Urban infill definitely a trend

Prior to the housing downturn, a major shift in certain parts of the country was a greater focus on urban infill projects: condos, townhomes and small-lot subdivisions. According to a story in USAToday, some new stats from a government report bear this out.

I've written a few articles on this trend, including high-rise condos, transit-oriented developments and mixed-use projects.

From the story:

In more than half of the 50 most populous metropolitan areas, communities at the urban core have captured a significantly larger share of their region's new residential building permits since 2002 than in the first half of the 1990s, according to an analysis by the Environmental Protection Agency...

Long-standing patterns remain: A large share of residential construction still takes place on farmland on remote fringes of metro areas. In most regions, new housing in urban core neighborhoods accounts for less than half. Nonetheless, there was a consistent increase in housing in urban centers from 2002 to 2007, and the trend could transform growth patterns in some places for decades to come...

Changes in demographics, high gas prices and longer commutes on congested roads are generating more interest in smaller homes in urban settings...

• In 15 regions, the central city greatly increased its share of residential building permits. Those regions include large cities with strong ties to the global economy (New York, Miami, Chicago, Los Angeles) and medium cities that are leaders in controlling growth (Portland, Ore., Denver).

• In 26 cities, including Sacramento and Milwaukee, the share has doubled or tripled since 2000.

• Old suburbs on the edge of cities captured a significant chunk of new housing in eight metropolitan areas, including Boston, Minneapolis and Washington.

A market patiently gets its payback

I've always been somewhat amused at pundits who think that the free market, like some magic wand, will automatically right all wrongs in an economy without some severe consequences to those who played by the rules. Of course what they don't consider are things that have more to due with human failings than simple theories of supply and demand, such as greed, deliberate secrecy and politicians (and their appointees) looking the other way because doing so means re-election and/or continued paychecks. In other words, "it's all about me." So does that make me a cynic? Writing in USA Today, David Lynch (not the director) might not think so:

This is no ordinary economic crisis, and it won't be over anytime soon. In fact, problems are multiplying. A year ago, the financial virus seemed confined to subprime mortgages, defaults on loans given to those with less-than-perfect credit. Now, much of the banking system appears rickety, and the U.S. economy has slowed to a crawl. But thanks to robust demand from still-growing countries such as China, the prices of commodities from oil to food have soared — hitting Americans from the gas pump to the grocery checkout...

For nearly a decade, consumers grew accustomed to the idea of ever-rising home prices. Housing-related prosperity boosted consumption, as consumers tapped home-equity loans for cash to pay for everything from new cars to college for the kids. As the boom roared on, regulators stood on the sidelines, convinced that the magic of the market would sort out any problems.

"It seemed too good to be true, and it was. Absolutely (today) is payback," says Rogoff, former chief economist of the International Monetary Fund...

The combination of galloping prices and stagnant activity leaves Fed officials with a tough call on future interest rate moves.

If anemic growth were the only problem, the Fed could cut interest rates to jump-start economic activity. Likewise, fast-rising prices alone would argue for higher rates to cool off the economic engine. But an economy poised to tumble into recession, even while prices are steaming higher, leaves Bernanke in one-armed paperhanger mode...

The economy is going through what analysts call "deleveraging," a fancy way of saying debt repayment. During the housing boom, Americans and their financial institutions borrowed way too much money. Now the bills are coming due — economywide. And that's what is making things so tough in so many different ways.

"It's not like your standard business cycle recession. … The trouble with this deleveraging recession is it's self-reinforcing. … I don't like to be pessimistic, but the relentless flow of bad news is just something we're going to have to get used to," says George Magnus, senior economic adviser for UBS in London.

How bad might it get? Perennial doomsayer Nouriel Roubini, who calls this "by far the worst financial crisis since the Great Depression," predicts stocks will fall 40% from their peaks. That translates into a Dow of 8568 — a level not seen since 2003...

But it's the banking sector that likely will see the most significant activity. The housing crisis has left financial institutions with deeply wounded balance sheets, as the mortgage securities they hold have turned out to be worth far less than once believed.

Major global banks now need to reload by raising money — lots of it. Even after scraping together $350 billion over the past 12 months, the U.S. and European financial systems remain undercapitalized, says Mohamed El-Erian, co-CEO of Pimco in Newport Beach, Calif. He calls the current predicament "a crisis at the core of the global capitalist system" and likens the banking sector's woes to a car running desperately short of oil.

At the White House, in a question that seemed to echo Franklin Roosevelt's day, a reporter asked Bush if the banking system is in trouble.

"I think the system basically is sound," Bush replied.

Yah. Uh-huh. SURE it is....

One thing is clear: Government involvement in the financial system is expanding in ways that even the most fervent socialist could only have imagined one year ago. This week's federal proposal to help mortgage giants Fannie Mae and Freddie Mac, including opening the door to future government ownership stakes in the firms, is an "earthshaking event," Rogoff says.

And not an isolated one. It comes after the Federal Reserve has stretched its legal mandate and found creative ways to grease the financial system's levers. In March, the Fed midwived the sale of investment bank Bear Stearns to rival JPMorgan Chase in a bid to head off broader problems.

An era marked by regulators' light touch is at an end. "The system got carried away with financial innovation or financial engineering," El-Erian says. "Regulators didn't recognize how quickly things were moving. Now they're catching up."

News Summary for Sunday 6/22/08

Commercial developers seeing return of recourse loans (Wall Street Journal)

Rates improving for some home loans (Wall Street Journal)

FHA wants to phase out seller-funded down payment charities (Washington Post)

Website pushes real estate analytics to new level (Inman News)

MLSs and brokers adding consumer-friendly tools to websites (Inman News)

Bush and Congress may finally negotiate housing deal (CNNMoney)

States increasingly tackling rising foreclosures (CNNMoney)

San Francisco launches solar roof program (BuilderOnline)

Diary of a homebuilder exiting a market (BuilderOnline)

Gas prices increasingly impacting homebuying decisions (USA T0day)

Justice Dept. ruling opens access to home sale listings

In a considerable defeat to NAR and local Realtor boards fighting to keep control over home sale listings, the Justice Dept. has enacted a settlement which, assuming court approval, will provide these same listings to a variety of alternative (and most online) sources. From a USA Today story:

The Justice Department gave a boost Tuesday to online real estate brokers — and potentially their clients — by forcing new industry policies that give Internet-based agents access to home listings they were previously denied.

The tentative settlement, which still requires court approval, could save consumers thousands of dollars when buying a home.

Online real estate agents often charge discounted commission fees and let buyers review listings at their own pace.

For years, however, Internet-based brokers have complained that the National Association of Realtors wanted to let real estate agents exclude some of their listings from their online competitors, many of whom offer discounted prices. More than 800 multiple listing services nationwide are affiliated with the Realtors group.

In a September 2005 lawsuit, government lawyers said such policies discriminated against online brokers. The settlement, filed in U.S. District Court in Chicago, opens the MLS databases to online and traditional residential property agents...

In a report last year, the Justice Department and Federal Trade Commission found limits on discount brokers' access to Web listings of properties for sale prevented consumers from getting the cost savings and other benefits online competition has brought other industries.

The report found that more consumers use the Web when house hunting than rely on "For Sale" yard signs.

Even so, online brokers who were locked out of the MLS databases were unable to compete with real estate agents, government attorneys said. In at least one case, in Emporia, Kan., an Internet-based agent was forced out of business after the local MLS denied his access to any property listings in the local market.

Glenn Kelman, chief executive of Redfin, an online real estate brokerage based in Seattle that operates in 20 large metropolitan areas, said the settlement came as a relief for executives at the company, which bills itself as a lower-cost alternative to traditional real estate agents.

However, Kelman said he was concerned about a piece of the settlement that lets sellers' agents block Internet users from making comments on listings. Such comments, common on retail websites such as Amazon.com, are "just part of how today's consumers make decisions," Kelman said.

That part of the deal, however is a "a small price to pay to get an agreement and to get this behind us," said Patrick Lashinsky, chief executive of Emeryville, Calif.-based online broker ZipRealty Inc.

Tuesday's settlement will not take effect until late summer at the earliest, or 60 days after it wins court approval. It would be in place for 10 years.

It neither imposes a fine on the National Association of Realtors, nor does it force the group to acknowledge any liability.

OFEHO tracks steep decline in home prices for 1Q 2008

According to the Office of Federal Housing Enterprise Oversight (OFHEO), home prices fell faster during the first quarter of 2008 than they've fallen in the 17 years the group has been tracking the market. From a USA Today story:

The government says U.S. home prices posted a first-quarter decline bigger than any in the 17-year history of the data.

The Office of Federal Housing Enterprise Oversight (OFHEO) says home prices fell 3.1% in the first quarter compared with a year ago.

The index also fell 1.7% from fourth quarter 2007 to the first quarrter of 2008, largest quarterly price drop on record.

The report says prices fell in the first quarter in 43 states. Eight states had quarterly price declines of more than 3% and two — California and Nevada —saw prices decline more than 8%...

States with the greatest price appreciation between first quarter 2007 and first quarter 2008 were: Wyoming (6.3%), Utah (5.6%), Montana (4.9%), Texas (4.7%), and Alabama (4.5%).

States with the sharpest depreciation for the same period were: California (-10.6%), Nevada (-10.3%), Florida (-8.1%), Arizona (-5.5%), and Michigan (-3.1%).

The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac. Legislation enacted in February temporarily raised the limit to as much as $729,750 in high-cost areas.

The government index focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.

Another reading that includes such properties and focuses on major U.S. cities, the Standard & Poor's/Case-Shiller has shown larger declines.

So how are these other indices different? Here's a quick primer:

Among the differences in the home price indexes:

• The Standard & Poor's/Case-Shiller nationwide housing index focuses on major metropolitan areas and includes expensive properties as well as cheaper ones. The S&P/Case-Shiller indexes use only purchase prices gathering information from county assessor and recorder offices.
• The OFHEO Home Price Index, more national in its scope, excludes higher-priced homes and ones financed by riskier mortgages, and it includes refinance appraisals. The OFHEO index is calculated solely using home loans of $417,000 or less that are bought or backed by government-sponsored mortgage companies Fannie Mae and Freddie Mac. That excludes properties bought with some of the riskier varieties of home loans that have gone sour this year.
• The National Association of Realtors uses a median price of a home sold. Many economists consider the OFHEO and Case-Shiller indexes to be better measurements of the housing market than the Realtors' report, because both indexes examine price changes for the same properties over time instead of calculating a median price for houses sold during a particular month or quarter.

Source: AP, OFHEO

Want to see the entire list by state? Click here.

Rising gas prices changing American lifestyles

When gas rose past $2/gallon, it was no problem for many because, after adjusted for inflation, it was still reasonably priced. Even as it passed $3/gallon it elicited more complaints than changes in behavior, but that is all changing with $4/gallon (or more) gasoline. I think it's fair to presume that the changes we're seeing in lifestyle -- including more carpooling, rising interest in public transportation and walking/bicycling -- will also have a profound effect on where people choose to live. Hello, urban infill! From a USA Today story:

Record high gas prices are prompting Americans to drive less for the first time in nearly three decades, squeezing family budgets and causing major shifts in driving habits, federal data and a USA TODAY/Gallup Poll show.

As prices near — or in some places top — $4 a gallon, most Americans say they are cutting back on other household spending, seriously considering buying more fuel-efficient cars and consolidating their daily errands to save fuel.

Americans worry that steep gas costs are here to stay: eight in 10 say they doubt today's high prices are temporary, the poll finds. It's the first time such a large majority sees pricey gas as a long-term problem.

The $4 mark, compounded by a sagging economy, could be a tipping point that spurs people to make permanent lifestyle changes to reduce dependence on foreign oil and help the environment, says Steve Reich, a program director at the Center for Urban Transportation Research at the University of South Florida...

The average price of a gallon of gas nationwide is $3.65 — the highest ever, adjusted for inflation. California's average: $3.90 a gallon. The federal Energy Information Administration (EIA) expects a $3.66 per-gallon average this summer...

February was the fourth consecutive month in which miles driven in the USA fell, an analysis of Federal Highway Administration data show. There hasn't been a similar decline since 1979, when shortages created long lines at pumps...The decline, while small, is significant because the U.S. population and number of households, drivers and vehicles grow by 1% to 2% a year...

In 2004 and 2005, about one-third of Americans said they cut spending because of rising gas prices. In the new poll, 60% say they are trimming other expenses. Half of households with incomes below $20,000 say they face severe hardships because of soaring gas prices. Three-fourths of households making $75,000 or more also are changing how they use their cars...

Most of those polled expect things to get worse: 54% say they expect gas prices to reach $6 a gallon in the next five years.

For now, they are rethinking the ways they get around, where they buy a home and what they do for fun.

USA Today's excellent real estate writer to head AP division

Although many elitists deride USA Today as a dumbed-down "McPaper," that's not really the case anymore; plus with 3 million subscribers it's far and away the largest daily paper in the country. Over the last couple of years, I've noticed the excellent reporting (and writing skills) of Noelle Knox for the housing and mortgage beat, whom I think made a point to be both fair and balanced in her reporting on a very complex subject.

I'm certainly not the only one to take notice; in fact, the Associated Press (AP) has brought Ms. Knox on board to create and lead their new AP Business: Real Estate & Home division. From a BusinessWire release:

The real estate and home service, called AP Business: Real Estate & Home, is the first targeted news product from AP's newly created Financial and Business News division. The division is responsible for AP's financial news coverage and for developing new content products to satisfy the needs of print, digital, broadcast and commercial customers. As Real Estate Editor, Knox, who has 18 years of business reporting experience, will help launch the service in the first half of the year.

This is certainly important news to the 1,500 newspapers which collectively own the AP, as they'll all be able to tap news stories, video and other media from this new division (something which I think is greatly needed at many local newspapers due to ongoing stresses in the industry and constant staff layoffs). Even better -- she'll be objective!

The creation of a new real estate and home news service is part of the AP 2.0 corporate strategy focusing on financial news, entertainment and sports...AP's strategy is to become a leading provider of deep, expert coverage on targeted business topics.

As for the AP, just in case you didn't know its background:

Founded in 1846, AP today is the largest and most trusted source of independent news and information. On any given day, more than half the world's population sees news from AP.

AP operates as a not-for-profit cooperative with more than 4,000 employees working in more than 240 worldwide bureaus. AP is owned by its 1,500 U.S. daily newspaper members. They elect a board of directors that directs the cooperative...

AP has received 49 Pulitzer Prizes, more than any other news organization in the categories for which it can compete. It has 30 photo Pulitzers, the most of any news organization.