Job growth remained robust in January

More good news on the job front!  From the L.A. Times:

The economy had another robust month of job growth in January, adding 257,000 net new positions and producing the best wage gains in more than six years…

The unemployment rate ticked up to 5.7%, but that was because 703,000 more people entered the labor force, a positive sign for the jobs market…

In addition to January's job growth, the Labor Department said the economy added an additional 147,000 net new jobs combined in November and December…

The upward revisions mean the U.S. economy added just over 1 million net new jobs in the three months ending Jan. 30, the first time that's happened since 1997...

To read the entire BLS press release, click here.

L.A. Times story covers super-efficient new homes

A couple of weeks ago, I got a call from Alex Lazo at the L.A. Times, who was going to be writing a story on home builders' ongoing efforts to make their homes increasingly energy efficient.  I gave him an overview of what was going on in the industry, and pointed him in the direction of builders such as KBHome, Pardee, Lennar and others as well as the ABC Green Home in Orange County.

That story was published today:

With the market healing, and with builders trying to distinguish their products from homes they built as recently as six years ago, companies such as KB Home, Lennar Corp. and others are rolling out more options for consumers and increasingly making energy efficiency part of the basic package.

"For new homes, it is becoming more of a standard feature, and the reason is that builders need a compelling reason that somebody should buy a new home rather than a resale," said Patrick Duffy, principal for research firm MetroIntelligence Real Estate Advisors.

In coming years, California guidelines will call for ever more energy-efficient homes, with the goal of having all homes built in 2020 being net zero. For now, net zero remains more of an aspiration for the industry, though experts say builders are increasingly making standard some of the fundamental elements of green design, including more efficient appliances, lighting and solar panel systems...

Click here for entire story.

L.A. Times reviews Lennar's new NextGen series

In today's Los Angeles Times, reporter Alejandro Lazo covered the extended family homes Lennar is building in San Bernardino and in Arizona. He had also called me to comment for the article, and I told him about the casitas that become very popular for larger new homes prior to and during the run-up to the building boom. From the story:

The company has built two San Bernardino County models of its so-called NextGen designs for its master-planned Rosena Ranch community. Like a Russian nesting doll with a smaller doll inside, the new residential design incorporates a smaller home with a separate front entrance, kitchenette, bathroom and bedroom...

For now, it seems to me that there are certain ethnic groups which have a history of inter-generational living (such as Hispanics and Asians), but he didn't delve much into that, preferring instead to focus on the economics of doubling up but with the advantage of private spaces.

I think it definitely shows that some builders are serious about innovating in ways to compete with their recent plans of the past as well as deeply discounted foreclosures:

"Here is a clever way of addressing something that wasn't built during the boom years," said Patrick Duffy, principal for research firm MetroIntelligence Real Estate Advisors. The main question builders are asking themselves, he said, is: "How do you make it special, not only against foreclosures, but a cheaper home that they themselves built only a few years ago?"

Click here to read the entire story.

Case-Shiller Composite Indices Rise for Fourth Month

Data through July 2011, released by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases.

However, according to a story in the L.A. Times:

The month-over-month bump is most likely due to the seasonal boost the housing market gets over the summer and will most likely do little to cheer economists about the housing market's future.

"While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery," David Blitzer, chairman of the S&P index committee, said in a release announcing the new data Tuesday.

The rise in prices made for the fourth consecutive month of gains. Earlier this year the index pushed below its previous bottom hit in April 2009, confirming a much-feared double-dip, but has come back above that level since.

Click here for the full report.

The Dubai-enabled Grand Avenue Project in L.A.

After months of concern about how the the first phase of the $3 billion Grand Avenue project in downtown Los Angeles will get funded, a Dubai-based sovereign wealth fund has ponied up $100 to get things started. From the L.A. Times:

Armed with $100 million from Dubai and a refined design plan, officials Monday said construction will finally begin next month on the Frank Gehry-designed residential and shopping plaza along Grand Avenue that is considered a linchpin to downtown L.A.'s revitalization...

The fund stepped in with $100 million after one of Grand Avenue's big early investors, California Public Employees' Retirement System, exited the project, saying the organization was already too heavily invested in the downtown real estate market.

The investment from Dubai gives the developer, Related Cos., the money needed to secure construction loans -- allowing it to finally tear down a parking structure across from the Walt Disney Concert Hall, where the first phase of the development will be built. The $2-billion plan calls for shops, condo towers and a boutique hotel -- as well as a civic park -- on city and county land on Bunker Hill.

There remain skeptics who wonder whether downtown L.A. is being overdeveloped with condo projects. In addition to Grand Avenue, there are a slew of residential towers rising around Staples Center, a 76-story tower proposed next to Pershing Square and other older office buildings being renovated for apartments.

In the last year, about a third of all proposed housing developments downtown have been put on hold or canceled. They include the 50-story Zen tower on 3rd and Hill streets, the Mill Street Lofts in the industrial district, the multitower Metropolis off the 110 Freeway and the conversion of the former Herald Examiner building...

The three-phase Grand Avenue project ultimately could include eight condo and office towers, retail stores, a boutique hotel and public park. The first phase includes two towers at opposite ends of the block east of Disney Concert Hall -- set that way to preserve sightlines to the venue from many parts of downtown. The taller tower -- 48 stories -- would include rooftop pools, 264 high-end condo units, a 289-room Mandarin Oriental and an Equinox health club.

The second, 19-story tower would include nearly 100 rental units -- designated as affordable housing -- and 126 condominiums. Phase one also includes the civic park northeast of the concert hall.

The second phase is to be built on the block south of Disney Hall, with preliminary plans calling for two 30- to 35-story residential towers, one five- to six-story residential building and more retail stores and parking. The third phase would go two blocks east of the concert hall. Preliminary plans call for a 35- to 40-story residential building that would include some retail shops and possibly a 15- to 20-story building with office space or condos.

Little or no due diligence on mortgage loans during the housing boom

I wonder what Gordon Gekko would say today about greed being good, because in the long run it certainly didn't work so well for the housing & mortgage markets. In fact, it seems that it was greed which was a primary culprit in keeping loan reviewers at bay who were raising red flags as questionable sub-prime mortgages were taking off. From the L.A. Times:

Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports...

In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co.

Executives at the two main firms that hired the freelancers -- Shelton, Conn.-based Clayton Holdings Inc. and San Francisco-based Bohan Group -- say the reviewers weren't there to find every potential problem with a sub-prime loan. Rather, the executives say, the job was to perform specific tests to help buyers determine how much to pay for a pool of loans. In some cases, the investors wanted only minimal testing, said Frank P. Filipps, Clayton's chairman and CEO...

As time passed, Clayton and Bohan executives said, Wall Street firms and their investor customers accepted increasing levels of default and fraud in sub-prime loans as they grew to trust software designed to offset those risks by charging higher interest rates, extra fees and penalties for paying off mortgages early.

As Wall Street grew more comfortable, it demanded less of the review process. Early in the decade, a securities firm might have asked Clayton to review 25% to 40% of the sub-prime loans in a pool, compared with typically 10% in 2006, although the requirements varied, Filipps said.

By contrast, loan buyers who kept the mortgages as an investment instead of packaging them into securities would have 50% to 100% of the loans examined, Bohan President Mark Hughes said.

But the freelancers interviewed by The Times never got the memo that their reviews were supposed to be nice and easy. Flying from city to city and typically paid $30 to $40 an hour, with expenses covered, the reviewers say they worked conscientiously to assure the investment banks and mortgage-bond investors that no surprises lay in the files.

Loan reviewer Jana Lujan recalled showing a file to a supervisor in 2004, during a check of sub-prime mortgages made by a Brea bank that regulators later cited for unsound lending. A title report showed a tax lien on the property.

"I said we needed evidence it had been paid off and released," to ensure against foreclosure, Lujan said. "And he said: 'Just go ahead. Assume it's being taken care of.' "

Loan-buyer representatives who were on site during the reviews also showed little interest in the details, Lujan said.

Lujan said one Clayton supervisor would throw away documents that appeared to have been altered fraudulently. The lack of a document in the file meant the loan had to be sold at a slight discount, she said, but it still could be sold.

Lujan, Valenz and one other loan checker said supervisors at Clayton and Bohan also would change the way fees were described so that mortgages would not be red-flagged as potentially predatory under U.S. law, which would render them unsalable and force the sellers to take them back...

The reviewers said the less-thorough approach made their expertise irrelevant and led to pressure to work faster. Valenz and Lujan said they were told to check two or three files an hour when it took an hour or more to do one properly.

One Clayton project supervisor "told us if we spent more than 20 minutes on a file, we were spending 20 minutes too long," Lujan said.

Though quick checks called "data scrubs" could take 20 minutes per loan, Filipps said, complex reviews could take three hours, with the average review taking 80 minutes in 2006.

The biggest problems, the reviewers said, were appraisals that looked inflated and "liar's loans," so nicknamed because borrowers weren't required to prove they earned enough to make their payments.

"You can't tell me a Kmart or a Wal-Mart or a Target floor worker is making $5,000 a month, or a house cleaner is making $10,000," said former loan reviewer Irma Aninger of Palm Desert, a 40-year financial services industry veteran.

Aninger, who did work for Clayton and Bohan, said she tried repeatedly to have such loans marked as unacceptable but was overruled by supervisors, who were known as project leads. "The lead would say, 'You can't do that. You can't call these people liars,' " Aninger said...

THIS is why a federal bailout will be unpopular but necessary. It's simply too late now to punish all of those people who helped perpetuate the house of cards that was the housing boom.

Like it or not, more government rescues are on the way

Despite the public outrage that will inevitably arise from a government (and thus taxpayer) bailout of Wall Street firms and borrowers caught up in the mortgage crisis (rumor has it homebuilders have been told not to expect much, if anything, from the White House), it looks like a series of smaller bailouts (such as Bear Stearns) will ultimately result in a much larger rescue. For renters waiting to pounce on heavily discounted homes, that may come as bad news, and they continue to rally against a bailout. But what they don't understand is the consequences of doing nothing is far more important than their desires to (a) allow the market to punish the greedy and the stupid; and (b) snap up a bargain once the dust has settled. From an article in the L.A. Times:

...some experts say Bear Stearns' woes warn of potentially larger calamities that will severely test the Fed, the economy and, ultimately, taxpayers as the government gets more deeply involved in fixing the markets' troubles.

"We will lose, in some form, several major financial institutions before this is over," said veteran economist Allen Sinai of Decision Economics Inc. in New York.

The heart of the problem is that the nation is living through an unwinding of a 25-year-long, consumer-led borrowing binge. Bear Stearns was a key player in financing that binge, most notably in high-risk mortgages...

"We have far too much leverage in the system, and we're now in the process of de-leveraging," said Tom Atteberry, a money manager at investment firm First Pacific Advisors in Los Angeles. "We think there's a lot more to go."

That mentality is widespread, and it is feeding on itself: Investors don't want to pay current market prices for mortgage-backed bonds and other debt because they worry that more borrowers will have trouble making payments. That further shuts down lending, making credit tighter and squeezing more borrowers...

At times like this the focus for Wall Street firms primarily is on surviving. No bank or brokerage will lend to a peer, even in routine daily transactions, if there is any doubt at all that the borrower can repay. Failure then can become assured once rumors start about a firm...

Wall Street's propensity to abandon its own has sunk all sorts of financial institutions over the last century. In 1984 the government had to rescue Continental Illinois, then the seventh-largest bank, once creditors pulled the plug. Brokerage Drexel Burnham Lambert Inc. failed in 1990 after its funding lines were cut...

But the current crisis is far larger in scope than those. Because so many banks, brokerages and investors were involved in financing the recent real estate boom -- the biggest housing bubble ever, by many accounts -- the growing problem of mortgage defaults infects nearly every corner of the financial system...

That is why a bailout is becoming more of a certainty --when the U.S. economy is at stake, politicians have no choice but to risk the ire of angry renters who don't support such a move by risking their tax dollars.

Across Wall Street, there is a widespread belief that the Fed's use of its own capital to shore up Bear Stearns is just the first step toward an eventual government bailout of the housing market.

"The history of major financial crises is that the government is going to come in at some point," said Richard Sylla, a professor of financial history at New York University.

L.A. Times story on reverse mortgages cited by The Week magazine

I've been a big fan of The Week magazine (which summarizes national and int'l news in less than 45 pages each week) for about 3 years, and have bought gift subscriptions for friends and family members as a form of introduction. So I was pretty excited today to see that the article I recently wrote for the L.A. Times on reverse mortgages was cited in the current issue of The Week, along with other articles on the same subject in The New York Times and Kiplinger's Personal Finance.

I'm working on other articles as a freelancer for the L.A Times, and remain open to story pitches to run past the real estate section editor; in fact, it was due to an email from some real estate agents in Southern California that I'm now writing an article on California's Props. 60, 90 and 110, which allow homeowners to transfer their existing Prop. 13-protected tax rates to new purchases of the same or lesser value one time in their lives (available only to people 55 or older or those with severe disabilities).

The purpose of writing these articles is simple: provide a balanced overview of real estate-related issues in order to educate the L.A. Times' readership so they can make informed decisions or know where to call or write to find out more. While I am an "industry insider" and work as a consultant for homebuilders and certainly benefit from heightened awareness among clients and colleagues, for these articles I truly have no agenda other than education, and hope that I can provide a valuable service.

Revival of downtown L.A. on hold

We knew it had to happen sometime; after all, the huge boom in residential development in downtown Los Angeles was operating against much larger forces in the building industry. Now it appears that the nascent boom is on hold, with one-third of planned projects side-lined and prices falling faster over the last year than either the overall counties of L.A. or Orange.

So why did so did many projects get approved and built? INSUFFICIENT DEMAND STUDIES.

Everyone thought they'd all get the entire pie, which only really happens during Marie Callendar's $5.99 pie months (February and October). It never seemed to occur to many developers and planners -- or their consultants -- that not only was the size of the overall pie limited, but that there would be competitors demanding their own slices.

In fact, this lack of demand studies -- which predict how many people can afford homes of specific price ranges in specific areas -- is what has in large part led to the overall housing bust in new homes. Ten or 15 years ago, a typical market study for a construction loan would include a demand analysis, but as the boom started getting underway those analyses were no longer requested; all builders really wanted to know were (a) what are the new home comps; (b) what are the resale values in the surrounding area; and (c) how fast will these homes sell? These kinds of studies only work during a boom.

The other thing everyone missed was the fact that redevelopment of large, downtown areas don't happen during a single boom: they happen over several booms or many years. When one looks at downtown San Diego today, it's easy to forget the boom-and-bust period that was the 1990s, when it, just like downtown L.A., was full of plans for high-rise apartments and condos that took another 10 years to come to fruition. It also took time to convince people that moving downtown was the right move, and San Diego's downtown is much smaller than L.A.'s and is situated against one of the most beautiful bays in the world.

The current pause in downtown L.A.'s redevelopment is actually part of a normal cycle for such a large area. And, while long-term trends certainly point to more people living in an urban environment, that doesn't mean it will come as quickly as chirpy brochures would indicate. That's just how it is.

From a story in the L.A. Times:

Prices of condominiums, which dominate the downtown market, have fallen more sharply here than in Los Angeles and Orange counties overall, according to DataQuick Information Systems. More than one-third of the residential projects approved by city officials have been sidelined.

Downtown's defenders say the area simply is suffering from the same housing slump that has slowed sales to a crawl and depressed prices across the country.

But some real estate analysts believe downtown's housing troubles run deeper. They say developers and planners miscalculated its appeal as a residential community, leading them to build far too many projects for the demand.

As a result, the housing market downtown could fall more sharply and take longer to recover than it might in established residential areas...

Downtown developers counter that argument, saying there are too many people working downtown and not enough places for them to live. Traffic gets worse every year, they point out, which will drive up demand for housing closer to where people work.

"I think it is absolutely inevitable more and more people will live in downtown-type locations," said James A. Osterling, a developer and the former chief financial officer of Shea Homes. "I don't think [the real estate slump] is going to kill off downtown."

And Jim is right -- over the long run.

The median sales price for homes sold downtown, almost all of which are condos, fell to $497,360 for the fourth quarter of last year, 16% below the peak reached in early 2007, according to DataQuick.

By comparison, condo prices fell 7% from their peak in Los Angeles County during the same period and 11% from their peak in Orange County, DataQuick said. The median sales price for condos in both counties in the fourth quarter of 2007 was $410,000.

Downtown's residential expansion began in 1999, when the city relaxed parking, zoning and seismic safety rules, making it easier for developers to convert aged office buildings into apartments. The wide-open layouts and spare look of the lofts, with concrete floors and exposed pipes, quickly proved popular with an adventuresome crowd.

Within a few years, developers began to offer units in the rehabbed buildings for sale, and luxury buildings were constructed from the ground up, with rooftop pools and sky-high prices.

So far, however, demand has not kept pace with ambitions, as several downtown boosters concede...

...downtown has seen a big increase in its residential population. According to the downtown Business Improvement District, the total has grown 42% in the last three years, based on a formula that figures 1.6 persons per housing unit.

The city, using U.S. census data, estimates more modest growth of 20% downtown from 2000 to 2006. But that still outpaced L.A.'s growth of 8% for that period.

"We have created a desirable place to live," said Carol E. Schatz, president of the Central City Assn., a downtown business advocacy group.

Schatz said slowing condo sales downtown simply reflected the national real estate downturn.

"As the whole region comes out of the downturn, we will speed ahead," she said. "There's no other place you can go to the opera, a Lakers game or a world-class concert" in the Los Angeles area, she said.

Downtown's growth coincided with the creation of several landmark developments, such as Staples Center and the Walt Disney Concert Hall. Coming up: the Grand Avenue project, with its hotels, offices and condos in the Civic Center. The recently opened Nokia Theatre near the Los Angeles Convention Center marked the first phase of L.A. Live, an ambitious hotel, retail and residential complex...

James Atkins, whose development firm, Portland, Ore.-based Williams, Dame & Atkins, has built two major projects downtown, is bullish on the area but acknowledges that its transformation is not complete.

From his developments elsewhere, Atkins has learned that younger people will live in edgy new neighborhoods. But a neighborhood becomes firmly established when older, more affluent people are willing to move in -- a sign that the area's safety and amenities match that of the suburbs where they'd been living.

Downtown needs even more restaurants, stores and parks for that to happen, Atkins said. "When the Westside empty-nesters arrive, that's when we'll see the real jump in the market," he said.

He added: "That process took 20 years in Portland."

And I'll bet he did demand studies!