RealFacts joins MetroIntelligence and Beacon Economics in new alliance

Following several months of negotiations, we're very pleased at MetroIntelligence to announce the latest in a series of strategic alliances with RealFacts, a leading provider of data for investment-grade apartment communities in multiple states throughout the U.S. This new alliance, forged along with Beacon Economics, will allow both companies to tap RealFacts' proprietary database and software for market studies, speeches and articles on economics and the housing market.

With its 15-year history of data for individual apartment complexes, RealFacts provides a much greater level of specificity than its competitors, and since we've been using their data for apartment-related market studies since the early 1990s, we thought an alliance would make a greaf fit.

Each quarter, RealFacts re-surveys 96% of their entire database, which now totals 3 million units in 12,208 complexes totalling 2.6 billion square feet of residential space. And, with 136 separate fields in each RealFacts project profile, their clients generate more than 2,000 reports each week.

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.

Seminar on controlling costs in Irvine, CA -- May 29, 2008

Jonathan Smoke with BlueSmoke and HousingIntelligence.com recently invited me to speak with him at a luncheon at the Irvine Marriott on Thursday, May 29th, as part of an all-day seminar hosted by Hyphen Solutions, the building industry's provider of choice for scheduling and supply chain management.

This special business forum -- "Controlling Costs When You (and Your Suppliers) are Stretched Thin" -- will feature experts from homebuilders such as Shea Homes, Ryan Homes, Taylor Morrison and Standard Pacific as well as reps from GE, Black & Decker, SelectBuild and BlueSmoke on establishing the types of common technological standards and relationships with suppliers to survive in a tough market.

For the luncheon portion, MetroIntelligence will be partnering with BlueSmoke/Housing Intelligence on showcasing the tools and technologies we're using to bring market research consulting into the 21st century using specific examples for Orange County and Southern California.

If you're a homebuilder and want to know how to increase absorption at current developments by analyzing your best prospects, learn about the Orange County's best-selling projects or hear when this market is set to rebound, then don't miss this lunch!

But don't wait -- RSVP by May 15th, 2008, as space is limited to just 75 builder participants.

To register for this free seminar hosted by Hyphen Solutions and Professional Builder magazine, click here for a .pdf brochure or email Judy Brociek at Jbrociek@reedbusiness.com.

MetroIntelligence announces alliance with Beacon Economics

We're pleased to announce a new strategic alliance with Beacon Economics, which is a research and consulting firm specializing in analyses of real estate markets, local economic development, and public and private policy issues.

Beacon Economics organizes economic forecast conferences and advises city governments, financial institutes, real estate firms, and businesses

So why is this such a great fit?

Because whereas Beacon provides an excellent '30,000-foot' overview of real estate markets, the strength of MetroIntelligence is at the 5,000-, 500- and 50-foot levels such as submarkets, neighborhoods and specific projects.

Beacon brings some distingushed academic credentials to the mix: founding partners Jon Haveman and Chris Thornberg, both well-known PhD economists, bring experience from the Public Policy Institute of California and the UCLA Anderson Forecast to the table and are quoted almost daily by both regional and national press.

Combined, MetroIntelligence and Beacon can address any of your real estate consulting needs with a level of experience few can match. We've also got some more exciting alliances in the discussion phase, so please check back to this blog for updates.

If you're in need of an immediate consulting proposal, please contact us directly at 888-82-DEVELOP or email us a pduffy@metrointel.com. We can consult on any land use at any location in the U.S. and beyond.

Do home auctions always reveal the true market price?

Over the weekend there was an auction at a mid-rise condo project in the Bay Area's Oakland called Eight Orchid. According to a report by the San Francisco Chronicle, accepted bids were 25 to 34 percent below the original list prices, leading many market watchers to conclude that this simply determines the actual market value for not only these condos, but implies that similar discounts should be applied to all properties in the area. But is it really that simple? From the story:

The coordinators of Sunday's auction of 41 units at the new Eight Orchids condominium midrise in Oakland billed the event as a means of finding the actual market value for such homes. If true, the results may be bad news for developers and great for buyers.

Among the dozen transactions recorded by The Chronicle, sales prices ranged between 25.3 and 34 percent off the original asking price. That's well below the 16.9 annual percent drop in median resale condo values or the 21.2 percent decline for all new homes in Alameda County, according to a February report from DataQuick Information Systems.

"The market has definitely humbled us," said Stuart Gruendl, chief executive officer of project developer BayRock Residential of Oakland. "But at the same time, our heads are above water and the property is succeeding."

He said the total sales amount was within 5 percent of what he expected to receive for all of the properties, adding that they moved at least a year's worth of inventory in a few hours...

All 41 of the homes put up for auction received bids above the minimum. Escrow is scheduled to close in five to 35 days. Winning bidders were contractually obligated to complete the purchase, but if they find a means of backing out, other participants may be contacted.

Ken Stevens, chief executive officer of the West Coast division of Accelerated Marketing, said the auction would be used to establish the price for remaining homes at Eight Orchids...

More difficult to evaluate is what the auction will mean for the broader Oakland or East Bay market, experts say. People evaluating the market will certainly note the comparables - or sales prices of recently traded nearby properties - and buyers or their brokers could use them when making offers, providing additional negotiating leverage.

"All those auctions will end up in some appraiser's book," said Christopher Thornberg, an economist with Beacon Economics of Los Angeles...

Still, developers and sellers aren't likely to drastically mark down their units based on one afternoon auction for a single building. The perception - or at least explanation - could be that Eight Orchids might have set its prices too high to begin with or that it may have limited appeal because it is near Interstate 880 and the Alameda County and Oakland city jails.

"That kind of discount could be attributed to their location, as much as to the overall market and credit situation," said Patrick Duffy, principal with MetroIntelligence Real Estate Advisors in Los Angeles...

New website launched for MetroIntelligence

Yes, I know I've been a bit remiss on blogging activity over the past few days, but there's a good reason: we've been focused on a redesign of our MetroIntelligence website, which just went live this afternoon.

This is only Version 1.0, but provides a good overview of the kind of work we do at MetroIntelligence, some interesting case studies of specific engagements from the past, links to various press quotes, published articles and speeches and headline news from the likes of BuilderOnline, BigBuilderOnline, Yahoo! Finance, AP, The Wall Street Journal, CNNMoney, The New York Times and more to come.

Over time we'll be adding more useful functionality to the site including event listings, more news feeds, data links, a bookstore and anything else that assists our visitors.

As always, please feel free to offer commentary to pduffy@metrointel.com.

And yes, I'll be catching up on blogging starting tonight.

Good credit may not be enough in "distressed" counties

Given the mortgage insurers' recent lending restrictions throughout California, good credit may not be enough for borrowers without a sufficient down payment or those looking to buy investment property or second homes. While that could push many buyers into the arms of the FHA, that program also has its own restrictions, and condo projects generally must be pre-approved by the agency.

First, from a story in the Daily Breeze:

Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow - even for those with good credit.

In recent weeks, mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged nearly a quarter of the nation's ZIP codes where they refuse to insure some home loans.

That's more than 9,600 ZIP codes in at least 34 states where they won't insure certain types of home loans - those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making small down payments such as 3 percent.

Many mortgage insurers include the South Bay and much of California in a category known as "distressed market," where home values are expected to drop...

The reluctance to extend credit comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.

The growing reluctance of lenders threatens to dampen sellers' already soggy prospects for the spring home-buying season - and that means more pain for the already battered housing sector and the broader economy.

The new restrictions will "severely limit the potential pool of buyers," whether the buyer plans to live in the home or rent it out, said Patrick Duffy, principal at MetroIntelligence Real Estate Advisors, a Los Angeles consulting firm.

"It could delay the rebound in the market," Duffy said. "It's going to force people to take longer to save up for the down payment."

While the South Bay will be affected by the reduced availability of mortgages, the area remains "a very popular area with a very high median income." That reality could insulate the South Bay from the worst effects of the tightening lending standards, Duffy said.

With banks and mortgage insurers pulling back, state and federal programs for first-time homebuyers and people with poor credit are attempting to fill the void.

"This is a great way to throw loans in the arms of the federal government," Duffy said. "FHA offers loans with only 3 percent down, and they just increased limits."...

Home buyers are adjusting to the new reality, Realtor Adolph James said.

"One of the things I've noticed is most of the people interested in purchasing property in the South Bay are bringing more money than they had in the past," said James, of Shorewood Realtors in Manhattan Beach.

"You're seeing fewer people coming with only 5 percent or 10 percent (as a down payment). The psyche is you can't come in with a shoestring because that's how people got in trouble."

Inland areas such as Harbor Gateway, which generally attract first-time homebuyers, are likely to feel the pain from the credit crunch more so than the beach cities, James said.

"That's where this stuff started and that's probably where it's going to end," James said. "You're going to see a few defaults in the beach areas, but nothing like what you're going to see in the entry-level areas."

Next, for an excellent overview of the pros and cons of FHA loans (as well as other timely posts), here's a summary from the SFVRealEstate blog, which is authored by Broker Associate Judy Graff and covers local and national topics for L.A.'s San Fernando Valley:

New FHA Loans: What You Need to Know

• New FHA restrictions just came out. Here’s the upside.
• The loan limits for SFR in L.A. are $729,750 (same as “jumbo conforming”).
• Loan limits for 2 units are $934,200.
• The interest rate is 6% as of this writing; however, there is mortgage insurance (see below).
• Minimum down payment is 3% (not including closing costs).
• Fixed rate and Adjustable rate programs are available.
• NO MINIMUM FICO REQUIREMENT (this is huge).
• Must be full documentation loan. No stated income loans.
• No buyer reserve requirement (this is also huge).
• No income limits.
• The seller can contribute up to 6%, including closing costs, although the seller does not have to pay the closing costs.
• There can be non-occupant co-signers on the loan.
• You do not have to be a first-time buyer.
• Gifts are permitted for the entire 3% borrower investment and don’t need to be “seasoned.”
• Gifts are also permitted for all closing costs & pre-paid items.
• Down payment assistance programs are permitted, such as city first-time buyer housing programs.

Now, here’s the downside:

• There is mortgage insurance. It equals either 0.5% point per month, or 1.5% points up front. The up-front payment is deductible from your taxes during the year that you buy.
• There are stricter appraisal requirements:
• Any operable or useful element in the subject property must have at least 2 or more years of useful life or it must be replaced.
• The appraiser must be FHA-approved.
• The appraiser can require a separate inspection upon any “visible” defect or if he/she has knowledge of any existing problem.
• The property must be structurally sound.
• It must have a useable garage.
• The property cannot have code violations.
• Each living unit much contain domestic hot water, sanitary facilities and a safe method of sewage disposal. Connection to public systems is required if available.
• Heating systems must be adequate for healthful and comfortable living conditions.
• Condo projects must be pre-approved; they can be spot-approved but this is much more difficult.
• Condo projects must have sufficient reserve funds.

Builder price guarantees working in Central California

Arguing that it's higher interest rates that will most likely kill a real estate deal because it puts borrowers over lower (and re-standardized) debt-to-income ratios, builders in Central California have started offering price guarantees through the build-out of various projects -- which in one case could be 2.5 years. From a story in the Fresno Bee:

More home builders are offering price guarantees to calm the fears of prospective buyers who are afraid the biggest purchase of their lives will immediately fall in value.

"It's a fairly new concept that just crept up in the last few months," said Patrick Duffy, a housing analyst who operates MetroIntelligence Real Estate Advisors in Southern California. "A lot of [builders] are taking their marketing budgets and applying them toward price guarantees."

KB Homes, Pacific West Cos., Granville Homes and others are telling customers they will guarantee the lower base price if the prices fall during a certain period.

Granville and KB, which has four tracts in Fresno and Madera and is the fourth largest builder in the area in terms of sales, offers the price guarantee during escrow, which is typically five or six months, said Augie Dent, division manager.

Pacific West, a newcomer to the area that is building the Montage condominium complex in Clovis, is taking a more aggressive approach. The company offers the guarantee until the project is finished and the last condo is sold.

"That's anytime between now and 21/2 years," said Michael Plowman, sales manager of Montage at Armstrong and Herndon avenues. "When the last one is sold, we'll rebate them whatever the appraisal says the difference was [between the price the buyer paid and the price at the end]."...

"The interest rate is what will disqualify them...When interest rates go up, the debt-to-income ratios don't work anymore."...

Increasingly, home builders, such as Granville Homes in Fresno, will offer additional incentives to protect home values in their subdivisions, said Michelle Brunn, a sales manager for Granville. But this is a serious market downturn, leading to the price-protection programs. KB Homes also says it will pay for the cost of locking in an interest rate to ensure it doesn't rise during the escrow period...