Friday, December 10, 2010

Has mobility really declined due to the recession?

For a couple of years we've been hearing that one reason unemployment is elevated is because people can't move because they're stuck in their homes.


The thinking was that without the historical social mobility that has allowed the U.S. economy to constantly re-invent itself that the right people couldn't move to the right jobs.

Or so it seemed.

However, according to a recent paper by Greg Kaplan and Sam Schulhofer-Wohl and available online at the National Bureau of Economic Research, the decline in interstate social mobility has been steadily occurring since the mid 90s and is not specifically related at all to the Great Recession. From their summary:

We show that the significant drop in the annual interstate migration rate between the 2005 and 2006 Current Population Surveys is a statistical artifact. The Census Bureau’s imputation procedure for dealing with missing data before the 2006 survey year inflated the estimated interstate migration rate. An undocumented change in the procedure corrected the problem for the 2006 and later surveys, thus reducing the estimated migration rate.

The change in imputation procedures explains 90 percent of the reported decrease in interstate migration between 2005 and 2006, and 42 percent of the decrease between 2000 (the recent high-water mark) and 2010. After we remove the effect of the change in procedures, we find that the annual interstate migration rate follows a smooth downward trend from 1996 to 2010. The 2007–2009 recession is not associated with any additional decrease in interstate migration relative to trend.

A related story in Newsweek posits that the decline is likely due to changes resulting from the information age and a service-based economy than anything else:

The decline, which is often attributed to early recession troubles with selling homes or paying for moves, is a “statistical artifact,” according to a report published by the National Bureau of Economic Research. It’s 90 percent attributable, the study claims, to a 2006 change in the way the bureau estimates missing data. Once the change is corrected for, the steep drop in moving rates disappears. Interstate migration is indeed falling, says University of Pennsylvania professor Greg Kaplan, who coauthored the study. But the trend is decades old and, says Kaplan, may be “an optimal response” to the information economy, where work is no longer as regionally diverse.

If you want to read the entire study, it is available for download for $5 at the NBER Web site.


Forecast for 2011

Although the National Bureau of Economic Research officially declared the ‘Great Recession’ over in June of 2009, over 18 months later the building industry continues to wait for that proverbial light at the end of the tunnel. Sure, there were some rumblings of activity in the land market in early 2010 as it seemed that a rebound was imminent, but that turned out to be related more to homebuyers taking advantage of tax credits than sound economic fundamentals. So what can we expect in 2011?

For the general economy, the recovery will remain painfully slow, but our colleagues at Beacon Economics are not predicting a double-dip recession because the imbalances we saw during the boom years have been largely wrung out of the system. Nonetheless, as the fiscal stimulus programs of the past two years begin to abate, expect to see more layoffs in the public sector at the state and local levels, as well as officials finally forced to address untenable pension promises. In addition, as the Federal Reserve and Congress begin to reverse historically low interest rates and huge budget deficits, consumer spending – which accounts for more than two-thirds of the country’s GDP – will grow at a reduced pace.

With up to 65% of the earnings for the companies listed on the S&P 500 coming from overseas, domestic job growth will also remain lackluster, so it will take time to replace the 7 million jobs lost in this downturn. Although the U.S. retains the world’s largest manufacturing sector by value, capital investments and increasing productivity will replace many of those jobs, requiring retraining for millions of workers. Yet the good news for construction workers is that although it will take several more years for their jobs to come back, it’s not easy to outsource the building of new communities overseas or replace workers with automated equipment. A year from now, Beacon Economics is forecasting the national unemployment rate to remain elevated at 8.8% and not approach the 8.0% level until the middle of 2013 – well above the levels seen in the boom years, but still representing a slow and gradual decline.

For the real estate market, improvement will vary widely depending on the sector. The first sector to rebound will likely be apartments, led by former homeowners looking to rent as well as the rise of the Echo Boomer population. As the economy improves, people forced to live with each other due to financial issues – such as boomerang children living at home, roommates who have nothing in common, and even former couples who simply share space – will opt for their own households as soon as they can.

Naturally, the rebound for new housing will depend largely on the state of the foreclosure market, which is expected to remain elevated through 2012 even though the rate is flattening out in some hard-hit areas such as Los Angeles. Not surprisingly, discounted foreclosures will continue to pull down median sales prices, but an important caveat here to remember is that many foreclosures offer low-quality housing with missing appliances, damaged interiors and neglected yards. Once those foreclosed homes are eventually flushed through the pipeline, prices could stage a moderate rebound based both on better-quality comps and an improving economy.

Finally, with just about 200,000 unsold units – the lowest since 1968 -- builders have kept a tight lid on inventory, which should help bolster the industry when the rebound occurs. For 2011, the NAHB is forecasting 655,000 single-family starts that should climb nicely to 970,000 starts by 2012. For the multi-family sector, an unforeseen rebound in mid-2009 helped bump up the forecast to 125,000 units by 2011 and 210,000 units by 2012.

Housing Chronicles named in Top 50 real estate blogs

The Web site Online Business Education has listed The Housing Chronicles Blog among the Top 50 real estate-related blogs online. You can find the entire list here.

December 2010 column for Builder & Developer now online

My column for the December issue of Builder & Developer magazine is now posted online. This month's issue, which is entitled "Short-Run Pain Can Lead to Long-Term Benefits" -- is essentially a review of the housing market and the economy in 2010.
An excerpt:

According to a recent study conducted by the NAHB, although the nation’s builders certainly over-built single-family homes from 2003 through 2005, the cumulative surplus relative to population growth was completely worked off by the end of 2007. That’s not to say we still don’t have a huge over-supply relative to buyers’ ability to buy or qualify for mortgage loans – it just means that based on historical precedent and average household sizes, the nation is technically under-housed.

In fact, between the end of 2007 and 2009, the sharp declines in new building led to a projected deficit of nearly 2.2 million units. By the end of this year, that deficit will have reached nearly 3.3 million units. In other words, as the foreclosure pipeline is eventually addressed – and it must be in order to clear the inventory of homes in default -- this country will face a tremendous pent-up demand for new housing across the entire income spectrum.

Click here to read the entire column.

Click here to read the entire magazine in digital format.

Friday, November 19, 2010

Short-Run Pain Can Lead to Long-Term Benefits

As the building industry continues to wait for a sustained rebound which stubbornly refuses to appear, it’s easy to grow frustrated with economists and prognosticators who seem to constantly update their forecasts. So what’s going on?

One reason that it’s hard to get a handle on the economy is because the federal government has pursued various policies which have simply postponed the inevitable consequences of the past. In times of great economic duress, this makes sense, as too many negative hits at once can send an economy into a tailspin leading to a depression. But by spreading out these hits over time so the economy can adjust, any recovery is also muted.

Another reason it’s been difficult to gauge the timing of a rebound is that the bust in housing demand and prices hasn’t been uniform across the country: while Arizona, Florida and Nevada continue to suffer disproportionately, places like Texas and Washington, D.C. are on the mend. In addition, when real estate bubbles pop, it’s not like they re-inflate immediately – the market tends to bob along the bottom for two or three years before sustained demand is possible. An even with mortgage rates now at generational lows and home price affordability far higher than during the boom years, the demand for housing now simply needs ample time to recharge its batteries.

In the meantime, this recharge is continuing unabated, only instead of living in their own homes, potential new households are doubling up with roommates and with family members while waiting for job growth to return. In general, between 1960 and 2005, the United States has averaged 1.2 million net new households per year. In some years builders have certainly over-built relative to demand, but in many others years (such as during recessions), they can’t build enough homes.

According to a recent study conducted by the NAHB, although the nation’s builders certainly over-built single-family homes from 2003 through 2005, the cumulative surplus relative to population growth was completely worked off by the end of 2007. That’s not to say we still don’t have a huge over-supply relative to buyers’ ability to buy or qualify for mortgage loans – it just means that based on historical precedent and average household sizes, the nation is technically under-housed.

In fact, between the end of 2007 and 2009, the sharp declines in new building led to a projected deficit of nearly 2.2 million units. By the end of this year, that deficit will have reached nearly 3.3 million units. In other words, as the foreclosure pipeline is eventually addressed – and it must be in order to clear the inventory of homes in default -- this country will face a tremendous pent-up demand for new housing across the entire income spectrum.

And yet, much like the nascent recovery, this pent-up demand differs from state to state. A similar analysis conducted by the NAHB for each state showed some of the states with the most foreclosures – such as Arizona, Florida, Nevada and California – have still racked up single-family housing deficits relative to population growth ranging from 50,000 to 145,000 homes.

At the recent Building Industry Show in Southern California, the energy this year was much different than in 2009. Not only was it more hopeful, but I heard stories of multiple deals getting done in order to start prepping for the rebound. While it was still gallows humor from land brokers and lenders opining on panels, the general consensus was that 2010 would go down in history as one of those years in which the industry’s survivors hang on because they know that the rebound – when it comes – will be formidable.

Wednesday, November 17, 2010

November column for Builder & Developer magazine now online

My column for Builder & Developer magazine is now posted online. For this month's issue, which is entitled "Promoting Green Living as a Lifestyle" -- I wanted to discuss how builders can leverage their model homes to show prospective buyers how using green products throughout the home can extend far beyond brick, mortar and drywall.

An excerpt:

Imagine, if you will, walking through what looks like a fairly typical model home complex for a new green community. Perhaps it offers the latest in energy-efficient appliances, LED lighting, solar panels, drought-tolerant landscaping, and more. But in addition to that, the homes in question feature an array of sustainable consumer products – tightly secured to tables, cabinets and countertops, of course -- that the eventual occupants might use in their daily lives.

From household chemicals and children’s toys to food and personal care items, to obtain ratings on the greenest of the green, these shoppers would only need to scan product bar codes via an iPhone application or visit the Web site for a new company called the Good Guide. Started in 2004 by a professor of environmental policy at UC Berkeley named Dara O’Rourke after he realized he didn’t really know what was in the sunscreen being applied to the face of his two-year-old daughter (which, after testing in his lab included a suspected carcinogen as well as a chemical which could disrupt hormones), O’Rourke’s goal is to bring academic-quality research on everyday products to the masses.

As I was reading this story recently in a national newsmagazine, I couldn’t help but think how easy it would be for homebuilders to leverage the mainstreaming of green products into their own sales and marketing campaigns. In September of 2010, the site for Good Guide tracked 300,000 visitors who reviewed its ratings on more than 75,000 items, so the interest is certainly there. It’s also an opportune time to provide objective research – sort of a Consumer Reports for green products – to a general public who overwhelmingly say they prefer environmentally responsible products in surveys but have grown increasingly wary of ‘greenwashing.’...

Click here to read the entire column.

Click here to read the entire magazine in digital format.

SoCal home sales dip in October

There are two stories in the Los Angeles Times and the Riverside Press-Enterprise for which I opined yesterday. In both cases, I wanted to stress that (a) by October we're starting to move into the slowest quarter for home sales (both new and existing) and (b) we have no choice but to pay the consequences of the tax credit programs and other incentives which borrowed demand from the future. While I certainly support the idea of spreading out economic pain to avoid a depression, anyone who expresses surprise at falling sales when the market has to abide by normal fundamentals simply wasn't paying attention in Econ. 101.

You can find the L.A. Times story here.

You can find the Riverside Press-Enterprise story here.

Wednesday, November 10, 2010

Press release from 2010 Riverside San Bernardino Economic Forecast Conference

NEW ECONOMIC FORECAST FOR RIVERSIDE/SAN BERNARDINO REGION FINDS CAUSE FOR HOPE, CONCERN… BUT ABOVE ALL PATIENCE

November 9, 2010

RIVERSIDE, CA—A new economic forecast focused on the inland regions of Southern California finds signs of economic recovery mixed with examples of continued sluggishness.

The forecast, authored by Beacon Economics and released in partnership with the University of California, Riverside’s School of Business Administration, says that relative to California, the unemployment rate in Riverside and San Bernardino Counties is expected to fall faster. However, substantial job growth won’t be evident in the region until the last half of 2011, and the unemployment rate in Riverside and San Bernardino counties will remain above 8 percent through 2015

“The job recovery is beginning but it’s going to be slow. U.S. labor markets, in general, now take significantly longer to recover after downturns than they did in the past,” says Beacon Economics’ Founding Principal Christopher Thornberg. “The phenomenon of the ‘jobless recovery’ appears to be a permanent part of the economic landscape.”

David W. Stewart, dean of UC Riverside’s School of Business Administration says that the future of the economies in Southern California’s inland regions lie in the industries that drove growth before the housing boom.“We have a significant, though often overlooked, manufacturing base to build upon,” Stewart says. “And we have the key locational advantages of distribution infrastructure, ready access to both domestic and export markets, and the potential for stable sustainable electricity rates with the growth of solar, geo-thermal, wind, and other new sources of energy. No other part of the country has this winning combination.”

The School of Business Administration used to release an annual economic forecast, and it has now been revived. “As a land grant institution and the only research-based business school in inland Southern California, it is our mission to stay engaged with the economic welfare of our region,” Stewart says.

Key U.S., California, and Riverside/San Bernardino findings from the forecast include:

  • United States: The decline in consumer spending has followed an extended period of overspending; do not look for a jump in demand driven by consumer spending.
  • California: Total nonfarm employment will cross the 14 million milestone in 2011 but will not reach its pre-recession peak of 15.2 million jobs until mid 2015
  • Riverside/San Bernardino Counties: Home sales will continue to fall into 2011 but will then return to growth driven by increasing population and pent up demand.

2010 Riverside San Bernardino Economic Conference materials now online

If you missed Beacon Economics' 2010 Economic Forecast Conference for Riverside San Bernardino on November 9th, you can still download the conference book for FREE! As part of our ongoing partnership with Beacon, MetroIntelligence Real Estate Advisors authored the sections on residential and commercial real estate.

Click here to download entire conference book.

Click here to download the section on residential real estate only.

Click here to download the section on commercial real estate only.

Thursday, November 4, 2010

Riverside-San Bernardino Economic Forecast Conference, Nov. 9th, 2010

Where is The Economy Headed?

The stock market-fueled optimism that marked the beginning of the year gave way to near panic over a potential "double dip" as the recovery slowed sharply in the second quarter. More recently, better signals have started to emerge leaving many to wonder where the U.S. and California economies are heading in 2011?

And what about Riverside and San Bernardino Counties? For decades manufacturing, trade firms, and the logistics sector were engines of rapid and diverse economic development. With the bursting of the housing bubble, are these sectors once again poised to drive growth in the region?

Join some of California's most well-respected forecasters, economic development experts, and local business leaders as they reveal the direction of the U.S., California, and Riverside-San Bernardino economies.

Get Answers to the Following Questions:

  • Is the economy out of the woods or is there a real chance of a 'double dip' recession?
  • What is not up? Interest rates. Is it a bond bubble or are deflation fears real?
  • Tax increases or deficit expansion... which poses the bigger risk?
  • How is California shaping up? Are we ahead or behind in the recovery?
  • Riverside and San Bernardino Counties were some of the hardest hit economies in the nation... but is a new phase of growth beginning?
Registrants Receive:
  • 2010 Riverside-San Bernardino Economic Forecast Book - a data-packed analysis of the region's economic indicators
  • Quarterly updates to the forecast for one full year
  • Chance to interact with forecasters and speakers
  • Prime networking opportunity
  • Breakfast buffet
  • Hosted self-parking
Want to register? Click here.

Tuesday, November 9, 2010
Riverside Convention Center
3443 Orange Street, Riverside, CA 92501
Registration and Breakfast: 7:00 AM
Program: 8:00-10:30 AM
Tickets:
$100 /Individual
$75 /Discount Affiliate Rate
$40 /UCR Student Discount Rate (ID required)
$500 /Table of 8
Seating is limited so register today!
Featured Speakers

Christopher Thornberg
Principal
Beacon Economics

Brad Kemp
Director of Regional Research
Beacon Economics

Roy Paulson
President & CEO
Paulson Manufacturing

Dr. Alfredo Martinez Morales
Managing Director
Southern California Research Initiative for Solar Energy

Peter B. McWilliams
Managing Director – Industrial Services
Jones Lang LaSalle

Iddo Benzeevi
President & CEO
Highland Fairview




Friday, October 22, 2010

Promoting Green Living as a Lifestyle

Imagine, if you will, walking through what looks like a fairly typical model home complex for a new green community. Perhaps it offers the latest in energy-efficient appliances, LED lighting, solar panels, drought-tolerant landscaping, and more. But in addition to that, the homes in question feature an array of sustainable consumer products – tightly secured to tables, cabinets and countertops, of course -- that the eventual occupants might use in their daily lives.

From household chemicals and children’s toys to food and personal care items, in order to obtain ratings on the greenest of the green, these shoppers would only need to scan product bar codes via an iPhone application or visit the Web site for a new company called the Good Guide. Started in 2004 by a professor of environmental policy at UC Berkeley named Dara O’Rourke after he realized he didn’t really know what was in the sunscreen being applied to the face of his two-year-old daughter (and which, after testing in his lab included a suspected carcinogen as well as a chemical which could disrupt hormones), O’Rourke’s goal is to bring academic-quality research on everyday products to the masses.

As I was reading this story recently in a national newsmagazine, I couldn’t help but think how easy it would be for homebuilders to leverage the mainstreaming of green products into their own sales and marketing campaigns. In September of 2010, the site for Good Guide tracked 300,000 visitors who reviewed its ratings on more than 75,000 items, so the interest is certainly there. It’s also an opportune time to provide objective research – sort of a Consumer Reports for green products – to a general public who overwhelmingly say they prefer environmentally responsible products in surveys but have grown increasingly wary of ‘greenwashing.’

To address its own environmental footprint, WalMart effectively became the most powerful regulator in the market back in July of 2009 by setting up sustainability requirements for suppliers and manufacturers. By 2012, the retail giant hopes to offer product ratings on its vendors’ ecological footprints to its customers with the idea that such transparency is good for business.

At a time when up to 70 percent of companies listed in the S&P 500 have issued their own targets to release greenhouse gases, managing the corporate green reputation is becoming almost as important as hitting financial targets. Moreover, following one of the worst oil spills in history and the eventual day of reckoning when oil supply can no longer meet demand (also known as ‘peak oil’), the awareness of investing in renewable energy has probably never been higher.

Few industries will be able to benefit more from these trends than homebuilding. For those builders which have strongly promoted solar energy, their homes have been selling at a faster clip then the rest of the market. According to market leader SunPower Corp., the additional cost for the solar systems are often more than paid for through higher absorption rates, helped in part by federal tax credits and California’s own Million Solar Roofs rebate program. To find these green homes, Web sites such as Listed Green® Homes and some local Multiple Listing Services now allow potential buyers to seek out sustainable new homes and retrofits when conducting their own online searches.

As homebuyers increasingly look for a sustainable lifestyle that accompanies a home, those builders and developers willing to invest in the technology and creativity to promote green products throughout the homes they’re marketing can potentially increase sales velocity while adding to the bottom line. At the same time -- like Wal-Mart -- they can also continue to reinvigorate their own brands for a new decade.

Friday, October 15, 2010

October column for Builder & Developer magazine now online

My October column for Builder & Developer magazine is now posted online. For this month's issue, which is entitled "The Changing New Home Interior" -- I discussed as new homes are becoming smaller, they're requiring design changes that increase both the efficiency of energy use and space. One primary example of this was the Home for the New Economy introduced in early 2010 at the annual International Builders Show.

An excerpt:

Owing to intense competition from discounted foreclosures, the end of demand for McMansions and a growing interest in sustainability, the Home for the New Economy -- introduced earlier this year at the International Builders Show -- promised a design that will compete with older sales homes in terms of both cost and utility. The only problem back in January? The home was built in digital format only as a 3-D rendering and had yet to be offered to the home-buying public.

Since then, however, the former concept home has become a reality at Warwick Grove, built by Leyland Alliance in Warwick, N.Y. Originally conceived as a real-world test project, Leyland has managed to sign contracts for several more in what is still a mostly traditional neighborhood.

Wednesday, September 29, 2010

The Changing New Home Interior

Owing to intense competition from discounted foreclosures, the end of demand for McMansions and a growing interest in sustainability, the Home for the New Economy introduced earlier this year at the International Builders Show promised a design that will compete with older resale homes in terms of both cost and utility. The only problem back in January? The home was built in digital format only as a 3-D rendering, and had yet to be offered to the home buying public.

Since then, however, the former concept home has become a reality at Warwick Grove, built by Leyland Alliance in Warwick, New York. Originally conceived as a real-world test project, Leyland has managed to sign contracts for several more in what is still a mostly traditional neighborhood.

So what makes this new design so different? Besides a much smaller size – 1676 square feet featuring three bedrooms and 2.5 baths – a simplified building design which takes advantage of standard sizes for supplies has cut hard construction costs to just $100 per square foot. Other builders in South Carolina, Virginia and outside the Canadian cities of Toronto and Calgary have also joined in, with some modifications for their local markets including laundry rooms or flipping the upstairs bedrooms below grade.

The Home for the New Economy was the brainchild of New York-based designer Marianne Cusato, the same person who signed up retailer Lowe’s to market her 300-square-foot “Katrina Cottages,” introduced in 2005 as a better substitute than FEMA trailers to house victims displaced by Hurricane Katrina.

As an extension of the tiny Cottage, these larger homes still feature clever space-savers, natural light, high flat ceiling plates versus inefficient vaulted ceilings and operable windows on every outside wall that bring in light while also promoting cross ventilation. Room sizes are also important, with common spaces justifiably larger than lesser-trafficked rooms such as bedrooms or bathrooms. In addition, bedrooms feature increased insulation between walls and closets to accommodate a noisy clarinet practice session or a mini home theater.

But the true calling card of Cusato’s design is the idea of a first-floor adaptable suite, which can function as a family room, office or master bedroom or can also be closed off and offer privacy to an in-law, an adult child or even a paying tenant. For maximum flexibility, the suite’s closet even comes with rough plumbing that can expand into a kitchenette while a separate porch can provide a separate entrance. Given today’s economic realities of increasingly aging in place, homes that are built to offer flexible uses over an owner’s lifetime are becoming much more than an interesting idea.

For the crucial kitchen and bath areas, controlling clutter in a smaller space becomes a primary focus. Even though the kitchen measures just 11 by 12 feet, a combination of deep drawers, pantry shelves, a two-level eating bar and stacked upper cabinets take advantage of the 10-foot ceilings while also maximizing storage space. In the secondary bathroom, a separate alcove for a stacked washer and dryer further takes advantage of the existing plumbing while eliminating the need for a separate room. Best of all, since kitchens and bathrooms are grouped together or stacked on top of each other, plumbing becomes much simpler to install as well as maintain.

Finally, the design also considers its role as part of a larger community; instead of simply being plopped down and demanding attention for their own specific elevation elements of brick or wood or stone, the homes are envisioned to make a statement as part of an entire community. And that change alone could be a primary reason for a buyer to consider a new home versus an existing foreclosure.

Wednesday, September 15, 2010

September column for Builder & Developer magazine now online

My September column for Builder & Developer magazine is now posted online. For this month's issue, which is entitled "Affordable Housing Demand" -- I discussed the the challenges of building affordable housing and cited a couple of successful projects on which MetroIntelligence has consulted.

An excerpt:

Given the enormous inventory of unsold homes in the marketplace, it’s very easy to claim that the U.S. is simply over-housed. But despite 300,000 new foreclosures per month and a national apartment vacancy rate of nearly 8%, in many metro areas there is still not enough housing for low-income households. The reasons for this shortfall are many, including high prices for land, impact fees, zoning requirements and pricy carrying costs. Add to that list uncooperative neighborhood groups who assume that affordable housing equals increased traffic, utilitarian architecture and neighborhood decay, and it’s no wonder that the demand chronically exceeds supply.

Wednesday, August 18, 2010

The Challenges of Building Affordable Housing

Given the enormous inventory of unsold homes in the marketplace, it’s very easy to claim that the U.S. is simply over-housed. But despite 300,000 new foreclosures per month and a national apartment vacancy rate of nearly 8%, in many metro areas there is still not enough housing for low-income households. The reasons for this shortfall are many, including high prices for land, impact fees, zoning requirements and pricy carrying costs. Add to that list uncooperative neighborhood groups who assume that affordable housing equals increased traffic, utilitarian architecture and neighborhood decay, and it’s no wonder that the demand chronically exceeds supply.

In the case of Heritage Walk, a collection of 34 single-family homes built on small lots in the Southern California City of Fullerton, they look like many other infill developments and feature Spanish-style elevations which blend with the surrounding neighborhood, LEED certification for energy-conscious buyers and three pocket parks for those with families.

Not surprisingly, like many infill communities in established areas, sales have been brisk, with the first phase of homes selling out within the first weekend of opening. Yet not all hopeful buyers will qualify even if they can afford it: in a fairly unique situation for California in which the builder partnered with the city’s redevelopment agency, eligible buyers cannot earn more than 120% of the Orange County median income based on household size, the home cannot be rented out (not even a bedroom), and it must be resold to another eligible buyer at an affordable purchase price based on the same formula used for the original sale.

Consequently, it’s possible that if interest rates rise faster than countywide incomes and they’ve not paid down enough principal, if they sell original buyers could actually lose money – an issue which made it difficult for us to price the community against competing new home developments and resale homes which had no such restrictions. Fortunately for Olson, the combination of low costs, an efficient land plan and an effective marketing campaign in an area desperate for affordable new homes has meant brisk sales as well as a healthy profit margin.

For rental housing, the Low Income Housing Tax Credit (LIHTC), which was created under the Tax Reform Act of 1986 and provides dollar-for-dollar tax credits administered by each state and ultimately sold by developers to investors to raise funds, has historically been a huge success, accounting in part for nearly 90% of all affordable rental housing nationwide. And yet as the Great Recession began and corporations no longer had the earnings against which to shield income taxes, it’s become nearly impossible to find willing buyers for these credits even though the demand by low-income households remains unabated.

In these cases, affordable housing developers have had to be both nimble and quick, cobbling together financing from local jurisdictions, tax-exempt state bonds and HUD-administered HOME funds. Moreover, although the market studies which must be produced by third parties typically adhere to LIHTC guidelines, they’ve gradually become so complex and time-consuming that most traditional consultants can’t or won’t touch them.

However, in MetroIntelligence’s dealings with both non-profit and for-profit entities, such projects are increasingly crucial, whether providing the inclusionary housing to get a large master plan approved, allowing a builder of market-rate apartments to clear a financing hurdle by reserving some units for low-income households, or ensuring that cities are meeting their requirements for low-income families, seniors and other special populations. And for those driving or walking by, these projects are certainly not the public housing projects of yesterday. They’re now just part of the fabric of a dynamic community.

Friday, August 13, 2010

Yes, there is still a move-up market in the Inland Empire!

Although one would think that the Inland Empire would not be a primary place for a builder to build move-up product, with the right price point even half-million dollars can be sold, something which Ryland Homes has been finding out lately. From a story in the Riverside Press-Enterprise:

Dale F. Casey, Ryland's Southern California division president, said Sunset Ridge is the first new community that Ryland has launched in the region in about five years. He said Ryland aims to build homes that can compete with existing houses for sale in The Retreat. He said he also expects to attract buyers who want to avoid the risk of buying foreclosed homes "as is."

Houses in the first phase at Sunset Ridge range from 2,695 square feet to 4,248 square feet and are priced from $489,550 to $594,240. They have such amenities as hardwood cabinets, granite countertops, stainless steel appliances, extra-wide staircases, walk-in pantries and cavernous master suites.

Sunset Ridge homes are unlike most new homes being built in Inland Southern California that have been downsized and streamlined for young, first-time buyers. Move-up home construction generally is considered risky for builders today because many homeowners who would like to upgrade won't accept the deflated prices that their existing homes will sell for or are stuck in homes that are worth less than the mortgages on them.

Patrick Duffy, principal of MetroIntelligence, a Los Angeles real estate consulting firm, said The Retreat is "one of the few places in the Inland Empire where you can build move-up (homes) and get away with it in this market." He said that is because of the community's upscale appeal and location, where it can compete favorably on price with nearby Orange County.

Casey said he believes there are well-qualified buyers with cash "who have been waiting on the sidelines for an opportunity to buy their dream."

Heather Stevenson, vice president of sales and marketing for Ryland's Southern California division, said some potential buyers intend to rent out their existing homes and make a down payment on a new one with cash tapped from their savings or retirement accounts...

Click here for entire article.


August column for Builder & Developer magazine now online

My August column for Builder & Developer magazine is now posted online. For this month's issue -- which is oriented towards green home building and entitled "Green Building Success Equals Proper Execution" -- I wanted to discuss how the most forward-thinking builders such as Pulte and Pardee are profiting by educating buyers throughout the sales and process and partnering with outside providers to troubleshoot once the sale has closed.

An excerpt:

For the building industry, given the complexity of marketing, merchandising and selling the benefits of sustainability and green technology, education during the sales process and customer service after the closing are critical components that not all builders provide.

To this day, I still remember walking through models in the late 1990s when builders were trying to showcase options such as home theater systems, whole-house audio and structured wiring. And yet more often that not, I’d see TV sets flashing a “signal missing” message, fake computer monitors, sales agents who could only refer my questions to an outside vendor, and brochures that gave only a passing glance on these new features...

You can read the entire article by clicking here.

50 Ways for Home Builders to Waste Money

If a penny saved is a penny earned, then it certainly makes sense to avoid wasting money. To help builders avoid common pitfalls in today's environment, Builder magazine has compiled a list of 50 ways to boost profits and avoid leaving money on the table:

It’s fair to say that home builders are more worried about cash flow and cost efficiencies today than ever before. It’s a necessity. After all, that botched foundation pour, costly callback, or unchecked billing error could mean the difference between making or breaking a wafer-thin margin.

Which makes it all the more mystifying that so many builders continue to leave money on the table, or—as some expert observers and peers will tell you—commit the operational equivalent of throwing a pile of cash into a dumpster and setting it ablaze. Even in the most brutal of economic conditions, capital is being squandered in some amazing and clueless ways.

So, if your ultimate goal is to bury your business, forgo all of your worldly possessions, and live in a yurt on the edge of eastern nowhere, then by all means, go ahead and do what many builders have been doing for years. Sticking to the status quo could be your ticket out.

But if you’re looking to shore up your bottom line, run a tighter ship, and maintain the time-honored American tradition of turning a profit, then read these tips as a cautionary tale. And, if you have cautionary tales of your own to tell, pass them on. Submit a comment at www.builderonline.com/tradesecrets.

Then, make a new plan, Stan. Hop on the bus, Gus. Drop off the key, Lee. And get yourself free.

I have to admit one of my personal favorites is #13, "Eschew Market Research:"

Outsourced surveys and independent research reports can be expensive, but spending an hour or two of your day to read the local newspaper and/or business journal, talk with suppliers, subs, and lenders, give a home buyer seminar to a community group, and set up a simple survey on your website and at your sales center(s) can go a long way toward identifying market opportunities. And, even easier, the NAHB’s “Consumer Preferences Survey” and the National Association of Realtors’ “Profile of Buyers and Sellers” report, both available online for a modest cost, provide national and MSA-level data to broaden your perspective.

Although these are all good suggestions, I would also recommend asking for another opinion when pulling the trigger on a new development. And be sure to add Builder & Developer magazine and The Housing Chronicles Blog to that reading list. :)

For a list of all 50 suggestions, click here.

Monday, August 2, 2010

Who will buy the $75 million Porcupine Creek property?

Recently a reporter for Palm Springs Life magazine called me regarding the listing for the $75 million Porcupine Creek in Rancho Mirage, which on its 249 acres includes a true rarity -- a 19-hole private golf course with its own clubhouse and driving range. Who might the potential buyer for this ultra-exclusive property might be? You can read the article by clicking here.

Tuesday, July 20, 2010

My interview with the Mortgage Calculator Blog

Recently, I was asked by Adam Kritzer of the Mortgage Calculator Blog to participate in a Q&A-type interview. That interview was just posted, and you can find it here. An excerpt:

Mortgage Calculator
: It seems both the housing bubble and its bursting have been characterized by important regional disparities, so it’s not really meaningful to make generalizations on a national basis. Do you think that the recovery, whenever it cements itself, will also adhere to this pattern?

Absolutely. The areas to recover the first will be those that didn’t participate in the bubble in the first place, states like Texas or parts of the mid-West that still have sound economies. The next areas to recover will be those that did have price run-ups but also have relatively strong economies and have barriers to more building, which are mostly located along the coasts with the exception of Florida, which is a basket case unto itself.

What will take longer to recover are areas popular for vacation homes and those markets that have served as bedroom communities for larger job centers in places like Los Angeles or the Bay Area and require a commute. Here in California, that means the Central Valley, the low and high desert areas and much of the Inland Empire.

Thursday, July 15, 2010

Green Building Success Requires Proper Execution: Education and Customer Service are Critical

Recently, I walked into a retail store to pick up a bottle of wine for a party. And yet despite the enormous selection provided by this national chain, the line was so long – and the store so chronically under-staffed – that I immediately went somewhere else. That visit reminded me that even if a company offers great products and selection, if they drop the ball on execution, they risk losing customers.

For the building industry, given the complexity of marketing, merchandising and selling the benefits of sustainability and green technology, education during the sales process and customer service after the closing are critical components that not all builders provide.

To this day, I still remember walking through models in the late 1990s when builders were trying to showcase options such as home theater systems, whole-house audio and structured wiring. And yet more often that not, I’d see TV sets flashing a “signal missing” message, fake computer monitors, sales agents who could only refer my questions to an outside vendor, and brochures that gave only a passing glance on these new features.

Fortunately, builders such as Pulte Homes have clearly improved on that history, and now feature a Quality Construction Center as part of the sales complex in some communities. Inside one of these centers in Las Vegas, the builder provides three-dimensional displays comparing Pulte construction techniques versus what the code dictates. For example, potential buyers can feel how well low-e glass holds back the desert summer heat while dual thermometers compare differences between the air-conditioned center and the attic above, thereby showcasing how much better cellulose insulation works when stapled to the roof struts as opposed to the ceiling deck.

And, since the best HVAC systems are only as good as the quality of the installation, Pulte hires independent inspectors to conduct critical duct tests and visual inspections before any sheet rock is installed. Other green features include a right-sized 15 SEER HVAC system (which is matched to the size of the home so it operates at peak efficiency instead of constantly cycling on and off), pressure balancing between rooms to avoid hot and cold spots, and a focus on ensuring the entire exterior is sealed to avoid the loss of conditioned air.

For skittish customers not entirely convinced of green building techniques, Pulte also offers a guarantee through its Environments for Living (EFL) package, which promises that savings on heating and cooling bills will live up to their promises. Started by MASCO in 2001 and now offered on all area homes built by Pulte, the program provides a framework for green building that often frequently exceeds traditional Energy Star® standards.

For potential buyers not able to make it to the model complex, Pardee Homes has created a separate area on its Web site which showcases green building features related to solar power, engineered wood, carpet recycled from plastic soda bottles and low-VOC paint. Building green isn’t new for Pardee, which built the first Energy Star®-branded home in 1998, launched its own LivingSmart program in 2001 and last year committed to building 100% green homes in all future communities. For customers already living in these green homes, forward-thinking builders have also beefed up their customer service departments with additional training and out-sourcing to experts when appropriate.

Finally, since any chain is only as good as its weakest link, in 2007 Pulte launched its internal Green Team. Reporting to senior management, the team’s role is to stay on the cutting edge of green building products and practices, review divisional performance, stay on top of new legislation and ensure that new initiatives fit overall corporate strategy.

July column for Builder & Developer magazine now online

My monthly column for the July issue of Builder & Developer magazine is now online. In this article, entitled "Gold Nugget Winners Evolve," I discuss how the demand for smaller and more energy-efficient homes has returned some builders to their roots as artisans and not just providers of commodities. You can read the entire article by clicking here.

An excerpt:

For months we’ve been reading and hearing about how builders have been downsizing both the size and specification levels of the homes they build to cater to today’s more frugal buyers. In the first stage of that transformation, it was a practical move, and often catered more to function than form.

But now that industry architects and building pros have become more comfortable with homes that are smaller yet also more affordable, urban-oriented yet energy efficient, these second-stage homes are showing the type of creativity that win awards.

At the 2010 Gold Nugget Awards this past June, however, the winners demonstrated that only the right combination of form and function will ultimately win the accolades of the most important judges – the buyers...

Thursday, June 17, 2010

Gold Nugget Winners Continue to Evolve

For months we’ve been reading and hearing about how builders have been downsizing both the size and specification levels of the homes they build to cater to today’s more frugal buyers. In the first stage of that transformation, it was a practical move, and often catered more to function than form.

But now that industry architects and building pros have become more comfortable with homes that are smaller yet also more affordable, urban-oriented yet energy efficient, these second-stage homes are showing the type of creativity that win awards.

At the 2010 Gold Nugget Awards this past June, however, the winners demonstrated that only the right combination of form and function will ultimately win the accolades of the most important judges – the buyers. See the list of winners here.

In the case of 1Mission in San Diego, developer CLB Partners chose to restore a somewhat faded city block more to its 1920s glory at the street level while copying architectural cues from surrounding buildings for the upper floors. Set at the junction of the very walk-able neighborhoods of Hillcrest and north Mission Hills, the mixed-use retail and residential project combines front-facing townhomes along with flats attached to large balconies.

To tie it together, architect M.W. Steele Group introduced a public paseo and courtyard that help the two restaurants better capture potential customers. Like a much smaller version of the award-winning Uptown District project nearby that was built in the early 1990s, 1Mission proves that mixed-use projects can work even in a recession, but only if created with the right combination of location and execution.

In the City of Westminster in Southern California, Bridgecreek Development also made safe connectivity to the local community a priority when developing Morian Asian Gardens, an age-restricted condominium project in the Vietnamese-dominated Little Saigon. By blending feng shui design models with a French-inspired aesthetic, architect Danielian Associates wanted to evoke a classic Vietnam environment while also providing the more practical and social aspects of two clubhouses that bring in the best of the local climate via adjacent courtyards.

For energy efficiency, it’s harder to get greener than Los Vecinos in Chula Vista south of San Diego, which was named Green Sustainable Community of the Year. Earning the coveted LEED Platinum status and built on the site of an abandoned model (of which 84% of materials were re-purposed for the new building), this affordable Wakeland Housing & Development rental project also requires residents to complete a green training course. Given the combination of its solar array which provides 90% of its electrical needs, a turf area requiring no water and most services located within a half-mile walk, it’s certainly no surprise that Los Vecinos was accepted into the Zero Energy New Home (ZENH) program of the California Energy Commission for ongoing education purposes.

And yet for sheer creativity, Nelson Development’s Arden Estates in the West Portal neighborhood of San Francisco proves that urban infill doesn’t necessarily mean high density. After carving out seven 4,000-square-foot lots from a single undeveloped 28,000-square-foot parcel, each 3,200-square-foot home promises luxury finishes with high ceilings, generous setbacks, gardens and views, and also claims one of the highest green building ratings offered by the city.

Awarded Green Point Rated Community of the Year, the considerable architectural challenge was to blend in with both the surrounding homes as well as a the site’s keynote: Arden Wood, a Normandy-style chateau built in 1930 that has since been operating as a multi-purpose Christian Science center for spiritual healing, nursing services and education.

Yet by remaining sensitive to the neighborhood’s history and not building to maximum density, it’s projects like this that remind buyers that many builders are also artisans.

Wednesday, June 9, 2010

Worst over for commercial real estate?

For many months we've continued to hear about the sturm und drang in the commercial real estate market. Where's that crash we keep hearing about? It is just over the horizon, or has that sector of the real estate industry learned the lessons of the housing crash and decided to manage revaluations in a different way? According to a story in the L.A. Times, not only may the worst be over for office buildings, retail stores and industrial properties, but funding is now starting to emerge from the sidelines. From the story:

After nearly three years of declines there are signs that Southern California's beaten-down commercial real estate market has struck bottom — setting up the possibility of a rebound later this year.

In a sign of the easing, heavyweight investors armed with buckets of cash are on the prowl, looking to snap up office buildings, warehouses, shopping centers and apartments at the market's low, industry observers say. The buyers are choosy, but the most desirable buildings elicit bidding wars when they come up for sale...

Although commercial building landlords in many markets are still struggling with high vacancy rates and weak rents, the erosion in some sectors has slowed, piquing the interest of buyers. In addition, reinvigorated banks have been able to postpone or avoid liquidating billions of dollars' worth of distressed real estate loans sitting on their books, helping to solidify prices.

In a similar fashion, Southern California's housing market hit bottom more than a year ago and prices have been trudging higher ever since, partly because a feared wave of fresh foreclosures hasn't materialized.

If the commercial real estate market continues to gain strength it would represent a significant shift in economic risk because many experts had feared that mass defaults by landlords on their loans could cripple banks and drive the country deeper into recession.

"It's true that thousands of commercial loans must be worked out and some of these properties will enter the market in 2010," investment banker David Rifkind said. But "federal policy has been accommodating to banks and they are not being forced to realize losses."

With rents falling and the economy trembling, commercial real estate transactions had been rare during the downturn. Owners were holding on in hopes that prices would stop falling and buyers were holding back, waiting for the low point.

But a philosophical change has become apparent among investors, Rifkind said.

"There is so much money sitting on the sidelines that when distressed assets or even small pools of loans come to market, there is a flood" of interest, said Rifkind, managing partner of George Smith Partners.

"That became palpable to us in the first quarter," he said. "Money can't stay on the sidelines for long periods of time. It has to retool and be put to use."...

Click here for the entire story.


Tuesday, June 8, 2010

San Diego Market Monitor for 1Q 2010 now online

Each quarter, I update the Market Monitors for San Diego County and the combined Los Angeles/Ventura County region for Hanley Wood Market Intelligence. Last week, I finished up the San Diego version, which you can purchase online here. I just finished up the LA/Ventura version today, which should be online later this week.

I also thought it'd be helpful to offer an excerpt from the Executive Summary for the San Diego report that's included at the beginning of the report:

Following last quarter’s 38% rebound as buyers began to take advantage of special tax credits, new home sales rose again by 21% during the first quarter of 2010 to 673 units versus the same quarter of 2009. And, even as prices began to slowly rebound, the combination of low interest rates and tax credits helped to boost average absorption rates by 69% to 1.7 sales per month per project. Looking ahead to the rest of 2010, however, the new home market is expected to soften slightly as the tax credits expire, discounted foreclosures remain as formidable competition and Option ARM mortgages continue to re-set.

In the existing home market, the rate of annualized sales rose by 9.4% during the first quarter of 2010 to 35,628 units. At this level, existing home sales are now just 1.5% less than the long-term average noted since the beginning of 1988, due in large part to a median price of $315,000 that is now 39% below the peak of $520,000.

At the same time, after last quarter’s 12% decline, median new home prices rose by 5.9% over the last year to $549,465. Although prices rose by 18% to $466,990 in the attached sector, they fell by just over 5% for detached homes to $597,900, with each submarket in both sectors performing much differently from each other during the quarter.

Somewhat surprisingly, in terms of relative strength, per-project absorption levels during the first quarter were actually highest in the East submarket (2.3 sales per month) and the Inland North (2.0), whereas the lowest rates were noted in the South Bay (1.0) and the Coastal North (1.7)...

Although higher affordability levels compared to new homes should continue to disproportionately assist the market for existing homes, given the weak economic outlook for 2010 and the expiring tax credits, the recovery for the new home sector will likely be slow and very gradual. In the short term, jobs in the existing and emerging technology sectors and hospitality industries are expected to rebound the fastest due to existing infrastructure and prior investments...

Looking to the end of 2010, the median detached new home price is still expected to reach $618,000 – or down by about 5% over the preceding year -- owing to a mix of smaller and more affordable homes, with the value ratio falling slightly to $206 per square foot. Sales are also still projected to fall by about 4% to 2,100 homes, or about 25% less than 2008 levels and 86% less than the peak in 2004...

Riverside Press-Enterprise covers trend of smaller homes

The Riverside Press-Enterprise's Leslie Berkman recently covered the ongoing trend of builders creating smaller homes in today's environment, and spoke with MetroIntelligence Principal Patrick Duffy on the impact on the state and federal tax credits in this year's housing rebound.

Patrick Duffy, Principal with MetroIntelligence Real Estate Advisors, a Los Angeles-based real estate consultant, said, "It is too early to tell if we are in a recovery until we are working with market-based fundamentals of supply and demand without federal benefits."

You can read that entire article here.

June column for Builder & Developer now online

My column for the June 2010 issue of Builder & Developer magazine is now online. In this issue, entitled "A Spring Thaw for Project Finance,"I interview Jonathan Lee, a Vice President with George Smith Partners (GSP), a real estate investment bank and a MetroIntelligence client on the various financing programs available today buying land, developing projects or refinancing existing ones.

In addition, MetroIntelligence is now able to work with builders and developers in need of project finance/re-finance, conduct preliminary due diligence and then bring appropriate deals to GSP. An excerpt from that column:

As the building industry continues to slowly recover from its most prolonged downturn since The Great Depression, the good news is that it appears a minor thaw may be finally beginning in the credit and equity markets. The bad news is that the rules of the game have changed so profoundly that not all players will be able to adjust accordingly...

According to GSP Vice President Jonathan Lee, who focuses largely on the residential sector, although the thaw in lending has unofficially begun, it won’t really matter until banks have re-set the land on their books to current values.
In the interim, Lee is seeing lenders reaching out to established builders as either fee builders or as JV partners to protect their investments by maintaining entitlements and building out what’s already been started.

And yet the Catch-22 here is builders don’t want to JV unless land values are re-set to current value, but lenders aren’t strong enough yet to do so.
As for buying new land, assuming a private builder can out-bid a public company, the terms for leverage are going to be strict, with hard-money interest rates and 50% loan-to-value (LTV) ratios...

Click here for entire column.


The Unacceptable Face of Capitalism

Yesterday, I received an email from Mick Pattinson, a longtime builder and founder of the Building Industry Coalition for Economic Recovery. Mick was one of the first home building executives I met when I started working in the building industry, and as President of Barratt American, he was also a prominent voice for the industry through local, state and national BIA groups.

While the email itself was a reminder of a special seminar this week at the Pacific Coast Builders Conference (PCBC) entitled Surviving Lender Action, as well as a summary of a recent lawsuit against lenders who had pulled promised funding immediately prior to the real estate crash, it was his commentary entitled "The Unacceptable Face of Capitalism" that I found compelling. I asked and received permission to reprint that commentary here on this blog:


THE UNACCEPTABLE FACE OF CAPITALISM, by Mick Pattinson

What happened to Wall Street?

Before Congress and the eyes of the world the executives of financial giant Goldman Sachs admitted that they bet against America. They created financial instruments that they compared with manure so that they and their clients could place big bets on mortgages and housing. For the winners there were fortunes to be made, even if our financial system was taken to the point of destruction and our children handed a debt burden of unimaginable proportions.

In his latest best seller "The Big Short" author Michael Lewis tells the stories of others who made the same bet against subprime and the financial institutions who pedaled them. Savvy investors who from their insider's vantage point could predict the end game. They forecast the mass of foreclosures across the country, the broken dreams and busted businesses. They saw the evaporation of life savings and the arrival of massive unemployment. They knew we faced a financial Armageddon and they placed their bets in the Wall Street casino. Big bets that paid off when the misery index was at its maximum and our financial institutions were forced to beg for a bail out to save our financial system.

This is the unacceptable face of capitalism. Power brokers who were supposed to generate the capital to drive the American economy are instead creating financial instruments of mass destruction. Worthless mortgages given triple A ratings because the big financial houses paid the agencies to do it. As simple as that. A rigged game if ever there was one.

With all of our regulatory agencies asleep at the switch or outsmarted by the slick operators of Wall Street, the law abiding citizens of the country were left defenseless. None more than America's homebuilders. Big Builder magazine recently predicted that 80% to 90% of the nation's private home builders will close their doors before the recovery arrives. A recovery that still appears to be a long way off.

One of the great mysteries for builders has been the failure of banks to conduct "workouts" during this recession. Unlike previous downturns when lender and borrower would come together to solve problems and mitigate the damage this time lenders have just rushed for the exit door. This time co-operation and patience has been replaced with arrogance and litigation.

Today's hearings and media revelations are filling in the blanks and giving us the "rest of the story". The events leading up to the great bank bailout of 2008 are very revealing to America's home builders. Why did profitable and solvent builders suddenly lose their funding? Why were projects suddenly being appraised and re-appraised until the lender got the number he was looking for? Why were performing loans torpedoed for no apparent reason? Why were builders the victims of "contrived defaults"?

We can now see the scale of the catastrophe created on Wall Street and what it meant for our industry. A trillion dollars lost on the subprime fiasco and the total undermining of housing markets all over the country. Do we need bank reform? Of course we do, but streamlined and efficient regulatory oversight is more important.

It doesn't end there. While the citizens of America have suffered mightily the culprits have not. Most of those responsible for this national nightmare are still in the positions they held, while others have left with big pay offs. This too is the unacceptable face of capitalism.

We can only hope that the hearings now underway in Washington D.C. as well as the work of investigative journalists and authors will generate the charges that justice demands. This November the politicians will feel the countries anger at the polls but that will not be enough. Those who put their personal greed ahead of the national interest need to pay a price as well.

As for the rest of that email, here it is:

PCBC

As a reminder, our Surviving Lender Action Seminar is scheduled for the Pacific Coast Builder's Conference this Wed, June 9th from 9:00-11:00am in Moscone Center Mezzanine room 228, San Francisco. There is no fee to see this seminar. Again, this seminar is designed to help builders and other privately held industry related businesses survive the current liquidity crisis. Discussion will include damage assessment through the reappraisal process, exhaustion of cash, discontinuation of funding, and subsequent loan default. The emphasis of the program will be a detailed discussion of prejudgment remedies and lender liability, and life after chapter 11 & chapter 7. Speakers include workout specialists, attorneys and accountants who are very current and experienced with these topics and have helped guide dozens of companies through difficult situations.

Lawsuits

A bankrupt arm of Sacramento's New Faze Development filed a $10 million lawsuit Monday against banks in Dixon and Stockton alleging that they cut off promised funds to a key housing project just as the real estate crash began.

Read more: http://www.sacbee.com/2010/04/13/2674007/builder-sues-two-banks-for-10.html#ixzz0l5tHSyra

More importantly, we would like to hear of any successes of lawsuits filed against any lenders who forced a default in spite of promises made to the borrower.

Please share with us if you hear of any so we can spread the word.

Monday, May 24, 2010

"The Recovery: Is it Real?" San Diego Conference materials now online

The materials provided for Beacon Economics' "The Recovery: Is it Real?" annual conference in San Diego on May 21st are now available online.

As part of our ongoing association with Beacon Economics, MetroIntelligence Real Estate Advisors Principal Patrick Duffy wrote the sections on residential and commercial real estate.

If you want to read just the section on residential real estate, click here to download.

If you want to read just the section on commercial real estate, click here to download.

And if you want to download the entire conference book, click here to download.

Orange County housing market better than its neighbors?

According to a recent story by the Orange County Local News Network (OCLNN), the county's housing market was stronger during April 2010 than its surrounding counties. Nonetheless, as I told the reporter Mike Reicher, the real test of this strength will be when the market is forced to operate on its own:

A true test of the market may come in June when sales boosts from tax credits will have passed, said Patrick Duffy of MetroIntelligence Real Estate Advisors. “Hopefully the training wheels the federal government provided will help the housing market regain independence,” he said.

Click here to read entire story.

Saturday, May 22, 2010

Notes from the May 21st edition of The Kiplinger Letter

For some time now, I've been subscribing to The Kiplinger Letter, which is a weekly newsletter summarizing trends in politics and economics for managers and other decision-makers.

The May 21st edition was chock full of interesting remarks on housing and economics that I wanted to share here:

  • The red ink hemorrhage at Fannie Mae and Freddie Mac is far from finished.
The tally of losses since Uncle Sam took the two over will likely double
before all the bad loans made during the housing bubble years are washed out.

So far, the feds have funneled about $146 billion to the two mortgage giants,
and Obama has pledged to cover the duo’s losses, no matter how deep, through 2012.

There’s little chance Congress will undertake an overhaul this year,
and it probably won’t finish up next, either. Republicans want to tackle the issue now,
while there’s a sense of urgency, so they can wind down Fannie and Freddie’s role
over five years or so.

But Democrats won’t agree. They fear that would deal a blow
to the housing market. The two quasi-governmental agencies, along with the FHA,
the Federal Housing Admin., now make or buy nine out of 10 new mortgages.

Delay has an indirect upside. Odds are Fannie and Freddie will be cut back,
but not eliminated, when lawmakers finally hash out what to do with them.
In the interval…more time for banks to repair their balance sheets and beef up lending
and for a private secondary market to revive. Otherwise, lending would be constrained.

  • The slowdown in mortgage foreclosures isn’t necessarily good news.

Though the pace is decelerating, it isn’t because fewer homeowners are falling behind.
Lenders are simply taking longer to pull the trigger…12 months instead of about six.

Banks hope that by holding loans and letting delinquent borrowers stay put for now,
they’ll stave off a tidal wave of foreclosures and help to stabilize housing prices.
Short term, it’s good news for hard-hit areas such as Las Vegas and Miami.
But it will drag out the adjustment process. Now the number of foreclosures
isn’t likely to peak until sometime next year. One in eight mortgages is in distress...

  • Europe’s woes spell a break for mortgage seekers, purchasing or refinancing.

For the time being, investors are loading up on U.S. Treasuries, pushing yields down
to about 3.2%. That’s translating into a dip in the 30-year fixed rate for mortgages.

The effects won’t last much longer, though. If Greece, Portugal and Spain
get a better grip on their budgets, following through in the coming weeks on promises
to rein in spending, investors’ worries will shift to the mounting pile of U.S. debt
and resulting inflationary pressures. Look for Treasury yields to bounce back up...

To read the entire letter or subscribe, visit www.kiplinger.com.