The Housing Chronicles Blog turns 1

It was just over a year ago -- November 12, 2007 -- when I first launched The Housing Chronicles blog on the eve of the annual BIS (Building Industry Show) in Southern California. At the time the mission statement was the following, and it hasn't changed:

To share the reality of where the development industry (primarily housing, but also sometimes retail, office, industrial and other land uses) is headed, whether bad, really bad, about the same, slightly improving or finally showing some real life.

As I sit here on another BIS Eve, I wanted to thank the readers from throughout the world who have visited the site, sometimes finding it through a Google or a Yahoo search, other times from other blog links (mostly Patrick.net, Calculated Risk, Dr. Housing Bubble and Lansner on Real Estate), sometimes through automated blog readers, other times through links such as BuilderBytes, and occasionally simply by just stumbling upon it by accident.

Direct traffic to this blog slowly grew over the year and then suddenly leaped up to average from 7,500 to 8,000 unique visitors per month over the last couple of months, which is close to the circulation of the CBIA magazine for which I once wrote, California Builder (10,000). While not a big number by Internet terms, it's certainly nice to have a regular audience for my musings, rantings and links.

Want to advertise on this blog with banner ads, sponsored links or embedded links? Email me at info@metrointel.com or call 888-82-DEVELOP.

In February of this year, the blog joined syndicators BlogBurst and NewsTex in order to leverage their existing relationships with media-owned web sites and get some placement beyond the building industry.

For BlogBurst alone, it's been a great success, with editors from Reuters, Fox Business News and the Chicago Sun-Times regularly selecting posts for their sites. Occasionally, editors from The Wall Street Journal and USA Today would also select posts for online placement, but by far the biggest fan has been Reuters, with over 7.8 million 'headline views' (tech speak for placing a blog headline on a web page):

Top 10 Publishers (All History) for Housing Chronicles

	Total Views
Reuters	7,845,527
FoxNews	155,469
Chicago Sun Times	122,924
Computer Shopper	25,505
Livestrong	17,053
IBS	5,203
Wall Street Journal	5,021
Palm Beach Post	716
usatoday.com	264
CT Green Scene	209

NewsTex has also recorded several hundred thousand placements, mostly on the Lexis Nexis service.

Finally, Builder magazine recently started featuring this blog on a special page on their web site, which they should start promoting very soon.

All in all, not bad for a year's work. I hope you do find the blog interesting, and please continue to visit often!

If you want to know more about the man behind the blog, visit www.metrointel.com.

And if you want to discuss any real estate consulting services you may need anywhere in the U.S., call me toll-free at 888-82-DEVELOP.

Publisher of Builder magazine launches HousingCrisis.com blog

Building industry publisher Hanley Wood and their Construction Pulse group launched a new web site on the housing crisis a couple of months ago, and after a competitive naming contest, the winner turned out to be -- drumroll, please -- housingcrisis.com (ok, I'm sure the name was dedicated by the availability of web site URL addresses). That's how Housing Chronicles was named, too.

Here's how the authors describe the purpose of the blog:

A unique source for what you need to know about the real estate and construction economy--with helpful news, data, and conversation about your smartest options. We'll highlight exclusive articles, related stories, and linked resources real-time so that you'll have information you need, hopefully a step ahead of the moment you need it.

Of course I like them because they linked to this blog without me even having to ask. What good manners!

New mortgage rescue plan falls short

Although a new plan announced by the White House to streamline loan modifications for mortgages held by Fannie Mae and Freddie Mac, critics contend that it will only help a small portion of homeowners and ignores those with sub-prime and Option ARM loans. From a CNNMoney.com story:

The federal government's plan to streamline modifications of troubled loans held by Fannie Mae and Freddie Mac won't help the majority of people threatened with foreclosure, experts said.

Under a plan unveiled Tuesday, homeowners whose loans are owned or backed by the mortgage finance companies and who are at least 90 days behind can enter a streamlined modification program. Their payments would be adjusted through lower interest rates or longer repayment terms that would total no more than 38% of their monthly household income. In some cases, payment on part of the loans' principal may be deferred, though not reduced.

The interest rate could be lowered to as little as 3% for five years. After that, it would increase by 1 percentage point a year until it hits either the market rate or the original interest rate, whichever is lower, officials said.

Unlike previous federal efforts, participation by servicers is not voluntary. They will now work with eligible borrowers to reach more affordable mortgage payments, using the guidelines laid out Tuesday.

Click here for full story.

Realtors suggest how to fix housing market

Realtors have an idea that they think will jump-start the ailing housing market. No, it's not a new multi-media campaign with the tag line "Now's a great time to buy a home." It's for the federal government to purchase loan points for new borrowers so interest rates would be 1% lower, thereby propping up housing values. Of course there are also detractors. From a Time magazine story (hat tip: Brian McDonald):

The National Association of Realtors is lobbying for the government to artificially lower mortgage rates by purchasing loan points for homebuyers. They say the program would cost $100 billion, and could raise home prices by as much as 4% nationwide. Anyone buying a house for primary residence would be eligible for the mortgage-rate buydown, which would lower a purchaser's loan rate by 1% for the life of the loan. They say the incentive should be made available for the next 12 months...

But some housing market economists question the wisdom of the move. They say helping people who may buy houses in the future is not where the government should be providing assistance.

Click here for full story.

Obama will likely have to expand housing plan

Due to ongoing turmoil in the housing and credit markets, President-elect Obama's plans to fix the housing mess will probably need some serious expanding. From AP via MSNBC:

President-elect Barack Obama is inheriting the worst housing recession in a generation, and the proposals he outlined on the campaign trail won't fix it, so there will be many tough decisions ahead.

His plan includes a 10 percent mortgage tax credit for homeowners who don't itemize their taxes, and a change in the bankruptcy law to allow judges to modify mortgages for financially distressed homeowners...

But those proposals will have a minimal impact on the more than 4 million homeowners who are behind on their mortgages. They probably won't prop up home prices, which are down 18 percent from the peak. Nor will they bolster the confidence of consumers who have lost their jobs or are afraid they will. And Obama's plan won't make banks more willing to lend to consumers with less than perfect credit scores, or tiny down payments.

Reversing the real estate spiral will be an enormous feat.

Click here for full story.

L.A. office market increasingly softening

So far most of the pricing reductions in the L.A. housing market have been due to lack of easy credit and unaffordable prices, not the economic slowdown. That will be phase 2. Yet it looks like the fall-out from the banking crisis and the slowing economy are having an impact on the L.A. office market, with analysts predicting it to only get worse from here. From a Wall Street Journal story:

...brokers say the property market in and around the city is bracing for even tougher times as budget-conscious companies are looking to trim real-estate costs. Already-declining demand for office space in the Los Angeles region, one of the country's largest office markets, is expected to accelerate, says Whitley Collins, senior managing director of the Los Angeles region brokerage for Jones Lang LaSalle Americas Inc.

He sees a worst-case scenario in which metropolitan area companies over the next 12 months could put as much as 10 million square feet of office space back on the market and rents could decline by as much as 25%. "We're seeing a softening, but we're not nearly seeing the softening we'll see," Mr. Collins says.

Click here for full story.

Builders dusting off old mortgage programs

USDA loans. 'Sweat equity.' These are just two programs being re-enlisted by builders hungry for buyers. From a BigBuilderOnline.com story:

With seller-funded down payment assistance programs being eliminated and the government's $7,500 tax credit to buyers having little effect on the market, some builders are "dusting off the books," as Kim Shelpman, president of Holiday Builders put it, and returning to past loan programs such as USDA rural housing and sweat equity loans.

"[These programs] are a unique way to get someone in as a buyer," Shelpman said in an interview during this week's Big Builder '08 conference, adding that projects in areas where these loans are available are moving inventory.

Click here for full story.

Finding the down payment in a time of scarcity

With mortgages requiring more skin in the game and down payment charities a thing of the past, how are home buyers coming up with enough of a down payment to qualify? According to a story at BuilderOnline.com, a mix of education and creativity certainly can't hurt:

With the elimination of seller-funded down-payment assistance and nearly all loans requiring at least a small down payment, home buyers--and the builders who sell to them--have to figure out how to come up with thousands of dollars at closing.

It’s a big challenge, but builders are making it work.Across the country, builders, lenders, and real estate agents are educating buyers on their options. For most buyers, the method is an aggressive savings program that starts when the contract is signed.

Click here for full story.

Latest article on builders taking on the banks now online

For my latest column in Builder & Developer magazine, I covered the Building Industry Coalition for Economic Recovery's efforts to force banks to deal fairly. From the article:

With the federal government partially nationalizing the banking system, large investment banks a thing of the past, more bank failures on the horizon and nervous lenders still hoarding cash, it’s hard to predict what the future holds for the building industry. But if the recently formed Building Industry Coalition for Economic Recovery (www.pathtosolutions.com) has anything to say about it, the chaos in financial circles certainly shouldn’t be taking down developers and homebuilders with it.

The coalition, formerly named the “Homebuilders’ Coalition for Responsible Bank Behavior” (www.pathtodefault.org) was formed earlier this year in San Diego by a collection of private builders, attorneys and work-out specialists, and hopes to force lenders to play by a consistent set of rules versus what the group’s members say have been a series of contrived defaults that have led not only to foreclosed projects, but hibernating or bankrupt development companies. At the same time, the coalition’s 110 members (as of October 2008) – whom are now geographically dispersed across the country – are focused on assembling the type of intelligence required to warn other builders about to face similar circumstances.

Click here for full article.

Getting real about valuing land

With builders continuing to write down the value of loans (and banks then in calling loans when the collateral falls), attaching a number to the worth of undeveloped land has become increasingly difficult. Can you believe a land broker, who may want a high value for the commission? Can you believe a consultant who is under pressure to come in with a high value to get more work? I'd say believe whomever is willing to tell you the truth, because you can't address what you don't admit (i.e., the housing bust right before it happened). From a BuilderOnline.com story:

Home builders around the country have been swamped this year with news reports of public builders selling land for some fraction of its peak worth to get out from under the carrying costs on loans now worth more than the land's value.

Those large builders have teams of number crunchers and a roster of well-paid consultants and financial advisors to help them evaluate what their land might be worth, and what they might be able to get for it in a sale...

"We've been hearing all this stuff about how land is selling at 40 cents on the dollar, 60 cents on the dollar--that doesn't matter...It really needs to be selling at 15 cents on the dollar. And that's not even for raw land. That's for a combination of raw and finished lots."

While builders have been writing down the value of their own lots to be able to sell homes closer to market prices, the prices of lots for sale have not come down nearly as far, so very little land is being sold and even fewer new developments are breaking ground.

Click here for full story.

Bottom-feeders: Start your engines!

With home prices falling sharply enough to start cash flowing as investment properties or throwing off enough of a profit to make a purchase (and renovation) make sense, so-called 'vulture investors' are starting to enter the marketplace -- first as well-financed groups buying groups of homes from bank at 50% off peak prices, but now as individual investors thinking they've found an opportunity.

Sounds good, right? Not so fast, and it's not as easy as it looks -- and certainly more difficult than it was when credit was easier. From a Washington Post story:

More people are tossing around the idea of picking up an investment property, lenders and real estate agents have told me. "I'm finding a lot of people asking about them," said Jerry Bartlett, owner of a Jobin Realty brokerage in Kingstowne. Not many can pull it off, though.

Bartlett sends them to get financing before he will even start working with them. "They come back distraught," he said. The lines of credit they thought they could tap may not be there anymore; the credit rating that they thought was pretty good may not be high enough now; their down payment may be shy by 10 percent or more...

The first requirement is cash. Rick Eul, a vice president with Bank of America Mortgage in Annandale, said investors need at least 20 to 25 percent of the price as down payment. "Two years ago it was like, 'Do you have a pulse?' " he said. No longer. It's back to the pre-boom standards of creditworthiness -- or even a tad tighter...

You will have to prove to the loan officer that you have enough income to handle monthly payments on both the investment property and your own home.

If you have a signed lease and have already cashed your tenant's check for the first month's rent and the security deposit, you will still get credit for no more than 75 percent of the rent as income. (That's all you should count on. The remaining 25 percent normally gets eaten up by repair expenses, vacancies and other costs.)...

You will also need a credit score of 720 or better, Uhl said.

Plan to pay a higher interest rate than on your own home loan. Interest rates for investors are now running about one percentage point higher than those for owner-occupied homes.

Click here for full story.

Developer defaults on $365 million Beverly Hills land loan

Robinsons-May Outlet Center, anyone? Perhaps that may be the solution at the now closed-down department store site in Beverly Hills that was planned for luxury high-rise condos. But with the developer defaulting on a $365 land loan, now the entire project is in peril.

Hmm, I wonder who did the market study justifying the price paid for the land to get the loan? It would be interesting to see what assumptions were made and if any outside consultants could be on the legal hook for any obviously optimistic recommendations made only to ensure the clients paid the consulting fees (I have some ideas who the scofflaws might be).

In many cases, if one wasn't willing to cooperate and recommend certain prices and absorption levels, one didn't get the consulting gig. To stay open and keep staffs busy, some of the larger shops simply looked the other way (and likely swallowed Ambien to sleep at night).

From a Wall Street Journal story:

Underscoring the deepening woes in commercial real estate, a high-profile British developer has defaulted on a $365 million loan for prime land it bought in Beverly Hills last year as part of a plan to build luxury condominiums.

In recent weeks, CPC Group Ltd., founded by Christian Candy of London's Candy & Candy development-management firm, has been roiled by the collapse of its partner in the project, Iceland's Kaupthing Bank, which was taken over by the Icelandic government. It also has faced a lack of construction financing as banks have pulled back from a fast-deteriorating market...

CPC bought the eight-acre site, wedged between Wilshire and Santa Monica boulevards, for $500 million in April 2007. Just four years earlier, the parcel had traded hands for less than $50 million.

So the land went up in value by a factor of 10 in four years?? How can that be justified using any sane economic fundamentals? Like I noted before, Ambien.

Click here for full story.

JP Morgan Chase steps up with own foreclosure solution

Banker JP Morgan Chase, one of the stronger banks in the U.S., launched its own counter-offensive to address soaring foreclosures on Friday, including hiring more staff, a new review process to avoid unnecessary foreclosures and a moratorium on new default filings for 90 days until its plan is up and running. So will this plan work or is simply more smoke and mirrors? From a CNNMoney.com story:

The bank will step up its efforts to offer mortgage modifications for borrowers at risk, institute an independent review process to eliminate all unnecessary foreclosures and hire and train more staff to handle the added caseload that the plan will generate.

Most important, it will not put any delinquent loans into the foreclosure process during the 90 days it takes to implement its new plan.

JP Morgan Chase expects to help 400,000 families keep their homes during the next two years by working out $70 billion worth of loans. The company says its housing rescue efforts have already helped 250,000 families holding about $40 billion in loans.

Click here for full story.

McCain vs. Obama: where they stand.

As a final note before tomorrow's election, Builder magazine has an article summarizing the stands of both John McCain and Barack Obama. Although many builders typically vote along strict Republican lines, some well-known builders such as Toll Bros.' Bob Toll and Eli Broad, founder of Kaufman & Broad, support the Democratic nominee. If nothing else, that should make for interesting conversations at industry functions! From a BuilderOnline.com story:

With no end to the housing downturn in sight, with banks and investment firms hemorrhaging billions of dollars, then failing, and the federal government offering more than $1 trillion and counting to try and stem the tide of the credit crisis, the next president of the United States may hold the future of the country in his hands. Many businesses and individuals are hurting, but the home building industry has more at stake than most.

To say that this election is important to builders would be an understatement of the greatest magnitude; the economy is in a full-fledged nose dive, and builders need a president to restore the American people’s confidence, create new jobs, and right the capsized economy before people will start buying homes in large numbers again...

Finding real answers in the candidates’ whistle-stop promises and scripted answers to softball questions is difficult at best. To provide clarity on the candidates’ positions, Builder first asked readers to rank their top concerns on a 1 to 10 scale with 1 being the highest priority and 10 being the lowest. Then we distilled the candidates’ positions on some of those issues. Our survey revealed that many of you rate the energy and credit crises most important, with immigration, infrastructure development, affordable housing, and green building rounding out the list of your chief domestic concerns.

Read on to find out where McCain and Obama stand on several of your top issues.

Click here for full story.

Housing Chronicles joins website for Builder magazine

Several months ago, I pitched the editor of Builder magazine to start carrying The Housing Chronicles Blog as an addition to their existing website. After months of planning and ironing out technical issues, the blog went live over the last week, along with blogs covering other topics such as process improvement and green building techniques. You can find the entire of collection of blogs here, so please check them out.

So what is Builder magazine? Although Builder is published by the media company Hanley Wood, it is actually the official magazine of the National Association of Home Builders, and as such, is mailed to its over 140,000 builders, subcontractors, architects and suppliers and maintains a related website, www.builderonline.com.