The Housing Chronicles Blog: 9/1/09 - 10/1/09

Tuesday, September 29, 2009

Inland Empire Executive Housing Seminar - October 6, 2009

Looking for an update on national housing markets with a focus on California's Inland Empire?

On the morning of Tuesday, October 6, 2009 at the Mission Inn in Riverside, I'll be speaking along with Boyce Thompson, Editorial Director for Builder, Big Builder and Multi-Family Executive magazines for the next HWMI Executive Housing Seminar.

Boyce will discuss national trends, whereas I'll focus on what to expect in terms of new home supply, foreclosures, absorption trends, land acquisition and an overview of which projects are actually selling (and why).

7:30am Registration & Networking Breakfast

8:00am Opening Remarks (Mike Ellison, Regional Director)

8:15am National Market Overview (Boyce Thompson)

8:45am Local Housing Market Overview (Patrick Duffy)

9:30am Q&A

To register for this event, click here.

To invite a colleague, click here.

Hope to see you on October 6th in Riverside!

San Francisco South Bay/Silicon Valley Economic Conference materials now online

Miss the San Francisco South Bay/Silicon Valley Economic Forecast Conference on Sept. 24th in San Jose, CA? Fear not, you can still download conference materials including the following:

Conference Book (real estate sections provided by MetroIntelligence)

Christopher Thornberg Presentation (national and state picture)

Jon Haveman Presentation (local picture)

Lynn Reazer Presentation
(Incoming President, Nat'l Assn. of Business Economists, "Outlook for California's Exporters")

Rohit Dixit Presentation
(VP, Corp. Strategy, HP, "Business Strategy in an Uncertain Economy")

Housing Chronicles hits 8.5 million headline views via BlogBurst

I'm pleased to announce that since February of 2008, The Housing Chronicles Blog has surpassed 8.5 million headline views through the blog syndication service BlogBurst. The breakdown of headlines is as follows:

Top 10 Publishers (All History) for Housing Chronicles

Total Views
Reuters 8,011,522
FoxNews 196,568
Chicago Sun Times 194,504
Computer Shopper 85,773
Livestrong 17,102
IBS 5,203
Wall Street Journal 5,046
Palm Beach Post 719 284
CT Green Scene 209

Thank you for reading!

World Habitat Day - Monday October 5, 2009

From a press release issued by Habitat for Humanity:

The United Nations has designated the first Monday each October as World Habitat Day.

This year on Oct. 5 in Washington, D.C. and around the world, please join Habitat for Humanity in support of this global observance as we come together and declare that the lack of decent, affordable housing is unacceptable.

According to the United Nations, more than 100 million people in the world today are homeless. Millions more face a severe housing problem living without adequate sanitation, with irregular or no electricity supply and without adequate security.

Worldwide, more than 2 million housing units per year are needed for the next 50 years to solve the present worldwide housing crisis. With our global population expanding, however, at the end of those 50 years, there would still be a need for another 1 billion houses. (UN-HABITAT: 2005)

Raising awareness and advocating for change are the first steps toward transforming systems that perpetuate the global plague of poverty housing. World Habitat Day serves as an important reminder that everyone must unite to ensure that everyone has a safe, decent place to call home.

The U.N. further states that both developed and developing countries, cities and towns are increasingly feeling the effects of climate change, resource depletion, food insecurity, population growth and economic instability.

Rapid rates of urbanization cause serious negative consequences - overcrowding, poverty, slums with many poorly equipped to meet the service demands of ever growing urban populations.

With over half of the world’s population currently living in urban areas the U.N. believes there is no doubt that the "urban agenda" will increasingly become a priority for governments, local authorities and their non-governmental partners everywhere.

U.S. Housing Facts

  • About 95 million people, one third of the nation, have housing problems including a high-cost burden, overcrowding, poor quality shelter and homelessness. (National Low Income Housing Coalition: 2004)

  • One in three American households spend more than 30 percent of income on housing, and one in seven spends more than 50 percent. (Joint Center for Housing Studies: 2006)

  • The number of low-income families that lack safe and affordable housing is related to the number of children that suffer from asthma, viral infections, anemia, stunted growth and other health problems. About 21,000 children have stunted growth attributable to the lack of stable housing; 10,000 children between the ages of 4 and 9 are hospitalized for asthma attacks each year because of cockroach infestation at home; and more than 180 children die each year in house fires attributable to faulty electrical heating and electrical equipment. (Sandel, et al: 1999)

Global poverty facts
  • By the year 2030, an additional 3 billion people, about 40 percent of the world’s population, will need access to housing. This translates into a demand for 96,150 new affordable units every day and 4,000 every hour. (UN-HABITAT: 2005)

  • One out of every three city dwellers – nearly a billion people – lives in a slum. (Slum indicators include: lack of water, lack of sanitation, overcrowding, non-durable structures and insecure tenure.) (UN-HABITAT: 2006)

  • UN-Habitat has reported that because of poor living conditions, women living in slums are more likely to contract HIV/AIDS than their rural counterparts, and children in slums are more likely to die from water-borne and respiratory illness. (UN-HABITAT: 2006)

  • Housing formation generates non-housing related expenditures that help drive the economy. (Kissick, et al: 2006)

  • Investing in housing expands the local tax base. (Kissick, et al: 2006)
Celebrations of World Habitat Day in Washington, D.C. will be an excellent opportunity to foster global discussion and raise the profile of shelter and urban issues at the national and international level. Events in the United States and around the world include policy forums, award presentations, luncheons, dinners, house-building and exhibitions.

What can you do for World Habitat Day?

Now it is time to deliver a strong message to Congress:

Make housing a priority. Pass legislation that would
prioritize adequate and affordable housing.

Ask Congress to Make Housing A Priority on World Habitat Day!

EDUCATE your community with Habitat for Humanity’s World Habitat Day handbook to learn more about the importance of secure tenure and neighborhood revitalization. Get even more information about the issue of insecure tenure by reading Habitat’s Shelter Report: building a secure future through effective land policies.

Brainstorm ways to get more people involved. Learn from the successes of last year’s campaign, and come up with brand-new ways to celebrate and publicize the important work of Habitat for Humanity.

Take a virtual tour of the Capotillo informal settlement in the Dominican Republic and put yourself in the shoes of those who live in a broken community of violence, poverty and danger.

Link to Habitat for Humanity’s World Habitat Day 2009 resources page on your social media pages, personal web site or blog to spread the word and raise awareness.

DONATE to be a part of making the world a better place and support Habitat’s efforts. Donate online today!

Wednesday, September 23, 2009

San Diego County Apartment Overview now online

Yesterday, I gave an overview of the past, present and future of the San Diego County apartment market to the county's apartment association. If you're interested in that sector and would like to view a .pdf of my presentation, you can find that online here.

Monday, September 21, 2009

Housing Chronicles post cited in Carnival of Real Estate

The Housing Chronicles Blog has again been cited by The Carnival of Real Estate, which is a weekly selection of blog posts related to real estate markets, marketing and investing.

This week the Carnival is hosted by The Real Estate Dispatch, which is the blog associated with the real estate social networking site.

For this entry, given the current battle in reforming health care (and the pros and cons of having the private market police itself), I focused on the role of government in providing other important services, namely affordable housing. Whether through Section 8, other HUD programs or tax credits (which have been disappearing due to the lack of profits by investors against which to claim these credits), this is an issue which continues to grow, especially here in California. Whereas builders over-built McMansions in the exurbs of the Central Valley, desert areas and the Inland Empire, we remain severely under-built when it comes to affordable rental housing.

You can read that post here.

Thank you to Joshua Dorkin and The Real Estate Dispatch blog for the recognition!

The rising trend of 'strategic defaults'

Given the economic problems associated with foreclosures, it's hard to imagine that taxpayers will want to continue propping up Fannie Mae, Freddie Mac and FHA in the wake of the rising tide of 'strategic defaults.' Sure, it might be an objective decision for individuals but collectively it'll be interesting to see the impact in our now ethnically challenged society. From Kenneth Harney's "Nation's Housing" column in the L.A. Times:

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers...

Among researchers' findings are these eye-openers:

* The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year's fourth quarter.

* Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they've fallen behind on other accounts.

* Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.

* Two-thirds of strategic defaulters have only one mortgage -- the one they're walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.

* Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories.

* People who default strategically and lose their houses appear to understand the consequences of what they're doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters "are clearly sophisticated," based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.

Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: "Well, I'm $200,000 in the hole on my house, and yes, I'll damage my credit," he said of defaulters. But they see it as the most practical solution under the circumstances.

The Experian-Wyman study does not try to explore the ethical or legal aspects of mortgage walkaways. But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they'll probably just re-default on them anyway.

Barack Obama on the economy

In case you missed it, President Obama's speech on the economy (and education) is below.

Some highlights from

President Obama on Monday pushed his plans to make the nation's economy more stable in the future by investing in education for high-tech industries.

The president unveiled a new "innovation strategy" that builds on $100 billion of economic stimulus funds to support entrepreneurship, education, infrastructure and other investments.

The plan aims to make the U.S. economy more competitive and help prevent volatile "boom and bust" cycles in the future, Obama said...

Obama reiterated his call for increased investment in green energy technology, electronic health records and manufacturing advanced vehicles.

The president also pointed to proposed tax cuts and trade policies his administration has perused as ways to make U.S. companies more competitive and prosperous.

Sunday, September 20, 2009

East Bay Economic Forecast Conference materials now online

Miss the East Bay Economic Forecast Conference on Sept. 17th in Oakland, CA? Fear not, you can still download conference materials including the following:

Conference Book (real estate sections provided by MetroIntelligence)

Christopher Thornberg Presentation (national and state picture)

Jon Haveman Presentation (local picture)

San Francisco Economic Forecast Conference materials now online

Miss the San Francisco Economic Forecast Conference by Beacon Economics on Wed., Sept. 16th? Fear not -- you can still download conference materials online, including the following:

Conference Book (real estate sections provided by MetroIntelligence)

Christopher Thornberg Presentation (state and national picture)

Jon Havemen Presentation (local picture)

Where would affordable housing be without gov't support?

As the battle over reforming health care has put government competence and personal freedom under the spotlight, I can’t help but think of critical infrastructure needs that would simply go unmet without the backing of the public sector. Besides local services such as police and fire protection as well as building and maintaining roads and freeways, it’s also difficult to imagine the private sector preventing homelessness on its own by meeting the country’s ongoing need for affordable housing.

When public entities try to force the private market to do its bidding – such as through inclusionary zoning – the result introduces an inherent unfairness whose cost is ultimately passed onto renters and buyers paying inflated rates while not enjoying a higher level of services versus their neighbors. Moreover, many community groups aren’t big fans either, as they must also pay the price locally for a problem that is national in scope.

So if private enterprise isn’t the answer, then what is? It has to be government – both in terms of direct subsidies, as well as incentives such as tax credits and rewarding non-profits operating both internationally – such as Habitat for Humanity – and at the local level. And yet for a variety of reasons, even these incentives are now under pressure.

The national tax credit program, which for the past 20 years has provided a critical way to finance low-income rental housing, is now under duress because investors such as Fannie Mae and Freddie Mac exited the market last year, thereby taking 40% of the funding off the market. Much of the balance was previously funded by the banking industry, most of which no longer has profits against which to offset taxes.

The result is hundreds of stalled projects waiting for funding to make up for 3 million affordable housing units destroyed, converted to condominiums or upgraded to market-rate rentals since 2003. In some places, the waiting lists for assistance are so long that new applications are being denied.

To address this deteriorating situation, the Treasury Department said in May that it would funnel $5 billion in federal stimulus dollars to buy unsold tax credits for affordable housing projects approved since 2008; developers who wish to redeem unsold credits can also exchange them for government grants, but only at a ratio of 85 cents to the dollar.

In the longer term, the Affordable Housing Tax Coalition is hoping that Congress will expand the Treasury’s credit exchange program to cover projects approved through 2010 as well as carrying back the credit back five years on past taxable income instead of income earned in the future. The aim is to entice companies outside of finance – such as those involved in insurance, technology and manufacturing – to take advantage of the program while also filling in the crucial role abandoned by, in essence, the private sector.

For existing rental housing, the Housing Choice Voucher Program – commonly known as Section 8 – provides federal vouchers to cover up to any Fair Market Rent (FMR) that is over 30% of a family’s income. However, since landlords only have to meet fair housing laws, many will not participate in the Section 8 program due to a fear that voucher tenants will not maintain the premises, not wanting the government involved in their business, a need to raise rents above the HUD-determined FMR and avoiding the requirement that all evictions be done through judicial action.

Yet with greater education, landlords wishing to fill vacancies could benefit from a large pool of renters, prompt payment from the government for its share of the rent, and the knowledge that tenants can be removed from the Section 8 program permanently if they damage the unit or don’t pay their share of the rent.

Other federal programs, such as HOME grants to participating jurisdictions, SHOP funds to non-profit groups such as Habitat for Humanity and the Homeownership Zone (HOZ) program to reclaim and redevelop blighted areas, are now all under pressure due to fewer donations to non-profit organizations and tax dollars being allocated to higher priorities.

As the country’s population continues to expand and unemployment remains high, the need for affordable housing remains a critical issue for most municipalities. And, like health care reform, the private sector can play an important role, but will only solve the issue with appropriate government oversight, support and incentives.

Wednesday, September 16, 2009

Final call for East Bay Economic Forecast Conference on 9/17

Thursday, September 17, 2009
Oakland Marriot City Center
1001 Broadway, Oakland, California 94607

Registration and Breakfast 8:00 AM
Program: 8:30-11:00 AM

$75 through September 14, 2009, $100 thereafter

Join Beacon Economics and the Bay Area Council Economic Institute (BACEI) at the 3rd annual East Bay Economic Forecast Conference: Green Energy as Economic Engine: How Real, How Soon? Find out where the national, state, and East Bay economies are headed in 2010 from some of California’s leading forecasters. Also join in a candid discussion about the abilities and limitations of the surging green energy industry to act as an economic engine for the East Bay, the state, and the nation. The event is already generating a buzz, and seating is limited. So reserve today!

Attendees receive Beacon's new 2009 East Bay Economic Forecast Book. This original, in-depth look at the region’s labor markets, income, real estate markets, demographic trends, and other indicators, is a valuable and enduring resource for anyone facing important economic and financial decisions over the next year.

Click here to register

Economic rebound in Southern California?

Although the local economy in Southern California still seems dismal, according to various economic indices, it may finally be on the mend. From an L.A. Times story:

Signs are increasing that an economic turnaround has begun in Southern California, even as residents and businesses continue to struggle in the worst downturn in decades.

The state's exports are growing as overseas consumers, especially those in Asia, are demanding computers, electronics and agricultural products from California. Tourists are starting to return to the region's hotels and beaches. And home prices appear to be stabilizing in some of the Southland's hardest-hit markets...

In California, a new report by Comerica Bank showed positive trends in the state's economy in July, for a fourth straight month. Cal State Fullerton says its indicator for Southland economic growth was positive last month for the first time in nine quarters.

Economists are also optimistic about California's long-term prospects in areas such as green technology, medical research and international trade. In the short term, however, its rebound could lag behind the national recovery.

The state's unemployment rate reached 11.9% in July, well above the national rate of 9.4%. Joblessness in California will continue to rise through the end of 2009, peaking in the fourth quarter at 12.2%, according to UCLA economists, who predict that job growth won't resume until late 2010.

The state's budget woes also will be a major drag. California is spending less on healthcare, education and prisons. It's cutting jobs and furloughing workers. That means less money to stimulate the economy.

The state's recovery will also be hindered by its historic reliance on the housing industry, which created tens of thousands of jobs in construction and financial services during the boom. Now many of those positions have vanished...

Southern California home sales were up 11% in August from a year earlier, while median prices rose for the fourth straight month to $275,000, up from a bottom of $247,000 in April, according to figures released by MDA DataQuick. Housing prices are unlikely to take another big tumble, Comerica economist Dana Johnson said. "The housing sector seems to have made the huge adjustment it needed to make," he said. "It doesn't look like there's terrible further adjustments to follow."

Builders are working through their inventories of unsold homes, which means they'll soon have to start building again, said Nancy Sidhu, chief economist for the L.A. County Economic Development Corp.

Still, a surge in foreclosures could hamper the state's housing recovery. In July, about 1 in 10 Californians with a home loan was in default, according to First American CoreLogic. It's another reason economists predict the state's comeback won't be a quick one...

The long-term prognosis for California, however, is optimistic, said Nickelsburg of the Anderson Forecast. The state will benefit from federal stimulus money now being channeled into research in medical innovation and green technology. Beyond 2010, Nickelsburg said, California could grow faster than the rest of the country.

Fledgling industries such as battery technology, wind power and the computerization of medical records could propel new growth in the state, said Levy of the Center for Continuing Study of the California Economy.

California already leads the nation in patent registration for green technology, according to Next 10, a nonprofit research group in Palo Alto. And it attracted a record investment in renewable energy and clean technology last year, despite the state's deep downturn.

Throughout the recession, the health and education sectors have been immune to widespread job losses, and those sectors will probably continue to generate growth, economists said.

As people reach retirement age, they'll be drawn to the weather and lifestyle of California, coming here for healthcare, said economist Sung Won Sohn of Cal State Channel Islands in Camarillo.

Tuesday, September 15, 2009

Final call for San Francisco Economic Forecast Conference on 9/16

Final call for San Francisco Economic Forecast Conference on Sept. 16th (my birthday!):

Join Beacon Economics and the Bay Area Council Economic Institute (BACEI) at the 3rd annual San Francisco Economic Forecast Conference: Revving Up Reform and What It Means for California's Economy. Find out where the national, state, and San Francisco regional economies are headed in 2010 from some of California's leading forecasters and economists. The event is already generating a buzz, and seating is limited. So reserve today!

Attendees receive Beacon's new 2009 San Francisco Economic Forecast Book. This original, in-depth look at the region’s labor markets, income, real estate markets, demographic trends, and other indicators, is a valuable and enduring resource for anyone facing important economic and financial decisions over the next year.

Click to register (if you miss the deadline you can register on site).

Wednesday, September 16, 2009

Hyatt Regency San Francisco
Bayview Room
5 Embarcadero Center, San Francisco, California

Registration and Breakfast 8:00 AM
Program: 8:30-11:00 AM

$75 through September 11, 2009, $100 thereafter
Limited Seating

Featured Speakers

Christopher Thornberg, Principal
Beacon Economics
Jon Haveman, Principal
Beacon Economics
Sean Randolph, President
Bay Area Council Economic Institute

Revving Up Reform: A Conversation Moderated by Cy Musiker

John Chiang, Controller
State of California
Sunne Wright McPeak, California Forward
Andrew Giacomini, Chairman
Bay Area Council
Government Affairs Committee

Cy Musiker, Reporter

Save the Date! Inland Empire Housing Seminar - October 6, 2009

Looking for an update on national housing markets with a focus on California's Inland Empire?

On the morning of October 6, 2009 at the Mission Inn in Riverside, I'll be speaking along with Boyce Thompson, Editorial Director for Builder, Big Builder and Multi-Family Executive magazines. Boyce will discuss national trends, whereas I'll focus on what to expect in terms of new home supply, foreclosures, absorption trends, land acquisition and an overview of which projects are actually selling (and why).

7:30am Registration & Networking Breakfast

8:00am Opening Remarks (Mike Ellison, Regional Director)

8:15am National Market Overview (Boyce Thompson)

8:45am Local Housing Market Overview (Patrick Duffy)

9:30am Q&A

To register for this event, click here.

To invite a colleague, click here.

Hope to see you on October 6th in Riverside!

Monday, September 14, 2009

Housing Chronicles post cited in Carnival of Real Estate

The Housing Chronicles Blog has again been cited in the Carnival of Real Estate, which is a weekly summary of blog posts on issues related to real estate markets and investing. This particular post focused on whether or not housing is a good hedge in times of inflation. For that entire post, click here.

Thank you to the blog for including the piece in this week's selections!

Mortgage problems and their impact on credit scores

Wondering just how much mortgage defaults, short sales, foreclosures and bankruptcies impact credit scores? Syndicated columnist Kenneth Harney takes on the issue in his latest issue of the Nation's Housing column in the L.A. Times:

A scoring company created by the three national credit bureaus -- Equifax, Experian and TransUnion -- has some eye-opening numbers. VantageScore Solutions, whose risk-prediction scores are now being used by some of the largest mortgage companies and banks, has found that the way consumers handle their mortgage problems can have profound effects on their credit scores.

For example, loan modifications that roll late payments and penalties into the principal debt owed on the house can actually increase borrowers' scores modestly. Refinancings of underwater, negative-equity mortgages -- which the Obama administration's Making Home Affordable program offers through government-controlled Fannie Mae and Freddie Mac -- may have little or no negative effect on scores, even though the homeowners might have been tottering on the edge of serious delinquency before refinancing.

The Vantage credit score, the primary competitor to the long-dominant FICO credit score, rates borrowers on a scale range of 501 (subprime, the highest risk) to 990 (super-prime, the lowest risk). Unlike Fair Isaac Corp.'s FICO scoring system, whose scores can vary by 50 to 100 points based on which bureau supplied the underlying credit data, Vantage scores are about the same for each consumer.

When homeowners negotiate a short sale with lenders, they sometimes assume that there will be relatively little effect on their scores. After all, the loan was successfully paid off, there was no foreclosure, and the lender voluntarily agreed to accept a lower balance than was owed.

But according to VantageScore researchers, short sales can trigger big drops in credit scores. Sarah Davies, senior vice president of analytics, said a homeowner with an excellent score of 862 might plummet 120 to 130 points after a short sale.

Although it's true the lender may lose less money through a short sale compared with a foreclosure, "it's still a derogatory event," Davies said. The full debt was not repaid and the lender lost money.

What happens when borrowers walk away from their mortgage debts altogether -- the so-called strategic defaults that have become commonplace in some large markets such as in California? They should expect 140- to 150-point hits to their scores, plus negative marks on their credit bureau files for as long as seven years.

People who file for bankruptcy protection covering all their debts (mortgage, credit cards, auto loans, etc.) will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers' credit bureau files for 10 years...

But the bottom-line good news about scores is that homeowners facing financial stress can experience minimal dings to their credit if they contact their loan servicer or lender early in the game -- when they first discover that they may have trouble making their monthly payments -- and take the first steps toward a loan modification or refinancing.

"Start that conversation early," said Barrett Burns, a former lender and now chief executive of VantageScore. If you wait and fall several payments behind before seeking a modification, "you can lose 240 points on your score" and damage your ability to obtain credit for years.

Translation: don't be a flake.

Sunday, September 13, 2009

FDIC promoting mortgage help for the jobless

Given the high -- and increasing -- levels of unemployment throughout the U.S., the FDIC is encouraging those institutions buying failed banks and are sharing any losses with the agency to offer some breathing room to jobless borrowers at risk of foreclosure. While the idea will only impact a small number of borrowers, the idea could conceivably spread to other banks, thus limiting the damage from the one-two punch of toxic mortgage resets and unemployment. From

Some unemployed homeowners at risk for foreclosure could get a temporary break on their mortgage payments under a plan being pushed by the FDIC.

The Federal Deposit Insurance Corp. said on Friday it is encouraging certain banks to reduce mortgage payments for the unemployed or underemployed for at least six months.

Overall, relatively few of the unemployed will benefit from this recommendation because the effort would only apply to a handful of institutions. Specifically, it would affect those that bought failed banks and participate in loss-share agreements with the FDIC. In such deals, the agency covers some of the losses incurred on the assets of the failed banks. Some 53 institutions, mainly regional or community banks, have entered into such arrangements since January 2008...

The expanding unemployment rolls have long vexed policymakers focused on stabilizing the housing market. Existing foreclosure-prevention programs, including the president's loan modification plan, generally do not help the jobless because they don't have enough income to sustain even reduced monthly payments...

Administration officials have said they are exploring ways to help the unemployed -- including through reduced payments, typically callled forbearance plans...

While many servicers have offered forbearance plans in the past, fewer are these days. That's because financial institutions no longer feel that borrowers will be able to land a comparable job within a few months...

Citigroup is one of the few banks that has implemented a plan to help the jobless during the housing crisis. The bank will lower the payments of eligible borrowers to an average of $500 a month for three months.

Under the FDIC's recommendation, unemployed or underemployed borrowers would have their payments reduced to an affordable level for at least six months...

Unlike a typical forbearance plan, where the arrears would have to be paid back within a year, the FDIC endorses allowing borrowers to catch up over the life of the loan.

Borrowers who cannot afford their payments once they get jobs would be considered for a loan modification program approved by the FDIC, which includes the president's plan. Eligible borrowers could have their monthly payments reduced to 31% of their pre-tax income if doing so would cost less than foreclosing on the home.

What happens when your business moves home?

With so many unemployed people starting their own businesses (and working out of their homes), it's quite possible that they're not aware of various rules and regulations on home businesses in their towns, cities and even HOAs. In New York City, the trend has already caused some friction between landlords and tenants, and if unemployment continues to be high -- which many are predicting over the next several years -- then this issue is not going away anytime soon. From a New York Times story:

As long as there have been homes, there have been home businesses. And for almost as long, there have been leases, landlords and laws that frowned upon home businesses. But in a challenging economy, more people are resorting to relocating businesses from shop fronts or other commercial spaces to spots under their own roofs. Others are starting businesses at home after losing jobs...

Landlords are often unaware that their tenants are operating home businesses; such enterprises come to the housing court’s attention only when a landlord catches on and decides to take steps to evict the offending tenant. In-house businesses wind up in still other courts when city statutes — like plumbing regulations and occupancy rules — are violated...

Operating a business in your apartment can be a simple lease violation, or illegal and in violation of city codes. Businesses that have a constant stream of foot traffic — hair salons, masseuses — often violate reasonable-use clauses in lease agreements. An eBay-type sales business might also be a problem if there’s continual shipping and delivery.

It is notoriously difficult to be evicted in New York, but if taken to court and found in breach of a lease, a tenant is typically given 10 days to cure, or stop, the problem, or face eviction.

“Landlords and co-op boards are very protective of the other tenants’ privacy, as well as protecting their buildings against people coming in and coming out without security,” said Gary J. Wachtel, a lawyer who specializes in landlord-tenant disputes.

Even at-home dog groomers or cat boarders can run into trouble with their leases. “Foot traffic not only could be foot traffic but animal traffic, too,” Mr. Wachtel said. “Paw traffic."

Residents who modify utilities for commercial use or who cause overcrowding in an apartment face stiff penalties. If the landlord decides to take them to court, they may be found guilty of nuisance violations, and are given no option to cure the situation. Eviction proceedings could start immediately...

When the electric car arrives, housing will have to adapt

After many years of fits and starts, it seems that a robust electric car to effectively compete with the century-old-plus internal combustion engine may be around the corner. When it does -- and loses the bulk required to port around parts specific to gas- and diesel-powered engines -- cars could become smaller and change in appearance. But many will also need to be powered by on-site hook-ups at service stations, business offices, malls and homes, so land use will also have to adapt.

So what could these changes mean for the future? From an article in The Economist:

IN 1995 Joseph Bower and Clayton Christensen, two researchers at the Harvard Business School, invented a new term: “disruptive technology”. This is an innovation that fulfils the requirements of some, but not most, consumers better than the incumbent does. That gives it a toehold, which allows room for improvement and, eventually, dominance. The risk for incumbent firms is that of the proverbial boiling frog. They may not know when to switch from old to new until it is too late...

Internal-combustion engines have dominated mechanised road transport for a century, but the past year or so has seen the arrival of a dribble of vehicles driven by electric motors...these are the products of small, new firms, or of established non-carmaking companies...But next year the big boys, encouraged by legislative pressure to produce low-emission vehicles, will leap out of the boiling water and join in. Their progress towards greenery will be an important theme of the Frankfurt motor show this month.

Bold claims are being made. Carlos Ghosn, who leads the Renault-Nissan alliance, thinks 10% of new cars bought in 2020 will be pure-battery vehicles. A report by IDTechEx, a research consultancy based in Cambridge, England, reckons a third of the cars made in 2025 will be electrically powered in one way or another. If that trend continues, liquid fuels might become as obsolete as photographic film...

Instead of a petrol engine, with its widespread infrastructure of filling stations providing the security blanket, why not build new infrastructure to refuel cars with new, fully charged batteries?

The leading proponent of this idea is Better Place. This firm, which is based in California, has been scouring the world for car markets that are, in its terminology, “islands” and offering to fit them with networks of car-charging and battery-swapping stations that will use robots to exchange exhausted batteries for fully charged ones in seconds.

Better Place defines an island as a place with an edge that motorists rarely cross, and the first to be picked by Shai Agassi, the firm’s founder, was Israel. Though more of the country’s edge is land than sea, few cars leave by either route. Israel is now being fitted out with the Better Place infrastructure. Meanwhile, Nissan is tooling up to start building cars with batteries of the appropriate dimensions, for sale starting next year, and Tesla plans to offer swappable batteries on the Model S.

Other “islands” that Better Place has signed deals with include Denmark, Hawaii and Australia. The firm also has a partnership with Tokyo’s largest taxi operator, Nihon Kotsu, to provide swappable batteries for a new fleet of electric taxis which will take to the streets of the Japanese capital. With some 60,000 taxis in Tokyo, this could turn into a huge market.

Besides providing drivers with secure refuelling, the Better Place approach has a second advantage. Separating ownership of the battery from ownership of the car changes the economics of electric vehicles. If you rent the battery rather than buying it, that becomes a running cost (like petrol) and the sticker price of the car drops accordingly. This might not matter to a sophisticated economist, who would amortise the battery cost over the life of the vehicle. Many people, though, are swayed by the number they write on the cheque that they give to the dealer.

Better Place, indeed, plans to go further. It will charge for its services (battery and electricity) by the kilometre travelled. The cost per kilometre will be lower than for petrol vehicles, and if you sign up for enough kilometres a month, it will throw in the car for nothing...

Owners with garages or driveways can top up at night using the domestic supply. The long recharge time will thus not be an issue, and the electricity will be cheap, off-peak power. Even if more expensive daytime power is needed (some office and supermarket car parks are already being fitted with recharging points, in anticipation of mounting demand), the cost of such juice is still favourable compared with petrol. Only for garageless owners does recharging become complicated. They will need street-based electrical infrastructure, and a lack of this will limit the spread of electric vehicles to start with...

Without the cost and complexity of many of the parts hitherto required to make a car, the shape of the automotive industry could be transformed as much as cars are. As for the oil companies, if the visionaries are correct, they risk finding themselves in the wrong business. Some researchers already have battery materials they reckon could be recharged in the time it takes to freshen up and have a snack at a service station. If they are right, the need for even a range-extender vanishes.

That is still a biggish “if”, of course. The efficiency of internal-combustion engines is improving, too—and as the advert below shows, electric cars have come and gone in the past. But propelling modern transport by means of serial explosions in an array of tin-cans does seem an incredibly primitive way of doing things. The time is ripe for a change.

Recession may incite shift in California housing preferences

Over the last several years, we've heard anecdotes about people moving back into higher-density areas to take advantage of public transit, save on gas and be closer to the cultural amenities more readily available in a big city. Now it seems that the new age of frugality could also extend to homebuying preferences in which granite countertops and square footage are eschewed in favor of smaller footprints and a lower cost of living. From an L.A. Times story:

Americans' long love affair with debt is cooling off a bit. The Federal Reserve reported last week that the amount Americans owe on credit cards, auto loans and other forms of consumer loans dropped for a sixth straight month in July, the longest decline since 1991.

It's the same story with home equity lines of credit, which financed a significant degree of consumer spending during the boom. The amount of money owed on these loans is down 3% from a peak of $1.13 trillion in mid-2007, according to the latest Fed figures.

Much of that is the result of falling house values and tighter credit by lenders, but analysts say it also reflects decisions by Americans such as Bell to spend less and save more. The savings rate climbed to 5% in the three months that ended June 30, a 15-year high.

This save-more, spend-less trend has potentially significant implications for Southern California's real estate-centric economy, some analysts think. They believe that the nascent age of frugality -- if it has staying power -- could forge a new sort of California homeowner, one who ranks energy-efficient appliances and access to public transit ahead of granite countertops and luxurious bathrooms...

The real estate industry is known for its bigger-is-better attitude, but even some industry pros sense a change.

"We'll probably be seeing a trend toward smaller, greener, less-costly-to-maintain houses," said Walter Maloney, spokesman for the National Assn. of Realtors. It's "a return to basics."

Not everyone is buying it. Eventually, when the economy regains steam and housing prices rebound, Southern Californians will again stretch to buy a house they cannot really afford, some believe...

Real estate economist Christopher Thornberg seconds that view. Californians display a sort of amnesia about downturns that affect the housing market, he said, whether caused by financial-market debacles or the collapse of the technology boom. Price slumps in each of the last four decades, he noted, didn't dispel the perception of residential real estate as a sure-bet investment...

Bay Area Economic Conferences start this week

Looking for an update and forecast for the national and local economies in the San Francisco Bay Area? MetroIntelligence partner Beacon Economics will present the first of three conferences this week in San Francisco ("Revving up Reform and What it Means for California's Economy" - Sept. 16th), followed by the East Bay ("Green Energy, and Economic Engine: How Real, How Soon?" - Sept. 17th) and the South Bay ("What's Next -- The Road to Economic Recovery - Sept. 22nd).

Find out where the national, state, and San Francisco regional economies are headed in 2010 from some of California's leading forecasters and economists. These events are already generating a buzz, and seating is limited. So reserve today!

Attendees receive Beacon's updated forecast books for each regional area. This original, in-depth look at the region’s labor markets, income, real estate markets, demographic trends, and other indicators, is a valuable and enduring resource for anyone facing important economic and financial decisions over the next year.

(MetroIntelligence Real Estate Advisors has authored the real estate sections in each of the forecast books).

To register for the San Francisco event at the Hyatt Regency Embarcadero on Sept. 16th, click here.

To register for the East Bay event at the Oakland Marriott City Center on Sept. 17th, click here.

And to register for the South Bay event at the 4th Street Summit Center in San Jose, click here.

Friday, September 11, 2009

Column for September issue of Builder & Developer now online

My latest column for the September issue of Builder & Developer magazine is now online. Given the rumblings lately about inflation (and deflation) in the economy, for this month I focused on when investing in housing is a good hedge against inflation. An excerpt:

In the case of real estate, the inflation hedge is really more about the type of debt used – preferably a long-term mortgage with a fixed interest rate – than anything else. But add in the impact of rising prices on rents, and suddenly investing in real estate for passive income and enjoying the various tax write-offs becomes a tried-and-true method (and one used extensively in the 1970s) to build wealth while paying off debt that becomes worth less and less each day.

Of course to address rising inflation, the Federal Reserve will eventually have little choice but to hike interest rates, which could counteract the advantage of real estate’s strength as an inflation hedge. Moreover, the housing inflation of the 1970s was made possible with concurrent increases in wages; given a global economy which has kept a tight lid on wage income, it’s also possible that we’ll see higher prices for oil, food and commodities as home prices continue to stagnate...

Click here for entire column.

Friday, September 4, 2009

Can Fannie and Freddie ever exit life support?

A year after the government takeover of Fannie Mae and Freddie Mac, it seems that both mortgage entities would likely fail without the implied guarantee of U.S. taxpayers. First from an AP story via MSNBC Money:

A year after the near-collapse of Fannie Mae and Freddie Mac, the U.S. mortgage giants remain dependent on the government for survival and there is no end in sight.

The companies, created by the government to ensure the availability of home loans, have tapped about US$96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a mortgage.

Many questions remain about Fannie and Freddie's future, but several things are clear: The companies are unlikely to return to their former power and influence, the bailout is sure to cost taxpayers even more money and the government will have a big role in the U.S. mortgage market for years to come...

A year later, the government controls nearly 80 per cent of each company, and their problems are growing as defaults and foreclosures continue to skyrocket.

The percentage of homeowners who have missed at least three months of payments is normally under one per cent for both companies. Now it's nearly four per cent for Fannie and three per cent for Freddie...

It could be another year before the final taxpayer tab for Fannie and Freddie is known, and that outcome will depend on when delinquencies and foreclosures finally crest.

Barclays Capital predicts the companies will need anywhere from $160 billion to $200 billion out of a potential $400 billion lifeline, which the Obama administration expanded from the original $200 billion set last fall. Most analysts don't expect the money to be returned any time soon, if at all...

For its part, the Mortgage Bankers Association is hoping for an overhaul of both GSEs into smaller, more manageable pieces. Can anyone say "turf war?" From a Reuters story via MSNBC:

The U.S. Mortgage Bankers Association said on Wednesday it will ask Congress to transform mortgage lenders Fannie Mae and Freddie Mac into several smaller, privately held companies that would issue mortgage securities with a government guarantee.

The proposed framework from the industry group would give successor entities to Fannie Mae and Freddie Mac the authority to create securities backed by certain types of mortgage...

"The government has an important, limited role to play to ensure a stable flow of funds for mortgages," said Michael Berman, MBA's vice chairman and chairman of the Council on Ensuring Mortgage Liquidity.

The MBA plan calls for government agencies, rather than the new companies, to assume the "mission" of promoting affordable housing that Congress has long assigned to Fannie and Freddie.

The number of new companies would be initially limited to two or three, the MBA said.

Fannie Mae and Freddie Mac were not immediately available for comment.

FHA incurring larger loan losses, may require bailout

As previously warned about on this blog back in May ("The Next Housing Bust, Courtesy of the FHA"), with FHA loans now accounting for 23% of all loans -- up from 2.7% in 2006 -- the bill is coming due through increasing levels of defaults. But since FHA is such an important leg propping up the housing market, a future bailout or rising insurance premiums paid by borrowers may be in the offing. From a Wall Street Journal story:

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

The rising losses at the FHA, part of the U.S. Department of Housing and Urban Development, come as the agency has rapidly increased its role in guaranteeing loans in an attempt to stabilize the housing market.

It isn't clear how the rising losses may affect home buyers. Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency...

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

Rising defaults have eaten through the FHA's cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago...

Some economists say the FHA's lending has been crucial to preventing a deeper bust in property. Thomas Lawler, an independent housing economist, said "the alternative could have been a complete meltdown of housing finance" that would have ultimately led to much larger losses. Critics have said the FHA, which has never had a chief risk officer, isn't able to manage such a large portfolio in an unstable market.

Policymakers have used the FHA to stabilize the housing market by pushing it to offer credit with far easier terms than that offered by most private lenders. For example, it will back loans with down payments as low as 3.5%...

Last year, the agency ended a program that allowed sellers to fund down payments. While that program accounts for around 11% of the FHA's loan book, it has generated 22% all loans that are seriously delinquent or in foreclosure.

In 2005, the FHA loosened its maximum loan-to-value limit on cash-out refinancing to 95%, from 85%. The agency moved that limit back to 85% earlier this year.

While most private lenders have raised lending standards and now require minimum 20% down payments, the share of borrowers who are able to make down payments of less than 10% hasn't changed in the last two years...

Construction & development loans continue to plague FDIC-insured banks

As the real estate market -- especially for the commercial sector -- continues to fight against the economic currents, the percentage of construction and development loans held by FDIC-insured banks is rising, more than doubling from last year's levels. From a story:

Construction and development loans continue to be a trouble spot for FDIC-insured banks, which lost an aggregate of $3.7 billion in 2009’s second quarter.

The problem? “Increased expenses for bad loans,” according to the FDIC’s quarterly banking profile, which was released last week. The report covers nearly 8,200 institutions, including commercial banks and savings institutions.

Unfortunately for builders and developers of new homes, condos, offices, and retail buildings, the loans they have or need to develop new communities are a growing portion of those bad loans. According to the report, 13.45% of construction and development loans were more than 90 days past due for the three months ending June 30.

Overall, it is more than double the rate for all real estate loans, 5.64% of which fell into the noncurrent, or more than 90 days past due, category for the quarter...

At the same time, banks are taking possession of more and more construction and development-related assets. In the second quarter, FDIC institutions reported $13.5 billion in construction and development real estate owned (REO) property.

For context, FDIC institutions said they own $11.5 billion in 1-4 family residential REOS, meaning that banks currently had more construction and development REO property on their books last quarter than REOs such as foreclosed-upon single-family homes for the mortgages that they kept on their books rather than securitizing and selling to investors.

Thursday, September 3, 2009

Commercial real estate downturn to get worse

Just as the country's housing market is starting to show some (potential) signs of life, the commercial real estate sector is about to go through its own turmoil, impacting the owners & tenants of offices, retail stores, industrial parks and apartments. From the New York Times:

These days, the people who buy and sell office buildings, shopping centers, warehouses, apartment buildings and hotels are hardly in a festive mood, despite some recent encouraging signs relating to the job and housing markets and a recent increase in sales of small office buildings...

The distress is still in its early stages, analysts said. “We are between the first and second inning,” said Richard Parkus, who directs research on commercial mortgage-backed securities for Deutsche Bank. “We’re going to have to get through a very difficult period.”

Mr. Parkus said that vacancy increases and rent declines already mirrored what happened in the 1990s, and until new jobs were created, generating an increase in demand for commercial space and more retail spending, this was not likely to be reversed.

Building values have declined by as much as 50 percent around the country, and even more in Manhattan, where prices soared the highest. As many as 65 percent of commercial mortgages maturing over the next few years are unlikely to qualify for refinancing because of the drop in values and new stricter underwriting standards, he said...

But the damage is expected to be even greater for banks, which are holding $1.3 trillion in commercial mortgages (including apartment buildings) and $535.8 billion in construction and development loans...About $393 billion worth of mortgages are scheduled to mature by the end of next year alone, and an estimated $39 billion more were due to expire this year but have been extended...

The mechanism set up to manage problems with the underlying mortgages is being put to the test for the first time. Some longtime real estate investors who profited from the ready access to mortgages made possible by securitization now complain that the system is impersonal and rigid. Instead of negotiating directly with a lender sitting across a table, Norman Sturner, a partner at Murray Hill Properties, a New York real estate company, said he had been forced to deal by telephone with “a third party sitting out in the Midwest” who seemed indifferent to his problems.

Since the master servicer, which handles the routine servicing of the loan, has no authority to restructure it, the landlord has no way to tackle anticipated problems before it comes into the hands of a special servicer and is already in trouble. “What’s going to happen when billions of dollars can’t be repaid?” said Mr. Sturner, who owns and operates five million square feet of office and apartment buildings.

Wednesday, September 2, 2009

Is the nascent housing recovery a mirage?

If you work in the building industry, after you've had plenty of time to take up new hobbies and interests in the face of the housing bust, it's easy to start hoping for the eventual recovery. But is it too soon to think that the current 'green shoots' we're seeing in the housing market will have legs? A story in Fortune asks the question:

Shares of Toll Brothers (TOL), Hovnanian (HOV) and KB Home (KBH) and other builders have surged. The exchange-traded fund that tracks the group has nearly doubled since March.

Home starts have risen for five straight months, while sales of new homes recently hit their highest level since last September. Prices are up as well: the Case-Shiller index of national house prices rose 2.9% in the second quarter, ending a three-year decline.

These signs -- as well as anecdotal reports about house shoppers growing more willing to write a deposit check -- have executives at homebuilding firms declaring the worst is over...

But housing boosters have forecast turnarounds repeatedly since the market peaked in 2006, only to be proved wrong by plunging prices. And skeptics say they're wrong again now.

They argue that a deeply indebted consumer, a weak job market, expiring incentives and rising foreclosures spell a quick end to any housing rebound...

Click here for full story.