Higher Energy Prices Threatening Home Builders
Developers’ costs are escalating not only because the prices of raw materials are soaring, but also because the energy needed to manufacture and transport the goods is rising. “Still-robust global demand and speculation in some commodity markets is driving up the cost of building a home at the same time house prices are falling,” said Mark Zandi, chief economist at Moody’s Economy.com. Declines in lumber and drywall prices, coupled with a construction labor surplus, have helped mitigate the effects of rising costs, but oil is contributing mightily to higher costs for materials. Oil is an ingredient in asphalt for roads in developments and for roof shingles, plastic used in siding and other products, vinyl flooring, windows, and paint and other coatings. For example, some builders are reporting that paint prices have nearly doubled in the last year — including increased costs of oil-based additives and energy surcharges. The price of cement “is rising steadily because it is energy intensive — especially the cost of moving it,” said Bernard Markstein, an economist at NAHB. While demand for cement in the U.S. has fallen during the last year, more of what is being produced is being sent abroad, especially to China for its booming commercial construction market, Markstein said. (www.philly.com)
Philadelphia Inquirer (6/19/08); Alan J. Heavens
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House Hunting in the Age of $4 Gas
If gas prices continue their inexorable rise, commuting costs will become a critical factor in where people choose to live, according to transit specialists and economists. Most will probably not take as radical a step as relocating; instead, the next time they have to move, for a job or a bigger house, proximity to work or mass transit will be a much bigger consideration. “When gas was cheap, it was financially possible to live out in the exurbs and the outer reaches of the suburban ring and commute in,” said Mark Zandi, chief economist for Moody’s Economy.com. “That’s where we’ll see the largest impact from the surge of commuting costs.” In a survey of its agents by Coldwell Banker, 81% said they are seeing more interest from prospective buyers in urban living because of high gasoline prices. Fifty-four percent said access to public transportation is more important to their clients now. A May study by CEOs for Cities, a research organization supported by government and business, said rising gas prices would push new housing developments closer to the urban core in Boston, Seattle and other U.S. cities, while suburbs with few transit options will lose value. “The market for higher-density development in close-in neighborhoods is likely to grow stronger,” the report said. (www.boston.com)
Boston Globe (6/22/08); Noah Bierman and Kimberly Blanton
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Builders Try New Ways to Fuel Market
Last winter, many builders said that the days of huge incentives of $50,000 and more were numbered because the deals had gotten out of control. So incentives seem to be taking a more imaginative approach. Kimball Hill Homes is offering $50 gas cards to those who go to its Web site and pre-qualify for a loan with its mortgage subsidiary. The gas certificate can be printed out and traded in for the card when visiting one of the builder’s subdivisions. The site is also offering the gas to agents who bring in clients. One builder in the Village of Manhattan, Crescenzo Construction Inc., is offering to pay the electric bills of home buyers in its Bench’s Farm development for up to $150 a month for 10 years. Wiseman Hughes Enterprises will pay moving expenses, an agent’s commission and a special-service tax, among its mix-and-match options. A San Diego real estate brokerage, Wellsford Realty, is offering to rebate one-third of its commission to same-sex clients getting married, who can use the money “to celebrate their wedding day or plan that perfect honeymoon.” (www.chicagotribune.com)
Chicago Tribune (6/22/08); Mary Umberger
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Real Estate Agents Go After Gen Y
To connect with 20-something members of Generation Y, real estate agents are unleashing a new breed of marketing tactics, from posting homes for sale on YouTube to building Facebook pages. Edina Realty in Edina, Minn. has begun a major drive to reach out to Gen Y and Gen Xers. It is shifting its spending to outlets that reach younger adults. The company stopped advertising property listings in standard print media. Instead, money is going toward electronic billboards, ads outside elevators doors and bus shelters, and viral marketing campaigns, such as spots on YouTube, which they hope will generate buzz with young buyers. Potential buyers can also receive information on homes for sale via text message, and Edina’s agents are using Facebook to reach out to potential clients. These agents also blog and use other social-networking sites such as MySpace. Real estate agents determined to reach younger adults are also trying to hire younger agents who may feel more comfortable in using Web technology to reach buyers than baby boomers do. A 2007 report by Deloitte Research found a troubling gap between the number of younger real estate agents and the growing buying potential of Gen Y home buyers, and warned that real estate agencies that want to survive must focus on bringing more Gen Y agents into their fold. (www.usatoday.com)
USA Today (6/17/08); Stephanie Armour
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FHA Calls for an End to Seller-Funded Downpayment Charities
The Federal Housing Administration wants to pull the plug on downpayment “gift” programs in which all or most of a home buyer’s equity stake comes from the seller, funneled through a third party. Under these programs, third-party intermediaries, typically tax-exempt charitable organizations that advertise their specialty, send a contribution to the organization roughly equal to the money the buyer needs, pocketing a fee of $400 to $600 and passing along the balance for the downpayment. Although rare in the nongovernmental loan market, these deals have accounted for more than one-third of total FHA volume in recent years, cutting the minimum 3% downpayent required to zero. The FHA says these arrangements result in excessive defaults, foreclosures and losses so severe that they threaten the solvency of the agency’s insurance funds. On top of that, in the past year the IRS has revoked the tax-exempt status of 31 nonprofit organizations that specialize in downpayment-gift programs. (www.washingtonpost.com)
Washington Post (6/21/08); Kenneth R. Harney
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New Crisis Threatens Healthy Banks
Following last year, when soaring mortgage defaults sparked a crisis of confidence in the financial system, increasing struggles by consumers and businesses to make payments on a variety of loans are setting off a new wave of trouble in the financial sector that is battering even institutions that had steered clear of subprime loans. The root of the problems is the downturn in the broader economy, with consumers strapped for cash with job losses growing and retail sales falling. “We are not finished with the mortgage problem, but you are starting to see increased delinquencies in other forms of consumer debt, “ said Paul Kasriel, an economist at Northern Trust Securities. “We are in the eye of the hurricane. We had the first wave of the credit crisis, and it was damaging. But there’s another wave coming, and it’s likely to be as destructive.” The institutions most at risk in this new phase of the credit crisis are regional and local banks that are key drivers of economic activity in communities across the country. Without them, consumers would lose a source of personal loans and small businesses would struggle to stay afloat. Construction companies often can’t finance local projects without these banks. (www.washingtonpost.com)
Washington Post (6/22/08); David Cho
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