Spring a Bust for Housing Market
Luxury-home builder Toll Brothers reported dismal sales figures for the quarter ended in April, with its chief executive, Robert Toll, describing traffic levels at its communities as “the worst that we have ever seen.” Another home building giant, D.R. Horton said earlier this month that it lost more than $1 billion in the latest quarter and cut its dividend in half. “It appears the spring selling season was a bust for Toll, just like all the other builders,” commented Morningstar analyst Eric Landry. Despite the gloom, there are a few encouraging signs emanating from the U.S. housing market. Falling housing starts mean home builders have been scaling back construction, which is gradually reducing their backlogs and the supply glut. This will help the market work off inventory. Also, builders are steadily scaling back their book of “speculative” homes, or those without a buyer due to a cancellation. Some of the hardest-hit markets are finally starting to show a pulse. For example, Toll Brothers recently said that it raised prices in Naples, Fla. — one of the epicenters of the housing bust. Also, builders are attracting traffic and sales when they run promotions featuring price reductions, incentives or other concessions. (www.marketwatch.com)
MarketWatch (5/16/08); John Spence
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Real Estate’s Next Evolution
Although at some point housing prices will start to come back, the real estate market will not go back to the way it was before the bubble. The current credit crisis will transform how homes are sold and financed and who bears the risk. Soaring fuel costs, environmental concerns and the movement of the baby-boom generation into the ranks of the elderly will certainly alter what Americans want in a home. Online technology could democratize how buyers shop for property and finance it. And new investment vehicles could help cut — or increase — their risks. “All of these things will force us to reinvent how we think, build and purchase housing,” says futurist Glen Heimstra. Eventually, mortgage pricing may come to resemble pricing for home owner insurance, which takes into account dozens of factors, including the neighborhood, whether the house is brick or wood, its replacement cost, its proximity to a fire hydrant, the buyer’s credit score and past insurance claims for the house before it was purchased. Mortgage bankers may want to include in their assessment of the buyer’s riskiness the size of the downpayment, employment history, the house’s history and anything else that might affect repayment of the loan. The good news is that this new wrinkle could help borrowers with pristine credit records and conventional tastes get lower than average interest rates and better terms on a mortgage than they did previously. For now, credit scores matter the most, and the higher the score is, the lower the rate and fees will be. (www.money.cnn.com)
Money (6/1/08); Stephen Gandel
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At FHA, a Surprising Result Underpins a Big Change
Inside the Federal Housing Administration home-mortgage program, which is the fastest growing in the country, people with lower incomes have slightly higher credit scores in an analysis of all approved mortgages insured by the FHA during fiscal 2007. This is buttressing a forthcoming major policy switch that could affect thousands of buyers and refinancers. The FHA, which for decades has used a one-size-fits-all approach to price its insurance on home loans, plans to shift to a “risk-based” system keyed to FICO scores and downpayments, beginning as early as mid-July. Under the new system, according to the FHA’s outline of its plan, “a larger number of low-income borrowers [will] benefit from premium reductions than…moderate-, middle- and upper-income borrowers combined.” On 30-year loans with downpayments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with downpayments under 5% and poor credit scores from 500 to 559 will be charged premiums of 2.25% upfront and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually. (www.washingtonpost.com)
Washington Post (5/17/08); Kenneth R. Harney
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New Analysis Shows Outlying Suburbs Hardest Hit With Devalued Real Estate
In a new report released by CEOs for Cities entitled “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” economist Joseph Cortright says that rising fuel costs have played a significant role in the collapse of America’s housing bubble. “The popular narrative on the collapse of housing prices has only blamed exotic lending practices,” said Cortright, “but the much more important story is about how higher gas prices have redrawn the map of urban real estate values. Vibrant central cities just got a whole lot more valuable.” The study looked at housing values in five cities in both close-in and distant neighborhoods and found that in each case, housing prices fared worse in the more distant neighborhood. For example, the average house in a Chicago zip code 5.6 miles from the downtown loop appreciated from $374,000 to $410,000 — an increase of $36,000 — between the fourth quarter of 2006 and the fourth quarter of 2007. A house in suburban Buffalo Grove that sold for the same price in 2006, declined by $30,000 over the course of the year. (www.newsrx.com)
Science Letter/NewsRx (5/13/08)
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Slumping Economy: It’s a Guy Thing
From last November through April, American women aged 20 and up gained nearly 300,000 jobs, according to the household survey of the Bureau of Labor Statistics. At the same time, American men lost nearly 700,000 jobs. The share of all men aged 20 and over with jobs has fallen since last November, when private-sector employment peaked, going from 72.9% to 72.2% in April. For women, the ratio rose, from 58.1% to 58.3%. The adult male unemployment rate has risen twice as fast as the female jobless rate since November. The manufacturing sector, which is in a long-term decline, is over 70% male and construction, which is in a cyclical decline, is about 88% male. Meanwhile, the growing education and health services sector is 77% female. The government sector, which has remained strong, is 57% female. The securities business, which is filled with high-paying jobs, is likely to be the next sector to get whacked — and more than 60% of its workers are men. While women are getting more jobs, their pay is stagnant. Also, most share households — and bills — with the men who are losing jobs. And the “female” economy can’t stay strong for long if the “male” economy weakens too much. (www.msnbc.msn.com)
MSNBC.com (5/8/08); Peter Coy
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Sewer to Spigot: Recyled Water
In an effort to replenish its groundwater supply, Los Angeles is slated to announce a plan that will recycle 4.9 billion gallons of treated water to drinking standards by 2019. In San Diego, the city council voted in favor of a pilot project that would pump recycled sewage water into a drinking-water reservoir, despite a veto from the mayor over the system’s cost. Miami-Dade County, Fla. is planning a system that would pump 23 million gallons a day of purified wastewater into the ground; the water will eventually travel to a supply well that can be reclaimed for drinking use. But cities considering large-scale systems to recycle wastewater to drinking standards may face an uphill battle. Such initiatives — dubbed “toilet to tap” proposals by critics — have encountered resistance in the past as a result of cost and the overall yuck factor. San Diego gets more of its water supply from the Colorado River than anywhere else. The river gets 400 million gallons of treated wastewater discharged into it each day. That means residents are already drinking treated wastewater. “It tastes like distilled water,” says California State Assemblyman Michael Duvall of water from a new groundwater replenishment system in Orange County. Duvall has sampled the water on more than one occasion and has brought family and fellow lawmakers to the plant. “It’s about as pure as it can possibly be.” (www.marketwatch.com)
MarketWatch (5/14/08); Anjali Athavaley, Wall Street Journal
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