine's "Giant 400" survey, sales of manufactured homes fell steeply during the recent housing boom and bust cycle, made even worse by the steep discounts 'site-built' builders were offering buyers. But as the credit crunch has eliminated most loans without some type of down payment, the lower cost of manufactured housing has re-made it as an affordable housing of choice in certain areas.
Site-built housing's downturn dragged the manufactured housing sector into the gloom the past two years, but now the sun is beginning to shine again for at least some in that industry. Part of the reason is the credit crackdown that has many site-builders tearing their hair.

"It's tough to sell any kind of housing when so many production site-builders are discounting wildly," explains Tom Beers, vice president of economics for Arlington, Va.-based Manufactured Housing Institute. "Our members complain about the strategies of the public home builders just as so many other builders do."

"But the last couple of months, we've seen single-section HUD Code shipments turn up dramatically. Both consumers and lenders have had a reality check," Beers says, "They can't put people into $500,000 homes anymore if they don't have a big down payment."

Single-section HUD Code homes are the most affordable product in ownership housing, with an average price of $35,000. A $2,000 down payment will work fine for such a home, while it may not work at all in the current tight credit environment for even the most affordable site-built homes.

Multi-section HUD Code homes and modular housing are still in the dumps, because both track closely to site-built. But even there Beers sees reasons for optimism. Multi-section HUD houses are assembled on-site and average $85,000 in price, without the lot and the decks and porches many people attach to them. The federal stimulus package now in Congress contains a provision to update FHA Title 1 mortgages, upping the loan limit from $48,000 to $70,000. If Congress passes that provision, Beers believes the mortgages will be used widely on multi-section as well as single-section HUD homes.

Modular manufacturers have carved a niche recently supplying modules to custom site-builders for assembly into expensive custom homes in rural areas. Those rural markets are not as bad as those in suburbia, and that market segment is not as interested in standing inventory homes. So even modular has hope.

Still, the best chance for manufactured housing is the HUD code single-section segment that's already rocking. Tighter credit is pushing people — who should have been customers all along, Beers says — back into HUD singles.