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...

New home sales spike as prices fall, tax credits offered

Sales of new homes rose by an unexpectedly high 11% during June -- the largest monthly rise in eight years, according to the Commerce Dept.

HOWEVER (and this is an important note that's never noted in these stories), is that the sample size that's used in this report is quite small -- less than 4% of permit reporting places in the country.

Here's how it works: surveyors contact builders of new homes who have pulled permits in the 19,000 or so jurisdictions that issue building permits (cities and counties). They then contact these builders to find out if these permitted homes have sold. For those areas in which they don't directly contact permit reporting places or builders, they estimate.

That's why we see swings in these numbers when the numbers are re-verified a few weeks later, so I'd look for an adjustment downward in the weeks ahead. You heard it here first!

So can one month make a trend, or is this simply the result of people taking advantage of tax credits and low interest rates? From a story in the New York Times:

Sales of new homes in the United States posted their largest monthly gain in eight years in June, the government reported on Monday, a sign that the housing market is bottoming as buyers take advantage of lower prices.

The Commerce Department reported that new single-family home sales rose 11 percent in June, an increase that dwarfed economists’ expectations of a 3 percent increase. The pace of home sales rose to a seasonally adjusted rate of 384,000 a year, the highest level since November.

But the figures offered no sign that the housing market had returned to health.

Despite the monthly increase, sales of new homes were still down 21 percent from June 2008. The market is still swamped by a glut of for-sale houses. And new homes, facing competition from cheap foreclosures, are sitting on the market for close to a year before they sell, compared with a median time of six months on the market in 2007...

The figures were the latest evidence that a three-year slump in the country’s housing market was leveling off as prices fell back and some builders and buyers began to step tentatively back into the market. Earlier this month, the government reported that housing starts rose 3.6 percent in June from a month earlier, and a trade group reported that sales of previously owned homes also rose for another month.

“Sales are picking up a little,” a senior economist at 4Cast, David Sloan, said. “Whether it’s going to pick up any momentum is really the key. I think we have to be doubtful about that.”

On Tuesday, a closely watched measure of home prices will be released, offering some hints about whether the long plunge in housing values is abating. Economists are expecting a 17.9 percent year-over-year decline in prices in the Standard & Poor’s Case-Shiller Home Price Index.

Although new-home sales have risen for three months, many economists worry that rising unemployment, stagnant wages and continued tightness in lending markets will weigh down the housing market for the rest of the year...

The perils of the collective shrug

One thing I've found quite curious is that despite unemployment in the building industry estimated as high 80%, there just doesn't seem to be much anger among the rank and file who lost their jobs due to greed, short-term gains and, if the New York Times is to be believed, in part due to the veritable crime wave created by Beazer Homes with its mortgage subsidiary.

I call this "the perils of the collective shrug," and I think it's dangerous because it means we're learning few lessons from this last cycle of boom and bust. Despite its importance to the economy, the building industry for housing is actually small enough that expressing an opinion (as I do here) could alienate future employers (or clients). And expressed anger simply doesn't pay for the mortgage, the car payment or the college tuition.

Although some of the industry's media companies do attempt to maintain some objectivity in their reporting, they also must be mindful of their advertisers -- mostly suppliers to homebuilders -- as well as to homebuilding executives they can't afford to alienate if they want to interview them, throw their face on the cover of a future issue or get them to speak at an affiliated conference.

That's also why I don't think you'd ever see this article by the New York Times' Floyd Norris on the behavior of Beazer Homes -- and its aftermath -- in an industry publication. I think that's sad, because perhaps if insiders boldy went on the record -- and consequences be damned -- we could prevent such things from happening again.

As such an insider, I certainly can't condone what went on at Beazer as well as at many other homebuilding companies whose mottos all seemed to be "See no evil, hear no evil, speak no evil," and if I could apologize on behalf of an industry which tends to look the other way, shrug its shoulders and effectively say, "What are you gonna do?", I would. But I'm only one voice.

From the article:

For years, Beazer Homes USA was much more than a builder of houses. It was a veritable crime wave.

The company defrauded buyers, particularly poor people being sold homes they could not afford. It defrauded the federal government by getting government-guaranteed mortgages for those buyers. It created subdivisions now dominated by dozens of foreclosed homes.

And while it was at it, Beazer lied to shareholders about how much money it was making. First, it lied by claiming it was making less than it was. Then it lied by hiding losses when the housing bubble began to burst. To keep the lies going, the government says, the company prepared fraudulent documents to mislead its auditors.

Last week, Beazer settled the legal problems stemming from its crimes. It entered into a remarkably generous deferred prosecution agreement with the Justice Department, in which the company will pay $15 million, and perhaps more if it manages to earn profits enough and does not decide to file for bankruptcy... Beazer’s crime wave might have gone on longer than it did but for a North Carolina newspaper, The Charlotte Observer, which in 2007 reported what had happened in some sad subdivisions outside Charlotte. Fraud was committed in numerous ways, and now some of those subdivisions are filled with empty, foreclosed homes...

Mr. McCarthy, the chief executive, is paying a penalty. He agreed to contribute the after-tax balance of the $600,000 bonus the company paid him for fiscal 2008, when Beazer posted a net loss of $952 million, or $24.69 a share. The shares trade for less than $2 each, and have slipped since the deferred prosecution agreement was announced.

In announcing the deferred prosecution agreement, the Justice Department said that had it sought more money it might have risked driving the company into bankruptcy, costing the jobs of innocent people, and it praised the company for getting rid of the people responsible for the crimes. The determination of who was responsible evidently is largely based on the company’s own investigation, which was shared with the government but not made public.

The charges the company admitted say the accounting fraud and the defrauding of the homebuyers were under way by 2000, and continued until 2007.

I have no reason to believe that either Mr. McCarthy or anyone on the board understood the crimes the company was committing, year after year.

But Mr. McCarthy was running the company for the entire period, and the junior member of the board, Peter G. Leemputte, became a director in 2005. If neither Mr. McCarthy nor any board members had any inkling of what was going on, they were not doing a very good job, to say the least...

If a boss can preserve his deniability about crimes committed by his company — perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options — then he can escape being held accountable if the crimes are eventually uncovered.

Or, as Sergeant Schultz used to say on the television sitcom “Hogan’s Heroes,” “I see nothing. I know nothing.”

These federal deficits were years in the making

Lately, it seems to be the criticism du jour to pin the entire (rising) federal deficit at the feet of Barack Obama, who has only been in office since January.

Meanwhile, I continue to get somewhat unhinged email blasts from some of my more conservative friends who, quite frankly, don't know what they're talking about when they drone on about Obama's policies being the end of civilization as we know it (as well as the apparent end of baseball and apple pie). Of course I want to reply, "Perhaps you should get that pesky bankruptcy off your credit report before throwing stones at Obama's fiscal house!" but I'm simply too polite to do so.

And, while I'm certainly no fan of the entire array of the policy prescriptions of the Obama Administration (and think his lack of a business background is beginning to show), the truth is that these deficits took years to build up, and they won't disappear simply because Sarah Palin is now pulling a new string on her back that quacks, "I told you so!" From a New York Times story:

There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it...

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas...

The solution, though, is no mystery. It will involve some combination of tax increases and spending cuts. And it won’t be limited to pay-as-you-go rules, tax increases on somebody else, or a crackdown on waste, fraud and abuse. Your taxes will probably go up, and some government programs you favor will become less generous.

That is the legacy of our trillion-dollar deficits. Erasing them will be one of the great political issues of the coming decade.

And something that won't be addressed simply by "Drill, baby, drill!"

Plunge in housing starts: good news or bad?

Lately, it seems that trying to figure out the health of the housing market from the most recent stats on starts, sales and prices is a lot like reading tea leaves. The latest bit of news is that housing starts fell sharply in March, although starts for single-family homes has remained constant. According to the L.A. Times, that could mean good news:

Groundbreakings on single-family homes held steady for the third month in a row in March, even as the number of condominium units and apartments under construction fell sharply, according to federal data released Thursday.

Economist Edward Leamer, director of UCLA's Anderson Forecast, said the stability in single-family home construction is a positive sign.

"The downward trend we've been seeing for a long time isn't evident anymore," Leamer said. "We won't know if we've really hit the bottom for a couple of months, but this is certainly consistent with being near the bottom."

But not all the news was good. Construction began on 152,000 apartment buildings nationwide in March, down nearly a third from the previous month and 51% from a year earlier. In the West, builders began work on just 10,000 multi-family buildings in March, a fourth of those that were started in February and down even more from the previous year.

That, along with the fact that there's still less construction going on now than there was last year, brought the overall numbers for new housing down 48% nationwide over the same month in 2008.

Over at the New York Times, they're painting a slightly different picture:

“There’s still no clear indication that the construction market is coming back,” said Mike Larson, a housing analyst at Weiss Research. “Even if companies want to start projects, they’re having a harder time getting the money to do so. We’re being overwhelmed by distressed inventory as well as regular sellers trying to get out of their homes. There’s not a heck of a lot of incentive for builders to ramp up construction.”

Still, some housing experts say the decline in home building was a crucial step toward lowering the glut of unsold houses and condominiums on the market so that housing supply once again lines up with demand...

And what about foreclosures?

Also on Thursday, the data firm RealtyTrac reported that foreclosure filings surged 9 percent, to 803,489 properties, in the first quarter of 2009. RealtyTrac said that foreclosure notices increased 17 percent in March from February.

“We saw a record level of foreclosure activity,” James J. Saccacio, chief executive of RealtyTrac, said in a statement. He added that foreclosures would probably increase in the next months as temporary halts to foreclosures expired at banks and agencies like Freddie Mac and Fannie Mae.

The flood of cheap foreclosed homes and distressed properties has helped push home prices lower across the country, especially in areas hit hardest by the housing downturn, like Southern California, Arizona and Florida...

Congress fiddles as the world burns

Just when you thought we might actually be getting some real bi-partisan cooperation in Washington, D.C., apparently the Republicans are more concerned about scoring brownie points with a base still enamored of more tax cuts than coming up with a stimulus bill with the intent to avoid an economic meltdown. From an opinion piece by Nobel Prize winner Paul Krugman in the New York Times:

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts...

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world...

We’re already closer to outright deflation than at any point since the Great Depression. In particular, the private sector is experiencing widespread wage cuts for the first time since the 1930s, and there will be much more of that if the economy continues to weaken...

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh.

What matters now, however, is what he does next. It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

Yes, Rush Limbaugh (who, like Sean Hannity, dropped out of college before finding his calling in radio) can be very funny and his show is often quite entertaining. But for politicians to take their cues from an entertainer or celebrity (whether on the right or the liberal left) is the height of brain-dead irresponsibility.

Banks foreclosing even on builders who never missed a payment

Imagine buying a new car for 10% down and a 5-year loan. As soon as you drive it off the lot, it immediately loses up to 25% of its value, which could technically mean that the value of the asset -- the car -- is worth less than the loan. Now let's say the bank is low on capital and, even though you've made all the payments on time, sends the repo man out (perhaps captured on a reality TV show) to grab your car in the middle of the night to re-sell because they'd rather get 75% of what they lent you now rather than risk the thought that you'd stop making your payments. Only they don't sell the car -- they just let it sit there and rust until its value plummets to almost nothing.

Sound far-fetched and unfair? Couldn't happen to you? Well, it is happening to private builders across the country, whose projects are being foreclosed upon even when they've never made a late payment. In fact, some builders contend that lenders encourage them to keep paying so they'll have nothing left for legal fees to fight the now-inevitable foreclosures. Expect some very nasty legal battles in the very near future about this.

So how is this good for the real estate industry, the country, or U.S. taxpayers? It isn't. It's due to bankers now under intense pressure from regulators to do something about real estate-related loans, even if building out a project could net more to them, the federal government, and ultimately, you. This is no longer about punishing greedy builders who over-built during the boom years. This is about something else entirely -- something Charles Darwin would likely appreciate. In the future, fewer builders could mean less competition -- meaning higher prices, fewer choices and crappier construction. From a New York Times story:

After riding high on one of the greatest housing booms in American history, the nation’s home builders today face a devastating reversal of fortune.

Although the housing crisis is nearly two years old, many banks had refrained from cracking down on small home builders.

They are starting to do so, and a wide swath of the industry could be forced out of business in the next few years. The trouble is concentrated especially in the Sun Belt, the scene of so much overbuilding.

Not only have new-home sales stagnated, but builders confront a rising wave of foreclosed properties coming to market at prices below the cost of building a new home. To move houses, they have to mark them down to less than the cost of construction.

The convergence of these problems is bringing many small and medium-size builders — who account for about 70 percent of new-home construction in the United States — to their knees...

No hard count exists of precisely how many builders have gone out of business since the downturn began. According to an estimate by the National Association of Home Builders, at least 20,000 builders — about a fifth of the total nationwide — have closed up shop in the last two years...

With the pullback accelerating, complaints among builders of hardball tactics and shoddy treatment by banks are mounting, as is a general sense of betrayal.

“The behavior of the banks is unprecedented,” said Mick Pattinson, a home builder from Carlsbad, Calif. who has organized a national coalition of builders to draw attention to what they regard as unreasonable treatment. “Yes, there was overleveraging in the industry. But the aftermath doesn’t need to have been as brutal as it has been.”

Some experts defend the banks, saying they are starting to do what is necessary to come to grips with the turmoil in real estate. For months, they have been under pressure from federal bank regulators and their own shareholders to curtail lending to a faltering industry...

In this climate, keeping loan payments up to date — something many builders are struggling mightily to do — is not necessarily any protection.Many loans in the building industry are of short duration, coming up for renewal at least once a year.

This allows banks to take a fresh look at the financial health of a borrower, as well as the assets securing their debt. A steep fall in cash flow or a decline in the value of the collateral — usually building lots or half-built houses — can mean an automatic default, whether a borrower has missed payments or not...

Click here for full story.

Optimistic economists?

Even though we are clearly now in the worst recession since the 1930s, economists surveyed by Blue Chip Economic Indicators -- such as those working for investment banks, trade association and large companies -- are now viewing 2009 with some optimism and declaring the worst to be behind us. From a New York Times story:

If the dominoes fall the right way, the economy should bottom out and start growing again in small steps by July, according to the December survey of 50 professional forecasters by Blue Chip Economic Indicators. Investors seemed to be in a similarly optimistic mood on Friday, bidding up stocks by about 3 percent. But in the absence of that government stimulus, the grim economic headlines of 2008 will probably continue for some time, these forecasters acknowledge...

Even if the economy begins to right itself by this summer, the recession would still be the longest since the 1930s, which was the last time the government engaged in widespread public spending to overcome the persistent inertia in consumer and business spending...

Still, it's important to remember that most of these economic forecasts are based on computer models -- the same kind that completely missed the misery of 2008. That's because although economics is based on numbers -- and therefore lends itself to mathematical formulas -- since it's really a study of human behavior, such models can easily miss swift changes in consumer sentiment and other factors.

Click here for full story.

Private equity money attacks rent-controlled apartments

Having once worked for a company owned by a private equity fund, I personally know the obsession with maximizing profits, often at the expense of ancillary items -- such as long-term brand building or marketing efforts -- that don't easily show up on P&L statements. So it didn't really surprise me to see this story in the New York Times accusing developers backed by private equity money of using questionable tactics to force out long-time residents who currently benefit from rent control laws in order to hike them to market-rate levels:

Private investment firms have been amassing what may seem like unusual stakes in New York real estate: they have bought hundreds of apartment buildings with thousands of rent-regulated units across the city that produce decidedly meager returns. As regulatory filings and promotional materials show, the companies expect to generate higher returns quickly by increasing rents after existing tenants vacate their units. Their success depends upon far higher vacancy rates than are typical in rent-regulated apartments in New York.

Some residents and tenant advocates say that they began seeing what they consider a pattern of harassment of low-income tenants this year and suspect that it is a result of the new owners’ business models. Tenants have been sued repeatedly for unpaid rent that has already been received by the landlords; they have been sent false notices of rent bills, lease terminations and nonrenewals; and they have been accused of illegal sublets.

The companies dispute the charges of harassment and say they are protecting their rights.

Nevertheless, tenants must answer the notices in court, but many have responded by moving out, court documents indicate. When they vacate the apartments, the owners can increase the rents substantially...

Private investment funds have boomed in recent years, buying companies they considered undervalued in industries as diverse as communications, hotels and energy, streamlining operations and then selling them at a profit. For example, private equity firms have bought nursing homes, often slashing expenses and reducing staff to increase their profit.

New York provides an unusual opportunity because it is one of the few cities with a large inventory of apartments whose rental rates are regulated and kept below market levels...

These companies often make clear that raising rents is crucial to their financial goals. On its Web site, Normandy Partners states “the increased institutional appetite for New York City rent-stabilized housing transactions” and adds: “There is a near-term opportunity to increase cash flow by converting rent-stabilized apartments to market rate as tenants vacate units.”

The companies say that they are not harassing tenants and that they are only trying to protect their rights by enforcing legitimate rules governing regulated apartments.

But the New York City Rent Guidelines Board says the vacancy rate on rent-regulated apartments is 5.6 percent each year. Buildings with vacancy rates far higher suggest resident harassment, tenant advocates say.

Vacancy rates have risen above 20 percent in some buildings owned by Vantage Properties; in some Normandy buildings, the rates exceed 30 percent...

When an apartment becomes vacant, rents can climb as much as 20 percent. When that rent rises above $2,000, regulations no longer apply, and tenants must pay market prices.

To generate returns expected by private equity investors and to pay off the debt used for their purchases, tenant advocates say that managers of the properties are intimidating residents in the hopes of forcing them to leave so that rents can be raised...

Rent-regulated apartments account for 57 percent of the total in the Bronx, 42 percent of the apartments in Brooklyn, 59 percent in Manhattan, 43 percent in Queens and 15 percent of those on Staten Island, the Guidelines Board says. Many of the buildings bought by private equity investors are in neighborhoods that are being gentrified..

In a group of buildings in Queens with 2,124 apartments, Vantage has filed almost a thousand cases in housing court against tenants since October 2006, according to Robert McCreanor, director of legal services at the Immigrant Tenant Advocacy Project of the Catholic Migration Office in Sunnyside.

Mr. McCreanor said he searched public records for similar actions by the previous landlord. He found no more than 350 in any year...

Normandy Partners, with almost 2,000 rent-regulated apartments in 42 buildings in the Bronx, East Village and Sunnyside Queens, is another significant landlord backed by private equity. It is a partner with Vantage in 1,650 units in Queens, the Bronx and Brooklyn.

Mr. Dulchin said the Normandy Partners’ buildings have also had high turnover — more than 30 percent — since they were purchased by the investors.

A spokesman for Normandy declined to comment.

Pinnacle Group is a third big developer that has joined forces with a private equity firm, Praedium Capital of Chicago. In December 2006, Pinnacle settled a suit brought by the New York attorney general’s office accusing it of rent-gouging. Pinnacle paid $100,000 without admitting to or denying the accusations. The company did not return a phone call seeking comment.

Responding in part to indications that harassment is systemic, Mayor Michael R. Bloomberg signed legislation in March making it illegal for a landlord to file repeated and baseless court proceedings to force a tenant to vacate an apartment.

Vacancies disproportionately impacting newer homes

It looks like homes built after 2000 are disproportionately impacted by rising vacancies, yielding rates of over 10% versus 2.9% for all homes vacant but available for rent. From a New York Times story (hat tip to Patrick.net):

The Census Bureau reported that 2.9 percent of homes intended for owner occupancy were vacant at the end of the first quarter. That figure had begun to rise even during the housing boom, a little-noticed byproduct of the aggressive construction of homes encouraged by easy credit. Before 2006, that figure had never exceeded 2 percent.

Houses can be rented out, of course, even if they had been intended to be lived in by the owner, but the rental market also has high vacancies now. Over all, 10.1 percent of homes intended for rental are vacant. That rate is a little below the record level hit in 2004, but it is still higher than it ever was before the construction boom of this decade.

The figures include both single-family homes and apartments. In rentals, the vacancy rates are almost equal for homes and apartments. But in the owner market, the vacancies are much more concentrated in condominiums. In buildings with five to nine units — like many garden apartment buildings — the condominium vacancy rate is an unprecedented 15.2 percent. That is up from 12.2 percent at the end of 2007. Before 2006, that rate had never been as high as 10 percent.

Even worse news for those who bought new homes or apartments in recent years is that the vacancy rates in those properties are far higher than they are in older buildings. For homes and condominiums built after March 2000, the vacancy rate for homes intended for owner occupancy is 10.2 percent, up from 8.8 percent at the end of 2007.

For rental units, the figures are even greater. There, 25.2 percent — or one of every four — of housing units built since the spring of 2000 are vacant.

Vacancy rates vary by market, of course. At the end of 2007, areas with the highest vacancy rates in housing intended for owner occupancy fell into two categories: Rust Belt areas like Detroit, Cleveland and Akron, Ohio, and former boom areas like Orlando and Tampa in Florida, and Las Vegas. Although home prices have fallen sharply in parts of California, only the Sacramento area shows high vacancy levels...

Residential construction’s share of the economy fell to 3.8 percent in the first quarter, down from a peak of 6.3 percent in the first quarter of 2006, when home prices were nearing their highs. But that figure is not far below the average figure for the 1990s, 4.1 percent, and well above the low of 3.3 percent, reached in the first quarter of 1991 after the last major housing market setback.

Do we need a new & improved New Deal?

Princeton Professor Alan Blinder argues in the New York Times that the best lessons to be taken away from the latest boom-and-bust cycle is a need for some kind & gentle regulation that provides just enough guidance so the greedy don't get carried away by future misadventures:

An inordinate share of the dodgiest mortgages granted in recent years originated outside the banking system. They were marketed aggressively, sometimes unscrupulously, by mortgage brokers who were effectively unregulated; we have now lived to regret that arrangement. The need for a federal mortgage regulator — including a suitability standard for mortgage brokers — is painfully obvious.

Next, we should resist calls to scrap the “originate to distribute” model, wherein banks originate mortgages, which are then packaged into mortgage pools and turned into mortgage-backed securities that are sold to investors around the world. This seemingly convoluted model has given the United States the world’s broadest, deepest, most liquid mortgage markets. And that, in turn, has meant lower mortgage interest rates and more homeownership. These are gains worth preserving.

But the model needs some nips and tucks. A far less radical, though still regulatory, approach would require both originating banks and securitizers to retain some fractional ownership of each mortgage pool. Keeping some “skin in the game” should accomplish two things: make the banks and securitizers more attentive to the creditworthiness of the underlying mortgages, and reduce the tendency to play “hot potato” with mortgage-backed securities.

And while we’re on the subject of M.B.S., we must end the regulatory fiction that off-balance-sheet entities like conduits and S.I.V.’s are unrelated to their parent banks. (S.I.V. stands for structured investment vehicle, if you must know, but please don’t ask me the difference between it and a conduit.) Since last summer, we have seen one financial giant after another brought to its knees by losses that originated off balance sheet...

Because securities firms are now under the Fed’s protective umbrella, they must start operating as safely and soundly as banks. That means both closer supervision and less leverage...We should all take a deep breath here, because sharply reducing the leverage of securities firms, to bring it close to that of banks, will be a major change in the financial landscape. It will, for example, substantially reduce the profitability of investment houses and, therefore, reduce their scale. But that’s the price you pay for access to a publicly financed safety net...

Next come ratings agencies, whose recent performance has drawn criticism. The good news is that they are making good-faith efforts at change. They are improving their analytics, and guarding against conflicts of interest by hiring ombudsmen and submitting to independent third-party reviews...My Princeton colleague Dilip Abreu suggests paying ratings agencies with some of the securities they rate, which they would then have to hold for a while. Robert Pozen, head of MFS Investment Management, wants independent investors in the conduits to hire the agencies instead. Another idea would have a public body, like the S.E.C., hire the agencies, paying the bills with fees levied on issuers. If you have a better idea, write your legislators...

Everyone knows we live in a world of giant multinational financial institutions, huge cross-border flows of capital and increasingly globalized markets. Such an environment demands ever closer international cooperation and coordination among the world’s major financial regulators. But today’s level of international cooperation is wholly inadequate to the need. Perhaps the current worldwide financial crisis will finally persuade the world’s financial regulators that lip service is not enough...

...let’s be clear about the purposes of all these New Financial Deal reforms. They would not banish speculative bubbles from the planet. After all, there have been bubbles for as long as there have been speculative markets. But with each bursting bubble, new flaws in the system are exposed.

Home equity lenders preventing short sales and refinancing?

Looking for another reason why a government bailout is becoming closer to a sure thing?

Because we live in a country in which self interest is not only encouraged, but often forced upon companies which must answer to shareholders, investors and Wall Street. And few sectors of the economy demonstrate this self-interest more than mortgage lenders, which is why calls by John McCain for voluntary compliance by lenders for workouts in the name of "helping your country" not only reveals his economic ignorance, but makes me wonder if he, like Rip Van Winkle, has been asleep for the last 30 years. Whatever national values he might have fought for when he was captured and tortured in a POW camp for 5 years seems to be long gone (one thinks he might have seen the writing on that wall when he ran against Karl Rove's version of politics in 1999). Sorry, John. I think it's a shame, too.

It seems that providers of home equity lines/loans -- who are generally in a second-tier position behind first mortgage loans -- are now protecting their investments (at least whatever shows up on their balance sheets if not in reality) -- by not agreeing to short sales in which they get short-changed and preventing homeowners from refinancing unless they pay down their equity balances. I'd say that this almost forces the government to step in because for all of their economic 'expertise,' the Bush Administration doesn't seem to have noticed that self-interest can also turn around the bite the hands that feed them. From a New York Times story:

Americans owe a staggering $1.1 trillion on home equity loans — and banks are increasingly worried they may not get some of that money back.

To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first. In the past, when home prices were not falling, lenders did not resort to these measures.

Such tactics are impeding efforts by policy makers to help struggling homeowners get easier terms on their mortgages and stem the rising tide of foreclosures. But at a time when each day seems to bring more bad news for the financial industry, lenders defend the hard-nosed maneuvers as a way to keep their own losses from deepening...

While homeownership climbed to record heights in recent years, home equity — the value of the properties minus the mortgages against them — has fallen below 50 percent for the first time, according to the Federal Reserve.

Lenders holding first mortgages get first dibs on borrowers’ cash or on the homes should people fall behind on their payments. Banks that made home equity loans are second in line. This arrangement sometimes pits one lender against another.

When borrowers default on their mortgages, lenders foreclose and sell the homes to recoup their money. But when homes sell for less than the value of their mortgages and home equity loans — a situation known as a short sale — lenders with first liens must be compensated fully before holders of second or third liens get a dime.

In places like California, Nevada, Arizona and Florida, where home prices have fallen significantly, second-lien holders can be left with little or nothing once first mortgages are paid...

Lenders and investors who hold home equity loans are not giving up easily, however. Instead, they are opposing short sales. And some banks holding second liens are also opposing refinancings for first mortgages, a little-used power they have under the law, in an effort to force borrowers to pay down their loans...

Disagreements arise when the first and second liens are held by different banks or investors. If one lender holds both debts, it is in their interest to find a solution.

When deals cannot be worked out, second-lien holders can pursue the outstanding balance even after foreclosure, sometimes through collection agencies. The soured home equity debts can linger on credit records and make it harder for people to borrow in the future...

Other lenders like National City, the bank based in Cleveland, have blocked homeowners from refinancing first mortgages unless the borrowers pay off the second lien held by the bank first. But such tactics carry significant risk, said Michael Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, the securities firm. “It might also impel the borrower to file for bankruptcy,” and a judge could write down the value of the second mortgage, he said.

A spokeswoman for National City, Kristen Baird Adams, said the policy applied only to home equity loans originated by mortgage brokers.

Underscoring the difficulties likely to arise from home equity loans, a Democratic proposal in Congress to refinance troubled mortgages and provide them with government backing specifically excludes second liens. Lenders holding a second lien would be required to write off their debts before the first loan could be refinanced. That could leave out a significant number of loans, analysts say.

People with weak, or subprime, credit could be hurt the most. More than a third of all subprime loans made in 2006 had associated second-lien debt, up from 17 percent in 2000, according to Credit Suisse. And many people added second loans after taking out first mortgages, so it is impossible to say for certain how many homeowners have multiple liens on their properties.

Affluent home owners also took out adjustable mortgages

For those who think that adjustable rate mortgages were taken out mostly by entry-level buyers, an article in the New York Times profiles more affluent borrowers -- those making more than $100,000 per year -- who have also been hit with re-setting rates that they find unaffordable:

They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.

These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.

People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania...

According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, Calif., about 870,000 borrowers took jumbo ARMs — mortgages of $417,000 or more — from 2005 to 2007.

In the fourth quarter of 2007, 8.10 percent were two or more payments late, it found, while 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed. All the numbers were up from the third quarter...

Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”

Jeffrey Conner, a San Francisco real estate lawyer, says he regularly hears from his clients “that lenders assured them they could always refinance.”

Refinancing requires some equity. Even if homeowners put a substantial amount of money down, many have no equity because their homes are worth less than they owe. In real estate parlance, their mortgages are under water.

Richard Geller, founder of Mortgage Relief Formula, a for-profit venture based in Fairfax, Va., that counsels troubled ARM borrowers, said he received calls from affluent consumers in almost every major metropolitan area...

Homeowners with at least 3 percent equity may qualify for refinancing through the Federal Housing Administration. On March 6, it began making loans up to $729,750, a new higher limit that expires Dec. 31 unless Congress extends it. Limits are 125 percent of median home prices, by county. Consumers can find their local limits at

https://entp.hud.gov/idapp/html/hicostlook.cfm.

To find a qualified lender or broker, consumers may call (800) CALL-FHA, look in the Yellow Pages or visit www.fha.gov for the four regional centers.

Loan modifications entail freezing or reducing interest rates and may also include balance reductions...

Negotiating a loan modification means understanding that in most cases “the lenders really don’t want to force people into foreclosure because that virtually guarantees large losses in the market,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington...

Borrowers should determine if they live in a state with nonrecourse laws. In general, lenders in those states cannot pursue borrowers for money owed. But these laws are complex and change often, so consulting with a lawyer may be necessary, Mr. Geller said. He has compiled a list of nonrecourse states at www.mortgagerelief formula.com/recourse.