Housing Crisis Takes Human Toll
Last fall, the Greater Atlanta Home Builders Association for the first time brought a psychologist to its October membership meeting, to discuss how to mentally cope with the stress of the housing collapse. The housing slump has pushed mental health issues to the forefront for companies, trade groups and individuals closely tied to an industry that, for years, only knew good times. Builders, brokers, bankers and lenders are just beginning to deal with the mental fallout from Atlanta’s first prolonged real estate slowdown in two decades. Sean Doughtie, president of Mayfield Homes LLC, has seen the impact of the housing downturn firsthand. Doughtie, 36, began working as an Atlanta home builder in the early 1990s. The son of a builder, he said his lowest point was last October. After paring his 22-person office staff down to five, and nearly a year after stopping his own paycheck, Doughtie let his remaining staff go, including the chief financial officer. “He sat in my office and I just broke down and cried,” Doughtie said. “I told him I was sorry to do it, and that I was truly scared what would happen to my business. It was my lowest moment.” Doughtie now runs bi-weekly support group meetings at the Atlanta HBA focusing on builders’ survival. (www.atlanta.bizjournals.com)
Atlanta Business Chronicle (4/11/08); Joe Rauch
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Putting a Squeeze on Condo Loans
As a result of underwriting changes by Fannie Mae and Freddie Mac, and severe new restrictions by private mortgage insurers, getting a loan on a condominium unit could be getting tougher. Starting May 1, AIG United Guaranty, a major private mortgage insurer, no longer will write coverage on condo purchases with less than 20% downpayments in hundreds of Zip codes across the country that it designates as having “declining” market conditions, including the Washington, D.C. area. Even in the healthiest real estate markets, the company will require buyers to make at least a 10% downpayment and will reject applications on units in condo projects where more than 30% of the owners are investors. Under changes at Fannie Mae, most of the due-diligence on the key characteristics of condo projects — their legal documentation, the adequacy of condo association operating budgets, percentage of space allocated to commercial use and percentage of units owned by investors — must now be performed upfront by loan officers. This in itself is time-consuming and costly. In addition, under the new procedures, Fannie Mae expects the lender to warrant the accuracy of its research. Some condo legal documents run into hundreds of pages, yet lenders are supposed to take legal and financial responsibility for their accuracy. (www.washingtonpost.com)
Washington Post (4/19/08); Kenneth R. Harney
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Sunny Side of the Street: America’s Wealthy See Buying Opportunities
While many average Americans are skittish about the housing market, some of the country’s richest citizens see the current conditions as perfect for buying, according to the Annual Survey of Affluence and Wealth in America, released by the American Express Publishing Corp. and Harrison Group, a market research and consulting firm. Seventy-seven percent of the wealthiest people (those with annual discretionary household income of more than $500,000) think real estate presents a “real opportunity” right now. Forty percent of those high-income earners said that they are in the market to acquire real estate this year. Among “upper middle class” households with incomes between $100,000 and $149,000, 67% agreed that there are home buying opportunities, as did 72% of those with “affluent” incomes between $150,000 and $249,000 and “super affluent” between $250,000 and $499,000. Seventy-nine percent of the survey’s respondents said that the country is in a recession now, but 88% said they are confident that property values will eventually rebound. Still, 18% of respondents said that the equity in their home is worth less than what they owe. (www.marketwatch.com)
MarketWatch (4/15/08); Amy Hoak
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Even Renters Aren’t Safe
Many renters may believe that they have avoided the chaos of the subprime loan crisis and the mortgage meltdown simply by renting and not buying, but they may not be as insulated as they think because buildings with tenants are going into foreclosure as well. “This is a growing problem nationwide,” said Mark Zandi, chief economist at Moody’s Economy.com. “Landlords of all stripes could potentially get caught up in this very severe downturn,” he said, although he suspects it’s going to be more of a problem for lower- to middle-income markets. New York City is particularly at risk because in 2006 an estimated 65.5% of its housing was renter-occupied, compared to 32.7% nationwide. In 1993, during the last big wave of foreclosures in the city, nearly 6,200 buildings (residential, commercial and mixed-use) began the foreclosure process. In 2007, the Furman Center for Real Estate and Urban Policy at New York University estimated that at least 38,000 people facing a foreclosure in the city were renters. The center counts a total of about 900,000 buildings with residential space in the five boroughs and some 3.2 million units of housing. Foreclosures present two sets of problems for renters, related to eviction and a loss of services. (www.nytimes.com)
New York Times (4/13/08); Elizabeth A. Harris
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U.S. Housing Bust Not So Special
The U.S. may be suffering its worst housing bust since the Great Depression, but by international standards it’s not so special. A new report by Goldman Sachs suggests that the U.S. is going through a garden variety downturn that will involve a sharp slowing in overall economic growth and a sluggish recovery that equity markets will nevertheless sniff out well ahead of time. As far as housing busts go, Canada’s December 1989 to September 1998 slow-motion housing crash was the fourth longest of 24 busts among OECD countries, Goldman said. In terms of price declines, Canada’s 1990s slump was the second smallest, at 16% in real prices. The biggest price decline was in the Netherlands, which posted a 50% drop in prices in the early 1980s, Finland at 49% and Japan at 44%. On average, real house prices tended to fall about 30% and only reached bottom after six years. (www.financialpost.com)
Financial Post (4/16/08); Jacqueline Thorpe
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U.S. Metal Demand Battered by Housing, Construction
Demand for base metals in the U.S. has been falling sharply on the back of the U.S. housing downturn, and the trend is likely to worsen with expected slowdowns in commercial and industrial building. With the construction of a typical house in the U.S. consuming 439 pounds of copper, it was inevitable that the collapse in housing would hurt demand for the industrial metal. “I expect copper demand in the U.S. to be weak, especially in this first half of the year and even in the second half,” said Catherine Virga, an analyst with GPM Group in New York. U.S. imports of refined copper were off almost 29% in the first two months of this year to 116,389 tons from 163,699 in the same period a year ago, according to the U.S. Commerce Department. Likewise, aluminum was off nearly 10% in the period and zinc imports were down 6%. Nickel, used in stainless steel, however, was up almost 27%. Housing accounts for about 40% of all domestic copper use in the U.S. (www.reuters.com)
Reuters (4/14/08); Ayesha Rascoe and Nick Trevethan
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